24th Oct, 2016

COLUMN: The Tories, Pensions and Taxes: What does it all really mean?

Evesham Editorial 12th Jun, 2015 Updated: 20th Oct, 2016

Keith Lewis of Evesham-based Family Estate Practioners writes for the Observer


2015’s General Election result surprised the most educated in politics, and for some, it even caused uproar if the protest outside 10 Downing Street was anything to go by.

However, what does the Tory win really mean from a financial perspective – particularly with taxes and pension pots in mind?

Under a Conservative Government pensioners actually fair quite well, with the promise to keep the Triple Lock System. Initially introduced under the Coalition’s five year term, this system guarantees the protection of pensioners’ income through annual payments that will rise by 2.5%, inflation or average earnings, whichever is highest.

What remains unclear though is what Conservative intentions are in respect to any additional benefits that many pensioners often rely on to supplement what may be a meagre basic state pension entitlement. Such entitlements may include benefits such as Attendance Allowance or Pension Credit, which is made up of Savings Credit and Guarantee Credit.

David Cameron has confirmed, however, that he would not be freezing pensioner benefits, as he is planning to do with working age benefits, and he suggested his government would keep Winter Fuel Payments – a benefit that supports millions of OAPs during the colder months.

Contrary to popular belief, high earners may be stung under a Tory Government, as the tax relief will be restricted on pension contributions earning more than £150,000. This saving will then be used to pay for the increase in the inheritance tax allowance for married couples and civil partners to £1 million.

If we take the Conservatives policies in respect to the older population at face value, it looks favourable for those with less than generous retirement funds, but we will only know later how any cuts or manipulations of benefit policy will actually impact pensioners over the next few years.

Undoubtedly the much better-off may see some impact on their taxation, but for me, it’s the balance that matters between the well off and those not so fortunate. And if the Conservatives really do carry out their pledge to increase the Inheritance Tax Threshold to £1m as they say they will, it will be a great relief for those with homes that inflate their estate over the current IHT threshold.

In regards to the new reforms whereby pensioners can now ‘draw down’ their pension pots as a lump sum, there is a new and unexpected consequence for divorcees. Family Law Week wrote recently:

–  ‘Any earmarking order which provides the ex-spouse with a fixed percentage of the pension income in retirement should be checked to ensure benefits are protected now that the member no longer needs to take their pension as an income and can instead take all the cash out as a lump sum.’

And Jon Greer, pension’s expert, said:

“A number of people would have set up pension earmarking when it first became possible, around 20 years ago, and the majority of these orders would have been for the benefit of the ex-wife. It is important that these women act promptly, especially if their ex-husband is approaching retirement age, to check their earmarked rights are protected. They need to ensure that where they have a right to a percentage of the retirement income they receive the same benefit if their ex-husband takes all the pension money out as cash instead of as an income.”

Only time will tell as to whether the newly formed Conservative government will fulfil their pre-election promises, and in a way that conforms to the expectation of those that have secured their win in the general election. They must also address the ‘open-season’ problem that has been created by their pension pot reforms before this policy is further blighted with unintended issues for those who have retired.

Indications are that many of the working population will, in some ways, gain financially with an emphasis on the lower earners, as will those of pensionable age, but we don’t know how the intended welfare cuts will eventually impact until the detailed policies are clear.

On a personal note, I feel we all should be aware that pre-retirement, we are usually more adept in finding personal solutions in actively mitigating any negative financial impacts caused by government policy changes, hard that it may be. But post retirement, we are generally less able to find or implement such solutions, more so as our abilities decline. Thus, the reliance on a fair pension/ benefit policy is absolutely critical in today’s society.

Keith Lewis has over 12 years’ experience as a professional private client estate practitioner and is affiliate member of S.T.E.P.