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Brown study

What will be the Chancellor’s legacy for the financial services industry?

It is always good fun raking through the archives to see what was said in yesteryear. Here are a couple of snippets I found in this paper that are worth recalling.

“Pension funds got hammered,” said one leader column. Or what about this? “Will an end to tax credits be the final-salary straw? Liabilities will increase by up to 17 per cent. More pensioners will have to rely on state handouts at retirement, if these are still available. The minimum funding requirement is now untenable. Another kick in the teeth for final-salary schemes.”

Then there is this quote from former Shadow Chancellor Peter Lilley: “If there is no increase to rebates, how many people will be best advised to go back into Serps? Will the Government advise people of the consequences of staying out of Serps and will it not be guilty of misselling if it fails to do so?”

Those headlines and quotes came in the days that followed Gordon Brown’s first Budget in July 1997.

There is no doubt that the doomsters on the plight of pension funds in 1997 have been proved right. The £5bn-a-year tax raid on company schemes has had a devastating effect. It led to the closure of dozens of final-salary schemes and now millions of people’s pensions rely on the vagaries of the stockmarket.

Accusations of misselling on Serps have not fallen on the Government but it took almost eight years after Lilley’s comments for people to be advised that contracting back was likely to be the best option for most.

The ditching of dividend tax credits is without doubt one of the biggest blots on Brown’s record but it is easy to unearth a few more.

Stakeholder pensions have been an unmitigated disaster. Providers moaned about costs ever since stakeholder was in the embryonic stage and most balked at offering the plans to anyone but big employers.

It is also questionable whether Brown has made us a nation of savers as he set out to do. True, he had the mother of all bear markets to contend with halfway through his reign but sales of cash Isas have remained constant since launch.

Some of his biggest failings are the embarrassing U-turns that caused nothing but hassle and inconvenience. He angered all those who had been gearing up for the new rules that would have allowed residential property and exotic investments to be held within self-invested personal pensions. The decision to exclude the investments was correct but it should never have got that far down the line.

Brown did an about-turn on alternatively secured pensions after discovering that clients of savvy financial advisers were using them to pass on retirement savings normally lost on death. Pension term assurance was consigned to the scrapheap after only a few months and new stricter rules governing venture capital trusts are close to killing off a once flourishing sector.

Brown has meddled with trust rules in a bid to grab a greater slice of inheritance tax while experts have noticed that the Revenue is being increasingly picky on IHT matters. They fear that next in line could be the IHT relief on Aim stocks. The Finance Bill gives the Revenue the power to change the tax status of Aim, which has not been lost on IHT planners.

There are positives, too. Some say Brown should be given credit for the Pension Protection Fund despite its restrictions (and rejection of the Parliamentary Ombudsman verdict) and he gets the thumbs-up for pension simplification. True, the A-Day rules are anything but simple but it has lifted restrictions on how much you can pay into your pension pot each year while there is greater flexibility on how you can invest in a pension and the age at which you can take your pension.

Brown’s stubbornness has been well documented. He reportedly ignored warnings that dividend tax credits would be a disaster and his U-turns on the intricacies of financial planning suggest he acts in haste. As he prepares to move into Number 10, the foundations for the national pension savings scheme have been laid, yet he refuses to budge on means-testing. That could be another blot long after he has passed on the red case.

Paul Farrow is money editor at the Sunday Telegraph


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