With just two weeks to go until 8 June, we're now beginning the crucial run into the general election. Last week, most of the major parties published their manifestos, giving us vital information on how the savings and investment world could look like in the next parliament and beyond.
So, what have the political parties got to say on the key areas?
The Conservatives repeated their key promises of raising the personal tax allowance to £12,500 and the higher rate tax threshold to £50,000. The Labour party has more radical proposals though – lowering the additional income tax rate threshold to £80,000 and creating a 50% tax band for those earning above £123,000. However, it doesn’t seem in the spirit of the policy to also commit to paying out tax relief at 45% and 50% on pension contributions for the top 5% of the population. My guess is Labour hasn’t yet joined the dots and realised what their income tax policy would mean for pensions tax relief.
It’s worth remembering any income tax changes don’t necessarily apply to the Scots. We already have a different higher rate tax threshold, and it’s likely the divergence between the two tax systems will only widen in future parliaments.
While Conservatives want to continue with the reduction in corporation tax, Labour sees it going the other way, and intends to raise it to 26% by the end of the parliament. Any increases will boost the attractiveness of employer pension contributions as a way of remunerating staff.
Pensions tax relief
The speculation about the possible demise of pensions tax relief seems to absorb every waking moment of the pensions industry. However, only the Lib Dems mentioned it, promising a review to moving to a single rate of tax relief. However, that doesn’t mean possible changes are off the table – it could just be, as mentioned above, the parties haven’t fully worked out their strategy. The speculation will no doubt continue after 9 June.
Following on from pensions tax relief, all the political parties have been disappointingly quiet about how to encourage more saving. The only real mention we've had is from the Conservatives who promised to promote long-term savings and pension products – but the messages surrounding pensions and interaction with the lifetime Isa need to be crystal clear. Both can prove excellent ways of saving for the future, but they are more suited to different people at different times of their lives.
State pension increases
How to increase the state pension has become one of the most important election pledges - generating a mountain of discussion and point scoring. Labour and Lib Dems have both committed to the triple lock to the end of the parliament. Whereas, the Conservatives have proposed ditching it in 2020 in favour of the double lock.
In reality, there will probably be no difference to pensioners’ income between the two approaches in the short term. However, this is all about voter perception, and it seems, politically, a ‘brave’ decision by the Conservatives.
State pension age
Labour want to freeze any increase to the state pension age once it reaches 66, as well as calling for a new review considering various life expectancies and the ‘arduous work conditions’ of some. This is at distinct odds with John Cridland’s review (which dismissed a varied state pension age as too complicated), and the planned increases to 67 in mid-2020s and probable increase to 68 in 2040s or before. The Conservatives have been a bit quieter on the subject, and have kicked their response to the Cridland Review into the long grass until after the election.
In the summer, we were due to have a consultation on how the tax system could be made fairer for how people are differently remunerated. Following this, the Conservatives could decide to go ahead with their previous plan of increasing the national insurance rates for the self-employed.
They also plan to roll out automatic enrolment to the self-employed. But how this will be accomplished isn’t yet clear. Certainly, in the absence of an employer contribution we need to find a way of enticing them to remain automatically enrolled and save for their future.
It’s now a waiting game to find out what colour the next government will be – and that could be a coalition. Whatever the result, an early budget is likely to set the agenda for the next parliament, making 2017 the year of the threebudgets. What a thought!
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