Well, it’s been an interesting 24 hours to say the least and regardless of individual political views – we now need to consider what this new government will mean for the pension sector.
Pensions did not figure too highly in the Conservative Party Manifesto 2019, but we can make a few assumptions.
In 2017, the Tories said they would ditch the triple lock as it was too expensive, but just two years later, the 2019 manifesto saw a U-turn on the issue. The triple lock means the State Pension will rise by either inflation, earnings or 2.5% – whichever rate is highest.
Under this system, next April the State Pension will rise by 3.9% in line with earnings growth recorded in July this year. Clearly, this is good news for anyone claiming a State Pension. Critics however argue the system is unfair to younger workers who essentially fund the increases via National Insurance contributions.
Despite the Tory pledge to keep the triple lock for the time being, it is expected that this is likely to be reviewed sooner rather than later as the triple lock could grow faster than average earnings or inflation over the long term, making it financially unsustainable.
Currently, tax relief at source sees those earning under £12,500 a year losing pension tax relief when their pension scheme adopts a net pay arrangement.
The income tax personal allowance of £12,500 is above the auto-enrolment minimum threshold of £10,000 – and the net pay arrangement does not pay tax relief to members who are below the income tax threshold.
This means workers, the majority of whom are women, could be missing around £8,000 in pension savings in their working life.
While this amendment is welcome, the Conservatives have been roundly criticised for their lack of clarity at the other end of the scale where the detail around the tapered allowance for high earners was noticeable by its absence.
The Manifesto simply said the new government would hold an urgent review to solve the ‘taper problem’ within the first 30 days in office. Although it is senior NHS clinicians that the press have used to highlight the issue, the complex system impacts on many other high earners. The pension sector largely wants to see the taper scrapped completely rather than the government constantly looking at short term solutions.
Pension Schemes Bill
The long-awaited Bill which almost made it over the political finish line was shelved due to the general election. However, we are hoping this will be passed into legislation relatively quickly as it did receive cross-party support. The Bill will make way for the pensions dashboard, new powers for The Pensions Regulator and collective defined contribution schemes.