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What does the new Labour government mean for pensions?

Election day has come and gone, and as the dust settles, millions of Britons are waking up to the news: the Labour Party has won, and Keir Starmer is now the Prime Minister of the United Kingdom.

For many, the six weeks since Rishi Sunak announced the election date have flown by in a whirlwind of debates, promises, and, of course, manifestos.

The end of the Conservative Party’s fourteen-year reign carries significant economic implications for savers. Record levels of inflation and high interest rates have fuelled a cost-of-living crisis, making financial planning an increasingly challenging task. As we move forward, it’s crucial to understand what this new leadership means for pensions and our financial futures.

We take a look at the Labour pledges to understand what the new government means for pensions. 

Key policy

Triple lock 

Labour pledged to commit to the triple lock on state pensions in its manifesto. The triple lock was introduced to ensure that pensioners receive an amount designed to keep up with rising prices and wages. Under the triple lock system, the state pension increases each April by the highest of Consumer Prices Index (CPI), average wages growth, or 2.5%. 

In a recent My Pension Expert survey, 57% of UK adults aged 40 and above stated that if the triple lock pension were scrapped it would be damaging to their financial plans for retirement. So, it is unsurprising that Labour has opted to maintain the policy. However, the policy’s affordability has come under increased scrutiny in recent years – the government will need to set a clear direction for the state pension to alleviate concerns here. 

Pensions review 

The new government has also pledged to reforming workplace pensions to “deliver better outcomes” for both savers and retirees. They plan to undertake a comprehensive pensions review focused on enhancing “security in retirement.” This review is expected to thoroughly examine the current system and explore various potential reforms. 

Given that millions of Britons are not saving enough for retirement, this move is certainly welcome. That said, it is vital that a key focus of the reforms is on encouraging better pension engagement enabling people to take control of their retirement savings earlier in life, which will be crucial for securing their financial futures. This would have to involve looking at issues around improving financial education and advice. 

Additionally, the review is also set to look at ways to harness productive investment, aiming to make pensions a driving force for the UK economy. Labour has expressed a commitment to boosting economic growth by encouraging pension funds to invest in UK businesses. By increasing investment from pension funds into UK markets, the government hopes to achieve better returns for savers while also fuelling the economy.

Lifetime allowance

Following, the previous Chancellor Jeremy Hunt’s announcement last year that the Lifetime Allowance (LTA) would be scrapped, Labour initially declared last year that they would reinstate it. The LTA was the limit which an individual would be taxed at when withdrawing their pension. 

However, after months of speculation, the party made a U-turn and dropped this position ahead of the release of their manifesto.

Looking ahead 

The Labour party and Keir Starmer have fought a strong campaign, but now it’s time to back up their words with actions. With a new government now in power, it’s time to bring an end to the instability in the pensions sector.

After years of economic turbulence, Britons are crying out for clarity on government policies – both on pensions and the economy. The prime minister must now appoint a pensions minister with a clear action plan to tackle the most pressing issues. The beginning of a new parliament provides a opportunity to reassess and strengthen the UK pension system as a whole.

People need stability and transparency to effectively plan for their futures. The new government must work to restore confidence and provide the direction needed to help people achieve financial security in retirement. Now is the time for decisive action and a clear, long-term strategy in the pensions sector.