General Election 2015: Party policies on pensions

Introduction

With a week to go before the General Election, representatives of all political parties are criss-crossing the country in search of votes. But with polls too close to call, it is virtually impossible to know how the pensions landscape will look after 7 May 2015. What is clear, however, is that pensions are definitely on everyone’s agenda.

Key points

The new flexible benefits regime introduced on 6 April 2015 (see our series of Alerts on the new measures for more details) continues to have broad cross-party support. But certain elements, such as the guidance guarantee, may come under close scrutiny from a new government.
Despite much tinkering by successive governments over recent years, pensions tax relief seems set for further change whoever holds the keys to Number 10.
Significant changes to the state pension are unlikely but could depend on alliances forged in a hung parliament.

Freedom and choice

The Conservative Party remains keen for individuals to “make their own decisions about their money”. Having introduced the new retirement flexibilities for DC savers with effect from 6 April 2015 (together with their Coalition partners, the Liberal Democrats), the Conservatives plan to extend the flexibilities to current pension annuity holders, as announced in the 2015 Budget.

Similarly, having helped spearhead the recent DC flexibility reforms, the Liberal Democrats are pledging to “press ahead” with them and the recent proposal to extend the new DC freedoms to current annuitants from April 2016. They also maintain their commitment to the continued roll-out of automatic enrolment.

Meanwhile, although Labour have generally welcomed the new flexibilities, they have raised concerns over the adequacy of the guidance guarantee which they would seek to strengthen. Close monitoring of the impact of the new flexibilities on levels of pensioner poverty also features on their agenda.

Private pensions

Tax relief remains at the forefront of proposals for private pensions.

As announced in the 2015 Budget, the Conservatives plan to reduce the LTA to £1 million from 6 April 2016 with further reductions on the horizon for those earning more than £150,000 – a move intended to fund the Conservatives’ proposed increase in the inheritance tax threshold.

As well as favouring a reduction in the LTA to £1m, Labour also plan to reduce the AA to £30,000 and to cap relief for those earning over £150,000 to 20%. Labour’s separate manifesto for older people pledges “a tough cap on fees and charges” with a consultation on fees and charges for income drawdown products soon after the election. A new “cross government taskforce” to tackle fraud and scams is also promised, as is the introduction of a “kite mark” for regulated pension products. Looking at pension funds as long-term investors, Labour are also keen to “improve the link between executive pay and performance” by requiring “pension fund managers to disclose how they vote on top pay.”

Shared risk schemes remain a key focus for the Liberal Democrats, as is a rethink of the current system of pensions tax relief, with the Liberal Democrats putting forward “a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions” in excess of the current 20% basic rate tax relief.

State pension and retirement age

Most parties are committed to the existing triple lock on the state pension, so that it rises by the higher of prices, earnings or 2.5%. But the Liberal Democrats would go one step further and enshrine this promise in legislation.

Other proposals include Plaid Cymru’s “living pension”, set at least at the level of the Pension Credit, and the Green Party’s “Citizen’s Pension”, payable to all pensioners regardless of their NI contribution record. The Green Party also propose a new state earnings related pension scheme, to be invested through their pledged Green Investment Bank in long-term public assets.

Whilst the main parties generally support existing plans to raise the state pension age in line with increasing life expectancy (albeit with Labour wanting to give people more “time to plan for changes”), the SNP have questioned plans to increase the retirement age to 67 by 2028 and, in their “pensioners plan”, pledge a guarantee of no further increase in SPA in Scotland while life expectancy in Scotland trails the rest of the UK and Europe.

UKIP meanwhile propose a “flexible state pension window, which will widen over time”, the idea being that individuals can continue to draw their state pension from age 65 (albeit at a lower rate) even though SPA will rise above that.

A new dimension?

With different polls currently showing both the Conservatives and Labour ahead, the 2015 election is far too close to call.

Renewed focus on tax relief seems inevitable but with more parties than ever before in the frame to become partners in a new coalition or alliance, there could be some surprises in store.