The Treasury's consultation on Sandler stakeholder products, which came out at the start of the month, gives us the opportunity to get a snapshot of where Government thinking is heading.
A great deal has happened in the last few years. In 1998, the Treasury introduced Cat standards, largely the result of the drive of Paul Diggle at the Treasury.
At the time, the proposals were revolutionary. They led to extensive debate on whether the UK should go down the road of product regulation or continue with its system of sales regulation.
The idea of product regulation was strenuously resisted, not least in Downing Street. It was felt that it would set products in aspic, that there would be little innovation and that product providers would do no more than simply meet the standards rather than improve on them.
For this reason, Cat standards were toothless. Being voluntary, and with little Government support by way of regulation or marketing, they have to an extent withered on the vine. I would defy one in 10,000 consumers to tell you what a Cat standard is.
But Cat standards paved the way for a further innovation. Because the grand idea of a wholly new pension system along the lines envisaged by Frank Field had been dismissed as too expensive and too long term, the Government needed something to prove that its plans for pension reform were more than will o' the wisp.
It kept the original name dreamt up by Field – stakeholder – and produced as its alternative a strict set of product standards, the most notorious of which is the 1 per cent charge cap.
Few providers have been able to provide a competitive product which makes a profit with this charge cap. The dilemma is a simple one. A stakeholder product might start to pay the provider back in, say, 17 years but the cost of providing one is an up-front one in marketing and admin terms.
In effect, the provider takes a huge gamble in hoping that the customer will stay faithful and solvent over two decades which is longer than many marriages, let alone financial relationships.
To an extent, stakeholder has done its job. It has not provided the sort of low-cost, mutual pension for those on low incomes envisaged by Field but it has set the benchmark standard in terms of clarity and low cost for the rest of the industry's products. Pension charges are now much lower and clearer across the board.
The Sandler consultation contains within it the industry's reward for playing ball. First, there is the recognition that the 1 per cent charge is not sustainable. It is inevitable that Sandler stakeholder products will amend the charge so that there is an up-front charge for investment and an annual management charge (probably remaining at 1 per cent).
I say this because most people are of the settled view that an annual management charge on its own, even if it is increased to, say, 1.5 per cent, will not be enough to reassure companies that they will have a significant chance of getting their investment back.
This regime change (to coin a phrase) may then be extrapolated back to stakeholder products while Cat standards will quietly be drowned, having been superseded by stakeholder standards.
A host of other products, such as child trust funds, annuities, financial advice and term insurance, will now fall under the stakeholder umbrella. In addition, a lighter regulatory regime will be introduced in recognition of this new simplified regime.
Five years after the debate started, product regulation has now arrived with a vengeance. In that debate at least, there seems to have been a clear winner.
More surprisingly, the Treasury's consultation seeks to regulate investment methods. This, too, was debated when Cat standards were introduced but dismissed. The decision to resurrect this issue is clearly a response to a falling stockmarket.
The Treasury does not want to see an era of mass-market investment followed by a massmarket crash. For this reason, the Treasury is suggesting that exposure to equities will be kept around the 60 per cent mark. The 60 per cent is, of course, an arbitrary figure but the principle is there.
Consumers who buy lightly regulated products off the shelf must be protected from a sharp fall in that investment. The industry should take note, however, that it should only cave in on this issue if the quid pro quo is a measurable and significant lightening of the regulatory burden.
The Government remains at a loss on what to do with with-profits products. It has kicked the detailed technical stuff proposed by Sandler over to the FSA, which has issued its own consultation document. It has kept the fun bit for itself – a bit of rebranding.
The Government has indeed rebranded itself in this document as an “intelligent sponsor” of the industry but as Governments past and present have come up with Tessas, Peps and Isas (not to mention child trust funds), it can hardly claim to be the world's greatest brands expert.
Surely, it should simply rename products across the board. An Isa should be what it is – a savings plan. A pension should be what it is – a retirement plan. An annuity should be what it is – retirement income – and a with-profits product should be what it is – a minimum return savings plan.
So we are finally getting somewhere with savings reform. Those working in the industry could be forgiven for wishing they had gone into teaching. Education, it seems, gets fewer day-to-day initiatives, U-turns and dead ends than the financial services industry.
But if we can get to the point where the industry is able to offer clear and transparent, low-charging products that make a profit and the consumer is able to understand what he or she needs to do to be as comfortable as possible, then we may make some progress.
Ed Vaizey is a director at Consolidated Communications