Pensions professional James Jones-Tinsley evaluations the election end result and its influence on the pensions panorama.
What has stunned me most concerning the consequence of yesterday’s Basic Election isn’t the much-predicted Labour landslide victory, however how effectively the smaller political events have fared, largely on the expense of the Conservative Celebration.
On the time of writing, the Inexperienced Celebration have 4 seats, the Reform Celebration have 4 seats, numerous Impartial candidates – together with Jeremy Corbyn – have gained parliamentary seats, and whereas the Scottish Nationalist Celebration’s maintain over Scotland’s political panorama has been lowered to single figures, the Liberal Democrats have secured their finest end result for the reason that 1920’s.
The Labour Celebration faces a troublesome inheritance on many fronts.
The place pensions are involved, arguably the highest precedence is to finalise the excellent laws in reference to the abolition of the Lifetime Allowance, which was reduce brief when the previous Prime Minister, Rishi Sunak, determined to exit into the pouring rain with out his umbrella and name the election.
The Labour manifesto speaks of a “evaluation of the pensions panorama”; a broad-brush assertion, with no deadlines hooked up.
Nevertheless, provided that the incoming Chancellor, Rachel Reeves, has careworn which taxes she’s going to not enhance, one wonders if an emergency Finances within the close to future may concentrate on the ‘low hanging fruit’ that pensions supply the brand new authorities, of their bid to boost funds from elsewhere?
Firstly, pensions tax aid, which at present prices the federal government over £40 billion annually, might become visible. The final 9 years have seen reforms to pensions tax aid mentioned at many junctures, however to this point, people can nonetheless acquire pensions tax aid at their highest marginal charge of revenue tax.
An incoming authorities with a big majority will at all times ship dangerous information to the nation early on of their tenure, and so anticipate reform of pensions tax aid; probably a transfer to a single proportion charge of aid for all people, no matter how a lot revenue tax they pay. If this was as little as 20%, it could save the federal government billions of kilos annually, at a stroke.
Secondly, the tax remedy of pension dying advantages for these people who die under the age of 75 might be up for evaluation. The flexibility to move on these advantages to surviving recipients freed from revenue tax for the remainder of their lives has been criticised by think-tanks together with the Institute for Fiscal Research as “overly beneficiant”, and so a transfer to impose the cost of revenue tax on these pre-age 75 distributions would undoubtedly be tempting to a brand new authorities.
Thirdly, Inheritance Tax (IHT) was not included in Ms Reeves’ record of taxes that can stay untouched, and one wonders if the present exemption from IHT that trust-based pensions take pleasure in, could also be underneath risk. I sincerely hope not, as the flexibility to move on pension dying advantages to surviving beneficiaries by way of the discretion of the trustees of the pension association, with out the potential imposition of IHT on these advantages, is a strong profit for these recipients who’re arguably at their most weak.
Fourthly, sustaining the ‘Pensions Triple-Lock’ for annual will increase to the State Pension.
Sure, the Labour manifesto careworn they might preserve this promise, so as to safe the pensioner vote, however its affordability over time will solely enhance, and so I absolutely anticipate the brand new authorities to name for one more evaluation of accelerating the State Pension Age to 68 and past, far sooner than is at present set out in laws.
James Jones-Tinsley FPMI APFS is a Self-Invested Pensions Technical Specialist at Barnett Waddingham LLP
