Personal Finance: Simple solutions to attract small savers

While not everyone agrees with the details in the Consumers' Association's report, its findings have been welcomed in some parts of the industry.

Virgin Direct has launched a campaign to persuade the Government to bring in kite marking for its new Individual Savings Accounts (ISAs) and stakeholder pensions.

Martin Campbell, Virgin's product development manager, says: "The real problem is that there is a complete lack of consumer confidence in financial services. Our argument is that there should be minimum standards for a simple group of products so a consumer knows there are no stings in the tail and can be confident. We like a lot of what the Consumers' Association is saying."

Significantly, many independent financial advisers have some sympathy with what the report is saying, albeit coming to it from a different perspective. Nick Conyers, a director of Pearson Jones, says: "I'm encouraged that the Consumers' Association recognises that the disclosure regime is not helpful for consumers.

"Our clients often complain when we send them key features documents because of the amount of paper. We have to tell them this is a regulatory requirement. Consumers have to be informed but there has to be a better way of doing it."

John Cole, managing director of Berry Birch and Noble, agrees that the disclosure regime is too complex but sounds a note of caution. He says: "A ratings regime could potentially be a dangerous over-simplification of consumer requirements on financial products."

Some financial services companies, including some of the more expensive ones, are more wary. Abbey Life's pension plan is dearer than average. Its projected maturity value, the amount paid out when a pounds 60-a-month policy matures, is pounds 46,300 after costs are taken out, assuming 9 per cent fund growth a year. This compares with an average for other shareholder-owned companies of pounds 48,629. Abbey's policies are also less competitive than many of its rivals in the first few years, when heavy up-front charges suck away large chunks of policyholders' funds.

Perhaps not surprisingly, Tim Potten, the company's product marketing manager, says: "Anything which helps consumers is good but I'm not sure whether this idea would be better than disclosure.

"Products are often complex for good reasons and it would be dangerous to have something too simplistic, you may be comparing apples with pears. A product might look bad in charges but it might be meeting a specific need."

The PIA also appears lukewarm. Sarah Modlock, the watchdog's head of press, says: "Disclosure is evolving all the time. The Consumers' Association has its ideas about this and we note them with interest."

This implies that calls for radical change from Virgin and the CA or even the more conservative appeals from independent financial advisers are unlikely to be heeded soon.

But interestingly, in the Government's Budget press release on the Individual Savings Account it says it is looking at a voluntary system to ensure these products are simple enough to attract small savers. It may be that this is an idea whose time has come.

RECIPES FOR HAPPY CONSUMING

(The report at a glance)

The existing system of product disclosure has not worked. It is too cumbersome, jargonistic and confusing. The way it is presented puts people off reading it.

Disclosure has had little if any effect in reducing excessive charges on products, contrary to assumptions about their likely effect. Only eight out of 100 pensions analysed by the CA were "good value".

The CA survey found that the majority of policyholders did not even read the product particulars, including details of charges, that they received. Confidence in the industry was low and few people felt inclined to "shop around".

Clients responded best to verbal communication - suggesting that if they are with an adviser they trust, they are more receptive to information imparted orally.

The CA recommends an education campaign to increase people's confidence in their dealings with the industry and also their knowledge. But this should not be used to sell more products.

There should be a rating system for products, linked to a benchmark against which any assessment can be made. Ultimately, the CA believes, there should be a "kite marking" system, in which minimum standards are set for products in terms of charges, flexibility and transfer penalties.