deVere Group: Are pension at risk in the general election?

https://www.devere-group.com/are-pensions-at-risk-in-the-general-election/

The UK general election is on, and within a few weeks, Brits will wake up to a Labour government, according to all the opinion polls. That means an end to fourteen years of successive Conservative Prime Ministers and Keir Starmer taking Sunak’s place as premier. Ahead of polling day on July 4, the two main political parties will be jostling over several key policy areas, including housing, the NHS, immigration and defence. A Labour win could mean dramatic changes to fiscal policy, impacting people’s lives and livelihoods – and?according to one Bloomberg columnist ?– pension pots could be hit as a result.

Will Labour tax my pension? ?

Those with the ability to do so should consider taking out tax-free lump sums from their pension pot –according to Bloomberg’s Merryn Somerset Webb, thinks an incoming Labour government might launch a raid on the ￡2 trillion held in UK pension funds. Webb thinks Labour might reintroduce the lifetime allowance, which capped the tax-free cash that could be saved across workplace and personal pensions. The Conservative government?scrapped the cap ?in April, which had been set at ￡1,073,100.

It follows a February report by The Sun that an incoming Labour government had?committed to reintroducing the cap , but that the allowance could be more generous than the previous limit. The abolition of the LTA is?projected to cost the government billions ?of pounds in the coming years, and bringing it back could be a ‘no-brainer’ for an incoming cash-strapped Labour administration.

Webb also thinks there is a risk that taxes could be levied on inheriting pensions. Under the current rules, a defined contribution benefit can be bequeathed tax-free if you die before age 75. But she says the rule, which has been?described as a ‘loophole’ by the IFS , could be a prime target to generate revenue for the exchequer.

Webb also warns there is a risk to pension freedoms, writing:

A fresh row has erupted over the ‘Triple Lock’ protection on state pensions, which sees pensions rise in line with the highest out of inflation, average earnings, or 2.5 percent. While Labour has committed to keeping the protections in place, they haven’t matched the Conservative’s pledge to upgrade it. The so-called ‘Triple Lock Plus’ ?would see the tax-free pension allowance rise if the Conservatives won the general election, a measure which purportedly means a pensioner receiving the full state pension would save ￡275 by 2030. Labour has?attacked the measure ?as a “desperate move.”

Whichever party wins the next election , those approaching retirement should be aware that the state pension age is likely to increase – and it could come quicker than previously thought. As per?Investors Chronicle , planned increases in the state pension age to 67 by 2028 and 68 by 2046 could be accelerated under pressure from the Treasury, according to AJ Bell’s Tom Selby.

Will Labour increase inheritance tax?

Britain’s wealthy landowners are rushing to transfer property to their children ahead of the election, according to?reporting by The Telegraph . It comes amid fears of inheritance tax reliefs being tightened under a Labour government after Rachel Reeves pledged to examine “every single tax break” if she became Chancellor. Speaking to the newspaper, Joseph Adunse, partner at Moore Kingston Smith, said:

This comes even though Labour has not set out any plans to increase inheritance tax and recently committed that there would be “no additional tax rises” apart from those already announced.?Speaking to the BBC , Rachel Reeves told of her ambition to reduce taxes – but would not commit to cutting taxes without a ‘fully-costed’ plan. The stance marks a clear break with the previous Labour leadership when former Shadow Chancellor John McDonnell?publicly mused ?about aiming a drastic slash at the inheritance tax threshold.

How will the election affect my finances?

While whoever emerges as Prime Minister after the July election could be on course to inherit a rebounding economy – they will still be forced to grapple with several long-term economic challenges. The UK’s ageing population is putting pressure on pensions, the national debt is almost as high as its GDP, and there isn’t much more to squeeze from general taxation – we hope. With Keir Starmer all but a shoo-in as the next PM, his plans should be taken seriously.

Despite critic’s claims that Labour is set to detonate a “tax bombshell” on the public, the party’s stated aim is to grow the economy – to increase the size of the pie rather than take bigger slices out of it. In a?recent speech to business leaders at Derby’s Rolls Royce plant, Reeves redoubled the growth pledge, which she said could be achieved by working in “partnership” with business. In the speech, she signalled her party was not planning to hamstring business with a heightened tax burden. She said:

However the Conservatives have?accused Labour of having a ￡10 billion “black hole ” in their spending plans, and say this means Labour will be forced to either borrow more money, raise taxes, or both. According to the Conservative’s analysis, Labour’s plans would result in ￡2,094 in uncosted spending per household, with Chancellor Jeremy Hunt indicating?VAT could be raised as ?a result.

But it was a charge which was quickly headed off by his shadow, with Reeves branding claims of a planned VAT rise as “nonsense.” Ultimately, though, whichever party wins the election, it is likely that once in government, unpopular decisions which were not advertised in the course of the campaign would be introduced. The difficulty is, that we can’t say for sure what they will be.

