David Prosser: Brown's swansong leaves savers sad

Gordon Brown began his statement on the Pre-Budget Report with a boast about how the Government has promoted a savings culture in the UK over the past 10 years. What a pity that he continues to refuse to put his money where his mouth is when it comes to the two most important ways in which people now save for the future.

The Chancellor claims to be proud of the fact that 16 million people have tax-free individual savings accounts (ISAs), compared to the nine million who used to have personal equity plans (PEPs) and Tessas. On Wednesday, he confirmed that ISAs would continue to be available indefinitely - the Treasury had previously only promised that the scheme would run until 2010.

But there's a major catch in this generous offer. The amount savers may invest in an ISA has not been increased since the shelters were introduced in 1999. The limit remains stuck at £7,000 a year, compared to £10,000 a year under PEPs and Tessas.

In other words, what the Chancellor announced this week was the permanent extension of a savings scheme that is less valuable than the system that operated throughout the Nineties. Never mind that ISAs are the entry-level savings vehicle for millions of people who have little other provision.

Then there's pensions, the second crucial way in which everyone needs to be given every encouragement to save for the future. How sad, then, that the Pre-Budget Report included two stupid U-turns that are clear disincentives to saving.

The first volte-face was the crackdown on alternatively secured pensions (ASPs), which were introduced only last April.

The handy thing about ASPs is they allow savers to draw an income directly from their pension funds in retirement, rather than having to buy a poor-value annuity from an insurance company. Plus, under the current rules, any money remaining in an ASP when the saver dies can be left to heirs. They have to pay inheritance tax on the money and add it to their own pension funds, but compared to an annuity, where all unused cash goes to an insurer when you die, an ASP is attractive.

However, the Government has some weird ideological objection to people bequeathing pension assets to other people, even though the Treasury will earn IHT on such gifts. So Brown this week introduced swingeing new tax rates of more than 80 per cent on such transfers, making ASPs much less attractive.

Still, since ASPs really only suit more wealthy savers. I'm more concerned about his second pensions U-turn. This is the decision to put a stop to pensions term assurance.

Since the reforms introduced last April, people buying term assurance - the simplest type of life insurance - have been able to do so within a pension plan, which has entitled them to tax relief on the cost of premiums. Naturally, tens of thousands of people have taken advantage of this benefit.

The Chancellor, however, clearly didn't realise that pensions term assurance would be so popular - he's worried that many policyholders don't seem to be making any additional pension contributions. So, one year after the reform was introduced, it will be cancelled in April 2007.

We can argue all day about the rights and wrongs of each of the measures announced this week. But, in the round, what is coming across strongly is a message from the Chancellor that he isn't bothered about whether people save for the future, or take action to protect their families from unexpected events.

Actions speak louder than words. Brown needs us all to save more for the future - that's the only way Labour's reforms of the welfare state, including its overhaul of state pensions, can succeed. But, while the Chancellor talks a good game, he isn't playing it.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Recruitment Genius: Outbound Sales Executive - OTE £25,000

    £16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

    £45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

    Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Day In a Page

    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
    America: Land of the free, home of the political dynasty

    America: Land of the free, home of the political dynasty

    These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
    A graphic history of US civil rights – in comic book form

    A graphic history of US civil rights – in comic book form

    A veteran of the Fifties campaigns is inspiring a new generation of activists
    Winston Churchill: the enigma of a British hero

    Winston Churchill: the enigma of a British hero

    A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
    Growing mussels: Precious freshwater shellfish are thriving in a unique green project

    Growing mussels

    Precious freshwater shellfish are thriving in a unique green project