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Could this turn be a marriage made in heaven?

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Sponsored article: The dust has barely settled on the outcome of this year’s general election, yet it appears that Britain is starting to get used to its first coalition government since the Second World War.

Watching David Cameron and Nick Clegg on the steps of No 10, both appeared to be at ease with one another and, perhaps over time, with the idea of reshaping their respective parties.

As the two parties become more intertwined in government and in tackling the UK budget deficit, it may become difficult to distinguish between them.

The emergency Budget on 22 June will seek to cut £6bn from spending in the current year, start to take the lowest paid out of tax altogether with plans to create the £10,000 threshold, and is likely to lead to a major increase in the capital gains tax rate - although we can expect some strong opposition in Parliament to this move.

In the meantime, there are likely to be a number of pension policy changes in the coming years from Steve Webb, the Liberal Democrat pensions minister who previously has been committed to a citizens’ pension and to scrapping higher rate pensions relief.

The coalition agreement has already outlined plans to phase out the default retirement age and hold a review to set the date at which the state pension age starts to rise to 66. It will not be before 2016 for men and 2020 for women.

Both parties have been committed in the past two elections to scrapping compulsory annuitisation and - while this has been written into the agreement -Whitehall is likely to push back early against this idea, with the opposition to this proposal coming more from Sir Humphrey than from MPs.

A further key issue regarding the budget is whether the government will announce plans to scrap higher rate tax relief on pensions.

There is some degree of consensus among the Conservatives and Lib Dems on this and there is a possibility that a ‘blended’ rate of relief around 30%might emerge.

Finally, the coalition has announced a review into public sector pensions, which is likely to lead to action to curb the long-term cost of public sector pensions, if the government survives a full term.

While the prognosis for this partnership is difficult to call, the initial signs appear to be good.

Column sponsored and supplied by Invesco Perpetual. Invesco Perpetual is the business name of Invesco Asset Management Limited, authorised and regulated by the Financial Services Authority

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