Advice for applicants

Savings (Government Contributions) Bill – in a Public Bill Committee at 9:25 am on 1 November 2016.

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‘(1) The Secretary of State must make provision by regulation to ensure all providers of Lifetime ISAs or Help-to-Save accounts provide applicants, at the point of application, with—

(a) advice about the suitability of the product in question for each individual applicant, and

(b) information about automatic enrolment and workplace savings schemes.’—

This new clause would require advice for those seeking products that also includes information on automatic enrolment and workplace savings.

Brought up, and read the First time.

Photo of Ian Blackford Ian Blackford Shadow SNP Spokesperson (Pensions)

I beg to move, That the clause be read a Second time.

This new clause builds on new clause 2, tabled by the hon. Member for Bootle, and it makes specific reference to advice to be given on automatic enrolment and workplace saving. Many people are in the dark about what they can expect from the state and their employers when they retire. The complexities in the system and in products and the lack of independent advice are not only confusing but may lead to a lack of uptake on saving.

In March 2016, Citizens Advice, which delivers the face-to-face channel of Pension Wise, found that some of the most used pension terms were confusing for customers. It said that people would find it easier to understand their pensions if the industry used simple, standard language to describe its products. It says that some people are also unclear about terms that appear to be more straightforward, which puts them at risk of missing out on the best pension options for them.

In July, the Bank of England’s chief economist, Andy Haldane, admitted that pensions had become so complex that even he could not make the remotest sense of them:

“I consider myself moderately financially literate—yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing—that they have no clue either. That is a desperately poor basis for sound financial planning.”

Giving customers access to advice will allow them to weigh up their options and decide where they can save the most for their retirement. Figures from the Association of British Insurers that expose the fact that investors will lose thousands of pounds by saving into a lifetime ISA rather than a workplace pension support the need for savers to be aware of their options and of how much they will get in return.

True Potential LLP supports calls for financial education. The Tackling the Savings Gap campaign places financial education alongside technology and regulation as one of the three core requirements needed to close the gap. The amendment is important because it would put in place the necessary steps for providing advice that would ensure that savers, and those who should be investing in pensions, do not end up in the wrong place.

New clause 2, which has already been debated, is on a similar subject, and I therefore remind Members wishing to speak to new clause 4 that their remarks should cover new material, and not be a repetition of the debate we have already had.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I rise in support of the new clause. I believe that most citizens would benefit from this kind of advice. As the hon. Member for Ross, Skye and Lochaber said, even experts in the field of economics and finance are sometimes puzzled and at a loss when it comes to deciding what to do regarding savings and investments. The new clause is eminently sensible and would be a strong addition to the Bill. I would have liked this kind of advice when making my own investments back in the 1960s and 1970s.

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Westminster Group Leader (Social Justice and Welfare)

The issue was summed up for me last week when we heard evidence and got into a rather esoteric discussion about “taxed, exempt, exempt” and “exempt, exempt, taxed”. That is just gobbledegook to the average person, including me. We absolutely need to translate that into language that normal people, with a normal level of financial literacy, can understand.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

I thank the hon. Lady for that useful intervention, with which I strongly agree. I hesitate to say this, because I said it before, but it has been calculated that 50% of the population are not functionally numerate—they do not understand percentages and that kind of thing—so advice of this kind is vital for the ordinary citizen. I hope that the Government see fit to accept the new clause, and that we can move on.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I will try to observe your stricture, Mr Wilson, and not go over ground that we have already covered.

The Government do not disagree with the intention that everyone should get good advice before they take out a pension, and I certainly would not argue with the fact that for many of us, however well-informed we might like to think ourselves, such things can be confusing. The reason I will ask that the clause be withdrawn is simply that the solution it presents is not correct. Also, there are things in place to steer people, which I will touch on.

It is worth reminding the Committee about the definition of advice and guidance. “Advice” is financial advice involved in the provision of a personal recommendation for a specific product. It takes into account the wider circumstances of the person to whom the advice is given, and must be suitable for them. The definition also mentions regulated products. That is at the heart of the matter. I give a commitment that the Government will ensure that clear and accessible information about the lifetime ISA and Help to Save is available, so that potential customers can make an informed choice about whether the accounts are right for them.

Our impact assessment, which was based on a costing certified by the independent Office for Budget Responsibility, shows that our costings do not assume that people will opt out of workplace pensions to save into a lifetime ISA. However, as I have outlined, it is ultimately the role of the independent Financial Conduct Authority, not the Government, to set the regulatory framework for providers that will offer the lifetime ISA, including setting out any suitability tests that should apply. The FCA will consult on its regulatory framework shortly. It will ensure that providers are transparent to customers about the product, and that the products are sold with suitable safeguards in place.

