How a Labour government could affect your pension
THE Labour Party has won the general election by a landslide, and now all eyes will be on whether it delivers on its promises.
The party made a number of pledges to protect people’s pensions and improve outcomes for savers if Sir Keir Starmer secured the keys to Downing Street.
But what do those include – and what do they mean for your retirement savings going forward?
TRIPLE LOCK
Pensioners will breathe a sigh of relief at the fact Labour has promised to keep the triple lock guarantee in place.
The “triple lock” ensures the state pension doesn’t lose value by increasing it each year in line with inflation, average earnings, or by 2.5% – whichever is higher.
However, the party did not match the Tories’ pledge to also raise the personal allowance in line with the state pension.
Labour has said it will keep in place a freeze on the thresholds at which you pay tax until 2028, first introduced by the Conservatives in 2021.
This could spell bad news for pensioners as many face being drawn into paying tax for the first time when claiming the just the state pension.
The freeze on tax thresholds means more people are being dragged into paying tax, or paying tax at a higher rate, as incomes, including pensions, are rising but thresholds are staying the same.
At the moment, the state pension is £11,502 a year, and the personal allowance is £12,570.
But the Office for Budget Responsibility (OBR) has warned the state pension will overtake the personal allowance by 2027.
Gary Smith, of financial planning firm Evelyn Partners, said: “Labour has pledged to retain the triple lock, but stopped short of matching the Conservatives’ ambitious triple lock-plus.
“This raises the prospect that pensioners will soon be taxed on their state pension income.
“The OBR has forecast that the state pension will overtake the personal allowance level by 2027, but if inflation or wage growth gives an unexpected boost to the state pension, this could happen sooner.”
WORKPLACE PENSION REVIEW
Labour also promised to conduct a review into workplace pensions with the aim of increasing people’s pension savings.
It said in its manifesto: “We will undertake a review of the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets.”
However, it has not yet provided further detail on what this review will entail.
Jon Greer, head of retirement policy at financial planning firm Quilter, said: “Labour’s pension review aims to overhaul the current system, potentially extending auto-enrolment and adjusting contribution thresholds to make workplace pensions more accessible.
“This is critical to ensure more people are saving more for their later life.”
Steve Webb, former pensions minister and partner at LCP, also wrote in Citywire that an “inevitable” focus of the review will be on pension tax relief.
Pension tax relief is where money you would have paid in tax is paid into your pension instead. It’s essentially a reward from the government for saving into your pension.
He added that Labour may want to look at expanding the minimum amount workers and employers have to pay into their pensions through “automatic enrolment”, which is where you automatically join your employer’s company pension scheme.
However, he added Labour will be “reluctant to make the cost of living worse for the low-paid and will not want to increase the overall bill for tax relief”.
The Labour Party added in its manifesto that it would give the Pensions Regulator, which oversees workplace pension schemes, new powers to intervene where schemes fail to offer good value for their members.
LIFETIME ALLOWANCE
All eyes have been on whether Labour will bring back the Lifetime Allowance, which caps the amount you can save into your pension over your lifetime without paying tax.
This was previously capped at £1,073,100.
The party had previously insisted it would bring the cap back after the Conservative Party scrapped it from April this year.
But this promise faced significant backlash from the financial industry, with experts saying it would be too complicated to reinstate.
The policy has also been blamed for forcing some doctors to retire early.
Then, the policy did not appear in Labour’s election manifesto – much to the relief of the pensions industry.
David Brooks, head of policy at pensions consultancy Broadstone, said: “With no mention of the Lifetime Allowance in Labour’s manifesto, we can probably assume it will not continue with previously announced plans to reverse the Conservatives’ abolition of this tax.
“But, further detail will be needed around concluding the small print on its implementation.”
PENSION DASHBOARD
The introduction of “pensions dashboards” is now set to happen during Labour’s term in government.
These dashboards, which must be live by October 31 2026, will allow savers to view all of their pensions and information about their retirement savings online in one place.
There are currently estimated to be millions of pension pots “missing”, as many people change jobs several times throughout their careers and join a new pension at each job.
So, the dashboard aims to help workers track down savings they may have lost.
Tom Selby, director of public policy at broker AJ Bell, said: “Around £27 billion of retirement money is estimated to be ‘lost’ in the UK, in part because each job move can create a new auto-enrolment pension pot.
What is pensions auto-enrolment?
HERE's what you need to know about pensions auto-enrolment:
What is pension auto-enrolment?
Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a government initiative to get people to save more for retirement.
When does auto-enrolment apply?
You will be automatically enrolled into your work’s pension scheme if you meet the following criteria:
- You aren’t already in a qualifying workplace scheme.
- You are aged at least 22.
- You are below state pension age.
- You earn more than £10,000 a year
- You work in the UK.
How much do I contribute?
There are minimum contributions that you and your employer must pay.
Your minimum contribution applies to anything you earn over £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 at least 3%.
What if I have more than one job?
For people with more than one job, each job is treated separately for automatic enrolment purposes.
Each of your employers will check whether you’re eligible to join their pension scheme. If you are, then you’ll be automatically enrolled in that employer’s workplace pension scheme.
Can I opt out?
You can choose to opt out, but you’ll miss out on the contributions from the government and from your employer. If you do choose to opt out you can opt back in later.
“Reforms to create pensions dashboards, which will allow people to see all their retirement pots in one place, should make a big difference.
“The timetable has been delayed multiple times, so it is crucial the new government presses ahead with the introduction of dashboards as planned.”
It remains to be seen as to whether Labour will continue the Conservative government’s plans to introduce a “pot for life” model for pensions, where workers have one pension for life.