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Chancellor sends out mixed signals to savers with ISA and pension announcements
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Chancellor Gordon Brown has sent out a mixed message to savers in today's pre-budget announcement, according to Jupiter.
While Jupiter is delighted that the Chancellor has confirmed that ISAs will become a permanent part of the UK savings landscape, his failure to improve the incentives on offer is disappointing.
Gordon Davidson, joint managing director of Jupiter Unit Trust Managers, said: "ISAs are, in our view, a vital component in the drive to encourage people to save for the long term. We are delighted that the government has now confirmed it is making ISAs a permanent part of this strategy. However, keeping the limit at its original 1999 level of £7,000 takes no account of the effects of inflation and we are disappointed that the Chancellor has not moved to increase it."
Jupiter is, in addition, disappointed with the government's strangulation of alternatively secured pensions (ASPs). The Government proposed this alternative to compulsory annuity purchase at age 75 two years ago and the announcement today imposing a tax of up to 70% of any funds remaining on death renders it unattractive.
Avoiding compulsory annuity purchase was popular with pension savers, so this move represents a missed opportunity. However, it is not the first u-turn the government has made to its simplified pensions regime. Last year's pre-budget report removed the prospect of residential property investment. These confusing u-turns are highly damaging to public confidence in pensions savings.
"If this trend continues, should we expect pension tax relief to be the next casualty?" says Jamie Fergusson, Jupiter's Pensions Development Manager.
The Treasury's initial objection to ASP was on the basis of 'tax abuse'. In reality in the majority of cases ASP would have generated higher revenue for the Treasury than annuity purchase. We are left to assume that this reversal finds its roots in political ideology rather than pragmatic economics. It appears that passing savings from one generation to the next is frowned upon by this government.
"If the government is genuinely interested in encouraging saving, it should aim to build confidence by allowing the development of a pensions regime that is perceived as simple and fair" says Jamie. "This sort of u-turn does nothing to encourage people to take personal responsibility for their retirement provision"
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| News & Views |
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