Reform UK’s strong performance in the recent local elections has intensified scrutiny of what a Nigel Farage-led government could mean for people’s finances.
They made major gains across England and has continued to climb in national polling, putting pressure on Labour ahead of the next general election.
So far, Reform has offered only a limited set of detailed pension policies, but the proposals it has floated point to potentially significant changes for retirees, savers and public sector workers.
Below, we run through what these could mean.
Triple lock survives
One of the clearest commitments from Reform is support for the state pension triple lock, which guarantees the pension rises each year by whichever is highest out of inflation, wage growth or 2.5 per cent.
Farage initially appeared lukewarm about the policy before he later confirmed it would remain in place.
Speaking at a press conference in London last month, Farage said: “We have discussed it, and we have debated it, and we’ve decided it’s going to stay.”
There are often concerns about how the continuation of the lock will be funded, and Farage has said this will be through cuts to welfare spending and disability benefits, although it has not set out full details.
Tom Selby, director of public policy at AJ Bell, said backing the triple lock was politically understandable but raised longer-term questions.
“While [Reform’s commitment to the triple lock] might make sense politically, it is not a policy that can simply be retained forever and Reform, along with other major parties, would likely need to set out a plan to shift away from the triple-lock if it is elected to power.”
The triple lock has become increasingly expensive for governments as the population ages, but it remains highly popular – particularly with older voters – and is now backed by all the major parties.
According to the Office for Budget Responsibility, the annual cost of the policy is estimated to reach £15.5bn by 2030.
Public sector pensions
Reform has also suggested it would make major changes to public sector pensions. The party argues that the defined benefit (DB) pension schemes offered to many council workers, teachers and NHS staff are too generous and too costly.
These schemes provide a guaranteed income for life in retirement in return for contributions from workers. They differ from the defined contribution (DC) schemes in the private sector, where workers save into their own pots that are then invested, and for which they hold responsibility individually.
Richard Tice, deputy leader of Reform, claimed in November that the liability for these schemes was “growing at somewhere between £30bn and £50bn a year”. He insisted it was “not unreasonable” to “sit down with unions” and discuss a different system for new employees.
On one of these individual schemes, the local government pension scheme (LGPS), Reform has been even more direct.
This scheme is one of the few public sector DB schemes that invests employee contributions, but Tice has said the schemes are “underperforming hugely”, had “no co-ordination” and were invested in “woke nonsense”.
Tice said Reform would stop new employees from enrolling in the pensions and instead enroll them into DC schemes.
A Reform spokesman said: “We’re committed to the triple lock and closing LGPS to new entrants, consolidating LGPS schemes assets as a sovereign wealth fund, and are conducting a review of whether to close other public sector defined benefit pension schemes to new entrants.”
Selby said there were some risks with this. He said: “Reform has said it wants to shift public sector workers onto DC pensions, a move which would cause an immediate bunfight with trade unions and would also raise substantial cashflow challenges for the Exchequer.
“Because public sector pensions are ‘pay as you go’, the contributions of today’s workers are used to pay the pensions of today’s retirees. A switch to DC would mean today’s workers’ contributions would go into their own pot, but there would still be an obligation to pay the pensions of retirees.
“While such a move could reduce long-term costs, this transition would be extremely painful and costly, and Reform will need to set out how it plans to address that challenge.”
Some think-tanks have done work on how this could be achieved – and concluded that it would save money in future – but have admitted there is an upfront cost.
This year, a paper by the think-tank Policy Exchange suggested closing DB schemes to new entrants. It said costs would peak at £3.4bn after six years, but would save £37.4bn 50 years after adoption.
Are there economic risks?
Experts said the biggest impact of any future Reform government may be less about specific policies and more about the economic impact it could have, which could have an effect on the performance of people’s pension investments.
Reform has said its aim is to make Britain one of the best places to start a business. Reform “will cut red tape, cut business taxes, simplify planning, and create a stable, pro-enterprise environment,” it says on its website.
If it were to boost economic growth successfully, that could mean people’s pensions and investments in Britain performing more strongly.
But experts point out there are also risks.
Stephen Barber, a professor of global affairs at the University of East London, said there were risks to economic stability from Reform’s agenda.
“The first is that while Reform is characterised as a party of the right, fundamentally it is not so much ideologically coherent as populist. It offers simple solutions to complex problems. This means it runs with counterproductive and sometimes contradictory policies.”
He warned secondly that Reform’s policies could prove difficult to deliver in government, risking economic instability, while its reluctance to reform the pensions triple lock could add to inflation and borrowing costs.
Barber also said that Britain’s increasingly fragmented political landscape could add to instability, arguing that even if Reform performed strongly at an election it would be unlikely to secure a majority, raising the prospect of weak coalitions, political deadlock and greater market uncertainty.
Political uncertainty and uncosted spending hikes or tax rises can cause a rise in gilt yields – the return that investors in government debt demand. These have climbed in recent weeks, with the yield on 10-year government bonds, known as gilts, rising to around 5 per cent. That is close to the highest level since the aftermath of the 2008 financial crisis and reflects growing concern among investors over inflation, public finances and political instability.
Higher gilt yields matter because they feed through into the wider economy, including mortgage pricing. These higher borrowing costs can drag on the economy, which influences how people’s pension investments perform.
Sir Steve Webb, former pensions minister and current partner at pension consultants LCP, said a government viewed as fiscally disciplined could help lower borrowing costs and mortgage rates. But he warned instability or unpredictability could have the opposite effect.
“The most important impact of any new government on household finances will ultimately depend on their stewardship of the economy.”