It’s been widely reported recently that a large opinion poll states we are on course for a new Labour party government at the next election. The next general election looks likely to be later in 2024.
By the time the next election does come round who knows exactly what government we will have. If it is to be the Labour party many right-wing media will have you believe that this spells disaster for your retirement savings.
I don’t want to get into which party is better for the country, I want to look at the facts including what the Labour party have said they plan to do with pensions if they were to get into government and what happened the last time the Labour party were in government.
What have Labour said?
As you would expect with any political party, Labour have made a few headlines when it comes to their pension plans but have been light on the details.
In terms of the State Pension they have refused to commit to the current ‘triple lock’ which increases the State Pension each year by the greater of inflation, average earnings or 2.5%. They have said they will wait to see the state of the public finances before making any decisions.
Interestingly, the Conservatives have also refused to commit to the ‘triple lock’ by the time the next election comes around.
Moving on to private and public pensions, potential new Labour Chancellor Rachel Reeves has said if Labour were to get into power then they would carry out a full review of the pension system. Expect to hear this statement a lot as any potential new government is always going to want to review everything rather than having to commit to what they plan to do.
She did say that she is keen to see more pension fund money invested into UK businesses as she believes this will help grow the economy. At the same time, she also wants to see a consolidation of defined contribution pension schemes making larger super funds.
We have already seen something similar announced by the Conservatives.
This sounds good in theory but in reality, there is a reason why more pension money is not invested into smaller UK businesses. Younger, smaller companies are riskier, there is more chance of them going bust and therefore are these types of investment entirely appropriate for your retirement savings?
The big announcement from Labour which may have been made too hastily was that they plan to reverse the decision by the Conservatives to scrap the pension Lifetime Allowance.
The Lifetime Allowance limits the amount someone can save into pensions without facing an additional tax charge.
The current Conservative government removed the tax charge from April 2023 and from April 2024 will abolish the Lifetime Allowance completely.
There have been rumours about something replacing it and there will still be a limit on the amount of money you can release tax free from your pensions.
Labour have said they will re-instate the Lifetime Allowance. This may be difficult to do in practice without causing lots of panic in the pension market and many savers cashing in their pensions. The impact of this could mean the likes of doctors retiring early which is not something the NHS needs right now.
Even if they did re-instate it, it puts us back to where we were in early 2023 so not so long ago when we were used to it.
As I said earlier we are definitely still light on the detail. We will have to wait for those all-important Manifestos to find out more.
What did Labour do last time they were in power?
Since the last Labour government started in 1997, we have had quite a bit of pension reform. Something to be expected over a 27-year period.
In the early years of the last Labour government a Minimum Income Guarantee, replaced by Pension Credit was bought in to try and lift low paid pensioners out of poverty. This is paid alongside the State Pension.
Stakeholder pensions were introduced in 2001 as a way to encourage more retirement saving especially amongst the low and moderate earners.
These were designed to be simple, low-cost pension schemes with default investment funds, making it easier for someone to set up their own personal pension.
It was also available to small businesses as a way of offering their employees pensions. This ultimately was a little preview of what was to come with auto-enrolment.
Stakeholder pensions are still around but have pretty much been superseded by generally cheaper pensions on the open market.
The biggest pension reform came in 2006 when ‘Pension Simplification’ scrapped the eight previous different tax regimes for pensions into one.
Along with it came the ‘Lifetime Allowance’ and the ‘Annual Allowance’ limiting how much people could save tax efficiently into a pension.
The Annual Allowance actually started at £225,000 back in 2007 and the Lifetime Allowance was £1.5million rising to £1.8million by 2010. Much higher than today’s levels.
In fact, it was the coalition government and then Conservatives who reduced these allowances to much lower levels.
It’s been said that auto-enrolment which means every employer must set up and contribute to pensions for qualifying workers has been a good thing, encouraging more people to save for their retirement.
This was actually a policy introduced by Labour in the Pensions Act 2008 and followed through by the coalition and Conservative governments.
Pensions are not the main issue though
Both Labour and the Conservatives have made good and bad changes to the pension system over the years and I don’t see this changing going forward whatever government we have.
Regardless of what pensions look like and what taxes apply it will always be the underlying investment strategy that ultimately drives your returns and boosts your retirement savings.
Getting the right investment strategy is crucial in ensuring not only that you can retire when you want but also to continue living the life you desire in retirement against the threat of rising prices.
The good news is that the global stock markets don’t care about politics.
The declines are temporary, the advance is permanent.
If you would like to stress test your retirement plans or even to get a plan in place then please get in touch for a free no obligation 15-minute call. We would be happy to review your position, explain where you stand and what you need to do to get the outcome you desire. We have created hundreds of happy and protected retirements over the years. This could be you too.
Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.