A month in politics
For adviser use only
Over the last month, the UK has seen dramatic political developments, with the General Election result confounding most predictions. At the time of writing, the implications of the ‘hung Parliament’ are still emerging as we await details of any ‘confidence and supply’ arrangement and analyse the Queen’s speech. The recently started Brexit negotiations will take up a huge amount of legislative time as the Government agrees its negotiating stance and pursues what many believe will be a ‘softer’ Brexit. But that doesn’t detract from the need to advance other items which are at risk of dropping off the Government’s pensions and savings priority list.
Whenever there’s increased uncertainty, the value of advice becomes even greater as people seek professional help from advisers to navigate the changes and to keep on track to meet future objectives. So what’s the current state of play?
The state pension triple lock featured heavily in pre-Election campaigning with the Conservatives’ proposals at odds with those of other parties. As expected, the Queen’s speech sidestepped this contentious issue with no mention of replacing it in 2020 with a double-lock without the 2.5% underpin. If, as many expect, inflation remains above 2.5% in the coming years, this underpin won’t affect the level of the state pension. But while there is no need for the Government to commit either way until 2020, an early announcement to keep it for the next five years would be welcomed by some.
There’s been no sign of the government’s delayed response to the Cridland review of state pension age. Further or accelerated increases may be a step too far at the current time!
Social care funding
Social care funding turned out to be one of thorniest issues of the election campaign with opposing views on how to solve it. The Queen’s speech confirmed the Government will consult on proposals for individual contributions towards social care costs and our ageing population means funding needs to be tackled urgently. Realistically, the state can’t meet all the costs and ideally, such long-term policy would be based on cross-party consensus. Aegon believes the overall solution needs to strike a fair deal between individual and state contributions, be stable over time without constant tinkering and be easy to understand. This will allow advisers to help people plan ahead with confidence.
An overall cap on individuals’ contributions is essential to enable planning for social care contributions while also protecting inheritance aspirations. I hope the promised consultation will dust off earlier plans based on Andrew Dilnot’s recommendations. These were to cap an individual’s contributions to ‘eligible’ care costs at £72,000, but many would have struggled to understand what was ‘eligible’ and what wasn’t. A simpler approach might be to set a maximum time period over which the individual would be expected to contribute before becoming entitled to state funding.
The Queen’s Speech included not one but three Finance Bills which provides scope to tidy up the long list of loose ends from the Spring Budget dropped from the pre-Election Finance Act. We urgently need clarity on if and when the Money Purchase Annual Allowance will reduce to £4000 for those who’ve exercised pension freedoms and on the amount of employer-sponsored advice which is exempt from National Insurance and tax.
Modern-day working practices
The Queen’s Speech also mentioned giving greater protection to those affected by modern-day working practices, including gig-economy workers. I expect this to be informed by Matthew Taylor’s independent review which is due to report this summer. Any moves to give gig-economy workers equal employment rights with their ‘employed’ peers, including an employer pension contribution, would be a welcome start to bridging the gap between the pensioned and unpensioned.
What else do we need to be progressed?
The Queen’s Speech was disappointingly quiet on any legislation to ban pension cold-calling or give schemes and providers’ greater powers to block suspicious transfers. Post pension freedoms, pension scams are on the rise and constantly evolving so the government can’t afford to drop this from its agenda. There was also nothing to take forward the Government’s commitment to protecting defined benefit scheme members from unscrupulous employers who put members’ pensions at risk by deliberately underfunding their schemes.
Finally, changes at the Treasury mean we will have new leads on important topics such as pension dashboards and the Financial Advice Market Review. On the former, ongoing Government involvement is essential on matters such as compelling all schemes to provide data. The Financial Advice Market Review also needs ongoing attention to ensure it delivers on the ultimate aim of closing the advice gap. And let’s face it - in these uncertain times, the need for advice has never been greater.