Whenever I meet IFAs, after the initial pleasantries, I almost always find myself having to defend the views expressed in this column. The consensus seems to be that I am unduly negative about IFAs and the good work they do.
Chris Kenny, the Association of British Insurers’ director of life and pensions, is really rather a nice chap. I met him recently and he comes across rather well.
Similarly, Doug Taylor, personal finance campaigner at Which?, is also a very decent fellow, willing to talk to journalists and thoughtful in his comments about the financial services industry.
So, what are we to make of their latest sparring match, with Taylor responding for Which? to the ABI’s State of the Nation’s Savings survey published last week?
The insurers’ trade body published a survey, carried out among more than 3,100 people of working age, in which it was revealed, rather unsurprisingly, that millions of people are still not saving enough for their retirement. Most of those surveyed remain unaware of Government plans to reform the pension system.
Significantly, for the ABI at least, many do not believe that the new personal pension accounts, New Labour’s big idea aimed at helping us to save for our retirement, will ever be implemented.
More worrying, the ABI also published separate research by Deloitte showing that one in four employers will consider levelling down their current pension contributions when personal accounts are introduced.
The ABI points out that this “represents reduced pension provision for some 2.4 million employees”. Actually, it represents nothing of the sort. It merely provides a snapshot of current views among a minority of employers who may, or may not, carry out this potential threat.
Similarly, a survey two or three weeks ago by Scottish Widows, in which two-thirds of employers who currently make generous levels of pension contributions into their staff schemes said they were considering reducing them for new staff after 2012, is still conjecture for now.
Of course, the implication of these two surveys should not surprise us greatly. No employer will happily and blindly hand over a significant additional percentage of its total wage bill unless it is persuaded that this is worthwhile – or it is forced to.
The Government has ruled out the latter so it needs to improve its powers of persuasion in the form of financial incentives for companies that do the right thing and disincentives for non-compliant employers, such as limiting the percentage of employer contributions into executive schemes to the same level as other staff.
This has not stopped Kenny from voicing the view that, if the public does not believe the Government will enact legislation to bring personal accounts into force, it must “take action to ensure that existing private pension provision, which serves millions of people well, is allowed to prosper and grow”.
He clearly believes a population mistrustful of Government would nevertheless be willing to flock into the welcoming arms of his own industry instead. I doubt it very much.
Regardless of this totally bizarre view, the publication of the ABI’s report, coming at such a sensitive time, was understandably seen last week by Which? as an attack on the overall concept of personal pension accounts, as proposed by the Turner review. Taylor was moved to comment that he found it “staggering the industry responsible for endowment and pension misselling, which so undermined the confidence of the British consumer” is trying to undermine the new pension bill.
He went on to say: “For the ABI to cast doubt over these landmark pension reforms will do nothing but feed a consumer confidence crisis. Recent Which? research found that only half of consumers (47 per cent) trust the financial services industry. We need to move the debate on from point scoring and really focus on how the industry plans to instil trust to encourage consumers to save now for their retirement.”
A poll by Which? found that one in five of those questioned had a bad experience with a financial company in the past. Consumers who do not trust the industry are more likely to have had a bad experience, with a quarter reporting past problems with a financial services company.
At first sight, this might appear to mark the start of yet another spat between the ABI and Which?, similar to the spectacular row that engulfed both organisations a few months ago. The irony is that both Which? and the ABI are fundamentally talking about the same thing – lack of trust – but looking at it from different directions.
It is entirely true that the public does not trust the financial services industry, a fact that Kenny conveniently ignores, but it is equally true that most people no longer trust the Government – or employers either – for that matter.
The erosion of that trust is due to a combination of factors including New Labour’s general mendacity while in office plus an overall pessimism over the future of any state-sponsored pension system.
Ironically, both Labour and, before them, the Tories’ warnings about how the state can no longer “afford” to provide for us in retirement makes matters worse. Many people have abandoned any hope that the Government can do anything about pensions.
Factor in the move by so many employers to scrap previously generous workplace pensions and you can see why there is so much gloom, mistrust and cynicism about the future of retirement provision in the UK.
Instead of endless wrangles, if both organisations could jointly come up with proposals to reduce that mistrust, that future would be much brighter.