SUMMARY

  The key to encouraging individuals to save who do not presently do so is to educate them on the importance of saving for retirement, throughout their life. Pension providers and employers must take responsibility for this alongside government. Rather than focus on narrow objectives, such as ensuring all savers have a yearly snapshot of their likely pension entitlements, it is important that they are provided with a broad range of tools and information which allow them to make informed investment, savings and spending decisions, at any time. INVESCO already has a working model in the United States of a system which assists and encourages employees to take stock of all their savings, income and expenditure and helps them to plan financially at every life stage. Such a model could prove a valuable contribution to the Government's stated aim of increasing uptake of pensions and long-term savings and it is INVESCO's recommendation that such a methodology be further researched for application in the UK.

  INVESCO applauds attempts to make pensions simple and attractive for savers. Broadly, it welcomes the moves in this direction in both the Green Paper Simplicity, Security and Choice and in the Inland Revenue paper Simplifying the Taxation of Pensions.

However, INVESCO feels that while changes to the taxation regime around pensions and simplification thereof are very beneficial, and will be attractive to investors who are already pensions aware, they will not of themselves reach those individuals for whom saving for retirement is not yet a habit.

  INVESCO firmly believes that the key to encouraging those individuals who have not made appropriate provision for their retirement to do so is education. Here, a genuine partnership between government, employers and providers is required to ensure that savers are equipped to make financial decisions from an early age, and that a level of education appropriate to the consumer is maintained throughout their life.

  In the first instance, a basic level of financial education clearly needs to be provided through the secondary and tertiary education systems, so that long-term saving and financial planning are not perceived as something with which to be concerned in middle age alone.

  Beyond this point, after savers begin their working life, INVESCO considers that it is equally beholden upon government, employers and pension providers to equip savers with the tools to help them make long and short term savings decisions. It is apparent that the workplace will increasingly become the conduit for communication of financial information and advice, and INVESCO believes it therefore makes sense that employers and their pension providers take more responsibility for educating their employees and customers respectively.

  The Green Paper's proposals for improving consumer understanding of pensions and financial planning are commendable but are at this early stage relatively basic. Simplifying the pensions framework, improving the number of people receiving pension forecasts and providing further telephone and internet information services are an encouraging start. However, there is a more proactive role that employers and pension providers can play to ensure that employees have access to complete information on an ongoing basis and not just at the point of their annual forecast.

  INVESCO itself, for instance, operates an effective and sophisticated retirement savings tool in the United States, which helps to guide users through their savings and spending life choices, aiding them in analysing their long-term and short-term goals as well as their own saving and spending history. Users are assisted in establishing their financial goals and building an understanding of the many factors which will impact on their quality of life, both in the near future and in retirement. Either by themselves through the internet or with the assistance of an advisor, the tool acts as an entry point into the concept of long term savings and pensions specifically, while also educating on the basics of savings more generally. It helps users to make better informed choices and helps to take some of the mystery out of making financial decisions. This methodology, proven in the United States, goes much further in terms of employee education than the basic communication packages used in the UK.

  There are currently two constraints that would need to be addressed in order to enable this retirement planning tool to be implemented in the UK.

—  Firstly, for such a tool to be effective in achieving the government's objectives to increase retirement savings, it would need to be able to provide information to the individual in terms which may currently be deemed to be "advice". Current regulation does not permit this approach.

—  Secondly, provision of this retirement planning tool would need to be paid for separately by employers outwith the 1% cap. This could be paid for by employers or as an additional charge on the policy.

  INVESCO's proposal focuses on a practical way of getting information and advice on pensions to employees, who may not be prepared to pay fees to advisers, through a partnership between employers and pension providers. Educating and motivating employees in this way clearly carries a cost, but INVESCO's experience is that the benefit is that people who are educated about the importance of financial planning generally, and saving for retirement more specifically, then become more motivated to make and implement decisions. INVESCO believes that these principles could be adopted by the Government in its own attempts to boost the savings level in the UK. Should the Committee be further interested in this practical example of how pension providers education could be taken on in part by the pension provider sector, INVESCO would be delighted to arrange a presentation.

Mr David Butcher

Chief Executive

8 January 2003