What a Labour victory could mean for your pension

The issue of pensions will be one of many priorities for the new Labour government, once it is fully formed.

Sir Keir Starmer won the 2024 general election by a landslide and has already begun assembling his Cabinet. The new Parliament will meet for the first time on 9 July.

Pensions were a major issue in the election campaign, with both main parties making promises to pensioners in their manifestos.

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We can expect more clarity on this when the new government unveils its first budget statement. This could happen as early as mid-September.

State pension claimants will welcome the news that Starmer has pledged to maintain the triple lock on the state pension, despite critics saying the measure is too expensive.

It promises annual increases in state pension payments in line with inflation, wages or 2.5%, whichever is higher.

Labour recently changed its mind on plans to reintroduce the tax-free allowance – a cap on the amount savers can put into a pension account before being hit with a large tax bill.

Beyond that, the party is tight-lipped about details. We know it plans a detailed review of pensions and the retirement savings landscape.

We look at what this could involve. Also, could there be any changes to how pensions are taxed?

What will Labour’s pensions review involve?

The Labour manifesto announced that the party would overhaul the pension system to improve the situation for savers and increase investment in UK markets.

We don’t yet know exactly what this will involve, but Labour’s January paper, Financing Growth, sheds more light on the issue.

Tom Selby, director of public policy at AJ Bell, believes we can expect a continuation of the “Mansion House” scheme started by former chancellor Jeremy Hunt.

The aim of the move is to increase the amount of capital that pension schemes invest in UK businesses – particularly high-growth private businesses.

The aim of the programme is to boost the UK economy (which has struggled in recent years due to a lack of private investment) and to improve the situation for those saving for retirement.

As people live longer, they need to save more for retirement to ensure a comfortable retirement, and many traditional investment strategies are proving ineffective.

Increasing your allocation to high-growth investments (such as private equity) could help address this challenge. However, higher-yielding investments often come with higher risk, so it’s important to manage them properly.

Moreover, any policy change should not come at the expense of savers who have benefited from increased exposure to global markets in recent decades. Diversification will be key.

In addition, savers will be expecting some clarity on a number of other initiatives, such as the “container for life” reform mooted by the previous government.

The idea is that workers will be able to take their pension with them when they move from one job to another, rather than having to accumulate several smaller amounts throughout their working lives.

“With over £50 billion in old pension funds at risk of being forgotten, immediate action is essential to ensure consumers have a better retirement,” says Becky O’Connor, public relations director at PensionBee.

Will Labour change the way pensions are taxed?

During the election campaign, former Prime Minister Rishi Sunak accused Labour of planning a “pension tax”. In fact, Labour has announced nothing of the sort.

Sunak was referring to the fact that the state pension is fast approaching the tax-free threshold.

The full new State Pension is now £221.20 a week, which is just over £11,500 a year. This is currently within the tax-free personal allowance (£12,570) but will soon exceed it.

For context, the state pension rose by 8.5% in April, thanks to high inflation. It had risen by 10.1% in April before that.

In addition, most retirees have additional sources of income to supplement their state pension. This may include income from a private pension or annuity, or income from investments. In recent years, retirees have had to pay higher tax bills due to the effects of the fiscal burden.

The Conservatives promised to unfreeze the personal allowance for pensioners as part of their “triple lock plus” commitment, increasing it each year in line with the same three safeguards as the original “triple lock” policy. However, Labour has criticised the initiative and refused to adjust it in its manifesto.

This means most retirees will face higher taxes in the coming years, even if the new government does not introduce any new taxes on pensions. See our article: ‘Five steps to reduce your tax bill in retirement’.