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First impressions you cannot count on

Given that one of the few things all parties agree about is the importance of the grey vote, it is a little surprising to find the Labour manifesto devotes less than a page of the 46-page document specifically to pensions and pensioners.

The manifesto has three themes – What&#39s Been Done, Next Steps and 10-year Goals.

In the What&#39s Been Done section, the Labour manifesto says £4.5bn a year more, in real terms, has been spent on pensions in this Parliament than in 1997. Of this, £2bn is going to the poorest third of pensioners. The incomes of the 1.7 million poorest pensioners have, it is claimed, been lifted by at least £800 a year and for some couples by up to £1,400. Pensioner households are on average £11 a week better off than they were in 1997 and over three million pensioner households benefit from free TV licences for the over-75s.

Perhaps not surprisingly, the manifesto does not mention that this has been achieved by extending the role of means-testing. Nor does it comment on the take-up rate of means-tested benefits among pensioners. Also not mentioned is the £5bn a year of tax raised from pension assets by Chancellor Gordon Brown&#39s decision to abolish advance corporate tax dividend relief in his first Budget within two months of winning the 1997 election.

There is passing reference to the achievements of stakeholder pensions and the state second pension.

Under the theme of Next Steps, the manifesto pledges to retain the winter fuel payment, currently £200, and free TV licences for over-75s. Also, the manifesto highlights Labour&#39s plans for the new pension credit, which combines the up-rated minimum income guarantee with a pledge to reward pensioners who work and save.

The pension credit is an extremely complex proposal with many key details still to be decided but the manifesto concentrates on points which have been settled. It says: “Pensioner couples with an income up to £200 per week and single pensioners with income up to £135 per week will be rewarded for saving, with the Government adding up to 60p for each £1 of savings up to a maximum of £23.”

While strictly speaking this is true, it could equally well be restated along the lines that, compared with someone who did not save for retirement, the low-income pensioner who saved will be penalised by at least 40p for each £1 of savings. This is the equivalent of a non-taxpayer paying higher-rate income tax.

The manifesto adds that, in the process of introducing the pension credit: “We will abolish the weekly means test for pensioners, along with removing the unfair test of savings, which penalises pensioners who have modest savings and whose thrift should be recognised.”

This may create the impression that somehow means-testing is being abolished, which is the opposite of the reality. What the manifesto means is the frequency of the means test will be reduced under the pension credit and that modest savings will be treated more favourably within the means test.

The manifesto is silent about, for example, the age from which pension credit will be paid and how pension credit will interact with the very important housing benefit and council tax benefit.

Regarding minimum income guarantee, the manifesto pledges that it will rise in line with earnings throughout the next Parliament. “In 2003, this means no single pensioner will have an income below £100 per week and no pensioner couple an income below £154 per week,” says the manifesto. This must be a slip of the pen, however.

Since the minimum income guarantee is a means-tested benefit and involves a claims process, it should read “no single pensioner need have an income below £100 per week”.

The manifesto also pledges to extend tax allowances further so that, by 2003, no pensioner should pay tax until their income reaches £127 a week. Also, the basic state pension will rise to £77 a week and £123 a week for single pensioners and couples respectively in 2003.

There is mention of private pension provision in the Labour manifesto but it is brief and rather general. There is no mention of possibly increasing the level of pension compulsion.

It mentions “long-term pension reform” and support for “a fair balance between public and private pension provision”. There is no reference to the long-term aim of the 1998 Pensions Green Paper to move from 60 per cent state and 40 per cent private to 40 per cent state and 60 per cent private provision.

There is a severe disappointment for campaigners against compulsory annuity purchase.

The manifesto says: “We will continue discussions on annuity reform to ensure tax rules do not unnecessarily restrict the development of annuity products and markets.” The implication appears to be that the Inland Revenue will extend its recent annuity relaxation on longevity insurance and investment flexibilities but that the Treasury will not abolish the annuity purchase requirement.

There is one 10-year goal in the manifesto which specifically affects pensioners. It is for the extension of pensioner poverty to be tackled as security for all pensioners.

The manifesto also talks about a national carers strategy and care for carers. Care by qualified nurses is to be made free to all, whenever it is received.

The manifesto also claims that Labour will help pensioners by “tackling discrimination against over-50s in healthcare and in the workplace”. This may well mean more flexible rules on partial retirement.

In conclusion, this is a manifesto which is very short on the kind of detail which would help IFAs to advise pension clients on what to expect under a re-elected Labour Government. However, that is very different from saying that a re-elected Labour Government would introduce nothing new to change the pension environment.

The abolition of the advance corporation tax dividend relief was not in the Labour manifesto of 1997.

Given that one of IFAs&#39 key functions is to advise clients on the implications on their savings and investments of legislative and public policy changes, they must surely relish electoral jousts. For there is no doubt that the general election campaign gives significant impetus and focus to policy development.

