Guest host Chris Pond joins us to talk about what the Burnham government might mean for financial services

Hello and welcome to the last episode of the Fairer Finance Podcast before our summer break. I'm your host, Eve McGrady. Tim's paternity leave is drawing to a close, but in his absence, we've got one last guest host lined up. This week we're delighted to welcome Chris Pond to the podcast.

Chris is the chair of the Financial Services Consumer Panel, as well as a chair of Trustmark and the Centre for Finance, Innovation and Technology. He's a former Labour Member of Parliament representing Gravesend and was also a minister in the Department of Work and Pensions. After leaving Parliament, he went on to be a director at the Financial Services Authority, now the FCA. Over the past 20 years, he's chaired or been on the board of numerous consumer groups, charities, and industry bodies.

And he was even chair of Farah Finance's Consumer Advisory Board for a year. So, Chris, it's brilliant to have you with us. Welcome. It's great to be here, Eve.

Thank you. Great. And as ever, we're also joined by uh our very own James Sadie. Hello.

So we're already over a week into the summer holidays now, but there's been plenty to talk about since our last episode. Earlier this month, the Treasury Select Committee finally published its report into the government's financial inclusion strategy, with which I think it's fair to say it wasn't entirely impressed. And while James may have been hoping to see the Chancellor get a slap on the wrist and sent away to try harder, within days of the report landing, Andy Burnham was confirmed as the new Prime Minister and replaced Rachel Reeves with John Healy.

So we'll be discussing all the developments in Westminster and what it might mean for financial services policy in just a moment. In the second half of today's show, we'll be discussing the government's new pensions value for money consultation, which was launched mid-month. And this is the continuation of a strand of work that's been underway for some time. And we'll be discussing what the new measures will mean and whether pensions policy could now be subject to change under the new administration.

But first up this week, as promised, we're going to turn to Westminster, where it's been a very busy July. New Prime Minister, an unexpected new hire for Chancellor, but also a return of some familiar faces. Lucy Rigby is back as economic secretary, and Torsten Bell has been reconfirmed as pensions minister, straddling both the Treasury and Department of Work and Pensions, where Pat McFadden has kept his job as Secretary of State. So, Chris, as a former member of the House, I feel like we should start with you on this one.

So you may have read or listened to James's frustrations with some of the consumer policy coming out of the Treasury over the past couple of years. So do you think these appointments are likely to herald a change in that direction? Not only have I read about it, Eve, but uh James has actually bent my ear directly on these very issues. Sorry.

And you know, it really doesn't history go in in circles that almost exactly 50 years ago we had a former defence minister called Healy who was appointed as the Chancellor. It was Dennis in that case and not John. Um but, you know, I think this is this was an interesting appointment. Um, frankly, I am um very encouraged by what's been happening, not only because Emma and Lucy are back at the the Treasury, um, but also because um I've worked with John for a very long time.

He and I were elected at the same time. I have to say, he managed to hang in there a bit longer than I did. Um, we were both parliamentary private secretaries in Gordon Brown's uh Treasury team at the time, he's essentially ministerial bag carriers, both at the same time. And of course, he knows the Treasury very well.

Not only has he done that job, but he's done financial secretary and economic secretary in the past. So he knows about the culture of the Treasury. He will be well uh respected by Treasury officials, uh, but he also will be pushing back about what has been called in the past, you know, that sort of treasury orthodoxy, which I think is part of James's frustration on things. So I think it's going to be a very interesting period.

He'll be a safe pair of hands in terms of running the economy. Um, but he also, I know um from my engagement with him over the past, has got consumer outcomes high on his agenda. And so I think he will be um he will I think you'll be be relatively pleased, James, with what you see in the next few years. Well, yes, are you feeling as optimistic as as Chris is, James, about these new.

I mean, I really am. I I I think I've been so down about the last 18 months, particularly because I was so excited about the prospect of a new Labour government, and I was just really caught off guard by the sort of strength that Rachel Reeves went after consumer protections and the current regulatory landscape, and you know, was parroting these lines from the finance lobby that I've heard my whole career. And, you know, I for me, more than anything, it just didn't make any sense.

And you know, the the Ombudsman stuff we've talked about a lot, I think, really was was at the heart of that. Um, you know, it felt like a real attack on consumer protections. So, you know, I worry that he's got a lot to do. He's a new chancellor with, you know, first and foremost, uh a budget to balance and um, you know, the task of getting the economy growing again and financial services policy and the minutiae of it may not be sort of right in the middle of his um his eye line at the moment.

