Richard Saunders - Chief executive of the Investment Management Association

Question:  The IMA is a relatively new trade association; whom do you represent?

 

Richard Saunders: The Investment Management Association is the trade body for the UK investment management industry.  It was formed in February 2002 by the merger of two smaller bodies.  IMA has around 180 member firms that provide investment management services to institutions, like pensions funds, private investors and through pooled products to the average investor who tucks away £50 a month in an equity linked ISA.

 

IMA members manage about £2,000 billion of assets – and nearly everyone who has a private or occupation pension scheme, a life assurance policy, a PEP or stocks an shares ISA relies on the skills of our members for their future prosperity.

 

Question:  What are the IMA’s key concerns?

 

Richard Saunders: The asset management industry is an absolutely key component of the UK’s financial sector, which makes such an important contribution to the economy.  As important, it has a vital role to play in rebuilding confidence in long term savings.  Many of the features of some financial products – their opacity, hidden costs and unfulfilled promises – simply do not apply to funds, whose great merit is their transparency.

 

Question:  What are you expecting from the budget this year?

 

Richard Saunders: First, IMA considers it most important that the proposed simplification of the taxation of pensions should proceed.  More than any other proposal currently under discussion, pension tax simplification holds out the prospect of decisive change for the better in the long-term savings market, allowing the opportunity to develop a new generation of highly attractive personal pension products for savers. 

 

The second issue we will be looking out for is reform of the offshore funds rules.  Legislation in the 2004 Finance Bill was promised in both the 2002 and 2003 pre-Budget Reports.  These rules act as a barrier to entry to the UK market for funds domiciled in certain other EU jurisdictions, and need to be reformed.

 

We’re also calling for a last minute reprieve for the ISA dividend tax credit that is due for abolition from April 2004.  The overwhelming weight of opinion outside government favours retention of this simple and highly effective means of encouraging people to save.  Abolition would leave the anomalous result that higher-rate taxpayers would benefit from investing in equity ISAs far more than would basic rate payers.

 

In the longer term we are urging him to simplify the way funds are taxed; exempt basic rate taxpayers from tax on fund investment and make the move to a tax system on savings and investment that consumers can understand.

 

Question:  Much has been said recently about a savings gap in the UK, what does IMA think government can do to start addressing this issue?

 

Richard Saunders: Everybody agrees that people need to be encouraged to do more long term saving themselves.  Government has launched a plethora of initiatives, but they do not add up to a coherent strategy for savings.  For example, it is difficult to see how the range of “stakeholder” products proposed in the Sandler Report will have any meaningful impact on levels of saving.  Consumers and the investment industry lack an essential ingredient for long term financial planning – policy stability.  We’re not going to get that stability unless we start making savings policy simpler.

 

IMA argues that government needs to be more radical, and thoroughly cleanse the savings regime of its complexity.  This would include the creation of a single regulatory framework for pensions, ISAs and Child Trust Funds; simplification of the taxation of investment funds; provision of rational tax incentives across all asset classes and savings vehicles; and much greater access to independent financial advice and consumer education.

 

Question: Isn’t that the point, that consumer education is the key to making people change their savings habit?

 

Richard Saunders: Improving financial literacy across the UK is absolutely vital to help create the kind of savings culture that we will need for future decades, and IMA published a range of free fact sheets for consumers to help them understand investment choices.  We also work closely with the FSA and other organisation to promote financial learning in schools.

 

But changing attitudes is also about simple products and incentives.  Take ISAs, they are incentivised by government, supported by the industry, and understood by consumers – and have been a run-away success.  

 

But the Pre Budget Report was bad news for ISAs, with the scrapping of the dividend tax credit and the confirmation that the maximum contribution to stocks and shares ISAs is to be reduced.  All this creates a strong impression that the government is walking away from ISAs.

 

 

Question:  So, what in IMA’s view should government be doing differently?

 

Richard Saunders: Industry and consumers need stability and simplicity to plan for the future.  So we’re urging the Chancellor to be bold, and simplify the regulation of savings products like pensions and ISAs into a single flexible regime that will allow the experts in the industry to design attractive products – perhaps lifetime savings accounts or portable pension accounts – for consumers.  Too many government initiatives result in products designed by interdepartmental committees in Whitehall which are not suitable for the market.

 

More than two thirds of funds managed by IMA members are the savings of UK citizens.  So savings policy is key to the IMA’s work.  We’re also actively involved in improving understanding of financial services, ensuring that the taxation environment provides incentives for individuals to save, making sure that European regulation are implemented in a standard way across the EU.  It’s a very complex policy arena, but the savings environment in its broadest sense is at the heart of IMA’s work.

 

The IMA's response to Budget 2004 is availablehere.