APPENDIX 1 GOVERNMENT RESPONSE TO THE
EIGHTH REPORT OF THE TREASURY COMMITTEE SESSION 2003-04 (HC 71)
This memorandum sets out the Government's response
to the Treasury Committee's report on 'Restoring Confidence In
2. The Government is grateful to the Committee
for its work in examining the issue of confidence in long-term
savings, and recognises the important contribution that it has
made. We share with the Committee the belief that confidence
in the long-term savings market is an issue that must be resolved
for the benefit of all in society, and will require the concerted
effort of all, including the Government, Industry, Regulators,
Consumer Bodies and Trade Associations.
Confidence In Long-Term Savings
3. The Government concurs with the Committee
that the long-term savings market is essential to the UK, and
thank the committee for their valuable assessment. Consumers
need to be confident that they will be treated fairly, as well
as having the necessary information to make informed decisions
about their financial decisions.
4. The Government is already addressing these
concerns through a variety of policies. Notably, there is the
introduction of the 'stakeholder' suite of simple, low cost, risk
controlled savings and investment products from April 2005. In
February 2004 the Government also published its proposals to enable
people to make real and informed choices on working and saving
for retirement in "Simplicity, Security & Choice: Informed
Choices For Working & Saving". The Government also welcomes
the actions being taken by the Financial Services Authority (FSA)
and the financial services industry to address these issues.
Improving Product Information
5. It is essential that consumers have the necessary
product information to ensure that they are able to make an informed
decision, with all literature provided in a sensible and comprehensible
format. The Government thanks the Committee for examining these
issues and the recommendations that it has made.
The Government also recognises the ongoing commitment
and efforts of the FSA and the financial services industry to
tackle this problem.
CREATION OF A STANDARDISED SUMMARY BOX
6. The Government is keen to see the results
of work the industry and regulators have agreed to undertake.
7. The Government has previously informed the
Committee that we have concerns surrounding the practical difficulties
that a summary risk rating could have, especially when one considers
that the risk profile of a particular product may change in the
8. However, the Government warmly welcomes the
commitment of the FSA and the Industry to examine this recommendation,
and, along with the Committee, awaits the findings of their research.
Aligning savers' and industry interests
9. The Government agrees with the Committee that
the financial services industry should be providing consumers
with products and services that meet their needs, and that this
should be at the core of their business proposition.
10. The Government agrees with the Committee
that remuneration levels in the financial services industry are
a matter for shareholders (and members in the case of financial
mutuals). The Government has implemented and is implementing
measures to strengthen shareholders' ability to hold boards of
directors to account (and the issue of mutual directors' accountability
is currently being considered by the independent review into the
governance of mutual life companies led by Paul Myners).
INDUSTRY & CONSUMER INTERESTS
11. The Government agrees with the Committee
that more needs to be done. In a fully functioning market we
would expect to see industry choosing their own strategy for enhancing
shareholder value through providing services and products that
always met their customers needs. At the same time informed consumers
would have the opportunity to move their custom from firms where
they did not believe they had been treated fairly, to a firm that
they believe did meet their specific needs. In such a scenario,
the consumer would be at the centre of the business. Value creation
would occur through long-term relationships forming between consumers
and firms whereby the needs of the consumer were met, which in
turn created consumer brand and product loyalty. Without this,
long-term shareholder value would not be created. Ultimately,
shareholder value creation would be through the quality of products
and services offered to consumers, which would in turn determine
the remuneration of senior management.
12. In a market that does not meet customer needs
as effectively as possible, it follows that shareholder value
will not align perfectly with the value delivered to customers.
A number of Government, FSA and Industry initiatives are continuing
to examine and remedy this concern.
13. The Government is also of the belief that
it is important for consumers to understand when purchasing products
through a variety of distribution channels that they understand
the value of the advice they receive. The Government welcomes
the continued efforts of the FSA and the Industry in implementing
the reforms to polarisation.
Improving Distribution: IFAs, fees and commissions
14. The Government agrees with the Committee
that access to the financial services industry should be widened
to include those on moderate and lower incomes, who have the capacity
to save. There are several reforms in train, driven by the Government
and the FSA, that are designed to achieve this:
15. Depolarisation: the FSA has decided to remove
the polarisation requirement from the market as this restricts
the choice of business model available to firms. The removal
of this restriction will allow those firms currently tied to market
a wider range of products than they could offer from a single
provider. This should also enable them to achieve better product
pricing for consumers.
