HISTORIC PRESS RELEASE : Next steps for Sandler Investment Products [July 2003]

The press release issued by HM Treasury on 15 July 2003.

Detailed proposals for simple low-cost investment products, with a lighter-touch sales process were announced by the Government today, following an open consultation earlier this year.

These products, to be known as ‘stakeholder’ products, will address the basic needs of savers and are particularly aimed on those on lower incomes. They will go on sale in 2005. The proposals follow on from Ron Sandler’s recommendations published in his review of the retail savings market.

A suite of three products will be introduced:

• A short-term investment product. The existing CAT standard cash ISA will become part of the stakeholder suite.
• A medium-term investment product. There will be two investment options, both with a maximum equity exposure of 60% of the fund’s value:

• A long-term investment product. The existing stakeholder pension will become part of the suite. There will be a requirement for the default fund to be lifestyled, whereby assets in the fund are gradually moved from equities towards fixed income as the policyholder nears retirement. DWP will be discussing the detail of the default requirement with stakeholder providers during the summer and will consult on draft regulation in early 2004.

The Government is also committed to making the Child Trust Fund (CTF) available within the stakeholder product suite. Further details will be set out in the September 2003 CTF publication.

The Government agrees with Ron Sandler’s recommendation that a price cap is an essential component of these regulated products in a market that is characterised by lack of price competition and consumer weakness. The level of the cap will be set later this year when the FSA market research into the sales process is completed.

Announcing the Government’s decisions Financial Secretary to the Treasury Ruth Kelly said:

“Many people worry about financing their future but find it difficult to make the right decisions when faced with a vast array of complex investment products. Stakeholder products aim to overcome this problem by being flexible, simple, low-cost and risk controlled. They will help many more people, particularly the less well-off, share in the benefits of investment and better plan for their future.

“It was clear from the responses to the consultation and our own analysis that the most sensible time to finalise the price cap is when the results of the FSA work on the sales process is known. In an ideal market there would be no need for a price cap but the lack of competition and complexity of the financial services industry make one necessary.

“There has been a positive and constructive response from industry and consumer organisations to the consultation.  As well as delivering consumer benefits stakeholder products should help the industry overcome the lack of trust that many people currently have in it. The Government will continue to work closely with all parties to ensure there is a smooth introduction of the products.”

Pensions Minister Malcolm Wicks said:

“The stakeholder pension will be an integral part of the suite of stakeholder products continuing to offer a wide range of investment options. It can now provide added security for people as the default fund will now have to include lifestyling, which gradually moves investments towards a fixed income as the customer approaches retirement.

“All stakeholder pensions schemes will be required to provide this safeguard and we will be working closely with stakeholder providers on the detail of this provision to ensure that the switch to the new requirements is as straightforward as possible”