What a Labour government needs to do for pensions and work in the first 100 days

LONDON, ENGLAND - MAY 10: Lady Usher of the Black Rod, Sarah Clarke (2nd left) and Speaker of the House of Commons Lindsey Hoyle (3rd left) walk through the Central Lobby at the Palace of Westminster ahead of the State Opening of Parliament in the House of Lords on May 10, 2022 in London, England. The State Opening of Parliament formally marks the beginning of the new session of Parliament. It includes Queen's Speech, prepared for her to read from the throne, by her government outlining its plans for new laws being brought forward in the coming parliamentary year. This year the speech will be read by the Prince of Wales as HM The Queen will miss the event due to ongoing mobility issues. (Photo by Yui Mok - WPA Pool/Getty Images)
A new government could have a big impact on personal finance, pensions and tax.

The first 100 days of any leadership are crucial. It’s the honeymoon period, where a new government can make relatively controversial changes without a dramatic backlash. It’s a chance to set the direction of the government. If the polls are right and Labour gets to form the next government, it must hit the ground running.

There’s one economic policy Labour has pledged to get started with on day one: the reform of the planning system. It’s complex and will involve cooperation from a huge number of bodies and organisations. It makes sense to hit it with a new broom on day one when radical change is most achievable.

Read more: What the Tory and Labour election manifestos mean for your money

Labour will bring back housing targets and reform the planning system. It’ll strengthen rules requiring more affordable homes to be built and ensure first-time buyers can buy properties on new developments before they are sold overseas. It will also bring in a permanent mortgage guarantee scheme for those with smaller deposits.

Labour has also pledged to end leasehold properties – which it dubs fleecehold - and to tackle ground rents. It will end no-fault evictions for renters and allow renters to challenge unreasonable rent increases and raise standards.

After that, the new government will want to get started before they break up for the summer. As soon as it can be squeezed into parliamentary time, we’ll see the roll-out of VAT on private schools.

Labour has pledged that there will be no tax rises for working people. It has ruled out rises to income tax, National Insurance and VAT. However, it won’t tackle the misery of frozen tax thresholds, so pay rises will continue to push more people into paying more tax. On top of this, there are other tax freezes and temporary cuts due to come to an end that Labour hasn’t pledged to extend, including the 5p cut in fuel duty and the stamp duty holiday set to end next March.

Labour didn’t rule out changes to capital gains tax either, leading to speculation of other potential tax rises. Tax tinkering is a temptation for any government and it could become even more so if it doesn’t get the growth needed to avoid a squeeze on government finances towards the end of the parliament.

Read more: How to choose between saving and investing your money

Unless it’s designed with people’s needs at the centre, however, it runs the risk of putting them off doing the right thing for them and their finances in the long term. Tax reforms need to support the behaviours that make the most sense for individuals and produce the best outcomes. It also needs to have simplicity at its core.

Regardless of how much more simple the system gets, people will still need some help with their finances. Right now, firms can provide guidance, but they can’t personalise it or use it to drive people towards specific outcomes, without it being classified as advice. Once it enters this territory, it needs to conform to rules that end up pricing most people out of the market. The Financial Conduct Authority and the treasury have been reviewing the boundary between guidance and advice and this is an opportunity to make a firm decision and bring more support to more people.

There may also be steps on energy bills. Labour has pledged to reduce standing charges, double investment to upgrade the energy efficiency of homes and introduce higher efficiency standards for rented homes. While much of this will take time, some steps towards standing charge reform could be put in place sooner.

We’ll also see movement on workers’ rights, a key part of the manifesto. Labour will ensure the minimum wage takes account of the cost of living and end age bands, so all adults receive the same minimum wage. It will also ban zero-hours contracts; end fire and rehire; and, introduce rights to parental leave, sick pay, and protection from unfair dismissal from day one. Expect some steps before the summer recess.

Read more: The retirement income gap no-one is talking about

Once it’s back from the break, the next fixture in the calendar will be the autumn Budget. Here, the new government will have the opportunity to make much-needed changes. There are some priorities which could dramatically improve people’s finances.

Labour has pledged a review of pensions to ensure the system works well for everyone. Expect a further move towards consolidation of workplace schemes and we want to see more movement on the development of the Lifetime Pension. This could help solve the lost pension problem, by allowing people to keep the pension provider of their choice throughout their career. It’s a move that will stoke competition in the market and help people engage with their pensions.

We also want to see changes to auto-enrolment. The extension bill got Royal Assent last year and these changes have the ability to boost pension savings by enabling people to start saving at 18, with contributions coming from the first pound of earnings. This is a prime opportunity to get this process moving again.

The pension tax system will also need to be reviewed. Labour’s decision to step back from reintroducing the Lifetime Allowance was welcomed, but more needs to be done. Over the years, constant tinkering has led to a complex system that can make it hard to plan long-term. An overarching review needs to look at the whole system and make sure people are properly incentivised to save without fear of being tripped up by tax changes further down the line.

Read more: What Labour’s ‘U-turn on lifetime allowance’ means for your pension

Labour pledged to keep the triple lock, but that doesn’t mean the state pension will remain untouched. An ageing population has led to a burgeoning state pension bill and the government needs to be wary of not placing too much of a burden on the shoulders of an already pressurised working population. With life expectancy slowing and healthy life expectancy hovering around age 63, the government will find its hands tied in terms of future boosts to the state pension age. Ideally, the state pension needs to be part of any pension review to put it on a long-term sustainable footing.

There should also be consideration of the self-employed– a forgotten group when it comes to pensions. They aren’t included in auto-enrolment and many miss out on pension saving. Added to this, the prospect of tying money up in a pension until the age of 55 can be a deterrent. This means the self-employed lack financial resilience when it comes to retirement, with Hargreaves Lansdown's latest Savings and Resilience Barometer showing only 23% of self-employed households are on track for a moderate retirement income.

Read more: What is the lifetime ISA? How the retirement income option could help you

Reforms to the Lifetime ISA (LISA) regime could be particularly useful to this group. LISA savings can be accessed early if needed, subject to a 25% exit penalty. This can be helpful during times when earnings are fluctuating, but the issue is that the 25% penalty not only removes the government bonus but a slice of your savings too. We are calling on the government to reduce this penalty to 20% to prevent this from happening. We would also like to see the age at which you can access a LISA increase from age 40 to 55, to cover those who become self-employed later in life. Our research shows that around 1.2m households with a self-employed person paying basic rate tax could be helped by these changes.

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