It's hard to let go, but RBS needs be returned to market

Let’s get out of this business, and invest in something more worthwhile, writes James Ratcliff.

I was humiliated last night. After dinner in a favourite restaurant I handed my card to the waitress and had the gut-wrenching experience of being told it had been declined.

After a second failed attempt, I fished out another credit card—one I rarely use—typed my dog’s birthday into the card-reader, and crossed my fingers. Fortunately, it worked and we were allowed to leave without having to do the washing up.

Of course, I bank with Natwest, and I ought to have gotten used to this by now. It certainly proves one thing—you really cannot rely on a single bank.

Payments services are not yet a human right, and banks long ago gave up trying to treat their current account holders with respect. The onus is on us not to let them embarrass us in restaurants and encourage people to use premium rate phone lines when we need their help

In this climate, it is no surprise that credit unions—resolutely local lending and savings organisations—are seeing a resurgence

This latest payments fiasco comes the same day that Bank of England governor Mervyn King told us that we, as majority stakeholders, need to cut our losses in Natwest’s parent company RBS.

"RBS is worth less than we thought and we should accept that and get back to finding a way to create a new RBS that could be a major lender to the UK economy,” he said.

This effectively means separating the bank’s retail and investment arms, but the question remains, how do you create a major lender to the UK economy if you’re going to pare it down to its core retail operations? It hasn’t really worked for Northern Rock.

It is a balancing act. RBS clearly needs some fairly drastic pruning—through its Citizens Bank subsidiary we own and run 1,200 bank branches in the US, which seems a bit extravagant for a state-owned lender. And that’s not to mention RBS’s much-derided investment operation. However, a bank does require scale in order to work on anything other than a very local level.

King was clear in his view that this balance is not unachievable. “I do not believe it’s beyond the wit of man to devise a plan to restructure RBS [and] divide it into a healthy well-capitalised bank capable of lending to UK economy,” he said. “It does mean accepting there are activities that are likely to generate continued losses, and need to be separated from the healthy bank – in that sense it would a be a good bank/bad bank split.

"The whole idea of a bank being 82 per cent-owned by the taxpayer, run at arms' length from the government, is a nonsense. It cannot make any sense.

"I think it would be much better to accept that it should have been a temporary period of ownership only, to restructure the bank and put it back. The longer this has gone on the more difficult it has become to return RBS to the market.”

Definitely not a bad idea, let’s get out of this business, and invest in something more worthwhile.

But, while I know it’s never a good idea to throw good money after bad, I wonder if we could stretch to buying the bank a few new computers before we get rid of it. At least then Natwest customers will actually be able to access their money when they need it, and we will have achieved something.

Photograph: Getty Images.

James Ratcliff is Group Editor of  Cards and Payments at VRL Financial News.

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Stability is essential to solve the pension problem

The new chancellor must ensure we have a period of stability for pension policymaking in order for everyone to acclimatise to a new era of personal responsibility in retirement, says 

There was a time when retirement seemed to take care of itself. It was normal to work, retire and then receive the state pension plus a company final salary pension, often a fairly generous figure, which also paid out to a spouse or partner on death.

That normality simply doesn’t exist for most people in 2016. There is much less certainty on what retirement looks like. The genesis of these experiences also starts much earlier. As final salary schemes fall out of favour, the UK is reaching a tipping point where savings in ‘defined contribution’ pension schemes become the most prevalent form of traditional retirement saving.

Saving for a ‘pension’ can mean a multitude of different things and the way your savings are organised can make a big difference to whether or not you are able to do what you planned in your later life – and also how your money is treated once you die.

George Osborne established a place for himself in the canon of personal savings policy through the introduction of ‘freedom and choice’ in pensions in 2015. This changed the rules dramatically, and gave pension income a level of public interest it had never seen before. Effectively the policymakers changed the rules, left the ring and took the ropes with them as we entered a new era of personal responsibility in retirement.

But what difference has that made? Have people changed their plans as a result, and what does 'normal' for retirement income look like now?

Old Mutual Wealth has just released. with YouGov, its third detailed survey of how people in the UK are planning their income needs in retirement. What is becoming clear is that 'normal' looks nothing like it did before. People have adjusted and are operating according to a new normal.

In the new normal, people are reliant on multiple sources of income in retirement, including actively using their home, as more people anticipate downsizing to provide some income. 24 per cent of future retirees have said they would consider releasing value from their home in one way or another.

In the new normal, working beyond your state pension age is no longer seen as drudgery. With increasing longevity, the appeal of keeping busy with work has grown. Almost one-third of future retirees are expecting work to provide some of their income in retirement, with just under half suggesting one of the reasons for doing so would be to maintain social interaction.

The new normal means less binary decision-making. Each choice an individual makes along the way becomes critical, and the answers themselves are less obvious. How do you best invest your savings? Where is the best place for a rainy day fund? How do you want to take income in the future and what happens to your assets when you die?

 An abundance of choices to provide answers to the above questions is good, but too much choice can paralyse decision-making. The new normal requires a plan earlier in life.

All the while, policymakers have continued to give people plenty of things to think about. In the past 12 months alone, the previous chancellor deliberated over whether – and how – to cut pension tax relief for higher earners. The ‘pensions-ISA’ system was mooted as the culmination of a project to hand savers complete control over their retirement savings, while also providing a welcome boost to Treasury coffers in the short term.

During her time as pensions minister, Baroness Altmann voiced her support for the current system of taxing pension income, rather than contributions, indicating a split between the DWP and HM Treasury on the matter. Baroness Altmann’s replacement at the DWP is Richard Harrington. It remains to be seen how much influence he will have and on what side of the camp he sits regarding taxing pensions.

Meanwhile, Philip Hammond has entered the Treasury while our new Prime Minister calls for greater unity. Following a tumultuous time for pensions, a change in tone towards greater unity and cross-department collaboration would be very welcome.

In order for everyone to acclimatise properly to the new normal, the new chancellor should commit to a return to a longer-term, strategic approach to pensions policymaking, enabling all parties, from regulators and providers to customers, to make decisions with confidence that the landscape will not continue to shift as fundamentally as it has in recent times.

Steven Levin is CEO of investment platforms at Old Mutual Wealth.

To view all of Old Mutual Wealth’s retirement reports, visit: products-and-investments/ pensions/pensions2015/