What is the industry saying about the Labour manifesto?
Pardon the Interruption
This article is just an example of the content available to mallowstreet members.
On average over 150 pieces of new content are published from across the industry per month on mallowstreet. Members get access to the latest developments, industry views and a range of in-depth research.
All the content on mallowstreet is accredited for CPD by the PMI and is available to trustees for free.
The Labour party presented its 2019 election manifesto on Thursday, including a raft of promises around state pensions, auto-enrolment, the self-employed and the pensions dashboard.
Labour has laid out what some have called a ‘radical’ manifesto, containing wide-ranging spending promises, including on pensions.
Pensions commission, dashboard and SPA
The party is intent on influencing pensions for the long term, saying it will establish an independent Pensions Commission modelled on the Low Pay Commission to recommend target levels for workplace pensions.
It also wants to have a single, publicly run pensions dashboard that shows costs and charges; currently, the plan is to have a publicly backed dashboard along commercial ones, without the requirement for showing charges.
Companies are to be legally obliged to “prioritise long-term growth while strengthening protections for stakeholders” such as pension funds.
On the state pension, the changes are to go even further; Labour has said it wants to cap state pension age increases at 66 – currently the age is expected to rise to 68 – and review the state pension age for those in “physically arduous and stressful occupations, including shift workers”, saying that there has been a “decline” in life expectancy. Life expectancy has not actually declined, but increased by less than previously expected, although some models are indicating that this might be changing again.
The party also wants to compensate 1950s-born women who had their state pension age raised, as well as maintain the controversial ‘triple lock’ whereby state pensions increase by the higher of inflation, earnings or 2.5% - including for overseas pensioners that had their pension frozen – and guarantee the Winter Fuel Payment, free TV licences and free bus passes as universal benefits.
Lacking in details?
Those in the pensions industry have welcomed some policies but question the feasibility of others.
Malcolm McLean, senior consultant at Barnett Waddingham, queried in particular whether the party has thought through the effect that higher taxes – as is intended – will have on pensions tax relief. “Have they taken account of the extra tax relief cost that increasing the tax take on those earning over £80k will bring?,” he said.
McLean also said it was not clear how the party is going to stop auto-enrolment into “rip-off schemes”, and how exactly it would improve pensions for the self-employed.
However, he is in favour of a state-sponsored dashboard, saying it is “good to see their support for a single only pension dashboard”.
The promises the party is making around state pensions will be costly, which is a concern for McLean. “Halting SPA at 66... will be incredibly expensive. And [it’s] not true to say life expectancy has fallen – it is still increasing albeit at a slower rate,” he noted.
He also wondered if Labour is fully aware of the likely big cost of paying increases to frozen state pensions for people living abroad, and said it is not clear what exactly the party is proposing to pay to the 1950s-born women affected by state pension age changes, “who have previously and steadfastly refused to contemplate a means-testing solution”.
PLSA concerned over renationalisation plans
The Pensions and Lifetime Savings Association supports Labour’s intention to expand auto-enrolment to low income workers and the self-employed, establish a Pensions Commission and run a non-commercial dashboard, though it adds that it is open to others being created in the future provided a comprehensive consumer protection regime is in place.
But it is concerned about the party’s sweeping renationalisation plans of utilities, the rail and postal services and BT and has written to the party’s shadow chancellor, John McDonnell, seeking assurances that these would be bought at market value.
Director of policy and research Nigel Peaple said: “We are extremely concerned by the significant negative implications Labour’s plans to nationalise water and energy utilities, train companies, Royal Mail and parts of BT Group could have on the value of UK savers’ pensions and the wider longer-term impact on the private sector’s willingness to invest in the UK infrastructure and economy.”
He said that if a future Labour government failed to pay “full compensation” for companies it took ownership of, “millions of workplace pension savers in the UK could see the value of their pension funds hit directly”.
He added that many millions of others would also be likely to suffer indirect consequences, claiming that such plans would lead to a decline in confidence in investing in the UK economy and impact on gilt markets. “In addition, there are significant complexities with valuation, particularly in relation to private and unlisted equities,” he said.
The tax treatment of private pensions is “noticeable by its absence” in the manifesto, said Steven Cameron, pensions director at Aegon, who said that “any major reform would require extensive and detailed consideration and may not be seen as a priority at this time”.
Would tax incentives be reviewed?
But Tom Selby, senior analyst at investment platform AJ Bell, says that “Labour has promised to review pension tax incentives, with a focus on the problems facing the NHS".
He says scrapping the taper might be “politically uncomfortable” for Labour but that it remains the simplest solution to the current crisis.
Like McLean, he points out that higher taxes will come with higher tax relief on pension saving
“Because pension tax relief is paid at an individual’s marginal rate, this reform will hand a bigger pension tax boost to those on the highest incomes. It is hard to imagine this is the intention of the most left wing Labour Party in a generation,” says Selby.
“It therefore seems an almost racing certainty that if Labour wins power and this policy is introduced, pension tax relief will be subject to yet more reform.”
What are your thoughts on the Labour manifesto promises?