Article 5 ways the election could affect pensions

With the general election to be held on 4 July, the UK is in the midst of a whirlwind electoral campaign of policies and pledges.

While every day is a long time in politics, polls are currently suggesting that we should be at least considering the implications for our customers and the wider pensions landscape, of a possible Labour government.

In this article, I’m focusing on the world of pensions, looking at five key areas of pensions policy and what we currently know about where the Conservatives and Labour stand on these issues.

1. The State Pension and Triple Lock
2. Reforms to automatic enrolment
3. Return of the Lifetime Allowance?
4. Social care funding
5. The bumper pack of ongoing pensions initiatives

1. The State Pension and Triple Lock

Few pension topics cause as much of a heated debate as the State Pension and the current Triple Lock mechanism.

When the Triple Lock came into effect in the 2011/12 tax year, it was designed to help make sure State Pensioners benefitted from increases of at least inflation, with higher increases in times of real earnings growth and a 2.5% underpin. Over the last 12 years, it’s achieved that goal, although the UK State Pension’s generosity still lags behind that of many other developed countries.

Most recently, a combination of the pandemic and war in Ukraine have contributed to the highest UK inflation rates for over 30 years, alongside highly volatile earnings growth. I don’t believe the year-on-year ‘highest of’ Triple Lock formula was ever designed to cope with such factors. As a result, this year’s 8.5% increase, following on from last year’s record-breaking 10.1% increase, have together raised questions over financial sustainability and intergenerational fairness.

Unsurprisingly, political leaders have repeatedly been asked whether they would keep the Triple Lock for the next five years. Both have given verbal commitments they intend to do so.

Prime Minister Rishi Sunak announced what he’s calling a ‘Triple Lock Plus’, whereby the current Triple Lock mechanism remains unchanged, but there will be an additional protection to avoid someone on the full State Pension having to pay income tax on this. Effectively, those above State Pension age will see an increase to their Personal Allowance, so the full State Pension always remains below the tax threshold. There are details to be thrashed out.

While likely to be popular with the party’s core ‘older’ voters, the policy could be challenged on the lingering grounds of cost sustainability and intergenerational fairness.

Beyond this, another consideration is what any commitments to Triple Lock increases might mean for the age at which you can access the State Pension. The more generous the level of State Pension, the greater the pressure could be to increase the State Pension age further and faster.

In my opinion, there are two options for creating a fairer State Pension. Firstly, I’d consider smoothing out the earnings component within the Triple Lock over a three-year period, rather than the current one-year cycle. This could help avoid unpredictable and unfair peaks and troughs in future State Pension increases. Secondly, against the backdrop of further likely increases to State Pension age, I’d like whoever makes up the next government to explore allowing people greater flexibility in when they access their State Pension. Offering the chance to access your State Pension up to three years earlier but at a lower level, could be made cost-neutral longer term. It would also offer up a new option to those who simply feel unable to continue to work until an ever-increasing State Pension age.

2. Reforms to automatic enrolment

Automatic enrolment is widely celebrated as one of the greatest pension successes of recent years, with over 11 million more employees saving into workplace schemes since its introduction.¹ However, it’s also widely acknowledged that the current minimum contribution rates won’t provide enough income on top of the State Pension, to give many a life of luxury. In fact, for most, it will be woefully inadequate, so it really is time for an update.

Unfortunately, the first such reform, which would have seen the gradual removal of the £6,240 earnings offset and the lowering of the auto-enrolment qualifying age from 22 to 18, has failed to be implemented despite winning cross-party support back in 2017. In fact, the Pensions Minister, Paul Maynard, recently confirmed that the consultation implementing these changes has been delayed to the ‘mid to later part of this decade’ which is incredibly disappointing for many.

This sets expectations should the Conservatives remain in power – but we’ve not heard what timeline Labour might have in mind. Enhancing auto-enrolment will affect many millions of employees, so I see it as a key policy to include in Manifestos. It might be too much to hope for, but it would be good to also hear what each party has in mind for reviewing the adequacy of the 8% minimum contribution rate and finding auto-enrolment-style solutions for the self-employed.

