What will happen to your pensions after the General Election?
The long awaited General Election over, however the outcome is still uncertain. Putting the wrangling over political and economic reform to one side for a moment we take a look at what each of the major political parties have planned for your pension?
In this article we take a look at what the Labour, Conservative and Liberal Democrat parties have planned for your pension.
|Labour||They have already announced that they will cut higher rate tax relief on pension contributions for those earning above £150,000 from 2011 and have also restricted the amount that can be paid in this tax year to stop people brining forward pension contributions to obtain more tax relief.
Higher earnings will also be hit by the move to make employer contributions to pensions a benefit in kind and therefore subject to income tax.
|Conservative||Propose to scrap Labour’s plans to cut tax relief for higher earners.|
|Liberal Democrats||Plan to go much further than Labour and scrap higher rate tax relief all together, effecting anyone earning approximately £45,000 or more.|
|Labour||No plans to change the age at which you have to buy an Annuity, currently age 75 or the earliest date at which you can take benefits from your pension, currently 55.|
|Conservative||Propose to scrap the requirement to purchase an Annuity at age 75 and will “explore options” to allow people access to their pensions before the age of 55.|
|Liberal Democrat||Like the Conservatives they propose to scrap the requirement to purchase an Annuity at age 75.
They have also indicated that they would allow people to access their pensions earlier than the current minimum age of 55.
State Pensions & Public Sector Pensions
|Labour||They have said that they will make cuts to public pensions but have provided no details.
With regard to State Pensions they promise to ensure it rises in value in line with earnings in the future but will increase the State Retirement Age from 65 to 68 by 2046 for both men and women.
From 2012 Labour will introduce a national pension savings scheme, known as Nest. If no scheme already exists, employees will be enrolled automatically and employers must contribute 3% of an employee’s salary.
|Conservative||Plan to raise the State Retirement Age to 66 for men by 2016, they also plan to restore the link between the level of State Pension and earnings inflation.
No pension above £50,000 a year will be allowed from a public sector scheme.
They have also said they will look at restoring the dividend tax credit for pension funds which was removed by Labour in 1997.
|Liberal Democrat||Will restore the link to earnings for the State Pension with a minimum increase of 2.5% per annum.
They have said they will review public sector pensions and look at the possibility of cuts or a cap, although no more details have been given.
When it comes to tax relief the Conservatives certainly offer the more generous package, especially to those who pay higher rate tax i.e. approximately £45,000 and above. The Liberal Democrats are more draconian in this area and many experts believe that abolishing higher rate tax relief sends the wrong signal to savers and investors. Labour sit squarely in between the other two parties on this issue.
When it comes to flexibility the Liberal Democrats are offering more than Labour who are insistent that an Annuity must still be purchased at age 75, one of the major barriers to pension investment.
All parties agree that restoring the link between the State Pension and earnings should be a priority, however they are split on the raising of the State Retirement Age, with Labour’s plans seemingly a long way off in 2046, Conservative’s plans to raise the State Retirement Age for men by 2016 is seen by experts as tougher but probably more realistic.
Only the Tories have made it an aim to restore the dividend tax credit removed by Gordon Brown, although as yet they have not said how they would do this.
All parties will look in some detail after the General Election, should they win power, at how they will reduce public sector pensions; however none are offering many details at the current time.
Like any area of policy, from all parties there are some very specific proposals, some ‘aims’ and some areas where no detail is forthcoming at all. No single party would seem to have all the answers when it comes to the ‘time bomb’ of pension income, as with most things in life, you pay your money and make your choice.