High Stakes

The Government is about to bombard the British public with two seemingly contradictory messages about pensions.

On the one hand, the Financial Services Agency, the new financial services watchdog, is about to run a 10m ad campaign encouraging people who were mis-sold pensions in the Eighties and early Nineties to claim their money back from pension companies. The FSA last week appointed Lowe Howard-Spink to create the campaign, which is expected to launch in the autumn (MW July 23)

On the other hand, the newly reshuffled team at the Department of Social Security, Secretary of State Alistair Darling and minister John Denham, are to outline the Government’s plans for “stakeholder pensions”. They will decide how far to go in compelling up to 8 million people without pensions to take up a new scheme, backed by the Government and distributed by mutual societies, affinity groups and trade unions. These may not launch until 2001.

A Green Paper on Welfare Reform published in March by then welfare reform minister Frank Field briefly mentioned pensions. But a specific pensions Green Paper is expected from the Department of Social Security later this year which will lay out the Government’s plans for stakeholder pensions.

At stake is the success of the Government’s welfare reform project. As the population ages, the cost to the state of providing pensions will soar, so the Government is keen that individuals make their own provision for their retirement.

LH-S will have to find a way of jolting mis-selling victims into action without scaring the rest of the public so much that they are too wary to buy a pension. At the same time, the Government cannot afford to alienate pension companies, because it will need their co-operation to develop the stakeholder scheme.

Martin Campbell, product development manager at Virgin Direct, says: “I wouldn’t like to be the advertising agency with that task. The only way you could run such a campaign without sending out hideously scaremongering messages is to come clean about the past and offer hope for the future.” Virgin Direct, which launched its pension in 1996, after mis-selling came to light, is well-known for its criticisms of traditional financial services companies.

Before the Government can move forward on pension reform, it must rectify the mistakes of the past. It must put behind it the pension mis-selling scandal, in which sales staff from leading pension companies wrongly advised 2 million people to transfer from occupational schemes into personal pensions between 1988 and 1994.

The companies involved are to carry out investigations to ascertain the level of compensation owed to the victims of mis-selling and arrange for them to be compensated. The total bill to the pensions industry will reach an estimated 11bn. Government minister Helen Liddell, then economic secretary to the Treasury, originally named 41 companies – including Prudential, Norwich Union and Barclays Life – the worst offenders in the pensions mis-selling scandal. The “list of shame” has been reduced as deadlines have been met but still includes household brands like Standard Life, NatWest and Legal & General.

High priority cases, including victims close to retirement, were tackled in the first phase of the review which has already dragged on for four years. With the appointment of LH-S, the FSA launches phase two this, which is expected to deal with less pressing cases including many people in their 20s, 30s and 40s. This is the target market for the LH-S campaign, which is expected to include TV, press and direct mailshots.

The advertising blitz comes after the FSA’s first publicity campaign launched in April. It comprised a public information film featuring an ostrich burying its head in the sand to avoid a hatched egg. The film was produced by the government communication agency, the Central Office of Information, and was given free airtime by terrestrial and satellite stations. Respondents to a freephone number were sent a fact sheet entitled “Putting Things Right” to help them decide if they were mis-sold a pension.

An FSA spokeswoman says: “The ostrich is ideal because it attracts people’s attention without being occupation or gender specific. It addresses people who might find that their nest egg is smaller than expected and encourages them to send for a fact sheet. Our aim is to put people back into the position they would have been in if they

hadn’t been advised wrongly to leave an occupational scheme.”

While the FSA, which reports to the Treasury, presses on with an advertising campaign which is bound to re-open the wounds of the mis-selling scandal, the Department of Social Security is charged with developing a pension for the future. It must try to regain public confidence in private pensions if the Government is to be successful in taking some of the pressure off the state pension bill.

The stakeholder pension is intended to provide a new, simple, funded pension as a top-up to the state pension and is aimed at people who have not made adequate provision for retirement. Like the Individual Savings Account, the planned replacement for the Personal Equity Plan savings scheme, the stakeholder pension is an attempt to bring the low-paid into the savings net.

