13 June 2024
If you are covering the Labour manifesto, please see the following comment from Jon Greer, head of retirement policy at Quilter:
Triple lock
"Labour has unsurprisingly pledged to uphold the triple lock in its manifesto. While sensible in terms of winning votes the continuation of the triple lock is fraught with problems. The triple lock, which guarantees that the state pension increases annually but the highest of CPI inflation, average earnings growth, or a baseline of 2.5%, has served to safeguard against poverty for retirees. However, it presents a significant fiscal challenge that no party has been willing to fully address.
"As Labour appear poised for a potential electoral victory, its commitment to reviewing the pensions and retirement savings framework offers a critical opportunity to re-evaluate the triple lock’s long-term viability. Any plans must move beyond political posturing and seriously consider whether the triple lock remains fit for purpose. If Labour win, then during its announced review of the pensions landscape, the triple lock should be put under a microscope.
"The central dilemma is finding a balance between protecting current pensioners and ensuring intergenerational fairness especially given the UK has an ageing population that will continue to make the state pension ever more expensive.
"One potential reform is linking pensions more closely to average earnings. This approach would align pension growth with national economic performance, creating a more predictable and sustainable system."
Pensions review
"Labour’s pension review is poised to be a comprehensive examination of the current system, with the potential to encompass a variety of reforms. The review could address auto-enrolment (AE) reform, aiming to make workplace pensions more accessible for a wider range of employees. This may involve adjustments to the minimum contributions and the age threshold for eligibility, ensuring that individuals can begin saving for retirement earlier.
The review is also expected to explore avenues for productive investment, which could lead to pensions playing a more active role in stimulating the UK economy.
"Improving security in retirement is another critical aspect of the review. This could mean revisiting the pension freedoms introduced in 2015, which gave retirees more flexibility in how they access their pension pots. The review may consider measures to mitigate the risk that individuals outlive their savings.
"Furthermore, the review might push forward the implementation of Collective Defined Contribution (CDC) schemes. CDCs are a type of pension scheme where both employers and employees contribute to a collective pot, which is then invested. Upon retirement, members receive a pension based on the performance of the investments.
"These are all laudable areas to look at, but outside the promise of a review, what that might mean in practical terms is missing."
Lifetime allowance
"The pension industry can breathe a sigh of relief that Labour has failed to even mention the Lifetime Allowance in its manifesto indicating it listened to feedback that a reintroduction would have created huge unintended consequences. Following the bombshell policy announcement in March last year from The Conservative government and the subsequent short time frame for the implementation of removing the LTA framework, the industry has been working overtime to try and make it a reality.
"For Labour to then reverse it would have not only been technically complex but could have created an environment where people make knee-jerk decisions to retire under the current rules.
"There would have been an untold number of difficult decisions that given its relatively low tax take could have been a distraction for Labour during its first days of government, if they are to win. There are already significant problems with the implementation of the abolition with the industry grappling with policy being implemented on the fly. For Labour to try and then and reinstate it would have left significant numbers of senior public service leaders especially in the NHS with difficult retirement decisions to make. Whether this is an area of pension tax that Labour does eventually revisit, possibly within its announced review of the pensions landscape, is still possible but for now it would appear there is at least some short-term clarity for pension providers and savers."