Um clearly, you know, Rachel Reeves was persuaded, let's say, in the run-up to taking over that role, that this was a key area to focus on. Um, you know, the best case scenario here is that he hears the noise the consumer groups are making and and actually decides to come out and say, you know what, uh, you know, I want to make it clear that I do see consumer protection as being, you know, something that is a precondition for growth, not something that's in competition for it.

But I guess in absence of that, if if he lets Lucy Rigby do what she thinks is right, and I say this is a bit of a leap of faith because I don't personally know Lucy Rigby. Um what I do know is she used to work at Witch, uh, and it um you know makes me think um that we must have some shared values that if he lets her run financial services policy as she would see fit, then things are likely to move much more in the direction that that we would like to see. Um so you know, we'll have to see.

I mean, Lucy Reeby was what, number three into the job by the time she took over as economic secretary, and by that point Rachel Rees had already laid out her direction quite clearly, and so I suspected that Lucy didn't agree with that, but you know, there wasn't really any room for her to to push back on her boss boss and and move in the other direction. Um, you know, because I'm very conscious that all of this stuff that we talk about is you know is very niche in the context of the Chancellor as a whole, right?

You know, I mean you don't like there are times when you you hear the Chancellor weighing in on you know the detail of financial regulation, but this has been quite an unusual period where the where where the Chancellor was um having such a strong say and and such a big impact. You know, I'd love to see John Healy get behind consumer duties squarely and say, I recognise that this has been a great policy and we need to give the FCA the power to realise the potential of that. So yeah, I'm feeling really optimistic.

I'd I'd be surprised, James, if he wasn't behind consumer duty as a as a concept, though I I doubt he'll get down into the weeds of its operations. But I think what he will be focused on is that growth strategy, which will continue. It's about how do we drive the growth that we need for an improvement in living standards, and to what extent do we need to rebalance uh the risk to achieve that growth? So I think there will be questions about, you know, consumer protections, the extent to which consumers should be asked to take on greater risk, and indeed the regulator and firms themselves, um, and he will have that as part of his agenda.

But also I think he's very focused on the uh Andy Burnham agenda of devolution and making sure that whatever growth we do have spreads around the UK and isn't just concentrated uh in the city in Westminster. And you know, I'm I'm absolutely fine with us having a conversation about whether or not we've got the right balance for consumers in terms of risk. You know, I'm unlike Mick, who we had in here a few weeks ago, uh, I'm much more optimistic about the potential for targeted support.

We've got a massive advice gap, and technology has got to be the answer to that. It can't be humans and full-fat financial advice. Um, so let's have conversations about how consumers can use technology, and maybe that does create some more risk, but totally open to that, totally open to consumers being able to borrow more, but with the right checks and balances. I just think it was this sort of it was the culmination over the last two years of, you know, sacking the chair of the competition and markets authority because he was too moderate and putting in a guy from Amazon, um, you know, going after the ombudsman saying it was writing regulation through the back door, telling the FCA to make its secondary growth objective effectively primary.

You know, all of that stuff just seemed um, you know, they didn't that it didn't seem to make sense to me. Like if your objective is to drive growth, I'd say all of that undermines growth and and s will s start to pick away at all of the progress we've made over the last 25 years since the FCA FSA was set up, um, you know, in in improving conduct and building confidence amongst consumers. Yeah, and I think if you if you want to ask and you do want to ask consumers to take on extra risk, you also have to provide them with some sort of safety net so that if they take those risks and it goes wrong, and let's take the the area of mortgages where we want to extend access to mortgage finance to more people than has been the case in the past.

In some cases that's going to go wrong. In which case, then the lending firms must come forward with greater forbearance. So we need greater sharing of risk between business and consumers. And if we do that, then we might well get the growth that we're talking about.

Yeah, absolutely. That that's my language for sure. Yeah. Well, I mean, it's a lot of speculation at the moment, isn't it?

It's it's early days still for the Burnham government, and we don't know yet where they'll come down on consumer policy. But Chris, what did you make of the Prime Minister deciding to take on long-term care in his second week? It sounds like he's not afraid to make some tough decisions. I wasn't surprised at all because of course Andy Burnham has been um on that agenda for many years.

And of course, he's got the personal reasons in the case of his father, um, who is in need of that sort of care. And I think he's speaking on behalf of those millions of people who really do need that support, as well as his message that the National Health Service is just not going to survive. It will collapse under the weight unless we can do something to provide affordable long-term care. So I wasn't surprised at all, but nor am I surprised really that he's been prepared, you know, to spend, as he has described it, some of his political capital to do that.

Because in terms of how he's behaved as uh Mayor in Manchester, for instance, over the buses, taking on the bus companies, um, he is prepared to to put up and fight if he's if if the prize is big enough. And he obviously thinks that's the case with long-term care. Yeah, indeed. Well, we'll obviously be keeping an eye on what comes out of the Treasury and and DWP over the the weeks and months ahead.

