The pensions landscape will be one of many priorities for the new Labour government, once it is fully formed.
Sir Keir Starmer won a landslide majority in the 2024 general election, and has already started assembling his cabinet. The new parliament will meet for the first time on 9 July.
Pensions were a prominent topic throughout the election campaign, with both major parties making pledges to retirees in their manifestos.
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We can expect to get some further clarity on the topic when the new government unveils its first Budget statement. This could take place as soon as mid-September.
Recipients of the state pension will be pleased to hear that Starmer has committed to keeping the state pension triple lock, despite critics arguing that the measure is too expensive.
This promises to increase state pension payments each year in line with inflation, wages, or 2.5% – whichever measure is highest.
Labour also recently U-turned on plans to reintroduce the Lifetime Allowance, a cap on how much savers can stash in their pension pot before they are subject to a hefty tax bill.
Other than this, the party has been tight-lipped on specifics. What we do know is that it is planning a detailed review of the pensions and retirement savings landscape.
We look at what this could involve. Plus, could there be any changes to the way pensions are taxed?
What will Labour’s pensions review include?
The Labour manifesto promised the party would carry out a pensions review to improve outcomes for savers and increase investment in UK markets.
We don’t yet know exactly what this will include, but Labour’s “Financing Growth” document from January provides further colour.
Tom Selby, director of public policy at AJ Bell, thinks we can expect to see a continuation of the “Mansion House” agenda started by former chancellor Jeremy Hunt.
This aims to boost the amount of capital that pension schemes invest in UK companies – specifically high-growth private companies.
The scheme is intended to boost the UK economy (which has suffered a lack of private investment in recent years), while also improving outcomes for those saving for retirement.
With people living longer, they need to generate a larger pension pot to fund a comfortable retirement, and many traditional investment strategies are falling short.
Increasing allocations to high-growth investments (such as private equity) could help address this challenge. However, higher-returning investments often come with greater risk, so it is important that this is managed correctly.
What’s more, any shift in policy should not come at the expense of savers, who have benefitted from increasing their exposure to global markets in recent decades. Diversification will be key.
On top of this, savers will be hoping for some clarity on a string of other initiatives, such as the “pot-for-life” reforms discussed by the previous government.
The idea behind this is that workers would be able to bring their pension with them when they transfer from one job to another, rather than collecting several smaller pots over the course of their working life.
“With over £50 billion at risk of being forgotten in old pensions, immediate action is essential for better retirement outcomes for consumers,” says Becky O’Connor, director of public affairs at PensionBee.
Will Labour change the way pensions are taxed?
On the campaign trail, former Prime Minister Rishi Sunak accused Labour of planning to introduce a “retirement tax”. In reality, Labour have not announced anything like this.
What Sunak was referring to is the fact that the state pension is rapidly creeping towards the tax-free personal allowance threshold.
The full new state pension is currently £221.20 per week, which amounts to just over £11,500 per year. This currently falls within the tax-free personal allowance (£12,570), but it won’t be too long before it crosses over the line.
For context, the state pension went up by 8.5% in April thanks to high inflation. The April before, it went up by 10.1%.
What’s more, most pensioners have additional sources of income which supplement their state pension. This could include income from a private pension or annuity, or investment income. In recent years, retirees have found themselves paying a higher tax bill thanks to the effects of fiscal drag.
The Conservatives had promised to unfreeze the personal allowance for pensioners under their “triple lock plus” pledge, increasing it each year in line with the same three protections as the original “triple lock” policy. However Labour criticised the measure and refused to match it in its manifesto.
This means most pensioners will find themselves paying a higher tax bill in the years to come, even if the new government doesn’t introduce any new taxes on pensions. See our article: “Five steps to reduce your tax bill in retirement”.
