Pensions industry speculation grows ahead of new PM announcement

Industry experts have suggested that the new Prime Minister (PM) could look to "make it easier" for pension schemes to invest in a wider range of investments, as speculation over the potential impact of the change in leadership grows.

With the new PM to be announced on Monday (5 September), Aegon pension director, Steven Cameron, pointed out that many are waiting to see "who will receive government support and to what extent" once the news is announced.

In particular, Cameron suggested that it is likely that the new PM will want to take advantage of being free from EU rules to make it easier for pension schemes to invest in a wider range of investments.

"One particular focus has been on encouraging greater investment in ‘unlisted’ assets such as long-term infrastructure projects which can support a move to net zero, create greater economic growth and also hopefully produce higher returns for pension savers," he explained.

"The government won’t force changes here, but if the rules are relaxed, you may find your workplace pension gradually changes where your funds are invested.”

Both candidates have also committed to retaining the state pension triple lock until the next General Election, promising an increase of the highest of consumer price inflation, national average earnings increases or 2.5 per cent each year

Although Cameron acknowledged that some may question the fairness of a 10 per cent or above increase for pensioners when they are receiving far lower wage increases, he clarified that pensioners got "far less" than the rate of inflation last April and could find their purchasing power is further worsened if inflation continues to rise.

However, Quitler head of retirement policy, Jon Greer, warned that Liz Truss may struggle to balance the books “if she wants to stay true to the Tory manifesto of keeping the triple lock in years to come in light of soaring inflation and her desire to not add any other taxes and slash existing ones”.

In light of this, Greer warned that "something may have to give", highlighting the money purchase annual allowance as "ripe for reform given the cost pressures people are facing".

"At present, the threshold of £4,000 is simply too low as people who have rightly decided to continue to pay into their pension following accessing their funds get penalised," he continued.

“The threshold should be moved to around £10,000 or scrapped altogether and replaced with anti-recycling rules. Changing these rules could act as a lifeline for those struggling to pay their bills this winter who access their pension and are not then penalised for doing so when they resume contributions in the future.”

Issues around NHS pensions have also been raised during the leadership race, with Truss pledging to address pension tax issues that are leading to senior NHS staff retiring early.

However, Quilter NHS pensions expert, Graham Crossley, emphasised that "care will be needed to ensure that any solutions are truly fit for purpose".

"As is always the case the devil is in the detail and any plan needs to ensure that it does not produce unintended consequences that further muddy the water of what is an incredibly complicated system," he stated.

Crossley also explained that while the lifetime allowance is "certainly playing a role in the exodus" the annual allowance is causing "far more problems for doctors throughout the NHS".

He stated: "The priority should be in the short term, to fix the unintended consequences of s235 Finance Act 2004 that results in annual allowance calculations assessing inflation as pension growth.

"At a time when the rate of inflation is over 10% this surely means that this method of calculation is not fit for purpose as doctors brace for eyewatering tax bills landing on their doorsteps.

"Problems with NHS pensions have rumbled on for years and up until now very little of consequence has been done to truly address the problem so any changes from the incoming PM will be welcome."

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