Um, and we might not start to get a clear picture until the party conferences in the autumn. Um but we did say that we take a quick look at the Treasury Select Committee's report into the government's financial inclusion strategy. Um so, James, do you want to start by giving us some of the headlines there? Yeah, well, I suppose I I mean I was looking forward to this report because I I knew like they'd had Mick and other consumer advocates up in there who, you know, didn't hold back about their disappointment with the government's financial inclusion strategy.

And obviously, we've talked um already many times on the podcast about you know what we thought it lacked, you know, particularly in terms of insurance, um, the way it was set up, the fact that sort of industry um representatives were chairing two of the three subgroups and consumer voices in the process felt quite frustrated. And it seemed, you know, in that era, which looks like it might be yesterday's era, um, Dame Meghillier, who chairs that committee, was sort of the only one willing to stand up for consumers.

Um, and so so this report came out about the same time, you know, days before Andy Burnham took over. And maybe, you know, in the context of all the changes, it's a little less relevant than it was. Um, it, you know, I guess you know, what it basically just said was there's uh there's a good start here, but you need to go further, you need more data, it needs to be more measurable. Um, I think that is very Meg Hillier.

She's very measured, and you know, she doesn't want to, she doesn't want to be sensationalist, she doesn't want a headline that you know says government has failed on financial inclusion. That's not really her style. Um but you know, I think if you take the whole thing from top to bottom, um, you know, it it's relatively critical. Uh, you know, apart from the data gaps I talked about, you know, she they call out an over-reliance on industry goodwill.

There's a little bit too much sort of you know getting everybody to work together and get things done, which we know when it comes to financial inclusion often doesn't get you far enough because you know these are the the least financially resilient customers, they're the least profitable customers in the short run. So, you know, there's no economic incentive for um you know banks to or insurers to to put lots of resources into serving them. Um and they did also call out this kind of imbalance in the group, and I think they they have now reconstituted that Financial Inclusion Committee and added a few more consumer-y type people to it.

Um so there, you know, it is going to continue from here, albeit we haven't seen any insurance at this point, uh, you know, any more insurance content. Um so you know, the the government will presumably have to respond to this, but it'll be a sort of now on Lucy Rigby's desk. Well, I mean Treasury Secret Committee reports don't always get responded to, do they? I think the government often shreds them.

But um I think this one will. This one I think it will, and Lucy Rigby, you know, presumably will want to, you know, come back and say, you know what, we can do better and we will do better. I mean again, I'm full of optimism today. Yeah.

And I think we're sitting in Meghillier's constituency just at the moment, aren't we? I forgot about that. Rather relevant. But uh the the reason why I think um there may be a change in the mood music, you're right, James, is that if if you think about Burnham's drive to deal with the cost of living, he's had the you know, the cap on bus fares, he's had the reduction in VAT on domestic fuel, it it's very clearly high on the agenda.

But there's only so far that he can go with that given the the pressure on public finances. But if we were to have a financial inclusion strategy which really did address the whole issue of the poverty premium, the way in which people pay more for financial services like insurance or even a bank account or access to credit and all of these other assets, that is a way in which you can improve people's living standards without drawing excessively on public finances. It is actually over to the industry in order to make those changes that are necessary.

And also, what the Treasury Select Committee did point out is that there is a disproportionate impact of financial exclusion in areas like the Northeast and the Northwest, in Northern Ireland and in some of the seaside towns around coastal towns. Um and therefore the whole devolution agenda is also assisted by having a really effective financial inclusion strategy. So when this was announced from the Financial Inclusion Commission, which I chaired at the time, um we welcomed it.

We have been campaigning for it for ten years. Um member of the commission was invited to join the Financial Inclusion Committee, but nevertheless we were. Which is crazy in itself, right? Well, yeah, I can sort of understand.

I think that I think the economic sector at the time, who's none of the ones we've mentioned, said that she didn't want the usual suspects involved in this. And we were the usual suspects. We've we've been banging on about this for ten years. So I was delighted when it happened.

Um I can sort of get the the the argument for uh putting industry in the lead on this, um, because there's a really strong business case why firms ought to be extending access to their services. Otherwise, it's a missed market. You've got nearly a million people without a bank account. What are the high street banks doing?

This is, you know, this could be very lucrative or insurance or access to credit, etc. So there is a really strong business case as well as an economic case, because the economic case is about getting people into employment, helping them continue or uh or become economically active again. So all of that stacks up, and I can see the argument why, therefore, you want to make sure that business steps up to the plate, but as the Treasury Select Committee said, you also need to have the consumer organisations there holding that those businesses' feet to the fire to make sure that they really do deliver.

