The General Election – Pensions issues

Rishi Sunak’s General Election announcement on Wednesday 22 May left very little time for Parliamentary Business to be completed before Parliament dissolved and purdah started. Inevitably, many current pensions initiatives will be delayed although we hope that the newly elected government would honour the pensions initiatives that currently enjoy cross-party consensus:

Initiatives with cross party consensus, although not necessarily in a party’s manifesto: 

• Reforms to Auto-enrolment: removing the £10,000 earnings trigger and decreasing the minimum age to 18.
• State Pension Triple Lock – but how long might a new government continue with this?
• Pensions Dashboard
• Value for Money initiatives – mainly for DC scheme members
• PPF as public sector consolidator 
• Mansion House Reforms – particularly using pension scheme funds as a source of Productive Finance
• Pension tax reform

What’s been delayed / suspended due to the election:

• Delay with expanding the ambit of Auto Enrolment – to remove the £10,000 earnings trigger and lower the minimum qualifying age to 18.
• Secondary legislation to correct malfunctions in the Finance Act 2024 and possibly HMRC updates on this.
• DB Funding Code
  • The Secretary of State has to sign off on this and it has to be laid before Parliament for 6 weeks. 
  • With insufficient time to do that before the General Election, Pension Schemes with valuation dates of 22 September 2024 onwards will need to take account of a non-existent funding code.
  • Should those schemes follow the Funding Regulations and the draft code that was consulted on in 2022?
  • Will TPR say that trustees have 15 months for the valuation so just wait a while?
• Consolidation of DB schemes – on 11 July 2023 the DWP said primary legislation would be introduced "when parliamentary time allows".
• Mansion House Reforms.
• Legislation to widen the circumstances where extraction of surplus would be permitted.
• Multi -employer Collective Defined Contribution (CDC) schemes.
• Delay on review of freedom and choice and how it works.
• Employer covenant review consultation.
• Universal charging structure proposals – no new developments since 9 November 2021 when the Department for Work and Pensions (DWP) indicated that it would publish a separate consultation response on the universal charging structure proposals.
• Response to the consultation on incorporating social factors into investment decisions – the consultation closed on 1 December 2023.
• Changes to the Pensions Ombudsman's jurisdiction, following the December 2018 consultation, including widening the Ombudsman's jurisdiction to permit employers using group personal pension (GPP) arrangements to make a complaint of maladministration or refer a dispute of law to the Ombudsman.
• Changes to the restrictions on what is guidance compared to what is advice.

Unresolved questions:

• How long will a new Government maintain its pre-election commitment to the Triple Lock?
• Will the timetable for State Pension Age (SPA) increases change?
  • Currently, SPA will increase from age 66 to 67 by 2028, and to 68 by 2046.
  • Plans to accelerate the increase in SPA to 68 by 2037-39 were postponed last year, when the DWP said a further review would be carried out within two years of the next Parliament.
• Specific pension tax reforms
  • How would a new government approach tax free cash?
  • Would the rules on inheriting pension money change?

What do the party manifestos say about pensions?

Conservative Party:

• Will keep the Triple Lock: the state pension would continue to rise based on the highest of prices, earnings, and 2.5%.
• A new “quadruple lock”: the tax-free personal allowance for pensioners would rise in line with the highest of earnings, prices, and 2.5% from next year.
• Tax relief on pension contributions remains at the saver’s marginal income tax rate.
• The 25% tax-free lump sum remains unchanged.
• Income tax thresholds frozen until 2027-28
• National Insurance: a further 2% cut (NI reduced by 2% in each of Autumn Statement 2023 and Spring Budget 2024)

Labour Party:

• Retain the Triple Lock.
• Change the Triple Lock formula: The state pension would increase by the highest of inflation, average earnings, and 2.5%.
• Won’t change the abolition of the LTA (distancing themselves from Angela Rayner’s  reaction to the Spring Budget 2023 on this)
• A pensions review: to consider what further steps are needed to improve security in retirement and to increase productive investment in the UK economy.
• Adopt reforms to ensure that workplace pension schemes "take advantage of consolidation and scale, to deliver better returns for UK savers and greater productive investment for UK PLC".
• Require UK-regulated financial institutions, including asset managers and pension funds, to develop and implement "credible transition plans that align with the 1.5°C goal of the Paris Agreement".
• Income tax – would like to raise thresholds but no commitments because Shadow Chancellor Rachel Reeves “can’t say where the money is going to come from”.

Liberal Democrats (Lib Dems):

• Retain the triple lock.
• Fair treatment and compensation for older women affected by the equalization of the pension age.
• Prioritise income tax cuts: by raising the tax-free personal allowance.
• Introduce a national financial inclusion strategy and require both the Financial Conduct Authority and the Prudential Regulation Authority to have regard to financial inclusion.
• Require pension funds and managers to show that their portfolio investments are consistent with the Paris Agreement to reduce emissions by at least 68% from 1990 levels by 2030 / net zero by 2045.
• Give everyone the chance to enjoy a decent retirement by:
  • Developing measures to end the gender pension gap in private pensions and ensure working-age carers can save properly for retirement.
  • Improving the State Pension system by investing in helplines to ensure quicker responses to queries and resolution of underpayments.
  • Ending the scandal of lost top-up payments by overhauling the processing system and providing proper receipts.

The Green Party:

• Removing the Upper Earnings Limit that restricts the amount of National Insurance paid by high earners.
• Require non-bank financial institutions, which broadly means insurers and pension funds, to remove fossil fuel assets from their investments, securities and balance sheets by 2030
• Ensure pensions are increased in line with inflation and wage rises
• Reduce pension tax relief so it applies only on basic rate income tax
• Work with the higher education sector on the problems arising from employer contributions increasing under the Teachers Pension Scheme. 

Reform:

• Criticises the complexity and cost of the pension system.
• Pledges to look to Australia for inspiration.

Conclusion:

DWP research published last year showed over 12.5 million individuals of working age are not saving enough for retirement. We think the Association of Consulting Actuaries Pensions and Savings’ Manifesto published on 10 May has got the balance about right when it calls for the main political parties to focus on a narrow, achievable, and deliverable list of priorities to ensure today’s working generations build adequate levels of pension saving.

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