Campaigning for political patience on pensions

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As the clock ticks down to the general election on the 7th May candidates have cranked up their campaigning efforts and are pushing their policies from any soapbox they can find.

For a lot of voters I think what politicians have to say on pensions is of growing interest. There is more awareness of the need to save during our working lives if we want to enjoy financial freedom in our later years and we’re starting to think more about how living longer will affect our finances.

Changes  to pension policy

There have also been some very public changes to pension policy in recent years and they’ve got more people talking about retirement planning.

Earlier this month access to pension pots was made dramatically more flexible for people turning 55 and auto-enrolment legislation continues to transform workplace pension arrangements and people’s savings habits.

But how will the pension landscape change after the general election and is there need for further reform straightaway?

My hope is that whoever wins the general election, they won’t rush through a raft of new rules. It’s likely the new government will set out its initial plans in an emergency budget before parliament takes its summer recess, but I’d like to see pensions left out of any changes for the time being.

If, however, they decide to introduce new pension rules, the most likely place for any immediate tinkering is around the tax relief available on pension contributions. The Conservatives and the Labour Party have said they want to reduce the amount of tax relief available for those earning over £150,000 a year.

Lifetime allowance and Annual allowance

Various political parties are also considering further reductions to the Lifetime Allowance and Annual Allowance which will have a much wider impact and not just on higher earners.

The Liberal Democrats want to overhaul the current pension tax system and replace it with a flat rate of income tax relief of 33% for everyone. So it’s more a matter of when and not if change happens.

Keeping the rules and regulations under periodic review is important if we’re going to help people enjoy financial security in later life, but we’ve got to give recent reforms a chance to bed in properly.

Only by giving them time will we see how the revolution around auto-enrolment and the new pension freedoms has affected the way people think about their pension, the way they use it and the amount they save into it.

As auto-enrolment reaches smaller employers and as the compulsory contribution rate rises to a combined employer and employee total of 8% will more people opt-out of pension saving? Should this lead to compulsory pension saving? 8% isn’t enough to build up an adequate pension pot, so should we be looking at more effective ways of increasing contributions such as auto-escalation or increasing the 8% contribution?

Pension freedoms

And what about the new pension freedoms? Does increased access to pensions from the age of 55 mean people will withdraw their money too quickly and leave themselves short of income in later life? Do people need more protection from making poor decisions?

Fresh thinking and innovation in the pension market is to be applauded, but let’s get the best out of the legislation that’s already been enacted. And so I really hope the incoming cabinet doesn’t see the pension market as a place to make a short-term financial win by instantly cutting pension tax relief at the expense of people’s long-term financial security.

Instead let’s give pension savers some breathing space to really understand the new options they’ve got around their personal and workplace pensions.

In return for a more patient approach the new government will get the chance to better focus on joined-up long-term policies that really fit with people’s later life needs. This will let it deliver improvements where they’re needed and give it something positive to shout about.

Steven Cameron

Regulatory Strategy Director