The Sandler report into the UK savings industry has the potential to benefit both consumers and the savings industry, according to the UK government.

Treasury Financial Secretary Ruth Kelly said the report's proposals should make products easier to understand, and help meet the aim of encouraging more people to save long-term.

Consumer groups have also welcomed the report as a "much-needed shake-up" for the savings industry.

But fund manager Fidelity Investments slammed the report, describing it as "fundamentally flawed".

Broader appeal

In a statement to the Commons, Ruth Kelly said the report's findings could benefit everybody.

"Ron Sandler's recommendations have the potential to bring benefits for consumers, for the retail investment industry and to improve the workings of the market," she said.

"They will mean more competition, greater efficiency and more productive investment"

Consumers will still need basic financial advice that is independent as well as affordable

National Consumer Council

Ms Kelly welcomed the idea of a range of stakeholder products, which would have low charges and could be sold without regulated advice.

"His proposed stakeholder products will be easier for people to understand and viable to sell to a wider range of less well-off people."

She said the government would now consult with the City watchdog the Financial Services Authority, and with consumer groups on how to improve choice for the customer.

The Shadow Chancellor Michael Howard said the Conservative Party welcomed many of the recommendations, but also gave a warning.

"Simplicity and cheapness are desirable objectives," he said.

"But haven't we seen with stakeholder pensions that simplicity and cheapness do not always by themselves succeed?"

More advice needed

The National Consumer Council (NCC) said the report's findings were "a much-needed shake-up of an industry that serves consumers extremely badly".

But the NCC warned that people would still need affordable financial advice when buying new stakeholder products.

"Attaching 'plain English' warnings to the proposed new class of 'stakeholder' equity-linked savings products is not enough to guarantee safety from misselling or misbuying," said NCC director Anna Bradley.

"Relying on beefed-up consumer education is unrealistic. Consumers will still need basic financial advice that is independent as well as affordable."

The worry was echoed by the Chartered Insurance Institute and its financial services arm the Society of Financial Advisers.

Director general Dr Sandy Scott was concerned that people might " purchase inappropriate products, not only because of a poor understanding of their personal finance needs, but also limited and inadequate information to help them."

Bigger market

Insurance companies said they were pleased with the report's findings.

Legal & General said consumers confidence in the savings industry would be helped by the provision of simple low cost products.

And Norwich Union said it expected the market for savings products to grow if the report's proposals were implemented.

'Flawed' study

But the UK's largest fund management company, Fidelity Investments, said the report would do little to improve the savings habits of UK investors.

Mr Sandler questioned the effectiveness of actively managed investment funds - where fund managers aim to outperform the stock market - over so-called tracker products, which simply follow the market

The report said higher fees often removed any advantage active funds might have.

But Fidelity said the assumption that actively managed funds were ineffective was incorrect.

"This government has consistently sought to undermine the active fund management industry for political ends," said Fidelity's managing director Richard Wastcoat.

"The industry has, while delivering consistently higher average returns than index trackers over the last five years, successfully reduced its costs and charges.

"The government has failed to recognise this, persisting instead with its misguided attempts to try and close the savings gap by seeking to impose mediocre products on supposedly unwitting consumers and cutting them off from proper advice by misguided price controls."