The prime minister’s announcement of a snap general election during one of the most politically fraught periods in recent history was an unexpected addition to the government’s roster of pressing issues. But it comes as no surprise that the election has put pensions and tax firmly under the spotlight, with various pledges threatening to further disrupt the notoriously volatile regulatory landscape.
Now that the three main parties have released their manifestos, Money Management takes a look at the implications of their pensions and tax-related personal finance commitments.
Pensions triple-lock
The pensions triple lock was widely identified as a likely target for overhaul following the election announcement. The Conservatives had vowed to keep the lock in place for the duration of the current Parliament, which in the event ended in May 2017 rather than 2020.
The release of the Conservative Party manifesto saw the party pledge to reduce the surety to a double-lock, removing the 2.5 per cent increase element previously in place. But the change, which means pensions will rise in line with the higher of inflation or average earnings, will not take effect until 2020.
Labour, on the other hand, announced a pensions pledge card in mid-April that included committing to the triple-lock until 2025, with the Liberal Democrats also vowing to keep the lock for the entirety of the next parliament.
David Finan, financial planner at Jardine Finan, believes the Liberal Democrat and Labour stance fails to account for the cost of the triple-lock.
Mr Finan says: “It’s just a vote catcher. I’m quite sure they have no more belief in [the triple-lock] being justified than the Conservatives have. It’s an easy promise to make, but when you start adding up all the promises, they’re impossible to deliver without significant tax increases.”
State pension age
In February, the Work and Pensions Committee said retaining the triple-lock, as it stands, risked widening inequality due to the fact that “making the triple-lock sustainable would mean pushing the state pension age (SPA) over average life expectancy in poorer areas of the UK”.
According to its research, there is as much as a 25-year difference between the lowest life expectancy for males in England (67.5 for those in central Blackpool versus 92.9 for those living in the borough of Westminster). But despite committing to replacing the policy with a double-lock, the Conservative Party manifesto makes no mention of this kind of equation and vows to “ensure the state pension age reflects increases in life expectancy”.
Andrew McMillan, financial planner at Equanimity, believes the lock will heighten inequalities.
Mr McMillan says: “If you increase the age that you can take your pension, it unfairly disadvantages those who have a lower life expectancy due to where they live and the job they do. That’s categorically what will happen. Personally, I’d like to see someone at least discussing some sort of solution to that issue.”
David Newman, head of pensions at Close Brothers Asset Management, suggests having the SPA “decided outside party politics via an Independent Pensions Commission”. The SPA is set to increase to 68 by 2046, but may increase faster due to recommendations made by the Cridland Review earlier this year. The government has postponed its response to the review – due in May – until after the election.
