6. "Building trust in the market"

There is much talk of "restoring confidence". Trust in the financial industry for long-term equity-based savings, should not be restored without first solving the above problems 1) - 5). People should be less trusting and more sceptical. If fewer people trust financial advisers to give financial advice without realising that they are probably trying to sell some kind of "product", this is progress. People should not trust the stakeholder "cap on charges" because there are charges outside the cap. They should not trust the FSA to protect consumers - whatever that means - but should realise that it is acting for the industry by whom it is financed. Too many people trusted their mortgage endowment policy to repay their mortgage as promised, if they are now less trusting about financial "products" this is progress.

Part of the government's pensions strategy is to "build trust". "Building trust in the market" is a heading in Chapter Five of the Green Paper on pensions Simplicity, security and choice (2002). Chapter Five is entitled: "Financial services - building trust and improving understanding". It is particularly concerned with the "annuities market", ISAs and stakeholder pensions. It "describes measures ... to build trust, improve understanding and make the market work better".

One measure aimed at building trust mentioned in Chapter Five in the Green Paper is the cap on charges for stakeholder pensions. But trust in the cap is misplaced, since dealing charges are outside the cap. A new report from Fitzrovia has revealed the extent of portfolio turnover, indicating substantial dealing charges. In the case of a personal and stakeholder pension, when you reach the age of 75 you will have to buy an annuity in a market where annuity rates may be no higher than their present abysmally low levels.

Another measure discussed in Chapter Five is the creation of the Financial Services Authority (FSA), which is a quango financed by the industry. The government claimed the Financial Services and Markets Act (2000) ends the self-regulation of the financial industry, whereas on the contrary de facto self-regulation is extended by the transfer of the prudential regulation of the industry to the FSA. The government is continuing with the self-regulation of the financial industry, even though self-regulation has been discredited, as indeed it has also been discredited in other areas such as the Law Society and General Medical Council. Governments are elected to govern rather than offload responsibility onto self-regulating organisations.

The Green Paper (page 79) includes "pensions mis-selling" as one reason why people do not have "trust in the market" but does not mention the scandals which saver knows about and which have alarmed him, such as the scandal of Equitable Life guaranteed annuity rate (GAR) policies or the scandal of split capital investment trusts. The industry is split between providing a service and selling "products", which is referred to by the government as "encouraging more people to save"; but for example as "shifting product" by Howard Davies at the 2003 AGM of the FSA, and as "selling pups to the people" by John Plender in the Financial Times. High charges benefit the industry because the "products" are then more profitable and there are then funds for selling further "products".

Chapter Four of the Green Paper "Pensions and the workplace" is concerned with occupational pensions. It does not refer to "building trust", although for example the topic "Protection in the case of wind-up" could be so described. The Green Paper only seems to be concerned explicitly with building trust in the case of the financial industry and markets. Perhaps this reflects the "partnership" which the government has with the financial industry. A recent consultation document on Sandler stakeholder products says:

"Government and industry are working in partnership to deliver public policy, for example in the recent Green Paper on pensions," (paragraph 20)

This partnership seems rather one-sided with the government trying to build trust in the market, but the market not trying to build trust in the government or FSA.

The failure of the FSA to protect the policyholders of Equitable Life is discussed in a submission to the Treasury Committee from the Equitable Member's Action Group. ^x This discusses the priority the FSA gives to "the market confidence objective" in comparison to "the protection of consumers objective":

"This episode showed clearly the conflict between the FSA's objectives of preserving market confidence (however undeserved), which was its overriding priority and will generally prevail, versus that of protecting consumers."