An examination of the Conservative and DUP manifestos reveal important disparities, as Samantha Kaye explains.
The election result has not delivered any more clarity in terms of pension policy. While there are commonalities between the Conservatives and the Democratic Unionist Party (DUP) – hence their alliance -there are some disparities too.
The differences
The DUP have been openly in favour of maintaining the triple lock and have expressed their support to the women hit by the increases to the state pension age (WASPI).
The Conservatives, on the other hand, have said that when the triple lock guarantee runs out in 2020, it will be replaced by a double lock.
This means pensions will rise by the higher of earnings and inflation, i.e. without the 2.5% minimum guarantee.
There is also no appetite on the Conservatives’ part to change their position on the women affected by the increases in the state pension age (SPA).
Indeed, there is a commitment to increasing SPA in line with the increases in life expectancy – so watch this space in terms of the impact of the John Cridland report.
Auto-enrolment rollout
The Conservative manifesto published on their website now reads the Conservative and Unionist Party Manifesto 2017, so has been updated to include the DUP. The Unionist manifesto principles for pensions seem largely to have fallen by the wayside.
One area of pensions policy that they both, in principle, agree on is the continued support of the rollout of auto-enrolment to small employers and the self-employed.
Some government think tanks have taken this view further and flouted the idea of a Workplace ISA (WISA) to sit alongside the auto-enrolment pension proposition.
The WISA would be available to those under age 40 and be able to accept employer contributions, taxed at the employee’s marginal rate(s) until the age of 50 (as per the Lifetime ISA).
A 25% Treasury bonus should also be added in the same way as it is to the Lifetime ISA. Withdrawals from the WISA would not be permitted until the age of 60; thereafter, they would be tax-free.
The same tax freedoms that apply to today’s pension assets would apply to the WISA and also be excluded for means testing purposes. Whether pledged in the manifesto or not, auto-enrolment will be subject to further change.
The practicalities of facilitating contributions to a WISA and/or a workplace pension scheme, together with the compliance requirements on communication and employee notices, will take some serious planning.
The impact of the increases to the minimum contribution levels to auto-enrolment schemes in 2018 and 2019 will undoubtedly have an impact on the numbers able to save and, if there is a choice of savings vehicle to be made at that time, the result could mean individuals opting out altogether.
The short term
The future is still unknown in relation to the Budget announcements that did not make it into the Finance Act 2017.
The Money Purchase Annual Allowance is expected to be £4,000 in this tax year and it is prudent to assume it will make an appearance in the next Finance Bill.
It would seem reasonable in the short term to not expect any more controversial measures, including any significant reform to pensions and pensions tax relief. Tax relief costs, however, are just too big to ignore.
So short term, we could experience a period of relative calm for employers and their pension savers.
But, as we have seen over the past year, we should not get too comfortable in this expectation – and should remember to expect the unexpected.
Samantha Kaye is head of pensions consultancy at Technical Connection
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