Will private schools be taxed?

Parents sending their children to private schools could face increased fees after the election – because Labour has pledged to levy VAT on the private school fees, which under current arrangements are exempt from the duty. Unless schools choose to absorb some or all of the cost, the move would see a 20 per cent increase in private tuition fees. The measure would raise ￡1.5 billion for the Treasury each year, according to the IFS. The levy raises serious questions about whether some families would be forced to withdraw their children from private education if they can’t afford to pay increased fees.

The Labour party would also hit private schools by ending their business rate relief, a move that is understood to be worth around ￡200 million each year to the Treasury—a cost critics have said would be passed on to fee-paying parents. The increased costs would come on top of an average?6 percent rise in private tuition fees in 2023 , as like other businesses, private schools battled to keep up with spiralling inflation.

According to one survey, as many as 60 percent of parents would consider withdrawing their children from fee-paying schools in the event the measures were introduced, resulting in their children being enrolled in the state system. Labour has said the VAT rise would go into force within a year of them entering office, so families with children at fee-paying schools should expect to see their bills hiked in 2025.

Parents have been advised to think ahead ?and consider financial planning options to help them ensure they can send their children to the school of their choice. Financial advisors?at the deVere Group , specialise in assisting parents in creating tailored plans designed to grow their wealth and invest in their children’s future. Knowing that private school costs are likely to rise, acting sooner rather than later could be vital.

Will taxes go up after the election?

While both main parties have ruled out increases to income tax, VAT and other major levies – it’s likely there will be an increase in the overall tax burden because of decisions taken under the Conservative government, which Labour has signalled they will not reverse.

Although income tax rates might not be increased directly, PAYE workers could still find themselves?paying more each month . That’s because the tax-free threshold on income tax has been frozen, meaning that if wages rise in line with inflation, they will be caught by the threshold, which is not being ratcheted up to compensate. According to the IFS, this measure would see 4.5 million workers paying into a higher income tax bracket by 2028, when the freeze is due to expire. It’s a measure both major parties support.

The Labour Party has also reportedly taken an interest in hiking capital gains tax,?The Telegraph reports :

While we won’t know for sure, significant tax hikes are unlikely to feature in the Labour Party manifesto. In the run-up to the 1997 election, then-Labour leader Tony Blair, whose party had been out of office for 18 years, was said to be a man carrying a Ming vase across a highly polished floor. In other words, his one job was not to slip up as he walked through the doors of Downing Street. With Keir Starmer in a similar position, it would be surprising to see him throwing down obstacles for himself in the form of significant tax increases in his electoral address. What happens after polling day, though, isn’t so clear.

Will taxes go up after the election?

As the UK approaches the 2024 general election, individuals and families should consider how potential policy changes could impact their finances. With Labour poised to take over from the Conservatives, many are concerned about the implications for pensions, taxes, and overall financial well-being. In many cases, seeking professional advice could make navigating these uncertainties easier.

An important concern for those approaching retirement is the possibility of Labour reintroducing the lifetime allowance on pensions, which could limit the amount of tax-free savings in personal and workplace pensions. This move could significantly impact those with substantial pension pots. Additionally, the potential for new taxes on pension inheritances and modifications to pension freedoms under a Labour government should be on the radar of those planning for retirement.

Given these potential changes, individuals should not only stay informed about the political landscape but also evaluate their current pension strategies. Consulting with financial advisors can provide tailored advice on safeguarding pension savings against current and future tax regime rules. Advisors can help clients remain tax efficient to ensure they retire with a pot that allows them to enjoy their post-work life the way they want to.

For those with private school commitments, the prospect of Labour imposing VAT on private school fees and removing business rate relief for these institutions could lead to a significant increase in education costs. Parents have been advised to consider the financial implications of such policy changes and explore various planning options. Financial advisors can assist in creating savings plans or investment strategies designed to manage and offset these anticipated costs, ensuring that families can continue to afford the educational choices they value.

The broader tax environment under a potential Labour government also warrants attention. While both major parties have pledged not to increase income tax or VAT, freezing the tax-free income threshold means that many could end up paying more in taxes indirectly as wages rise. Additionally, there is speculation about increases in capital gains tax, which could affect investors and property owners.

Engaging with a financial advisor can provide clarity and confidence, helping to create a comprehensive plan that mitigates risks and capitalises on opportunities. The impending general election underscores the importance of forward-thinking financial planning. Regardless of the election outcome, preparing for potential changes can help protect and grow personal wealth. Seeking professional financial advice helps to ensure that individuals and families are equipped to navigate the uncertainties and complexities of the evolving economic landscape. By planning ahead, Brits can better manage their finances, secure their retirement, and make informed decisions that support their long-term financial goals.