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String theory

At the time of writing, the Liberal Democrat conference has just come to a close. In the conference hall there was plenty of tub-thumping to rally the party faithful after 500 days of “being in power”.

Deputy prime minister Nick Clegg made no apology for taking the party into Government as a less than equal partner. He did, however, point out that by entering into the coalition, the LibDems have been vilified from all sides, with the left accusing the party of “being powerless puppets, duped by a right-wing Conservative clique” and the right accusing it of being “a sinister left-wing clique that has duped powerless Conservatives”.

But leaving the rhetoric aside, what was really exercising the minds of the MPs and activists?

There were plenty of fringe meetings on financial services, more so than in previous years given the countervailing economic climate. They covered a range of topics from debt and pensions to the need for “a new economy”, whose central tenet is to find a way to help the squeezed middle-classes by giving them help with childcare and employment insurance, among other things.

But maybe someone needs to turn their attention to making sure everyone, never mind the squeezed middle, is prompted to access regulated financial advice in some form or another.

The simplified advice regime is a good innovation and might help improve people’s perception of the value of advice – as is the Money Advice Service – but they may not be enough.

In reality, there is a chasm between those who save and those who do not. Inevitably, there were fringes about the lack of a savings culture. We heard the same old arguments – the importance of financial education, the fact the state pension is not enough to live on, that financial products needs to be simpler.

For the counter argument, it is not always rational for people to save given means-testing and the fact debt is easier to accumulate than savings.

Financial illiteracy is at the root of the problem. People do not value financial advice in the same way as other paid-for services. Take house-buying. You want to buy a house, you have to pay the conveyancing and survey costs. You want to invest, you seek advice. But as there is no one holding a gun to your head you are put off by the perceived cost and the consequences of not taking it do not become visible until it is too late.

A lot is hanging on the introduction of auto-enrolment into workplace pensions. It is hoped people will feel empowered by their annual statements – as long as markets are up – and be encouraged to undertake additional saving to supplement their pension.

That would be a great by-product of auto-enrolment but cannot be relied on as the only solution.

Perhaps the powerless puppets ought to pull some strings and make financial education a reality and financial advice the rule rather than the exception.

Mona Patel is head of communications at the Investment Management Association

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