General Election 2024: overview of pensions policy

With a little over two weeks to election night, we take a thematic look at what may be in store for pensions during the next parliamentary term.

Whilst the published manifestos across the political parties have emphasised a clear divide on some pension commitments, there is perhaps more common ground on pensions than in previous election campaigns.

Pensions tax

The taxation of pensions rarely stands still for too long, with successive governments tinkering or in some cases making wholesale changes to the tax reliefs, allowances and charges associated with pension savings.

The Conservatives' manifesto leads with a new Pensions Tax Guarantee that they will not introduce any new taxes on pensions. They also:

• commit to maintaining the 25% tax free lump sum and tax relief on pension contributions at their marginal rate
• promise not to extend National Insurance to employer pension contributions.

Labour's manifesto meanwhile includes no specific mention of pensions taxation, but as widely reported last week it now seems Labour will not move to reintroduce the lifetime allowance (as previously suggested) if they are elected.

Interestingly the Green Party propose that the rate of pensions tax relief should be equalised to the basic rate of income tax for all to help fund social care for elderly and disabled people. This would result in a substantial loss of pensions tax relief for higher and additional rate tax payers.

Reform of workplace pensions

Labour has committed to undertake a review of the pensions landscape, and adopt reforms to workplace pensions, to improve pension outcomes (including improving security in retirement). Their manifesto also draws out themes of consolidation and scale to deliver better outcomes for UK savers. The Reform UK party also commit to a review of current pension provision. 

The Conservatives' manifesto does not mention their proposed expansion of auto enrolment (reducing the lower age limit for auto enrolment from age 22 to 18 and expanding the minimum contributions for schemes that pension based on qualifying earnings) nor their proposed pot for life reforms.

The former may survive the election (given that it has general cross party support and there is already enabling legislation in place for its introduction). The latter is a lot less developed as a concept and is likely to be more divisive.

The focus for the Liberal Democrats is developing measures to end the gender pension gap in private pensions and ensure working-age carers can save properly for retirement.

Investment in UK plc

For the Conservatives last Autumn's Mansion House reforms focused on increasing pension scheme investment in productive finance (broadly investments which support business and the wider economy). This was followed by a consultation on reforming access to defined benefit surpluses, with the aim of unlocking defined benefit scheme investment in productive finance.

Labour have also promised to act to increase investment from pension funds in UK markets. Their proposed review of the pensions landscape will consider what steps are needed to increase productive investment in the UK economy.

Reform UK is more prescriptive with its 50/50 infrastructure investment model to fund national infrastructure and utilities, half funded by investment from UK pension funds and half publicly owned. 

Investment and ESG

Current legislative requirements, enacted by the Conservative government, require trustees of schemes with more than 100 members to publish details of how their scheme invests (including consideration of financially material ESG and climate factors) in their statement of investment principles. Authorised schemes and those with assets over £1bn must also publish an annual climate change report. 

Labour's manifesto has a clear stated aim of making the UK "the green finance capital of the world". As part of this it is proposed that FTSE 100 companies and UK regulated financial institutions, including banks, asset managers, pension funds and insurers, will be mandated to develop and implement credible transition plans that align with the 1.5°C goal of the Paris Agreement.

Similarly, the Liberal Democrats focus on requiring pension funds and managers to show that their portfolio investments are consistent with the Paris Agreement and creating new powers for regulators to act if they are not managing climate risks properly.

The Green Party go further and set out proposals that will require non-bank financial institutions, such as UK pension funds, investment funds, mutual funds, brokers and insurance companies that sell policies in the UK, to remove fossil fuel assets from their investment portfolios, securities, transactions and balance sheets by 2030.

Conversely Reform UK say that they would remove all net-zero related objectives, instead focusing on the introduction of a single government infrastructure funding stream.  
 

Specific remedial action

A number of parties focus on taking remedial action to correct specific pension issues:

• Labour propose changes to the Mineworkers' Pension Scheme, including a review of surplus arrangements and the proposed transfer of the investment reserve fund back to members
• The Conservatives commit to consideration of the Ombudsman's report on WASPI women and working with Parliament to provide "an appropriate and swift response". The Liberal Democrats commit to ensuring that such women are treated fairly and properly compensated
• The Green Party propose working with the higher education sector to "tackle the challenges posed by changes to employer contributions" for the Teachers' Pension Scheme.

State Pension

Finally, both Labour and the Liberal Democrats support the retention of the triple lock for the state pension (ensuring that it increases in line with the higher of inflation, earnings or 2.5%).

The Conservatives add to this by committing to ensure that the tax free personal allowance for state pensioners also rises in line with the same three measures (with the aim of ensuring the State Pension does not attract income tax).

Our comment

The various manifestos suggest that as we move into the next parliamentary term there should be at least some stability and continuity in pensions policy. The commitments look to build on progress made in reforming workplace pensions and improving member outcomes, as well as a continuing focus on schemes investing in productive finance and the importance of ESG factors in investment decisions.

There is, however, a lot of detail which is missing and a number of noticeable absences on certain policies (such as the expansion of the auto enrolment reforms and the proposed use of the PPF as a public consolidator).

Please get in touch with your regular pension team contact if you have any queries in relation to these policies or if you wish to discuss your occupational pension scheme more generally.