WHEN, in the wake of his resignation, a BBC website story titled “What is Gordon Brown’s legacy?” displayed only a blank page, many people drew their own conclusions as to Auntie’s view on the matter. That is, he left no legacy to speak of.
That would be untrue and unfair, however, whether you believe that his legacy as chancellor was a poisonous one, or if you sympathise with those who claim the former prime minister saved the world from financial catastrophe.
Opinion is less divided in the pensions industry. There, thanks largely to his decision to axe the dividend tax credit, Brown’s legacy certainly is not a celebrated one. Constant, damaging tinkering was a theme of the Labour years when it comes to pensions, much of it blamed on Brown.
The introduction of the pension credit, which aimed to lift the poorest pensioners out of poverty by topping up their state pension, was, on paper, one of his more welcome measures.
Fatally, however, pension credit is means-tested and complex; it’s estimated that around three in 10 people who qualify don’t claim it.
The end of means-testing in relation to state pensions, with the introduction in 2017 of the single tier universal pension, could prove a massive shot in the arm for UK pension provision. Not only has the pension credit fallen short of its laudable objectives, but the reliance on means testing has seriously undermined pension savings.
It has created a trap for those putting aside their own money for retirement, leaving those with modest savings at risk of being worse off by not qualifying for the means-tested top-up.
The universal pension of £144 a week (in today’s money), set out by the government earlier this week, spells the end of that disincentive.
The reforms means that in long-term, millions of people will get a smaller state pension. However, the end of means-testing means that people will know that the money they save will boost their retirement income, rather than potentially reduce it. The impact of that on attitudes towards long-term savings could be very significant.
There are serious flaws in the single-tier pension, however. One that could become a political hot potato for a government already accused of leaving women at a disadvantage financially is the effect on those retiring before 2017.
The single-tier plan is designed partly to help women who, under the current system, get an inferior state pension because they’ve taken time out of work to raise children.
Yet it penalises women who are retiring before it comes into effect and who therefore won’t receive it. Not only will they get a far inferior pension, but they’re also among the women hit hardest by the gradual acceleration in the state pension age. The gap will be considerable for those reaching pension age in the months before the universal pension comes into force and the government will come under growing pressure to provide some form of compromise.
__
Is this a good time to get back into stocks and shares? Not really, which is why so many investors have decided to do just that. Private investors backed away from bonds in the final weeks of last year and piled into equities, their confidence boosted by the strong FTSE performance. With the index healthily above the magic 6,000 mark in the first weeks of the new year, the trend is likely to continue.
It’s encouraging, if it’s a sign of improving confidence, although markets do tend to enjoy a new year bounce. It’s also evidence yet again of investors acting on emotion and not out of common sense.
Concerns over the value of gilts and the liquidity in corporate bonds are also a factor.
But if you’re buying in with the index above 6,000, there’s not much growth left unless you believe markets are only going to rise even further. The rally may go on a little longer, but it’s likely to peter out soon enough.
A lot of companies have bolstered their balance sheets and returned to profit, but that’s been the case for a while and is the reason why smart investors were buying back in well before the recent surge.
With the eurozone crisis far from over and the US yet to step back from the fiscal cliff, the market seems overly optimistic right now. That’s not only my view, but that of most experts I’ve spoken to in the past fortnight. They’re convinced that the big gains have been made. Those jumping back in now have missed out.