16. Menu: the FSA has also been designing the
'menu', an integral part of the depolarisation reforms. The 'menu'
is a concise document that firms will be required to provide to
private customers when they first seek advice on packaged products.
This will give consumers an up-front indication of the cost of
17. Basic Advice: the FSA's basic advice process,
which was tested in support of the Government's stakeholder product
initiative, will enable advisers to give consumers advice on basic
investment and savings products. Where appropriate, the basic
advice process will also highlight to consumers the importance
of reducing consumer debt and protecting dependents financially.
The FSA will require advisers to be competent to perform their
role but they will not expect them to obtain formal qualifications,
as those who give full advice must do. The advice process should
take less than 40 minutes. This reduced cost will allow firms
to offer valuable advice to people with smaller amounts to invest,
a market that is currently unattractive to them.
18. Informed Choice: As part of its Informed
Choice programme the Department for Work and Pensions is promoting
the greater use of the workplace for the provision of information
and advice about pensions and saving for retirement. A DWP pilot
study began in July 2004 which will test a variety of methods
for delivering that information and advice through the worksite.
The findings of the pilot will help inform how reserve powers
being sought in the Pensions Bill might be used to require employers
who contribute little or nothing to their employees pensions and
have low levels of scheme membership to provide their employees
with access to a decent level of pensions information and advice.
The economies of scale available through worksite marketing enables
firms to market investment products at lower cost, meeting the
needs of less affluent consumers.
19. The Treasury is currently consulting on whether
employers should be provided with an exemption from financial
services regulation in order to facilitate the promotion of pensions
in the workplace.
20. Generic Advice: the role and provision of
generic financial advice is key to engaging consumers with financial
services in terms which are easily understood and which are product
neutral. Although there are people who are able and willing to
seek professional financial advice and pay for it, there are many
people on low to middle incomes who are not easily able to access
the advice they need.
21. The Government supports and is working with
the FSA and others, as part of the national strategy for raising
financial capability, to develop generic financial advice services.
Such services and tools use information about individuals' circumstances
to help them identify and understand their financial needs and
to plan their finances. It does not however result in a recommendation
for an individual product, service or provider, and it is distinct
from any sales process or channel. It does not necessarily fall
to be regulated under the Financial Services and Markets Act 2000,
though it may lead to separate access to a sales process being
offered, and it may help people to make better use of regulated
advice if they choose to access it. Generic advice is most likely
to work as a way to help consumers enter the regulated sales area,
and do so in an informed and confident way, making their interactions
with savings providers more productive.
22. Stakeholder Products: the Treasury and Department
for Work and Pensions are committed to introducing transparent
products that consumers can easily understand. The complexity
and opacity in the market currently are a real barrier to consumers
making their own decisions, forcing them to use advice. The stakeholder
products initiative, together with tax simplification, will enable
many more consumers to make their own decisions.
23. Commission: the Government supports the FSA's
recent work on commission disclosure. The FSA's consumer testing
provided evidence that the disclosure of charges under their "menu"
proposals was far more effective than the current regime. This
is an important development in helping consumers understand the
costs that they are paying for advice in the financial services
market - a key element to a fully functioning market.
Improving distribution: self-regulation of IFAs
and others in the industry
24. The FSA sets the minimum standard of behaviour
for firms, and it is a matter of concern if firms consider "ethical"
to mean "what is within the FSA rules". Firms should
be aiming for a higher standard of behaviour, and this is by no
means confined to the independent advice sector, or indeed traditional
"advised" channels of distribution.
25. The Government would encourage firms to put
value for their customers at the heart of their business model.
In doing so they would be securing their future consumers, and
through this create profitable business. Trade bodies also have
a role to play in demonstrating leadership for the firms they
represent, to help their members understand better what processes
and practices they will need to embrace to meet this challenge.
26. The Government and regulators recognise this
and are developing a principles based approach to help move this
agenda forward ensuring that consumers are core to any business
model. Industry will need to fully embrace this challenging agenda.
