We're not alone!

20 April 2007

Last year the FSA announced the results of its study into financial capability, and in some ways it made depressing reading. Nearly half the population have no savings at all. And 40% of people who own an equity ISA don't know that the cash value of their investment is directly affected by stock market performance.

So, are we uniquely confused in the UK? Is there something fundamentally wrong with our financial services, which means customers are adrift in a sea of confusion that starts at the English Channel?

Well, no. A recent conference hosted by the European Commission to look at the issue highlighted that some problems are common. People don’t want to buy financial products anywhere. No one wakes up in the morning, whether in Berlin, Bologna or Birmingham, and thinks ‘I must start a pension today’. But they may wake up and think ‘I want to retire when I’m 60 – I’ll be able to do that … won’t I?

Many countries are trying to do something to help people make better decisions. Germany has developed an integrated pension and benefits forecast to help with retirement planning. In Hungary, there has been an extensive publicity campaign – across leaflets, websites and soap operas and reality TV - to raise awareness of financial issues. And in Italy, the banks have been working on a best practice project to improve their communications with customers. The European Commission itself has developed an interactive on-line tool, 'Dolceta', providing financial information and training for consumers. It works both ways too – in the Netherlands they are using the FSA’s work to establish a baseline study of their own financial capability.

So we’re not alone – and perhaps we can learn something from experiences elsewhere.

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Learning the lessons from 1997

4 April 2007

The media has been full of stories about Gordon Brown’s first budget and the removal of tax credits on dividends for pensions. It certainly takes me right back to 1997. Just before that Budget I wrote a Ritchie Paper warning of what abolition of dividend tax relief would mean for pensions, and I sent this to every MP. There was no doubt in my mind it would have a significant knock-on effect on the solvency of final salary schemes, as well as to the future retirement income of those in defined contribution.

So, I agree Brown’s so-called ‘pensions raid’ was one of a few big factors that hammered the nails into the defined benefits coffin. But it wasn’t the only one. Increased longevity, a stock market crash, removing the ability to hold pension fund surpluses and increased regulation all played their part in the story of final salary schemes.

Back in 1997 I said “the overall message that should be reinforced is that pensions are still a very tax-efficient means of saving for retirement”, and I stick by that today. We have to keep on pressing that message home. The ‘pensions raid’ story is more about political point scoring than about unpicking ten-year-old pension policy. Instead of dwelling on past times, we should be talking about the wider pensions environment. How can we encourage employers to stick with their pensions decisions in the face of pensions reform, personal accounts, and the changing face of costs and regulation? And how can we persuade more individuals to save more?

This is about working together to help the maximum number of hard-working people secure the best possible retirement income. Let’s make sure that’s what pensions are known for.

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Accident black spot?

2 April 2007

In his latest blog, the Minister for Pension Reform says we have achieved consensus on auto-enrolment. But one of the rules of politics is policy can easily be derailed by the detail of the execution. And auto-enrolment could prove to be a case in point.

European legislation - the Distance Marketing Directive (DMD) - makes auto-enrolment illegal for all contract-based pensions. The DWP is steering personal accounts around this roadblock by calling them an occupational scheme and trust-based. But to gain exemption from having to pay into personal accounts, employers schemes will also have to auto-enrol employees. This leaves much of the existing defined contribution pension market in a head-on collision come 2012 with either the UK government pensions policy or EU law. So, we need to move the roadblock or find a path around it.

If DWP can't construct a legislative solution - and the signs are this could be moving off the desk and into the 'too hard' pile - then why not exempt existing good schemes that already use inertia enrolment techniques such as streamlined joining? This market solution already works well in practice, and achieves a very similar outcome to auto-enrolment by another path. So, let's make inertia work for saving by using the simplest and straightest route. Because that way we all get to our desired destination quicker and safer.

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Important note

This blog provides the views of our industry lobbying team. The views are the opinion of the person writing the entry of the blog and don't necessarily represent the views of AEGON in the UK. They are based on their interpretation of industry developments and their current understanding of UK proposed and actual legislation, and should not be interpreted as recommendations or advice.