So I I think we will see some changes in that balance. You're you're right, James. You know, in terms of the working committees, uh the the the the the working groups on the Financial Inclusion Committee, there has been a rebalancing. But you can't actually rebalance in terms of impact.

You know, if even even organisations like which, which are you know very well resourced and very effective and influential, you put them up against some of the high street, you know, financial services firms. And inevitably there is an imbalance there. So um that's one of the issues. The other, I think uh missed opportunity so far, but hopefully I'm I'm talking now with a CFIT Centre for Finance Innovation and Technology hat on, is the missed opportunity is the use of technology and innovation to address some of these issues.

It has tended to be a reliance on legacy financial services to do the right thing. And the trouble is, I've said it before, that legacy financial services in the UK are almost built as if you know we were still in the 1950s. You know, everybody is in full-time employment, um, they're going to be in jobs for most of their lives, um, and you know, they're they're th they're going to be able to access facilities in that way. That's not the world in which most people live.

And therefore, with FinTech and with the use of technology and innovation more generally, you can find new ways of addressing the way that people currently do live their lives and shape uh services and products to that. And it's the the the committee did make the point about you know fairness in design and how important that was to make sure that the products are appropriate for the way that people lead their lives. I I think it's right that like the point you make about um there being a commercial opportunity here, like yeah, we mustn't lose sight of that.

Of course, there is a commercial opportunity here. I think you know the problem we've had historically is that the commercial opportunity here is you know smaller in the short run and has to be built over the long run. And you know, banks often struggle to take that long-term view. You know, the the CEOs are only going to be there for a few years and their bonuses are all uh anchored to how they drive the share price um between now and and you know, five years' time.

Um but I think the thing that was missing, you know, in the Reeves era was there was no threat either. I mean, you know, I I've now mentioned, I think, on this podcast several times uh the the speech at the UK finance dinner where the economic secretary stood up and when she, you know, and that David Posting stood next to her grinning like a Cheshire cat. And when she sat down, he went, I couldn't have written it better myself or something like that, you know, which is I mean, awful.

Um and I think, you know, basically the the industry was thinking, well, great, you know, the there's no way the Chancellor's going to come for our profits or anything like that at the moment. Already now there's like the idea of windfall taxes and things back on the table. You know, remember the banks have been making massive profits for the last couple of years because since interest rates have gone from zero to five percent, you know, they've just passed all of that straight to the bottom line rather than passing it on to their savings or current account customers.

Um, so it would be very easy for a government to come in and go, you know what, we're gonna have a bit of that. Um and you know, I think so you've got to have a bit of stick in the background if you want the industry to work faster in areas where the commercial return is going to be small in the short run. And I think hopefully we'll We'll see the return of that. I'm not advocating for a windfall tax.

Um, you know, we generally stand clear of tax policy. Um, but there's got to be the threat that, you know, actually it, you know, as Mick likes to say, you know, banks um, you know, they're they're they're they they have a social obligation and uh you know they are like utilities, and then they they need to recognise that. And, you know, of course, government can facilitate a market for them that is very profitable, but they have to also do their part. Um, and hopefully we can see a bit more of that push-pull again, because I think we lost that over the last couple of years.

And I think short of you know, the the use of fiscal policy to achieve those things, um, as the Treasury Select Committee pointed out, the current bill going through Parliament, the Financial Services bill at the moment, does include a fallback option on access to banking services, that if necessary, legislative measures will be taken in order to ensure that people can get access to banking services. So if they've done it in that particular area, it may well be that there are other areas where the government decides, yeah, we we want to make sure this happens.

And if it doesn't happen on a voluntary basis, then we'll make sure it happens on a statutory basis. And that might be through primary legislation, though time is getting short for any of that, but it might be through action that the regulator might take. Um, so you know, I think I think there is that sense that, you know, the invisible hand of market forces sometimes needs the visible boot of regulation to make it work. Absolutely.

And actually, a question for you in terms of parliamentary timescales and the art of the possible. You mentioned the financial services bill that's and markets bill that's going through at the moment. I think it's uh third reading in the Lords or report stage in the Lords at the moment. Um that one is the one that contains the Ombudsman reforms.

Practically, you know, is it is it feasible and possible that that just got canned from it now and gets pulled out? Is that still possible? Uh well, it would be possible if there was a real will to do it. But frankly, James, I don't think it's going to happen.

I can't see that there is the the appetite to make those sorts of changes at this stage. And inevitably, you know, the industry has made the adjustments in anticipation that those changes will will be made. So, you know, I I think it's unlikely to be changed at this stage. You know, I I've we've been making the case here that this is not going to be what they think it is.

