Select Committee on Treasury Eighth Special Report


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 Long-Term Savings'.

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.

RISK RATINGS

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 future.

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 advice.

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.

With-Profits Products

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 values.

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.

CLOSED FUNDS

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 savings.

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.

Stakeholder Products

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 made.

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 analysis.

MONEY LAUNDERING

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 standards.

ENFORCEMENT

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 of enforcement.

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:

·  Individuals - 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.

·  Pension 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.

·  Employers - 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 enough.

GREATER ACCESS

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 for savers.

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.

PENSION CREDIT

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.[4]

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 Credit.

Financial Capability

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 and knowledge.

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 financial matters.

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.

FINANCIAL ADVICE

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

INDUSTRY FORUM

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.

Conclusion

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.

HM Treasury
27 September 2004







4   see Appendix 2, page 15 Back


 
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