Conservative manifesto

Discussing the drivers behind putting ‘responding to an ageing society’ as one of the five key commitments, Karen Brolly, Life & Financial Services Head of Products, said:

“With an increasingly ageing population, there is a pressing need to solve the current crisis in social care. We urgently need to tackle the issue of ever-increasing costs from an ageing population. This can only be achieved through cohesive policy-making.  The solution has to be integrated social, savings and healthcare policies that recognise the effects of demographic change. We’re sitting on a time bomb. To protect future generations, sorting this out is a must.  Let’s hope the proposed Green Paper will work towards achieving this.” 

Explaining the need for the Government to be clear on what it will provide in terms of long-term care and for greater education among individuals, she said:

“The Conservative manifesto proposes allowing individuals to defer paying for care until after their death, using the proceeds of your estate including property. Nonetheless the Government will need to provide more clarity on what the State will cover. There needs to be greater awareness of the costs of long-term care, and how long those costs might need to be paid for, but crucially who will pay what.  Until we have that people will assume the State will foot at least a large part of the bill. Given means testing, the Government is always the backstop if you don’t have any money. And not everyone will have an estate that can cover the costs.”

Discussing how this lack of clarity is preventing the development of appropriate insurance products relating to care, she added:

“It’s not just individuals but also insurers that need clarity. Understandably they are reluctant to develop products when there is uncertainty over the structure of funding for long term care. For those who don’t want to rely on their property to pay for their social care products can be designed to meet their needs. Product innovation is difficult in an unstable policy environment, but if there is clarity insurers can look at ways in which they can offer products that can fill this gap.”

Commenting on the removal of triple-lock, Chris Noon, Partner, says:

“We don't agree with the Conservative manifesto's assertion that the "The Triple-Lock has worked". The Government's own figures show that the changes in State Pension introduced in April 2016 reduce the long-term costs of State Pension by £8bn a year. This saving includes the cost of the triple-lock. Moving from triple lock to double-lock saves another £4bn a year, equivalent to a £250 a year reduction in State Pension. This reduction will have the most significant impact on low and middle-earners who will rely most on the State Pension for their retirement incomes.”

Chris also comments on LISA as a retirement savings vehicle:

“We welcome the support for the Lifetime ISA but only if early access penalties are improved and age restrictions are removed. We also need to move away from looking at pensions and LISAs as competing products. One should not be at the expense of the other.”

Commenting on the proposals to toughen up regulation on pension schemes and increase the powers of the Pensions Regulator, Jon Hatchett, Head of Corporate Consulting, says:

“BHS was a tough case that caught the imaginations of politicians and the public alike.  The aftershocks are reverberating through the DB world, from the Green paper on sustainability, through the Pension Regulator’s annual funding statement to the party manifestos.”

“You cannot argue with the rhetoric about protecting pensions from unscrupulous bosses.  But what about the reality?  While fraud and reckless corporate behaviour are deeply damaging, cases where these dominate are in the very small minority.  Developing law to deliver the Conservative manifesto promise will be devilishly difficult.  There’s a big risk that we end up in a situation like the surgeon who proclaims that the operation was a success, but unfortunately the patient died.”  

“Whatever politicians say there is a risk for DB schemes and members that is simply unavoidable in the current system.  The PPF’s modelling suggests that in the worst 10% of outcomes, 1,000 sponsors will be bankrupt by 2030.  Some of these will be household name companies.  BHS had a unique history which made it particularly newsworthy.  More generally though we must remember that DB pensions were never intended to be risk free, and they never can be.”

“In some cases corporate transactions will help companies, in other cases they will fail to.  For the very large part though, company directors engage in them in the hope of generating sustainable growth rather than to sidestep promises.  Making companies sponsoring DB schemes less attractive to invest in is unlikely to strengthen their support to their underlying schemes.  It may lessen the risk of a high profile M&A going wrong, but it will increase the risk of M&A that never was, and companies that then meet an unnecessary and untimely demise.”

Labour manifesto

Chris Noon, Partner, comments on Labour’s pension announcements in the manifesto.

On pension tax relief and incentivising saving:

“The manifesto doesn’t address the severe level of under saving for retirement in the UK. The commitment on triple-lock will help but there is no detail on how Labour would tackle the complexity of pension tax relief and incentivise individuals to save more.”

On the triple-lock:

“Labour’s commitment to the triple-lock is welcomed - it helps low income current and future pensioners who rely mostly on the State Pension. They would be worst hit by the removal of the triple-lock. It’s also politically astute – it’s likely to be a low cost commitment over the course of the next parliament but will be received well by the electorate.

“The reality is that people will not be able to rely on the State Pension alone. Any changes to the State Pension must be seen in the context of a looming savings crisis where the State Pension will have to increase at a higher rate than earnings. Currently, 75% of people in the UK won’t have enough to retire comfortably; we all need to save more and there needs to be better incentives to achieve this.”

On the review of the state pension

There is some real complexity in the State Pension proposals. We’ll all living longer and State Pension age will have to increase in the long term to avoid State Pensions becoming unaffordable. Proposing a maximum State Pension age of 66 is too inflexible and completely arbitrary. Linking State Pension provision to life expectancy is more interesting but hugely complex and not solely linked to work environment. The complexity of this proposal makes it unworkable.

What’s missing?

“Labour’s manifesto is very vague on one of the most important areas of pension saving – the workplace pension system. For such a left-leaning manifesto, I’m surprised that they didn’t adopt collective final salary plans – similar to those that operate in the Netherlands. That would have been popular with the Unions and helped the long-term saving crisis.” 

Liberal Democrats' manifesto

Commenting on the Liberal Democrat proposal to maintain the pensions ‘Triple Lock’, Chris Noon, commented:

“We welcome this commitment. The State Pension needs to increase at a faster pace than earnings to mitigate the looming retirement crisis where we’ll see 75% of the private sector retiring with inadequate levels of income.”

On the case for reviewing the introduction of a single rate of tax relief for pensions, Chris continued:

“We welcome the commitment to review pension tax relief. It’s become an incoherent mess after 7 years of Government meddling. However, introducing a single rate of tax relief is unlikely to be the silver bullet that fixes this issue. It creates complexity with final salary pension plans (that already have beneficial tax treatment) and is likely to make pension saving less effective for the middle earners who are already the most under-saved.”