David Prosser: Brown's swansong leaves savers sad
Saturday 09 December 2006
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.
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