Campaigning for the General Election is due to begin in earnest following the dissolution of Parliament on 30 March. The parties are yet to publish their manifestos, but it’s clear that the major parties already have visions for the future of pensions. While state pensions are likely to be a key issue in terms of garnering votes, we take a look in this blog at policies affecting workplace pension schemes.
The ideas man
Liberal Democrat Steve Webb has been arguably the most involved pensions minister of all time. From realising the previous government’s plans for automatic enrolment, through reforming the state pension, addressing charges and governance and laying the groundwork for new forms of pension provision, it seems he has had a finger in every pie. And he’s not done yet.
Even in the run-up to the election, he has been pushing plans to allow pensioners to sell their annuities for cash. George Osborne has now announced that the Government will launch a consultation on how to do this in the 2015 Budget.
Pensions tax relief has been another pet topic of late, with Mr Webb calling for a flat rate of perhaps 33%. The Liberal Democrat pre-manifesto commits to reviewing the possibility and also lowering the lifetime allowance to £1 million.
Other ideas mooted by Mr Webb have been a “pensions dashboard” allowing employees to see all their pension entitlements in one place, and changes to allow pension providers to bulk transfer members from legacy schemes to more modern ones.
If the Liberal Democrats have power in the next government, there may also be the temptation to tinker with existing policy – perhaps more work on charges, or shared-risk pension schemes. Automatic enrolment may get tweaks, for example the introduction of automatic escalation of employees’ contributions to target a higher contribution rate of around 12%.
The not-so-silent partner
With much pensions policy-making during the last parliament being driven by Steve Webb, you could have been forgiven for thinking the Conservatives did not have a keen interest in pensions. The dropping of the Budget 2014 bombshell changed all that. George Osborne’s new retirement flexibilities changed the game completely. A Conservative government would be likely to focus on this achievement (and the extension of the flexibilities to annuitants, as previously mentioned) and make sure the new freedoms work as intended, allowing the reforms a period of “bedding down”.
The Conservative party is, we think, alone in being the one party that may not call for cuts in pensions tax relief. While MP Mark Hoban publicly backed the idea of a flat rate of tax relief, he is standing down at the election and the Conservative party have denied that his comments represented official policy. However, tax relief is an easy target for a government looking to balance the books and if a way can be found to make changes without alienating the party’s core supporters, the low-hanging fruit may prove hard to resist. Indeed, there have today been reports that the Chancellor is considering a further cut in the lifetime allowance.
An alternative source of savings might be to review public sector pension provision, although given recent agreement on reforms any change would probably be made over the longer term.
We will be watching the 2015 Budget on 18 March with interest.
The watcher in the shadows
Meanwhile, shadow pensions minister Gregg McClymont has been hard at work in opposition. Labour have taken a paternalistic approach to recent pensions reforms, believing that the new pensions flexibilities could otherwise lead to many people falling back on the state in retirement. While it is unlikely that a Labour government would reverse the April 2015 changes, they will look to impose additional safeguards to make sure savers get the best deal. They would also like to do more work on charges, such as a cap on drawdown charges. Governance will also be of keen interest, with the potential introduction of a new legal requirement for pension providers to act in the best interests of savers; wider representation on trustee boards and governance committees; and disclosure of voting records.
Labour leader Ed Miliband has recently announced the party’s intention to cut pensions tax relief to the basic rate of 20% for people earning over £150,000. At the same time, he said that Labour would reduce the lifetime allowance to £1 million and the annual allowance to £30,000. It’s also possible that a Labour government could review the common practice of salary sacrifice amid concerns that treasury income may take a hit in reduced national insurance contributions once the new pension freedoms come into effect.
On automatic enrolment, Labour have committed to removing current restrictions on NEST earlier than pledged by the current government. It has been rumoured that Labour may look at reducing the minimum earnings threshold to get lower earners into pension savings.
Other rumours include considering a new inflation index specifically for pensioners, reviewing TUPE requirements and potentially introducing a single regulator for pensions.
Snapping at their heels
While unlikely to achieve a majority by themselves, the other parties are in a good position to negotiate as part of a potential new coalition government. However, workplace pensions do not appear to be a top campaigning priority for them. The SNP and Plaid Cymru are concentrating on the state pension. The Greens are likely to look at enforcing ethical investment. UKIP do not appear to have revised their pensions policy since 2010, when they proposed scrapping the PPF and cutting public sector pensions. These parties may well go along with another party’s proposals on pensions in order to achieve concessions elsewhere.
“Nothing can be said to be certain, except death and taxes”
Our research suggests that, behind state pensions and other pensioner benefits, maintaining tax breaks could be a key pensions issue for the electorate. Indeed, this ranked ahead of both supporting the new DC flexibilities and maintaining public sector pensions. The parties are unlikely to change their tack now, though, and will instead spin pensions tax cuts as needed to support other policy initiatives – as Labour have done, with cuts to tuition fees.
Political commentators are suggesting it is very likely that there will be a hung parliament in May. In the event of another coalition government cross-party support will be vital. With two out of the three major parties agreeing that something needs to be done about tax on pensions, changes are looming on the horizon.