Pensions: the bubble-wrapped euphonium will do nicely

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Pensions: the bubble-wrapped euphonium will do nicely

Bill Jamieson, The Scotsman

July 21, 2003

WHEN considering a stakeholder pension, try to avoid standing in a queue at the Post Office behind someone bubble-wrapping a euphonium.

From personal experience, I can tell you that it doesn’t get any better when you get to the counter. This was my fate after putting to the test a happy-clappy, "we’re-only-here-for-you" announcement from the Treasury last year that stakeholder pensions were now available at post offices. What could be simpler than just popping into my local PO and getting a quick briefing on the ease and simplicity of stakeholder pensions?

But there are few things simple, and even less that is quick, about the British Post Office. The euphonium man had moved to the side of the counter where he was fighting a losing battle to seal down the bubble wrap. Dodging his arms and elbows, I opened my inquiry asking for advice on stakeholder pensions over the ripping sound of parcel tape being unrolled from its spool and the machine-gun popping of the bubble wrap as he wrestled to stick it down.

After repeating my inquiry twice, the look of blank astonishment on the face of the postmistress only intensified. It was as if I had asked the first class postal rate for sending nuclear particles to Tharg.

But the word "pension" finally registered and I was then given the advice I had so patiently queued for. "We don’t do pension inquiries here. You want the DSS down the road."

I tell this true story to illustrate the gulf between government ministers and the real world of financial services. I cannot be sure that the government really does believe that pension plans - arguably the most important financial decision that we have to face - can be made totally transparent, priced at just 1 per cent for all costs and sold in, of all places, a post office. But that’s where consumer protection has taken us.

Now, many stakeholder pensions have been sold and, hopefully, they will prove their worth. But whether they have been sold to the target market of low-income households is disputable. In fact, nine out of ten employer-sponsored stakeholder plans have no members.

These plans have been nowhere near as widely marketed as the government would like for the simple reason that a 1 per cent management fee cap guarantees providers a sure-fire loss well into the life of the contract.

Second, there is no such thing as a "simple" financial product, especially one that involves a monthly commitment stretching over 30 to 40 years and also involving risk profiling and asset allocation decisions. The Post Office, with all due regard to its ability to sell stamps to euphonium bubble-wrappers, is not the first place you would go for a discussion on long-dated gilt yield fluctuations and geographic risk diversification.

Now there are signs that reality might just be creeping in. The government had hoped to build on the "success" of stakeholder pensions to introduce a raft of "simplified" savings products, sold through a "simplified sales process".

But now this proposal has run into flak from an unlikely combination of the industry and consumer "watchdog" groups. The fear is that this will expose consumers to mis-selling. Colin Brown, chairman of the Financial Services Consumer Panel, says: "Many hundreds of thousands of investors may be exposed to greater risks than they expected and if things go wrong, they could lose money. It is tantamount to legalising mis-selling."

The Treasury still insists that if the product is regulated and simple it should be easy to sell. Unfortunately, the words "regulated" and "simple" do not naturally occur in sentences involving financial services.

As for the price cap, the Treasury says these are "essential components in a market that is characterised by lack of price competition and consumer weakness".

But there are literally hundreds of pension schemes jostling for attention, many involving options to invest in a range of funds running into the thousands, with different charging and fee structures. To talk of lack of price competition is nonsense. As for "consumer weakness" - that is such a nebulous and ambiguous a description as to be useless.

Someone should send the Treasury a bubble-wrapped euphonium. When it next wants to lecture us on pensions and savings products, it would do us all a favour by just blowing into it.

Regulator double indemnity?

SO STRONG is the growth in financial services regulation, it cannot be long before it starts turning in on itself and devouring its own posterior.

For years, people have been encouraged to sue for pensions mis-selling, as they dumped personal plans and scrambled back into the company pension scheme they left. But suppose the company now goes bust and there is not enough in the company pension fund to meet the liabilities: do you get to sue the FSA for poor advice at the height of its mis selling crusade?

Or try this one: your capital and interest mortgage is paid off, but you discover that you would in fact have been better off with a 25-year endowment mortgage maturing even now. Do you get to sue the financial adviser for not selling you the endowment?

Counter litigation claims, please, to the FSA, in that handy leatherette shopping trolley Mr Stonebanks has made so famous.