Chancellor acted on "best advice"

By Jennifer Hill

LONDON (Reuters) - The government dismissed on Saturday as "absolutely untrue" claims that Chancellor Gordon Brown ignored warnings over the impact of changes to pension policy introduced in his first budget.

Ed Balls, economic secretary to the Treasury, said Brown had acted on the "best advice from the civil servants" when he scrapped tax relief on dividends paid into pension funds in July 1997.

That has wiped billions of pounds off the value of pensions, and is regarded by critics as a stealth tax that has threatened the standard of living of the nation's pensioners.

The Times obtained Treasury documents under the Freedom of Information Act, which showed Brown was warned the controversial move would "make a big hole in pensions scheme finances".

The internal forecasts state that the changes would "cause a shortfall in existing assets of up to 75 billion pounds" and that employers would have to contribute "about an extra 10 billion pounds a year for the next 10 to 15 years to get pension scheme funding back on track".

Officials also told Brown that the low-paid and pensioners due to retire shortly after the 1997 budget would particularly lose out, and that shares could fall between 6 and 20 percent.

The Conservatives said the Chancellor had asserted for the past 10 years that there was no net impact on pensions from the withdrawal of dividend tax credits -- and had been "conning the country".

Shadow Work and Pensions Secretary Philip Hammond said: "It beggars belief that, in the face of those clear warnings, Gordon Brown went ahead with the move that has devastated British pensions and has contributed to the collapse of the savings rate.