FSA vetoes with-profits savings

THE TROUBLED with-profits industry was dealt a further blow today after the Financial Services Authority announced the savings products would not be given 'stakeholder' status.

With-profits savings are designed to smooth out the ups and downs of investment markets. They have previously been criticised for their lack of transparency and high charges.

With-profits endowments have also failed to clear mortgage debts for thousands of homebuyers in recent years.

'We remain concerned about the additional layer of complexity that smoothing represents in the context of basic advice, and the extent to which the benefits and risks involved can be explained to consumers in a balanced way in that process,' said Dan Waters, FSA director of retail policy.

A Government-commissioned report into long-term saving by Ron Sandler, former chief executive of Lloyd's of London, in 2002 recommended establishing a set of 'stakeholder' investment products, in a bid to encourage people to save more.

The scheme, similar to the existing stakeholder pension system, would rubber-stamp simple investments with low charges that need only basic advice.

Small savers would, therefore, not face the cost and rigmarole of seeking professional financial advice. Sandler had included with-profits investments in his proposed 'suite of products'. The Treasury wants to launch stakeholder savings by next April.

The Association of British Insurers, which represents the with-profits industry, said the FSA's veto on the products was 'disappointing'.

'It deals a further blow to Sandler's ideas for making a difference to saving in the UK,' said a spokeswoman. 'Success depends on the FSA and the Treasury being able to work together on this.'

The FSA said it would undertake more research as to whether consumers could understand the concept of smoothed investment funds and consider their inclusion at a later stage.

Earlier this year, the Government ignored Sandler's advice for a 1% cap on charges for stakeholder products. Fees will be limited to 1.5% for the first 10 years and then fall to 1%.

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