Look at the 1997 general election. Two of the most significant savings and investment developments of the modern era – Isas and stakeholder pensions – flowed out of the Labour manifesto. The campaign was also marked by fierce debates on pensions, particularly in terms of the Conservatives&#39 Basic Pension Plus proposals.

So, general elections, the manifestos from which the parties make their pitch to the electorate and the policy debate which is often brought to a head during the campaign, all matter.

Perhaps inevitably, Labour reminds voters of these important changes in its 2001 manifesto, Ambitions For Britain. It states that nine million people invested in Isas in their first year and that “for lowto middle-income earners, stakeholder pensions cap costs, guarantee value for money, offer flexibility and drive down fees across the board”.

Looking ahead, the manifesto summarises firm pledges by Labour in policy terms on the tax and savings front:

It would not raise the basic (22p) or top (40p) rates of tax in the next Parliament, which could run until 2006.

It would maintain the £7,000 contribution limit for Isas for the next Parliament.

It would seek to “boost the savings habit” by creating a new Saving Gateway for people on lower incomes where their savings would be matched by the Government.

But it is in Labour&#39s vision for a modern welfare state that IFAs will see the shape of pension policy to come if the party is returned for a second term.

Labour says: “For those in retirement, security depends on partnership between state and funded provision. We promise that, within two years, no pensioner need live on less than £100 per week, increased annually in line with earnings growth. On top of that, we will reward pensioners who save.”

But how? Among the key pledges in Labour&#39s 2001 manifesto, Ambitions For Britain, are:

A promise to extend tax allowances further so that, by 2003, no pensioner will pay tax until their income reaches £127 a week.

A commitment that the basic state pension will rise by 2003 to £77 a week for a single pensioner and £123 a week for a pensioner couple.

A further commitment that the minimum income guarantee will reach £100 a week for a single pensioner by tax year 2003/04 and subsequently be uprated each year in line with earnings throughout the next Parliament.

But, in many ways, Labour makes greatest play of its 10-year vision for an active welfare state, which “rewards those who save”. It claims that pensioners who work and save would find “for the first time ever” the Government rewarding their saving.

In practice, the pension credit would match private saving with Government funds. Pensioner couples with an income up to £200 a week and single pensioners with income up to £135 a week would be rewarded for saving through the Government adding up to 60p for each £1 of savings income.

Someone with savings or pension income of £25 a week (making a total of £102 a week when added to the basic state pension) would see their minimum income guarantee increased by £15 a week (60 per cent of £25) to £115, and so would gain £13 a week from the pension credit.

There are a number of details of the pension credit still to be worked out, including its impact on housing and council tax benefits.

This is a manifestation of Labour&#39s support for a “fair balance of public and private provision” as well as the commitments made by Labour in full recognition of the fact that “occupational and personal pensions, properly regulated, will continue to offer security for middle and high earners”.

The extent of the take up of stakeholder pensions remains to be seen. If the take-up turns out to be less than the current Government would wish, a future Labour Government may consider introducing compulsion around stakeholder pensions. This, in turn, would throw up questions as to what might happen to tax relief on pension contributions and employer contributions. But this is hypothetical and there is no suggestion of compulsion in Labour&#39s manifesto for this election.

Alongside this summary of pension provision, Labour pledges that it will continue discussions on annuity reform “to ensure the tax rules do not unnecessarily restrict the development of annuity products and markets”. In other words, annuity reform would remain firmly on the agenda of a second-term Labour Government. However, Ambitions For Britain gives no further clue as to what shape that reform might take.

Both the Conservative and Liberal Democrat manifestos state that, if elected, they would “abolish” or “relax” respectively the rules regarding the compulsory purchase of an annuity at age 75.

In recent months, the Inland Revenue has been taking a more relaxed approach to allowing annuity innovations within the current legislative structure than it previously had but a more formal change to tax rules may be on the cards if Labour wins the general election.

It is up to the voters on June 7 to determine whether they prefer Labour&#39s “ambitions” for Britain to the Conservatives&#39 “common sense” or the Liberal Democrats&#39 “freedom, justice, honesty” or the offerings from the other main opposition parties elsewhere in the UK.

It is also up to them to assess whether Labour&#39s proposed programme for a second term matches journalist Hugo Young&#39s description of the last programme for a second term launched by the Conservatives in 1983. He said that document was concerned, above all, with continuity.

Either way, far removed from the heated headlines and the frenetic front page stories, all the manifestos contain proposals for policy development which would have a direct bearing on the work which IFAs do with their clients.

While the substantial period of time devoted to developing stakeholder, for example, shows that today&#39s manifesto proposal does not immediately become tomorrow&#39s policy development, we will know some time in the early hours of June 8 the broad shape of tax, savings and investment policy for the next few years.

While the detail of what the parties are offering is unquestionably different – significantly so, in places – there are broad areas where the end, if not the means, is agreed. Each of the main parties, for example, makes specific reference to annuity reform in its manifesto although it most certainly could not be said that there is anything like a consensus on what shape such annuity reform should take.

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