Now that the fire and water has been replaced by a significant period of reality, the question still remains if we really need a 1 per cent world? Whether this applies to pensions or to the wider suite of products currently proposed, what has it meant in reality, what was it set out to achieve and, quite importantly is it achieving these goals?
The gambit seemed straightforward enough. Bringing down charges or, more precisely, uniforming charges at a certain level, would encourage more consumers to save and ensure a “fairer” deal.
The Government's pension burden would ease, the industry would be more efficient and blooming roses would replace the garden maze. Blooming roses or wilted dreams? On the roses side, the consumer has never before been able to invest as cheaply in pension investment. The publicity, access and choice have also never been greater. There is no excuse not to save for a pension. There is evidence of success.
ABI research indicates that around 750,000 stakeholder plans were sold in the period from April to December 2001. Not bad. The research also tells us that the average contribution is £81 a month, certainly better than the stakeholder minimum of £20 a month but hardly enough to finance a comfortable retirement.
Of course, we can be confident that the average of £81 masks a considerable variation in the range of contributions being paid. So there can be no doubt that some stakeholder plans are being financed by very low levels of contribution.
While it is true to say that something is better than nothing, it remains a significant concern that those who are paying only small contributions are building up a false sense of security (and ignorance of what their state pension entitlement might be) along with their small retirement funds. I would also throw into the pot that the 1 per cent charge has not been the instigator of this small army of “new” savers.
Price control or fixing of this sort carries significant dangers to the consumer, particularly if the price is not set at the right level. The restrictions on advice, what exactly is and can be included within the 1 per cent charge and the need for encouragement have been well documented.
Limiting product design and choice more than hints at difficulties in lifestyle product adaptability and sustaining innovation in the marketplace.
However, a yet bigger danger may develop. The strong international players in the market who have not established a significant commitment to this country may decide that the UK is not a place where the market can allow them to deliver competitive profit and returns to shareholder and policyholder. They may decide that energy and resources are better served elsewhere. Not to make more money, although that of course is a key business aim, but to deliver and keep on delivering product solutions and returns that satisfy growing markets in a competitive arena.
With these forces undoubtedly come enhancement in service standards, product developments and ultimately consumer satisfaction.
A price-controlled regime surrounded by significant amounts of legislation can, of course, lead to the reverse, with the ultimate price being paid, with providers exiting markets and limiting further the product and provider choice available to the consumer. The Government would do well to heed the voices of some of our more astute business leaders in this regard.
If you track back down the years of fiscal history price fixing has been a limiter and has had a short-lived existence. There is more to do. We still need to get more people into private pensions, we need to get higher contribution rates and encourage more employers to provide pension contributions and not just pension access for their employees. The 1 per cent world will do well and surprise many if it delivers these shoots of growth.
Peter Dornan is director of group businesses at Aegon UK