Steven Cameron, Pensions Director at Aegon said: “The election campaign is heating up and December 2019 feels like it will be remembered for a landmark election, with voters choosing between very different competing visions for the future of the country. While the dividing lines on Brexit are much discussed, there are a host of other topics with potentially significant implications for personal finances. We expect Manifestos to show voters clear blue water between Parties on topics including public spending priorities, income tax, nationalisation and workers’ rights.
Public spending and interest rates
“Whoever wins the election it looks like the era of austerity is coming to an end. In recent months we’ve seen the Conservatives promise greater spending on public services with big ticket promises like more police officers and a cash injection for the NHS.
Labour has made investment in public services a key feature of their communications recently and are also known to have ambitious plans to fund a ‘green industrial revolution’. Heightened levels of public spending are highly likely to require higher government borrowing and if spending accelerates sharply there could be knock-on impacts for interest rates. This will be welcome news for cash savers who have received very little interest for almost a decade, but conversely won’t be welcomed by mortgage holders and other borrowers. Higher interest rates may even make annuities look better value, although it would take a radical change to stop the surge for pension flexibility which is increasingly valued by retirees.
“Should interest rates increase sharply, those approaching retirement and planning to buy an annuity will need to think carefully about timings especially if they are not invested appropriately. However, those in a lifestyle pension fund which is targeting an annuity purchase will be invested in bonds and while these will fall in value if interest rates rise, there should be a matched reduction in how much it costs to buy each £1 of annuity.
“If interest rates and yields on longer term gilts rise, we could also see a reduction in the transfer values offered to those considering leaving defined benefit pension schemes.”
Income tax
“Income tax increases are one way of the Government funding at least part of any greater public spending and here, the Labour and Conservatives have very different positions. In Labour’s 2017 manifesto the party talked about reducing the point at which individuals paid additional rate tax, currently 45%, to £80,000, while during his Conservative party leadership bid Boris Johnson talked about moving in the opposite direction by increasing the point at which people pay higher rate tax, currently 40%, to £80,000. Manifestos will provide details on exact promises but there is likely to be a clear dividing line between the two parties. While the main effect will be on the take home pay of those affected, there are knock on implication for pension tax relief which is based on individual’s marginal rate of income tax. If tax bands change, many may see a change in their marginal rate meaning they could get either a bigger or lower boost to their pension saving. “
Nationalisation
“One of the most distinctive features of Labour Party policy is their stance on nationalisation. The party has talked about nationalising areas like utilities and rail and shareholders will want to know whether or not they’ll receive the market value for their shares.
Workers’ rights
“Labour have said they will introduce policies to improve workers’ rights and reward. One proposal is to require companies with over 250 employees to set up an ‘Inclusive Ownership Fund’ holding 10% of the company’s shares. Employees will be entitled to dividends of up to £500 a year with any balance going to the Exchequer. This could have a number of implications, both in terms of the value of such companies to investors while also affecting employer willingness to invest in other employee benefits such as pensions.”
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