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May's election U-turn
The Prime Minister has announced her plan to call a snap general election on 8 June. What are the implications for pensions?
Prime Minister Theresa May has called a snap general election on 8 June. The moves comes after May repeatedly denied that she would call an election before the next scheduled poll in 2020.
Justifying the decision, she accused opposing parties of threatening to disrupt Brexit negotiations by voting against the deal the Conservatives reach with the European Union, and against the legislation that formally repeals Britain’s membership of the EU.
The General Election is likely to be a bun fight for the so-called ‘grey vote’
She said: “If we do not hold a general election now their political game-playing will continue, and the negotiations with the European Union will reach their most difficult stage in the run-up to the next scheduled election.
“Division in Westminster will risk our ability to make a success of Brexit and it will cause damaging uncertainty and instability to the country.”
Of course it’s not yet a done deal. The Fixed Term Parliaments Act introduced by the coalition government in 2011 mandates that elections are held every five years, removing the power of any future government to set the date of an election.
The Prime Minister has the power to call for an early general election on one of two conditions. The first – and the option she has chosen – is calling a parliamentary vote which must be passed by a two-thirds majority. The other option would be to call for a no confidence motion in her own government, but this could effectively end her career.
Commenting on the impact of the announcement on financial markets, Luke Bartholomew, investment manager at Aberdeen Asset Management said: “The market reaction has been muted so far. Sterling sold off initially and has now come back. But it will take investors some time to digest the effects of the election in the next few days. A big factor for them is whether the election will make a softer stance on the Brexit negotiations more likely.
“The election should hand Theresa May a much bigger mandate to stand up to the harder line, anti-EU backbenchers which currently hold a disproportionate sway over her party’s stance on Brexit. That would be welcomed by financial markets.”
The future of pensions policy
But what does it mean for pensions? Labour has already revealed its stance on the state pension triple-lock and the government is due to respond to the Cridland state pension age review imminently, so retirement issues are likely to be high on the agendas of all parties’ general election campaigns.
Tom Selby, senior analyst at AJ Bell said: “The General Election is likely to be a bun fight for the so-called ‘grey vote’. Labour has already made its big pitch to older people with its ‘Pensions Pledge Card’, while the Conservatives have traditionally polled strongly among this demographic.
“It would be refreshing if, alongside the inevitable short-term giveaways, politicians across the political spectrum could set out a long-term vision for retirement.”
So could the June election throw pensions policy up in the air once again? Royal London’s director of policy Steve Webb thinks so. He said: “If Theresa May secures a bigger majority, radical reform of things like pension tax relief becomes much more likely. A key question is whether the parties will have time to put detailed plans in their manifestos or whether we will get vague promises of reviews with all the detailed work done after the Election. What is clear is that a new Government and a possible new ministerial team are likely to mean yet more unwelcome uncertainty over the future of pension tax relief.”
Commenting on the future of state pension increases, Webb said: “The triple lock on the state pension must now be up for grabs. But the Conservatives face a tricky choice, now that Labour has pledged to retain the triple lock. With inflation approaching 2.5%, the cost to the Treasury of the triple lock becomes relatively small. If the Conservatives were to decide to scrap the triple lock in the weeks before a General Election it would be a sign of supreme confidence about the likely outcome of that election.”
In her announcement, May talked of the need to deliver stability and security for the whole of the UK. But so far, the government has failed to deliver on these aims for pensions, an area crying out for certainty and long-term thinking.
Selby concluded: “The UK needs its leaders to present a long-term savings vision with stability at its core. This should include a pledge to end incessant tinkering with the rules governing pensions, so savers can be confident the ground won’t shift beneath their feet as they plan for the future.”
Malcolm McLean, senior consultant at Barnett Waddingham hopes that whatever the outcome, the upcoming election will “put pensions back on the agenda, where they should be.”
He doesn’t think that the government will be able to get any pensions legislation out between now and June, so parties may well include something about their plans within their manifestos.
“The present Pension Bill may have to be rushed through to get the master trust arrangements sorted out. State pension ages, triple lock in response to the recent Labour pledge, and pension tax relief could all be looked at over the coming months.”
McLean also thinks auto-enrolment will be looked at again. He said: “The government seems to have ducked the question of the level of minimum level of auto-enrolment contributions because the current review is not going to look at that. So given that we’re approaching the next phasing level in 2019, the election may give them an opportunity to look at this in the next parliament.”