UK Election: Results & Likely Effects on Pensions

The Labour Party’s resounding victory in this week’s UK General Election marks a significant shift in UK politics, but what will this mean for you, your pension and your retirement?

Before those questions can fully be answered, Labour Party leader Sir Keir Starmer’s first task as Prime Minister, after taking up residence at No. 10 Downing Street, will be to form a government. Having secured a comfortable majority of 412* seats, from a total 650, a few changes are expected. It’s likely that Liz Kendall, the former Shadow Cabinet, will go on to serve as the new Secretary of State for Work and Pensions.

Here we give you our thoughts on potential policy changes and where we’ll just need to wait and see.

How things stand…

Around £124 billion per year is spent on UK State Pension payouts by the Treasury and Department for Work and Pensions, with more than £50 billion spent on tax relief for pension contributions.

Any changes made by the new Labour government are likely to affect your retirement income in these three key areas:

Pension Tax

As discussed in our previous blog UK Election: What This Could Mean For Your Pension, Labour has committed to keeping the Pension Triple Lock.

This means that the UK State Pension rises in each April, in line with whichever comes out highest:

• Inflation, as measured by the Consumer Prices Index (based on September of the previous year).
• The average increase in wages across the UK.
• 2.5% – a promise to make this the minimum that pensions would rise by.

Under this system, the State Pension rose by 8.5% in April, but for many people with additional sources of income in retirement, these gains have been eroded via taxation – the unfortunate result of rising above the threshold.

The Liberal Democrats have referred to this as a ‘Pensioners Stealth Tax’, but what will the new government do (if anything) about it?

Lifetime Allowance

Scrapped by the previous Conservative government in April this year, the Lifetime Allowance (LTA) put a cap on the size that a pension pot could be, before it would no longer attract tax relief.

Previously set at £1,073,100, the LTA was scrapped to appeal to higher earners such as senior doctors within the NHS. The idea was to keep more over-50s in the workforce, encouraging them to keep saving, as opposed to taking early retirement as a means of avoiding a large tax bill.

Labour previously announced plans to re-introduce the Lifetime Allowance, but ahead of publishing their manifesto, announced this would no longer be the case – great news for anyone who would have otherwise been affected.

Tax Relief

The new government could decide to make tax relief on pensions less generous, making savings on the bill which is around £50 billion a year.

The 2024/25 allowance for paying into a pension without incurring tax is set at £60,000 a year.

Back in June, a spokesperson for the former Shadow Chancellor Rachel Reeves told the Financial Times that the party had “no plans” to change the rules on pension tax relief.

Some Honest Advice…

Regardless of what policy changes will and won’t come under Sir Keir Starmer’s Labour government, our main advice is to keep calm and focus on the long-term.

None of us can see into the future and to be perfectly honest, much of this is speculation until the new government formally introduces its new policies.

If you don’t currently have a retirement plan in place though, there’s no better time to seek some professional advice and future-proof your finances.

Having been advising Teessiders for over 20 years, we’ve seen political changes come and go – and we’ve helped people successfully navigate these and retire happy. So, if you want us to worry about the details so you don’t have to, get in touch today for a free consultation.

* The majority is secured with 412 seats at the time of writing, with two seats yet to be declared.

Joslin Rhodes Pension & Retirement Planning – Real Advice, For Real People