Melanie Bien: Bah, humbug! Give us a savings sweetener

A few more carrots from Government would, I'm certain, provide more impressive results
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The Independent Online

Although it feels as if we crashed through the £1 trillion debt barrier weeks ago, the dubious milestone was actually passed just last week.

Much media hype has accompanied the announcement of the event. After all, you can't deny the figure makes a good headline. But now we are faced with the harsh reality as the stark official figures on household borrowing published by the Bank of England leave no room for doubt.

With what I am sure is nothing more than coincidence, the Treasury Select Committee also released its long-awaited report into the long-term savings sector last week. As the nation demonstrates it can't get enough debt, the Select Committee issued a scathing attack on the financial services industry for not doing more to encourage us to save.

Most of us know we should probably be saving more and yet still we rack up debts. To be fair, some 80 per cent of this £1 trillion debt is in the form of loans secured against our homes, such as mortgages, which tend to have low rates of interest (at least for now). Therefore, a far smaller proportion of debt is on credit and pricey store cards, overdrafts and personal loans.

Encouragingly, it also appears that most of us are in control of our debt repayments. Repossession figures released by the Council of Mortgage Lenders (also last week; everyone's been extremely busy) revealed that the number of repossessions were flat for the first six months of this year.

Of course, if the Bank of England's Monetary Policy Committee decides to raise interest rates yet again when it meets this week - and once more in September for good measure, which is looking ever more likely - those who are only just about coping could be pushed over the edge. That's when this level of consumer debt will cause problems.

However, these headline debt figures don't draw attention to the fact that we also have £3 trillion in savings. A sound platform for the financial services industry to build upon, perhaps? Maybe, but it has got it badly wrong so far, according to the Select Committee.

Its report, aimed at "restoring confidence" in long-term savings, recognises that a lot of work remains to be done. But after reading its recommendations, I'm left with a suspicion that it doesn't go far enough to address the problems facing the industry.

The report calls for greater transparency, including simple indicators to enable investors to ensure they are comfortable with the level of risk they are taking on. But while this sounds the right thing to do, it could prove hard to implement. As one adviser pointed out to me last week, it is likely that zero-dividend preference shares would have been classed as being on the lower end of the investment risk scale before 2001. Yet they've proved to be anything but lower risk.

The Select Committee also demands a clearer system for informing savers how much they are paying for sales and advice, which makes perfect sense. But when an adviser has a choice of products at his disposal, how tempting must it be to recommend one that charges a high rate of initial commission? The client will be told how much they are being charged but unless they also know the charges on alternative products, this figure is meaningless.

It is surely no coincidence that a fair number of recent mis-selling scandals have involved consumers being given inappropriate advice in order to generate large commission payments.

More encouragingly, the report recognised that savings products, particularly pensions, need to be more flexible. People don't like tying up their savings in case they need to get their hands on them in an emergency.

The question is whether the Select Committee's proposed measures are enough to persuade people to start saving or to save more if they have already started doing so. Surely it would help if the Government were to restore pension and ISA tax benefits?

Most of us won't change our ways without an incentive or two to help us. And a few more carrots from the Government would, I'm certain, provide more impressive results.

m.bien@independent.co.uk

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