WORKERS CAPITAL

UK

What will the election mean for your pension: Is the state pension 'triple lock' safe?

By TANYA JEFFERIES
, 24 May 2024

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Election under way: What pension promises will be made and will they be kept?

A comfortable retirement will be on the wishlist of most voters, even if it is not typically cited as a top political priority when they are polled.

The Tories and Labour will be going all out to reassure people their financial prospects are safe on their watch during the general election campaign.

But in a time of straitened public finances, both parties will also be looking to scrape up cash to fund their main priorities wherever possible in the future.

We look at the promises they are making about pensions, what they will avoid talking about during the campaign, and what they might really do after the polls close.

Find out the big issues facing pension savers and retirees.

State pension triple lock

Labour and the Tories both promised before the election was even announced they would keep the state pension 'triple lock' for the whole of the next parliament.

That is an indication of how seriously they take the fight for the support of older people, who tend to vote in higher numbers than the rest of the electorate.

The triple lock means the state pension is set by whichever is the highest of inflation, average earnings growth or 2.5 per cent.

Pensioners should therefore carry on getting decent increases in payments every year until nearly the end of the decade.

Thanks to the popular pledge, the elderly got an 8.5 per cent rise in their state pension in April, boosting the headline rate to £221.20 a week or £11,500 a year.

The basic state pension for those who retired before 2016 went up to £169.50 a week or £8,800 a year. However, older pensioners often receive hefty top-ups, via S2P or Serps, if these were earned during their working lives.

Pension industry experts are divided over the triple lock. The 2.5 per cent element keeps pushing the rate higher, even in years when earnings and inflation are flat.

Critics point out it is expensive and that pensioners are often treated more generously than the working population.

However, workers have recently seen large cuts in National Insurance which pensioners haven't benefited from, though admittedly that is because it isn't levied on people once they reach state pension age.

Meanwhile, triple lock supporters say many older people depend solely on the state pension, and are having a tough time paying food and energy bills after a nasty bout of inflation.

The UK also has the lowest state pension among rich countries based on one of the most cited international measures, although that does not tell the whole story because some nations roll their state and workplace schemes into one system.

The Tories broke the triple lock once during the pandemic, when they could credibly plead special circumstances, and it is unlikely either party will risk pensioners' wrath by doing this again. Do you agree? Take our poll.
State pension age

To afford the triple lock bill, the next Government might have to bring forward increases in the state pension age, penalising today's workers who are funding the payment increases.

The state pension age is already scheduled to rise from 66 to 67 between 2026 and 2028.

In 2028, the minimum pension age for accessing workplace and other private retirement savings will also go up, from 55 to 57.

The timing of the next rise to 68 is officially meant to happen between 2044 and 2046, which would affect those born on or after April 1977.

Several reviews have taken place, but the Tories eventually postponed a decision until the other side of the election.

The stated reason was the current level of uncertainty about the data on life expectancy, labour markets and the public finances.

During the campaign both parties will probably do their best to avoid this topic for fear of riling voters in their 40s and early 50s.
Lifetime allowance

The Tories and Labour could be at odds over the recent abolition of the £1,073,100 lifetime allowance - the total limit people can have in their pension pot without facing tax penalties.

Labour initially said that if elected they would bring it back, but then went quiet on the issue. We will probably have to wait for their manifesto to learn more.

There is a possibility the party will specifically earmark any money they would raise from well off pension savers for funding other priorities voters are likely to consider more worthy: children's school meals, training nurses, extra police officers, take your pick.

And they could try to carve out an exemption for at least some essential public sector workers like doctors and judges, but this would be contentious and challenging to implement.

Labour might yet drop the idea of reinstatement to retain the good will of doctors whose support they need to overhaul the NHS.

Meanwhile, the legacy rules after the abolition of the lifetime allowance are complicated, especially regarding tax-free lump sums.

If you have a large sum saved in a pension already you should seek financial advice from a professional to avoid costly mistakes.
Pension investing

Both main parties are likely to stick with Chancellor Jeremy Hunt's Mansion House plans for using people's pension savings to help boost UK economic growth.

Labour's Shadow Chancellor Rachel Reeves has expressed similar sentiments on unlocking pensions to support the economy, so she is expected to continue with some version of Hunt's plan should she succeed him at the Treasury.

Reeves is planning a major review of pensions if there is a change of Government.

It is unclear how far this might go, but a raid on pension tax relief - something successive Tory Chancellors have shied away from - could be on the table as a significant source of cash for other cherished projects.

The generous pension tax relief system is based on people's income tax rates of 20 per cent, 40 per cent or 45 per cent, which tilts the system in favour of the better-off because they pay more tax.

Rumours about reform usually revolve around the introduction of a flat rate, where higher and additional rate taxpayers receive a reduced level of relief, and basic rate taxpayers either get the same or a bit more than now.

A Government would be stingier in setting a new single rate if it was trying to save money, and afterwards could probably move it up and down pretty much at will

Meanwhile, the fate of a consultation on giving workers a single 'pension pot for life', which they and all employers can keep saving into throughout their careers, is uncertain.