By committing to reviewing price caps on financial services, the Treasury today has all but admitted...
By committing to reviewing price caps on financial services, the Treasury today has all but admitted that its 1% world has fallen apart, but there is still confusion as to who will be the first to officially ring the death knell: Whitehall or Canary Wharf.
The Treasury has already appointed Deloitte & Touche to "independently research" the effect of price caps on the market, but Treasury secretary Ruth Kelly says that the government will not move on the price cap issue until after the FSA has made its position clear.
"It was clear from the responses to the consultation and our own analysis that the most sensible time to finalise the price cap is when the results of the FSA work on the sales process is known," Kelly says.
"In an ideal market there would be no need for a price cap but the lack of competition and complexity of the financial services industry make one necessary."
However, the FSA in turn has remained fairly non-committal on its proposed rules for filtering questions and a time-table for introducing any changes, noting only that it too wants further cost-benefit analysis to be carried out before it engages in additional consultation by the year-end.
Still, it looks from the language used by the Treasury today that a change is inevitable.
It admits that the price cap question generated more responses than any other issue and "most suggested that getting the level of the charge cap right was the single most critical issue to the policy's success".
"The great majority of respondents suggested that a 1% cap would generate insufficient returns over too long a pay-back period, while making it difficult to target those at the lower end of the market."
"A minority believed that 1% allowed for sufficient margins and that raising the cap would not in fact lead providers to put additional resources into targeting those on lower incomes. A number noted that whatever the price cap it must be set at a level which provides a cautious consumer with likely returns above those available on the best deposit account."
Providers and intermediaries should not believe that price caps will be done away with altogether, however, as the government says it "remains committed to the principle of price caps".
"The evidence of lack of price competition in the market is clear, and consumers need to be confident that they are not being encouraged to buy a products that has unreasonable levels of charges," the Treasury's response paper says.
"The 1% price cap has increased price transparency and promoted competition in the market."
The government has also committed to controling price quotes used for unitised products in the Sandler suite.
They will have to use single pricing, ending the use of bid-offer spreads, and the prices must be updated daily.
The increase in minimum AE contributions has had little impact on opt-out rates - with cessations after April increasing by less than two percentage points, data from The Pensions Regulator (TPR) shows.
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