25 May 2017
General Election 2017 – what are the main parties promising about pensions?
State pension triple lock
This was introduced by the Coalition Government in 2010 and has recently been the subject of much commentary in the press regarding its cost.
Both Labour and the Liberal Democrats have pledged to maintain the triple lock throughout the next Parliament, so that the state pension will increase each year by the highest of earnings growth, price inflation and 2.5%, but both are silent about what happens after that. In contrast the Conservatives will keep the triple lock until 2020 and then remove the 2.5% component of it; making it a “double lock”.
State pension age
The Conservatives state that they will “ensure that the state pension age reflects increases in life expectancy, while protecting each generation fairly”.
Labour rejects the Conservatives’ plans to increase state pension age beyond age 66 after 2020. Instead Labour will commission a new review tasked with developing a flexible retirement policy to reflect differences in life expectancy and the arduous nature of some work. Labour will also deliver “some kind of compensation” for the women born in the 1950s who “had their state pension age changed without fair notification”.
The Liberal Democrats do not mention state pension age.
Tax relief for pension contributions
One of the most hotly debated topics of recent years in the pensions world is only explicitly mentioned in the Liberal Democrats’ manifesto and that is a relatively weak promise to “establish a review to consider the case for, and practical implications of, introducing a single rate of tax relief for pensions, which would be designed to be simpler and fairer and would be set more generously than the current 20% basic rate relief”.
Winter Fuel Payments, bus passes and other pensioner benefits
The Conservatives will introduce means-testing of Winter Fuel Payments but “maintain all other pensioner benefits, including free bus passes, eye tests, prescriptions and TV licences, for the duration of this parliament”.
Labour and the Liberal Democrats also both promise to retain free bus passes for all pensioners. However, whereas Labour will guarantee the Winter Fuel Payment as a universal benefit the Liberal Democrats will withdraw it for those who pay tax at the 40% higher rate (and whilst not stated, presumably at the additional 45% rate too).
Protecting pension schemes during business takeovers and other transactions
The Conservatives state that the current powers of the Regulator are insufficient and that they will build on “existing powers to give pension schemes and the Pensions Regulator the right to scrutinise, clear with conditions or in extreme cases stop mergers, takeovers or large financial commitments that threaten the solvency of the scheme”. The Conservatives will also “give the Pensions Regulator new powers to issue punitive fines for those found to have wilfully left a pension scheme under-resourced and, if necessary, powers similar to those already held by the Insolvency Service to disqualify the company directors in question”. They will also “consider introducing a new criminal offence for company directors who deliberately or recklessly put at risk the ability of a pension scheme to meet its obligations”.
Labour will amend the takeover regime to ensure that businesses identified as being “systemically important” have a clear plan in place to protect workers and pensioners when a company is taken over.
The Liberal Democrats do not make any explicit manifesto statements in this area.
- The Conservatives intend to “encourage” pension funds to join new UK sovereign wealth funds called Future Britain funds
- The Conservatives also state they will make auto-enrolment available to the self-employed, but do not give any details about how they intend to do this
- Labour promises to “end rip-off hidden fees and charges, and enable the development of large efficient pensions funds, which will mean more cash for scheme members and lower costs for employers”
- Labour will also “commit to an immediate review of the mineworkers’ pension scheme and British Coal superannuation scheme surplus sharing arrangements between government and scheme beneficiaries”
- Labour intends to “give members of the Local Government Pension Scheme full trustee status to help control investments, and reduce fees and charges”
- The Liberal Democrats intend to “abolish remaining marriage inequalities in areas such as pensions” but do not state further details about what this means
There is less discussion about reforming pensions tax relief than there was for the 2015 General Election (see Pensions Bulletin 2015/17). We can but hope the politicians are at last heeding the universal cries of “no more”, but it would be a bold person who gambles on there being no further changes in this area after the General Election, no matter what hue the next Government takes.
European pensions regulator stress testing pension schemes again
EIOPA conduct this exercise every two years. This year’s is stated to be designed to focus on the resilience of occupational pension schemes (both DB and DC) to a “double-hit” scenario (of a drop in “risk-free” interest rates with a fall in the price of assets) and the assessment of its impact on the real economy and financial markets. The stress tests will be based on data as at the end of 2016 and will be conducted from May to July with results reported in December.
As in 2015, the Pensions Regulator will coordinate the UK’s pension sector input.
While direct participation by UK pension schemes is technically voluntary, EIOPA is putting the Regulator under pressure to encourage schemes to prepare their own predefined stress tests. Larger schemes may therefore be contacted by the Regulator to ask them to complete the tests, or at least to provide information to assist them in the tests. No doubt Brexit will have an impact on the next round of tests, potentially meaning that this is the last set that the UK is required to participate in.
GMP inequalities court case launched
The Trustee of the DB pension schemes across the Lloyds Banking Group has announced to scheme members that it has started proceedings in the High Court on the issue of unequal GMPs. This follows the Lloyds Trade Union announcement last year that it intended to present a class action lawsuit at the Employment Tribunal (see Pensions Bulletin 2016/33).
The Trustee is to seek directions on whether it is required to equalise its schemes for the effect of GMPs and, if so, how such equalisation should be achieved.
The High Court hearing is not expected to take place until 2018.
No doubt everyone involved with DB schemes contracted out in the 1990s will follow the case’s progress as it works its way through the law courts. Whether this now stalls the work on equalising pensions, being undertaken by the DWP with its Working Group (see Pensions Bulletin 2017/12), remains to be seen.
Shareholder Rights Directive is now EU law
The revised Shareholder Rights Directive became EU law on 17 May 2017. EU Member States now have until 10 June 2019 to implement the legislation in national law.
See Pensions Bulletin 2017/02 for details of how this Directive could potentially impact pension schemes.
Assuming that the UK completes its withdrawal from the EU by March 2019 it may be the case that this Directive’s provisions will not need to be implemented in the UK. However, one cannot be entirely certain. First, we may not complete withdrawal by June 2019 and second, precisely what EU law working its way through the pipeline we are keeping on withdrawal is unclear.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.