Both main political parties will be keen to put some “clear blue water” between themselves and their rivals in the weeks ahead on a whole range of policies. But what should savers and investors be watching for in the opposing manifestos and speeches? By Tony Watts OBE.

“It’s the economy, stupid”, goes the oft-quoted refrain about what really wins elections. And while there are plenty of other key issues concentrating the minds of voters at present, what the two main parties promise to do around our pensions and savings will matter to us all.

But what, realistically, can be done at a time when there is very little room for manoeuvre? And will what’s on offer be more a question of jam tomorrow? Here are ten areas to look out for.

1          The State Pension… the “triple lock” and retirement age

For many of us, our State Pension is a reassuring bedrock for our retirement income, especially now that a full State Pension is worth some £11,500 and (at present) is guaranteed to rise by whichever is the highest of inflation, average earnings growth or 2.5 per cent.

No party will want to alienate the large swathe of people who want to see this protected by casting doubt on its future. The problem for all concerned is that, according to the International Monetary Fund and many other influential voices, it is unaffordable in its present guise ­– as well as being a divisive issue for younger generations who are footing the bill.

Recent research showed that just 16% of the 18-34 age group would be more likely to vote for a party pledging to keep the triple lock, compared with well over half of over 55s.

It would be hard to contemplate any party emulating turkeys voting for Christmas by not including State Pension protection in their manifesto, but in all probability one or more will hedge their bets by promising a longer-term review on its fairness and viability – possibly combining that with a review of the State Pension Age.

That’s already scheduled to rise from 66 to 67 between 2026 and 2028, and up on up again to 68 between 2044 and 2046 (impacting those born on or after April 1977).

2          Tax rates and thresholds

This is one area where some differences might appear.

The Chancellor is keen to reduce the overall tax burden and boost the economy through reducing National Insurance contributions. Labour says this route is expensive and unfunded. The Conservatives are also looking to help higher earners. The temptation for Labour would probably be to offer support for those at the bottom end of the earnings scale as well as those pensioners newly paying income tax by lifting thresholds above the current miserly £12,750 (which would also help all earners).

The caveat to both of those routes is that anyone proposing tax cuts will be expected to show where the money is coming from.

3          Lifetime allowance

The total limit that people can have in their pension pot without facing tax penalties could be one policy battleground as the response of Labour when the Government recently abolished the £1,073,100 lifetime allowance was to say that they would bring it back if elected, not least because this has unduly helped the very rich.

They haven’t broken cover since on how they plan to deal with this, but it’s worth remembering that LTAs under previous Labour Governments were actually higher than the limit that the Chancellor has just abolished. The lifetime allowance was first introduced in 2006 when Gordon Brown was Chancellor: it was initially set at £1.5 million and rose to a peak of £1.8 million April 2010 – before being brought back down again under George Osborne.

Labour originally said that, if elected, they would bring it back, but have since gone quiet on the issue. There is currently a lot of concern amongst those looking to bulk up their savings ahead of retirement and seeking some certainty, which might become a clamour ahead of the election. We will have to wait for Labour’s manifesto to learn more, but HMRC have so far needed over 12 months to change deep seated tax regulations in order to comply with the abolition of the current LTA and also protecting previous higher levels of LTA/ tax free cash which may be more generous to use than the new rules.

The regs are now in place and it would take a lot of time, tax payers money and huge effort for Labour to overturn this.  Also, with the limitation of the tax free cash for most, this could be an increased revenue earner as more of the higher value pension funds would be taxable upon withdrawal.

This might be a bridge too far with everything else needing to be done, should Labour get in. Perhaps, longer-term, a “middle ground” for them might be to reintroduce an upper limit (say, £2 million) that would still encompass middle to higher earners, along, (possibly) with exemptions for doctors to prevent their early exodus from the NHS.

4          Savings and annuities

Annuities have been enjoying an unexpected time in the sun after a few years in the doldrums, buoyed by high interest rates.

Savers too have been taking advantage of rates they have not seen for some time (albeit at a time when inflation has been eating into the value of those savings).

Inflation has (finally) returned to something close to the Bank of England’s target, so the markets are expecting them to reduce interest rates from their current 5.25% – not least because it might help the large swathe of people coming up to mortgage renewal time and (arguably) infuse a bit more feelgood factor in the economy. Lower rates also mean cheaper borrowing for whichever Government is in power.

The problem short term is that the Bank of England is currently signalling that rates may well remain on hold until after the General Election.

Once a new Government is in power, markets are expecting several phased drops over the coming months. That means that, for now, annuities and savings rates are still riding relatively high, encouraging some to lock their money in at favourable rates while they have the chance.

5          ISAs

The role of ISAs in allowing savers to tuck money away for the future is highly attractive at a time of historically high taxation. Going forward, it’s hard to imagine the tax burden reducing significantly short term, making ISAs an important option for investors. Listen out for what the parties have to say on this.

 6         Investing our pensions

While there was some scepticism at the time of Jeremy Hunt’s Mansion House speech on using a higher proportion of the nation’s pension savings to boost UK economic growth, it appears to be a policy that has some appeal for Labour too. Shadow Chancellor Rachel Reeves has already talked about unlocking pensions to support the economy, so some form of this may well be built into her plans too.

7          Pension review

While the pensions freedoms brought in under the Coalition Government would be hard to unpick, there have been concerns expressed by Labour about the level of advice and support people currently receive before making decisions, and it would be no surprise if they promised a review of pensions advice to make sure people didn’t make fundamental mistakes heading into retirement.

Whether or not there might be an appetite to review (or indeed alter) the currently generous pension tax relief system is uncertain: it would surely lead to accusations that they were repeating the “raid” that Gordon Brown made on pensions during his Chancellorship, and possibly act as an unwelcome brake on saving habits. This would almost certainly be a dividing line between the parties. The temptation for Labour might well be a “tweak” at the top end, which wouldn’t lose them many votes but still generate some much-needed income.

 8         Auto-enrolment

This policy has successfully helped start millions of people to start saving for a pension. However, the current contribution levels totalling 8% (employers must pay at least 3% and the employee the remaining 5%) are still lower than the original target.

Of course, this is a way to help fund people’s future retirement without the Government (or taxpayer) footing the bill. But while it would obviously be desirable to push the contribution levels higher, any incoming government will need to be mindful of what will be affordable to businesses and employees. Again, this might be something that will be “reviewed” to buy time for an incoming Government.

9 Inheritance Tax

The more fundamental bone of contention is the Tory chat about the abolition of IHT, which Labour would surely oppose.

This is a key component of financial advice and as a general rule of thumb individuals are advised to withdraw funds from non-pension fund assets first as pension funds are outside of the estate for IHT reasons.  If IHT is abolished, then there would be a key change on advice going forward – of course predicated on a Tory victory.

10        Pots for life and pensions dashboards

Meanwhile, there are two potentially very significant projects currently on the drawing board waiting to be implemented.

The dashboard has been subject to endless delays, but it’s hard to envisage it being knocked on the head by an incoming Labour Government. The future of a single “pension pot for life” is less certain, but it will be interesting to see whether this will be a policy priority for Rachel Reeves.

How to make sure YOUR pension plans will give you the lifestyle in retirement you want