Stuart Price, Partner and Actuary at Quantum Advisory in Cardiff, explains what the hung parliament result is likely to mean for pensions and investments in the UK:
“After a volatile election campaign and the unexpected result of a hung parliament, we are unlikely to see the biggest and most anticipated change to pensions take place. The Conservatives were the only party to fully advocate the ditching of the triple-lock guarantee from 2020.
“Currently the triple-lock guarantees that the state pension will increase every year by whichever is greater; inflation, average earnings or 2.5%. Although this was once a positive thing, in recent times with low inflation and low average earnings, the increase has always been 2.5%. Theresa May’s pledge to reduce the guarantee to a double-lock and eliminate the 2.5% could have saved the government around £6bn each year and possibly delayed an increase to the state pension age. It seems that the Democratic Unionist Party (DUP) appear to hold the key for Theresa May to have a working majority, in which case negotiations with the DUP, who pledged in their manifesto to retain the triple lock could mean that the Conservatives still retain it.
“The Conservatives pledged to give more power to The Pensions Regulator, which is exactly what is required if we’re to put a stop to situations like we’ve seen happen with BHS. Theresa May has said her party will allow The Pensions Regulator to block mergers and acquisitions and make it a criminal offence for a company to deliberately sabotage a scheme. Increased powers for the Pensions Regulator are still likely to be retained as this notion broadly had cross Party support.
“We have doubts now over whether the proposed reduction in the Money Purchase Allowance from £10,000 to £4,000 will go ahead. This reduction was temporarily put on hold following the announcement of the snap election but with all this uncertainty it is now not clear if this will go ahead.
“If Conservatives form a government it could be good news for the self-employed, as the Conservatives have previously said they will make auto-enrolment mandatory for the self-employed. This would be welcomed as a recent study suggested that self-employed in the UK are the worst in the world when it comes to planning for their retirement and including them in the hugely successful auto-enrolment scheme could be just the answer.
“The 2.5 million women born in the 1950s who have had their state pension age changed are likely to be disappointed, as the Conservatives have not committed to addressing this or compensating them for their loss.
“This result, of course has implications upon investments as markets and bookmakers had priced in on a Conservative majority. Part of the volatility we have seen since the result of the election is due to the unexpected outcome of a “hung parliament”.
“The most prominent fear in the markets is of the uncertainty that lays with a hung parliament and the possible resignation of Theresa May.
“In the short term, it is therefore natural for us to expect volatility, in the long term the markets may unfortunately begin to react to any continued uncertainty over the Brexit negotiations. Theresa May’s failure to win a mandate for her “Hard Brexit” approach could mean a more moderate consensus eventually forms, but much will depend on whether she remains in post, or is replaced by a Brexiteer.”
Stuart Price, Partner and Actuary at Quantum Advisory