Risks to investors?


Article by Phil

Although an election date has not been set yet, it seems inevitable that one will be called in the not too distant future. Whilst many see Brexit as the defining issue of the day, let’s not forget that beyond Brexit the parties have very different manifestos for the domestic economy.

Potentially, none more so than the current Labour party which has the most left leaning leadership for a generation. Some of their radical policies may be appealing on the surface, but there is a very real risk to the economy and in particular investment returns from some of their policies. The two to consider most carefully are:

  1. Nationalisation – there is a promise to re-nationalise large parts of the country’s infrastructure, including rail and utilities. You can take a pollical view on this, but economically the threat is that Labour will re-nationalise private companies at below market value (on behalf of the country). That will undoubtedly affect the value of the majority of pension schemes, both private and publicly funded schemes, who all hold significant investments in the UK’s infrastructure. This could lead to solvency issues for many pension schemes, threatening pension savers retirement incomes, increasing the burden on the Pension Protection Fund and requiring increased pension contributions from workers across the whole economy. Not a welcome prospect for millions of savers.
  1. Tax Crackdowns – expect an increase in tax rates, a reduction in the annual and lifetime allowances for pensions, and potentially the end of pension freedoms and a return to annuities as the only option. But by far the biggest threat is to Inheritance Tax. An increase in IHT is a stated policy objective and Labour is likely to create an income tax based scheme on anything gifted above a £125,000 lifetime allowance. This would hit millions of home owning families throughout the UK, with an estimated extra £15 billion being raised from this tax change alone in 2020/21.

Worth considering.

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