Hung parliament reaction: Pensions impact

A host of planned changes to the pensions landscape now look unlikely as the Conservative’s ability to push through laws has been restricted following the hung parliament delivered by the General Election.

Pension experts are predicting that advisers should expect to remain in limbo over whether the money purchase annual allowance will be £10,000 or £4,000 as a result of the political uncertainty.

The state pension triple lock is tipped to remain beyond 2020, while fundamental reform to pension tax relief and an acceleration of state pension age increases now look highly unlikely say experts.

Royal London director of policy Steve Webb says: “A minority government will struggle to pass any major reforming legislation which creates gainers and losers. Reforming the funding of social care will almost certainly be kicked into the long grass as will any big shake up of pension tax relief. If the Conservatives are relying on the DUP for a majority, even policies such as ending the triple lock or means-testing the Winter Fuel Payment will be called into question. The most we are likely to see is further tinkering as the government looks to fill its budget shortfall with further salami slicing of pension tax relief for higher earners.

“The new Government will also shortly need to make up its mind about future changes to the state pension age, and the loss of a majority in the Commons means that the more aggressive increases which the Treasury would have preferred are now probably off the table.”

Hargreaves Lansdown head of policy Tom McPhail says: “We will see changes in the Treasury and quite possibly the DWP too – even if the Conservatives form the next government, Simon Kirby and Jane Ellison have lost their seats.

“It is clear that the policy centre of gravity has shifted in favour of the Labour position. This probably means even if we get a minority Conservative government there will be less austerity, more government spending, more of a tax burden imposed on the wealthy.

“The Triple Lock is undoubtedly here to stay until 2020 and possibly for longer now – the Conservatives were alone in campaigning for its abolition after 2020.

“It is unlikely there will be much parliamentary energy for any kind of comprehensive review of pension taxation in the foreseeable future, in spite of the Liberal Democrat call for a review. Expect more salami-slicing of allowances, including the money purchase annual allowance.

“Any review of defined benefit pensions and in particular of the generous quantities of tax relief granted to them is looking less likely today.

“We expect to see the auto-enrolment review run its course. This election result strengthens the likelihood we will now see some of the more inclusive changes such as bringing lower earners and the self-employed into the system.”

Nucleus Financial product technical manager Rachel Vahey says: “With it being cut from the latest Finance Act, there is now the question whether the reductions in the money purchase annual allowance (MPAA) and the tax-free dividend allowance will make it into law this year. This places advisers and their clients in limbo, trying to work out how much the MPAA is for 2017/18 tax year – £10,000 or £4,000. But the longer this hiatus lasts, the less likely it seems that the government can backdate this piece of legislation to the start of the tax year when – or if – it is eventually passed.

“After kicking the Cridland Review of state pension age into the long grass, in the run-up to the election, it will prove very difficult for the new government to pick up this particular change. Labour will no doubt oppose any increases to state pension age – in their manifesto they favoured freezing it at 66 – and so we can expect no new proposals.

“Pensions tax relief is another area which is likely to be consigned to the backburner. A proposed big ticket switch to, say, a single rate of tax relief will probably not get the parliament time or focus. But this still gives the new government wriggle room for more tinkering, and changes to the lifetime allowance or annual allowances cannot yet be ruled out.’

Pensions Management Institute president Kevin LeGrand says: “At this early stage it looks like the younger generation have been influential in changing the political landscape. If that proves to be correct, the recent focus of policies on pensioners’ interests on the basis of the strength of the grey vote may be reversed. This could result in a different policy approach between the generations.”

Hymans Robertson head of investment consultancy John Walbaum says: “Pensioners will no doubt be hoping that this could lessen the chances of the Triple Lock being removed. The Government’s own figures show that the State Pension changes introduced in April 2016 have reduced the long-term costs of the State Pension by £8bn a year including the cost of the triple lock. Moving to a “double lock” will be the equivalent of a £250 a year reduction in State Pension and will have the most significant impact on low and middle-earners who rely on it most.

“We hope the new Government takes a sensible approach to the regulation of Defined Benefit (DB) pensions. The aftershocks from BHS are still being felt across the DB universe. You cannot argue with the rhetoric of protecting pensions from unscrupulous bosses. However the reality is that this reckless behaviour is in the very small minority. Developing law to deliver the Conservative’s manifesto promise would have been fiendishly difficult.”