Conservatives' proposals – pensions and personal tax

The Conservative party manifesto is notable for what it doesn’t say, as much as for what it does. Politically, this is a low-risk proposition; fiscally, there is very little here to trouble or excite savers and investors.

Any manifesto should be considered as a whole package, but there are some parts of the manifesto that will be of particular interest to savers and investors. Whether a policy is good or bad is something voters have to weigh up for themselves.

This article should not be viewed as personal advice, if you’re not sure what to do please seek advice.

Older voters

The Conservatives are taking no risks with older voters and while they aren’t trying to match the generous promises handed out by Labour, they have confirmed they’ll be:

• Keeping the State pension triple lock (in contrast to 2017, when they proposed to water it down to a double lock). This means the state pension will increase every year by the highest of inflation, earnings growth and 2.5% and pretty much guarantees this element of pensioners’ incomes will rise faster than the incomes of people of working age.
• Keeping winter fuel payments, the older person’s bus pass and free TV licences for the over 75s (though they still expect the BBC to pick up the tab for this). These are pretty low-cost giveaways for the government but after 2017 it seems they aren’t taking any risks with the ‘grey vote’.

Pensions

The Conservatives would review the current restriction to pension contributions, known as the Annual Allowance Taper, which is causing tax bills for doctors and is compromising their capacity for overtime.

They’ve committed to bringing back the Pensions Bill which fell at the tail-end of the last parliament. This Bill will strengthen the regulatory protection of members of company pension schemes, introduce Pensions Dashboards to enable savers to see all their pension accounts in one place and pave the way for a new type of risk-sharing pension scheme which the Royal Mail and its unions are keen to introduce for its employees.

They have also promised a review of the quirk of the pension tax system which means lower earners in some company pension schemes can miss out on any government tax relief top up on their pension contributions, known as the net pay problem. It should be noted they’ve had a myriad of opportunities to address this problem already.

Personal taxes

Nathan Long, Senior Analyst

The Conservatives are proposing not to increase Income Tax, National Insurance or VAT. They are proposing to also increase the threshold for starting to pay National Insurance to £9,500, meaning employees will typically pay around £100 a year less.

At one level these pledges will undoubtedly be welcome, however they’ll also leave a Conservative government’s hands bound in terms of tax raising.

This could mean the government having to shave some extra revenue from other areas of personal taxation, such as capital gains and inheritances. The Conservatives have made no reference to taxing wealth – in notable contrast to Labour and the Liberal Democrats – but if the economy takes a downturn or government finances get tight, then their hand could be forced.

Notable by their absence were any statements in the manifesto on pension taxation (apart from the Taper and net pay problems referred to above) or auto-enrolment.

The pension tax system is in need of pretty fundamental reform so it’s disappointing both major parties appear to be ducking this issue.

Similarly the auto-enrolment workplace pension reforms have been a great start to tackling the long-term retirement savings challenge, but there’s still more work to be done.

As always, taxation can change at any time and benefits depend on your personal circumstances.

Bear in mind that how you access your pension can also be subject to change. Regardless of the election outcome, if you’re a higher-rate taxpayer thinking about adding money to pensions, we think you should consider bringing this forward. If you weren’t planning on adding money to your pension, an ISA could be a simpler option.

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General election 2019

HL is not expressing a view on the merits or otherwise of any of the policies or any of the political parties, and nothing in this note should be taken to be an endorsement or recommendation of any particular party, candidate or policy.

Article image credit: REUTERS / HENRY NICHOLLS - stock.adobe.com