Hung parliament: What will be the impact on pensions?

The main parties may find it hard to agree on pensions policies including NEST, tax relief, early access to pensions savings and deregulation of DB schemes.

Auto-enrolment and NEST

The current Labour government intends to commence auto-enrolment into workplace pension savings from 2012, with full implementation by 2017. Alongside this will be the launch of NEST, a low-cost defined contribution pension scheme that employers can enrol their employees into.

The Conservatives will explore allowing companies to voluntarily begin auto-enrolment before 2012 and would hold a review of current auto enrolment timelines.

Both the Conservatives and the Liberal Democrats have expressed concern about NEST potentially prompting employers to level down contributions into private pension provision. The Tories have therefore announced they would conduct a review of NEST should it take power.

Tax Incentives

Labour plans to taper away tax relief on pension contributions for people with gross incomes above £150,000. People with gross incomes above £180,000 will receive basic tax relief on their pension contributions.

The Tories are opposed to tax relief changes, while the Lib Dems would restrict all pension contributions tax relief to the basic rate.

Access to private pension savings

Under current government policy, people cannot access their private pension savings until age 55, where they can then take 25% of their pension savings as a tax-free lump sum. The remainder must be used to buy an annuity by age 75.

The Conservatives and Lib Dems would both remove the requirement to purchase an annuity by 75 – provided people have enough income to remain above means-testing thresholds. The Lib Dems would allow early access to people’s 25% lump sums, while the Tories have expressed an interest into examining this option.

Deregulation and DB schemes

Labour is exploring ways to encourage employers to retain elements of DB schemes through offering hybrid DB/DC schemes or by offering schemes that share more risks between employers and employees than typical DC schemes.

The Conservatives will examine encouraging risk-sharing in the private sector, and would lift some of the regulatory burdens placed on DB scheme providers. The Lib Dems would review DB regulation and investigate risk sharing further.

Public sector pensions

Recent government reforms to public sector pensions include raising the standard pension age from 60 to 65 for new scheme joiners and existing members of local authority schemes, reducing employers’ contributions and accrual rates and building cost capping and cost sharing into schemes.

The Conservatives would further reform public sector pensions by capping pension pay outs above £50,000, replacing the MPs’ DB scheme with DC, and asking an independent office to conduct a public sector pensions audit.

The Lib Dems have pledged to establish a commission to review reform options and would look at further cost capping and rises to the public sector pension age.

Other policies

Labour has ruled out keeping the default retirement age at 65, while the Tories support removal in principle but want further investigation into the practicalities, and the Lib Dems have pledged to abolish it.

The government will create a National Care Service for the long-term care of older people with health needs, part funded by pensioner contributions. The Tories propose making optional insurance available to pensioners to fund care costs, support and residential home accommodation. The Lib Dems would create a commission to establish long-term care proposals.