There are just a few days to go before the General Election on 4 July, with many people wondering how the result could impact their pensions.
The party manifestos were unveiled a couple of weeks ago, with promised changes including the introduction of a ‘triple lock plus’ from the Conservatives to protect State Pensions from income tax, and an overhaul of workplace pensions from Labour.
Here, we look at what the various political parties are proposing for pensions should they be elected, and what these changes could mean for you.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
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What are the Conservatives’ election plans for pensions?
The basic and new State Pension is currently guaranteed to rise each year in April by the greatest of the following three figures: 2.5%, the rate of inflation in the previous September, or average earnings growth, as measured by the Office for National Statistics (ONS). This is known as the ‘triple lock guarantee.’ You can read more about how it works in our article What is the pension triple lock?
Both Labour and the Conservatives have promised to keep the triple lock if elected. However, the Conservatives have gone a step further, promising to introduce a new ‘triple lock plus’ or ‘quadruple lock’.
What is the quadruple lock pension?
Under the quadruple lock or triple lock plus pension, the personal allowance – which is the amount of income you do not have to pay tax on each tax year – will rise with the triple lock (by inflation, wage inflation or 2.5% – whichever is higher), so the State Pension would always remain under the taxable threshold.
The Office for Budget Responsibility (OBR) forecasts that the State Pension is expected to be higher than the tax-free personal allowance (£12,570 in the current 2024/25 tax year) by 2027, so pensioners would only really feel the benefit of the quadruple lock policy at this point.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said of the proposed plan: “It’s a pledge that will prove popular not just with those who would vote to keep the triple lock but also those but also those concerned about the impact frozen tax thresholds are having on their income tax bill.
“However, in the push to keep the triple lock older voters face having to deal with the prospect of the State Pension age having to rise to contain costs. It’s the unpleasant dilemma at the heart of the State Pension debate that isn’t talked about enough. We know the cost of State Pension is enormous and shouldered by a smaller working population. In the face of a burgeoning bill there’s every chance the government will pull one of its key costs containing levers and hike State Pension age.”
Would anyone pay tax on their State Pension?
It’s worth noting that retirees who receive income from the additional State Pension would not be protected from tax bills under the Conservative’s triple lock plus plans.
The additional State Pension was known as the State Earnings Related Pension Scheme from 1978 until 2002, and if you paid in after 2002, it was known as the Second State Pension (S2P). If you retired before 6 April 2016, your pension will be made up of both the basic and additional State Pension, whereas if you retired after this date, you get a single payment, which includes both elements.
As a result, plenty of pensioners get more than the standard new State Pension, so their incomes could remain above a new age allowance.
What are Labour’s election pension plans?
Labour has previously said that it will reinstate the Lifetime Allowance, which the Conservatives abolished in April this year. However, the party was muted on this in its manifesto, suggesting that plans to reintroduce this tax may be scrapped.
The Lifetime Allowance was the maximum you could save in your pensions over your lifetime, without having to pay any extra tax charges when you took money out of them, ignoring any income from the State Pension. It was originally due to remain frozen at £1,073,100 until April 2026 but was scrapped at the beginning of the current tax year.
However, the maximum pension tax-free cash lump sum that you can take has been capped at £268,275, or 25% of the old Lifetime Allowance and is now known as the Lump Sum Allowance (LSA). This means that even though it’s now possible to build a larger pot without incurring a tax charge, your tax-free cash lump sum won’t increase with it. You can read more about pension allowances in our article How do pension allowances work?
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said; “The Lifetime Allowance didn’t get a mention within the document itself, but there was a collective sigh of relief, with the news that Labour would not proceed with plans to reintroduce it. This ends a period of real uncertainty, with many people unsure whether to continue to contribute to their pensions or press the pause button for fear of getting a big tax bill.
“The decision not to bring it back means people can plan for their future with much more certainty, and enable the industry to get on with the tricky job of finalising processes around the abolition.”
Labour also promised to “act to increase investment from pension funds in UK markets” as well as reviewing the pensions landscape more broadly.