27. The Government shares the Committee's concerns
regarding market value adjustments (MVAs) and the perception by
some consumers that these are an unfair exit penalty. At the
same time the Government also recognises that when existing with-profits
funds suffer falls in value because of negative investment returns
there will be an inevitable impact on the value of investors'
policies, which cannot always be absorbed within normal smoothing
parameters. Consumers are concerned partly because policyholders
often only become aware of this impact when they seek to exit
the fund and when an MVA is applied to policy values. Nevertheless,
the issue of fairness to policyholders has to apply both to exiting
policyholders and to remaining policyholders. If exiting policyholders
were to leave the with-profits fund with more than their fair
share of the fund, this would create an unfairness to those policyholders
who remain invested in the fund since they would effectively be
subsidising the departing policyholders from their own policy
28. The FSA has been conducting a with-profits
review since Spring 2001 and has already brought in significant
changes to with-profits regulation. Following the Sandler review
of medium and long-term savings the FSA has brought forward further
proposals imposing greater disclosure requirements on with-profits
funds, firstly in CP167 and subsequently in CPs 207 and 04/14
as well as changes to the way in which funds are operated. These
proposals are subject to consultation with the industry, consumer
groups and other interested parties. The proposals reflect the
need to balance the interests of departing and remaining policyholders
in the approach firms take to calculating surrender values in
particular. As the operation of with-profits policies becomes
more transparent and policyholders are provided with better information
to improve their understanding of the fund in which they are invested,
the imposition of an MVA can be more clearly explained. An MVA
is unlikely ever to be welcomed by an exiting policyholder, but
the regulator and firms are working towards enabling policyholders
to understand, when an MVA is applied, what the reasons for it
are and why it is set at the level that it is.
29. So for existing with-profits funds, the FSA's
proposals will both tighten up how with-profits funds are run
and provide clearer information to policyholders. The Government
notes the Committee's concerns that it is not clear whether these
proposals go far enough to satisfy consumer concerns in this area.
It will be for the FSA to finalise its rule changes and to assess
their impact once they are in place.
30. Looking to the future, the Government has
made revised proposals for the smoothed investment fund as part
of the stakeholder suite of investment products. The latest proposal
is that firms should seek to manage their fund through a combination
of smoothing of investment returns and publishing a daily unit
price. The smoothed investment fund would not be a with-profits
fund as it would not share in the profits and losses of the company.
A sharp fall in stock market values would be reflected in the
daily unit price, so we have proposed that an MVA should not be
imposed on exiting policyholders. Previous consultation has suggested
that there continues to be widespread support within the industry
for the ability to apply MVAs. However, the Government has removed
the proposal that the redemption value of a policy should be set
on an annual basis and that the value of the policyholder's unsmoothed
asset share should be disclosed on exiting the fund. We are consulting
on whether product providers consider it to be a practical proposition
to provide smoothing without an MVA given the other changes that
have been made to the proposed smoothed investment fund.
31. The Government agrees with the Committee
that policyholders in funds that close to new business should
be treated satisfactorily and that exit penalties where they do
have to be applied should not be punitive. They should be fair
both to departing and to remaining policyholders. Changes of
ownership and possible consolidation among closed with-profits
funds is a commercial matter in which we would not seek to intervene,
but the Government is confident that the FSA fully appreciates
the importance of this issue to the large number of policyholders
affected and the extent to which the fair treatment of policyholders
in closed funds can contribute to restoring confidence in long-term
THE ROLE OF ACTUARIES
32. The Committee has noted the sweeping changes
to the role of actuaries that the FSA has already introduced.
The Committee has also welcomed the establishment of the Morris
review of the actuarial profession. The Government awaits his
report with interest.
33. The Government welcomes the Committee's view
that the FSA should scrutinise closely changes and transactions
in the with-profits area to demonstrate to investors that their
interests are being preserved. The Committee might also wish
to note that the Government passed legislation in 2003 requiring
actuaries to step outside their company to provide information
directly to the FSA under various circumstances, including where
there is a significant risk that the insurer has not, or may not
be able to, take into account in a reasonable and proportionate
manner the interests of long-term business policyholders. We
believe that this will help the FSA in their work in this area.