Mark Boleat, director general of the Association of British Insurers, says: “The Inland Revenue, DSS and the Treasury need to work together to encourage people to save because ISAs and stakeholder pensions will be competing for the same pot of money.”

He adds: “The departments tend to pull together too late in the day and it is left to the Cabinet and Ministers to get together. They need to get together a lot further up the line to work out the detail of policies and concur there.”

Inside sources say that Prime Minister Tony Blair and Chancellor of the Exchequer Gordon Brown are keen to present a more unified front over welfare reform.

As a first step, the Government has set up the Pensions Education Working Group (PEWG) which brings together representatives from the FSA, the Treasury and the DSS Pensions Review Team. The group has a brief to find ways of giving consumers information on pensions in plain English rather than financial jargon.

In a recent report, PEWG recommended that the Government should develop a major pensions education and awareness programme to tell the public about the pen sions currently available and the proposed introduction of stakeholder pensions. It also advocated finding new and imaginative methods for providing and distributing information.

But the present administration will have to tread very carefully in any advertising campaigns promoting pensions to the public. Government has been inextricably linked with the mis-selling scandal since the Thatcher administration promoted personal pensions through a 3m TV campaign by BSB Dorland, an earlier incarnation of Bates Dorland, in 1988. The campaign showed a man in a straight-jacket breaking free from the chains of poverty in old age – symbolising the portability of personal pension schemes.

Pension companies which have been named and shamed by Liddell have blamed the Thatcher Government for putting them under pressure to sell the personal pensions, which they saw as a political panacea for an overburdened welfare state.

So, in effect, LH-S will have to create a campaign neutralising the damage wrought by a previous government-sponsored campaign.

Conflicting messages are being sent to the public as each government department forges ahead with its own agenda. While Liddell has been publicly naming and shaming pension companies, at the DSS Denham has been asking those same companies to contribute their expertise to the development of stakeholder pensions during the consul- tation period.

Virgin Direct’s Campbell says: “The crux for the Government is that it knows it needs the private sector’s help to encourage people to build their own pot of money. But traditional financial services companies have done nothing but undermine consumer confidence in the industry. So the Government will be concerned about appearing to push people towards the very companies which have shafted them in the past – like lambs to the slaughter.”

Peter Davies, the chief executive of the Prudential, personifies the contradictions confronting a bewildered public. Davies was recently hauled in front of a Treasury select committee investigating events surrounding the mis-selling scandal. This is the man from the Pru who fronted the company’s high profile TV campaign aimed at persuading the public to buy pensions. But this is the same man from the Pru who heads the business taskforce for the New Deal, another plank of the Government’s welfare reform, designed to encourage the unemployed into training and work.

On the one hand, the Government is hauling Davies over the coals for his company’s involvement in the mis-selling scandal and the way it sources compensation repayments. On the other, it is asking him for his advice on how to get businesses involved in the New Deal.

Confused? The consumer certainly will be. If the financial industry is calling for a more coherent message from the Government to clear up the confusion, there seems little chance that the average consumer will understand.

Financial services companies are worried about pouring resources into ISAs, which may then be obliterated by stakeholder pensions. Meanwhile, the public wants to be reassured that it can trust the financial services industry again. A Government seal of approval for savings vehicles could help restore public confidence but puts the Government in the direct firing line if another mis-selling scandal should emerge.

In appointing Alistair Darling as Social Security Secretary, Blair hopes there will be a more co-ordinated approach to welfare reform in general – and pensions reform in particular. And with Jack Cunningham in the new role of Cabinet enforcer, there will be a greater chance of eliminating confusion.

But if each Government department continues to promote a different policy, the public will have a fragmented view of welfare reform as a whole. Confusion will only compound the loss of confidence. Contradictory messages could turn the tough job of encouraging a reluctant public to save for their retirement into an impossibility.

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