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Third way to third phase

We seem to have moved on in the past week from third way politics towards the third phase of New Labour&#39s agenda.

Much of Tony Blair&#39s speech last week to the party faithful was designed to head off an increasingly vociferous challenge from Labour&#39s traditional public sector supporters but it did contain some evidence of the way in which Government thinking is taking us for the rest of this Parliament.

Blair argued the current “phase” of “driving through reform” followed earlier work in becoming electable and laying economic foundations.

Towards the end of the last Parliament, everyone looked towards an inevitable second term for New Labour. Much of the conversation centred ON the second term being the term of delivery. This is now very much at the front of the political agenda.

Away from the public services which are causing the Government difficulty among its traditional supporters, the financial services agenda is starting to become much more interesting and the opportunities for shaping policy are becoming ever more diverse.

In 1997, there was a clean slate. Quickly, we saw the creation of the FSA, independence for the Bank of England, pension misselling compensation driven more aggressively, the launch of Isas, stakeholder pensions and limited depolarisation.

But the Government believes there is still much to do and is very keen to hear new ideas on how to energise many of the structures which have been launched since it came to office.

The cornerstone of Government savings policy – in pure product terms – the Isa – has got off to a strong start, the same cannot be said for its poor relation, the IPA.

The much-vaunted individual pension account was set to take the high-net-worth end of the market by storm – the typical home for many IFAs. However, intermediaries have not had a lot to choose from in the past year to offer their clients. At the last count, only one major provider had launched an IPA.

Much of the Government&#39s agenda has been focused on stakeholder as the primary pension idea so the IPA has met with little clear interest. But the Treasury has not given up on it yet – and this serves as a very important lesson for dealings with the Government.

New Labour likes to launch initiatives. Initiative after initiative, big idea after big idea remain the order of the day. So far, as the Government sees it, the financial services industry has not risen to the challenge of energising much of Labour&#39s product agenda – stakeholder has been a damp squib and the IPA has failed.

With “delivery” in mind in the second term, perhaps now is the time to provide some third-wave thinking towards overall Government pensions and savings objectives.

The Isa has been a considerable success – you can tell from the lack of any sustained Tory or Liberal Democrat attack on the concept. The only thing which has got in the way has been the state of world markets which has driven more people into cash Isas in recent months than equity-linked Isas, although this trend is beginning to adjust.

Another factor in the Isa weaponry is the fact there has been considerable evidence of consumer awareness of the nature of the product which has outstripped the previous savings life form – Nigel Lawson&#39s Pep.

People know and understand what an Isa is designed for. They may not know exactly how it works but the three letters Isa have become a consumer brand in their own right and this provides financial marketeers with a considerable benefit.

Watching one of the committee sessions of the private member&#39s bill sponsored by David Curry, MP, the Pensions Annuities (Amendment) Bill,I was amazed to see Economic Secretary Ruth Kelly say there are “many ways” to save for retirement – Isas, property, etc. This was the first admission I had seen that the Government was abandoning pensions as the preferred way to save for retirement. An admission that the Government has recognised what is market practice. Many IFAs are now only advising their clients to use an Isa model for retirement savings.

The adaptability of the Isa for pensions was part of the original thinking for the IPA – but the initial product has been hidebound by its perceived complexity which has done nothing to encourage providers or sales.

Recent work by our partners at the Pep and Isa Man-agers&#39 Association has centred on using the Isa format to enhance pension take-up. One of Pima&#39s key recommendations is to produce a retirement Isa to replace the IPA.

One of the central features of such an approach would be to give up-front tax credit to encourage sales and provide rapid fund growth in the early stages.

The benefits of a rebranded IPA could be tremendous. It would be easily understandable; providers would not need to have the high up-front load costs in terms of marketing and systems as are usually needed.

But most important, a retirement Isa could help fill the pension gap which is opening up for millions as occupational defined-benefit schemes disappear. As many people in mid-career thought they had a pension for life there is a strong political need to provide a replacement for DB schemes and quickly.

What this group urgently needs is something along the lines of a retirement Isa which will provide an efficient top-up for those staring at a black hole in their retirement pot.

In terms of the policy melting pot, with the annuities review and Sandler and Pick-ering, there is much burning away. But there is the opportunity to energise pension policy with the already established Isa.

Let just hope that the third phase is not just a phase.

Iain Anderson is director and chief corporate counsel at Cicero Consulting


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