You know, I think it could actually open a can of worms for the industry and make things worse. I mean, obviously it's going to create more bureaucracy for the FCA, who are now going to have to have their own complaints department ready to take all these hundreds of referrals that keep coming up from the ombudsman. But, you know, what we still don't know is what that referral mechanism looks like and means in practice. You know, given that the consumer duty sets a bar which is well above where most firms are operating, it could end up accelerating the formalization of policy in areas where the FCA has currently just sort of left that one on the side and said, Oh, we'll get to that later.

Because Ombudsman rulings don't set precedent in a legal way. You know, you have to have regard for them as a firm. Um, but if you know the Ombudsman says, Oh, well, that's a principles-based decision, I'm going to have to refer it up to the FCA. And the FCA goes, Yeah, you're right, actually, the 0% credit card market doesn't offer fair value to a third of its customers.

So that's our ruling. That could overnight just sort of shut that market down. So I I don't know. I I think there's a there's a version of you know the future here where the industry all wonder if they they got the right outcome from all of this anyway.

So I don't know. I know Lucy Rigby's obviously listening, she must be. I mean, what else would she be listening to? Please have another look at that part of the financial services and markets bill.

Put a red pen through it. Well, I think that that wraps up the first half of today's show. Obviously, we'll we'll have to see where these um developments get to after the summer break when um government is back in session. Um and we'll be back after the break to talk about pensions value for money.

Welcome back. As promised, in the second half of today's show, we're going to be taking a look at the government's pensions value for money consultation, which was published in the middle of July. And James, I think we've discussed this at length way back in January, after the SCA published an update on its approach to value for money. And I remember there was quite a bit of history there, wasn't there?

So maybe before we dive into the latest detail, maybe you can quickly bring us back up to speed on the background here. Yeah, I mean, I I think, you know, this really um points to the difficulty of trying to get two separate regulators to work together because um, you know, it all goes back to 2018, really the origins of this when uh the pensions regulator and the FCA, I think, put together a joint regulatory strategy, and then they had a joint discussion paper uh on value for money in 2021.

And then there's been further FCA discussion papers and feedback statements across 2021 and 22, looking at the interaction with um independent governance committees, another joint consultation in January 2023, another FCA consultation in 2024, uh, and then we had the FCA's one at the start of the year, um, you know, which which we discuss and which came up with these new rag ratings: red, amber, light green, and dark green, which I mean, you know, it does seem again like the industry got the better of that debate.

Like, can we have two shades of green? Like two good, two good ones, and only only two not so good ones. Um, so uh, you know, most of that stuff that the SCA consult consulted on at the start of the year, um, you know, looks like essentially it is still uh moving forward as planned. And so what's changed in in the latest consultation?

Well, you know, more a little bit more lobbying from um the industry. So there's a little bit uh more leeway for smaller schemes and when they're going to have to get um behind these new rules because you know, obviously the gov the big government headline on this was you know, there'll be name and shame for poor performing schemes, you'll have these ratings on them, and uh, you know, the press will be baying around uh those people who are in red. Um, but actually, you know, they've now given a bit more leeway for smaller schemes.

Um, the and the regulatory penalties for poor for poor performers also won't come in as quickly. So once you have to start publishing your ratings, they're not gonna immediately start fining you. I think that's not gonna start till at least 2028. Um, so you know, so a few tweaks and adjustments that uh, you know, are I think reasonably sensible, you know, if you're gonna bring in something like this, um, you know, put the burden on the biggest ones first and um, you know, stagger the um, you know, the the fines and regulatory penalties and all of that until the the new system is properly established.

But it is going ahead by the looks of it. Um so we'll have to see. Yeah, and and Chris, what do you make of these changes? I suppose given that most pension schemes are chosen by employers rather than employees, do you think this will have much impact?

Well, I think it it could potentially. And you know, as you say, most schemes are chosen by the employers, and most employers in the past uh it is alleged to have chosen those schemes on the basis of the costs, not on the basis of what their uh employees will get out of those schemes. And you know, we the the very fact is automatic enrolment has been a great success, as we all know, twenty-two million uh people in workplace pensions. But the key word there is automatic.

And since it is automatic, then it it it's um incumbent on a policy to make sure that those people who are investing, saving their hard-earned savings through pension, are getting the best possible outcome for that. So the principle is absolutely right to get the best value for money and is part of an overall agenda which has been going on for some time, which of course is to make sure that those huge resources which sit around in pension funds are part of that growth agenda, are invested productively, mainly in UK uh assets, but also to make sure that they are as productive as possible.

