Jeff Salway: No good news on horizon for struggling savers

Each year since 2009 has begun with calls for more to be done to help the millions who have watched helplessly as the income from their savings has been wiped out by inflation. For many pensioners relying on the income from their cash savings to supplement their pensions, the impact has been brutal. Unfortunately, however, there’s little reason to expect any improvement. The final months of 2012 were depressing for anyone waiting for banks and building societies to do more for savers. By giving lenders cheaper access to cash, the funding for lending scheme may be delivering a boost for borrowers, but it’s not working well for savers. Cheaper borrowing for lenders means they don’t need to rely on savings deposits to raise the money with which to lend. The result has been entirely predictable. Taxpayer-backed Lloyds Banking Group slashed the rates on Isas by up to 1.4 per cent late last year, while other providers withdrew or reduced their deals. That is continuing into the new year, sending the average savings rate downwards. Not a single easy access account provides cash returns above inflation, and only a handful of Isas. Even then they’re likely to come with a sting in the tail, in the form of introductory bonuses that, once removed after six or 12 months, leave you with an account paying below 1 per cent. In 2012 the situation was helped a little by lower inflation, but rising food and domestic energy prices are set to drive the consumer prices index (CPI) inflation measure past 3 per cent and it’s likely to stay above that level for some time. The answer for many could lie with investments that offer some protection against investment, equities in particular. But for the individual or family putting aside £25 a month that they may want to dip into at short notice, and not wanting market exposure, that’s unrealistic. Where will it end? How will eight years of being unable to secure cash returns above inflation affect savings levels and the way in which we put money aside for the future? Little has been said about the long-term impact, but it could be significant. The banks should take it seriously, for they could lose out if they continue to short-change savers. The likes of the peer-to-peer websites will only gain in popularity as high street deals remain poor, while the supermarkets and overseas savings brands dominate the savings best buy tables. The high street names won’t be worried now, but the days of them being first port of call for anyone opening a savings account may be numbered. The retail distribution review is now in force, meaning that, among other things, commission funded advice is banned and advisers must meet higher qualification standards. But it’ll be some time before the controversy over the new rules, which took effect on 31 December, fully dies down. The RDR has been the source of much anger among IFAs since it was first set out in 2006. There are some valid reasons to be grudgeful and for some IFAs, no second invitation is required. But the Financial Services Authority (FSA), the City regulator, doesn’t help itself. It emerged this week that it has sent letters about RDR requirements to some 6,000 firms, many of which had the wrong firm name and address on them. It transpired the mistake was due to a systems error (which seems particularly apt, given the letter concerned the professional standards of advisers). The content was the same so fortunately it wasn’t confidential or sensitive. It shouldn’t really matter, except advisers have been very quick to point out that the regulator takes a very dim view of such mistakes when they’re perpetrated by firms under its watch. Any notion the RDR would cease to be a subject of debate once it took effect should be dismissed. The regulator will be looking very closely at the way in which providers and advisers have adapted, as it should be. Already there is evidence of charges that go against the spirit of the new regime by creating the potential for biased advice, putting consumers at a disadvantage. Expect some high profile fines as firms are made an example of.