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Summer surprises

Three momentous matches will take place this summer. Ron Sandler will be reunited with his report (which has been circulating around Whitehall in draft for several months). Christine Farnish will take up her post as chief executive with the National Association of Pension Funds (which has been on the cards for weeks). And Gordon Brown will say hello to the euro (which was always going to happen), which he has shunned since he became Chancellor.

I write this as a reminder as I know many of you will be distracted by those other three matches against Sweden, Nigeria and Argentina.

Sandler&#39s report will be hard-hitting. It will effectively be the Government&#39s savings manifesto. It will dominate the agenda for many years to come. Its watchword will be transparency and competition and its targets will be endowments and commission. At the same time, it may propose reforms to stakeholder, recognising that the 1 per cent charge cap is unrealistic.

The time has come to say something good about endowments and with-profits policies, as we only ever seem to get the bad news. As Liz Dolan has pointed out in the Sunday Telegraph, there is nothing wrong with these products per se. The element that has undermined them has been the performance of the stockmarket.

A few years ago, the FTSE index hovered around the 6,000 mark. I would regularly attend meetings where people made predictions about how the index would end the year at 6,300, 6,500 – even 7,000. Now it is permanently stuck at around 5,300 and growth is non-existent. Yet it is one phenomenon that is never commented upon in the debate on savings. If the FTSE growth trend had continued and was now, say, around 7,500, would we be going through the same crisis of confidence?

Probably not. But as is so often the case, much of the crisis of confidence can be laid at the door of the industry itself. It constantly promotes products as if there was no risk whatsoever. It then sticks its head in the sand when that risk comes home to roost. It fails to communicate to customers. It fails to make its products transparent. It carries on as of nothing had changed.

One company that is in the process of adapting is the Co-operative Insurance Society. It recognises that there will always be a market for with-profits policies. People do not like surprises or being caught out at the last minute so they will opt for a smoothing of the investment process. But they do not like to think that the return is a result of some arbitrary secretive formula.

So CIS has introduced a unit-trust style mechanism with-profits fund for its stakeholder product which allows customers to get a valuation of their fund at any time. CIS is providing more information and transparency which is clearly open to closer scrutiny.

Companies such as CIS are adapting to an environment which is obviously changing, coming up with solutions that ensure that we do not throw out the baby with the bathwater. It is incumbent on providers not to seek simply to stand against the tide of change but to ensure that they are able to ride the wave by sticking to their principles but adapting to change.

Another institution that has recognised the need to change is the NAPF. It has appointed Christine Farnish who has been prominent in the savings industry for four years as head of consumer protection at the FSA. She is a formidable communicator and consumer champion. What should Farnish be doing when she gets behind her desk in July?

First, she needs to decide who the NAPF actually represents – the pension funds, investment managers or the consumer?

If she is true to her track record, she will fight the enemy within and ensure that everything her organisation does is designed to help the consumer. This means berating the Government for its own short-sightedness on pension policy and attacking her own members for their slowness to reform.

She needs to ensure that the NAPF takes the lead in all the key debates on the future of pensions, namely the state retirement age, the future of the second state pension, occupational pension schemes and the need for a retirement Isa.

The NAPF is already quite prominent in much of the debate. Farnish is a brilliant communicator who can make one of the key industry groups a real force for change and innovation.

Talking of which, I end this article with reference to my third match – the Chancellor and the euro. His alleged conversion to the euro is not a conversion at all. It has always been my view that Brown and Blair have both wanted it but one has played the bad cop and one the good.

Given that an election is pencilled in for 2005, the only credible date for an euro referendum is autumn 2003, far enough from an election to give breathing space and shortly after the replacement of Eddie George.

To win in the autumn means the softening-up battle begins in the sum-mer. And what could be a better opening salvo than to point out that a country with the euro – France – won the World Cup and that one without – England – did not?

Edward Vaizey is a partner and board director, public affairs at Consolidated Communications

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