A date for this year’s general election may not be set but Labour is already outlining how it would reform financial services and in a controversial move, it may even reintroduce the soon-to-be scrapped lifetime allowance on pension contributions.
Shadow chancellor Rachel Reeves said a Labour government’s first priority would be to provide a “secure policy platform for growth” that backs innovation, entrepreneurship and long-term investment and supports all UK citizens to strengthen their financial security.
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Savers and investors have plenty of options to earn returns tax-free in an ISA.
But the choices can be confusing, especially when I comes to knowing whether a Cash ISA, Stocks and Shares ISA or Lifetime ISA is best.
There are plans, announced in chancellor Jeremy Hunt’s Autumn Statement, to make ISAs more flexible and from April, the Treasury will allow multiple ISA subscriptions of the same type and partial rather than full transfers between providers from April 2024.
Labour hasn’t provided much detail but says that if elected, it will look to” simplify the ISA landscape” to make it as easy as possible for people to feel the benefits of saving and investing their money, including through increased utilisation of stocks and shares ISAs.
"This is a hugely encouraging move and something that AJ Bell has campaigned for consistently over a number of years,” says Tom Selby, director of public policy for AJ Bell.
“No sensible person designing a savings system from scratch would propose the plethora of different ISAs we have on offer today."
Selby says many people find the array of choice on offer confusing, and a ‘back to basics’ approach would help build on the core feature of ISAs, which is their simplicity.
"A full review of ISAs should be seen as an opportunity to prevent them being suffocated by incremental complexity, which could eventually see ISAs turned into a political football in the same way as pensions taxation," he adds.
“Research we’ve conducted shows that the ISA ‘brand’ is widely recognised by the UK public. But once people are asked to identify the various different types of ISA available, knowledge levels plummet.”
Pensions are another political issue.
Over the past 13 years of Tory rule, savers have since the introduction of auto-enrolment, pension freedom rules as well as changes to the annual and lifetime allowance.
If in government, Labour says it will review the current state of the pensions and retirement savings landscape.
This will include working with industry and consumer groups to ensure savers are getting the best possible returns and to identify and tackle the barriers to pension schemes investing more into UK productive assets – including cultural and regulation-induced risk aversion.
Its document also suggests a scheme for defined contribution pension schemes to invest a proportion of their assets into UK growth assets – split between venture capital, small cap growth equity, and infrastructure investment. This would be modelled on the French Tibi scheme.
Becky O’Connor, director of public affairs at PensionBee, says a pensions review has the potential to “give impetus to new initiatives too”, such as the lifetime provider model currently proposed by the Treasury.
Lily Megson, policy director at My Pension Expert, says there are major issues that need to be addressed about helping people save for their retirement..
"From improving financial education and access to independent advice, through to making it easier for people to locate, track and transfer their pensions, close collaboration is required between government and the financial services sector to improve outcomes for consumers,” she says.
“So, it is only right that Labour is therefore taking a broad view on the matter to see where policy and practices can be bettered. But ultimately, this is something that must be implemented as soon as possible, and irrespective of the election result.”
There is plenty of debate around the future of the triple lock, used to calculate state pension increases.
The state pension is set to rise by 8.5% in April but there are concerns about how expensive it is becoming for the Treasury and that it may be unfair to younger generations who aren't seeing equivalent wage increases.
The Labour Party is reported to be planning to include a commitment to keeping the triple lock in its general election manifesto, according to the i newspaper.
Selby says any shift away from the pledge, however sensible, would have risked being the centre of an attack campaign by his political opponents.
"Given the importance of securing support from older voters, sticking with the triple-lock is likely viewed as the easiest option politically," he says.
“That does not mean the decision represents good policy, however. Any politician that advocates maintaining the triple-lock is effectively admitting the state pension is too low."
Selby says the triple lock approach has "proven extremely volatile in recent years" as inflation and earnings have spiked, meaning the cost to taxpayers has become unpredictable.
“The triple-lock has become a totem for ‘doing right by older people’, but as it increases the cost of the state pension, there is a risk planned rises in the state pension age will need to be accelerated to balance the books, embedding intergenerational unfairness into the system," he adds.
O'Connor adds that while there is a strong case for a review of the triple lock, "people depend on the state pension for a significant chunk of their retirement income" and the guarantee helps to preserve confidence for today’s pensioners as well as those hoping to benefit from the payments in the future.
The lifetime allowance on pension contributions is set to be scrapped in full by the current Tory government from the new tax year in April.
But if elected, there are now reports that Labour could bring it back.
There were rumours that the political party would bring the allowance back but protect some public sector workers such as doctors from being taxed if they breach the limit.
But The Sun has reported that Labour now plans to fully reintroduce the lifetime allowance at a level that reflects pressures facing public sector workers.
“While it is good news Labour has ditched plans for this public sector carve-out, the party’s apparent insistence on bringing back the lifetime allowance if elected is concerning," adds Selby.
"Pursuing this policy would create huge, unwelcome complexity in the pension system and send a worrying message to savers and would-be savers."
Tell Sid campaign
Hunt has promised a ‘Tell Sid’ style retail offer of NatWest shares this year but Labour has proposed going further and once to boost retail ownership of British businesses more widely.
Labour’s document says it will look to deliver a modern ‘Tell Sid’ campaign for retail ownership to “highlight the value of British people supporting British businesses.”
The document also says a Labour government will evaluate the progress made in adopting recommendations of several reviews about boosting participation in capital markets.
Marc Shoffman is an award-winning freelance journalist specialising in business, personal finance and property. His work has appeared in print and online publications ranging from FT Business to The Times, Mail on Sunday and The i newspaper. He also co-presents the In For A Penny financial planning podcast.
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