34. The Government welcomes the supportive comments
and findings the Committee have highlighted regarding stakeholder
products. The Government has already announced that it will be
assessing how the market has developed in 2008, and a key assessment
will be the effect of the price cap. This accords with the recommendation
of the Sandler Review that the price cap to apply to stakeholder
products should be reviewed regularly.
35. The Government believes that stakeholder
products will provide consumers with more simple, low-cost, risk-controlled
savings and investment products for their short, medium and long
term savings needs. In a market where consumer confidence has
been eroded, we regard these products as providing a significant
step forward in helping to restore faith and trust in savings.
We are pleased that the FSA have been able to continue to develop
a 'basic advice' process and look forward to the results of their
consultation. We also welcome the broad support from many parts
of the financial services industry.
EXISTING STAKEHOLDER PENSIONS
36. The Secretary of State for the Department
of Work & Pensions will be consulting shortly on the amending
regulations for the pension product within the stakeholder suite.
The Government will ensure that the Treasury Select Committee
is made aware of the Government's view once a decision has been
INDEPENDENT CHARGE CAP COMMISSION
37. The Government thanks the Treasury Select
Committee for its recommendation that the charge caps be set by
an independent body. The charge caps for stakeholder products
will be reviewed again in 2008, and the Government will consider
the options for establishing that review in advance of this.
The Role of the FSA
38. The Government welcomes the Committee's view
that the new financial regulation framework introduced after 1997
has made a positive impact on levels of confidence in the financial
services industry. We welcome many of the Committee's comments
regarding the role of the FSA, and thank them for their insightful
39. It is important that the UK has an effective
and proportionate system of anti-money laundering controls which
comply with European and international obligations. These controls
aid the detection and prosecution of crime and help to protect
the integrity of the financial system. However, effectiveness
must be balanced with proportionality in order to ensure that
private and public sector effort is commensurate with risk and
that controls are imposed in a cost-effective way.
40. The UK's anti-money laundering regime provides
a risk based approach by imposing high level obligations on the
regulated sector to ensure effective anti-money laundering controls;
it is left to the regulated sector, in consultation with government,
to produce guidance on the detail of compliance. In relation
to the specific matter of identity checks, the FSA is currently
working with public and private stakeholders to review identification
requirements to ensure that they are risk based and do not discriminate
against the financially excluded. The government will continue
to work with stakeholders to ensure a workable and cost effective
anti-money laundering regime which is consistent with international
41. In September 2003 the FSA's Chief Executive
John Tiner announced an 'end to end' review of the FSA's enforcement
process. The outcome of this review was announced by the FSA
on 15 July 2004, when a summary of the review's key findings was
published. Improvements include shorter time targets for each
stage of the referral and investigation process, a faster process
for referring cases for investigation, improvements to the speed
and efficiency of investigations, and speeding up the decision-making
process. This should address the Committee's concerns over speed
FINANCIAL OMBUDSMAN SERVICE (FOS)
42. The creation of a single Financial Ombudsman
Service (FOS) has brought benefits to both firms and consumers
of financial services. Industry confidence in FOS decisions is
important, but it is essential that we explore industry concerns
in allowing firms to appeal against FOS decisions and on cases
with wider implications.
43. The FSA and FOS, as part of the two-year
review of the Financial Services and Markets Act 2000 are discussing
with industry and consumer groups the issues around appeals and
wider implications and issued a joint public consultation document
in July 2004. Subject to the responses to the consultation and
continuing dialogue with industry and consumer groups by the FSA
and FOS, a decision on appeals and wider implications is planned
for later in the year.
PUBLIC KNOWLEDGE OF THE FSA'S ROLE.
44. The Government gave the FSA clear statutory
objectives, including to maintain confidence and protect consumers,
within a framework providing the FSA with independence from the
Government on operational matters. Any decision by the FSA to
engage in a publicity campaign would be an operational matter
for the FSA with the costs of any such campaign being borne by
the industry through FSA fees.
Tax & Benefits
IMPROVING THE TAX REGIME
45. The Government provides generous tax relief
to encourage people to save for their retirement. Private pensions
are the most tax-favoured form of saving. However, the existing
eight taxation regimes have complex rules that limit annual contributions
to, and final benefits from, a pension scheme. This imposes unnecessary
inflexibility and complication, drives up costs and discourages
people from saving in a pension.
