The forthcoming election might hinge on pension policies.
Pensioners vote in large numbers, and no politician can afford to ignore the grey vote. Pensioners, and those heading for retirement are keeping a close watch on what the two main parties seem to be offering.
The Department for Work and Pensions and Treasury spend around £124 billion per year on state pension payments and more than £50 billion for tax relief on pension contributions. Any incoming government may need to make changes.
At Continuum we are looking too – and trying to see what the impact could be on your pension plans after July 4.
There are three main factors that might affect your income in retirement.
The pension tax
The current government has made a fairly generous increase in state pension of 8.5% since April, thanks to the triple lock provisions. However, retirees have noticed that the gains they were getting from the annual state pension increase are starting to be eroded by tax.
If you rely on the state pension, you currently don’t have to pay any income tax at all. However, if you have other sources of retirement income, the 8.5% state pension uplift you received in April might have pushed you past the tax threshold.
Getting a pension increase and then discovering you are obliged to give at least some of it back is not likely to win many voters.
As a result, the Conservatives have promised a new “triple lock plus” policy. This will ensure pensioners never have to pay income tax on their state pension, the party has said. This will increase pensioners’ personal allowance once a year in line with the triple lock itself - inflation, earnings growth or 2.5% – whichever is highest.
There has been a lot of enthusiasm for the triple lock, but critics have argued it is economically unsound given the concerns about the costs of maintaining the triple lock with a growing retired population.
Both the Conservatives and Labour have pledged to keep the triple lock.
Lifetime allowance
Another pension measure from the current government popular with retirees was the scrapping of the Lifetime Allowance. This had set a limit on the total amount savers could put into their pension pots before the generous pension allowances turned into a tax penalty.
Prior to 6 April 2024, the Lifetime Allowance was £1,073,100. Its removal was good news for wealthier pension savers, as it removed the limit on pension pot size, or rather the level at which they would stop attracting the generous tax relief which makes pension saving so very rewarding.
Chancellor Jeremy Hunt scrapped the Lifetime Allowance in his 2023 Spring Budget, with the change coming into effect at the start of the 2024/2025 tax year, meaning that pension savers are only just starting to be able to take full advantage of it.
Labour has previously said it plans to reinstate it if it gets into office, but things might not be that simple.
The reasons for its abolition included fears that it was deterring higher earners, particularly senior doctors and nurses who were leaving the NHS early to avoid hitting the limit and avoid a hefty extra tax bill. The intention was to keep more over-50s in the workforce, saving more for their golden years.
Tax relief
Labour has said changes to relief on pensions contributions is not party policy. However, shadow chancellor Rachel Reeves said in 2016 that she supported calls for a flat rate of relief, as mooted by former chancellor George Osborne. This would save huge sums for the Treasury but cost higher rate pension savers a great deal. Someone earning £100,000 a year and contributing 10% of their salary into a pension would lose £700 a year.
Over a 30-year career, the that would mean a pension pot more than £20,000 smaller.
What should you do?
Whichever party is successful at the polls is likely to bring some positive changes, such as the pension dashboard, which should make pension planning simpler. But both could also introduce measures which may affect your pension income.
The best policy for you is to get professional advice now and ensure that you have the most suitable pension arrangements in place.
There’s no need to wait until the 4th July. Call us today.
www.telegraph.co.uk/money/tax/rachel-reeves-fought-slash-pension-tax-breaks-high-earners/
How the general election could affect your pension | MoneyWeek
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment or retirement strategy, you should seek independent financial advice before embarking on any course of action.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
The Financial Conduct Authority does not regulate taxation advice.
The tax treatment of pensions in general and tax implications of pension withdrawals will be based on individual circumstances, tax legislation and regulation, which are subject to change in the future.
