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Welfare state

Personal welfare accounts raise some real concerns

I read with interest this week about the think-tank Reform’s calls for the Government to introduce personal welfare accounts for the middle classes through which individuals could save for and protect against unexpected events later in life.

At present, these proposals would not extend to include any elements of life cover or income protection but high-profile industry figures are pointing to the obvious benefits of allowing people to add such covers to their accounts.

There are a couple of areas of concern for me – the proposal is that this would replace traditional welfare benefits for the middle classes and it is going to be an unusually honest and confident ruling party which admits that what they can provide is inadequate and that people should be providing for themselves – regardless of how accurate such an admission might be.

There is a risk also that if the welfare account had a standard amount of, for example, life cover within it, people might have the perception that this need has been catered for in full.

We are referred to the success of such a scheme in Australia where, we are told, 95 per cent of the public have an automatic £50,000 of life cover. Sounds like a lot of money but I think we all recognise that it would only scratch the surface of what a typical household may need.

At this point, the idea links neatly with another discussion topic in the industry, that of finance education in schools. This one seems a real no- brainer – since kids are no longer allowed to indulge in such dangerous and unworthy activities as conkers or British bulldog, why not use some of their spare school day to give a grounding in the basics of finance – savings, pensions, protection, taxation, etc.

At least school leavers would gain a rudimentary understanding of the world of finance and would not have to ask, as a friend of mine did while fighting back the tears, where a large chunk of his first pay slip had gone (OK, there was no “friend”, it was me).

If this were to coincide with an outbreak of plain talking from the Government around the limitations of what they can provide should times get tough, it might well prove a boon to those giving advice on protection products.

There is a clear void to be filled here (don’t worry, I am not going to mention the words “protection gap”), with an Axa-commissioned survey earlier this year showing that around half the population have no concept of what critical-illness cover or IP might be and less than half even knowing that the Government might provide support in the event of illness, redundancy or death.

Who would take the less-ons? Well, I suppose it would fall to us as an industry to volunteer some of our time. And you thought a room full of IFAs could be scary.

Phil Jeynes is key accounts manager at Direct Life and Pensions Lifequote

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