Pensions in 2024: focus shifts to general election

Pension commentators have questioned what a Labour government could mean for retirement savings policy in the UK, saying at this stage there are more questions than answers.

Details are expected to emerge once each party’s manifesto documents are released but as it currently stands the UK has been left in the dark as to how pensions could change in the years ahead.

Polling data suggests that Keir Starmer could become the next prime minister with an election widely anticipated by Autumn 2024. 

So if Labour does triumph, could the pensions world look very different?

Lifetime allowance

When the Conservative government announced in the March 2023 Budget that it would scrap the lifetime allowance, shadow chancellor Rachel Reeves came out to say that a Labour government would reinstate it.

This has created a great deal of uncertainty for advisers and their clients with the current government pushing to remove the LTA by April 2024.

Claire Trott, divisional director, retirement and holistic planning at St James’s Place, said: “We hope the manifestos of the main parties will give us something to work with, but they may not go into the detail of pensions to the extent which we would like. 

“There has already been, what could be called, back tracking with comments about reviewing pensions rather than focussing on the issues of the lifetime allowance on its own. We know there will be a new regime for testing the tax-free cash and tax-free lump sums on ill-health and death by the time any election happens so reversing the abolition will mean there’s a lot more legislation to write. 

“There would also need to be some consideration given to the actions taken in the last year, following the abolition of the charges and relaxation of the lifetime protection regime and ensuring this is factored into any legislative changes.”

Tom Selby, director of public policy at AJ Bell, said Labour’s position has created unwelcome confusion for clients who might crystallise their retirement pots before the general election in the hope of avoiding a future lifetime allowance tax charge if the policy is reinstated. 

We hope the manifestos of the main parties will give us something to work with, but they may not go into the detail of pensions Claire Trott, SJP

“Such uncertainty over tax policy is never good, so the sooner Labour sets out clearly its plans on pensions taxation, the better,” Selby said.

“The fact the government is, from April 2024, replacing the lifetime allowance altogether with two primary new allowances – the ‘lump sum allowance’ and the ‘lump sum and death benefit allowance’ – makes reintroducing the lifetime allowance even more difficult. 

“It may be that Labour, should it win the election, decides a wider review of pensions taxation, ideally focused on simplification of the rules and boosting retirement saving, is necessary instead.”

Mansion House reforms

Steve Webb, partner at consultants LCP, said it is hard to see any government having an issue with the chancellor’s Mansion House reforms. 

The Chancellor’s ‘Mansion House’ speech in July 2023 set out a range of measures including a pledge by many of the big workplace pension providers to invest at least 5 per cent of default fund assets in unlisted equities by 2030.

“Any government will find it hard to tax or borrow more, yet will need to make sure that tens of billions of pounds are found for investment in infrastructure such as the need to upgrade the power grid for a world dominated by renewable energy,” Webb said.

“Given that DB pension funds are already sitting on over £1trn in assets and workplace DC funds could reach a similar level by the end of the next Parliament, there is plenty of potential for pension funds to do more in this space.”

Webb explained that in the run-up to the Autumn Statement, shadow chancellor, Rachel Reeves promised a ‘sweeping review’ of the pensions landscape with the twin aims of boosting return for savers and getting more money invested in ‘fast growing’ firms.

“This suggests that the present chancellor’s enthusiasm for investing in unlisted equities is likely to be shared by his likely successor,’ Webb said.

“The incoming government is also likely to be more explicit about measures to drive investment specifically into the UK economy.”

I see no particular reason why a Labour government would be against these proposalsSteven Cameron, Aegon

There are other policies that Labour may also be on board with.

Steven Cameron, pensions director at Aegon, explained that the DWP wants to see pension freedoms extended to all members of trust-based schemes. 

“In 2024, I expect there to be more focus on trustees making sure their members have access to drawdown, either within their scheme or through a partnership arrangement (likely a master trust already offering drawdown),” he said.

“The government would also like to see trustees voluntarily advancing backstop decumulation strategies for non-engaged members, a complex undertaking where advice will be essential. I see no particular reason why a Labour government would be against these proposals.”

There is also the task of extending auto-enrolment so that the minimum age is lowered and the salary offset is eliminated.

Kate Smith, head of pension at Aegon, said: “Implementation could begin in April 2025, and while these changes are likely to receive cross-party support, employer support for the timeline is crucial.

“While this is a positive step for member’s retirement outcomes, it may not be enough to provide an adequate replacement income for medium to higher earners. We expect conversations to start on mandating higher auto-enrolment contributions, possibly split equally between employers and employees, and greater saving flexibilities.”

Selby said: “There are other major policy handovers that need to be considered. 

“This government has stated its intention to expand automatic enrolment by removing the lower qualifying earnings band and lowering the minimum age from 22 to 18, although the implementation date for these changes remains up in the air.”

amy.austin@ft.com