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Greetings from sunny Manchester (implausible as that sounds). After my day trip to Liverpool, to discuss “Creating Better Financial Outcomes: Empowering Consumers” with Labour supporters, the second of my postcards from the party conferences comes from the other end of the East Lancs Road, where the topic for Tory delegates – if not their leader – is ‘Creating a Savings Culture: Turning Rhetoric into Reality’ (not a process that party conferences are known for).
It strikes me that both parties are essentially debating nest eggs – but in terms of their precedence over metaphorical chickens: which must come first? Can you only instil a savings culture after consumers see better outcomes? Or can you only be empowered once you’ve paid off debt? At the conference events I’ve taken part in, the speakers have been unanimous in deciding we must, as a priority, have better incentives to save.
At the Labour event, the shadow financial secretary called for more competition between savings providers, while other speakers stressed the need for simple low-cost products. At the Conservative conference, four expert panellists emphasised the role of tax, advice and regulation.
Dr Ros Altmann – the former government pension adviser who now runs financial services group Saga – attacked the rules that actively discourage saving. ‘Assymetric’ regulation has made it easier to take out a self-certification mortgage rather than a stakeholder pension, she pointed out. Tax relief on pension contributions doesn’t work as an incentive for 80 per cent of the population. Means testing then penalises the minority who do save. In her words, “the message is: you’re a mug to save”. Her policy: get rid of means testing and make pensions flexible – use employer contributions to create ‘pensions’ and employee contributions for ‘private savings’, that can be accessed more flexibly.
Richard Graham MP – chairman of the All Party Group for Occupational Pensions and a former investment manager for Barings Bank – proposed removing not just disincentives, but market distortions and excessive costs. Changes to advance corporation tax and capital gains tax fuelled biases towards equity investment in the 1980s and then property investment in the 1990s, he argued. An unscrupulous attitude to charges eroded trust – with fund managers more focused on the effect of another 0.5 per cent of charges, rather than another 1 per cent of returns. His policy: end means testing, and mirror the coalition’s populist pledge on welfare in a promise on savings: “You will better off if you save”.
Gerard Lemos – chairman of the Money Advice Service – drew comparisons with public health policy (quoting this columnist’s advocacy of a National Wealth Service). He sees saving as an attitudinal challenge, akin to getting fit or giving up smoking. His policy: first excite people, help them to create a plan or join a group, and get them started early.
David Nish – chief executive of Standard Life and the debate’s sponsor – addressed the opportunity provided by the auto-enrolment of employees into pensions from 2012. He cited research showing that the employee-employer relationship is now the most financially trusted. His policy: communicate the benefit of contributing more, and reinforce the message with education.
Will the government turn this into reality? Two days later, we had an answer from the prime minister – in what he didn’t say in his speech, rather than what he did say. By excising a widely-briefed paragraph on the merits of paying off debt, he indicated that credit-fuelled spending remains central to economic policy.
But Standard Life’s latest research shows the price consumers pay: the average person with credit cards spends more than £152,000 repaying them over a 40 year period, while those making monthly savings will put away only £67,200.
What’s the message? Don’t expect any more savings incentives for some time – and make the most of those that remain.
And if you want further evidence of the hidden agenda against saving, consider this conspiracy theory (what would a party conference be without at least one of these?).
Why did the banks suddenly drop their Supreme Court appeal against paying compensation for mis-selling payment protection insurance (PPI)? Why did Lloyds then suddenly make a £3.2bn provision to settle PPI claims? Why did Barclays and RBS set aside about £1bn each? Could it be that a government reliant on spending to keep the economy afloat “persuaded” the banks that it was in their interest to put billions back into the pockets of people with a penchant for credit? After all, it was when trying to take out credit cards that they were mis-sold PPI. Perhaps it’s not just the Bank of England that can be leant on for a bit of quantitative easing.
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