23 November 2005

PIMA Conference

Opening Comments

1. I am very pleased to be here today – and let me start by conveying the apologies of the Economic Secretary, Ivan Lewis, who cannot be here.

2. He chairs the EU's discussions on next year's budget and these discussions have kept him in Brussels. I know he was keen to address this conference and was sorry to have to pull out so late in the day. I shall do my best to deliver the substance of the speech the Economic Secretary would have given,

3. Let me also take this opportunity as a Treasury director to thank PIMA, and all of you here for the sterling work you’ve done over the years in building up the relationship between government and the industry and especially with us the Treasury and within HMRC. This industry manages assets on a truly remarkable scale – in excess of £2 trillion. And that’s a pretty big slice of the personal wealth and security of the British people.

4. We are all very grateful to you for your willingness to share the expertise and experience you have – from banks and stockbrokers to fund managers and building societies - a very wide range of expertise which we have found quite invaluable. Equally, I hope you have been finding us at the Treasury more outward looking than perhaps we were in the past.

5. We feel the relationship has worked well, not just with initiatives like the Sandler proposals, but with the pension simplification regulations, the development of ISAs and most recently the Child Trust Fund.

Greater Savings & Assets: ISAs

6. Certainly since1997, and increasingly over the last few years, the government has promoted greater savings and greater asset ownership. This is an area that the Treasury sees as being at the heart of its work– and which I know Ivan and other Ministers prioritise.

7. Quite simply, they – and we – want to encourage saving and want to promote the benefits of asset accumulation by more people at every stage in their life. By adults. By children. By those planning for retirement and by pensioners. And especially by families on low incomes.

8. Let me start with adults, where the government remains committed to ISAs. Over 16 million people now have an ISA, with around £180 billion subscribed since their introduction in 1999.

9. What’s more 1 in 5 people from low-income groups have an ISA, compared with the 1 in 7 who had a TESSA or PEP. And ISAs have double the number of young savers compared with TESSAs or PEPs.

10. 15% of ISA holders say that, had ISAs not existed, they would not have saved or invested the money in other ways. That percentage rises to 25% in the DE social group and to 39% among the 18 to 24s.

11. That is why, at the last Budget, Gordon Brown announced that the existing higher investment limits are being extended, right through until 2010. This extended the guarantee offering a certain level of tax relief in ISAs from 10 to at least 11 years.

12. The Chancellor did that against a background where tax relief alone for ISAs and PEPs amounts to around £1.6 billion per year. And where the stock of ISAs, TESSAs and PEPs is up from £105 billion in 1997 to £220 billion now. An increase of over 50% in real terms.

Child Trust Fund

13. But ISAs are just one part of the picture. Let me also talk about children. The Child Trust Fund is the UK’s first universal saving and investment product.

14. Around one million CTF accounts were opened in the first six months alone. That represents nearly half of all the vouchers issued – and a great achievement for all concerned, especially given the busy lives of parents.

15. But we can’t be complacent. We’re keen to see equally strong performance in the next six months.

16. And to ensure we maintain the good progress to date, we’ve invested additional funds in an Autumn burst of publicity – I’m sure you’ve all seen the TV ads with the cute toddler playing football. And HMRC have issued reminder letters to those households who have yet to act.

17. The Child Trust Fund is an initiative that’s truly groundbreaking. It is designed to:

strengthen the saving habit of future generations; and
ensure, for the first time in our history, that by the time they are 18 every child will have access to a financial asset.

And crucially, the CTF will link in with, and provide a platform for, financial education in schools.

18. The CTF mechanism is straightforward. A voucher for £250 is sent to parents automatically once they’ve been awarded child benefit. And children in low income families receive an additional £250, paid directly into the CTF accounts of those in families eligible for a full Child Tax Credit award.

19. The government will also make an additional payment around the time the child reaches their 7th birthday. We’re currently consulting on the amount of the payment and proposing a £250 universal payment – with £500 for children in lower income families - the same as for the initial payment. And we are also consulting on making a further payment at secondary school age. So we’re not standing still.

