There were few surprises from the recently released Sandler and Pickering reports ' no innovative so...
There were few surprises from the recently released Sandler and Pickering reports ' no innovative solutions or groundbreaking thinking.
Both reports put a premium on reducing the opacity and increasing the efficiency of financial products. It is argued these more competitive products will give consumers better value and will thereby be more attractive. This, in turn, will help reduce the savings gap.
However, historic evidence has shown this not to be the case. The Government's much fanfared stakeholder scheme, offering low charges and greater transparency, has not been a success. It has not increased savings in its target audience, the low to middle income earners. Instead, it has become a tax planning or pensions tool for the wealthy.
The conclusion from this is unavoidable: product efficiency does not provide consumers with an incentive to save. Improving the structure of products may well be desirable, but it will not close the savings gap alone.
Furthermore, it could be argued that too much of a focus on product efficiency could provide barriers to entry for future pensions providers and a disincentive to current providers. This, in turn, could reduce the number of operators in the pensions market, which would reduce competition.
This would potentially lead to very few, very large providers operating in the market and wholesale consolidation ' a market structure similar to high street banks. Considering the Government's current attempts to increase competition in the retail banking sector, such an outcome would be undesirable.
Indeed, closing the savings gap will require a different approach. People need to be actively persuaded to save their money, rather than spend it. In an age in which our consumerist society tells people they are judged and valued by their possessions, it will be extremely difficult to overturn the spend now, save later mentality.
The Government could approach this in a number of ways, with greater consumer education and awareness high on the agenda. Some have even suggested putting financial education on the National Curriculum.
Compulsion is also a possibility, forcing people to save directly into personal pension schemes or compelling employers to contribute.
Nonetheless, the role of face-to-face financial advice is likely to remain crucial to the process. Advisers can persuade people to do things they know they ought to but would not do without face-to-face advice. In the compulsion scenario, independent financial advisers will be essential to helping investors make prudent investment decisions.
It is high time the Government recognised the essential contribution face-to-face advice can make towards reducing the savings gap. With both parties working towards the same goals, the Government should be working with, rather than against, advisers to help close the savings gap.
Charles Ansdell is corporate relations manager at Inter-Alliance Group
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Launching later in 2019
£80bn funds under calculation