Tuesday, 18 September 2012

Money Mail launches five-point manifesto in bid to get Britain saving

I was heartened to read Money Mail's  five-point manifesto in bid to get Britain saving again.

With some exceptions, see below, I think it is a very sensible appeal.

For purposes of analysis, I've categorised their points slight differently:

1. Policy simplifications the government could make.

Money Mail rightly points out that the current ISA limits between cash and stocks and shares ISAs are confusing and simply get in the way. They should be removed and simplified. Likewise, preventing children with Child Trust Funds from taking out Junior ISAs is absurd. I can only imagine it was a sop to Child Trust Fund providers who did not want to make their products more competitive. I cannot see any real benefit to savers or to the industry. It is purely a question of public policy.

2. Things providers should be forced to do

I always think it is a pity when companies are forced to do things that their customers clearly want and would value. However, sometimes firms would be disadvantaged if they offered something to customers but none of their competitors did, and in those circumstances, some compulsion does not seem inappropriate. So regardless of how it is achieved, I think it would be great if all financial services companies provided friction free ISA transfers, better disclosure around past and future rates and charges (I am in favour of mandatory post-charge performance reporting), and enforced consideration of retirement income options. Similarly, whatever my misgivings about NEST/auto-enrollment, the rules prohibiting employers from encouraging opt-outs from auto-enrollment must be strictly enforced (although it is hard to imagine legislating a rule without that intention). Such changes would cost the industry very little in the short-term, would benefit customers enormously, and so, if applied uniformly across the entire industry, would be benefit the industry tremendously in the long term.

3. Simplifying interest rate structures

This is where I think I and the campaign part company. I don't think there should be any interference in the actual rates financial services firms pay savers. They should be able to pay different rates for different levels of service.

I would be particularly concerned if banks could not charge different rates according to the channel used. If online only banks could charge a rate reflecting that channel, but full service banks had to charge a single rate across all channels, for example, they would be at a distinct disadvantage. I accept that current practice may disadvantage the older and poorer savers, as the Money Mail campaign points out, but I believe we should look for solutions to this problem other than removing the rewards of innovation from the industry.

Likewise, I don't think banks should be forced to offer the same rates for ISAs as they do for other savings accounts, especially if they are forced to increase the level of service they must provide (see above). No, I think pricing and service levels should be made more transparent so that customers are able to make more informed choices, and then I think we should allow natural market forces to establish prices without intervention.

What do you think?