Labour weaponises tuition fees by attacking pensions
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Labour has unveiled its new plans to lower university tuition fees to £6,000 a year, which it will fund by placing new restrictions on pensions.
Over the past 11 months there have been radical changes to pensions. Although they have been largely well received by both the public and the pensions industry, and the increased flexibilities could serve to make pensions more attractive as a savings vehicle, change can be confusing. In order for the new rules to have a lasting impact on savings or retirement behaviour, pensions need to be left alone.
It was for this reason that we called for a pause on further changes, instead urging politicians to commit to clarifying the new options to empower people as they approach retirement. We also pointed out that the positive impact of the Budget could be undermined if political parties used pensions as a weapon in their manifestos, particularly if the proposals would impact pensions negatively.
However, Labour's announcement today confirms recent rumours that it would use pensions to cover the costs of reduced student fees. Ed Miliband stated the party's plans include:
- Lowering the annual allowance from £40,000 to £30,000
- Reducing the lifetime allowance from £1.25 million to £1 million
- Scrapping the 45% tax relief for people who earn over £150,000 a year and replacing it with a 20% rate
This changes the existing tax relief rule, which is that it matches your income tax level for the contributions into a pension. Changing that for additional-rate taxpayers could lead to speculation that other taxpayers will see adjustments too.
A reduction in tuition fees has also been criticised by a number of people, including Martin Lewis of MoneySavingExpert, on the basis that it will only benefit those who can afford to clear their loan in full. For people on lower incomes, the debt is repaid only as a percentage of their earnings - after 30 years, the debt is written off. The critics argue that most people will be paying for the loan for those 30 years, so reducing the fees to £6,000 will not have any effect except for people who clear it in full.
Labour has also suggested that the richest 5% of pensioners should not receive the winter fuel allowance, while the Liberal Democrats are considering removing the winter fuel allowance and free TV licence from pensioners in the higher-rate tax bracket. As of yet, though, this is not confirmed and as it was revealed on Daily Politics that Labour's plan would save around 4% of the winter fuel allowance payment, it may not be deemed cost effective enough to implement.
What do you think of Labour's proposals? Let us know with a comment below.
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