General Election 2024: What does Labour have planned for your pension?

With the likelihood of a shift in political leadership of the UK, those with pension savings may need to reevaluate their retirement strategies.

As Labour appears poised to take over after 14 years of Conservative rule, several key changes could impact pension funds, which collectively amount to more than £2 trillion.

Sir Keir Starmer’s party has signalled its intention to revisit the Lifetime Allowance policy. Previously, there was a cap on how much you could save in your pension without facing tax penalties.

Although this cap was recently abolished, Labour might reinstate it, affecting higher earners who have amassed substantial pension savings.

If the Lifetime Allowance is reintroduced, it could mean a significant tax bill for those whose pension funds exceed the new limit.

We also expect potential changes in the tax relief on pension contributions.

Currently, contributions benefit from significant tax relief, but Labour may tighten these rules to boost government revenues. This would particularly impact higher-rate taxpayers.

To prepare, it might be wise to review your contribution levels and explore other tax-efficient investment options.

The treatment of pensions in inheritance tax scenarios may also change.

Presently, if you pass away before age 75, your defined-contribution pension can be inherited tax-free. After 75, your heirs pay income tax at their marginal rate.

Labour might introduce an inheritance tax on pensions, which would increase the tax burden on your beneficiaries. Planning your estate to account for these potential changes could involve spending down pension funds more aggressively or considering other forms of wealth transfer.

A new ‘red’ administration is also likely to revisit the pension freedoms introduced by George Osborne in 2015. Rachel Reeves, the likely future chancellor, has expressed scepticism about unrestricted pension withdrawals.

There might be new requirements to purchase annuities or prove a baseline income before accessing pension funds. This means your retirement strategy may need to include provisions for guaranteed income streams, such as annuities, which can ensure financial stability but limit the flexibility of your pension fund access.

Another area under scrutiny is the tax-free portion of pension withdrawals.

Previously, individuals could withdraw 25% of their pension pot tax-free. However, this amount has recently been capped at £268,275.

Labour might further reduce this cap, thereby increasing the taxable portion of withdrawals. To mitigate potential tax liabilities, you might like to consider financial planning strategies that maximise your tax-free benefits under current regulations.

Currently, you can begin accessing your pension at age 55, with plans to increase this to 57 by 2028.

But Starmer’s party may push this age higher to reflect increased life expectancy and the rising state pension age.

Delaying access to pension funds encourages longer workforce participation and reduces the risk of outliving retirement savings. Adjusting your retirement timeline and savings goals to accommodate a later withdrawal age could be prudent.

Consult with a financial advisor to create a robust retirement plan that considers potential legislative changes and optimises your financial position.

As political winds shift, being proactive and informed about potential changes to pension policies is crucial to safeguarding your savings for a financially secure retirement.