Labour's pension plans receive nervous response from industry
The industry has reacted with concern after Labour revealed its plans to increase income tax, maintain the state pension age at 66, and impose new taxes on investments.
The party's manifesto, published today, also committed to rewriting the Takeover Code to ensure pensions are protected in mergers and acquisitions (M&As) and a hint it would seek greater consolidation of pension schemes.
State pension
Perhaps the most contentious pensions issue - the state pension - has received the greatest amount of attention in the party's pension policies, with Corbyn and his team stating they would retain the triple lock, unfreeze inflation increases for expats, and hold the retirement age at 66.
However, the industry is not convinced the budget is there, and have raised serious reservations about the feasibility of the policy.
Barnett Waddingham senior consultant Malcolm Mclean said Labour has essentially ignored the general consensus across the industry that the triple lock will have to go.
"The cost implications of Labour's plans are enormous and as such are almost certainly unrealistic," he said. ""There are serious questions about the cost and long-term sustainability of the triple lock in particular, with both the final Cridland report and the work and pensions select committee having recently recommended its abolition."
Meanwhile, Royal London director of policy Sir Steve Webb has estimated the potential cost of keeping the state pension age at 66 is as high as £300bn.
"With rising life expectancy, state pension ages are rising around the developed world," he said. "It would be burying our head in the sand as a nation to think that we can somehow insulate ourselves from these trends."
All-in-all, Hargreaves Lansdown head of policy Tom McPhail argued the only outcome of these policies is "increased pensioner poverty".
Consolidation
The manifesto also outlined plans to "enable the development of large efficient pensions funds, which will mean more cash for scheme members and lower costs for employers". This is an obvious commitment to provide easier routes, at the very least, to consolidation for schemes, although it does not specify whether this will be for defined benefit (DB) schemes, defined contribution (DC) schemes, or both.
Hargreaves Lansdown's McPhail welcomed the commitment, stating there are too many schemes at present.
"Labour also propose to achieve efficiencies in the pension system by looking for ways to merge workplace pensions into fewer, bigger schemes," he said. "This is a good idea; there are undoubtedly too many schemes and some of them, such as some of the smaller company schemes are not particularly well run."
Investment
The party has also said it would expand stamp duty reserve tax to cover a wider range of assets, specifically derivatives, as well as introduce a Financial Transactions Tax. The two policies together could have indirect effects on pension savings, as the tax could be passed on to savers.
Royal London Asset Management chief investment officer Piers Hiller said it was pensioners who would ultimately be paying the tax.
"Those that would be hit the hardest are pensioners and those saving for a pension, who will see the value of their savings impacted by the levy," he said. "This is not a tax on the City, it's a tax on savers and pensioners."
AJ Bell senior analyst Tom Selby agreed, welcoming the motif but questioning the consequences.
"While it's easy to characterise this as a ‘Robin Hood' tax on the rich, the reality is many people's pensions are invested through the very financial system Jeremy Corbyn is targeting," he said. "Curbing speculative trading may well be a good thing, but the bottom line is some of these costs will inevitably seep through to ordinary investors."
Missing AE policy
However, some in the industry are disappointed that the party has failed to focus on improving outcomes for the younger generations, particularly noting a lack of policy for auto-enrolment (AE).
The People's Pension director of policy and market engagement Darren Philp said the party had missed an opportunity to promise improvements to AE.
"Our pensions system is at a crossroads," he said. "To ensure positive outcomes for all savers, we need to focus on delivering transparent, good value and well-governed schemes. We also must build on the successes of AE to date by increasing coverage to excluded groups while reforming tax relief to create a fairer system."
The party could even have gone further and promised European-inspired final salary schemes, Hymans Robertson partner Chris Noon added.
"Labour's manifesto is very vague on one of the most important areas of pension saving - the workplace pension system," he said. "For such a left-leaning manifesto, I'm surprised that they didn't adopt collective final salary plans - similar to those that operate in the Netherlands. That would have been popular with the Unions and helped the long-term saving crisis."
Labour was the first party to publish its manifesto ahead of the snap general election on 8 June, with the Conservatives and the Liberal Democrats expected to follow suit in the next few days. However, some proposals have made an appearance; PP has outlined what we know so far.
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