Project summaries
This pamphlet discusses the potential role of ‘gateway organisations’ in the provision of financial services and welfare. It sets out some of the theoretical arguments for such organisations, describes some practical examples, and identifies some of the issues in making such developments a practical success.
In this pamphlet, the term ‘gateway organisations’ or ‘gateways’ is used to describe intermediary organisations which operate on behalf of their members to help them obtain services from providers of financial and other services. Obvious examples are trade unions (e.g. with respect to pension provision for their members) and housing associations (e.g. with respect to household insurance for their tenants). Mutuality is an important aspect of this definition: in contrast to private sector intermediaries, such as independent financial advisors and supermarkets, the objectives of a gateway organisation simply reflect the interests of their members, rather than of others such as shareholders.
There is no single definition of the scope of the gateway’s role. At its most limited, it liaises with providers and consolidates large numbers of small accounts in a way that reduces administrative costs and maximises benefits. It might also take on a proactive role, advising its members of the need for pension provision, insurance, etc. And it might also take on and administrative role, for example organising the collection of payments. The paper by Barry Dixon and Adrian Boulding discusses such roles with respect to the specific example of the Printing Industry Pension Scheme. The paper by James McCormick discusses such roles with respect to household insurance for those in social housing.
More ambitiously, gateway organisations could potentially be the centres for access and delivery of a wide range of products and services. This is the subject of George Yarrow’s paper, where he sets out the arguments for the emergence of ‘Approved Welfare Providers’ as the basis for fundamental welfare reform.
Nick Donovan’s paper discusses some of the theoretical arguments. These can be divided into four broad headings:
As the number of financial products in the marketplace grows, choosing between them becomes more difficult, and consumers become more dependent on third party advice, for example from independent financial advisors. But, as the recent history of the pensions industry demonstrates, such an environment requires extensive, and expensive, regulation and, even then, risks remain. Perhaps more fundamentally, but certainly less explored, the combination of financial advisors and regulation results in an environment which relies heavily on the individual’s initiative and judgement to ensure adequate provision.
One reaction to this situation is simplification and standardisation. This is one of the major themes of the government’s approach, for example in the area of stakeholder pensions, and is a subject upon which the New Policy Institute has previously written. But a recurring theme of all the papers is that sole reliance on such an approach stifles initiative by providers and results in products which are insufficiently tailored to individual circumstances. Gateways may offer an environment in which products can be more varied without risk and cost to the consumer becoming unacceptable.
A clear trend in the insurance industry over recent years has been a growing divergence in premiums depending on the individual’s circumstances, as technology allows providers to pinpoint risks ever more closely. If you live in one postcode, your household insurance may be orders of magnitude greater than if you live in another. As McCormick discusses, one consequence of such developments is that those most in need of insurance are the least likely to have it. This is clearly a matter of political concern, as it penalises the most vulnerable. Gateways can resist this trend by pooling risks across their membership, ensuring equal treatment for all members.
Related to the above, private sector providers naturally focus on the less vulnerable and more affluent, actively competing for such business but with little or no interest in providing for more vulnerable groups. The demutualisation of financial services providers over the last few years cannot have helped this trend. Gateways offer a potential vehicle for governmental or other initiatives specifically aimed at the more vulnerable.
Whereas the three reasons discussed above all relate to trends in the marketplace, this final reason relates more to the governmental approach, both of this government and the last, to the provision of welfare provision. This is best demonstrated in the area of pensions, where provision of second pensions, organised by the individual and provided by the private sector, is a clear government policy. As Dixon and Boulding discuss, the government is asking the private sector to increase its sales of pension provision by 50%, whilst also wanting costs cut and risks minimised.
As Yarrow discusses, however, relying solely on commercial organisations to take on such challenges is problematic, with inevitable conflicts of interest between customers and shareholders. Instead, he proposes that they play a role in providing a range of sub-contracted services that lie within their area of expertise. The role of managing the contracts, and that of overseeing the new pension schemes generally, would fall on new types of intermediary organisations called Approved Welfare Providers.
This issues under this heading can be divided into two broad categories:
This subject is discussed by Dixon and Boulding, and by McCormick. The first theme emerging is that of communication/promotion: awareness has to be raised throughout the membership and that promotion must be active. The communication must also not be distant and remote: local relationships with one-to-one, face-to-face communication are important, and site visits and roadshows have a role to play.
The second theme emerging is that of branding: the gateway organisation must have standing with its membership and the products must demonstrate value for money. Co-branding is an important aspect of this; for example, in the area of pensions, the employer must be fully on board and engaged in the process, with a close partnership between trade union and employer. Similarly, active involvement by the relevant services companies brings reassurance. Industry-wide schemes can provide further reassurance in the case of small employers.
The third theme relates to financial contributions by third parties, for example, employer contributions to conventional company pension schemes. These contributions are clearly an incentive for individuals to participate. The key question, as yet unanswered by the relatively small number of gateway developments thus far, is whether third party contributions are a prerequisite to the development of Gateways on a widespread scale.
McCormick summarises some research by the Joseph Rowntree Foundation, which asked social housing providers why they did not offer a tenants’ gateway scheme. The key finding was that most of the concerns were of a practical nature, rather than any opposition in principle. McCormick concludes that the financial services providers can and must address this concern.
Whilst the need for practical help and advice is clearly necessary, the question is also whether it is sufficient. There is a worrying analogy with the development of Credit Unions in the UK: there is no shortage of advocates for Credit Unions, the need is clear, and political profile and interest is high, but thus far they have simply not developed on the scale required to address the mainstream issues of financial exclusion. Furthermore, thus far they have had a natural tendency to gravitate towards the less vulnerable.
More generally, the more pervasive and wide ranging developments envisaged by Yarrow will clearly not happen without active government leadership.
The aim of this pamphlet is to stimulate the debate about Gateway organisations, both theoretically and at the more practical level. As the various papers demonstrate, there are strong arguments for their development and clear examples of success. But individual successes do not make for widespread development with financial contribution and the role of government remaining the two key areas of concern.
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