Following the calling of a summer general election, to be held on 4 July, by Rishi Sunak, AJ Bell highlights six personal finance priorities Labour and the Conservatives will need to focus on ahead of the upcoming election campaign.
- Pensions
Tom Selby, director of public policy at AJ Bell:
Triple-lock and the state pension age
“The next government will have some big pensions decisions to take. The state pension triple-lock is one of the few things both parties have been crystal clear on so far, with both Rishi Sunak and Keir Starmer committing to the policy for the entirety of the next Parliament. The triple-lock guarantees the state pension rises by the highest of average earnings growth, inflation or 2.5%. The full new state pension is currently worth £221.20 per week, or just over £11,500 per year.
“While neither party is likely to talk about it in their manifesto, it is possible planned state pension age increases will also come into focus for the next administration. The current state pension age is 66, with plans in place to raise this to 67 by 2028 and 68 by 2046. However, there have been calls from various quarters to accelerate that timetable in order to save the Treasury money.”
Lifetime allowance
“Labour has stated it plans to reintroduce the lifetime allowance – the limit on pension pots someone can build up over their lifetime that was abolished in April this year. This would be a retrograde step, adding unwelcome complexity to an already complex system. It would also run directly counter to wider efforts to boost investing, as any lifetime allowance tax charge would punish those who enjoy strong investment growth.
“We’d urge all parties to focus on keeping pensions as simple as possible and avoid turning pension tax into a political football. By their very nature pensions are a tool for long-term planning and the public need to be confident that governments won’t move the goalposts every five minutes.”
Automatic enrolment
“The government’s flagship automatic enrolment reforms are also due an upgrade. Under auto-enrolment, employers are required to enrol eligible staff into a workplace pension scheme that meets certain minimum standards.
“While those reforms have been successful in dramatically boosting the number of pension savers in the UK, there is agreement current minimum contribution levels are insufficient to deliver a decent standard of living in retirement for most people.
“A report into the reforms published in 2017 recommended lowering the minimum age for auto-enrolment from 22 to 18 and ditching the lower qualifying earnings band, although these recommendations have yet to be enacted. Given a future government is likely going to need to increase minimum contributions beyond even this level, implementing the 2017 recommendations is likely to be an early job for the next administration.”
Lost pensions and pensions dashboards
“Tackling the problem of ‘lost’ pension pots is likely to be a big focus for the next government, with an estimated £27 billion of pensions money estimated to be sitting in accounts that have become disconnected from their owner. Losing track of your pensions can make it difficult to plan for retirement.
“Proposed pensions dashboards should help make it easier for Brits to find lost pensions. The reforms, due to be introduced in 2026, will allow people to see all of their retirement pots in one place, online. Until then, there are tools out there that can help you locate your old pensions – including AJ Bell’s Pension Finder tool.”
- ISAs
Tom Selby, director of public policy at AJ Bell:
ISA reform and the UK ISA
“The proposed UK ISA is a deeply flawed gimmick that will not achieve its stated aim of reviving UK capital markets. What’s more, it will add complexity to the ISA landscape, something AJ Bell research shows puts people off using the product. Regardless of who triumphs in the general election, the UK ISA should be confined to the policy dustbin, with focus instead trained on simplification and increasing the ISA allowance. This would be much more likely to boost UK Plc over the long-term.
“Labour has already said it will look to simplify the ISA landscape to make it as easy as possible for people to invest if it is elected to power. This is something that AJ Bell has campaigned for consistently over a number of years, calling for the creation of a single ‘One ISA’ product incorporating the best features of the existing six ISAs. No sensible person designing a savings system from scratch would propose the plethora of different ISAs we have on offer today.”
- Advice Guidance Boundary Review
Tom Selby, director of public policy at AJ Bell:
“It probably won’t be one of the topics MPs debate on the doorstep with their constituents, but the current Advice Guidance Boundary Review could be pivotal in helping Brits get to grips with their finances and make better money choices. That has a huge bearing on household financial resilience, their future spending power and retirement choices, so the next government should not ignore its significance.
“Millions of people in the UK have taken that all-important first step in choosing to save or invest for their financial future. But that doesn’t mean it’s all plain sailing. Often investors can struggle to make the best decisions for their circumstances. There’s no doubt many need more help. Although regulated financial advice is rightly held up to be the gold standard, many people either don’t want to or can’t access it.
