Scanning the programmes of the main political party conferences this autumn, one thing was plain to see: there was a clear lack of pensions or savings policy.
This was not too much of a surprise, particularly for the Conservatives, whose domestic policy agenda seems to be stifled by Brexit planning and negotiations.
Despite this, some discussion of pensions reform did make the cut. Both the Liberal Democrats and Labour announced a raft of new radical policies they would enact should they get into power, while the Conservatives gave a few words of comfort about the pensions dashboard and pensioners living in the European Union.
It was extremely gratifying that the pensions minister and work and pensions secretary both confirmed their commitment to the pensions dashboard
Pensions are most definitely on the Liberal Democrats’ policy list. Vince Cable talked about reducing tax “advantages” for higher earners, redistributing wealth and using any savings to invest in public services.
They want to see a flat rate of pension tax relief of 25 per cent on all contributions for everyone regardless of how much people earn, with the aim to incentivise those on lower incomes to save more.
Cable’s tax crusade impractical
Although there is broad support for this policy in the pensions industry, albeit with a higher flat rate of tax relief of 33 per cent, previous discussions have demonstrated just how difficult this is to implement, particularly for defined benefit pension schemes.
It is well documented that DB schemes, including government schemes, benefit from the majority of pension tax relief.
At the same time as levelling pension tax relief, Cable proposed scrapping employee national insurance contributions on pension payments.
Combining the two proposals would mean workplace pension savers would automatically get tax and NI relief of 37.8 per cent, with those earning above the NICs upper earnings limit of £46,384 a year (2018/19) only receiving 27 per cent relief on these additional earnings. There was no mention of doing the same for the self-employed.
A much more radical policy floated was the reduction of tax-free cash to a measly £40,000, affecting anyone with pension savings of more than £160,000.
This would be a severe blow for people who had saved all their lives in a pension, with the expectation that they could take 25 per cent of their fund tax-free.
It is a move that is likely to prove unpopular among the voters, and unlikely to see the light of day unless complex transitional rules are implemented to protect the benefits of current pension savers.
Triple lock still unsustainable
The Labour Party once again pledged to keep the triple lock on the state pension, rising in line with the highest of earnings, inflation or 2.5 per cent each April.
It is difficult to see how this would be sustainable, as any political party in power would have to grapple with the increasing costs of ageing in the UK, including pressures on public services such as the NHS and social care.
The Office for Budget Responsibility has estimated that the extra cost of the triple lock in today’s terms would be in the region of £35bn by 2060/61, compared with around £15bn using only earnings indexation. The actual cost will depend on how the UK economy performs.
Shareholders baulk at John Lewis law
One of Jeremy Corbyn’s more radical policies, which could have a knock-on effect on pensions, is the aim to “rebalance power in the workplace”.
This proposal would force companies with more than 250 employees to set up an “inclusive ownership fund” giving 10 per cent of their equity to employees, potentially making more than 10m employees company shareholders.
Although empowering employees, this so-called ‘John Lewis law’ could affect the value of company shares, and therefore impact pension funds.
While the Conservatives had no new pension policies on the table, it was extremely gratifying that the pensions minister and work and pensions secretary both confirmed their commitment to the pensions dashboard. However, no more detail was shared, so we still do not know if legislation will enforce compulsory participation of all pension schemes.
Whoever is in power, I would question just how many of this year’s pensions policies will see the light of day over the next few years. The big issue for whoever is in government to address is, and will remain for some time, Brexit.
Kate Smith is head of pensions at Aegon
