What could the general election mean for pensions, mortgages and investments?

Last night (May 21), prime minister Rishi Sunak called a general election for July 4, but what does this mean for people’s finances?

All parties will need to set out their personal finance priorities which could include changes to pensions rules and may see some promised long-awaited reforms such as changes to auto-enrolment.

The UK could also see impacts to mortgage rates and investments as well as simplification of the Isa landscape.

FT Adviser looks at what changes could come as a result of the election.

Pensions

The next government will have some big decisions to make regarding pensions policy, according to Tom Selby, director of public policy at AJ Bell.

Both the Conservatives and Labour have committed to the pensions triple lock.

This ensures the state pension rises by the highest of average earnings growth, inflation or 2.5 per cent. 

Selby said: “While neither party is likely to talk about it in their manifesto, it is possible planned state pension age increases will also come into focus for the next administration. 

“The current state pension age is 66, with plans in place to raise this to 67 by 2028 and 68 by 2046. However, there have been calls from various quarters to accelerate that timetable in order to save the Treasury money.”

Another policy up for contention is the lifetime allowance. This has been scrapped by the Conservatives this year but Labour has previously stated it will reintroduce it.

“This would be a retrograde step, adding unwelcome complexity to an already complex system,” Selby said.

“It would also run directly counter to wider efforts to boost investing, as any lifetime allowance tax charge would punish those who enjoy strong investment growth.

“We’d urge all parties to focus on keeping pensions as simple as possible and avoid turning pension tax into a political football. By their very nature pensions are a tool for long-term planning and the public need to be confident that governments won’t move the goalposts every five minutes.”

The pensions industry has also been patiently waiting for reform to be made to auto-enrolment.

There have been recommendations to lower the minimum age for auto-enrolment from 22 to 18 and lose the lower qualifying earnings band, but this has not been enacted on - and the looming dissolution of Parliament means the amount of legislation which wil pass until later this year is now severely limited.

Tim Middleton, director of policy and external affairs at the Pensions Management Institute, said: “The Pensions (Extension of Automatic Enrolment) Act 2023 gained Royal Assent in September last year, but as yet we are still awaiting the regulations needed to implement the changes. 

“It would be extremely frustrating for these overdue reforms to be delayed any longer. When the coalition government came to power in 2010, one of their first reforms was to the drawdown rules. 

“I would hope that an incoming government would consider reforms to the freedom and choice regime as a priority. There is clear evidence that members are making poor decumulation decisions and an initiative to address this would be most welcome.”

Mortgages

A general election can have an impact on mortgage rates, often indirectly through its influence on economic conditions, investor confidence and monetary policy decisions, according to Nicholas Mendes, mortgage technical manager at John Charcol.

“During the run-up to an election, uncertainty about the future political landscape typically causes financial market fluctuations,” he explained. “This instability can prompt lenders to adopt a more cautious approach, potentially delaying significant rate reductions until the economic outlook becomes clearer.”

He added: “Once the election results are known, the outcome can either alleviate or exacerbate market uncertainties. A decisive victory and a clear mandate for the winning party often lead to increased economic confidence and stability, which, coupled with falling inflation and future bank rate reductions being priced into swaps, can positively influence financial markets and mortgage rates.”

It has also been widely assumed that a general election campaign now makes a rate cut by the Bank of England over the summer less likely, since the Bank will not want its decision to be politicised.

Simon Bridgland, broker and director at Release Freedom, said whoever wins the election, reform of housing policy is required.

“Protection for tenants, advantages for private landlords to stop the haemorrhaging of life in this market and a housing minister in office longer than I wear my socks would be a good starting point. 

“Stability and a solid plan to solve the housing issue are long overdue.”

Laura Suter, AJ Bell personal finance director, agreed the state of the housing market was a key concern.

"First-time buyers will want to see an extension to support helping them get a foot on the ladder, while existing homeowners will hope for policies that moderate inflation and increase the likelihood of interest rate cuts."

Investments

Labour has claimed it will look to simplify the Isa landscape to make it easier for people to invest.

Selby said: "This is something that AJ Bell has campaigned for consistently over a number of years, calling for the creation of a single ‘One Isa’ product incorporating the best features of the existing six Isas.

"No sensible person designing a savings system from scratch would propose the plethora of different Isas we have on offer today.”

Meanwhile, James Henderson, co-manager of the Henderson Opportunities Trust, Lowland and Law Debenture, said an election could be good for the economy and for shares.

"I don’t see a lot of difference between the two parties on major policy issues – certainly not enough to scare the markets. The Labour commitment to house building maybe difficult with the planners but is real and could benefit companies with large landbanks. Labour governments have traditionally been good for domestic infrastructure companies, but infrastructure investment is needed regardless of who wins.

"We need new schools, prisons and hospitals. This could benefit contractors, as these are the companies likely to be out there with the diggers on major projects. But a lot of that’s priced in already. In truth, there’s a lot more uncertainty around the US election, and that should comfort UK investors.”

amy.austin@ft.com