Election news sparks industry speculation
Prime Minister Theresa May’s announcement of a snap general election on June 8 this year has left pension commentators divided over the effect this might have on pensions policy.
As people were hoping to ease their way back into work after the Easter break, May surprised the nation by saying she aims to hold a general election in June, having previously denied that she would seek a new mandate before 2020.
It does look like pensions
may be a bit of a battleground
within this election
Opposition leader Jeremy Corbyn said he supports the move, although the Conservative party is currently tipped by bookmakers to gain a majority.
The news of an election means that the end of the parliamentary term has leaped forward from 2020 to June 8 – making for a much shorter deadline for promises tied to its duration, such as the freeze on tax and national insurance contributions in the Conservative manifesto.
Tax relief: Change or no change?
This has led some to speculate that, while the NICs increase for the self-employed might have encountered too much Tory resistance to be resurrected, a change to pensions tax relief could once more be on the cards.
While tax relief changes might not happen immediately after the election because of Brexit, they are still expected to be on the agenda, said Nathan Long, senior pension analyst at platform provider Hargreaves Lansdown.
New elections, new pensions minister?
by Angus Peters
Pensions minister Richard Harrington retained his Watford seat by a comfortable margin in the 2015 general election, collecting 43.5 per cent of the popular vote.
However, the 2010 vote which put him in power was a far tighter affair. Harrington fended off the Liberal Democrat candidate by 2.5 per cent of the vote.
The Watford seat was not always destined for Harrington. Prospective Conservative candidate and former Financial Services Authority employee Ian Oakley resigned from the party after being arrested and subsequently pleading guilty to leading a hate campaign against his Lib Dem rivals according to the Telegraph, while Ali Miraj, the 2005 Tory candidate for Watford, was suspended from the list of priority candidates in 2007 for criticising then leader David Cameron.
An electoral upset in 2017, while unlikely, would see a third MP hold the brief in as many years, after the relative consistency of Sir Steve Webb’s five-year tenure.
He also pointed to Labour’s recent pension pledge card, which promises to keep the triple lock until 2025, compensate women worst affected by the state pension age changes, and protect universal pensioners benefits and pensions of UK citizens living overseas.
“It does look like pensions may be a bit of a battleground within this election,” Long said.
However, others doubted that tax relief would again become a major topic of debate while Brexit negotiations are underway.
“People have been saying that every year for as long as I’ve been in the industry, so nearly 30 years. It portrays all sorts of things besides nervousness,” said Ian Neale, director at policy specialist Aries Insight.
Neale pointed to government statements saying a change to tax relief was not planned.
“I would give those some credibility because the government has to put so much resource into exit negotiations that it’s really hard to imagine… that they would divert attention to that kind of thing,” he said.
“They were told very firmly in late 2015 that changing to a taxed-exempt-exempt system was fraught with difficulties, and whichever way you looked at it I think the government realised it wasn’t going to make sense. Hence we got what we got, which is the [lifetime Isa],” he added.
Nigel Peaple, deputy director at the Pensions and Lifetime Savings Association, also did not expect much change. If the government is re-elected as the polls predict, he said, “we can presume a reasonable degree of continuity. That said, pension people should keep a vigilant eye on the current, or recently current, big issues such as the automatic enrolment review, pensions tax relief, decumulation, defined benefit pensions and the pensions dashboard”.
However, Sir Steve Webb, policy director at provider Royal London and former pensions minister, said bolder decisions might be taken with a larger majority in the Commons, which would strengthen the Treasury’s hand.
“As long as you’ve flagged it somehow in the manifesto it becomes very hard for newly elected MPs to come in and vote against the government,” he said.
Will the triple lock be dropped?
The election could also provide an opportunity for the government to revisit the so-called triple lock, which guarantees to increase the state pension by the highest of average earnings increase, inflation or 2.5 per cent.
NICs U-turn puts pension tax back on the table
Chancellor Philip Hammond cancelled plans to increase class 4 national insurance contributions for the self-employed last month, creating a £2bn shortfall in the nation’s accounts between 2018 and 2022, which many fear will be plugged by changes to pension tax relief.
While Labour has pledged to maintain the promise, a Tory government is widely speculated to scrap it.
Malcolm McLean, senior consultant at Barnett Waddingham, said he thinks the triple lock is “a candidate for the chopping block”.
With a stronger majority, “the government may feel more emboldened to do something about it and introduce a link to earnings for example, which is what the legislation requires”, he said.
But Sir Steve said he is not certain that a new government will definitely go down this route: “The point about the triple lock is the 2.5 per cent. But if inflation is 2.3 per cent and rising then to be honest… over one parliament, it doesn’t cost you much at all.”
Overall, rather than decide on the state pension increases bit by bit, it should be made clear what replacement rate the state pension should deliver, he noted. “Actually, a destination is what we really need.”