20. The Child Trust Fund is reaching out to all families with children, including, and perhaps especially, to those who have never before had savings or investment accounts. It is doing well but we need your support to keep it that way, especially as we move forwards and look forward to a whole new generation of financially included youngsters. And this is something which I’m sure the Association and the industry will really get behind.

Retirement Saving

21. From adults and kids through to those planning for their retirement, and indeed, those that are retired too.

22. The Government’s aim, set out in the 2002 Green Paper, has been to enable individuals to make informed and effective choices. The Government’s policies aim to deliver firstly, the guarantee of a decent minimum income in retirement. One that is provided by the state and below which no pensioner need live. And here the Pension Credit has had a vital role to play.

23. Secondly, beyond the basic foundation provided by the state, the Government has sought to enable individuals and families to decide for themselves what income they wish to receive in retirement.

24. One of the key initiatives designed to boost transparency is the Government’s Informed Choice programme, which is helping people make informed and effective choices about working and saving for retirement. That includes issuing over 4.5 million forecasts in this last year alone.

25. Thirdly, simplification. The 2004 and 2005 Finance Acts legislated for a single universal regime for tax-privileged pension savings, which comes into effect next April – A day. This has been complemented by the introduction of the stakeholder suite – including ‘Stakeholder’ pensions - which provide individuals with access to simple and flexible savings products.

26. Fourthly, security. The Pension Protection Fund and a new pro-active regulator, both legislated for in the 2004 Pensions Act, will improve protection for members of occupational pension schemes.

27. And fifthly, the Government aims to enable people to extend their working lives if they wish – by removing barriers and increasing flexibility. That’s why the Government is combating age discrimination and enhancing the rewards for those choosing to defer taking their state pension. That provides people with greater opportunity and further rewards for working longer if they wish to do so.

Saving Gateway

28. Now, I’ve spoken about the present and I’ve spoken about the future. But I haven’t really discussed the opportunities for people who may not have the resources to even think about things like ISAs.

29. For many people on low incomes, savings are the luxury of the better-off – and the government seeks to change that.

30. So, in addition to tax incentives that encourage saving, government can support saving through ‘matching,’ where a contribution is made at a certain rate. For example, £1 added to an account for every £2 saved.

31. Matching provides a more understandable, transparent and effective framework of support for savers. It also provides greater incentives for those on low incomes who often cannot benefit from tax relief.

32. That’s why ministers have set up the Saving Gateway pilot scheme, an initiative that targets lower-income groups and encourages them to start saving through matching.

33. And the results are good. In the first pilot, over half of all participants achieved the maximum allowed level of saving of £375, with minimal substitution from existing savings.

34. The final evaluation of that pilot confirmed matching can double saving among low-income groups and encourage genuinely new savers and new saving.

35. The second, larger pilot now has all 22,000 accounts opened. This pilot is designed to test the effects of different matching rates and other savings incentives to encourage those on lower incomes to save. We look forward to the findings of the initial evaluation next year.

2006 ISA review

36. I believe we’ve set out a range of policy responses to real issues in the financial lives of people. But of course, we must always strive to be as effective as possible, and to do better.

37. Now, one of the opportunities we will take to improve and learn is the review of ISAs, which was promised back when they were first introduced. This review will consider how to build on their success, and will be informed by the opinions of those close to the issues – like yourselves.

38. What’s crucial is that industry and consumer groups and other stakeholders start thinking and engaging with us ahead of the planned review – sharing their experience of how ISAs are working and their ideas on how to improve them. And we would like, of course, to hear innovative ideas for encouraging savings and investment throughout the life-cycle.

Closing Remarks

39. Let me end on that note – thanking you for your past engagement and encouraging you to continue doing so, building this partnership that I and my colleagues – and our ministers – value so highly.

40. Finally, let me thank you also for accepting my stand-in appearance here today. And let me wish you all a very interesting and productive conference this afternoon.

17 minutes, 1,778 words