The Sandler review of medium and long-term retail investment in the UK was set up by the Chancellor of the Exchequer following a recommendation of the review of institutional investment by Paul Myners, and reported last July. It was headed by Ron Sandler a former chief operating officer of NatWest Group and chief executive of Lloyd’s of London.
Sandler’s terms of reference were “to identify the competitive forces and incentives that drive the industries concerned, in particular in relation to their approaches to investment, and, where necessary, to suggest policy responses to ensure that consumers are well served”.
He came to two broad conclusions. First, that the market for pensions is not working and that competition is failing to drive cost efficiencies and value for money in retail investment. Second, that people are not saving enough, or at least as not as much as the government would hope, for their retirement.
The Association of British Insurers (ABI) has published research suggesting the UK has a retirement savings gap of around £27bn (E42bn) a year.
To encourage higher levels of saving, Sandler proposed a simpler tax system and a suite of simple savings and investments products modelled largely on the UK’s existing ‘cheap and cheerful’ stakeholder pensions. These place a 1% cap on administrative and management charges. He also said that consumer education on pensions should go up a gear.
More controversially, Sandler proposed that the government should shift the focus of regulation way from the sales process and toward the specification of the product. Savings and pensions products would themselves be tightly regulated so that consumers can buy them without the need for regulated advice. This, he said, would reduce the complexity of marketing pensions at a stroke, without compromising consumer protection.
The government and its agencies have generally welcomed the Sandler review as a contribution to work in progress at the Department of Work and Pensions (DWP) and the Financial Services Authority (FSA), rather than new departures. And perhaps significantly, they have flagged up some of the technical difficulties of implementing the proposals .
The Treasury will need to take the lead in designing the simplified suite of products for which Ron Sandler calls. Ruth Kelly, first secretary to the Treasury, told a seminar organised by the Treasury and the FSA to initiate the Sandler consultation process that she found the argument for a switch from a sales to a product specification “persuasive”.
Kelly also accepts Sandler’s recommendation of a 1% price cap on stakeholder products. However she said practical issues needed to be resolved What are the right specifications, for instance, and what would the appropriate sales regime for the products look like?
The first is a matter for the Treasury; the second is a matter for the FSA. The FSA says that Sandler’s suggestion of a simplified regulatory regime to cover the sale of ‘stakeholder products’ is in line with the ideas put forward in the FSA’s recent consultation paper on depolarisation (CP121) which proposes ending the bi-polar system of sales channels.
In CP 121 the FSA puts forward a proposition for a different type of financial adviser, with lower qualifications. However, Sir Howard Davies, chairman of FSA, pointed out at the FSA annual meeting that “Ron Sandler’s ideas go rather further, and are clearly conditional on product features which are not typically available in today’s market”.
He warned: “There is some difficult work still to be done on product features, to ensure that it is possible to free up the conduct of business regulations without the risk of widespread mis-selling.”
Sandler’s proposal for product regulation has predictably provoked opposition from financial advisers and their organisations, who see it as an attack on the provision of financial advice, and the comprehensive training that underpins it.
Richard Saunders, chief executive of the Investment Managers Association (IMA) said “It will be important not to lose sight of the importance of financial advice, which large numbers of consumers want and need.”
The Chartered Insurance Institute (CII) and its financial services arm the Society of Financial Advisers (SOFA) warned that that simple and more transparent investment products should not mean a dilution in
standards of consumer protection.
CII director general, Sandy Scott, commented: “Failure to address these issues could lead to a ‘mis-buying’ scenario where people purchase inappropriate products, not only because of a poor understanding of their personal finance needs but also limited and inadequate information to help them.”
The Association of Independent Financial Advisers (AIFA) is also worried about advice and who would provide it. The AIFA’s chairman Lord Hunt told the Treasury seminar: “I remain concerned that half conversations with the unqualified will in a few years time be turned into talk of misunderstanding and recompense. Ron Sandler cannot stop the flood tide of the consumerist society.”
He said the main question was how liability will be ring-fenced. “If it is not answered to the satisfaction of the financial services the intentions of the stakeholder suite will not be recognised.”
The ABI takes issue with Sandler’s proposed 1% price cap. Francis McGee, head of life insurance at the ABI, says: “Our research shows that a 2% annual charge would allow us to cut the savings gap by more than twice as much as we could at 1%.”
However, the main industry wide criticism of the Sandler review is that it is a partial solution to a wider problem. The National Association of Pension Funds (NAPF) , for example, has damned Sandler with faint praise, saying that his recommendations are welcome but “do not go far enough to solve the ‘pensions problem’”.
The NAPF has now has carried out its own analysis of the issues and claims that its recommendations are more likely to achieve the Government’s policy objectives of adequacy, affordability, fairness, clarity and stability than the current policy framework.

Topics