12.1.3The nancial system and long-term saving

A different group of criticisms is that the nancial system has failed to provide the

products and services that would encourage people to undertake the necessary level

of long-term saving. The problem of inadequate saving, together with some suggested

innovations, was studied and reported on by Ronald Sandler in 2002. The main

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Chapter 12 • Financial market failure and nancial crises

conclusion was that the range of products on offer was, if anything, too wide and

certainly too complicated. Fearing that they might not make the best choice, Sandler

argued, households were not making any choice at all. In an attempt to address this,

a range of savings and pension schemes, known as Sandler products, was introduced

by the Treasury in April 2005. Details of these are set out in Box 12.1.

Box 12.1

Stakeholder (Sandler) products

Stakeholder products (also known as Sandler products) are savings and investment

products aimed at people on lower incomes who are effectively priced out of the invest-

ment market and/or who had found the existing products too complex and the choice

among what was available too daunting. They are products that are designed and offered,

from April 2005, by approved nancial institutions. To be identied as ‘stakeholder

products’ they must meet a number of conditions laid down by the British government.

The aim of these conditions is to make the products cheap, easy to understand and use,

and transparent, thus encouraging households to save in the medium and long term and

to participate more fully in nancial markets (to become, in other words, ‘stakeholders’

in the economy in terms of the ownership of nancial assets). The products themselves

are not offered or guaranteed in any sense by the government. The label ‘stakeholder

products’ simply provides clear information on what investors can expect from the prod-

ucts and allows a more easy comparison among the wide range of products available.

There are four types of stakeholder products:

l	stakeholder cash deposit accounts;
l	stakeholder child trust funds (CTFs)
l	stakeholder pensions;

l

stakeholder medium-term investment products. These are sometimes divided into: (i) medium-term investment products (MTIPs); and (ii) smoothed medium-term invest- ment products – investment products are smoothed where some of the return in good years is paid into a ‘smoothing account’ to be used to top up the return in bad years.

The principal conditions that must be fullled before any of these products may be

called ‘stakeholder products’ relate, in general terms to:

l	cheapness – charges must be low (no charges in the case of stakeholder cash deposit accounts; in the case of MTIPs, charges must be limited to 1.5 per cent per annum in the rst ten years and 1 per cent thereafter);

l	availability to people on low incomes – the minimum deposit or investment must be low (£10 for deposit accounts; £20 for MTIPs); holders of accounts must be able to make unlimited withdrawals and the sums withdrawn should be paid to them within seven days;

l

value and security – interest rates on deposit accounts must be reasonable (the minimum rate is 1 per cent below the Bank of England base rate and should respond promptly to increases in that rate); investment products should not be unduly risky (no more than 60 per cent of a fund should be invested in risky assets such as equities);

l	ease of use – funds can be paid into deposit or investment accounts in a variety of ways (cash, cheque, direct debit, standing order or directly from salaries);

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