Serious Money

April 8, 2011 7:10 pm

Spirit of Beveridge in new National Wealth Service

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New Money Advice Service will offer valuable financial healthchecks

“Free at the point of delivery”, “based on need, not ability to pay”, “from the cradle to the grave”.

In a little over 60 years, these principles from William Beveridge’s reports into state health and welfare provision have taken on the aura of incantatory rites. It’s little wonder, then, that former UK chancellor Nigel Lawson once remarked that “the National Health Service is the closest thing the English have to a religion”.

What I have often wondered, therefore, is why latter-day politicians have not tried to steal Beveridge’s cassock in their efforts to reform state benefits and financial services. Not even the most messianic prime minister of recent times attempted it – although he did evoke the quasi-Christian image of “the scars on my back” to plead that his spirit was willing, but the body politic weak.

However, two announcements on Monday show that present-day ministers have rediscovered a certain zeal.

First, Iain Duncan Smith, the work and pensions secretary, unveiled a green paper outlining plans for a new flat-rate state pension of £140 a week, to replace the current “bewilderingly complex” system of a state pension for those with 30-45 years of National Insurance (NI) contributions, a partly earnings-related state second pension (S2P) and a means-tested pension credit for those with less than £10,000 in savings.

Significantly, everyone will become entitled to a full state pension after 30 years of contributions through work or “activities such as looking after young children” – ensuring time spent beside the cradle doesn’t have grave consequences for former working mothers. But, under one proposal, no-one would have an extra entitlement to S2P – ending the notion that those with higher earnings deserve more from the state, and bringing the state pension back to the principle of need, rather than ability to pay. Some would lose out, though, as those currently contracted out of NI for S2P will see salary deductions rise, meaning the pension is neither tax free at the point of delivery, nor at the point of contribution.

Even so, for the first time in ages, the state pension will no longer be means tested, leaving everyone free to build up their own savings prior to delivery, without being penalised.

Then, Mark Hoban, financial secretary to the Treasury, announced the launch of The Money Advice Service (MAS), a new nationwide scheme to provide free, independent financial advice, to “help people take the right decisions”. Under the scheme, everyone in the UK can seek personalised advice online at moneyadviceservice.org.uk, over the phone on 0300 500 5000 and in face-to-face consultations through a national network.

Already, the service will take information about personal circumstances, identify financial planning priorities – such as debt reduction, life insurance, savings or pension provision – and go as far as recommending specific products and rates, but not suppliers, from best-buy tables. From June, the MAS will start to offer a free financial healthcheck to every household – aiming to carry out 500,000 in the first year – and deliver what Hoban described last year as “a ‘prescription’ that will offer clear advice on what they can do to improve their financial situation”.

Significantly, people will be dealing with an independent organisation paid for by a levy on the financial services industry, and receive personalised advice, not just information – ensuring what they get is not just free at the point of delivery, but actually worth having. Families taking up healthchecks will have all of their spending and saving needs considered, covering everything from cradle to grave. And every one of the 19m people identified in the Thorensen Review as potential beneficiaries of Money Guidance can use the MAS, adhering to the principle of need, not ability to pay.

But, of course, it faces all the same challenges as its healthcare equivalent. Today, the NHS deals with 1m patients every 36 hours and has 1.7m staff to do so (only the Chinese People’s Liberation Army, Wal-Mart and the Indian Railways employ more). The MAS aims to cater for 19m with just 100 telephone advisers and 250 locations for face-to-face advice. In 1948, the NHS budget was £437m, and by 2008/09 more than £100bn. The MAS budget is just £43.7m. By 1952, the NHS was forced to introduce prescription charges to cover its costs. Already, the MAS has to refer clients to the private, fee-based advice sector as soon as they need product recommendations.

Even so, I believe it has the potential to fill the gap left by the banning of commission-based financial advice ‘quacks’, and improve the wellbeing of the nation.

In his dying words, Beveridge said: “I have a thousand things to do.” MAS chairman Gerard Lemos has rather more, but I wish him well in all of them.

matthew.vincent@ft.com

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