The Labour Party has won the general election by a large margin and now everyone is waiting to see whether the party will deliver on its promises.
The party made a number of promises to protect people’s pensions and improve the situation for savers if Sir Keir Starmer were given the keys to Downing Street.
But what do these matters entail and what do they mean for your future pension savings?
TRIPLE LOCK
Pensioners will breathe a sigh of relief to hear that Labour has promised to maintain the ‘triple lock guarantee’.
The ‘triple lock’ ensures that the state pension does not lose value by increasing it every year in line with inflationaverage income, or by 2.5% – whichever is higher.
However, the party failed to secure any commitment from the Conservatives to also increase the personal allowance in line with the state pension.
Labour has said it will freeze the thresholds above which you pay tax until 2028. This freeze was first introduced by the Conservatives in 2021.
This could be bad news for retirees, as many of them will have to pay tax for the first time just when they apply for a state pension.
Freezing tax thresholds means more people are forced to pay tax, or pay a higher tax rate, because their incomes, including pensions, rise while the thresholds remain the same.
Currently the state pension is £11,502 per year and the personal exemption is £12,570.
But the office for Budgetary Responsibility (OBR) has warned that the state pension will overtake the personal exemption in 2027.
Gary Smith of financial planning firm Evelyn Partners said: “Labour promised to keep the triple lock but has failed to match the Conservatives’ ambitious triple lock-plus.
“This raises the expectation that pensioners will soon have to pay tax on their AOW income.
“The OBR predicts that the state pension will exceed the level of the personal allowance by 2027, but if inflation or wage growth provide an unexpected boost to the state pension this could happen sooner.”
REVIEW OF WORKPLACE PENSION
The Labour Party also promised to launch an inquiry into company pensions, with the aim of increasing people’s retirement savings.
The manifesto states: “We will review the pensions landscape to determine what further steps are needed to improve pension outcomes and increase investment in UK markets.”
However, no further details have yet been provided on the content of this evaluation.
Jon Greer, head of pensions policy at financial planning firm Quilter, said: “Labour’s pensions review is looking at a major overhaul of the current system, potentially extending automatic enrolment and adjusting contribution thresholds to make workplace pensions more accessible.
“This is crucial to ensure that more people save more for later in life.”
Steve Webb, a former pensions minister and partner at LCP, also wrote in Citywire that an “inevitable” focus of the review will be on pensions tax relief.
Pension tax relief is when money that you would have paid in tax is instead put into your pension. It is essentially a reward from the government for saving for your pension.
He added that Labour may look at increasing the minimum amount that workers and employers must pay into their pensions through ‘automatic enrolment’, which means you are automatically signed up to your employer’s pension fund.
However, he added that Labour “will be reluctant to increase the cost of living for the low-paid and unwilling to increase the overall tax cut bill”.
The Labour Party added in its manifesto that it would give the Pensions Regulator, which oversees occupational pension schemes, new powers to intervene if schemes are not delivering good value to their members.
LIFETIME ALLOWANCE
All eyes are on whether Labour will reintroduce the Lifetime Allowance, a scheme that caps the amount you can save tax-free for your pension over your lifetime.
Previously this maximum was set at £1,073,100.
The party had previously indicated that it would reintroduce the maximum capacity after the Conservative Party abolished it in April this year.
But this promise met with much resistance from the financial sector. According to experts, it would be too complicated to reintroduce the promise.
It is also said that this policy has caused some doctors to retire early.
Subsequently, the policy was not included in Labour’s election manifesto, much to the relief of the pensions industry.
David Brookshead of policy at pensions consultancy Broadstone, said: “Given that Lifetime Allowance is not mentioned in Labour’s manifesto, we can probably assume that it will not continue, despite previously announced plans to reverse the Conservatives’ abolition of the tax.
“But more details are needed on the fine print of the implementation.”
PENSION DASHBOARD
The introduction of ‘pensions dashboards’ is expected to take place during the Labour government.
These dashboards, which must be live by October 31, 2026 at the latest, ensure that savers can view all their pensions and information about their pension savings online in one place.
It is estimated that millions of pension pots are currently ‘missing’, because many people change jobs several times during their careers and build up a new pension with each job.
The dashboard is designed to help employees identify savings they may have missed out on.
Tom Selby, director of public policy at broker AJ Bell, said: “It is estimated that around £27 billion of pension money is ‘lost’ in the UK, partly because every job change can create a new automatic pension pot.
What is automatic pension enrollment?
THIS is what you need to know about automatic pension enrolment:
What is automatic pension enrollment?
Since October 2012, employers have been required to enrol their staff in company pension schemes as part of a government initiative to encourage people to save more for their retirement.
When does automatic enrollment apply?
You will be automatically enrolled in your company’s pension plan if you meet the following criteria:
- You are not yet covered by a qualifying employer scheme.
- You are at least 22 years old.
- You are younger than the AOW retirement age.
- You earn more than £10,000 a year
- You work in the United Kingdom.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to everything you earn above £6,240 up to a limit of £50,270 in the current tax year. This includes overtime and bonus payments.
A minimum of 8% must be paid into the pension, with you contributing 5% and your employer paying a minimum of 3%.
What if I have more than one job?
For people with multiple jobs, each job is treated separately for automatic enrollment.
All your employers will check whether you are eligible to join their pension scheme. If so, you will automatically be enrolled in the company pension scheme of that employer.
Can I unsubscribe from this?
You can choose to unsubscribe, but you will miss the contributions from the government and your employer. If you choose to unsubscribe, you can resubscribe later.
“Reforms to create pension dashboards, allowing people to see all their pension pots in one place, should make a big difference.
“The schedule has been delayed several times, so it is crucial that the new government continues with the planned rollout of dashboards.”
It remains to be seen whether Labour will continue with the Conservative government’s plans to introduce a ‘pot for life’ model for pensions, where workers have one pension for life.