General Election – industry comments on pensions policy
9 June 2017
With the Conservative party unable to form a majority Government without doing a deal with another of the political parties, rather than securing a bigger mandate as she assumed she would – the reason she called the early election – Theresa May now faces questions about her leadership and has a weaker hand going into the Brexit negotiations.
Noises out of Brussels on Friday suggested Brexit negotiations due to start later this month may now be postponed until after the federal elections in Germany in September, but even if they go ahead as planned, as looks likely now, there will be increasing pressure on the UK Government which must negotiate out of the EU by March 2019.
So, what might this mean for pensions policy?
Steven Cameron, pensions director at Aegon points out that with without the strong mandate that Theresa May wanted and expected going into the Brexit negotiations, there will have to be an even greater time and resource commitment in order to arrive at an effective negotiating stance.
This is likely to have a knock on effect on policy priorities. Hence, while reforms of state pensions and social care funding featured heavily in the campaigning, “they are now unlikely to be short term priorities,” he suggests. “The Conservatives’ proposals on both issues are at odds with those of other parties, making them particularly challenging to push changes through Parliament.
“Ironically, the political uncertainty we face could actually create short term stability on pension and savings policy,” he adds.
Tom Selby, senior analyst at AJ Bell concurs that the key decisions around the state retirement age, the state pension triple lock, social care funding and pension tax relief “are all going to take a back seat while the wheels of Westminster slowly turn”.
This is likely to include the items omitted from the Finance Bill, including proposals to reduce the Dividend Allowance from £5,000 to £2,000 and a cut to the Money Purchase Annual Allowance (MPAA) from £10,000 to £4,000.
Selby says: “The MPAA reduction is particularly problematic because the Government said it would apply from 6 April 2017 but never actually put this into law. We therefore need urgent clarity on whether this will be applied retrospectively – this would be particularly harsh given many savers will have had no idea the new allowance had been announced. It would seem sensible to delay the cut until 2018, or at the very least allow anyone facing a tax charge to get a refund of their contributions.”
“A clampdown on pension scammers was also pushed back as a result of the election. The vital measures set out in the original consultation – which included a ban on cold-calling – need to be implemented as soon as possible to protect savers from fraudsters, but it looks like politics will get in the way of this important reform for a while longer.”
This is a sentiment held by Aegon head of Pensions Kate Smith, who says: “Pension scams are on the increase and this issue isn’t going to go away. This is the type of policy detail that could fall off the radar if the industry does not continue to force the issue. We urgently need the government to introduce more powers to allow pension providers and schemes to block suspicious transfers to protect UK savers from losing their hard-earned pensions to circling sharks. Pension providers are doing all they can within the current rules. This must not be a forgotten issues as scams ruin people’s lives.”
Jon Greer, head of retirement policy at Old Mutual Wealth believes the election creates less a picture of stability and more one of ‘continued uncertainty’ in respect of pension policy, “particularly whether the postponed elements of the Finance Bill will be pushed through, including the reduction in the pension money purchase annual allowance”.
The State Pension triple lock was a key focus in the election campaign – with the Conservatives the only major party to confirm they would end it, reducing it to a double lock – and this could now become an area for negotiation, Greer says, “particularly if the DUP holds the balance of power as they are strongly in favour of keeping the triple lock”.
Similarly, the snap election saw the government miss its due date to respond to the state pensions age review. Greer says while the Conservative Manifesto was light on detail on this subject, it did confirm that the age would be raised but did not say how fast or by how much. “The response will now be further delayed as we wait to see what type of government will be formed and as parties negotiate on which of their views they are willing to bend.
He adds: “Whatever government is formed, it will have a daunting task ahead. Brexit will dominate policymaking and they will need to pick their battles wisely. Major pension reforms are unlikely, particularly controversial ones. It would be a surprise therefore if they tinker with pensions tax relief any time in the next parliament.”
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