Tom Selby, senior analyst at AJ Bell, considers the implications for savers of some of the key measures outlined in the Labour manifesto:
Labour pledge - Labour will guarantee the state pension ‘triple lock’ throughout the next Parliament. It will rise by at least 2.5 per cent a year or be increased to keep pace with inflation or earnings, whichever is higher
“This is an attempt to put clear blue water between Labour and the Conservatives. Clearly it would be good news for anyone in receipt of the state pension as it guarantees it will never fall in value in real terms. Furthermore, when inflation is below 2.5% the spending power of pensioners will go up.
“However, many will question the logic of providing such a guarantee given that the incomes of workers have flatlined in recent years. The triple-lock is a fairly random mechanism by which to increase state pension payments. The implication is that the existing level is too low, but no party has ever articulated how much it should be worth.
“It would surely be more sensible to articulate how much the state pension should be worth, and then set out a plan to get it to that level.”
Impact on savers: Positive (if you’re in receipt of the state pension)
Labour pledge - The pension age is due to rise to 66 by the end of 2020. Labour rejects the Conservatives’ proposal to increase the state pension age even further. We will commission a new review of the pension age, specifically tasked with developing a flexible retirement policy to reflect both the contributions made by people, the wide variations in life expectancy, and the arduous conditions of some work
“This appears to be good news for savers on the face of it but even Jeremy Corbyn can’t defy gravity. The population is getting older and as a result spending on the state pension is expected to rise from 5.2% of GDP today to 7.1% of GDP in 50 years’ time. This is patently not sustainable and policymakers will therefore need to decide whether to raise the state pension age or reduce the amount people receive. In doing neither, the Labour Party is attempting to have its cake and eat it too.
“Attempting to take account of variations in life expectancy in the state pension system feels a bit like following Alice in Wonderland down the rabbit hole. Average life expectancy varies based on income, wealth, where someone lives and their occupation – if all of these were to be taken account of the cost of administering such a system would be astronomical.
“Means-testing was a complex nightmare that meant most people had absolutely no idea what they would get from the state in retirement. If anything, this policy risks being even more complicated.”
Impact on savers: Positive if you were about to see your state pension age rise; Negative if you are a younger person who will inevitably see a sharper spike in state pension age in the future
Labour pledge - Lowering the threshold for the 45p additional rate to £80k (Top 5%) and reintroducing the 50p rate on earnings above £123k – implications for pension tax relief?
“A perverse knock-on impact of this pledge is that the cost of pension tax relief provided to higher earners would rocket as under the current system it is granted at your marginal rate of income tax.
“This presumably is not the intention of the policy, and so it would be no surprise to see a Labour Government take the axe to pension tax incentives.
“We remain firmly of the belief any reform of the pension tax relief system should be simpler than the current system and encourage more people to save for retirement. What we don’t want is more ill-thought-through pensions policy rushed through for political ends without consideration of the potential consequences.”
Impact on savers: Uncertain
Labour pledge - We will protect the pensions of UK citizens living overseas in the EU or further afield
“It looks as though Labour wants to address the perceived injustice whereby UK citizens who retire to countries without a reciprocal social security agreement in place have their state pensions frozen. Previous estimates have suggested somewhere in the region of half a million people are affected by the current policy who would stand to benefit from this manifesto pledge.”
Impact on savers: Positive
Labour pledge - We will extend existing Stamp Duty Reserve Tax to cover a wider range of assets, ensuring that the public gets a fairer share of financial system profits
“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. 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.”
Impact on savers: Negative
Labour pledge - Amend the takeover code to ensure every takeover proposal has a clear plan in place to protect workers and pensioners – because workers shouldn’t suffer when a company is sold
“Labour is looking to further turn the screw on companies who sponsor defined benefit pension schemes in the wake of the Philip Green BHS debacle. We have already seen The Pensions Regulator fire a warning shot at firms looking to prioritise shareholder dividends over filling deficits, while the Conservatives have also committed to toughening the rules governing company takeovers.”
Impact on savers: Positive