How the general election could affect your savings and pensions

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “It’s on! Against the backdrop of falling inflation, better-than-expected economic growth following a shallow recession and the spectre of cuts to interest rates, the prime minister has announced a general election.

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“Regardless of your political persuasion, a general election could bring huge changes in economic policies, taxation and public spending that can reshape not only the nation’s economic landscape but also personal finances. It can impact mortgage and savings rates and the cost of living, as the newly elected government can influence economic conditions.

“There are also some initiatives in the pipeline that have been thrown up in the air – not least the British ISA and ‘pot for life’ pension reforms. The jury is out as to whether they will see the light of day.

“The impact political uncertainty has on investments is often overblown. Markets become jittery if there’s a risk of a drastic change in the economic status quo – as was the case when Liz Truss announced a radical economic agenda which sent the pound spiralling and caused tremors in the UK’s financial markets. Soundings from the major parties suggest a dramatic departure from the norm is unlikely – but there are no guarantees.

“As is often the case, the ‘keep calm and carry on’ maxim is worth remembering here. Investors should avoid a knee-jerk reaction based on what could happen and concentrate on their long-term goals.

“Investors' portfolios should not be skewed to the UK market regardless of the election result. Maintaining a well-diversified investment portfolio remains the sensible approach, helping to cushion the occasional shocks that come with investing in a single asset class or region.”

Alice Guy, Head of Pensions & Savings, interactive investor, says: “The inbox of the new pensions minister is already overflowing with issues. Millions are still heading for a poor retirement and the new government needs to do more to boost pension saving. Many believe the minimum contribution levels need to rise above the current 8% level, which simply isn’t enough for a comfortable retirement.

“The state pension age and the triple lock will be under regular review by the new government. With the state pension age so crucial for people’s retirement planning, any changes will need to be announced and communicated well in advance so that people know what to expect and have time to plan ahead.

“The potential ‘pot for life’ pension reforms are also still in their infancy and could take years to come to fruition, with workers still facing building up an array of multiple pension pots as they move through their working life. The new pensions minister has a big opportunity here to excite people about their pensions, by allowing more choice about where to invest their workplace pension.

“The expansion of auto enrolment to younger and lower-paid workers has stalled after being announced last year and still hasn’t made it into law. This leaves many workers in limbo with no current pension provision.

“With political uncertainty ahead, the onus is increasingly on the individual to save for their own retirement. It’s important for pension savers to ignore the political noise and keep on plugging away with building their own pension wealth. The fundamentals of pension savings are the same and pension contributions still benefit from tax relief, which means it only costs £80 to pay £100 into your pension and £60 to pay in £100 if you’re a higher-rate taxpayer. Paying into a pension is one of the best ways to build your long-term wealth, whatever the political weather.”