The party said it wants to make the UK the “green finance capital” of the world. Jason Hollands, managing director at wealth management group Evelyn Partners, said: “There is some clear water here with the Conservatives in that Labour are more willing to try and direct private capital to achieve strategic priorities, like investment in British companies and environmental obligations.
“This more interventionist role in directing private capital – such as that from pension schemes – could well provide a boost to the UK stock market, potentially more so than a British ISA would. What remains to be seen is whether the eventual approach will be one of offering carrots or sticks.”
What are the Liberal Democrats’ plans for pensions?
The Liberal Democrats were the only party to pledge that they will ensure that more than 3.8 million women born in the 1950s who were affected by failures to properly communicate increases to their State Pension age will be promised compensation. In March this year, the Parliamentary Ombudsman said the Department for Work and Pensions should apologise, and pay them compensation as soon as possible.
However, parliament was dissolved following the election announcement, before ministers laid out a response to the Ombudsman’s report. The Women Against State Pension Inequality (WASPI) campaign is calling for all political parties to commit to paying compensation and to outline their plans within the first 100 days of the next Parliament. The Lib Dems, Plaid Cymru, the SNP and the Green Party have all indicated support for WASPI compensation, although Conservative Party and Labour Party have yet to commit to it.
Becky O’Connor, director of public affairs at PensionBee said: “It’s reassuring to acknowledge the necessity of compensation for the WASPI cohort. The Department of Work and Pensions must be held accountable for any shortcomings in fulfilling its obligation to guarantee transparent communication regarding pension changes, as these can significantly impact an individual’s retirement outcomes.”
Other pension measures outlined in the manifesto include a commitment to end the gender pension gap in private pensions, as well as a target to ensure that those who are carers are able to save for retirement.
The Liberal Democrat manifesto also stated that when finances allow, the party will raise the personal allowance and reform Capital Gains Tax by adjusting the rates and basing them solely on capital gains. It says it would raise the CGT allowance to £5,000 on top of a new tax-free allowance for inflation.
What are Reform UK’s plans for pensions?
There was no mention of the state pension triple lock in Reform UK’s manifesto, although Nigel Farage said the party’s plans to increase the personal allowance to £20,000 (up from its current level of £12,570 in the current 2024/25 tax year) would help pensioners.
He also promised a review of the pension system to tackle costs and complexity, and outlined a plan to boost UK pension scheme investment in infrastructure.
What you can do
No-one knows what the future holds for pensions at this point, so it makes sense to remain focused on your retirement goals and to explore ways you can boost your retirement savings wherever possible.
If, for example, Labour wins the election and reinstates the Lifetime Allowance, you might decide to try to maximise contributions under the current rules. If you pay into a defined contribution pension, sometimes known as a money purchase pension, you can pay in up to 100% of your earnings into your pension each tax year, up to a maximum Annual Allowance of £60,000 in the 2024/25 tax year.
You can also ‘carry forward’ any unused Annual Allowance from the last three years as long as you were enrolled in a pension scheme during that time. This can be helpful if you have a big lump sum that you want to invest in one year. You can find out more about how carry forward rules work in our guide Pension carry forward explained.
If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 1,500 reviews on VouchedFor, the review site for financial advisors.
Alice Guy, head of pensions and savings at interactive investor, said: “With political uncertainty ahead, the onus is increasingly on the individual to save for their own retirement. It’s important for pension savers to ignore the political noise and keep on plugging away with building their own pension wealth.
“The fundamentals of pension savings are the same and pension contributions still benefit from tax relief which means it only costs £80 to pay £100 into your pension and £60 to pay in £100 if you’re a higher rate taxpayer. Paying into a pension is one of the best ways to build your long-term wealth, whatever the political weather.”
You can learn more about the importance of pension tax relief in our article How pension tax relief works and about ways you might be able to boost your retirement savings in our guides Six ways to make your pension work harder in 2024 and 11 simple ways to top up your pension.
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