46. Following two consultations in December 2002
and December 2003 the Government legislated in the Finance Act
2004 to implement a simplified regime in April 2006. It will
replace the eight current regimes with a single lifetime allowance
on the amount of tax-privileged pension saving. The overall
package of tax simplification has been widely welcomed across
the pensions industry and will benefit:
- through greater choice and flexibility in when and how they
save for their retirement. People can also save concurrently
in a personal and occupational pension. Many people will gain
from the option to take a larger lump sum.
Providers - through
reduced administration costs and a reduction in the current burden
caused by expensive administration checks. Government estimates
of cost savings, endorsed by those members of the pensions industry
who commented, are expected to be in the region of 5% of costs
or around £80m pa.
- through lower administration costs, but more importantly the
freeing up of tax rules will enable them to design pension schemes
that best fit their business needs.
47. The Government is committed to promoting
appropriate saving. It is undertaking a radical programme designed
to enable individuals to make informed choices about working and
saving for retirement. This programme is fundamental to ensuring
that future pensioners receive the income in retirement that they
expect. The recent DWP publication "Simplicity, Security
& Choice: Informed Choices For Working & Saving"
sets out the Government's strategy, which is based on activation,
education and information, and includes:
- issuing 1.6 million state pension
forecasts to the self-employed by May 2004, and sending out 8
million automatic state pension forecasts in 2005-06;
- ensuring 6.3 million combined pension forecasts
are issued. The 2004 Pensions Bill provides the Government with
reserve powers to compel employers to provide these forecasts,
should evidence show that they could make a significant difference
to savings levels;
- developing a web-based retirement planner to
provide people with the opportunity to look at all their pension
information together from both state and private sources, and
this to any savings they may hold.
- the introduction of the stakeholder suite of
products and reforms to improve employment opportunities for older
workers will mean that people have genuine choices available when
it comes to working and saving; and
- making information and guidance available to
employers to draw attention to the benefits to themselves and
to the wider economy of employing older workers.
48. A PSA target in the 2004 Spending Review
included the commitment to improve working age individuals' awareness
of their retirement provision such that by 2007/ 08 15.4 million
individuals are regularly issued a pension forecast and 60, 000
successful pension traces are undertaken a year.
49. A number of commentators have suggested that
improved tax reliefs should be introduced to encourage greater
saving. However, pension saving already benefit from substantial
tax reliefs, worth several billion pounds a year in aggregate.
Contributions attract tax relief at the marginal rate. Furthermore,
for a basic rate taxpayer every pound saved will benefit from
28p in tax relief from the Government. Employer contributions
are exempt from both employer and employee National Insurance
contributions. There is also the option for individuals to take
a tax-free lump sum. Those who save in a pension will also have
the option of taking a tax-free lump sum worth up to 25% of the
fund value. Despite these incentives, analysis set out in the
Pensions Green Paper indicated that many people are still not
saving enough or working long enough to meet their aspirations
for retirement income. The Government therefore believes that
ensuring individuals are in a position to make informed choices
about working and saving for their retirement through the combination
of activation, information and education set out above is likely
to have a greater effect on those not saving or not working long
50. As described in the previous paragraph the
Government offers generous incentives to encourage individuals
to save in pensions. These incentives provided the recognition
of the fact that individuals will be locking their money away
for the longer-term.
51. There are a range of other savings vehicles for those
who would like greater access their funds. ISAs provide one example.
These were introduced in 1999 and have already proved to be very
successful. Over 15 million people have an ISA, with over £130
billion subscribed, supported by around £1.6bn in tax relief
52. There are no restrictions on money being
taken out of an ISA account. Furthermore, with the average level
of ISA savings at £2,200 the vast majority of savers can
also add to their savings.
53. The Government recognises that pensions and
other, more liquid savings vehicles, such as ISAs, should not
be seen purely as alternatives: both can form part of a lifetime
savings strategy. Because of the radical simplification of the
tax treatment of pensions and the introduction of a lifetime allowance
it will be possible for most people to save in an ISA and transfer
their funds (up to 100% of earnings of £215,000) into a pension
later in life. As paragraph 4.126 of the Pensions Green Paper
said, the Government would welcome views on the potential application
of the United States' approach of 401k plans to private pension
provision in the UK.
