Will they cut tax credits or raise the state pension age?

Labor is planning a major overhaul of pensions, which will have savers worried because it means everything will be on the table.

Chancellor Rachel Reeves ruled out a budget before September and said there would be no surprise tax changes even then.

But we don’t know what comes next, especially in terms of generosity or otherwise the mass of tax rules that affect pensions.

There were few clues in Labour’s manifesto, although we know the new government is committed to maintaining the state pension triple lock.

We also know that Reeves has made comments in support of the Conservative plan to use people’s pension savings to boost economic growth in order to survive in some form.

The new Work and Pensions Secretary is Liz Kendall, who will cover the role from September 2023, but a new Pensions Secretary has yet to be announced. We’ll see what’s on their agenda.

> What does a Labor government mean for your money?

The big pensions review: Will Labor launch tax raids?

Labor said in its manifesto that it would carry out a “review of the pensions environment” to consider the steps needed to improve pension outcomes and increase investment in UK markets.

With changes to pension tax relief not expressly ruled out in anything the party has said so far, there is speculation they will consider the radical reforms that Tory chancellors have ultimately shied away from – and would inevitably spark a backlash.

The current superannuation rebate system is based on people’s income tax rates of 20 per cent, 40 per cent or 45 per cent, which tilts the system in favor of the better-off because they pay more tax.

Rumors of reform usually revolve around the introduction of a flat rate, with higher and additional rate payers receiving a reduced level of relief and basic rate payers either the same or slightly more than now.

The government would be stingy with setting a new flat rate if it was trying to save money, and then it could probably move it up and down as it pleased.

The main problem is that it removes the principle of pre-tax income pension savings – which people fall back on for pension tax relief – causes problems with final salary and other defined benefit schemes and conflicts with salary sacrifice contributions.

Meanwhile, Labor backed away from previous plans to reverse the scrapping of the lifetime allowance, which was the total limit people could have in their pension fund without facing tax penalties.

This is not surprising, as the government will want to retain the goodwill of doctors whose support it needs to overhaul the NHS, not to mention judges and senior civil servants who deal with other political priorities.

A reservation for essential public sector workers has never sounded feasible – the lifetime allowance replacement scheme is already complicated enough – so the result is that all higher earners will benefit.

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Prime Minister Keir Starmer’s passing mention during the campaign of scrapping the 25% tax-free pension lump sum was quickly dissociated by the party, which said he had made the comment by mistake during a radio interview.

“Any new chancellor will always be tempted to tinker with pension taxation, particularly in a challenging fiscal environment,” says Tom Selby, director of public policy at AJ Bell.

“While the current allowances regime is ripe for simplification, it is crucial that any reforms in this area focus on the long term and encourage more people to save and invest for their future.

“Labour’s decision to abandon plans to reintroduce lifetime pensions, a reform that would have added complexity and deterred investment risk, is hopefully a positive sign that Labor will take a pragmatic approach in power.”

Gary Smith, financial planning partner at Evelyn Partners, says: “Implementation of the abolition of the lifetime allowance has been imperfect and sometimes confusing, and financial planners are still struggling with LTA hangovers such as the lump sum and the issue of death benefits – but generally talking about LTA has been an unwelcome distortion and best written down in history.

“The question, of course, is whether the new government will seek to contain the cost of the Exchequer’s pension tax relief in some other way.”

Steven Cameron, director of pensions at Aegon, called on the government to set up an independent Pensions and Savings Commission within the first 100 days.

“With pensions being such an important long-term savings tool for millions, change should not be rushed,” he says.

“And as ‘super’ as a Labor majority is, cross-party support can offer stability and certainty. We need a well-thought-out and logically organized reform agenda.”

State Pension: When will the starting age increase to 68 and will the Waspi women receive compensation

The state pension triple lock means that the increase is determined by whichever is higher, inflation, growth in average earnings or 2.5 per cent.

Labor has promised to keep this commitment to pensioners for the whole of this parliament.

To afford the bill, he may have to bring forward an increase in the state pension age, penalizing today’s workers who fund the pay rise.

The state pension age should increase from 66 to 67 between 2026 and 2028.

There have been several reviews of a further rise to 68, but the Tories have kept putting them off, so the decision is likely to catch up with Labour.

But unless it seriously needs to get the potential savings to the Exchequer in black and white, Labor could maintain a “wait and see” approach to the age issue.

The Conservatives attributed the delay to current uncertainty about life expectancy figures, the labor market and public finances.

