Julian Knight: Mr Hoban, please stop the savings carousel
The minister’s call for new simplistic products is not original, but can he make a real difference this time?
Sunday 18 July 2010
Ever have that feeling that you are going around in circles – that you have heard the same old arguments and disagreements time and time again?
I had it in spades last week listening to the Financial Secretary to the Treasury, Mark Hoban, speaking at the Consumer Financial Education Body conference in Cambridge. Mr Hoban called for the financial services industry to launch a whole new range of simple financial products which even the most financially illiterate can understand and trust their money too.
The idea is to re-establish in Britons the belief that it's good to save for the here and now, and for their future – in the same way that the building society savings book and the Man from the Pru helped do for millions of Brits a couple of generations ago. Out go loans for sofas, in come long-term savings – at least that's the theory. These new products will run alongside a money advice service – which comes from the last government – offering families a prescription-type service for their finances, with advice on things such as clearing debts and building up a savings cushion. That may sound a bit patronising, but financial knowledge has become so poor and distorted by the barrage of shyster consolidation loan firms and other companies of their ilk that something has to be done. Of course, though, the big question in these times of austerity is – will there be the money to do this from the Government or from finance firms, many of whom turn a tidy profit from people's continuing ignorance?
Attempting to corral financial services into designing new catch-all products has been tried before. Hard on the heels of New Labour coming to power in 1997 we had CAT standards, which were designed by Mr Hoban's long-time predecessor Helen Liddell to give, in effect, a seal of approval on financial products. This took forever to get off the ground, with arguments galore and consultation after consultation, and, at the end of it, after a brief flurry of products being given the CAT standard, everyone forgot about it. If you've opened an account recently, have a dig around the marketing bumf and I bet you there won't be any mention of CAT standards.
A few years after that, we had Ron Sandler – later chief executive of Northern Rock, post-nationalisation – designing yet another raft of simplified savings and investment products, catchily called the Sandler suite of products. Again arguments ensued most passionately – and remember this is the financial-services industry we're talking about – over how much firms could charge their customers and still be considered to be good enough for entry into the Sandler suite. This scheme died even quicker than CAT standards as the financial services industry thought, why bother pushing them because, after all, uniform products designed by committee would never sell.
Generally, my cup hardly runneth over with sympathy for the financial-services industry, but it too has been led up the garden path by government getting involved in the design of financial products. Stakeholder pensions, for instance, were supposed to bring cheap, flexible and easy-to-use pension saving to the masses, and offered all of these things except for the masses. Norwich Union, now Aviva, spent a small fortune promoting stakeholder pensions as a mass-market product, and, although they soon achieved number one status in the market, it was a tiny market as fundamental issues of the long-term flexibility of pensions saving weren't addressed – it's all very good keeping charges low, but it's still a big turn-off for most that you can't get hold of your money for decades.
So, is there anything different this time? Well there seems to be an appetite for genuine pension reform and a realisation that allowing people to do what they want with their long-term savings cash is the way to go. If Mr Hoban is thinking along the lines of a lifetime savings account or an ISA "plus"– with further tax incentives but retaining the flexibility which makes the straight cash or equity ISA so popular – then this time it could work. However, if we start treading the same ground, going around in circles rumbling on about how much firms can charge – which just means every firm migrates to the expense ceiling, in effect a cartel arrangement with government blessing; if we give it some meaningless acronym or, worse still, retain the word "pension" (the marketing kiss of death), then we will have another meaningless suite of products that no one buys and no one wants to sell.
Thank the crooks for soaring costs of car cover
Three ways to lose a fortune: – open a restaurant in London, own a newspaper, or start offering car insurance.
The soundings I'm getting from the car-insurance industry is that they have just had one of their worst years ever – for every £5 received in premiums they are currently paying out £6.
In fact, in eight out of the past 11 years the industry as a whole has made a loss. Recent losses are due – surprise, surprise – to rising personal injury claims, with tens of millions being paid out to people with whiplash injuries which are no doubt painful where genuine, but all too easy to fake.
The AA and the police reckon a lot of the fraud is being carried out by organised gangs in Britain's big cities staging accidents and making multiple and expensive claims for injuries and damages. At times like these, the insurers warn that we will pay in terms of premiums. But, often, the competitiveness of the market – car insurance is by far the most keenly priced financial product out there – and the burgeoning price comparison sites ensure that hikes are kept to the minimum.
This time around, though, could be different. Two price-comparison sites are telling me privately that the quotes they are handing out are up nearly a quarter since the start of the year. Renewal time will be painful for Britain's car owners.
Beware these cold calls peddling debt forgiveness, they'll only end in tears
Just as I was watching the Dutch trying to kick lumps out of the artful Spaniards in last weekend's World Cup final, the phone rang. It was an automated message telling me that I could write off 100 per cent of my debt through some fab new legal device called a debt-relief order, and that all I need do was hold the line and a representative would be ready to talk to me. On the phone came Donna, who asked: "Did you understand the message?" Obviously they get to speak to a lot of people who don't. As a journalist, my response was to ask which company she represented.
Instantly, the charming Donna cut me off. I press 1471 and return the call but sadly it's only a message asking if I'd like to be taken off their future cold-call list. No indication of who was cold-calling me during the World Cup final. Why was I so interested?
Well, under a gentleman's agreement between the banks and the firms selling individual voluntary arrangements, cold-calling is not allowed, yet it seems to be happening not just to me but to friends and colleagues. An IVA – or debt relief order if debts are under £15,000 – is a massive financial step: reneging on debts, ruining your credit record and opening up the potential for committing fraud – if you hide any income from the courts. Yet these firms – which I strongly suspect are spin-offs of larger, more mainstream IVA providers (hence why I try to find the firm's name) – are cold calling people at home and selling the promise of debt forgiveness without consequence. This is why I welcome the Government's decision to review this country's insolvency laws which allow these firms to operate and to peddle their half truths and levy extortionate fees on people who are in a mess in the first place.
What makes last weekend's episode even worse is that Spain scored the only goal of the game while I was on the phone to the lovely Donna – and I missed it.
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