What the next general election could mean for pensions

With intense speculation over the likely election date, all parties should now be well advanced with drafting – and costing – their manifesto commitments.

Aegon has been calling for these to include clear statements of policy on state pensions and social care funding as well as private pensions. 

But alongside these headline grabbers, what of the long list of major pensions initiatives at various stages of development?

If Labour forms the next government, how many of these will survive? Indeed, are all assured of proceeding even if the Conservatives hold onto power?

In recent months, Labour has started drip-feeding its policy intentions around pensions and financial services.

So what will make the manifestos and how can we prepare for what could be ahead?

The state pension and other headline grabbers

In terms of commitments, top of the pensions list must be the state pension triple lock.

Despite what’s been said so far, will political parties guarantee in black and white it will remain for the next five years?

And how cast-iron might that guarantee be?

Perhaps the biggest question of all is what would Labour, if in government, actually do to the lifetime allowance.

Personally, I’d favour retaining the overall policy but would review the precise calculations, smoothing out the inflation and earnings metrics over, say, three years to avoid unpredictable and potentially unfair peaks and troughs.

Of course, state pensions come at a multi-billion-pound cost, with no magic money pot to fund them.

One way of controlling costs is to increase state pension age, with recent speculative figures suggesting today’s 20-year-olds might have to wait till their mid-70s to be able to access it.

Scary stuff, and the higher it goes, the more people simply won’t be able to remain in work until it kicks in.

To me, this further strengthens the argument in favour of allowing people some flexibility to take their state pension a little earlier, with a reduction to make it financially fair.

Yes, there are complexities here, but surely industry and government can work together to come up with a workable solution.

Auto-enrolment: a boost for millions of employees

Auto-enrolment is seen across the political spectrum as a huge success, with over 11mn more employees saving in a workplace pension, albeit for most not enough.

It’s incredible – and not in a good way – that we’re still talking about implementing the 2017 reforms with no agreed timetable.

Surely this is one for manifestos – the question is, when will the annual salary offset of £6,240 begin to be removed and the minimum eligible age fall from 22 to 18?

And what do the political parties have to say about further enhancements, such as increasing the 8 per cent contribution rate and finding a pension solution for the self-employed?

This may be tricky right now as the cost of living crisis continues to be felt far and wide, but politicians shouldn’t sweep this under the carpet.

Pensions LTA

For advisers and some of their well-pensioned clients, perhaps the biggest question of all is what would Labour, if in government, actually do to the lifetime allowance.

After the truly horrendous complication of removing it, no one should be in any doubt as to how horrendously complex reintroducing it could prove.

Is this really what a Labour government would or should prioritise? 

Beyond the headlines: the bumper pensions pack

Whoever is in power by the year end will also need to decide if or how to progress the long list of game-changing policy initiatives on pensions, and in what priority order.

For each, would a Labour government continue as is, put their own spin on it, go faster, or call a halt?

The following is part prediction and part wishful thinking.

I’d expect a Labour government to push ahead with pension dashboards as a key building block to pension engagement, now that more detail is being published.

Their policy paper "Financing Growth: Labour's plan for financial services" strongly suggests they’d continue the encouragement for more defined contribution pension investment in productive finance and in the UK specifically, although their methods could be different.

That same paper shows Labour supports the scheme consolidation agenda, so I anticipate the proposed value for money framework proceeding, shaped by post-consultation development of detail.

I hope that a Labour government would support the principle of a cap on care costs, but I’m pretty sure it would want to revisit the details.

In terms of supporting wider investors as well as pension scheme members, I’m particularly pleased that Labour supports the advice guidance boundary review proposals. 

I’m less sure on Labour’s position on the detail and timeline for introducing small pot consolidators, the extension of pension freedoms to trust-based schemes, and the creation of decumulation-only collective defined contribution schemes.

The current government has already stated it will take more time to consider pot for life, and I do hope an incoming Labour government might leave this firmly on the shelf for now.

Social care funding

Finally, on a topic very much linked to retirement, Aegon continues to push for manifestos to include a clear policy towards the funding of social care.

The Conservatives’ deal was delayed two years until October 2025 with little mention of it in recent times.

I hope that a Labour government would support the principle of a cap on care costs, but I’m pretty sure it would want to revisit the details.

As we on average live longer, paying for social care impacts on millions of families, making it important voters understand how our future government would tackle this.

And a clear deal would also open up a major new aspect of retirement advice. 

Steven Cameron is pensions director Aegon UK