Labor has not promised to shield the state pension from income tax, as the Tories did with the Triple Lock Plus plan announced during the election campaign.

In fact, it will eventually have to be dealt with for practical reasons as well, to avoid a situation where the Department for Work and Pensions pays increasing numbers of people State Pensions, some of which the Treasury then recovers in income tax.

Many pensioners are already in this situation because they receive a state pension higher than the personal allowance of £12,570, according to analysis by This is Money columnist and LCP partner Steve Webb.

Another lingering issue is compensation for “Waspi” women, which the Women Against State Pension Inequality campaign continues to push for following the Parliamentary Ombudsman’s report in March.

It ordered the government to compensate women for failing to give them sufficient notice of an increase in their state pension age.

The Department for Work and Pensions under the Tories has not yet responded to the election. Labor seems to have come this far with what sounds like a non-committal speech.

Pressure for growth: Will pensions be co-opted into a patriotic mission to support the economy

The mention in Labour’s manifesto of a pension overhaul was explicitly linked to the aim of encouraging more investment in domestic markets.

That means the new chancellor is likely to stick to some version of her predecessor Jeremy Hunt’s Mansion House plans to use people’s pension savings to boost economic growth.

That could invite pushback from the pensions industry, which sees its role in getting the best returns for scheme members wherever it finds the greatest investment potential, not in supporting a patriotic mission to boost the economy.

But it’s not that simple, as former pensions minister Ros Altmann pointed out. It called for 25 per cent of new pension contributions to be invested in UK assets.

“Both pensions and Isas come with generous tax breaks, but at the moment taxpayers are spending huge sums to subsidize people’s investments, but not a penny needs to be put into the UK,” says Lady Altmann.

“Investors can still put their money overseas if they wish, but they should not expect taxpayer subsidies to support overseas economies rather than our own.”

Hunt’s Mansion House plan focused particularly on boosting private equity stakes in occupational pension schemes, notes AJ Bell’s Tom Selby.

“According to Labour, British pension funds and insurance companies held 39 per cent of shares listed on the London Stock Exchange at the turn of the century. By 2020, they held only 4 percent.

“In the US, pension schemes hold 50 per cent of their assets in equities, compared to 27 per cent in the UK.

“A single investment of £300 million by a Canadian pension plan in a UK company surprisingly exceeded the total of all UK pension investments in private and growth equity in the same year.

“Obviously any shift in asset allocation by these schemes will need to be done in a way that does not harm members’ interests, but given the amount of money being thrown around in defined benefit schemes in particular, even relatively small changes could make a big difference. into the British economy.”

Becky O’Connor, director of public affairs at PensionBee, says she wants detailed information on how any reforms will align with economic growth strategies while ensuring favorable returns for pension savers.

“Clarification is needed on how exposure to growth opportunities in the UK will be adjusted for savers’ proximity to retirement, particularly as older savers tend to invest in lower-risk assets to protect themselves from market volatility and potential downturns.”

Meanwhile, the fate of consultations on how to give workers a single “pension pot for life” that they and all employers can save into throughout their careers is uncertain.

Pensions industry insiders are divided on whether savers would get a better deal.

Automatic Enrollment: How soon the expansion plan will be implemented

The last government backed a private member’s bill to extend automatic enrollment into pension schemes, but the timing of the introduction of two key changes to the legislation remains up in the air.

The reforms mean the removal of the levy earnings floor, which is currently £6,240, allowing people to save for their pension from the first pound of their earnings.

The enrollment age will also be lowered from 22 to 18, meaning young people who benefit most from the growth of compound investments will start saving earlier.

PensionBee’s Becky O’Connor hopes the Labor government will push through the plans.

“Early contributions are invaluable with the benefits of compound growth and such measures will significantly strengthen the future financial security of the UK workforce.”

Aegon’s Steven Cameron says: “The Government’s first priority should be the planned improvements to workplace pension auto-enrolment, which have already won cross-party support and will boost pension funds for millions of workers.”

Retirement Dashboard: The game changer planned for 2019 finally arrives

The long-promised pension panels have been delayed many times but could see the light of day under a Labor government.

Online tools that allow people to see all their pension pots at a glance have been in development for years. The Conservatives announced the project in the 2016 budget, with a launch date planned for 2019.

Cameron says of the pension panels: “This can be a way for individuals to track and engage with all their pensions and we are urging Labor to ensure they are up and running by the 2026 target date.”