54. A fair society guarantees security in old
age and ensures that all pensioners can share in rising national
prosperity. The Government is tackling pensioner poverty through
personal tax and benefit changes which mean that the average pensioner
household is now £1,350 per year (£26 per week) better
off in 2004/05 than they would have been under the 1997 system.
The poorest third of pensioners are now £1,750 per year
(£33 per week) better off than under the 1997 system.
55. The Pension Credit was successfully launched
in October 2003 offering extra financial support to the poorest
and most vulnerable pensioners. The Pension Credit guarantees
all those aged over 60 a minimum weekly income of £105.45
if they are single and £160.95 for a couple.
56. For the first time, the savings credit element
of the Pension Credit rewards those with small savings or earnings
in retirement. Pensioners aged 65 with low or moderate incomes
or who have saved for their retirement are rewarded if they have
incomes of up to £144 a week singles, or £212 couples.
A single pensioner can be rewarded for having additional income
from work or from savings by as much as £15.51 a week, £20.22
couples. Stephen Timms, Financial Secretary to the Treasury, wrote
to John McFall, the Chairman of the Treasury Committee, about
the Pension Credit and incentives to save on 27 September 2004.
57. At end July 2004 there were 2.607m households
benefiting from the Pension Credit, which is 857,000 more than
when the campaign began in September 2003. Some 1.94m households,
around 2.36m individuals, receive more money than under the predecessor
system. The average Pension Credit award is £41.71 a week.
58. Because the Pension Credit was introduced
in October 2003 and numbers of recipients are still building up,
it is too early yet to assess the full impact of the measure on
pensioner poverty. DWP are evaluating the impact of the Pension
RAISING LEVELS OF FINANCIAL CAPABILITY
59. The Committee, and the Sandler Review before
it, have rightly drawn attention to the low levels of confidence
and understanding among consumers in the decisions they make about
their financial circumstances and future. This leads to a lack
of engagement with the financial services sector.
60. Raising levels of financial capability is
a key element of the Government's wider commitment to tackle the
causes and effects of social exclusion, while promoting the holding
of assets and savings. The emphasis of many of the Government's
initiatives on financial services is to create a simpler environment
and to empower consumers to understand that environment when making
choices. These initiatives include the Child Trust Fund, the Informed
Choice programme, the stakeholder suite and basic advice process,
work on financial exclusion and overindebtedness.
61. As part of this, the Government is playing
an active role in the FSA-led development of a national strategy
for raising levels of financial capability. Both Stephen Timms,
Financial Secretary to the Treasury and Malcolm Wicks, Minister
of State at the Department for Work and Pensions are members of
the Steering Group chaired by John Tiner.
62. Working with partners across Government,
industry and the voluntary sector the Strategy is about creating
better informed, educated and more confident consumers, able to
take control of their financial affairs and play a more active
role in the financial services market. The Strategy will combine
education, information and advice to help people acquire skills
63. In May 2004 the FSA published "Building
Financial Capability in the UK", setting out the initial
seven priority areas for the Strategy as:
a) Families: being a parent;
b) Schools: laying the foundations;
c) Young adults: new responsibilities;
d) Work: reaching people through the workplace;
e) Retirement: planning ahead;
f) Borrowing: making informed choices; and
g) Advice: the role of generic advice.
64. The Government was pleased that these initial
priority areas target the changing needs of consumers at different
stages in their lives. In addition, we welcome the recognition
by the FSA and those participating in the Strategy of the importance
of ensuring the needs of those who are financially excluded and
do not have access to the products or services available to others.
65. As has been recognised, the Strategy represents
a major undertaking and there is no quick fix. However, it is
important that this broad coalition of industry, Government and
the voluntary sector exploit all the opportunities we have to
improve consumer understanding and confidence in dealing with
66. The Committee considers that it is appropriate
for the financial services industry to make a substantial contribution
towards the costs of any expanded programme aimed at improving
financial capability. As noted in the report, the Government
would expect that the financial services industry will be willing
to make significant contribution to delivery the Strategy. While
participants are currently developing individual workplans for
each of the Strategy priorities, it would be premature to put
a figure on the amount of funding that will be required. Government
will continue to make its significant contribution to raising
financial capability and literacy both through schools and formal
education but also through life stage initiatives such as the
Child Trust Fund and the Informed Choice programme.
