Paul Farrow Farrow’s View
I was perplexed by the ABI proposal to increase access to financial products through a streamlined advice process. It says that: “Savings products delivered through this service would be designed to meet simple consumer needs, with the benefits, limitations and charges of the products easily explainable to the consumer.
“The introduction of this service would increase consumer access and take-up and we urge the FSA and the Government to support our proposals.”
Hang on a minute. Haven’t we been here before? The ABI proposal to simplify financial products sounds very similar to the Cat standard, which was launched in the late 1990s to boost consumer take-up.
Cat standards, with their cap on charges, ease of access and transparent terms, were introduced to win the trust of consumers but they were a complete washout. For starters, most providers paid lip service to them. Barely any unit trust had the Catmark stamp while many a survey showed that a confused public did not understand what Cat stood for.
Cat standards, for all but mortgages, bit the dust in 2005 when Ron Sandler’s “suite of saving products” were introduced. Mind you, Sandler’s products designed to restore confidence in the industry also failed miserably.
The ABI would do well to recall that just two insurers – Norwich Union and L&G – offered these new government-backed low-cost savings plans when they went live in 2005.
Meanwhile, only two lenders, HSBC and Nationwide, offered Cats on their entire mortgage range.Today it would seem that no lender offers a Cat standard mortgage.
But the ABI is the latest to climb on the get saving soapbox. When Labour came to power, it constantly told us that it will turn us into a nation of savers – it has not, of course. Earlier this month, Shadow Chancellor George Osborne got in on the act.
Speaking at the Conservative conference, he said he wanted to “reverse the effects of Gordon Brown’s pensions tax raid and get the country saving again”. All very commendable although Osborne’s speech was thin on the detail of how he hopes to persuade the masses to salt more of their money away. Ironically, his plan to ditch the child trust fund for all but the poorest will discourage savings.
On paper, some of the ABI proposals make sense. Pensions need to be more flexible and the “rigid” annuitisation rules need a rethink if they are going to be a more attractive proposition to would-be savers.
Yet new rules, incentives, flexibility, clarity and access to simple advice are not the reasons that people do not save. The lack of take-up is not because they do not have access to the products.
Every product that the majority of people are ever going to need is on offer at their local bank for starters. Whether the advice is appropriate or the products are any good is another matter altogether.
Most do not save because they do not have the inclination, are in too much debt or they simply cannot afford to. The ABI is right to assert that we need to change the culture so that more people save and it supports the Turner Commission findings of 2006.
But I can’t help thinking that Turner took the soft option with auto-enrolment rather than compulsion, as I am not convinced that enough people will voluntarily help themselves.
Paul Farrow is digital personal finance editor at the Telegraph Media Group