Following the publication of the Labour, Conservative and Liberal Democrat parties manifesto’s, Malcolm McLean, Senior Consultant at Barnett Waddingham, looks at how their key pensions and related policies stand.
Labour plans to introduce a 50p income tax rate that would come into effect at an income threshold of £123,000, while those earning more than £80,000 would be subject to a 45p rate, raising an additional £6.4bn from high earners.
The Liberal Democrats plan to raise all income tax by 1p to raise £6bn for the NHS and social care services.
The Conservatives said they would increase the personal tax allowance to £12,500 by 2020 and the higher rate threshold to £50,000.
The party also pledged to simplify the tax system, which would benefit in particular the self-employed and small businesses, although they gave no indication of how they would do so.
Malcolm’s expert opinion; “Both Labour and the Lib Dems need to increase tax receipts to fund their plans. A very different approach from the Tories.”
The Liberal Democrats propose to establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions.
There were no specific proposals in this direction from either Labour or the Conservatives, although the latter are known to be concerned about the level and distribution of current tax reliefs on pensions and are likely to come back to the issue should they form the next government.
Similarly it is hardly likely that Labour would sanction tax relief for higher earners at the 45% or 50% tax rates they are proposing and would either reduce these directly or cut back on the high earners’ tapered annual allowance to achieve the same result.
Malcolm’s expert opinion; “There’s a probability of single rate of tax relief being introduced at some point during the next parliament.”
State pension age
Neither the Conservatives nor the Liberal Democrats have yet announced any further intention of changing the current planned increases to the state pension age.
Labour meanwhile has vowed not to increase the state pension age beyond 66, applicable from 2020, and said they would commission a new review into pension age, specifically tasked with developing a flexible retirement policy to reflect variations in life expectancy based on location or past occupation type.
Malcolm’s expert opinion; “Labour’s plan to freeze state pension age at 66 would be prohibitively expensive.”
Labour was the only party to mention the WASPI campaign. They said women affected by the changes to the state pension age would be compensated by extending pension credit to those born in the 1950s.
To avoid a similar situation in the future, Labour said they would "legislate so that past accrued rights to the state pension cannot be changed, but future benefits can."
Malcolm’s expert opinion; “WASPI has already rejected as inadequate a similar proposal from Labour previously. Prospect of any agreed settlement seems very unlikely.”
State pension triple lock
Labour and the Liberal Democrats have undertaken to retain the triple lock throughout the course of the next parliament.
The Conservatives have said they will keep the policy until 2020 and then replace it with a double lock, which would see the basic state pension rise in line with earnings or inflation, depending on which is highest. They would do-away with the guaranteed 2.5% state pension increase under the current system.
Malcolm’s expert opinion; “Agree that cost of triple-lock is unsustainable over the longer term. Even double lock may not be easily affordable on same timescale.”
Uprating of state pension for British pensioners overseas
Labour is proposing ex-pats resident in countries outside the EU, not covered by a reciprocal agreement with the UK, should henceforth be given the same uprating of their pensions as pensioners here.
Those with “frozen pensions” in countries like Australia and Canada, where no reciprocal agreements exist, have regularly complained about the treatment they are receiving in comparison to UK resident pensioners. However, changes have always been ruled out to date by successive governments on cost grounds.
Neither the Conservatives nor the Liberal Democrats have shown any indication they would be prepared to accept Labour’s proposal in this respect.
Malcolm’s expert opinion; “I would be very surprised if this ever got off the ground.”
Winter fuel payment
Labour has pledged to keep the winter fuel payment along with other pensioner benefits, bus passes and free TV licenses for older pensioners.
The Liberal Democrats want to stop paying the winter fuel payment to those better off pensioners who are taxed on their income at the higher (40%) rate of tax.
The Conservatives appear to want to go further and means-test the winter fuel payment so only the poorest pensioners in fuel poverty get it – although the party in Scotland, under their delegated powers, will currently continue to pay it to all pensioners in their country as a universal benefit.
Malcolm’s expert opinion; “This is a bit of a U-Turn for Labour who were proposing removing the winter fuel payment from higher rate pensioner tax-payers in the 2015 election campaign.”
The Conservatives plan to raise the means-tested threshold for elderly care from £23,250 to £100,000. Although, for the first time the value of the person’s home would also be taken into account in cases of domiciliary care, as it already is for residential care.
The previously planned overall cap on how much individuals would be required to pay towards their care, one of the recommendations of the 2011 Dilnot Report, appears to have been abandoned. There is a definite promise, however, that no-one will be forced to sell their home to pay for their care. Instead, costs will be recouped from the estate after death if assets amount to more than £100,000.
The Liberal Democrats said the income tax increase they were proposing, outlined above, would be used to help fund the NHS and social care services.
Meanwhile, Labour said it would "lay the foundations of a National Care Service" in its first term. It also said it would increase social care budgets by £8bn over the lifetime of the next Parliament.
Malcolm’s expert opinion; “Under pressure the Prime Minister has now announced there will be a cap on what an individual has to pay towards the cost of their own care but has so far declined to say at this stage how much that will be.”
The Conservatives plan to expand auto-enrolment to include the self-employed although there is no clear indication as to how this would work in practice.
Both Labour and the Liberal Democrats were silent on the matter.
Malcolm’s expert opinion; “Aside from bringing in the self-employed from the cold, a priority area for the review should include a more general review of minimum contribution levels.”
Extra powers for the Pensions Regulator
The Conservatives propose to give The Pensions Regulator increased powers to stop mergers, take-overs or large financial commitments that threaten the solvency of company pension schemes.
They will also consider a new criminal offence for company directors who recklessly put at risk, the ability of a pension scheme to meet its obligations.
Labour has also pledged to amend the takeover regime to protect workers and pensioners.
Malcolm’s expert opinion; “The Regulator must be properly resourced to carry out any additional tasks required by future legislation. It is also important also that a proper balance is struck between extra involvement from the Regulator and the legitimate needs of business.”
(More commentary from Malcolm can also be found on the podcast.)