3. Return of the Lifetime Allowance?

Right now, the pensions ’horror story’ dominating advisers, schemes and providers alike, is the chaotic and hugely complex removal of the pensions Lifetime Allowance. While effective from 6 April, at the time of writing, we still don’t have all the final rules and this has meant some people’s retirement plans are currently on hold.

The Conservative government abolished the Lifetime Allowance to stop the limit discouraging higher paid individuals, specifically NHS doctors and surgeons, from remaining in work. But the Labour Party, in opposition, saw this as a tax break for higher earners. At the time, they said, if in power, they’d bring it back in some form, perhaps with exceptions for the NHS and other key public sector workers.

The latest we’ve heard is that Labour would reintroduce the Lifetime Allowance in a ‘fair and reasonable’ way. Given how complex and difficult we now know the removal process continues to be, I really hope they’ll think very carefully about this. At the very least, I hope they’ll engage with our industry to come up with a pragmatic way forward that avoids doubling down on that complexity.

4. Social care funding

A topic very closely related to that of pensions and retirement, is social care. At Aegon, we’ve been vocal in our push for political parties to clearly outline their plans for funding social care.

Our Second 50 research of 900 UK workers and 100 retirees, shows that 75% of the UK’s 50 to 59-year-olds haven’t factored social care expenses into their retirement savings needs.² But an increasing number of us will need – and have to pay for – some form of social care. So it’s vital the issue of a funding split between individuals and government is addressed.

The Conservatives’ funding deal, with an £86,000 cap on eligible care costs, was originally to be implemented in October 2023, but got delayed until October 2025. Little has been heard of it since, and Labour have yet to comment on this aspect. They may well have their own ideas, but my hope is that they’d also support a cap on care costs, so that people can plan ahead while also protecting inheritance aspirations. Social care affects millions of families and I see it as another key policy worthy of Manifesto inclusion.

5. The bumper pack of ongoing pensions initiatives

Lastly, whoever sits in power after the election will need to decide if or how to progress the long list of pensions initiatives currently in the works. Some insight is provided in the Labour policy paper, Financing Growth: Labour's Plan for Financial Services, but the following is partly guess-work.

Pension Dashboards

At last, we’re really getting somewhere with pension dashboards. The DWP has published connection deadline dates – starting from April 2025 for the largest schemes, to September 2026 for the smallest. The Treasury has created a new regulatory permission for Pension Dashboard Services and the FCA recently consulted on regulation of firms wishing to offer these. We’re hopeful that individuals will be able to use the pension dashboard of their choice from later in 2026 – and see all their pension online securely in one place. Pension Dashboards have the potential to create a step change in pensions engagement and I’d be surprised if a Labour government didn’t allow this initiative to proceed as currently planned. 

Value for Money Framework

Labour’s policy paper strongly suggests they’d continue to support the FCA, Pension Regulator and DWP’s Value for Money Framework, given its focus on supporting pension scheme consolidation and improved consumer outcomes. Because of the Election, the FCA has delayed a consultation on the Value for Money Framework for contract-based pensions. But I expect this one to continue, largely on the current trajectory, with phase one implementation possibly from 2027.

And the rest

I’m less sure of Labour’s position on the introduction of small pot consolidators, the extension of Pension Freedoms to trust-based scheme members, and the creation of decumulation-only Collective Defined Contribution schemes.

The Conservative government has already stated that while still keen to explore ‘pot for life’ or lifetime provider model, it will take more time to survey employer and employee reactions. With a potential risk to the success of auto-enrolment, I do hope an incoming Labour government might leave this firmly on the shelf for now.

What's next

Whoever forms the next government, 2024 and beyond will be a period of significant and wide-reaching change for pensions. In the run up to the Election and beyond, keeping up to speed with announcements and insights will keep you as prepared as you can be to advise your clients.

You can visit our Adviser insights page, a home for our latest articles on the trends and practices defining financial advice.

And you can now visit our brand new CPD hub, featuring a variety of educational, IDD-ready pieces to help you learn more about the latest product and legislative topics.