Government stalls on savings price cap

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The Independent Online

The Government yesterday stalled on introducing a sweeping 1 per cent price cap on the financial services industry, as it unveiled a range of new low cost savings and investment products.

Ron Sandler, the former head of Lloyd's of London, was commissioned in 2001 by the Treasury to look at how the take up of savings and investment products could be improved. He recommended a suite of price-capped, simple products that could be sold over-the-counter without the need for individual advice.

The Treasury set out yesterday what these "stakeholder" products would be, but said it would wait until later this year to decide what price cap they should carry.

"Stakeholder products aim to be flexible, simple, low-cost and risk-controlled. In an ideal world there would be no need for a price cap but the lack of competition in the industry make one necessary," Ruth Kelly, financial secretary to the Treasury, said yesterday. The Treasury said it would work with the Financial Services Authority on setting the cap.

The industry, which has been hit by losses on the stock market, has been lobbying the Government to set the price cap at a higher level than the 1 per cent maximum levy on pension products. Companies say they need a higher margin to make selling them worthwhile.

Aviva, the UK's largest insurer, said it would not offer the new products for sale if they were not allowed to charge more than 1 per cent.

Robert Fletcher, a director at Norwich Union, part of the Aviva group, said: "If it is 1 per cent, we will not play."