So a switch from a reliance on less risky assets and bonds towards uh you know equities, etc. Now, you you will you can argue that uh moving towards um uh uh a greater base in equities is going to give pension savers a better return. And in the long term, that's absolutely right, and I would support that. There is a caveat to this, that of course that's true in the long term.

It's not necessarily true over short periods of time. And if you're unlucky enough to be in a scheme which has invested heavily in equities at a time when the market is taking a big downturn, then it might well be that your pension income is going to be very much less than you would like. So there's got to be transparency in this, there's got to be choice, and there's got to be protections for those who might find that as a result of this move towards um uh uh a riskier but a more productive um uh use of pension funds could leave them actually in retirement with less than they might otherwise have.

Although, of course, in in the consultation, you know, the government makes the point that um if you look at the variation between schemes, um you uh will find in that it can be between 5% and 13% in terms of the returns. And over a very short period of time, that can mean a significant difference in the amount that is in people's pension funds at the time uh they retire. So overall, I'd be very supportive of the direction of travel, but we do have that, we do need those additional safeguards and that additional transparency and also to help um pension savers understand what this really means.

Yeah, I I don't know a lot about how um corporate pension schemes are sold to employees. I mean, if if this works well, you would assume that if an employer or a you know a scheme provider ends up in red, they would find it very difficult to sell any new business for a year until they've sort of managed to lift their rating. Um, but you know, I wonder whether or not in reality big companies will find ways around it. Will it be possible to launch another scheme with a whole different brand and name on it and then just start selling that?

Um, you know, I I where there's a will, there's often a way in these kind of markets. But um, you know, I think probably what it isn't going to lead to is the employees, you know, banging on the doors of the HR department saying we demand that you move our pension to somewhere better value. Um, but I you know, yeah, I'm I'm always in support of more transparency. Um, so you know, I don't I don't think you know you can disagree with with this.

Uh and you know, good to see it coming to a conclusion after you know what has been almost a decade. I mean, by the time it's fully implemented, it will be a complete decade. Yeah, well, it's been a busy year for pensions policy and there's been lots of controversy around the proposed mandation um and and this requirement to get more schemes investing in UK assets. Um we obviously talked in the first part about changes in the government and how that might impact broader financial services policy.

But I suppose given that we've got the consistency with Torsten remaining, um presumably we can expect to see a continuation of that work. What do you think is that? I I would assume we would, Eve, that this is part of a general drive. Um you know, it it is part of the drive towards consolidation uh to to move towards larger funds that are going to be able to deliver more for pension savers.

Um there is the question about, you know, the the the role of pension trustees who should be making independent decisions on the basis of their own judgment, but being told, yeah, but that's within the parameters in which you really ought to focus on UK assets and certain types of assets. Um and there is a there is a big debate that's been going on there. Um in terms of where I'd fall on that debate, I think probably we do need to make sure that pension trustees can understand that they can invest um in UK assets and still get the best return uh in most cases for pension savers.

So there isn't necessarily a trade-off between the two, but I think there's still an unresolved debate about, you know, just the extent to which the fiduciary issue uh fiduciary responsibility of trustees um you know is is going to be compromised. And what about what about the triple lock? Do you think that's gonna be on the table for you know Andy Burnham started off bold? It feels to me like it would be entirely consistent.

You know, when you think that nobody's mentioned long-term care since Theresa May's death tax moment uh almost a decade ago, and then Andy Burnham does it in week two, uh, it feels like he's on a roll. Do you think we might hear him come out and go, you know what, everybody knows the triple lock is unsustainable and we're gonna have to we're gonna have to look at that. But we'll do it in a way that's as fair as possible. I think that's that's for a second term in the sense that the well, in the sense that it's in the manifesto.

Okay. And what he has said is, yes, there is not going to be another election. Um, but I will stick to the commitments that were made in the manifesto on which people voted last time round. Right.

But I think frankly, the the um uh the weight of evidence is that the triple lock is not sustainable and it's having very considerable intergenerational impact. So, you know, if you look at the way that young people are finding it so difficult to get into employment, to get onto the housing ladder, to themselves build up the sort of resilience and pensions that they need, um, while at the same time the triple lock has meant that you know, many in my generation um have done very well indeed, not only in the housing market and employment and in pensions, private pensions, but in the state pensions as well.

And I think we need a rebalancing across the generations. Yeah, no, I'd agree with that. Yeah, well, we'll certainly be keeping an eye on pensions policy over the next few months. But before we wrap up this week, there's just time for a quick update on the FCA's latest consumer duty publication.

