Labour pledges a pension landscape review if elected

27 June 2024

Written by Retirement Line

The Labour Party has announced it will review the UK pensions landscape if it wins the upcoming general election on 4 July.  Their pledge, outlined in the party’s manifesto released on 13 June, signals an intent to enhance pension outcomes and boost investment in UK markets.

Aiming for better pension outcomes

Plans outlined in the Labour’s 2024 manifesto include incentivising pension funds to invest in UK markets, and to deliver better returns for savers by “taking advantage of consolidation and scale”.

Furthermore, the party has a wider review of the pension system in its sights. The manifesto says: “We will also 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, the manifesto doesn’t go into more detail about the review’s scope.

In an article by Money Marketing, Tom McPhail, Director of Public Affairs at The Lang Cat, responded to Labour's reform plans. Referring to Labour’s plans for ‘consolidation and scale’ mentioned above, he said: “The commitment to reform workplace pensions so we have fewer, bigger and better-run schemes is good news.”

He also suggested that the pensions industry would benefit from an independent commission similar to the Turner review, which addressed long-term challenges in providing sustainable retirement incomes.

Commitment to the triple lock

Labour has also pledged to maintain the triple lock on State Pensions. This mechanism ensures that the State Pension increases annually by the highest of inflation as measured by the Consumer Price Index (CPI), average earnings growth, or a minimum of 2.5%. 

The triple lock aims to protect retirees from falling into poverty as inflation erodes the value of the State Pension. However, its long-term sustainability is a subject of debate within the pensions industry.

Jon Greer, Head of Retirement Policy at Quilter, pointed out the fiscal challenges posed by the triple lock. Quoted in Money Marketing, he noted that no political party has fully addressed its financial implications.

He was also reported as saying that Labour’s commitment to reviewing the pensions and retirement savings framework offers a “critical opportunity” to re-evaluate the triple lock’s long-term viability. He advocated for a balanced approach that protects current pensioners while ensuring intergenerational fairness amidst an ageing population.

Greer suggested linking the State Pension increases more closely to average earnings as a potential reform. He believes that this move would bring pension growth more in line with national economic performance to create a system that is more predictable and sustainable.

Conservatives pledge ‘triple lock plus’ for pensioners

Labour is not the only party to pledge a commitment to maintaining the triple lock. The Conservative Party has also done this – and gone one step further by proposing a new measure called the 'triple lock plus.' 

This new policy aims to annually adjust the tax-free pension allowance in line with the triple lock guarantee, ensuring it increases each year based on the highest of three factors: average wage growth, inflation, or a minimum of 2.5%.

Currently, the tax-free allowance has been fixed at £12,570 since 2021. There are no planned increases until 2028.

The State Pension saw an 8.5% increase in April, bringing it to £11,502 per year. Although it currently remains below the taxable threshold, the Office for Budget Responsibility (OBR) predicts that the State Pension will surpass the frozen personal allowance by 2027. 

According to the Conservatives, without the implementation of the triple lock plus, millions more pensioners could be subject to income tax, paying 20% on any income above the personal allowance.

Sources:

Labour pledge pension reforms and commitment to triple lock: Labour manifesto commits to pensions landscape review. Money Marketing. Accessed 25 June 2024.

Conservatives pledge Triple Lock Plus in manifesto: What is the triple lock plus – and what could it mean for pensions?. The Independent. Accessed 25 June 2024.