The UK election last week and its aftermath may have surprising overtones of the mid-1970s for some people as in 1974 when we had a hung parliament and two elections. For financial advisers, there is a lot still up in the air after last week’s election.
The biggest immediate change that one can specifically pin down is that we have a new Secretary of State for Work and Pensions.
Following the promotion of Damian Green to first secretary of state, David Gauke, previously chief secretary of the Treasury, has been promoted to the top pensions spot.
Those who have met him do not expect him to be like the pensions secretaries under previous governments when previous pension secretaries were drafted in with little pension experience.
First Secretary
Mike Morrison, head of platform technical at AJ Bell, said: “What I’ve seen when I’ve met him at the Treasury, is that he knows what he’s talking about – of all the people I dealt with when he was at the Treasury, he did understand what he was talking about and he was serious.”
Sir Steve Webb, director of policy at Royal London, said: “There are few ministers who could have been appointed to this role who know as much about pensions as David Gauke.
“In his five years at the Treasury during the coalition government, he played a key role in developing the detail of the pension freedoms and was a keen supporter of automatic enrolment. I always found him to be knowledgeable and willing to engage in discussion and debate.”
The challenges are likely to be legion, largely because in the government’s current form, it is going to be much harder to push policy through.
Mr Morrison said there were some challenges to come first that were relatively uncontroversial, but it included policies that the industry was waiting on.
He said: “Let’s hope we get the Finance Bill that nearly went through, let’s hope that gets through.” It includes the cuts to money purchase annual allowance, which was dropped when the election was announced, and the ban on pension cold-calling.
The great area to be navigated, however, is the arrangement with the Democratic Unionist Party (DUP).
Over the next few days – at the time of going to press – the country will be looking to see what arrangement the DUP will be seeking in exchange for supporting Prime Minister Theresa May’s government.
While the DUP’s politicians have said that they would not seek to impose their socially conservative agenda on the mainland – abortion is not available in Northern Ireland except when the physical or mental health of the woman is at risk – there are other areas of policy where the two parties disagree. One example is the triple lock, a policy brought in by the coalition government which promises that the state pension will rise in line with the higher of inflation, average earnings or 2.5 per cent.
In the Conservatives’ manifesto, the Tories sought to drop this, by bringing in the ‘double lock’, dropping the 2.5 per cent commitment.
Pensions
The DUP however remains committed to the triple lock. AJ Bell’s Mr Morrison believes that at least in the shorter term this will not have such a big impact. He said: “It probably doesn’t affect people materially; if it was double lock it’s likely that inflation or prices are going to be above 2.5 per cent anyway, so it’s not as controversial.”
The other issue, when it comes to personal finance, where the two parties disagree is on means testing winter fuel payments. The Conservatives promised to means test winter fuel payments, whereas the DUP manifesto says in this context: “The DUP will resist any assault on these important universal benefits.”
The elephant in the room, however is the issue of social care funding, which ministers so far have resolutely been refusing to deal with. Former Prime Minister David Cameron promised to put in a cap, but not until 2020.
To many, the kerfuffle over the manifesto stance on social care policy, which clearly the Conservatives were trying to do something about, may have been a large factor that contributed to them not winning an overall majority at the election.
And now, with such a fragile hold on parliament, it may be increasingly difficult to get any kind of major policy through the House of Commons, let alone a controversial one.
Baroness Ros Altmann said the only way to achieve success on this issue is to get consensus on policy. She said: “We had a consensus around Dilnot, we had a consensus around a cap and a floor, and that was already in law. The means-tested threshold was supposed to be lifted to £118,000, and the Conservatives were cutting that back to £100,000. We had a cap of £72,000, excluding board and lodging.”
She added that all parties were committed to the cap, but the whole concept of care and health needed to be rethought through a national commission, because on their own, piecemeal changes were “not enough”.
For now the main challenge for financial advisers – a constant refrain these past 12 months – is to cater for the uncertainty, at this point, and volatility in UK currency and stock markets.
Markets
Keith Churchouse, director of Chapters Financial, said that sterling was likely to come under pressure over the summer, adding: “That will see FTSE 100 type funds edge forwards but will not be so good for FTSE 250 type funds. We will still see North American funds moving forwards reasonably strongly.
“I still forecast another election this year and therefore that uncertainty may stifle UK plc growth for the next six months. We still envisage inflation rising. The advice we’re providing to clients is to stay firm; nothing fundamentally has changed, however we will keep that under review because I’m concerned that this isn’t the end of the story.”
Melanie Tringham is features editor of Financial Adviser
Key points
Last week's general election has created a lot of uncertainty.
People will be looking very closely at any deal struck with the DUP.
Advisers are expecting a period of uncertainty.
