Sandler review outlines need to slash red tape
UK- A long-awaited report into the UK’s savings market has delivered a harsh verdict on an industry it says is expensive, overly-complicated and inefficient.
The report, sponsored last year by Chancellor Gordon Brown, suggests savings levels are insufficient, particularly among the less well off, in part due to high costs.
Launching the report, former Lloyd’s of London chief executive Ron Sandler said there are “grounds for concern” over the way the £340bn savings industry operates.
His review maintains that the UK savings market is overly complex with an excessive number of similar products with complicated charging structures. A lack of transparency, particularly for with-profit products, makes comparing price and performance difficult.
Consumers are relying on advice from intermediaries and have little idea of the cost and worth of what they receive. Sandler maintains the advice is often biased due to the commissions paid directly by the product providers.
Publication comes at a time when confidence in the industry has taken a severe blow from scandals like the Equitable Life debacle and endowment mis-selling.
The report makes a number of recommendations including:
-The introduction of a range of straightforward, understandable products with capped charges that consumers can get out of without being penalised excessively.
-A simplification of the tax structure and, in particular, an overhaul of pensions taxation. Sandler recommends any future government policy should focus on simplification opposed to attempts to stimulate savings with tax incentives.
-A simpler and more understandable set of with-profit products that would include more information on performance, less jargon and more effective competition.
- A more stringent approach to financial advisors’ independence meaning that only those who are not paid by product providers can claim to be truly independent,
The report is also pushing for an educational campaign making it easier for savers to understand the products they invest in.
Analysing the industry, Sandler says: “It is of fundamental and growing public importance that Britain should have a savings industry that is both efficient and widely trusted. The long-term welfare of millions of people depends on it, as does the effective operation of our capital markets.”
The National Association of Pension Funds welcomed the report. Chief executive Christine Farnish said: “We share Ron Sandler’s clear distaste for excessive red tape, and welcome the fact that his Review shows signs of close collaboration with the simplification reviews currently being prepared by Alan Pickering and the Inland Revenue.
“It is now important that these other two reviews complete the picture, and that the Government takes action to simplify the pensions regime.”
The TUC, the body representing seven million UK workers, said it represented a major step in rebuilding the public’s faith in the insurance industry. “The focus on simple and affordable products can only help make saving easier, particularly for the low paid,” says deputy general secretary Brendan Barber.
The UK’s Association of British Insurers also backed the report, saying: “we believe the savings gap is the number one issue facing the country. We believe more government incentives are needed to encourage people to save.”
Sandler’s review comes two days before former chairman of the National Association of Pension Funds Alan Pickering is due to deliver his report on pensions regulation.
Like Sandler, he is expected to recommend simpler pension products that require less regulation. Employers are expected to be given more freedom in designing the pensions they offer employees while being able to make membership compulsory.