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Paul Farrow: Govt is missing the point with simple products

You have to wonder what is going on in the minds of those working at the Treasury and in particular Treasury financial secretary Mark Hoban.

They have just spent the best part of a year pullingl together a 78-page report on delivering simplified products to consumers. And so under the Sergeant review of simple financial products, the first products in line for simplification are easy access savings accounts, 30-day notice savings accounts and life cover. The new savings products will not offer bonus or introductory interest rates and all savers will be paid the same rate, regardless of the length of time they hold the product.

What difference does the Treasury think that will make to people’s attitude towards personal finance products?

For starters, Hoban’s steering committee will now enter discussions with banks and building societies on how these products will be delivered – so it is far from a done deal. Second, as we all know, this proposal to simplify financial products is very similar to the Cat standard introduced in the late Nineties.

But most providers paid lip service to them. Barely any funds had the Cat mark while Cat standards, for all but mortgages, bit the dust in 2005 when Ron Sandler proposed a “suite of simple savings products” to restore confidence in the industry.

Sandler-styled products also failed to materialise. Just two insurers – Norwich Union and L&G – offered savings plans when they went live in 2005.

The Treasury has got its starting point wrong.

It should be looking at simplifying complex products rather than simple savings accounts or life cover. Never mind that savers will be hard pushed to find a competitive deposit rate without a bonus attached so I am not sure whether Hoban is doing consumers a favour.

It was not long ago that the Government considered getting providers to adopt a traffic light system akin to food labelling to help prevent customers from buying financial products that were bad for their wealth.

The Government was concerned that, for many products, the complexity and volume of small print can act as a deterrent and can mean people buy the wrong product or fail to engage with financial services at all.

The traffic light risk warnings could have covered mortgages advertising so-called teaser rates. It was also suggested a similar warning system could have been imposed on savings plans, with those that offer higher interest rates but at the cost of greater risk to the savings.

The traffic light system never saw the light of day but at least red, amber and green signs would have made sense to consumer and could have prevented them from buying an unsuitable product.

I am not convinced all the Treasury’s posturing on improving products will make a jot of difference to the average man in the street.

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, besides I am not sure savings accounts are over-complicated.

Every product that the majority of people are ever going to need is on offer at their local bank or building society. Those who do not already save do not save because they do not have the inclination are in too much debt or simply cannot afford to. Oh, and then there is the not so small matter of a lack of trust.

Paul Farrow is personal finance editor of the Telegraph Media Group

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. It really isn’t important that said solution doesn’t stand a snowballs chance in hell of succeding as by the time the cat escapes the container, said politician will have moved on.

    Remember – the soundbite….that’s the name of the game.

  2. The sad and oft-stated fact is that the ‘simple’ mindset of the various professional committee sitters is the wrong starting point.

    Whilst consumers may tell researchers that products confuse them my guess is that such is merely a substitute for the more substantial truth that they are not all that interested.

    A small section of society will home in on ‘simple’ products looking for some advantage. A much larger section will continue to do what they currently do, which either ignore the enticements or simply pop in to the nearest bank, building society or high street adviser and get the thing over with quickly.

    The concept of simple products stands up in theory but falls apart when reality intrudes.

    Bit like the RDR.

  3. The mechanics and engineering of cars is too complex for me – thats why a pay a professional car mechanic to do it for me.

    Why do MP’s think that they can simplify everything and cut out the middle man?

  4. The sad part about this is that yet again the experts are starting from the wrong place. If they wish to increase the amount of people saving, they really need to market the benefits of saving. Providing simpler products assumes people can’t understand the products currently available and is patronising.
    The only intelligent reason for anyone to defer consumption today is if they are convinced that it will be more beneficial to them to have that money in the future. The government and the industry need to become clearer on the consequences of not saving.

    I know that this can be sometimes criticised as using ‘fear’ to sell products, but if you aren’t afraid for the future, it makes no sense to deprive yourself now to save for it, no matter how simple the product.

    Of course you can create surveys that will have people say yes to the proposition that they would save more if the products were simpler, but there’s no proof that they actually mean it. Government need to plan based on intelligent thinking of what is required for the future of savings in the UK and not based on what focus groups and opinion polls say – as they can be made to back up any side of an argument.

  5. Good piece Paul.

    That fact is that there are people at HMT who have been chewing this bone for so long that it doesn’t matter who the minister is because the same old tune is played over and over again.

    I’m bored now…

  6. The only benefit in savings is a benefit to the state where you pay more income tax and probably more death duties. Financial planning has very few benefits to the consumer. It benefits the adviser and HMRC, and the ambulance chasing companies following one mis selling scandal after another.

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