Session 2003-04 28 July 2004
REPORT PUBLISHED ON: RESTORING CONFIDENCE IN LONG-TERM SAVINGS
The Treasury Committee today [00.01 hrs] published its Eighth Report of the current session, Restoring confidence in long-term savings (HC 71-I and II, Session 2003-04).
John McFall MP, Chairman of the Treasury Committee, said:
"This committee has uncovered a catalogue of problems that have beset the long-term savings industry in recent years, damaging savers' confidence. These include:
about half of all with-profits policyholders, with savings worth around £160 billion, now find themselves in closed funds offering limited long-term growth prospects;
endowment mortgage policyholders are suffering a collective shortfall of around £40 billion;
policyholders at Equitable Life have been confronted by a £3 billion shortfall;
savers with precipice bonds have suffered capital losses estimated at £2.2 billion;
the FSA is pressing for £350 million compensation for investors in split capital investment trusts.
These problems have their roots in a savings industry that has failed to adapt to the modern world and the new investment climate of steady growth, low inflation and low interest rates. The result, as Ron Sandler told the Committee, is that people now trust their local supermarket more than many of our largest life insurers. This Committee nevertheless recognises that long-term savings constitute a near £2,000 billion industry whose well-being is crucial to the future of the economy. It is important, therefore, to restore it to health.
As a Committee we have challenged the industry to come up with firm proposals to help restore customers' faith in the industry by becoming much more open about the products and how risky they are. We also call for much greater transparency about how much and for what the customer is being charged. For example, our report calls for:
i. A clear, standardised Summary Box for all savings products, telling the customer what the product is linked to, if the saver is guaranteed to get his money back, how risky the product is and what the charges are.
ii. The development of a simple, standardised risk indicator for all retail savings products that can be included in the Summary Box.
iii. A much clearer system for telling savers how much they are paying for sales and advice and the relative costs of paying via a fee or commission.
iv. An urgent limit to the current system where IFAs carry on receiving trail commission for years after they have sold a product, often without giving any real on-going advice to the saver. This can cost the customer thousands of pounds.
We have asked the industry to come back to the Committee this winter with firm proposals in these areas.
The Report also calls for the industry to look closely at ways of reinforcing its duty of care to customers. We recommend that pay throughout the industry, from top to bottom, should be more closely linked to the returns actually being delivered to savers. The sight of top executives in recent years receiving huge pay increases while savers have seen the value of their investments collapse has left many consumers disillusioned. The widespread use of large commission payments on sales has also left many potential savers distrustful of the industry.
The long-term savings industry is too important to be left on its own to sort out its problems. It is an industry that is key to the well-being of the wider economy and we are surprised that historically there has been so little regular contact between the industry, consumer groups, regulators and government. As a result, we recommend the establishment of a new forum where all these parties can come together to establish an agenda for reform that reinstates consumers' interests as its central focus. Only then will the industry break out of the pattern of recent years that has seen it limp from crisis to crisis, each one inflicting more damage on its reputation in the eyes of savers. This damage must be reversed and we all have a part to play in this-government, legislators, regulators, consumer organisations and, crucially, the industry itself."
The Treasury Committee is a Select Committee of the House of Commons, appointed to examine the expenditure, administration and policy of the Treasury, the Inland Revenue, Customs and Excise and associated public bodies. All Members of the Committee are Members of the Sub-committee.
Rt Hon John McFall (Chairman), L, Dumbarton
Mr Nigel Beard, L, Bexleyheath and Crayford
Mr Jim Cousins, L, Newcastle upon Tyne Central
Angela Eagle, L, Wallasey
Mr Michael Fallon, C, Sevenoaks, (Sub-committee Chairman)
Rt Hon David Heathcoat-Amory, C, Wells
Norman Lamb, Lib Dem, North Norfolk
Mr George Mudie, L, Leeds East
John Mann, L, Bassetlaw
Mr James Plaskitt, L, Warwick and Leamington
Mr Robert Walter, C, North Dorset