General election 2017: Political uncertainty set to impact pensions, investments and property

Market volatility, dumped tax changes and shelved reforms will feature in hung parliament Britain

Westminster may be a long way from our wallets but never before has who runs the country been so important for our personal finances (Reuters)

The classic advice at a time like this is to sit tight, do nothing, wait until the world settles down and we discover that while everything has changed, nothing really has.

Don’t sell off your shares, re-arrange your pension portfolio, or put your house on the market.

As usual, it’s a tough call for investors in particular who, like so many others, were blind-sided by the events of the last 24 hours and have watched the FTSE 100 tick up while the pound plummeted with itchy fingers.

But while that advice remains sensible for most of our financial affairs, throwing political uncertainty into the mix at a time when real income is falling and prices are rising could have a marked effect on our wallets.

Above all, if you were holding out for the financial promises set out in one manifesto or the other to plug a hole in your finances – from the Triple lock to free childcare for all – you may be out of luck.

For good or ill, myriad policies are set to fall by the wayside as part of the frantic negotiations and ill-fitting partnerships that are already consuming Westminster.

If modern political posturing is all about “taking back control”, it’s time to take that message to heart when it comes to our personal money.

Investments

The case for a well-balanced portfolio, with a good spread both geographically and by asset class has never been stronger. Though one study suggests that up to a third of investors will change their behaviour as a result of the election, now is not the time to throw your lot in with this week's sure-fire panacea.

The surprise result means the immediate hit is likely to be on UK shares, bonds and the pound, as we’ve already started to see. Markets are set to remain on the back foot for as long as it takes to cobble together a workable government.

Hold on to your hats for yet another period of volatility, but don’t make the mistake of thinking that this is history repeating.

“A weak pound has provided a boost to the UK equity market over the past year but that was against a backdrop of a more robust economy than anyone expected after the Brexit vote,” warns Tom Stevenson, investment director for personal investing at Fidelity International.

“Looking ahead, the FTSE 100 will struggle to progress even with the tailwind of weak sterling’s boost to exporters and overseas earners. Domestically-focused companies in the FTSE 250 and Small Cap indices also face headwinds as sluggish domestic earnings and rising inflation deliver an effective pay-cut to British workers. We continue to prefer European equities to the UK market.”

“For those who are still looking to invest or have existing holdings and want to think about how to position for this period of instability, there are some things to think about,” suggests Ryan Hughes, head of fund selection at AJ Bell.

“The place where uncertainty is likely to be felt most is in the currency markets. Sterling has weakened as investors move away from the currency and this can be positive for some investments.

“Those investors who have exposure to overseas equities will have seen this last year following the Brexit outcome and closer to home, with the FTSE 100 Index being so reliant on overseas earners, this may be a place to look for returns.”

Pensions

Bizarrely, a little political uncertainty could be just what the doctor ordered for pensions (and savings).

Whether or not to do away with the Triple Lock (the rule that the state pension must rise each year by either the rate of inflation, the rate of wage growth or 2.5% whichever is greater) alongside how on earth to manage the growing bill for social care featured prominently in the manifestos and campaigning.

Then there’s the prospect of increasing the state pension age from 67 to 68 by 2039 as recommended in the Cridland Review. Kicked into the long grass before the election and with Labour preferring a freeze at age 66, new proposals are unlikely to be forthcoming.

Major reforms like these are now unlikely to get through parliament, will be abandoned, and the status quo will remain - for now at least.

That’s good news for those who were anxiously awaiting changes to pension tax relief to a single rate, now very likely to be shelved.

Having said all that, there are now a few short-term implications for specific changes that were already in the pipeline.

“With it being cut from the latest Finance Act, there is now the question whether the reductions in the money purchase annual allowance (MPAA) and the tax-free dividend allowance will make it into law this year,” Rachel Vahey, product technical manager at Nucleus Financial notes.

“This places advisers and their clients in limbo, trying to work out how much the MPAA is for 2017/18 tax year - £10,000 or £4,000. But the longer this hiatus lasts, the less likely it seems that the government can backdate this piece of legislation to the start of the tax year when – or if - it is eventually passed.”

But that doesn’t mean we have dodged some sort of financial bullet. Far from it.

If anything positive has come out of this sorry mess, it has been the spotlight on the later life funding crisis.

With precious little action likely at state level to ease the massive financial pressure of an ageing population, it has never been more important to work out how we as individuals will manage the various costs that come with living into a very ripe old age indeed.

Property

“Theresa May is correct - we need a period of stability as that will quash uncertainty which is bad for the housing market - but it is not clear at the moment whether she can deliver it,” suggests Jeremy Leaf, north London estate agent and a former residential chairman for RICS. “Stability is crucial in enabling people to make big decisions such as buying and selling property.

“The hopelessness we are seeing on the ground about not being able to get on the housing ladder has come through. If there is one message that has come out of this election, it is that the young have voted overwhelmingly for change.

“Politicians will have to consider the needs of the young more than they have in the past which could mean more help for first-time buyers, perhaps extending Help to Buy so that it covers older properties as well as new build, dealing with affordability issues and more help on stamp duty.

“One thing all the parties agree on is that we need more housing so it has to be a priority for whichever formal or informal coalition is created.”