What would the Liberal Democrat manifesto mean for your finances?

The Liberal Democrats published their manifesto as the general election battle picked up pace.

While the Conservative and Labour documents will understandably draw the most attention, the minor parties could yet have a crucial say in the future direction of the country.

AJ Bell’s analysts consider the key pensions and personal finance pledges put forward by the party.

Review rules concerning pensions so that those in the gig economy “don’t lose out”

Lack of saving among the self-employed risks being the next big pensions crisis. There are around 5 million self-employed people in the UK today and yet only 1 in 7 are saving for their later years. Without urgent action these people risk sleepwalking into penury in retirement.

While the problem is clear, the solutions are less obvious. The Conservatives’ 2017 manifesto promised to ‘make auto-enrolment available to the self-employed’ – this turned out to simply mean trialling behavioural nudges to encourage people to save in a pension. In the event we didn’t even see the outcome of this limited intervention.

The tricky part of bringing the benefits of auto-enrolment to the self-employed is the lack of an employer to put these people in a scheme and provide matched contributions.

The self-employed can contribute to pensions of their own volition, and it may be the most effective way to boost saving among this section of the workforce is through better communication of the existing benefits of retirement saving.

The Lifetime ISA, which in theory could be attractive to self-employed workers, could also be improved to boost its appeal. The size of the exit penalty remains a significant barrier, for example, as does the fact it is only available to those aged 18 – 39.

Act on the pensions crisis that is driving away our most experienced clinicians and worsening waiting times and the workforce crisis

Although political parties are acknowledging the pension tax regime is exacerbating strains in the NHS is good news, nobody seems willing to back the obvious solution – namely scrapping the annual taper altogether. This is somewhat perplexing.

It may be that the major parties simply don’t like the electoral optics of removing something which places an extra tax burden on higher earners. But with patients’ lives potentially being put at risk, we need politicians to show real leadership in this area.

Ultimately if the roughly £1 billion revenue the taper generates needs to be found elsewhere, that feels like a price worth paying given the seriousness of the pressures facing the health service. Over the long-term, we hope a future Government pursues radical simplification of the UK’s pension tax regime so ordinary savers can navigate the rules much more easily.

Retain the state pension triple-lock

Keeping the state pension triple-lock in place is an easy political win for the Lib Dems, who are understandably keen to shore up the all-important ‘grey vote’.

But despite making political sense, this policy remains something of an oddity in the retirement landscape.

Rather than increasing the real value of the state pension at random points in time – namely when inflation and earnings are low – it would be far more sensible to decide a ‘fair’ value for the state pension and then set a path to reach that point. This amount could then be pegged to earnings and/or inflation so the value of the payment is protected.

Compensate 1950s-born women affected by increases in their state pension age, in line with recommendations from the parliamentary ombudsman

Given the amount of public support the Lib Dems have given the ‘WASPI’ women affected by rapid increases in their state pension age, it is no surprise to see them feature in the party’s manifesto.

While previously the Lib Dems had suggested every 1950s-born woman affected by the hike should be given £15,000 compensation – something which would likely have cost tens of billions of pounds – the manifesto instead passes the buck to the parliamentary ombudsman, which is due to review the case.

Although this promise may give hope to those women affected, caution is recommended at this stage, partly because we don’t know what the ombudsman will say, and more obviously because the Lib Dems are unlikely to be elected with a majority at the election.

Ditch the Capital Gains Tax allowance

The Lib Dems say they want to level the playing field between how money earned from investments and from employment is taxed, and so will scrap the Capital Gains Tax allowance and tax gains as if they were income.

This will be a hit to higher earners, who will see the tax on their investment gains increased from 20% to 40% or even 45. The party will also increase income tax by 1p, to generate £7bn a year for the NHS and social care.

Scrap the Marriage Tax Allowance

Scrapping the Marriage Tax Allowance feels like a curious pledge to put in the manifesto, considering most people are unaware of the tax and it is underused by the small group eligible for it. It isn’t a massive revenue-raising measure and would take away a modest tax break for couples where one half works part-time or not at all.

Link stamp duty to energy usage

The proposal to link stamp duty to the energy rating of a property feels like it has the potential to turn an already complex tax into a complete maze for homebuyers to navigate. Presumably you’d end up with different rates based on property values and also energy ratings, creating a nightmarish multi-tranche system.

£14 billion childcare pledge

This election has become focused on families and childcare, and the Lib Dem manifesto pledges to extend the free childcare hours to children from the age of nine months, assuming parents are working. More crucially, it has promised to increase the rate the Government pays nurseries for this childcare provision, to address the problem of nurseries being paid below market-rates.

Tuition fees dodge

Surprisingly the Liberal Democrats shy away from scrapping university tuition fees entirely, instead pledging to ‘establish a review’ of the financing of higher education.

The party will know that tuition fees are a sore point for previous voters after their U-turn on scrapping fees during the coalition Government – and it may have felt like to thorny an issue to tackle.

The party has, however, pledged to finance education and training at various stages in people’s lives - £4,000 at age 25, £3,000 at age 40 and £3,000 at age 55.

These articles are for information purposes only and are not a personal recommendation or advice.