Article What a Labour government could mean for your pension

All article information correct as at time of writing on 7 August 2024. For the most up-to-date news and helpful tips, visit our Money tips hub.

On 4 July, the UK welcomed a new government to Westminster, with the Labour party winning a significant majority across the country and Sir Keir Starmer taking over as Prime Minister.¹

Naturally, a change of Government leads to questions around what approach they’ll take on the biggest issues – including your State, personal and workplace pensions.

Based on known timelines and announcements from Labour’s first few weeks in office, here’s how your pensions could be affected over the next five years.

1. Your personal pensions
2. The State Pension
3. Your workplace pensions

Your personal pensions

Pensions can be a complex topic to get your head around, with lots of rules and legislation governing how, when and what you can do with them.

Although the new Government hasn’t announced any immediate plans for personal pensions, there is a big upcoming change that has carried over from the Conservatives, and will now fall on Labour to oversee. Being aware of it could help you to make more informed pension and retirement decisions.

The age at which you can access your personal pensions 

You can only begin to access your personal pensions once you reach a specific age – known as the normal minimum pension age (NMPA).

At the moment, the NMPA sits at 55 years old. However, as announced by the Conservatives in 2022, this will increase to 57 by April 2028.²

Pushing back the NMPA means you’ll have to wait longer before you can begin to take an income from your personal pensions, which could in turn have implications for your retirement plans. In particular, some might be forced to work a little longer than they had initially planned.

Although this sounds like a negative at first, remember that it also presents an opportunity for your workplace pension, and other pensions, to benefit from a few extra years of contributions and potential investment growth. This could enable you to build up a larger pot for spending when you do retire.

Remember, the value of an investment can fall as well as rise and isn’t guaranteed. The value of your pension pot when you come to take benefits may be less than has been paid in.

The State Pension

The State Pension is a valuable source of income for millions of retirees across the UK, with the Government providing a pension to those who are above State Pension age and have a qualifying National Insurance record.³

Again, the current Government hasn’t announced any new plans for the State Pension. However, it’s worth knowing a little more about the Triple Lock system and another carried-over change to the State Pension age.

No changes to the Triple Lock 

The Triple Lock mechanism determines the rate at which the State Pension will increase each April, set at whichever was highest in the previous year out of inflation, earnings growth or a minimum 2.5%.

In the past two years, economic challenges arising from the pandemic and the war in Ukraine, have led to highly volatile inflation and earnings growth figures – and ultimately, caused the two of the biggest increases to the State Pension since the Triple Lock was introduced in 2011.⁴

This has led many to question the fairness and sustainability of the current Triple Lock system. However, Labour has confirmed it will retain the Triple Lock as is for its parliamentary term.

The age at which you can claim your State Pension 

You can only receive your State Pension when you reach State Pension Age. This currently sits at 66, but it will soon be increasing under a change introduced by the previous Conservative Government.

More specifically, the State Pension age will jump to 67 between 2026 and 2028, before rising again to 68 between 2044 and 2046.⁵

Like the upcoming increase to the NMPA, the rising State Pension Age could have implications for your retirement plans. Having to wait longer for your State Pension income could require you to reconsider when you stop working or where your retirement income will come from if you plan on retiring earlier.

Your workplace pensions 

Since the introduction of automatic enrolment in 2012, over 10 million more workers have begun saving into a workplace pension.⁶ It’s been a hugely successful initiative up to this point. With Labour’s renewed drive to further improve pension outcomes, you could see changes to how your workplace pension works.

Progressing with reforms to automatic enrolment 

Back in 2017, an independent review recommended a number of reforms be made to the automatic enrolment system – focused on getting more people to start saving and maximising value for those doing so.⁷

Backed by all main political parties at the time, the reforms would see the auto-enrolment minimum age reduced from 22 to 18, while the minimum 8% contribution was to be based on your income from the first £1 earned, rather than income over the current £6,240 earnings threshold. Together, these could enable you to benefit from greater employer and personal contributions over a longer period of time.

However, delays under the Conservatives mean these still haven’t been introduced, with the decision on whether or when to implement them now falling onto Labour.

As of yet, there is no indication from Labour as to their plans, but they have announced that a new Pensions Review will include a focus on improving retirement outcomes for pension savers.⁸ This could be where we find out more about their views on the auto-enrolment reforms.

Consolidation of your small pots 

Although auto-enrolment has been really helpful for getting millions more people saving for retirement, it’s also created an issue whereby many people simply lose track of the various pensions they’ve accumulated, when being auto-enrolled into a new scheme at every new employer.

Lots of these pots might only have small amounts saved into them, but knowing exactly what you have at your disposal could make a difference when working out how you’ll support your retirement.

In the King’s Speech on 17 July, Labour announced its commitment to addressing this issue via a system for automatically consolidating any small defined contribution pots that you’ve left behind.⁹ This means that any old workplace pensions with less than £1,000 in, and no contributions made for 12 months, would be located and brought together in one pot under your name, unless you choose not to.

In doing so, it should be easier for you to keep track of your pension savings, as well as possibly reducing the charges across many different pots.

There is no current timeline or specific details as to how the Government plans to do this. However, the Conservatives did make efforts to introduce a similar system while in power, so Labour could use these findings to inform their own plans and accelerate things.

Looking ahead

It’s very early days of the new Government and too soon to know precisely what might be introduced over the next five years, but one certainty is, that it will be a busy period of change for pensions.

In the meantime, visit our Money tips hub for more articles on pensions and investments – including ideas for effective budgeting, improved financial wellbeing and better saving.