I recognise the importance of individuals making an informed choice about whether Help to Save is right for them. Some may well be the same people who stand to benefit enormously from auto-enrolment. I have stated our commitment to that a number of times. We know that the Help to Save target audience may have less experience of financial products than the population on average. That is why we have already committed to work with interested parties to ensure that the right support and information are available, so that eligible people can decide whether the account is right for them. That will involve information and support from Government and the account provider, but we are also keen to explore a role for local organisations that are well placed to support the target population, such as local charities, advice bodies, social housing providers and the Churches, many of which have very good outreach and advice provision for people suffering from financial exclusion.

While we want to ensure that people have the information that they need, we must ensure that opening an account is as straightforward as possible. Requiring the account provider to give financial advice to every applicant makes the account application process more complex and time-consuming, and risks discouraging eligible people from opening an account. Countless studies show that the more hurdles there are to opening an account online, the more people are likely to fall away. Getting the balance right is really important.

Photo of Peter Dowd Peter Dowd Shadow Financial Secretary (Treasury)

I completely acknowledge that. The Minister referred to more hurdles being put in people’s way. Does she agree that many people out there wish some hurdles had been put in their way to prevent them from buying things that they did not want, instead of something that they would have preferred?

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

I totally accept that point. I suspect that some of us on the Committee would put ourselves in that category, casting their mind back over the years. The point is that the regulatory landscape today is very different from what it was; the hon. Member for Luton North made that point in one of our debates last week.

The Government are fully committed to providing advice. The Treasury sponsors the Money Advice Service, which has started to play a greater role in co-ordinating financial education programmes in schools. We have seen a lot more progress on that. We have the 10-year financial capability strategy, led by the Money Advice Service and supported by industry, which aims to improve financial capability across the nation. We see many different bodies going into schools and working with young people. There is always more to do, but I genuinely think that we are looking at a very different landscape from that of some decades ago. While we would never be complacent, that is why we want to take all the measures that I have mentioned to provide advice and information.

We have to find a balance in ensuring that people can access accounts that could greatly benefit them and their family. It is worth reiterating that with Help to Save, people’s money is not locked away. If individuals change their mind or decide the scheme is not for them, they are free to close their account and withdraw their savings, free of charge. I want to end with that reminder. We have designed the product with maximum flexibility in mind for a group of people whose current financial exclusion we should be ashamed of as a nation. We want to do something about that.

Photo of Ian Blackford Ian Blackford Shadow SNP Spokesperson (Pensions)

I am disappointed that the Minister has decided to reject the new clause, because it is about ensuring that those applying for the LISA or Help to Save have appropriate advice, which is important to them. We have talked about ensuring that people are aware of the other choices that they have, particularly auto-enrolment. The new clause is about ensuring that we do not end up in a situation where there could be any dubiety about the potential for mis-selling. This is not about the regulator; it is about ensuring that consumers are given all available information at the point of sale. On that basis, I seek to press the new clause to a vote.

Question put, That the clause be read a Second time.

The Committee divided:

Ayes 6, Noes 10.

Division number 7 Christmas Tree Industry — Advice for applicants

Aye: 6 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

Question accordingly negatived.

Question proposed, That the Chair do report the Bill to the House.

Photo of Jane Ellison Jane Ellison The Financial Secretary to the Treasury

With your indulgence, Mr Wilson, I want to take a moment to thank you and Committee members for the constructive debates that we have had while considering the Bill. I have listened carefully to the points made, and tried to answer them as fully as possible, but I will reflect on the wider points made and am happy to continue to discuss them. It is important that we get the Bill right, so that our constituents understand the benefits of both the lifetime ISA and Help to Save accounts and can reap the rewards of the Government bonus. I greatly appreciate the flexibility that Members have shown in withdrawing some of their amendments along the way. Where people did not withdraw amendments and we had votes, our disagreement was in most cases not with the amendment’s intent, but simply with the immediate point in hand.

May I also put on the record my thanks to the Bill team from Her Majesty’s Treasury and Her Majesty’s Revenue and Customs, who have supported me in these debates, and to Hansard, which has faithfully recorded our words and provided an important service to us and the public, as it always does?

Question put and agreed to.

Bill accordingly to be reported, without amendment.

Committee rose.

Written evidence reported to the House

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