So what, precisely, are the implications of last week’s UK General Election for pension investors?
Commentators are now speculating over the possible consequences of Mrs May’s reduced majority, and the less than ideal alliances which will now be required to enable the Conservative government to manage business through the House of Commons.
As independent pensions advisors, however, our interest is less in the politics, and more in the dangers that the uncertainty of a hung parliament create, and in the best strategies for ex-pats planning and investing for their future.
Unpredictability makes smart investing harder – but more important.
In pensions as in all other forms of investment, unpredictability is investors’ worst enemy.
When you don’t know what’s happening, it’s impossible to know how best to play your hand.
The hung parliament means, realistically, that along with just about everything else in the UK, government policy on pensions will be up in the air for months to come… and possibly longer.
Right now, it looks as though Mrs May has established an ally with which to move forward. If she has, then that will at least enable her to get Brexit negotiations underway, and to start to deal with her economic and other agenda at home.
But both her position as leader of the Conservatives (and so of course as PM), and the stability of the Conservatives as the party of government, are open to some question.
Will there be an early move within the party to replace her?
Will the mooted alliance with the DUP prove sufficiently robust to keep the government viable?
How effective will a newly reinvigorated Jeremy Corbyn be in making her life, and that of the government, impossible?
Sooner? Or later?
Many in the UK press are still of the view that Britain will be back at the polls in October, with Labour attempting to edge its seat tally past the critical majority line, and the Conservatives, under a new leader, fighting to reverse May’s result. (That’s May the month, not May the PM!)
Others expect the Conservatives to be able to weather the storm. They will, they predict, manage their alliance, regain the nation’s confidence as Brexit negotiations progress, then swap leaders smoothly in 2-3 years’ time, as the government progresses towards a full term.
That would mean no further election until 2022.
All that we know is that nobody knows.
What it all means for pensions.
To us at PWS, and indeed to any pensions advisor, this means that things that matter to our clients and to us, like state retirement age, state pension triple lock, social care funding and pension tax relief are all up for grabs.
Although Philip Hammond is still in 11 Downing Street following the post-election cabinet reshuffle, we could still very well be confronted with a new Budget before long.
On the way into the election, the Conservatives had committed to ending the state pension triple-lock – the mechanism which guarantees state pension payments rise annually by the greatest of earnings, inflation or a de facto 2.5%.
Both key opposition parties, Labour and the LibDems, had expressed their intent to keep this guarantee in place.
Now, with the government’s increased difficulty in shepherding contentious policy through the Lobby, plans like this, means-testing Winter Fuel Allowance, and proposed changes to social care contributions are all in doubt.
But that doesn’t mean they won’t happen in some form.
As for previously slated plans to adjust retirement age in 2026 and then again in 2044, it’s a brave man who would currently stake much on anything so far into the future.
All in all, it makes the landscape for all of us trying to imagine what our future retirement might look like difficult to approach with certainty.
Switching pensions into a SIPP.
“When things are uncertain”, says our Head of Technical Planning, Shaun Brookman, “flexibility is an important consideration for investors. Post-election, we appear to be in such a period. In many cases, investors may be wise to consider moving their existing pension investments into a SIPP (Self Invested Personal Pension).”
Our Advisors would be more than happy to discuss Shaun’s observation with you.
SIPPs provide investors with favourable death benefits, increased tax efficiency and an attractive degree of flexibility and control over their pot.
In addition, transfer values are currently at their highest due to low gilt yields.