Less of a bang and more of a whimper

With just a few days to go until the final pieces of the government’s low-cost savings jigsaw are assembled, it seems likely that the government’s grand vision to encourage wider saving will be little more than a pipedream.

From April 6, banks,and building societies and other investment groups will be able to offer two new “stakeholder” products – a “medium-term” investment fund and a simple cash savings account. Thesetwo new stakeholder accounts are designed to complete the suite of government-approved low-cost products which also include stakeholder pensions,first launched in 2001, and the much trumpeted child trust funds.

But this time around there is none of the excitement or enthusiasm that usually accompanies new product launches. There are also very few providers willing to offer the new funds and accounts.

Most of the big providers, including life companies and high street banks, are choosing not to offer them at all. Prudential, Liverpool Victoria and Barclays have all said they will not launch anything next week. Norwich Union and Legal General are preparing to launch “medium-term” savings funds, but both are shunning the cash option. Only Halifax and Nationwide have said say they will offer both a cash option, through an individual savings account wrapper, and a medium-term investment fund.

These new savings plans, dubbed “Sandler” products after the former Lloyd’s of London chief executive Ron Sandler who first proposed them three years ago, are aimed at the millions of people on lower incomes who are effectively priced out of the investment market. They are a key plank in the government’s strategy for improving confidence in pensions and savings and closing Britain’s estimated £27bn “savings gap”.

“We are astounded by the lack of providers planning to launch a stakeholder product next week,” says Suzanne Greener at data provider Life Pensions Moneyfacts magazine. “We expected lots of people to announce something new but have found that in reality everyone is keeping very quiet.”

The new schemes that can be offered from next week will include a fund investing money over the “medium term” – defined as at least five years – in equities and bonds. These funds cannot charge an upfront fee and annual charges must be capped at 1.5 per cent. The managers must also accept monthly sums for amounts as small as £10. The other scheme is a simple cash deposit account which must pay interest of no less than the Bank of England base rate minus 1 percentage point. Bank base rates are currently 4.75 per cent.

But analysts and financial advisers are sceptical that these new plans will have much impact on people’s savings habits. “Sandler products have done little to excite providers or encourage investors to set more aside,” says Janette Weir, lead financial analyst at Datamonitor, the market analyst. “Similarly, most insurers see the products as having little or no impact on their business with many believing the offerings’ benefits were already captured in the market with ordinary deposit products doing a similar job.”

A recent report from Datamonitor reveals a lack of enthusiasm from the larger insurers, banks and building societies that were expected to be the core manufacturers and distributors.

Weir says the problem is that the Sandler suite of products will have similar shortcomings to those found withof the original stakeholder pensions. product. “Advisers are saying that they will not be cost effective to sell and providers also say they are hard to develop within the charge caps that are set,” she says.

Few independent financial advisers are gearing up to sell eitherthe products and the Association of IFAs is still warns ing that a higher initial charge is needed to make itthem worth their while.

Aifa director of policy Fay Goddard says: “What still has not been recognised by the government is the up-front costs that IFAs have to pay to provide basic advice.”

She says that despite the government’s decision to increase the annual cap on charges from 1 per cent to 1.5 per cent, this has still failed to excite the market, with many IFAs complaining they will still be unable to sell the business profitably.

says the key to why these products are not proving that popular among providers is the way they will be sold: whether bought from an IFA or in a bank or building society, a series of scripted questions for advisers it hoped will make it easier for people to understand what they are buying.

“The problem is that many providers and IFAs will not have the systems already in place to give consumers this ‘basic advice’ and will have to pay for that initial installation. I think that Sandler- type products will take off when the next generation of automated advice and planning tools, probably linked to call centres, to provide investors with guidance, becomes available,” says Jason Butler, a certified financial planner at Bloomsbury Financial Planning. “At the moment any provider wanting to launch a Sandler-type product will have to set up a system to give people basic advice which would cost money.”

The Financial Services Authority, the chief City regulator, has introduced new basic advice scripts consisting of pre-scriptedquestions designed to simplify the sales and advice process for Sandler products. Yet they have been criticised for being too rigid with manyIFAs argue ing that such narrow advice fails to take individual financial needs into account.

Nick Peters at independent financial advisers Fee-Based Advice, says: “The idea of basic advice is too restrictive and does not cover all of the products available. It is not something that we are planning to do and I have not heard that it will be done widely in the market.”

Despite the criticisms, some industry bodies are putting on a brave face. The Association of British Insurers says: “We are supportive of the government’s ideas and will work with them and the industry to try and make Sandler products work. But there may be a low take-up level and we understand if some providers are taking a ‘wait and see’ approach before joining the market.”

Dan Waters, the director of retail policy at the Financial Services Authority, which will be regulating the Sandler products could not give any indication of whether providers would offer the products. “Will it be successful? Will there be take-up? Will more consumers get advice? That’s a commercial question. Can it be done profitably? We know that there are some big players that are going to enter. We hope that it will work.”

The Treasury , involved in stakeholder rules and promotion, is positive, despite the lack ofmany definite launches. “Discussions have indicated that there is strong interest from insurers, banks and building societies,” says a spokesman. However, the Treasury could give no indication of how many companies are planning to launch products.

But no one is expecting the launch to be dynamic. When contacted by the FT, even Ron Sandler said he didn’t even know the launch was happening.

And Legal General, one of the few companies set to launching one of the new Sandler funds next week, said: “We don’t expect the final launch of Sandler products to set the savings world alight. It is a very small pebble in a large pool and we are only going to see a small ripple in terms of getting people to start saving more.”

Unfortunately, a small ripple will have little impact on the UK’s sizeable savings gap.