As political infighting continues in the Conservative party, the prospect of a Corbyn government has become more of a reality.
The chances of a government led by Jeremy Corbyn, leader of Labour party, appeared to be remote, but with Prime Minister Boris Johnson recently losing a vote to pursue a no-deal Brexit, the prospect of a general election has become more likely.
So, a new prime minister could be on the cards, triggering concerns of how financial advisers and their clients will affected by various Labour policies.
So what is at stake?
Several in the industry warn that pension pots will definitely suffer a shortfall due to Labour plans to nationalise key infrastructure areas.
Speaking at the TUC Congress earlier this month, Mr Corbyn said: “We’ll bring rail, mail, water and the national grid into public ownership, so the essential utilities that people rely on are run by and for the public, not just shareholders.”
George Bull, senior tax partner at RSM UK, says: “Because infrastructure investments will constitute part of the fund value for almost every defined benefit and defined contribution pension arrangement, the effect of nationalisation at less than current market value must be considered carefully by a Corbyn government if chaos is to be avoided.”
Mr Corbyn has announced plans to regain control of Britain’s infrastructure networks as part of an overhaul of nationalisation policy.
- Everyone is looking at Labour’s economic policies due to the possibility of an election
- Plans to nationalise infrastructure could affect pensions
- Buy-to-let could also be massively affected
This will include most of the UK’s privately run infrastructure, namely the rail and water industries.
Mr Bull says while there might be some advantage for early movers, the general impact would be a reduction in fund values.
The Global Infrastructure Investor Association has warned that more than 100 UK pension schemes are invested in infrastructure sectors that would be affected by nationalisation.
This amounts to roughly 8m pension pots, mostly from the public sector.
Mr Bull says this would lead to pensions potentially struggling to achieve their retirement goals, particularly in the last five years of people’s working lives and during retirement if they relied on drawdown.
He notes: “In the case of employees with DC funds, the reduction in forecast pensions which would follow nationalisation at less than full market value raises the spectre of workers taking industrial action in consequence of changes imposed by, of all things, a Labour government.”
Mr Bull suggests for employers with DB schemes, shortfalls would arise that would necessitate increased contributions, while also affecting their published accounts and potentially hastening conversions to DC.
Kay Ingram, director of policy at LEBC, agrees.
“Nationalisation achieved without paying fair market value will result in every saver and pension scheme losing money. That could threaten the solvency of many [DB] pension schemes, putting the Pension Protection Fund under pressure,” she says.