Sense: “Could you write us a quick article on how the election result could affect the pension and savings world?”
No problem I said expecting a clear result and the easy job of linking possible future policy back to the manifesto promises.
But things are never that easy!
As I write, it is clear there will be a hung parliament with the final numbers yet to be clarified. The calculations are being done as to who can work with who and on what basis but in the end there is likely to be another election.
The big priority will be Brexit but such a lack of clarity and certainty can never be great news for savers as it obviously weakens the Government’s hand on all policy, including savings policy, and also creates uncertainty in the markets! One way or another, we wanted a strong mandate from the people and this would have provided an opportunity for bold, long-term thinking on savings policy. However, we are unlikely to see that now.
Constant meddling by successive Governments has created a pensions system littered with confusing allowances and complex rules, which often prevents people from saving and, at the moment, I cannot see this changing. With that in mind, this could be the perfect time to revisit the idea of an independent commission tasked with reviewing and simplifying the UK’s pension tax framework, making it easier for people to save.
Let’s go back to some of the other manifesto promises.
The Conservatives pledged to extend automatic enrolment to self-employed workers who are currently not covered by the reforms. This could be a significant and beneficial savings boost for millions of people and perhaps not as political as some of their other policies.
The policy that arguably helped to scupper the chances of a Conservative landslide was social care. This was always likely to be a controversial area for all parties. The Conservative idea of a capital floor preventing assets being depleted below £100,000 and a cap on lifetime care costs was at least an attempt to address a real demographic time bomb, which will not go away whoever is in Government and for which coherent policy is key. The fact that it became known as the ‘dementia tax’ was something of a disaster. Wherever we go next a proper discussion on social care costs is vital.
The Conservatives were careful to skirt around the issue of increasing the state pension age during the election campaign for fear of alienating older voters. However, two independent reports called for faster increases in the state pension age, with younger savers potentially having to wait until age 70 to receive the state pension. The ‘independence’ of the reviews should leave this on the agenda and as life expectancies continue to increase, future generations need to prepare to save more, work longer and potentially retire later. The Labour party were criticised for not costing a policy that would not accelerate the increase, which was said by one commentator to potentially cost £300 billion.
The Conservatives also pledged to abolish the state pension triple-lock by 2020, replacing it with a double-lock of earnings or prices, whichever is highest. These reforms were strongly opposed by Labour but while such changes will inevitably be controversial, the ageing population means they are necessary to ensure the system remains sustainable (and being cynical they are policies which ‘blossom’ a long time in the future).
Let’s be positive for a minute (and revert to pension geek status). Prior to the election we had a Finance Bill which never quite got finished. Now hopefully it can be pushed through as ‘unfinished business’ and we can tidy up the outstanding issues around the proposals to reduce the Dividend Allowance from £5,000 to £2,000 and the cut to the Money Purchase Annual Allowance from £10,000 to £4,000. We could do with some clarity on whether this will be applied retrospectively.
One policy that escapes controversial status is the clampdown on pension scammers, which was deferred due to the election. It would be good to at least get this one out of the way and implement it as soon as possible to protect savers from fraudsters.
You’re probably thinking: Mike you’ve missed one key point – will tax relief change? Well a lot of the work has been done before but it’s been hard to get agreement on where to go – so let’s leave that to the Commission!
I guess we are no further on than we were before the election but there remains a raft of policy issues outstanding so there is going to be plenty to keep an eye on over the coming weeks and months.