Which party will romance your wallet?

As an election looms, Sam Dunn looks at how its outcome will affect your finances

During times of election fever, personal finances rarely bring voters out in a rash. Anxieties over local hospitals, schools and crime rates tend to push pensions policies off the podium at hustings.

During times of election fever, personal finances rarely bring voters out in a rash. Anxieties over local hospitals, schools and crime rates tend to push pensions policies off the podium at hustings.

Few voters would admit to being fired up by any political party's long-term savings plans, yet, depending on the result of the next general election, we could see major changes to income tax, stamp duty and inheritance tax.

With an election widely predicted to take place in May, it's worth taking a look at what a future British government might do with your hard-earned cash.

The apparently dry and often complex nature of pensions can be a turn-off - particularly for younger people - making this a difficult subject for lively political debate. The long-term nature of saving for retirement also works against discussion of this issue, since election manifestos are more likely to concentrate on quick-fix policies.

Mick McAteer of the consumer body Which? points out that any successful government reform introduced now would take effect so far down the line - in around 20 years' time - that it would be unlikely to be a huge vote winner today. "There's no political expediency to [act] now," he says.

Mr McAteer thinks the state pension will be a battleground in the election but that private pension plans will spark little more than "noises" from the three main parties.

Here, we consider each of the three parties' main proposals. Bear in mind, too, that the Chancellor can be expected to use the next Budget in March to dangle financial incentives in front of voters in an effort to secure Labour's re-election.

Labour

The Government has had eight years to reshape the UK's financial landscape in savers' favour, yet the pensions and long-term savings industry is stuck in a quagmire.

Recently, Gordon Brown reviewed his controversial plan to cut individual savings account (ISA) allowances from £7,000 to £5,000; it now seems the current allowances will remain.

Meanwhile, the government-appointed Pensions Commission is looking at the retirement savings crisis and is due to report back in August. Its recommendations are expected to include a higher statutory retirement age, greater incentives to save and higher income tax to boost the state pension.

Other long-delayed financial shake-ups are on the way.

New pensions rules being introduced in April 2006 will allow you to invest much more of your salary in a pension pot.

The child trust fund goes live in April, giving at least £250 to every baby born after 1 September 2002, but it is already under fire. Critics say the choice of vehicles in which to invest the money is too limited, and that the real benefit of the fund will be to wealthier families, which will take advantage of the tax breaks, rather than the poor ones it is mainly intended to help.

In the same month, new low-cost "stakeholder" products will be launched to encourage people on lower incomes to save and invest in the stock market.

In his pre-Budget report, Mr Brown also flagged plans to extend paid maternity leave by 2007, and to guarantee free nursery care to all three- and four-year-olds for 15 hours a week.

Conservatives

The official opposition has yet to say what a Tory election victory would mean for voters' personal finances. Overall, some £4bn in tax cuts has been earmarked but quite where these will fall has yet to be worked out. Proposals include exempting first-time buyers from stamp duty, raising or even abolishing the threshold on inheritance tax and changes to capital gains tax.

The Lifetime ISA (nicknamed "Lisa"), unveiled by the Tories last year, has been touted as a replacement for the ISA but it would not grow tax-free; instead, your savings would be matched (at a capped rate) by the government. Alternatively, the party says it may raise the amount you can save in ISAs to £9,000.

The basic state pension would be raised under the Conservatives; it is estimated that this will equate to £7 extra a week for a single pensioner.

Liberal Democrats

The Lib Dems have already drawn up a pre-election manifesto. The most important proposal is a new 50 per cent tax on any income above £100,000.

The party says this would help pay for free long-term care for the elderly; for the abolition of the council tax and the transition to a local income tax based on ability to pay; and for the scrapping of tuition fees.

The child trust fund would also be scrapped and the cash spent on education - reducing class sizes, for example.

The basic state pension would be raised to today's minimum income guarantee (£105.45 for a single pensioner). Future rises would be linked to earnings.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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