Industry commentators have again accused the main political parties of using pension contributions as an easy source of funding for various pre-election pledges, following this week’s publication of plans should they take power next month.
What they’ve pledged
The Conservatives stated that the ‘triple lock’ would be maintained and the party will stick with plans for a single-tier state pension, effectively abolishing means-testing. It has already moved to reduce the lifetime allowance and will restrict relief for the highest earners to pay for an IHT cut.
Labour pledged to reform the market to “protect consumers from retirement rip-offs”, requiring disclosure of voting by fund managers on pay. They will keep the freedoms but say guidance must be extended. Cuts to the lifetime and annual allowance will fund a cut in tuition fees.
The Liberal Democrats are committed to completing the coalition’s reforms and writing the triple lock into law, while also getting behind pension minister Steve Webb’s plans for auto-escalation of pension contributions for those auto-enrolled into workplace schemes.
The Greens promised a ‘citizen’s pension’ of £180 a week paid regardless of contribution record. The cost being estimated at an eye-watering £116bn, funded by reducing tax and national insurance incentives for private pensions and abolishing the national insurance upper threshold.
Ukip said it would fund a higher standard of independent advice available to all retirees, doubling the guidance budget in 2015/16 and trebling it in 2016/17. They would also introduce a flexible state pension ‘window’, which will effectively reverse increases in statem retirement age.
Industry response
Adrian Walker, retirement planning manager at Old Mutual Wealth
The provider and platform’s technical specialist stated it was pleasing that each of the three main parties committed to keeping the new pension reforms in place.
However, he warned that government pension contributions in the form of tax relief must not be treated as a taxpayer perk that can be redeemed to finance vote-winning policies, referring to pledges by both the Conservatives and, more extensively, Labour.
“While reform of IHT or reduction in university tuition fees is welcome, we do not support the funding of these reforms at the expense of tax relief on pension contributions for higher earners.
“The basic principle behind tax relief on pension contributions is that it is inextricably linked to tax paid on earnings. To break that link by tapering down the relief available for higher earners, is to disregard this core principle behind pension savings.”
He also noted that some parties suggested that a flat rate of tax relief on pensions could be introduced, regardless of the individual’s marginal rate.
“While some may support this, such a drastic overhaul represents a significant risk at a time when the pensions market is still adapting to huge change in the shape of the new ‘freedom and choice’ legislation.”
Greg Kingston, head of marketing and proposition at Suffolk Life.
From the self-invested personal pension perspective, Mr Kingston said the manifestos firmly put an end to thinking that pensions will ever be immune from politically motivated change.
“The sheer scale of existing pension funds as well as tax receipts from pension income and tax relief from contributions makes them a soft target where relatively small changes can generate significant revenues for the exchequer.
“However, with so much focus on manifesto pledges being demonstrably funded, what’s often overlooked is the annual £13bn of income tax delivered by pensions in payment.
“That tax take will slowly dwindle over a generation if savers are not sufficiently encouraged to continue saving the right amounts into their pensions.”
Jamie Smith-Thompson, managing director at Portal Financial
The pension advisory firm’s boss said that the positive news for pensions is that Labour, the Liberal Democrats and the Conservatives have all included a pledge to continue with the triple lock and the popular pension freedoms.
“Overall there is remarkable consistency on pensions with all three parties, including commitment to the recent pension changes. However, Labour have stated they will reform the market to protect savers, so clarification on how they plan to do this would be welcome.”
Kevin Wesbroom, senior partner at Aon Hewitt
The consultancy’s pension expert commented that the winner for most uses of the word ‘pensions’ in their manifesto goes to Ukip, which also had the only bit of ‘new’ policy in their replacement of state pension age by a window system.
“Good forward thinking stuff, messy to work through in terms of interaction with means testing, but a good idea in relation to an ageing workforce and allowing people to phase into retirement or work part time as they get close to retirement,” he stated.
More generally though, Mr Wesbroom commented that the big manifesto issue is what’s not in there: nothing about stopping salary sacrifice on pension contributions or moving the basis of taxation to a fundamentally different basis.
“This will be the really big pensions prize for any incoming government, looking for some realistic savings to pay for their extravagant election promises/bribes.
“No way they will want to say this in advance, because unlike George Osborne’s policy, it won’t be popular. But it’s the only move that has enough noughts attached to it, to move the dial.”
peter.walker@ft.com
