What do the elections mean for your pension: Is the AOW ‘triple lock’ safe?

Elections approaching: which pension promises will be made and will they be kept?

A comfortable retirement will be on the wish list of most voters, even if it is not usually mentioned as a top political priority when polled.

The Tories and Labor will do everything they can to reassure people that their financial prospects are secure during the general election campaign.

But at a time of tight public finances, both parties will also look to scrape together money to finance their key priorities going forward where possible.

We look at the promises they make about pensions, what they won’t talk about during the campaign, and what they might actually do after the polls close.

Discover the major issues facing pension savers and retirees.

Triple lock of the state pension

Labor and the Tories both promised before the election was announced that they would maintain the state pension ‘triple lock’ for the entire next parliament.

That’s an indication of how seriously they take the fight for the support of older people, who tend to vote in larger numbers than the rest of the electorate.

The triple lock means that the state pension is determined on the basis of the highest inflation, average income growth or 2.5 percent.

Retirees should therefore continue to receive a significant increase in their benefits every year until almost the end of this decade.

The popular promise saw older people get an 8.5 per cent increase in their state pension in April, taking the nominal rate to £221.20 a week or £11,500 a year.

The basic pension for those who retired before 2016 rose to £169.50 per week or £8,800 per year. However, older retirees often receive significant supplements, via S2P or Serps, if these were earned during their working lives.

Experts from the pension sector are divided about the triple lock. The 2.5 percent element continues to push interest rates higher, even in years when earnings and inflation are flat.

Opinion poll

Do you believe that the party that wins the election will fulfill the triple lock promise of the state pension?

  • Yes 586 votes
  • No 1144 votes

Critics point out that it is expensive and that retirees are often treated more generously than the working population.

However, workers have seen major cuts to national insurance recently, which pensioners have not benefited from, although admittedly that is because these are not levied on people once they reach state pension age.

Meanwhile, proponents of triple lock say many elderly people are relying solely on the state pension and are struggling to pay food and energy bills after a nasty wave of inflation.

Britain also has the lowest state pension among rich countries, based on one of the most widely quoted international measures, although that doesn’t tell the whole story as some countries combine their state and workplace schemes into one system.

The Tories broke the triple lock once during the pandemic, when they could credibly argue for special circumstances, and it is unlikely either party will risk the wrath of pensioners by doing so again. Do you agree? Take our poll.

State pension age

To pay for the Triple Lock Bill, the next government may have to raise the state pension age, penalizing the current workers who fund the payment increases.

The state pension age will rise from 66 to 67 between 2026 and 2028.

In 2028, the minimum retirement age for access to work and other private pension savings will also increase, from 55 to 57.

Officially, the next increase to age 68 is planned to occur between 2044 and 2046, which would affect those born on or after April 1977.

Several reviews took place, but the Tories ultimately postponed a decision until the other side of the election.

The reason given was the current level of uncertainty about data on life expectancy, the labor market and public finances.

During the campaign, both parties will likely do their best to avoid this issue for fear of inciting voters in their 40s and early 50s.

Lifelong benefit

The Tories and Labor could be at odds over the recent abolition of the £1,073,100 lifetime allowance – the total limit people can have in their pension pot without tax penalties.

Labor initially said they would bring it back if elected, but then remained silent on the issue. We’ll probably have to wait for their manifesto to find out more.

There is a possibility that the party will specifically earmark any money it would raise from affluent pension savers to fund other priorities that voters are likely to find more valuable: school meals for children, training nurses, extra police officers, take your pick .

And they could try to make an exception for at least some essential public sector workers, such as doctors and judges, but this would be contentious and challenging to implement.

Labor could yet abandon the idea of ​​recovery to maintain the goodwill of doctors whose support they need to reform the NHS.

Meanwhile, inheritance rules following the abolition of the lifetime allowance are complicated, especially when it comes to tax-free lump sums.

If you already have a large retirement savings saved, you should seek financial advice from a professional to avoid costly mistakes.

Investing a pension

Both major parties are likely to stick with Chancellor Jeremy Hunt’s Mansion House plans to use people’s pension savings to boost British economic growth.

Labor shadow chancellor Rachel Reeves has expressed similar sentiments about freeing up pensions to support the economy, so she is expected to press ahead with a version of Hunt’s plan if she succeeds him at the Treasury.

Reeves plans a major overhaul of pensions if there is a change of government.

It is unclear how far this could go, but an attack on tax relief for pensions – something successive Tory chancellors have shied away from – could be on the table as a major source of money for other cherished projects.

The generous system of pension tax relief is based on income tax rates of 20 percent, 40 percent or 45 percent, which tilts the system in favor of the wealthy because they pay more tax.

Rumors of reform usually revolve around the introduction of a flat rate, with higher and additional rate taxpayers receiving a lower level of relief, and basic rate taxpayers receiving the same or slightly more than they do now.

A government would be stingier in setting a new uniform rate if it wanted to save money, and could then probably move it up and down as it saw fit.

Meanwhile, the fate of a consultation on giving employees a single ‘pension pot for life’, in which they and all employers can continue to save throughout their careers, is uncertain.

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