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Demand and Design are the key areas

Stakeholder pension, IPA, Isa and Cat standard. Which is the odd one out?

The answer, of course, is the Isa. Why? Because it has been a huge success while the other three have failed – failed to reach their target market and failed as a commercially viable proposition for product providers.

The reason for this lies in the other key difference that sets the three laggards apart from the Isa. The stakeholder, the IPA and the Cat are all products or specifications designed in Whitehall. With the Isa, the Government listened to the industry&#39s views during the consultation process and dropped many of the original ideas.

In other words, it largely left product design and pricing alone, limiting its involvement to setting the annual limit and continuing the tax wrapper that was necessary to provide a smooth transition from Peps to Isas.

There are two lessons in this for the Treasury as it prepares its consultation paper on Sandler&#39s suite of stakeholder products. First, product design needs to be right. Second, even good product design is useless if there is no demand.

First, product design. In the case of the mutual fund, the Whitehall mandarins are homing in on risk as the key feature that will distinguish Sandler&#39s products from the rest.

But the idea that the design team can limit or control the risk inherent in equity investment sufficient to make the products somehow safer or more appropriate to the target market opens up a can of worms. It is far better to educate people about risk and how to manage it than pretend that it can be controlled in this way.

On price, you would expect me to say that we disagree with the 1 per cent cap. But I know that for the time being I am whistling in the wind.

Although the message appears to be getting through that there is no commercial or intellectual case for the 1 per cent limit, I fear that the Government has become too politically committed to it to be able to contemplate a climbdown.

Ruth Kelly accepts that “different products have different economics” but remains keen to expand still further the range of products that must conform to the 1 per cent straitjacket.

The second lesson concerns the market. Focusing on the product is only half the story – the supply side of the equation. But the Government needs to look at the market in the round and, in particular, think long and hard about ways of stimulating the demand for stakeholder products.

It fondly believes that there is huge pent-up demand just waiting for a Sandler-marked product to come along. But I have seen no convincing evidence of this. Without it, many product providers will politely decline to get involved and Sandler will be left like a host who threw a party to which no one turned up.

One thing we are all agreed on is that people need to save more. But the idea that Whitehall&#39s finest can design a suite of simple non-toxic products that will change the saving patterns of the British people is far-fetched.

We need a broader debate about distribution, education, the need for advice, real incentives to save and the role of the employer. We need at least to address the vexed issue of compulsion.

This Government constantly tells us it has not shirked from making tough choices. The issues thrown up by Sandler offer an excellent opportunity for them to prove it.

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