10 October 2002
Speech by the FST at AMICUS MSF
Introduction
I am delighted to be here today, and to have this opportunity:
To address MSF members;
To discuss our shared concerns on the changing structure of the financial services industry - and the implications that has for all of us;
To share with you our thinking on Sandler, Pickering, and the provision of financial advice; and,
To think about the modern role of trade unions, supporting their members in the workplace of the 21st Century.
The financial services industry occupies a central position in the UK economy, employing over a million people and contributing upwards of 5% to GDP.
MSF members - as workers within the industry, as investors in financial products, and as consumers, have a triple stake in its success. First, as workers within the industry, you have an interest in your firms succeeding in increasingly open and competitive markets. Second, as investors and savers, you have an interest in an efficient market - where you can identify the right product for you and get a decent return on your investment. Third, as consumers, you have an interest in a market that channels savings and investment to growth companies, spurring economic growth, and raising the standard of living for you, your families, and your members.
The financial services industry is a UK success story, but times have been tough. Many of the larger employers have announced redundancies, and there are ongoing issues around final salary pension schemes.
This is a time of change in the financial services industry. And that change, properly understood, is an opportunity as well as a threat. The shape of the industry is changing as we see new players enter the market, consolidations amongst existing participants and increasing convergence between the three traditional sectors of banking, insurance and securities. And the operation of the industry is changing as new technologies change the relationship with consumers and open the door to greater international competition.
For the industry this means an enhanced role operating in new global markets, a paradigm shift in structure. For the workers this can mean new flexibility and new opportunities. It can also mean job losses, as technology enables employers to shift the structure of their workforce. Of course, opening call centres in - to take just one example - Bombay will not be high on every employer's agenda -and many companies will want to consider the implications for customer relations and the impact on staff morale - which can effect the bottom line as much as direct salary costs. The best employers will always consult fully with staff and with unions over any decision that affects their interests. We all have work to do to reinforce our shared commitment to a modern and progressive approach to employee relations.
Training and skills
The structure of the financial services industry is changing and the role of employees will change with it. That means a new role for the trade unions, campaigning on pay and conditions of course, but also adopting a forward looking approach to issues like skills.
Training and skills are the best defence against the insecurities of the modern world. People with no skills, or low skills, are the most at risk from unemployment, and the most at risk from social exclusion. Workers with higher level skills are the best equipped to cope with change, and to deal with the kind of redundancies we have seen at Royal Sun Alliance, Zurich, and Prudential.
The trade unions have always played an important part in extending opportunities for learning at work. As early as 1937 the TUC's 'Youth Charter' called for time off for technical training. In the modern workplace, the trade unions still have an important role promoting learning, reaching out to marginalized groups, and bridging the gap between their members and the mainstream of social opportunity. This government is committed to further and formalise the role of unions in promoting workforce skills.
Since 1998, we have provided financial support through the Union Learning Fund - with support currently standing at £9m and set to rise to £11m in 2003/04. I know that Amicus MSF recently received £725 000 for the appointment of Learning Organisers - many from the Finance Sector. This is a tribute to the organisation, and to the depth of skills possessed by your representatives.
We are committed to statutory backing for Union Learning Representatives - dedicated men and women who do so much to promote the collective interests of their members. The Employment Act 2002 gained Royal Assent in July - Section 42 grants statutory rights to learning reps. As John Monks has said: 'Learning reps in many ways symbolise modern trade unionism. They are clearly benefiting union members, and acting collectively on their behalf with employers. But at the same time they are advancing an agenda that is clearly to the benefit of employers'. Unions have a central part to play in enabling us to meet the demand for a skilled workforce within the financial services industry.
Insurance - employer liability
In the insurance sector, there are other issues which demand our attention, new challenges for the MSF as workers within the industry and as employees in other sectors where companies are struggling to find the money to pay increased premiums.
We are hearing concerns expressed about rising premiums across a range of sectors, but particularly for liability insurance; and especially for "high risk" sectors such as construction and certain parts of manufacturing industry. Voices have also been raised about the difficulties some small firms are facing in finding affordable insurance.
As a government, we will not intervene to tell insurance companies how to design or price their products. They are best placed to do that in light of their commercial experience and knowledge of the risks posed by individual policyholders. However, we do want to make sure the insurance market is operating properly. This is important not only for customers and businesses, but also for our insurance industry and its employees - competing in an increasingly global market. We have been listening to industry representatives and insurers themselves, and asking questions about the current problems, so that we can better understand why they have arisen and what can be done about them.
Insurers need to make sure they have sufficient income to cover their liabilities. This won't always be easy to do, particularly when liabilities may be spread over a very long period, for instance when they cover the risks of occupational disease, as in the case of employers liability insurance. It does appear that employers liability insurance has been under priced in recent years - and this is one factor contributing to much higher premiums.
It is clear that current steep increases in liability premiums are causing significant problems for certain sectors of industry - and that could have a knock on effect on other MSF members. In government, we are working with the ABI, the BIBA and trade associations to try and find ways to go forward.
For employers liability insurance, the key to securing affordable cover over time will be improving health and safety standards in the workplace. This is obviously an area where MSF have a direct interest, and in which the unions have done a great deal to drive improvements.
We welcome ABI's involvement in tackling the problems being faced by policyholders. In particular, we welcome their work with trade associations to look at the level of health and safety compliance insurers need to see in order to be satisfied a firm is insurable.
Our role is to facilitate a solution by bringing together key stakeholders to address the long-term issues. The Department for Work and Pensions are currently engaging with other interested government departments, the Health and Safety Executive, and non-governmental organisations and businesses like the CBI and the TUC, to discuss their assessment of the long-term issues.
