On the go: Public sector pension funds would be required to divest from fossil fuel-related companies under a government led by the Green Party, which has released a manifesto packed with controversial pension reforms.
An overhaul of pensions taxation and a boost to the state pension were also promised by the environmentally focused party, which had just one MP – Brighton Pavilion’s Caroline Lucas – in the last parliament.
“In this age of climate chaos, action to secure the future of people and the places they love, led by democratically elected local representatives, is needed more than ever. We want local councils to lead the delivery of the Green New Deal and the transition to a resilient, zero-carbon economy,” the manifesto read.
“We believe this is how to make life better today and create a future where local people and businesses can thrive.”
Crucially for fiduciaries safeguarding UK pension assets, the party’s vision for a sustainable future will require large-scale divestment from carbon-intensive industries, against the asset management community’s prevailing wisdom that engagement with companies is a more powerful tool for change.
The manifesto proposes requiring local authorities and other public pension funds to divest from fossil fuel companies, which the party said “will encourage all private pension funds to do the same”.
In addition, the current system of pensions tax relief, where all contributions are exempt until savers hit either of the complex annual and lifetime allowances, would be abolished. Instead, a flat rate of 20 per cent would be introduced – an idea that has been called progressive by pensions experts but involves practical difficulties when applied to defined benefit schemes.
The party would also “end the double taxation of pension funds, which are currently subject to corporation tax and then income tax when paid out to individual pensioners”. Tax-free withdrawals of pensions would be capped at £40,000.
In accordance with the party’s wish to introduce a universal basic income, the Greens plan to introduce a new universal state pension of £178 a week, uprated annually in line with inflation – swapping the triple lock currently offered for a one-time, real-terms uplift.
“The Green Party’s pension promises are, in the main, things that many people may like the sound of, if not fully understand them completely. I also suspect that the party doesn’t completely understand them as well,” said David Brooks, technical director at Broadstone.
“The call to end investment in fossil fuels is predictable if slightly hard to do in practice. Capping tax-free cash, inferred from some odd wording, has always felt an odd idea to rob pensions of one of its best known benefits and add more complexity into the system,” he added.
“I just wish the Green Party would run their proposals past someone who knows about pensions to clarify and refine their ideas. Too often their manifestos, from a pensions perspective, look like something written on the hoof with very little real consideration to the practicalities.”
