Question: Who is your membership made up of? And why is it important to represent their concerns?
Richard Saunders:Fund managers form the membership of the IMA and I think a lot of people probably have only a fairly hazy idea of what fund managers do. In the simplest terms, they look after the long-term savings of everybody in the country. If you have a stocks and shares ISA, or if you have a company pension or a personal pension, ultimately, you are a client of a fund manager.
Fund managers are a different group of people from others in the City. What distinguishes them from investment bankers, stockbrokers and so on is that the relationship the fund manager has with the client is an agency one.
In other words, when they are investing in the market, they are investing your money, doing it on your behalf, and they are accountable, answerable to you, for doing it. This is a completely different relationship to that which people have with banks or insurance companies. The fund manager does not hold the money himself; he invests the money on behalf of the client.
Everybody is ultimately a client of this industry so it is important for the industry to engage with all the issues of the day around long-term saving.
Question: Can you tell me about your key areas of work this year?
Richard Saunders:Obviously a big one for us is the current Pensions Bill, and with it, the design of the personal accounts system which is going to be introduced in 2012. This is going to be a major investment project and it will become an important investment product that many millions of people will have. It is therefore important that it is designed properly so that it will deliver the maximum benefit to members of the scheme.
We are working very closely with the Department for Work and Pensions, with the Personal Accounts Delivery Authority and through Parliament to make sure that we advise and contribute to the design of the scheme to ensure it delivers the best possible benefits for its members.
Another big focus for the IMA is the role of Europe with regard to the fund management industry. The industry has a very strong European outlook, there is a vibrant market in cross-border sales of funds in continental Europe with British fund managers selling products to Germany, Italy, France, Spain, and so on, and vice-versa.
A lot of this is being expedited or made possible by a series of UCITS directives and we are hoping that a further directive will be coming out of Brussels in the near future, which will help to make that cross-border market work even better so that firms can operate even more efficiently and make use of the opportunities created by a single European market.
We are also focussing on issues around tax. In many ways the impact of taxes on funds tends to have a number of unintended consequences, and we have been in close dialogue with the Treasury about this. Something that was initiated first by Ed Balls but has been carried on by his successor Kitty Ussher MP is to see if we can simplify and streamline some of the tax rules around funds in order to make the UK a more attractive place to run funds, relative to other centres like Dublin and Luxembourg, in the pan-European context I have just mentioned.
This is not something that involves cutting taxes for funds. Far from it. Ultimately, if the work is successful it will mean the Treasury will actually raise more taxes because there will be more business done in London. We are working very constructively with the Treasury and with HMRC on a whole series of technical reforms and we hope over the next year or two we will make the UK an even more attractive place to run a fund management business.
Question: You have recently released new research demonstrating how non-annuity investment products can provide a lifetime income for retirement, what are you calling on government to do?
Richard Saunders:We have felt for sometime that this area was overdue for another careful and fundamental look. At the moment people retiring with a pension pot are required by law to buy a product called an annuity by the age of 75. This is a requirement that obviously only applies to personal pensions and it is not relevant to any final salary scheme. However as more and more people become members of personal pension schemes, defined contribution schemes and the like, the choices they have for providing them with income in retirement is going to become more and more important. It will also be important for people within the personal accounts scheme.
We think that it is possible to bring forward other products; non-annuity products, non-insured products, which can achieve the same objective of giving somebody a reasonable income at retirement. Currently, government rules do not allow this and I think that there is a need for greater choice in the market. Indeed, this will only get more important over time.
Question: Was the IMA happy with the chancellor’s 2008 Budget?
Richard Saunders:Yes we were and I think that a number of the measures addressed in the Budget will also be dealt with in the Finance Bill, such as property funds. While there is more to do on the Finance Bill, we are very happy with the progress that has been made there.
I pay tribute to Kitty Ussher and to the Treasury team for the way that they have approached it.
Question: Can you tell me about the 'Guide to Personal Finance'? How is this going to help MPs?
Richard Saunders:All of us in this business are very conscious that for many people financial matters are quite intimidating and appear quite difficult. So a number of financial trade associations have come together under a banner that we call the 'financial fringe'. We already work together to organise fringe meetings at party conferences and have now produced what we hope will be a very helpful simple guide for MPs to be able to use with their constituents. We have designed it as a series of little modules dealing with specific issues like pensions, ISAs and mortgages.
When a constituent goes to their MP with a financial concern, the MP can simply copy the relevant pages from the guide and give them to the constituent.
Question: What is your position on the recent interest rate cut?
Richard Saunders:I think it was right. Many IMA members are users of the market, and they invest money in the financial markets. Their clear view is that cutting rates has to be part of sorting out the existing problems. I think we will probably see more interest rate cuts through 2008 and we will welcome this.
We are, however, less convinced that the recent package of £50bn support for the banks will be effective. The true causes of the credit crunch lie in a lack of confidence in the value of certain types of financial instruments, and hence about the strength of the banks which hold them. The fastest and cleanest way to resolve the crisis is for the institutions concerned to declare the full extent of the losses they have suffered and if need be take the consequences. Making more funds available to them runs the risk of simply postponing this necessary reckoning.
Question: Do you have any final comments for ePolitix.com readers?
Richard Saunders:Right now the financial markets are in a state of some turmoil; the impact of this has, up until now, been largely confined to the City and to the financial sector, but we are beginning to see some of that spilling over to the mortgage market. I think I would underline the importance of finance and financial services to everybody’s everyday life.
The IMA has a particular interest in saving which again is something that is increasingly important. More and more people are going to have to make provisions for themselves. In order to assist people with this, organisations like the IMA want to be open and accessible. We want to engage with members of Parliament and we hope that they will take up that invitation.