Harmonising the government's benefits systems with the aims of the savings regime should make it pos...
Harmonising the government's benefits systems with the aims of the savings regime should make it possible for the industry to distribute simpler products to lower earners, suggests Royal London.
Produced as a group response to the FSA's DP19 - Options for Regulating the Sale of Simplified Investment Products – on behalf of Scottish Life, Bright Grey, Scottish Life International and Royal London Asset Management, Royal London says bridging the gap between the benefits system, which is seen to disincentivize saving, and the long-term protection market might help all parties concerned.
In particular, Royal London argues that a system of "guided self-help" would encourage efficient delivery and simple product guidance to match Sandler's proposals for simpler products targeted at people who do not save at present or have no long-term financial protection.
This might be best achieved providing simple protection products such as term assurance can be sold alongside long-term savings to try and reduce the "protection gap" that is emerging at the same time as the growing "savings gap", says Mike Yardley, group chief executive at Royal London, as distributors cannot afford to offer products unless costs can be cut for low-earners.
"Last year's Sandler Review identified fundamental shortcomings in the way long-term savings and pension products are distributed, particularly to those on middle and lower incomes. We are pleased that the FSA, through DP19, has taken the debate to the next level," says Yardley.
"Under the current benefits regime, there is a significant disincentive for many people to save, because of the possibility of reduced eligibility for means-tested welfare benefits in later life. The government must act to harmonise the savings and benefits regime if it is to genuinely encourage lower income consumers to save," he adds.
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