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.
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.