So, James, what did the FCA say in its its latest update? Yeah, I mean, you know, now they do these thematic updates uh about areas of good practice and areas for improvement. Um, this one that was published right at the end of July, so you know, it's probably been missed by most people who are off on the beach somewhere, uh, was about outcomes monitoring. You know, that as ever, they're they're incredibly measured.

Um, you know, they sort of very careful to talk about good things that they saw in their work. Obviously, I normally just skim over those and go straight to the juicy bits. Um, you know, and I think as we've seen from the work we do with firms, I mean, you know, and we work with lots of different types of firms. We can see that in some cases, you know, firms are kind of paying lip service to the juicy rather than really embedding it in the heart of their culture.

They're creating dashboards, but they're not really doing anything with them. So even if you know the light is flashing red and they do something, then they don't follow up and check whether it worked. Or, you know, there's that sort of disconnect. And I think, you know, the the best firms are using data in a smart way, you know, really taking the consumer duty uh at face value and thought, no, we are going to be able to prove that our customers are getting good outcomes.

We're going to define what the harms are, we're going to define what good customer outcomes are. I mean, you know, remarkably, a lot of people, a lot of big firms, um, you know, according to this feedback, which, you know, which is very frustrating, they don't name and shame. I'd love to see them call out the bad ones. But, you know, a lot of firms, you know, haven't even done that kind of simple exercise of working out like, well, what is a bad outcome for our customers?

What might be the bad outcomes here? Other kind of things that we've seen, you know, in some of their other thematic reviews, you know, a lack of testing in in the right ways uh in cases where there is some uncertainty or you know, they're they're thinking about implementing a remedy to fix something, you know, unclear reasons and thresholds for indicators. So they've got the dashboard and they've set their tolerance at 78 or something. And you know, why have you said it there?

Well, we don't know really. It's sort of we looked at where it had been the last few years and it looked like we could probably stay at 78. Well, but you know, actually, why don't we aim for a hundred percent of good customer outcomes rather than 78? You know, it's that sort of thing.

Like, you know, I'm not saying that everyone can go from 78 to 100 overnight, but um, you know, I think there's I mean, I've I know that from when I was a pension trustee in the local authority, I'd always have a go at them for setting their metrics within the boundaries of sort of what they felt was was very achievable this year, you know. And you think, well, it's not that's not the point, is it? You know, like obviously, you know, if you're talking about consumer understanding, we know that it is it is impossible to get customers to understand everything, right?

But question is, you know, I don't in most cases firms are not even getting close to pushing those thresholds. So, you know, they need to be setting themselves more challenging targets, not enough granularity uh of outcomes, um, MI, which again is something that we've talked about before as a kind of failure that we've seen um across many firms. Uh, and then, you know, limited challenge and direction from the board. Um, you know, I think consumer duty became this great focus for a moment.

Uh, you know, indeed, the FCA required people to have a consumer duty board champion. And then when they were under pressure from, you know, Rachel Reeves and team to demonstrate that they were cutting regulation, one of the easy things they decided to do was say you don't have to have a consumer duty board champion anymore. Well, you know, guess what, guys? Turns out that now quite a lot of boards are not really taking consumer duty seriously anymore.

Um you know, so um the you know, it just shows there there's still plenty uh plenty to do when it comes to consumer duty. Well, Chris, maybe I could get you to be slightly reflective because we're now at the third anniversary of the implementation of the tomorrow. Um indeed tomorrow. Um so how much of an impact do you think it's had over those three years?

Well, I think it's had an impact in terms of I I I suppose culture. I'm I'm I'm hesitating using that term, but I think in you know what firms know they are expected to do has changed. Now they may not be doing it in all cases, but at least they know what they're expected to do. And interestingly, the latest evidence seems to suggest that consumers themselves also are getting their heads around the fact that firms are supposed to behave in a particular way.

And whereas it's very difficult for consumers to to understand particular elements of regulation and rules, nevertheless, if they understand that firms must treat me fairly in all parts of my journey through accessing this service or product, that is something they can understand. But it also comes back then to the financial inclusion agenda, because the missing element of that perhaps is financial capability. So you can't only focus on the supply side, you know, the extent to which firms are providing and the way in which they're providing via consumer duty products and services.

It's also the extent to which consumers have the confidence and the understanding to access it. And increasingly, as consumers get to understand that firms have to abide by this thing called consumer duty, that might be the most effective way of enforcing it. So I think there has been that change on both sides, both in terms of firms and in terms of consumers, and that is beneficial. But James, you're right, there's still a lot lot more to do.