We are alive to the immediate concerns of financial services employees, and MSF members. We are also concerned with the long-term future of the industry. It is in all of our interests to see an effectively functioning insurance industry, enabling individuals to save sufficiently for their old age, allocating investment efficiently, and providing a structural solution to the problem of risk.
There is a lot going on at the moment. On the general side I have already touched upon employer liability insurance. On the life side, we have to consider the conclusions of the Sandler and Pickering reviews, their implications for the industry, and for the people who work in it. And we have to consider the provision of financial advice - an important issue for MSF members as workers within the industry and as consumers of savings products.
Advice
The advice market, as it stands, has two main components: sales driven, commission remunerated "advice" from IFAs or tied salesmen; and crisis debt advice from the voluntary sector.
Commercial advice has, in the past, been constrained by polarisation rules. These rules have restricted advice provision to IFA or tied channels. The FSA have consulted on reform of those restrictions - opening up the possibility that tied channels will be able to offer greater choice of products. This means new opportunities for high street firms and their employees to offer their consumers a better choice than they have in the past. This ought to mean less anxiety for employees too, who might in the past have been torn between wanting to do the right thing for consumers and the hope of higher commissions.
There is, of course, scope for further innovation - through low cost generic advisory 'make-overs' on the high street; or perhaps through better use of technology to offer a consistent, high quality, low cost service.
Innovative advice arrangements offer advantages for consumers and for firms. For employees, it could mean the chance to engage in new value added activity. And there is a role for the unions in ensuring their members have the right skills to participate effectively in the new arrangements.
Sandler, Pickering
The Sandler Review represents an opportunity to get the market working better, to serve consumers in delivering their investment and saving needs. The financial security of us all, through our working life and into retirement, depends on a partnership of government provision and individual saving. So this is a market that we cannot afford to ignore.
I drew two overarching conclusions from the report. Firstly, competition is failing to drive cost efficiencies and value for money in retail investment. Secondly, investors are not saving as much as we would hope, or might expect.
The report proposed reform in several areas: a simpler tax system, reform of with profits policies, reforms to the market for advice, and a package of regulated 'stakeholder products' - standardised, easily comparable, cheaper for the provider and better for the consumer.
Taken together, the proposals hold out the promise of a more efficient market, encouraging higher levels of saving. And they hold out the promise of an enhanced role for some workers within the industry. New business models for selling investments could well emerge, that will mean new kinds of jobs, and increasing the level of saving can only increase the level of employment within the industry.
Yesterday, I hosted a productive seminar with representatives of the main industry groups. We want all stakeholders to be actively involved in the development of policy. That includes the trade unions. And so I am eager to hear your views.
Alan Pickering was commissioned to carry out a comprehensive review of the rules and regulations governing private pensions. He reported in July with recommendations for simplifying the structure. The aim is to make sure as much money as possible goes into the pension pot and not on red tape, as well as making it easier for employers to offer good pensions to their workforce.
Company pensions
Pensions contributions are and will remain an important part of the overall remuneration package - helping companies to attract and retain staff. For some employers, especially if they are facing skills shortages, there will continue to be advantages in offering final salary schemes. Companies that are considering changes to their provision will want to take a long-term view of all the implications, and consult fully with employees and their representatives.
A related issue is the level of contributions employers make to the pensions pot. If the shift to defined contribution makes a difference to the level of contributions made by employers this should be clear to all parties.
Pensions Green Paper
The Government is committed to helping people to save enough to ensure a secure income when they retire. We have already taken steps to improve information, via the pension forecasting programme, and to introduce simpler products - I am sure you are all familiar with stakeholder pensions.
And we set up the three coordinated reviews into different aspects of private pension provision - the Inland Revenue review of the taxation of occupational pensions, and the Sandler and Pickering reviews. We will consult on all proposals in a Green Paper later this year. The aim will be to reduce complex regulation, improve information, and decide what more Government and employers should do to encourage employees to save.
Government has an important role, but both employers and individuals need to play their part too. We are looking at measures to help people save more and work longer. But employers and employees also have a responsibility to work together to secure decent pension provision.
Conclusion
The world around us has changed. Increasingly open, increasingly competitive markets present new challenges and new opportunities to the financial services industry, the people who work within it, and the unions who represent them. Technological change is engineering a paradigm shift in the interface between the industry and the consumer. Reform of the industry, to ensure a fair return on saving and an efficient channel for investment, is creating new products and, perhaps, new opportunities for MSF members - both as consumers and as employees.
The MSF can trace its origins back to the oldest established unions in Britain: the Tobacco Workers Union, founded in 1834, and the National Union of Sheetmetal Workers, Coppersmiths, Heating and Domestic Engineers. You are the inheritors of centuries of effort, defending the pay and condition of workers, across centuries of struggle. The challenge for the MSF now, at the start of the 21st century, is to confront the reality of change, and work within the new structures, to ensure a fair deal for your members, in the modern workplace.
Looking to the future, right across the financial services industry, we are acting to make it easier for those who can to provide for their financial security. That means a stable economy which makes it worthwhile to save; fair deal products like Stakeholder pensions and CAT standard ISAs; more streamlined regulation to protect the interests of consumers; new initiatives like the Savings Gateway; and, through Sandler and other reviews, a radical look at the whole way in which consumers are served by these markets. We firmly believe that over time this will mean more and more consumers participating in the market and that is good news, not only for savers, but for all those who work in this key industry as well.
Thank you