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Monday, 8 July, 2002, 12:48 GMT 13:48 UK
Stock market funds under scrutiny
coins
Sandler wants reforms to make saving easier

Savers would get a better return by leaving their money in funds which track stock markets, rather than paying large fees to fund managers to invest it.

That is expected to be one of the key conclusions of the Sandler report into Britain's savings and pensions industry, due to be published on Tuesday.

The report comes amid mounting concern over the pensions industry, with analysts warning that people are not saving enough for their retirement.


It will be very bad news for the retail fund industry, which is worth 240bn a year

Last week a row erupted over erroneous government figures on the savings ratio - the proportion of an individual's income that is saved.

After protests from shadow work and pensions secretary, David Willetts, it was forced to admit that the savings ratio this year is expected to be 3.75%, down from 9.5% in 1997.

Controversial

Another report on pensions by Alan Pickering, former head of the National Association of Pension Funds, is due on Thursday and is expected to recommend further de-regulation of the private pensions industry.

The Treasury-backed report by the ex-banker, Ron Sandler, was tasked with looking at the operation of the market for long-term retail savings, including personal pensions.

The most controversial part of the Sandler report is expected to be the doubts it casts on the worth of actively managed funds.

These are where highly paid investment experts actively switch funds to try to secure the best returns, charging a large premium for their services.

Bad news

Often they do not do this very well. According to research by the Consumers Association, only one third of actively managed funds managed to beat the FTSE 100 index over the past 10 years.

This suggests that simply leaving your money in a so-called "tracker" fund would be the best bet.

This section of the report will be very bad news for the retail fund industry, which is worth 240bn a year.

Other issues expected to be raised include:

  • Charges for financial services across the pensions industry, in particular whether people understand what they are being charged for
  • The effectiveness of tax incentives in encouraging savings. Sandler is expected to recommend that the government pledge to match every 1 saved, rather than use tax bribes
  • The distinction between maxi and mini Individual Savings Accounts (ISAs). The distinction refers to the amount of cash an investor can put into their ISA - fund managers fear that removing restrictions could see people opting to invest more cash, destabilising the stock market
  • Independent financial advisers should charge a fixed fee for advice rather than be rewarded with commission
  • Calls for a new generation of "non-toxic" savings products which can be mass marketed via call centres and require minimal regualtion.
See also:

27 Jun 02 | UK Politics
30 Jul 01 | Business
17 Jun 02 | Business
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