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Liberal Democrat manifesto – financial services considerations

24 November 2019

As the countdown to the General Election gathers pace, the Liberal Democrats have published their manifesto, in which they have pledged to maintain the triple lock and review pensions for the self-employed. Industry commentators have highlighted policies which affect financial services and their potential implications.

Pension-related policies

Triple lock

The triple lock currently guarantees that the state pension will rise by a minimum of 2.5%, the rate of inflation or average earnings growth, depending on which is highest.

Tom Selby, senior analyst, AJ Bell, described the decision to retain the triple-lock as an “easy political win” for the Lib Dems, but warned that the policy remains something of an “oddity” in the retirement landscape.

He said: “Rather than increasing the real value of the state pension at random points in time, it would be far more sensible to decide a ‘fair’ value for the state pension and then set a path to reach that point. This amount could then be pegged to earnings and/or inflation so the value of the payment is protected.”

Pensions for the self-employed 

The Lib Dems have turned the spotlight on the well-publicised lack of pension provisions for the self-employed, vowing to review the current rules so that those in the gig economy “don’t lose out.”

There are currently 5 million self-employed people in the UK, but just 1 in 7 is saving for retirement.

Selby said: “Without urgent action these people risk sleepwalking into penury in retirement. While the problem is clear, the solutions are less obvious. The Conservatives’ 2017 manifesto promised to ‘make auto-enrolment available to the self-employed’ – this turned out to simply mean trialling behavioural nudges to encourage people to save in a pension.

“The tricky part of bringing the benefits of auto-enrolment to the self-employed is the lack of an employer to put these people in a scheme and provide matched contributions.”

Selby said better communication around the benefits of retirement saving may be one of the most effective ways to boost the level of self-employed contributions into pensions.

NHS pensions 

The manifesto also included plans to act on the NHS pensions issue, which it said was “driving away our most experienced clinicians and worsening waiting times and the workforce crisis.”

But while the party acknowledged that the current tax regime is causing a strain on the NHS, it stopped short of suggesting the tapered annual allowance be abolished.

Selby commented: “It may be that the major parties simply don’t like the electoral optics of removing something which places an extra tax burden on higher earners.  But with patients’ lives potentially being put at risk, we need politicians to show real leadership in this area.”

WASPI 

In addition, the Lib Dems have vowed to compensate women born in the 1950s who claim they were not told of a delay in claiming their state pension, although the party has not made clear how this would be funded.

While the Lib Dems had previously suggested that every woman affected be paid £15,000 compensation, the manifesto instead promises to act in line with the parliamentary ombudsman’s findings.

Helen Morrissey, pension specialist, Royal London, said: “This issue has been big news this year and has prompted all three major parties to pledge some kind of remedy. However, given how little real progress we have seen on this issue up until this point we have to ask whether we will see concrete proposals on this or whether it will continue to be kicked into the long grass.”

Jon Greer, head of retirement policy, Quilter, described the party’s promises as “awfully vague” and “bereft of ideas on how to affect policy.”

He commented: “They give a vague assurance they will act on the pensions crisis that is crippling the NHS but offer no solution, when it is clear the tapered annual allowance is not fit for purpose.

“Policies on which they are sure on, for example retaining the triple lock and providing compensation for women born in the 1950s, are completely unsustainable in the current economic climate and the Lib Dems offer no indication of how much it will cost.”

Tax Policies 

Capital gains tax 

The party’s manifesto has proposed to scrap capital gains tax and instead tax capital gains and salaries through a single allowance, in what it describes as a fairer approach. However, there was no detail on what the new merged allowance would be.

Laura Suter, personal finance analyst, AJ Bell, warned: “This will be a hit to higher earners, who will see the tax on their investment gains increased from 20% to 40% or even 45%.”

Marriage Tax Allowance 

The Lib Dems have also vowed to abolish the Marriage Tax Allowance, which Rachael Griffin, tax and financial planning expert, Quilter called a “surprise.”

She said: “The marriage tax allowance lets people transfer £1,250 of the personal allowance to their husband, wife or civil partner. It is often the case that one partner earns more than other and so scrapping the allowance will impact many couples and the manifesto lacks a rationale for their thought process.”

Income Tax 

The party also plans to raise £7 billion a year in additional revenue by increasing income tax by 1p across all tax bands. According to the manifesto, this extra money would be ringfenced for the NHS and social care services.

Steven Cameron, pensions director, Aegon, commented: “No political manifesto would be complete right now without something on tackling the huge social care funding crisis. The Lib Dems offer a very helpful promise to cap how much an individual has to pay, putting pressure on other political parties to follow suit, although it remains to be seen if 1p extra in income tax will come close to bridging the funding gap even as a short-term measure.”

Other ideas proposed by the party included restoring corporation tax to 20% – thereby reversing the Conservatives’ reduction of this tax to 17% – and taking tougher action against corporate tax evasion.

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