fear of finance

The personal finance industry has made further progress in 1996, helped by the fact that most stock-market based investments, especially unit trusts, tracker funds and corporate bonds, have risen in value, and in spite of the shock waves from Morgan Grenfell's European funds, which led to a short-term reduction in the amounts being invested in a number of other managed unit trusts.

It was a better year for homeowners, releasing maybe half a million of them from the negative equity trap, and it was a good year for most endowment policies, and pension funds. Many investors who never felt brave enough to look beyond a building society for their savings will be looking forward to a windfall of shares, and the chances are they will be more likely to retain them than punters who rushed for shares in privatisation issues in the Eighties, and then cashed them in like betting chips.

Many, but not all, management charges have been reduced, although the more exotic trusts still charge 5 per cent upfront before starting to invest any of the money they attract. Many, but not all, credit card companies have reduced charges in response to increased competition, and household and motor insurance premiums did not start turning up again until the Chancellor gave them a perfect excuse by raising the tax on insurance premiums in the Budget.

I smell disaster, however, in two future changes to the law which will affect personal finance. The Government's proposed bill to allow investors to take out insurance policies to protect some of their assets from being sold to pay for nursing care or having to go into a home when they are old looks like being scaled down to allow policyholders to protect only pounds 1.50 of assets for each pounds 1 of insurance they buy, not the pounds 2 which most insurers and pressure groups like Age Concern want.

The Treasury also wants the right to scale the cover down still further in the unlikely event that it proves too popular and costs the Exchequer too much. It will be a miracle if the proposal persuades more than a handful of families to insure against something 75 per cent of oldies can already dodge by dying.

I am also concerned that outline proposals for compulsory splitting of all pension funds on divorce will end up making more people unhappy than happy.

It is true that women tend to get the short straw at present, but I am prepared to bet the proposed changes will leave most people poorer, especially if the pensions industry succeeds in its campaign to pass all the costs of splitting and transferring pension funds on to the individuals involved.

I see a surge in divorces as the likely losers from pension splits rush to end their failing marriages and limit their future obligations. I also see many injustices when partners who separated some time ago without formally divorcing find that pensions and other assets they built up after separation suddenly become targets for their less successful partners to sue for.