“The Treasury and FCA’s commitment to finding a different way of tackling the help gap is to be applauded. By allowing providers to offer more tailored guidance, ‘targeted support’ could help individuals make sense of their savings and pensions.
“Ensuring millions of Brits can get the support they need when making often complex financial decisions is critical to boosting people’s financial resilience. Promoting the value of regulated advice and reforming guidance rules so people who don’t take advice can receive more personalised help can both play a significant role in improving consumer outcomes in this area.”
- Tax
Laura Suter, AJ Bell personal finance director:
“A key battleground is likely to develop over the issue of taxation. For some, taxes need to rise in order to fund already-stretched public services. For others, ever-increasing tax bills are evidence that public spending is out of control and taxes need to be cut to incentivise growth.
“The Conservatives will surely point to recent cuts to National Insurance as evidence of their commitment to reducing the tax burden, while Labour will argue that frozen tax thresholds mean we’re paying more tax via stealth methods.
“In truth, there is very little wiggle room in either direction. Taxpayers will struggle to stomach further tax increases, while tax cuts will eat into the future Chancellor’s budgets, which is crucial to any spending commitments either party plan on.”
- Housing and first-time buyers
Laura Suter, AJ Bell personal finance director:
“The state of the housing market is a key concern for many Brits. First-time buyers will want to see an extension to support helping them get a foot on the ladder, while existing homeowners will hope for policies that moderate inflation and increase the likelihood of interest rate cuts.
“The Lifetime ISA is a key component of the current offering for aspiring homeowners, but is currently frozen in time. The property limit for the Lifetime ISA has remained stubbornly at £450,000 since its launch in April 2017. When the Lifetime ISA was launched the average UK house price was £219,000, but it has since shot up to just over £283,000*. If the Lifetime ISA limit had increased in line with average house prices it would sit at £580,500 today – more than £130,000 higher.
“Many aspiring homebuyers will have signed up to the accounts years ago, not realising that it would take so long to get on the property ladder and that they might fall foul of the property limit in the future. What makes the situation more galling for first-time buyers who have been priced out of using the Lifetime ISA is that they now face losing some of their own money when they withdraw their cash from the accounts, thanks to the onerous withdrawal penalty. Anyone who exceeds the £450,000 limit, even by just £1, will be hit with the 25% exit charge on the Lifetime ISA, as their purchase will no longer be within the rules.”
- Childcare
Laura Suter, AJ Bell personal finance director:
Free hours scheme
“The extension of the ‘free hours’ scheme for childcare is already being rolled out and all the major parties are likely to commit to seeing that through, even though the policy won’t be fully operational until September 2025.
“Under the current scheme parents will receive the next tranche of government free childcare hours from September, providing a helpful boost to their finances. It’s essential that the next government keeps a close eye on the rollout and ensures that any wrinkles in the system are ironed out quickly.
“The extension means that parents of children as young as nine months old will be able to claim 15 hours of free childcare at a nursery or childminder, and they can now apply for this. And based on average nursery costs, parents will save almost £3,500 a year on their fees thanks to the government boost – although costs vary hugely around the country.
“While the ‘free hours’ are helpful for many parents, it doesn’t tackle the shortage of childcare in many areas of the country, which prevents parents from returning to work. It also doesn’t help the many parents who have to pay nursery top-ups to the free hours, have more than one pre-school child or who earn too much to get the support.”
Future reforms
“It is possible we could see future pledges on support for parents, or even a complete overhaul of the current system. Currently parents can access free hours support for childcare, tax free childcare worth up to £2,000 to those earning under £100,000, and child benefit for those with earnings under £80,000. The latter is currently undergoing reform, with the government pledging to remove the current unfairness that can penalise single-earner households and instead moving to a system that considers a household’s joint income.
“There’s a case for reforming the entire system, which provides a hotchpotch of different subsidies for parents that frustrates families, leaves nursery finance departments scratching their heads, and creates an extra admin burden for the tax office. It’s possible a future government could go back to the drawing board with a complete re-think on the way parents are supported with childcare and the cost of starting a family.”
