What could a Labour government mean for your pension, and how can taking advice help?

It may have come as somewhat of a surprise when Rishi Sunak announced that the UK’s general election would take place on 4 July 2024. Having originally said that this would be in the second half of this year, very few of us expected that it would be so soon.

While nothing is certain until the polls are closed and votes counted, polling data as of 14 June does currently suggest that Labour has a commanding lead. Figures from the BBC show that the party currently polls at 42%, compared to 22% for the incumbent Conservatives.

The forming of a new government could hold significant changes for you and your personal wealth, especially if we see a Labour government with different economic priorities to that of Rishi Sunak’s Conservatives.

Tax is often a pivotal battleground for political parties, and another key area an election could have far-reaching consequences for is your pension – especially as the Labour party has now published its manifesto for its government, simply titled “Change”.

So, read on to discover what a Labour government could mean for your pension, and how working with a financial adviser can help you stay calm amid the uncertainty.

A full-scale review of the current pension landscape

First and foremost, Keir Starmer’s Labour party has committed to a full-scale pension review.

As initially announced in the party’s Financing Growth document published in January, and confirmed in the manifesto document, aspects of this review could include:

  • Using pension investments to reinvigorate capital markets, especially regarding UK growth assets and to support the goal of making the UK the “green finance capital of the world”
  • Working alongside local government pension schemes to implement cost-effective, in-house fund management and reform workplace pensions to improve returns and deliver better outcomes for savers
  • Seeking to improve efficiency in pension regulation with a joined-up approach between regulatory bodies
  • Identifying barriers to pension saving and continuing to increase pension engagement, ensuring that UK savers have sufficient funds to provide a sustainable retirement income, improving financial security in retirement.

It’s fairly unlikely that you’ll see a direct impact from changes such as these. Even so, it’s worth being aware of what the government is focusing on so that you can respond to any updates that do affect you.

The pension Lifetime Allowance remains a source of contention

One of the most interesting sources of contention for this election is the now-abolished pension Lifetime Allowance (LTA) threshold.

Previously, the LTA placed a limit on total tax-efficient pension savings across all your pots. Standing at £1,073,100 at last count, you would usually face an additional tax charge when withdrawing pension funds in excess of the threshold (unless you have one of a number of protections).

However, during his 2023 Spring Budget, chancellor Jeremy Hunt announced that the LTA would be abolished. Initially, the LTA tax charge was suspended, with the actual limit officially removed from 6 April 2024.

Shortly after the announcement at the 2023 Spring Budget, Labour immediately came out in opposition to the idea.

As the Institute for Fiscal Studies reports, shadow chancellor Rachel Reeves described the abolition of the LTA as “the wrong priority, at the wrong time, for the wrong people” and said that “Labour will reverse the changes to tax-free pension allowances”.

However, on 10 June, the BBC reported that Labour had abandoned plans to bring the threshold back, and there was no reference to it in the party’s manifesto.

This could be good news for you, as it means you may be able to tax-efficiently build up a larger pension fund.

However, as this has been an area of contention, it’s possible that this could change in future under a Labour government. As a result, it’s worth keeping an eye on announcements as the re-introduction of the LTA could make a significant difference to how you manage and contribute to your pensions.

Labour has committed to keeping the State Pension triple lock

Aside from your personal pensions, it’s also worth keeping an eye on announcements surrounding the State Pension.

Just as the Conservatives have pledged in their manifesto, Labour has also promised to maintain the State Pension triple lock. This is the legislation that sees the State Pension payment increased each year by the highest of:

  • Inflation
  • Average earnings
  • 2.5%.

This could be good news if you are approaching or already at the State Pension Age, as it means the amount you receive will continue to rise over time in line with one of these metrics.

Furthermore, the State Pension Age is currently 66, with plans to raise it to 67 by 2028 at the latest. Rachel Reeves has said that Labour has no plans to increase the threshold if the party wins the election.

However, it’s worth noting that Labour has not committed to the “triple lock plus” presented in the Conservative manifesto.

This plan would not only see the Conservatives commit to the triple lock, but extend the same annual increase to the Income Tax Personal Allowance – the amount of income you can have before paying tax – exclusively for pensioners.

This would guarantee that State Pension payments are not pulled into paying Income Tax in future, a concern currently as the full State Pension in 2024/25 makes up more than 90% of the Personal Allowance.

Rather than presenting a similar plan, Labour has actually been critical of this proposal. Party members have called it “not credible”, a “desperate move”, and a “gimmick”.

So, you will continue to benefit from the triple lock in future under a Labour government. However, you may soon have to start paying Income Tax on your State Pension payments if the Personal Allowance remains at its current level, as it is set to do until at least 2028.

We can help you manage your wealth, no matter what happens

While it remains to be seen exactly what will happen on 4 July and how the next government will approach pension legislation, this could still be a highly uncertain time for you.

After 14 years of Conservative leadership, the prospect of a Labour government may be disconcerting, and you might be feeling unsure as to what this will mean for your pensions.

In particular, you may be concerned about how a change to a government with different economic priorities could affect markets, and your invested wealth as a result.

So firstly, it’s worth being aware of how UK market returns have shifted under different governments. The chart below shows how £1 invested in the FTSE All-Share index from 1 January 1926 under Stanley Baldwin’s Conservative party to that of Rishi Sunak’s government today would have changed in value:

Source: Timeline

As you can see, no matter which party has been in power and regardless of events such as recessions and peaking inflation, the FTSE All-Share has continued to advance, producing average calendar returns of 12% a year. Today, that £1 would be worth more than £10,000.

Past performance is not necessarily an indicator of future performance. Even so, this may offer reassurance that historically, a change between the two largest UK parties has not been inherently bad news in of itself for the UK market, as measured by the FTSE All-Share. As a result, regardless of the party in power, the key to successful investing is often sticking to your long-term strategy.

Moreover, this is where working with us at Britannic Place can add real value. Whether it’s changes to pensions, the tax regime, how your investments could be impacted, or any other announcement that affects you financially, we can help you organise your wealth accordingly.

No matter what happens, it’s crucial to stay informed of the latest changes so that you can react as and when necessary. We’ll stay up to date with these disclosures on your behalf and offer recommendations as to how you can respond to make the most of the latest developments.

If you’d like to find out how we can help you, please do get in touch. Email info@britannicplace.co.uk or call 01905 419890 today for more information.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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