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Parties setting out to capture the grey vote

Pensions are becoming one of the political hot potatoes, with all three major UK parties pushing their own agenda. In fact, these days, the electorate need a guide to help them through the minefield that is the current debate over pension policy.

This complicated issue has suddenly been propelled on to the political main stage as the parties fall over each other to promise more benefits to the pensioners of today and tomorrow.

How the Government of the day proposes to provide for its pensioners is an issue of importance to everyone in society and especially to IFAs. The amount provided by the state has a direct impact on how much people have to save for themselves.

Chancellor Gordon Brown&#39s proposed increase in the basic state pension of 75p a week was announced in his March Budget and was not received as warmly as he might have hoped. Since then, the Government and the Opposition have rolled out their schemes to woo the “grey vote.” Given that it is very likely the country is facing a general election in the spring, there is a strong chance pensions will dominate the list of platform issues. IFAs will need to be aware of what Labour, the Conservatives and the Liberal Democrats are offering.

All parties recognise the need for individuals to save money to supplement what the state can offer. The Government&#39s stakeholder pension scheme is by now well publicised, with its cap on charges, straightforward nature and target audience of earners between £10,000 and £20,000.

Despite the fact the policy is due to come into effect in April next year, there are still a number of lingering doubts about how effective stakeholder will be in encouraging low to middle earners to save.

The biggest concern for IFAs is the 1 per cent cap on charges. Many say it is not worth their effort to advise individuals about the potential pitfalls of stakeholder because of this ceiling.

The Tories have publicly criticised stakeholder, saying it will not work without advice. But pensions spokeswoman Jacquie Lait says a Conservative Government would not abolish it and they have not offered anything to directly replace it.

What they have done is propose an opt-out clause for people under the age of 30, whereby they can opt out of the basic state pension. Instead, they can invest their National Insurance contributions with an approved private pension scheme.

The Conservatives suggest if the scheme had been in operation at the end of the Second World War, those who had opted out would have built up a weekly income of £130 instead of the £67.50 currently paid by the state.

The LibDems have designed their own scheme, the Owned Second Pension Account. Every individual has their own account which both they and their employer are obliged to contribute to. Full concurrency is allowed, which means an occupational pension and Ospa could exist alongside each other.

The measures being debated to encourage people to save privately are designed to work alongside the basic state pension. In order to understand the parties&#39 second pension proposals, IFAs must first understand the basic state pension.

It is currently worth £67.50 a week to individuals and £107.90 a week to couples. Last week the inflation increase was announced, which means the minimum the basic pension will rise by is £2.25 and £3.65 a week respectively in next year&#39s Budget.

The Government has increased the minimum income guarantee, the basic minimum pensioners will receive either through benefits or their own savings, to £90 a week. It has also introduced a pensioner credit, which will come into effect in 2003. The details of this measure will not be announced until the pre-budget report in November, but the Government has hin-ted that a transitional meas-ure worth £5 a week to individuals and £8 a week to couples will be brought in to tide people over.

The Government also has a variety of other bonuses such as winter fuel payments, the Christmas bonus and television licences for older people.

The Conservatives say they would scrap these assorted payments and use the money to improve the basic pension for all. Shadow social security secretary David Willetts has pledged an extra £320m to be injected into the Social Security budget from savings elsewhere in the department.

With that, the Tories say they would increase the basic pension by £5.50 and £10 a week in the Budget next year.

The LibDems have suggested a staggered approach – the older the pensioner the more they get.

The basic pension would increase by £5 per week on top of whatever the Government is offering. Those people between 75 and 79 would get an extra £10 and pensioners over 80 would receive £14.75 more a week.

Despite the complexity of the proposals and the inches of often misleading newspaper copy devoted to the issue, IFAs must have a grasp on what the various parties are offering.

The issue will not disappear as the population continues to age. What would be simplest is for all the politicians to agree on the way forward, end the debate once and for all and let people get on with the business of saving for their retirement.

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