What the new Conservative government means for your pension

13 December 2019

Boris Johnson has pledged that the new Conservative parliament will not curtail existing retirement benefits, but he’s offered no reassurance to Waspi women

 

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The Conservative party promised to preserve the triple lock on the state pension in its general election manifesto. This means that the state pension will continue to increase each year by the greater of wage growth, inflation or 2.5%.

It means that in April next year, state pension payments should increase by 3.9% or £343 a year.

Controversial winter fuel payments – which pay all eligible retirees between £100 and £300 once a year, irrespective of income – will also be protected alongside free bus passes and other pensioner benefits.

As part of ongoing reforms to auto-enrolment, the Conservatives will also review the tax treatment of pension contributions of the lowest paid workers, usually women. This will target those earning between £10,000 and £12,500 a year who often miss out on tax relief on their pension contributions.

The result of the election, however will come as a blow to older Waspi women. Jeremy Corbyn had pledged that if Labour won the election it would fully compensate women who have missed out on years’ worth of state pension following increases to the state pension age which they claim were not sufficiently communicated. Compensation for the four million affected women born in the 1950s was estimated to cost £58 billion with individual payments reaching as much as £31,300.

Boris Johnson has not made any pledges to support or help these women in any way.

Although the prime minister has acknowledged problems at the other end of the spectrum - where highly paid doctors are being stung by such punitive pensions tax bills that they are turning down extra shifts and reducing their hours, there is still no more clarity on the possible changes to the NHS pension. Proposals announced so far have been described as a sticking plaster by critics.

While Brexit will undoubtedly be at the top of the new government’s to-do list, Tom McPhail, head of policy at Hargreaves Lansdown says, pensions minister Guy Opperman’s ‘oven-ready’ pensions bill should be passed quickly, following time constraints in the last parliament. “This Bill will strengthen protections for occupational scheme members, pave the way for pensions dashboards to be developed and open up the option of a new type of shared-risk pension scheme.”

The long-awaited pensions dashboard is a platform that will enable savers to view all their pensions in one place. However because it requires data from government and private pension companies - many of which may have closed, or only hold paper records, it's a project that has been dogged by problems.

McPhail adds: “In addition we expect to see pension tax reform back in the table. This is for a couple of reasons. Firstly, the Conservatives have already acknowledged the problems with the Annual Allowance Taper and its impact on higher earners such as doctors; they had also acknowledged the problem of lower earners missing out on tax relief because of the way their employer operates their scheme. They have to fix these problems. Tinkering will only make the pensions system more dysfunctional than it already is; the best answer would be a fundamental reform of the tax treatment of pensions across the board."

Pensions tax relief has long been a thorny issue. George Osborne consulted widely on the issue during his time as chancellor - exploring reforms including a flat rate of tax relief for all savers - while more recently, former chancellor Phillip Hammond, described pensions tax relief as "eye-wateringly expensive". However, he too took no decisive action on the tax break that costs the government £40 billion a year. 

“The pressure is on the Chancellor to be positive and ambitious, the spending taps will be turned on and we expect a big Budget in February," adds McPhail. "The Conservatives have also promised not to raise income tax, National Insurance or VAT so at the margins they will look for fiscal savings; pensions cost tens of billions of pounds and there is the opportunity to save money here. Finally, the new government has the political capital to tackle knotty domestic issues such as pensions and social care which would otherwise have been too difficult to even attempt.

 “We believe there is a way the UK’s pension system could be made simpler, fairer and more efficient, with proper incentives to save for all; there is now the opportunity to pursue this reform.”

Jon Greer, head of retirement policy at Quilter took a similar view and said that it was now time for issues like pension and social care to come back to the fore. “With the political posturing over hopefully these policy areas will get the attention they deserve. And with a Queen’s Speech just a week away we could get clarity sooner rather than later. However, the dreaded B word will likely mean we still have some time to wait for any meaningful change,” he says.

Myron Jobson, personal finance campaigner at interactive investor meanwhile called on the newly-fortified Tory government to do more to get younger and lower paid workers saving in pensions. 

“Automatic enrolment is a fantastic initiative which has help millions save for retirement with minimal effort. We believe more can be done to further bolster the initiative," he says. " At present, it is only compulsory for workers to be enrolled by their employer if they are at least 22 years old and earn a salary of at least £10,000. We call on the government to revise the eligibility criteria on both accounts. We feel that the DWP’s proposal to reduce the minimum age limit to 18 in the mid-2020s is lethargic and risks leaving a whole generation of workers behind and should be brought forward.

“The £10,000 earnings threshold applies only to a single employer, meaning people working for multiple employers, many of whom are women, often miss out. Let’s fix this by making the threshold cover multiple jobs.”