Yeah, and you know, uh, I think going back to where we started the whole conversation, if we can, you know, hear from the top that you know the government is behind consumer duty and we can re-empower the FCA to go back to where they were on day one of consumer duty. I mean, the first six months to 12 months of consumer duty was quite an exciting time. Uh, you know, they wanted to come out the gates and make lots of examples of sectors. You know, there was the whole investment platforms are not paying enough interest on cash and they're double dipping.

There was the whole shutting down of the gap insurance market, St. James's places share price and free fall after it was on the front page of the FT. Um, you know, that that it felt like this was a policy that was really going to change the industry, and then all the life was sucked out of it. Um, so I do, you know, we have seen and we continue to see lots of improvements because we work with firms helping them on this stuff.

Um, but you know, that the the sort of the way we always thought and hoped consumerity to. Would work was it would be used as a ratchet. And the FCA would sort of run around, they do their sector by sector, theme by theme reviews. They'd say, Right, we've had a look.

And you know what? Good is here right now and bad is here. And then they start again a couple of years later and they go, Oh, actually, good is now here and a bit higher. I'm realizing that using my hands on a podcast is probably not that helpful.

I just they have to get it from the tonality in my voice. Um so I think that bit has stopped, uh slowed down a little. And I think, you know, as we said before, that combined with the the sort of canning of the name and shame reforms, um, you know, that that the proposal the FCA had to sort of name and shame people at an earlier phase when they were under investigation, I think has left them a little bit cowed, and we we see them a lot less bold over the last couple of years.

So I'd love to see them, you know, given given that um that empowerment again, so they can get out there and and use the consumer duty um to its full potential because it's got a lot more potential that than than lay used. I remember James Children Mills speaking at um one of your anniversary events. Uh and um he was you know at that time, you know, he as one of the principal architects of the way this thing was going to be implemented, you know, he was full of energy and enthusiasm about it.

I think is right. And it it may be that some of that has been lost. Um, but I think there's also a danger that we ask consumer duty to do too much of the heavy lifting. You know, the the the industry had argued that, oh yeah, yeah, uh we know it's outcomes-based, but can you tell us what the rules are to make sure that we've actually fulfilled the right outcomes?

No, that's not what you're supposed to do. But there are certain areas, and I think in crypto regulation, for instance, where you do need some underpinning rules where it's absolutely clear to both firms and consumers, you know, what the expectation is, underpinned, of course, by consumer duty overall, but something that's very specific. And over time it may be that that's less and less necessary, but in certain sectors and in in particular in investments, um, it seems to me that we probably do need to make sure that there is a partnership between the rules and the consumer duty to make sure that we get the right outcomes for consumers.

Yeah, 100%. I totally agree with that. I mean, you know, we talked about it in the context of disclosures before, where, you know, in some areas it is actually quite handy to have a kind of format that is reasonably standardized so that consumers go, oh, that's that thing, you know. Um and you know, if you just leave it open to the market and everybody to serve up their information of a very complex product in lots of different ways, uh, and just say the only thing that matters here is good outcomes, um, you know, you can just potentially kind of build in more confusion and more outcomes broadly across the sector.

So it's got to be a combination of both. But I think the uh the consumer duty is an overarching framework that says, you know, first of all, guys, you need to be able to prove to us that you're working to deliver good customer outcomes is a great thing. And uh, you know, you know, as we said, financial service industry is in an infinitely better place than it was 25 years ago. Um, but you know, let's do let's do that next step and get to the point where people don't kind of cross their fingers and assume their insurer is gonna you know refuse the claim or um that the bank is gonna let them down.

And we're almost there, you know. Uh and then you know that builds consumer confidence and hopefully builds sales for the industry as well. So it's not a you know, it's not a zero-sum game either for the industry. There's there's opportunity there.

Absolutely. Well, of course, the duty is a perennial on the FF podcast, so I'm sure it won't be long till we're discussing it again. But I think that's all we've got time for this week. So, as ever, a big thank you to our producer, Phil Moynihan.

This is actually Phil's last podcast as he's off to take up an exciting opportunity at St Andrews University. So we're sending him all our best and a big thank you to all the work he's done on the podcast. As ever, thanks to composer Eamon O'Dwyer for creating our music, and of course, a special thank you to Chris for joining us as our third and final guest uh during Tim's paternity leave. Um, we really hope you've enjoyed this week's episode.

If you have, we'd love you to leave us a review on whichever platform you listen to us on, or better still, share a post about us on LinkedIn, or maybe let a few of your colleagues know. As ever, if you want to get in touch with us to let us know what you think about the show or to suggest topics for future episodes, you can email us at varafinance at varafinance.com. This is our last episode for a few weeks as we take a summer break, but fear not, we'll be back in September when we'll be welcoming Tim back as well to the show.

Um but thanks for listening and have a great rest of your summer life for now.