General Election time often creates both
excitement and nervousness and for much the same reason – the prospect of
change. With the battle heating up, the economy in general and pension reforms
in particular look like becoming key battlegrounds in the approach to May 7.
With that in mind, let’s take a look at what the three main parties have indicated
is in store in terms of retirement planning in general and pensions in
particular.
The Liberal Democrats
At the moment, the Liberal Democrats’ proposals
are still in “pre-manifesto”-stage, i.e. they are still to be made final
(they've only had 5 years to work something out!). Current indications are that
they plan to adopt a 'tax and spending' economic strategy. Hence pension savers
can expect there to be new levies on their pension pots. There will also be a
reduction in the amount people can save tax-free in these pension pots. The
Liberal Democrats are currently talking about capping them at £1 million, which
would be a reduction of 20% on the current figure.
The Labour Party
The Labour Party has also yet to release its
manifesto. However it has shown itself open to reducing tax relief on pension
contributions made by higher earners. Specifically it has mentioned targeting
those earning over £150,000 p.a. and slashing the relief on pension
contributions to 20%. Labour believes that this would raise over £1 billion,
which they say they would then spend on job creation. This is in addition to reintroducing
the 50p rate of income tax to incomes of over £150,000 p.a. Labour have
indicated that they are in favour of a mansion tax, which they say they would
use to fund the NHS. As a final retirement-related point, Labour have also
proposed abolishing the Winter Fuel Payment for the most affluent pensioners.
The Conservative Party
The Conservatives have yet to release their
manifesto either. Is it too much to ask opposing political parties to get their
fingers out? They have, however, stated that they are committed to 'dignity and
security' in later years. They also have a track record in Government, which
could give some clues to their outlook. First of all it was the Conservatives
who introduced the “Triple Lock” pension policy, i.e. the guarantee that the
state pension would rise in line with inflation, wages or 2.5%, whichever is
the highest. While Labour and the Liberal Democrats are both in favour of this
'in principle', neither has made a commitment to keeping the Triple Lock (the
Conservatives have guaranteed to keep it until at least the 2020 election).
Recently the Conservatives have removed the
obligation to use a pension fund to buy an annuity, with effect from 6th April
2015. This means that pensioners can choose between the freedom of keeping
control of their pension pot versus the security of an annuity. This has been
the subject of some controversy; in that the elderly will splurge their
earnings (possibly for the best of reasons) and thereby make themselves
dependent upon state support in their latter years, particularly if they need
long-term care. Given that the logic behind offering tax relief on pension
contributions was essentially to ensure that people were able to save enough to
have an income in retirement, it is an open question as to how Labour or the Liberal
Democrats would respond to this if they were to form a Government. They could
choose to let sleeping dogs lie, they could choose to bring back the obligation
to buy an annuity (albeit possibly at a later age) or they could use this
change to justify changes to tax relief on pension contributions.
The Conservatives have announced other changes,
which essentially make it easier to transfer pension pots between generations
upon the death of the saver. Again, it is unclear whether or not Labour or the
Liberal Democrats would continue to support this.
Some light bedtime reading if you suffer from
insomnia......
No comments:
Post a Comment