The answer to that question depends on two things; the outcome of the election and how you react to the inevitable instability it will cause.
At this early stage, the most likely outcome seems to be a Conservative victory, with an increased majority. At least that’s what a certain Mrs May, of Number 10 Downing Street, has gambled on.
Logically, if this is the case, Mrs May, and the Chancellor Philip Hammond, will be emboldened to drive through changes to domestic policy, whilst negotiating Brexit. Of course, even if it looks unlikely right now, Jeremy Corbyn could pull off the biggest political shock of this, or probably any other generation.
So, what changes might we see once the result is known on 8th June? How will the second election in two years affect your personal finances?
Triple Lock to be abolished?
The triple lock protects the value of the State Pension, ensuring it rises by inflation (measured by the Consumer Prices Index) earnings or 2.5%, whichever is higher
It’s a popular policy with older voters and was guaranteed to remain in place until 2020. Although, Philip Hammond has previously suggested its days may be numbered and has ordered a review into its long-term viability.
But that was before the snap election was called. Political expediency, especially if the opinion polls narrow, may mean the Tories decide to keep the triple lock. Especially if the medium to long term predications suggest inflation will rise above 2.5%, which means the cost of the triple lock is minimal.
For their part, Labour has already pledged to keep the triple lock until at least 2025.
As Mr Hammond continues his search for cost savings, the £34 billion spent each year on pension tax-relief must be a tempting target.
Before each Budget, and until last year’s Autumn Statement, rumours abound that this is the year pension tax-relief will be cut. Many of the people perpetuating these stories overlook the fact that the amount of tax-relief available has already effectively been cut. The maximum pension contribution, thereby limiting the tax-relief available has already been cut to £40,000 and in some instances, it’s as low as £4,000.
Will this be the election when politicians finally grasp that nettle though, and look to make further savings on the billions of pounds spent on tax relief?
As both main parties chase the older vote (who are more interested in pensions) we’d be surprised if either made an overt commitment to cutting pension tax-relief. But they may surprise us.
National Insurance rises back on the table?
Philip Hammond was forced to row back on his plans to put up the National Insurance contribution paid by the self-employed after it was deemed to have broken a 2015 manifesto pledge.
Don’t expect any similar commitments in the 2017 version; in fact, if the Conservatives are returned with a larger majority, we wouldn’t be surprised to see the NI increase back on the table.
Higher State Pension Age?
This is an interesting one.
It’s clear that the State Pension Age is only heading in one direction and is already stated to rise to 67 by 2028, whilst two recent reports have recommended different rates of increase.
The Government must make an announcement before 5th May. The big question, of course, is how their decision will be affected by the forthcoming election. With votes on the line it’s possible that the Government will take a short-term view, with only a small increase, in the hope of winning votes.
A view from the ‘inside’
Who better to give his views on the direction of pension policy after the election than the former Pension Minister, Steve Webb, now Royal London's Director of Policy:
“A snap General Election throws pensions policy up in the air. If Theresa May secures a bigger majority, radical reform of things like pension tax relief becomes much more likely. A key question is whether the parties will have time to put detailed plans in their manifestos or whether we will get vague promises of reviews with all the detailed work done after the Election. What is clear is that a new Government and a possible new ministerial team are likely to mean yet more unwelcome uncertainty over the future of pension tax relief.
“On the state pension, the Government has a legal duty (under the 2014 Pensions Act) to respond to the recently completed review of the state pension age by May 7th 2017. The prospect of an imminent election probably means an aggressive timetable with twenty-somethings working into their seventies is off the table for now.
“The triple lock on the state pension must now be up for grabs. But the Conservatives face a tricky choice, now that Labour has pledged to retain the triple lock. With inflation approaching 2.5%, the cost to the Treasury of the triple lock becomes relatively small. If the Conservatives were to decide to scrap the triple lock in the weeks before a General Election it would be a sign of supreme confidence about the likely outcome of that Election.”
ISAs (Individual Savings Accounts) have been a long-term favourite of former Chancellor, George Osborne.
Currently, there’s nothing to suggest any significant, long-term, changes to ISA policy from either the Conservatives or Labour.
This may change when the manifestos are released, but we don’t believe significant changes are likely.
The FTSE 100 fell 2.5% after Tuesday’s announcement and, whilst the pound rose sharply, there’s no doubt we will see more stock market volatility over the coming weeks.
The message in such times is always a simple one: avoid knee-jerk reactions and panic. Those investors who do so, and ride out any short-term volatility are those who are rewarded in the longer term.
We’ll know more soon
Over the coming days and weeks all the major political parties will reveal their policies and launch their manifestos.
Only at that point will we be able to make truly informed predictions. Then again, even those depend on the outcome of the election on 8th June.
You can rely on us to keep you constantly updated, but if you wish to discuss your financial requirements, please contact us.