Brexit, Budgets and Savings: improving the financial resilience of the people
Improving the financial resilience of people so they are better placed to meet the demands of day-to-day life whilst at the same time saving and making provision for their future should be a key theme for the chancellor's Spring Budget.
And, of course, this year it must be done within the context of Brexit. How can we best meet the challenges posed whilst the exit negotiations are taking place, as well as ensuring that the UK can make the most of the opportunities that Brexit offers, especially for world trade?
But before we look too far ahead, there are three overriding factors that need to be addressed if we want to create a solid base to support people and their financial wellbeing through the various stages of life. Many of these will also benefit the UK's economy too.
Digitalisation is now an everyday part of life; we are used to purchasing goods and services online and many of us manage our finances in this way. Yet it can still be problematic if we want to open new accounts or transfer assets to new providers using online services.
The world of FinTech is also delivering a range of apps that make it easy to save. All rely, rightly, on consumers having to prove that they are who they say they are, and that anti-money laundering regulations are met.
We need a better way for people to validate their identity, and our project to deliver a digital identity for consumers of financial products offers the perfect solution.
It's a once-only validation service that will meet Financial Conduct Authority (FCA) regulatory requirements and make accessing the digital world of financial services straightforward.
Following a successful emulation phase a pilot testing programme will take place this year.
A digital identity would help consumers engage with their personal finances and support the government's aim to advance the development of the UK's FinTech market, benefiting our economy and paving the way to enhance the sector post-Brexit.
It is also clear that many households will reach retirement with saving levels below their expectations and will be turning to available assets to boost income.
People's homes will become a key part of the solution; however, this may not provide the full answer, as we are seeing income shortfalls that exceed the potential uplift that downsizing or equity release might deliver.
Most of us are not planning sufficiently regarding how the combination of savings, pensions and our home will support us in our retirement.
We need to encourage and increase retirement savings; but we should do more to help people to factor in a realistic expectation of how equity in their home may also contribute to creating an income.
There is an increasing over-reliance on home equity in the UK, and we need to address this to avoid millions of people facing financial hardship in retirement.
For that reason we are recommending that both guidance and advice incorporate equity in the home as part of financial planning, in the same way we do for pensions and other savings. Then people can take the appropriate steps to secure their financial security in retirement.
Thirdly, we believe that financial guidance is critical in helping consumers engage with their personal finances and take decisions that support their financial wellbeing. It's pleasing to note that this is a priority area for HM Treasury and the FCA.
There are many benefits from the financial services industry being empowered to offer guidance.
KITEMARKED GUIDANCE FRAMEWORK
But it is important that this is linked to government bodies' provision of guidance so that consumers have similar experiences, receive the same rules of thumb or guidelines, and have similar outcomes in respect of the generic options that meet their general situation and financial goals.
For this to work, the difference between advice and guidance needs to be clarified; we also need to develop a kitemarked guidance framework that can be adopted by financial services firms and create a standard, portable FactFind and financial plan.
It's also important to minimise barriers to entering the market for firms seeking to offer guidance propositions, making it clear to consumers what they can expect and simultaneously offering a degree of protection from the risk of inappropriate services.
Standards are essential to ensure the consistency and quality of the consumer experience, whoever offers a guidance service.
We expect 2017 to be a formative year as the future shape of guidance services take shape.
If we can align this with the development of an independent guidance service within MAS and the proposed single guidance body that would ease older people into the decision-making process of how to use their housing assets to help support their post-retirement costs, and can make the digital identity a reality, then real progress will have been made.
David Dalton-Brown is director general at Tisa.