Tom McPhail: Will Labour change rules for pensioners?
Polling data shows a strong probability that the General Election on 4 July will return a Labour government, but what would that mean for our pensions asks Tom McPhail, director of public affairs at consultancy The Lang Cat.
To some extent it will depend on the size of their majority – a big win will give them more power to push through difficult or controversial policies.
Labour has said they’ll conduct a review of our pension system, though they haven’t said much about what will be in that review. Some things we do know, some things we’re just guessing at.
The value of the state pension should be safe, given Labour has committed to the triple lock uprating of the state pension. The state pension age is set to rise to 67 in 2028, and is then scheduled to increase again to 68 in 2044; if Labour really get to grips with the current demographic crisis – not only are we all getting older, we’re not having enough children too – then we might hear about further increases.
There’s unfinished business for our workplace pensions from the present government. The minimum age at which workers are automatically enrolled in a pension is planned to increase to 18, and in addition there should be an adjustment to how contributions are calculated, meaning most of us would pay in a bit more.
Implementing these changes has been kicked down the road by successive pension ministers, who probably didn’t want to do anything that would take money out of people’s pockets.
Labour may take a look at how we’re allowed to access our private pension savings. There’s a lot of evidence of people cashing in small pension pots; using them more like savings accounts than a source of retirement income. In a way this is fair enough – it’s their money, after all – but it isn’t what the pension system is for.
Labour could look at reversing the pension freedoms introduced in 2015 and putting more restrictions on how and when we’re allowed to access our pensions. It wouldn’t be surprising to see them push up the minimum age of access to – say – 60 too.
They might also look at imposing some increased death taxes on larger pension funds, such as bringing them into the inheritance tax (IHT)regime; this would raise some revenue and also discourage investors from hoarding wealth in pensions for IHT planning purposes.
Labour is also likely to press ahead with plans to encourage the consolidation of pensions, as our the UK pension system is very fragmented. They’ll want people to have fewer, bigger pension pots and they’ll want there to be fewer, bigger pension schemes.
They will push for employers to introduce a new form of pensions called Collective Defined Contribution schemes, where the benefits aren’t guaranteed, but can be more predictable than many of today’s workplace pensions.
They will also want to see more of our pension savings being reinvested in the British economy, so we might well hear more about that too.
Visit The Lang Cat’s website here.
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