Stakeholder savings 'might fail'

The government has been warned that a proposed new range of simple savings products could fail.

The "stakeholder" savings products are intended to be easy to understand, low risk and very low cost.

But experts have warned that the low cost requirement risks removing the incentive for companies to offer the products - something that could ultimately rebound on consumers.

The range of investment products, proposed by Ron Sandler last year in his review of UK savings, are designed to get Britons saving more for their retirement in order to close the so-called savings gap.

The gap, estimated at £27bn, is the difference between what Britons should be saving adequately to fund their retirement and the amount that actually is being tucked away.

'No prospect of benefit'

Donald Brydon, chairman of the financial services practitioner panel, told the Financial Services Authority public meeting on Thursday that the proposed savings regime provided little incentive for product providers.

Mr Brydon said providers faced the prospect of carrying out exhaustive and expensive consumer fact-finds "without the prospect of economic benefit".

"Surely the government does not want another failure in the savings area," he said.

Two years ago, some financial service providers invested considerable amounts in launching low-cost stakeholder pensions.

All firms with more than five employees are bound by law to offer workers access to a stakeholder scheme, a low-cost pension specifically designed for those on low and middle incomes.

But the take-up of stakeholder pensions has been disappointing and firms that offer the product have found it difficult to make a profit from it.