Pensions and earnings

'The government is never going to be able to deliver a pension that covers more than the bare necessities'
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The Independent Online

The trouble with having a Government obsessed by spin is that when it comes out with a pre-Budget report, most of the stuff has already been remorselessly trailed in the papers beforehand. Having said that, the Chancellor Gordon Brown's boost to pensioners is welcome, despite being mostly what had already been reported - £5 a week extra for individuals, £8 for a couple.

The trouble with having a Government obsessed by spin is that when it comes out with a pre-Budget report, most of the stuff has already been remorselessly trailed in the papers beforehand. Having said that, the Chancellor Gordon Brown's boost to pensioners is welcome, despite being mostly what had already been reported - £5 a week extra for individuals, £8 for a couple.

Mr Brown didn't go as far as to restore the link between the state pension and earnings, the vital link broken by Margaret Thatcher's Government in 1980. But the increase in the means-tested top-up, the minimum income guarantee (MIG), was useful, as was the introduction of the new Pension Credit (details on page 1).

The latter was especially welcome, since it should help those on modest incomes who have saved prudently (the Chancellor's favourite word - he used it seven times in his pre-Budget report) or who have an occupational pension. Many of these people have incomes which are just above the MIG cut-off point, and therefore feel unfairly penalised for having saved in the first place.

The Government hopes the new Pension Credit, when it is launched in 2003, will reward savers for every pound they put away towards retirement, rather than just relying on the MIG to support them. The only downside to this is that it may introduce a new layer of red tape.

Unfortunately, all these increases are not going to reverse the huge demographic changes taking place which will eventually see the number of retired people in the UK overtake the size of the working population. Coupled with the break in the link between the state pension and earnings, it means the Government is never going to be able to deliver a size of pension that can cover more than the bare necessities.

This means that alternative ways of saving for retirement are now more important than ever. ISAs are far more flexible than personal pension plans in this respect, so it is gratifying that Mr Brown extended the £7,000 upper investment limit for ISAs for another five years. The maximum investment for ISAs was supposed to go down to £5,000 this year, but Mr Brown extended the first year limit of £7,000 at the very last minute in his April Budget.

It is a shame the Chancellor didn't go further, and simplify the confusing nature of this savings scheme. Many thousands of perfectly honest savers have bought both mini- and maxi-ISAs, which you cannot hold at the same time. What will happen to them is still unclear. An amnesty is the most obvious answer, but Mr Brown is yet to grasp this particular nettle.

I can't say I am surprised that the Chancellor refused to abolish stamp duty on share deals. Proponents of abolition claim that London will lose out as a financial centre if it doesn't get rid of this tax, as the US and most continental countries don't levy it on share transactions.

This is why the US has seen a boom in "day traders", private investors who buy and sell shares several times a day, and why there has been no such boom in the UK. While stamp duty remains, it is all but impossible to make money by day trading in the UK.

The trouble for abolitionists is that stamp duty is a very cheap and convenient source of revenue, and any Chancellor would be reluctant to give it up. Mr Brown has been prepared to cut stamp duty on property transactions in derelict areas needing rejuvenation, but that's about it.

One last thing. We were going to run an article about what to invest in following the US Presidential election.

I think we'll leave that until the result's a little clearer.

John Willcock is personal finance editor of The Independent

j.willcock@independent.co.uk

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