I read somewhere the other day a commentator lambasting the life insurance industry for the continuously complex nature of product developments over the years.
As someone who has always preferred a more direct and straightforward approach, I do have some sympathy with this point of view.
However, it is not that difficult a charge to rebuke. It would be somewhat ambitious to suggest that the UK regulatory and tax system has eased the path to simplicity over the years. And the idea of actuaries sitting in darkened rooms concocting the latest product wheeze to perplex the market for their own fun is a bit too much, dare I say, for even the actuarial profession to stand accused of. Let's be honest, actuaries are hardly renowned for their hedonistic traits.
There are, of course, a variety of both complex and more straightforward let's call these Dornan-esque products in the market. Each to their own. But why is there a perception in some quarters that complexity exists for its own sake?
The pension industry is a classic example. For a start, it has more abbreviations than the medical profession and it has been on the treatment table just as many times.
The focus of Government-inspired change via stakeholder pensions is the latest attempt to inject an element of simplicity into the pension market. But when I first started in the industry, I think it was the Social Security Act 1973 that also had the same aim and then the SSPA1975 (see, there I go) and the 78 one and on and on.
The core concept behind stakeholder pensions that of catching a vast shoal of first-time pension investors with the hook of simplicity and low charges is in many ways admir-able but perhaps in the desire for simplicity is too simplistic for its own good.
Pensions are complex and advice is needed. The premise that simple is best in a vast amount of individual circumstances is fundamentally flawed. That needs to be fully understood and taken on board by all on the pension ship.
The tremendous consumer popularity of Peps and then Isas versus the slower take-up of investment trusts (which are prolifically promoted on the premise of being simple is perhaps a winner for the simplicity camp) even allowing for some maxi and mini confusion.
With-profits bonds, on the other hand, fall between the camps. This type of product has attracted a massive following from investors, particularly over the last five years or so but is often criticised for its complex nature.
Going beyond products themselves, the battle rages on. Trusts are vastly underused in financial planning because of the perceived complexity in their operation. In practice, trusts can be ridiculously straightforward to set up alongside an investment bond and they offer the potential to save thousands in personal taxation.
The point is that there are simple products and there are complex products throughout the life industry for very good reason. The key issue is to ensure that when we communicate details of these products to advisers and consumers alike, we do so in the most straightforward way possible, to ensure that everyone is aware of the nature and characteristics of the product they are buying. This is where the ABI's Raising Standards initiative has a major part to play in driving the industry forward.
Given that complexity is a criticism which has often been levelled at providers, it is perhaps surprising that more major providers have not prioritised compliance with the Saltr criteria. We should aim to develop products to meet consumer needs and demystify our industry through simplifying communication with our target markets.
Peter Dornan is director of group businesses at Aegon UK