The Labour government and your pension
16 Jul 2024
An Introduction to Labour’s Pension Plans
With Labour now in power and Keir Starmer as Prime Minister, many are curious about what changes this new leadership might bring to our pensions. Before the election, Labour's manifesto didn't provide much detail about their pension plans, leaving many in suspense. However, several commitments and potential reforms have emerged, giving us a glimpse into what the future might hold for our retirement savings.
The Triple Lock Commitment
One of the key pledges Labour made is to keep the Triple Lock for the State Pension. The Triple Lock ensures that the State Pension increases every April by the highest of the Consumer Prices Index (CPI), average wage growth, or 2.5%. This is designed to help pensioners keep up with rising costs and wages. Given the financial uncertainties many face today, maintaining the Triple Lock could provide much-needed assurance for those planning their retirement.
Comprehensive Pension Review
Labour also plans to conduct a thorough review of the pension system. The aim is to "improve security in retirement" and bolster the UK economy through productive investments. This review will likely explore various reforms that could enhance the outcomes for both savers and retirees. The focus will be on encouraging better pension engagement and financial education, empowering individuals to take control of their retirement planning earlier in life.
Potential Reform: Investment in the UK Economy
Labour has shown interest in enabling pension funds to invest more in UK markets. By doing so, they hope to achieve better returns for pension savers while simultaneously boosting the UK economy. This move could represent a win-win situation, resulting in a more robust economy and improved retirement savings for individuals.
Potential Reform: Auto-Enrolment Expansion
Changes to auto-enrolment regulations are expected. These include lowering the starting age from 22 to 18 and calculating contributions from the very first penny earned. These adjustments aim to encourage younger workers to start saving earlier, helping to secure their financial futures.
Potential Reform: Lifetime Allowance and Other Limits
There was initial speculation Labour might reinstate the Lifetime Allowance—a cap on the amount that can be saved into a pension tax-efficiently. However, Labour has since indicated they have no plans to reintroduce this limit. Existing limits on tax-relieved pension contributions remain in place, and the landscape will likely be reassessed during the review.
Speculated Changes
Several other potential reforms have been discussed within the industry, though not officially proposed. These include:
Raising the Minimum Pension Age: This age might increase from 55 to potentially 60 in the future, allowing pension funds to last longer.
Minimum Secure Income Requirement: Ensuring a base level of income from pensions before allowing flexible access to funds.
Tax-Free Cash Adjustments: While no changes are currently expected, Labour might review the existing rules that allow up to 25% of pension money to be taken tax-free.
Inheritance Tax on Pensions: The current favourable tax treatment of pensions upon death could also come under scrutiny.
Moving Forward with Confidence
With a new government in place, it's an opportune time to reassess and strengthen the UK pension system. Labour has a clear mandate to back their promises with action, providing stability and clarity for savers and retirees.
At Penny, we're here to help you consolidate and manage your pensions confidently, ensuring you can make the most of your retirement savings in this evolving landscape. Please reach out to our member support team any time and we'd be happy to discuss any questions or concerns you have.
