Labour's review of the pensions landscape is sorely needed: Sarah Coles

When HL surveyed retired people about the policies that would be most likely to win their vote, the winner by a country mile was a guarantee of the state pension triple lock – chosen by 61 per cent of people – which guarantees that the state pension will rise each year with inflation, wages or 2.5 per cent - whichever is highest. So it’s no surprise that particular policy was nailed on from the early days of the campaign.

Other than that, there was very little relating to pensions in the Labour manifesto, so we then went through weeks of the Conservatives highlighting areas that Labour hadn’t mentioned, and raising the question of whether this meant it was secretly planning a change. In some cases, Labour then specifically ruled out some changes.

This included bringing back the lifetime allowance – which limits the total that can be held in a pension. When Jeremy Hunt axed this limit last year, Rachel Reeves committed to bringing it back under a Labour government.

This led to confusion and uncertainty among pension investors, who didn’t know whether they should keep contributing on the grounds that there was no lifetime limit – or hold back just in case. The campaign brought this to a head, and to the relief of many pension investors, Labour confirmed it wouldn’t be reintroducing it.

Attention then turned to pension taxation. There was the question of the 25 per cent tax-free cash on pension withdrawals on retirement. There were questions around whether this was under threat, until Labour explicitly said it was a permanent feature of the tax system.

Finally in the frame was pensions tax relief – where the government tops up contributions into a pension scheme. It means a £100 paid into a pension will cost a basic rate taxpayer £80 and a higher rate taxpayer £60.

This was a hot topic, because back in 2016, Reeves had spoken in favour of moving to a flat rate of relief – somewhere between basic rate and higher rate.

This would make contributions less rewarding for higher rate taxpayers, but more rewarding for those on lower incomes. Because the lion’s share of tax relief is claimed by higher earners, this would save the government money, which is why questions were raised as to whether a cash-seeking government might make the change. However, the government insisted it had no plans to introduce flat-rate relief.

The key here is that saying there are no plans to make the change is not quite the same as ruling it out. It means it remains in the toolbox if the government needs to raise cash further down the line.

Given the spending cuts baked into its maths, it will either need to generate impressive growth, implement major spending cuts, or reconsider tax rises as we go through this parliament. The keen-eared voter will have been listening to everything Reeves has said since walking into Number 11 about checking the finances left behind by the previous government to see just how bad things are. They’d be forgiven for wondering whether this rhetoric means she’s potentially keeping the door open to this kind of change.

She also hasn’t specifically ruled out changes to the inheritance tax treatment of pensions. At the moment, you can leave your loved ones the money in certain types of pensions after your death, free of inheritance tax. It’s treated very differently from other investments you might hold at the time, which has raised the issue of whether the government could remove this tax break.

It’s important to emphasise that just because something hasn’t been ruled out, doesn’t mean it’s necessarily going to happen. Raising possible tax threats by your opponents is standard practice in any election campaign, and doesn’t always translate into more tax. Even if there are changes, they’re not going to happen in a hurry. A Budget isn’t planned until the autumn.

It means it’s vital not to rush into anything. A knee-jerk reaction out of fear means you run the risk of doing the wrong thing for your overall finances in a panic over a tax change that never happens. Instead, it’s worth revisiting the timing of things you plan to do anyway. If, for example, you plan to make pension or ISA contributions at some time during the current tax year, you might choose to do it sooner rather than later, while you can be absolutely certain where you stand.

By contrast, there’s also the chance that the new government could bring in very positive changes for pensions. It has promised a review of the pension landscape.

This is sorely needed, as years of tinkering around the edges of pension policy have caused endless uncertainty. It will hopefully also include a review of the state pension, to make sure it remains sustainable in the long term and that the state pension age doesn’t need to be hiked further in a bid to manage burgeoning costs. The review should also build on the idea of a lifetime pension - where people can save into their pot of choice through their working lives rather than switching every time they change jobs.

Plus there’s the hope that the review includes consideration of the tax-efficient annual allowance for non-earners. Your partner can make contributions to your pension while you’re not working, but at the moment they’re limited to tax relief on £2,880 a year – taking the full contribution to £3,600.

This limit was introduced way back in 2001, and hasn’t increased by a penny since. If it had risen with inflation, it would be £6,530, so the limit needs to be revisited. The amount of money people need in retirement is increasing with inflation – so the amount that can be contributed tax-efficiently while you’re not working needs to do so too.

The fact that any changes are likely to start with a review is an excellent sign. Pensions are something we’re in for the long haul, so we need stability and predictability, so we have the confidence in our retirement planning that we need. We’ve had enough piecemeal changes over the years from various governments, and at least a quarter of people in my constituency will be hoping that this government puts a stop to that – ushering in a period of more considered long-term planning.

Shopping a washout in June

You’re not the only one put off shopping by June’s terrible weather, and the mixed forecast could spell more trouble for the high street. The British Retail Consortium figures found that sales were down 0.2 per cent, and non-food sales fell around 3 per cent. Summer spending on things like clothes, shoes, DIY and gardening fared particularly badly compared to those during a much hotter June last year.

The only real bright spot was electronics, partly because some people who bought during the pandemic were ready for a refresh, and partly because sports fans upgraded their TV in time for the Euros.