Con / Lib-Dem coalition: The impact on pensions

The Conservatives and Liberal Democrats coalition deal could have heavy implications for policies on tax relief on pension scheme contributions.

As part of the coalition deal signed yesterday, the Conservative and Liberal Democrats agreed to increase personal tax allowances from April 2011 to achieve a "long- term goal" of a £10,000 personal tax allowance.

However, while the new government has yet to set out how it plans to pay for this promise, the Liberal Democrats' manifesto said it would fund this policy, in part, by giving tax relief on pensions only at the basic rate - a measure it calculated would raise £5.46bn a year in 2011-12 prices.

The Conservatives made no manifesto pledges on pensions tax relief.

Despite possible conflict in this area, there are wide areas of agreement in manifesto pensions policy pledges between the Conservatives and the Liberal Democrats.

Both parties said they would pay compensation to Equitable Life policyholders.

The Tories manifesto pledge to implement the parliamentary ombudsman's recommendation to make fair and transparent payments to Equitable Life policy holders, through an independent payment scheme, for their relative loss as a consequence of regulatory failure.

The Lib-Dem manifesto said it would meet the government's obligations towards Equitable Life policyholders who have suffered loss and set up a "swift, simple, transparent and fair payment scheme" for those who had lost out.

Both parties' manifestos also pledged to scrap the rule which compels people to buy an annuity when you reach age 75.

The Tories and Liberal Democrat manifestos also agree on the need for public sector pensions reform.

The Conservative manifesto pledged to cap public sector pensions above £50,000 and consult with the Independent Parliamentary Standards Authority on how to move away from the "generous" final-salary pension system for members of parliament.

The Liberal Democrats' manifesto promised to reform public sector pensions to ensure that they were sustainable and affordable for the long term - with an independent review to agree a settlement that is "fair for all taxpayers as well as for public servants".

Both parties have also spoken in favour of restoring the earnings link for the state pensions - with the Lib Dems promising to do this immediately. The Conservatives said before the election they would pay for such a move by increasing the state pension age to 66 (by 2016 for men and 2020 for women).

In addition to this, both the Tories and the Lib Dems also agreed about early access to pension savings.

The Lib Dem manifesto said they would also give people greater flexibility by allowing them to access part of their personal pension fund early - to help, for example, in times of financial hardship.

The Tories have also pledged to look at this issue - with former Tory work and pensions spokeswoman Theresa May pledging before the election to consider measures to encourage savings, including early access to pensions savings as already happens in countries such as New Zealand and the US.

May also said the default retirement age would be reviewed to allow for greater flexibility in working beyond that age and encouraging it where it is practical to do so.

The Liberal Democrats' manifesto pledged to scrap compulsory retirement ages in a bid to allow those who wish to continue in work to do so.

Other policies promised by the Tories and Liberal Democrats include:

- Tory (Theresa May): Addressing the 2012 reforms for auto-enrolment and personal accounts: auto-enrolment could be brought forward from 2012 on a voluntary basis, allowing employers to plan for implementation. Concerns about the need to ensure sufficient saving in the new personal accounts by lower and middle earners will also be tackled.

- Tory (Theresa May): New approaches to defined benefit schemes will be explored so companies can retain such schemes, and hybrid schemes with elements of defined benefit and contribution will be explored. The regulations which make such schemes harder for companies to operate will be reviewed. She said any measures that increase volatility on a balance sheet or restrict a company's ability to adapt to changing circumstances needed to be reviewed very closely.
Liberal Democrats (Manifesto): Aim to, over the long term, to bring in a Citizen's Pension that will be paid to all UK citizens who are long-term residents, set at the level of the Pension Credit. However it noted this could only be done when resources allowed.

- Liberal Democrats (Manifesto): To uprate the state pension annually by whichever is the higher of growth in earnings, growth in prices or 2.5%.

The full list of pre-election manifesto and other pledges made by the Conservatives and the Liberal Democrats can be found at:

Conservatives

Liberal Democrats