On the morning after the 8 June General Election uncertainty hung over the political landscape in the UK and that uncertainty is likely to remain for some time. The lack of an overall majority for one party means individual manifesto pledges are up in the air.
Many in the pensions industry, and many consumers, had been calling for a period of stability in the often-confusing pensions market, to give the recent major changes time to settle – major changes like the new state pension, the new retirement freedoms and the new annual allowance tax rules. While uncertainty may dominate Westminster, those calling for a period of pensions stability may get what they’ve been calling for.
Where uncertainty could lead to stability…
The State Pension age
Before the General Election the then government had received a recommendation from the independent Cridland Review to accelerate future increases in the State Pension age.
With the calling of a General Election, no formal government response to this was made. In their manifestos, the Conservatives called for the State Pension age to rise with life expectancies, while the Labour Party called for it to be kept at 66 from 2020 and for a new commission to consider a more flexible State Pension age. The Cridland Review may have to wait a little longer for a formal response to its recommendations and even longer for legislation to implement any change. As it stands, State Pension age will increase to 66 for men and women between 2019 and 2020 and to 67 between 2026 and 2028. Beyond that, no other changes have currently been legislated for.
The State Pension triple lock
The triple lock was introduced in 2010. It required the State Pension to rise each year by whichever was the largest of prices, earnings or 2.5%. In their manifestos, the Conservatives called for the third lock of 2.5% to be removed in 2020, while the Labour Party called for all three locks to be maintained. Today, all three locks remain in place. Given that such a change would meet with considerable political opposition, a minority government is less likely to be able to implement any change to the rate of State Pension increase.
At a time of significant national debt and deficit, questions about how to close these gaps are often raised. Eyes often fall on pensions tax relief, which carries a bill of many billions of pounds for the government. Neither the Conservatives nor the Labour Party made any specific tax relief proposals in their manifestos. Action in this contentious area is unlikely while political uncertainty continues. But people with lump sums to invest should pay close attention to potential changes in pension tax, such as the announcement of an emergency budget. By doing this, they would be better placed to and assess whether to pay money into their pension before any change takes place.
The future of politics may be uncertain, but our own personal needs remain unchanged. We will all continue to grow older; we will all look forward to a retirement in later life; and for this we must all continue to plan. Retirement planning is a long-term activity, and we should remain focused on our own long-term needs, even while the near-term political waters may remain choppy.
Investors hate uncertainty, so we may see a period of stock market volatility.