67. As the Committee recognise, voluntary community
advice groups are a major source of help for people in the UK,
while the workplace provides a key channel to deliver advice and
information to consumers. The Government is anxious to improve
the accessibility of help and advice for people trying to understand
their personal finances. That means, amongst other things, help
for employees and consumers, especially those who lack frequent
access to financial advice and information.
68. The statement by the Financial Secretary
to the Treasury in November 2003 announcing the two year review
of FSMA noted that advice centres may be reluctant to provide
advice on financial issues, for example to consumers with debt
problems, because they fear being caught by the requirements of
financial services regulation. Similarly, the Government has been
made aware of concerns amongst some employers about their ability
to provide advice to employees about pension related issues.
69. At the end of February 2004, the Treasury
published a consultation document "Financial Services and
Markets Act two year review: Changes to secondary legislation".
The consultation takes stock of the way FSMA secondary legislation
works. In particular, chapters 3 and 4 of the consultation document
considers the effect of the current scope of FSMA regulation on
Citizens' Advice Bureaux and other advice centres and on employers
offering pension products.
70. We pointed out in the consultation our intention
that that the boundary of FSMA regulation does not give rise to
any unnecessary obstacles (whether actual or perceived) to the
services provided by advice centres or employers. We added that
we want advice centres to be able to provide their clients with
high quality advice, which keeps track with developments in financial
products and services and with legislative development. We also
want to remove unnecessary obstacles to employers providing good
faith advice to their employees about pensions.
71. The consultation raised a number of questions
on which we sought responses and pointed out that we are open
as to how we should proceed.
72. We noted that forthcoming increases in the
scope of financial services regulation, notably in relation to
mortgages, mean that more of the types of advice traditionally
provided by advice centres could be said to fall within FSMA regulation.
The Pensions Bill and Informed Choice programme seek to make
it easier for employers to provide employees with access to advice
about their longer term savings needs.
73. In addition to seeking written comments,
the Treasury held a series of meetings to encourage interest in
the community advice and workplace pensions elements of the review.
Meetings were attended in Glasgow, Belfast, Crieff and three
further meetings were held in London with a pension provider,
and under the auspices of the Association of Independent Financial
Advisers and the National Association of Pension Funds. All of
these meetings were helpful in illuminating the issues and we
are grateful to those who made arrangements to host them.
74. We are pleased to report that we received
a large number of written responses from both the voluntary and
commercial sector to our proposals in relation to advice centres
and the workplace and are continuing to review these responses.
Our proposals have generally been welcomed by the voluntary sector,
whilst some concerns have been raised by the commercial sector
in relation to training and competence issues.
75. We aim to provide a feedback statement to
the consultation later this year, indicating how we intend to
proceed in this area. Prior to then, we expect to meet further
with representatives of the voluntary sector to discuss issues
arising out of the consultation.
76. The Government is taking a keen interest
in the pilot scheme for the provision of financial advice via
Citizens Advice offices. This is a welcome and timely initiative
which we will watch with interest and seek to learn from in taking
forward our proposals.
Overall Conclusions of Report
77. The Government agrees with the Committee's
recommendation for a forum that focuses on how the industry can
better serve its customers. The Government believes that such
a forum would send a strong signal to consumers that the industry
is committed to tackling its problems. This should, of course,
be industry led. Treasury officials would be willing to take
part in the forum, and Ministers would be willing to meet the
forum from time to time to discuss particularly important issues.
78. The Committee's recommendations are a welcome
contribution to the debate, and the Government thanks the Committee
for its report.
79. The long-term savings market is essential
to the UK, and the Government is committed to addressing consumers'
concerns. The Government's Stakeholder and Informed Choice initiatives
are designed to address the information asymmetries inherent in
the market, and the FSA continues to develop policy on disclosure,
both in relation to product design and charges. The FSA's work
on financial capability will be critical to helping consumers
engage positively with the financial services market.
80. Restoring confidence in the long-term savings
and investment market is indeed essential for the benefit of all
in society. The Government remains committed to playing its part
in meeting this objective.
27 September 2004
4 see Appendix 2, page 15 Back