An open letter to Ron Sandler
Having heard your address to the CII national conference in Birmingham in which you summarised your report, it is time for someone who actually interfaces with the general public and who sells life and pension products to put the record straight. A précis of the argument that you made to the conference is as follows:
a. The general public do not understand life and pension products because they are too complicated.
b. Because the public do not understand the products, they do not trust the providers or the intermediaries and thus they do not want to buy them.
c. The track record of providers and intermediaries has led to the industry having a bad reputation and they need to get their house in order.
d. If only products were more simple in design and transparent in charges, the public would understand them better and thus they would be more disposed to purchase them without the need for expensive advice.
e. Providers and intermediaries have a vested interest in maintaining the status quo and thus are, in large part, the problem.
f. A programme of national financial education would solve the problem because the public would then understand the products. Thus they would want to buy them and the savings gap would gradually disappear.
g. Mono charge, that is, level charge, is the only sustainable product design for the future because it is the only model which is easy to understand and the only model which treats the consumer fairly.
With-profits is opaque and therefore crooked.
I believe you are profoundly wrong on most of these points and will address them in the order in which they are listed.
a. Yes, life and pension products are complicated. There are lots of products providing different solutions to different problems. Indeed, the public are confronted with a complex array of sophisticated products which, by the way, have taken roughly 170 years to design, and making a selection between those products, let alone the providers, is not a simple task. Contrary to your view, there is no magic wand that could possibly make our industry uncomplicated.
b. I can assure you that the three primary reasons why the public do not want to buy our products are, first, because they believe our industry is crooked, second, they believe neither providers nor intermediaries are to be trusted and, third, they believe the risks associated with our products far outweigh the benefits. I am amazed your research led you to the conclusion that complexity of the products was even an issue.
Lack of trust is the key issue. Of course, the reason why a large proportion of the public do not trust our industry is because of the relentless and usually misinformed media campaign that has been running for the past 10 years or so.
There is constant denigration of our industry fuelled by misguided people who insinuate that that the life and pension industry is profoundly crooked and needs urgent and total overhaul. Nothing could be further from the truth.
The media do not present a balanced view. They use one person's bad experience to paint a picture of a bad industry. Mrs Jones' endowment may not mature to its target value so all endowments are useless and everyone who sells them is crooked. The fact that 99 per cent of people who invest in an endowment are wise to do so, that the reasons for them being advised to do so were and remain sound and that the vast majority of endowments will prove to be a good long-term investment is not news – but it is the truth.
Pulling people out of final-salary schemes in favour of personal pensions was bad advice and, thankfully, a thorough programme of compensation was put in place to help those who were disadvantaged. But was that practice entirely due to greed on the part of intermediaries and providers? Is it possible that the political climate and attitude of much of the general public from 1988 to 1994 had something to do with the problem? Perhaps at that time people liked the idea of controlling their own finances and were not sure whether their employer would be there when it became time for their final-salary pension to pay out.
The fact remains that most people who purchased a personal pension in 1998 and thereafter were well advised to do so and well advised to contract out of Serps, too.
c. This is a most unfair and misleading allegation. The fact is that the UK life and pension industry has a 170-year history of delivering quality and value to its customers. We are the benchmark worldwide for our industry. The UK is also the source of virtually every product innovation. Far more important is the fact that our industry has made a real difference to the lives of millions of peoples over the past 170 years because of the good work we have done and the results we have achieved for our policyholders.
It is high time that the leaders of our great industry took the lead in clarifying the great work that has been done and is still being done within the last great socialist industry that survives in this country despite the huge amount of interference from the Government and its ill-informed critics.
d. It has taken me 14 years to acquire a working knowledge and understanding of our products, their suitability to client needs and the tax treatment of the premiums and the benefits, and I am still learning about new products and studying for advanced qualifications. Virtually every practitioner I know takes their continuous personal development very seriously. Our business is complex.
In my first year in the industry, I spent eight weeks in residential training courses (thank you, Royal Life) and none of that time was spent on selling technique. All this time in a classroom was spent learning about the products, how they functioned, why and where they were relevant, the complexity of premium calculation and underwriting, the options to increase, postpone or cancel policies, the risks inherent in the products and the costs and charges associated with them.
Your suggestion that a “national campaign of financial education” would somehow unravel the complexities of our industry is utter moonshine.
e. This assertion is the exact opposite of the truth. Our industry has made huge efforts over the past 10 years to simplify wording and policy design in order to improve the public's understanding. If you want to find a source of complication, look no further than Canary Wharf and the regulators.
f. See d. above.
g. Another outrageous myth. Mono-charged contracts are giving providers huge cashflow problems. These contracts are guaranteed to lose money in the first 10 to 15 years. Solely as a result of pressure from the Government and regulators, product providers are now financing the acquisition of loss-making new business with existing policyholders' money. Who else could possibly be funding this insanity? In any other industry this would be described as theft.
More to the point, you and the regulators are forcing the industry into this disgraceful practice. Shame on you, shame on the regulator and shame on the Government, too.
With-profits is indeed opaque but it is not crooked. If you were to work closely with a team of actuaries in a major life office for a month or two, perhaps you would understand how with-profits actually works, why it is a sensible investment model that delivers long-term value and how the motives of the provider, contrary to your belief, is to treat all its customers fairly.
I do hope that this letter and the comments raised will stimulate some debate on where our industry lies and its challenges for the future. I would strongly suggest that our industry needs to be able to tell the difference between its friends and its enemies. In my opinion, it is unwise to pander to one's enemies and there is no doubt whatsoever in my mind that anyone like you who takes a broad swipe at our industry, its motives and its practices is an enemy who should be treated with extreme caution.