Steven Cameron, Pensions Director at Aegon: “With older generations typically more likely to vote, policies for pensioners will always be a key focus in General Election campaigning.
“But pensions aren’t just important to ‘older people’ – government policies on pension savings, investment and economic growth also play a huge role in helping people save for their retirements.
“The Labour manifesto, published today, provides confirmation of its commitment to retain the State Pension Triple Lock for a further five years.
“This offers state pensioners a very valuable guarantee of increases equal to the highest of price inflation, earnings growth or 2.5%. With the Conservatives also committing to this, the triple lock is secure whatever the election outcome.
“Of course, this comes at a cost, but a return to typical historic levels of inflation and earnings growth may make it less costly or unpredictable in future years. One means of funding this would be to further increase the state pension age, but there has been no mention of this in either Manifesto.
“As expected, Labour is not following the Conservatives in creating a Triple Lock Plus arrangement. The ‘Plus’ is a Conservative commitment to increase state pensioners’ personal allowance in line with the state pension triple lock. Without this, the Conservatives say there is a risk that the full new state pension will rise above the personal allowance, meaning pensioners could be subject to income tax even if they have no other income in retirement.
“The tax breaks on offer to pension savers can make a big difference to how quickly they can build up pension funds and hence create wealth for their futures. While the Labour manifesto places much emphasis on wealth creation, it is silent on aspects of pensions tax. The Conservatives said they won’t change the system of pensions tax relief for the next five years, retaining a top-up based on an individual’s highest marginal rate of income tax, which is very valuable particularly to higher earners. There’s also a Conservative commitment to the 25% tax free lump sum and no new or increased pension taxes.
“Labour’s Manifesto commits to reviewing the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets. It also talks of increased pension scheme investment in productive assets. These investment aims are similar to what the current Government has also been seeking.
“Automatic enrolment into workplace pensions has been hugely successful in helping millions of people build up more in workplace pensions. But neither the Labour nor Conservative Manifesto makes any mention of when planned enhancements might be advanced. These would open up automatic enrolment from age 18 rather than 22 and would gradually increase the minimum contributions to 8% of earnings from the first £1, rather than only on earnings above £6,240. We very much hope whoever is in power advances this as a priority to start the journey towards more adequate pension savings.
“There are many other pension initiatives under development by the current Government, affecting people both while saving for retirement and when they take a retirement income. These include online pension dashboards to keep track of all pensions, a consistent value for money framework for assessing all pension schemes, a solution to consolidate small pension pots worth under £1,000, offering members of trust-based pensions more retirement options, extending a new form of ‘collective defined contribution’ scheme and offering individuals the choice of a pension ‘pot for life’ rather than their employer choosing their pension scheme. Aegon has been campaigning for a combined plan with sensible timescales. If we have a new party in power, we’ll repeat our calls for clarity on which are being taken forward, and in what order.”
Calum Cooper, Head of Pension Policy Innovation, Hymans Robertson says: “We’re really pleased to see that the Labour Party’s manifesto is proposing a pensions review. This is desperately needed to ensure the pensions framework can provide sustainable retirement incomes for savers and help secure later life income for millions of people. For it to be truly effective, however, we believe this should be led by an independent pensions commission. This is about delivering later life security for today’s workers and generations to come and not a game of party politics.
“The biggest pension challenge any new government will have is the rapidly emerging pensions division between those generations. Often between those with a DB and DC pensions. DB Pension are likely to provide an adequate pension income while those with a typical DC pension face a massive inadequacy challenge. This difference between the older and younger generations is quite simply inter-generationally unsustainable and must be addressed. Issues such as deciding how to use DB surplus, encouraging innovative new pension design for DC – whether that’s CDC or other risk sharing ideas, looking at solving the decumulation puzzle, gradually stepping up Auto Enrolment contributions and developing new thinking to help savers navigate from work into retirement safely and successfully need to be addressed.
“It’s clear from the scope of the review that the Labour party wants to increase investment from UK pension funds into UK markets through productive finance. For this to succeed, the pensions industry needs a clear articulation of what the government defines as productive finance, with an outline of the practical application. With this the pension and financial services industries will then be able to mobilise attention and work on helping this to be effective.”
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