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&#39Cut the gap with 2% cap&#39

The ABI is endorsing Sandler&#39s recommendation of “stakeholder”-style products by proposing two new safe-haven products although it wants the 1 per cent price cap raised.

A report by Oliver Wyman & Company for the ABI says the savings gap could be closed by £5bn through its product models.

The ABI says Sandler is right in saying simple products can be effective but says there must be face-to-face advice and the charge cap must be raised.

The report, Strategies for Tackling the Savings Gap, says the level of the cap would determine the success of the products. It says a 2 per cent cap could cut twice as much off the savings gap as 1 per cent. But the ABI refuses to endorse a 2 per cent cap, saying the research speaks for itself.

The report vetted three product models to see if they would satisfy Sandler&#39s criteria. One was rejected but two others have been given the ABI stamp of approval.

The first has a life insurance element and a flat charging structure preventing consumers being penalised for making early withdrawals. It says because of these safety features there is no need for a prescribed sales approach.

The other option envisages a suite of safe products sold through a prescribed sales process with closed questions helping consumers consider their circumstances. It would include a key features document with product information and warnings.

ABI head of life insurance Francis McGee says: “I am not going to say this is the answer but it shows the approach can work. You do not need extensive know-your-customer and suitability regulations to buy and sell these products safely.”

Baronworth Investments director Colin Jackson says: “In the real world, this is not workable because advisers have to make a living and 2 per cent is not enough.”


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