Financial Guidance and Claims Bill [HL]

(Limited Text - Ministerial Extracts only)

Committee: 2nd sitting (Hansard - continued): House of Lords
Wednesday 6th September 2017 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, this is an interesting amendment. I believe that it is possible for the noble Baroness to achieve what she wants under the terms of the Bill as it stands, but that is not entirely clear and not quite for the reasons set down in the amendment. The amendment says:

“As part of its pensions guidance function, the single financial guidance body must provide”,


et cetera. Clause 2(4) says that the “pensions guidance function” under Clause 2(1)(a) is,

“to provide, to members of the public, information and guidance on matters relating to occupational and personal pensions”.

I do not think that equity release falls within that definition. There is a separate issue as to whether it would fall within Clause 3, which says:

“As part of its pensions guidance function, the single financial guidance body must provide information and guidance”,


et cetera, but that is to do with,

“flexible benefits that may be provided to the member or survivor”.

It seems to me, on a straightforward reading of the Bill, that it would not be possible to use the pensions guidance function strand of the new body, but there seems absolutely no reason why the money guidance function could not be used for that purpose. That would be a potential quarrel I would have. The Minister may say that interpretation is too restrictive and not right, but I do not think it would preclude the noble Baroness achieving what she wants. It seems to me the money guidance function should enable guidance to be provided on assets including on equity release.

The noble Baroness, Lady Kramer, raised the question of whether the FCA regulates all these schemes. I am advised that it probably does not, but obviously there is an issue there and perhaps the Minister would respond to that. We can support the thrust of this, because I think it achieves what the noble Baroness wants, but not quite, as I understand it, in the terms of the amendment, because of the other functions in the Bill.

[Lord Young of Cookham (Con)]

My Lords, I begin by thanking the noble Baroness, Lady Greengross, for her amendment, which seeks to add an additional requirement to Clause 3. She has a formidable reputation for campaigning on behalf of those of above average age. For as long as I have known her, she has taken a particular interest in housing, so there is a lot of force behind her amendment.

Clause 3 specifies that as part of its pensions guidance function, the single financial guidance body must provide information and guidance to help a member of a pension scheme make decisions about the options open to them as a result of the pension freedoms. This requirement replaces the current duty on the Secretary of State for the DWP to take steps to ensure that people have access to guidance on the pension freedoms. It ensures that the single financial guidance body will continue to meet the guidance guarantee made by the Government when they introduced the pension freedoms legislation back in 2015.

In its recently published interim report on the review of the retirement income market, the Financial Conduct Authority identified some emerging issues. For example, the review found that draw-down of defined contribution pots is becoming much more popular, and accessing pension pots has become the “new norm”. The FCA is now working with the Treasury, the DWP and other stakeholders to fully understand all the emerging themes and to develop ways in which any issues can be addressed. Without reopening some of the earlier debates, that shows the FCA is able to respond to concerns about consumer interests.

At Second Reading the noble Baroness raised questions about the adequacy of saving into a pension scheme at the levels required by automatic enrolment. The amendment she proposes would make it a statutory requirement for the body to provide guidance on other sources of retirement income, including housing wealth. While I agree with her that it is important that people plan for retirement, no matter what they age they are, and that they consider all their retirement income options, I hope to persuade her that her amendment is not necessary.

As part of its pensions guidance and money guidance functions, the body will provide general information and guidance to members of the public about the benefits of saving towards retirement, and the range of products available to provide income in retirement, including the products that the noble Baroness mentioned in her speech. I think the noble Lord, Lord McKenzie, came up with the answer before me: these services are already provided by the Money Advice Service and the Pensions Advisory Service. For example, the MAS website has information on what equity release is and on other products, such as home reversion plans. In establishing the single financial guidance body, the information and guidance about sources of retirement income that are currently spread across all three existing bodies will continue to be delivered but will be much more joined up—for example, there will be just one website instead of three—making it easier for people to access and consider in the round. That will also make it easier for the new body to assess any gaps in the provision, quality or impartiality of the information and guidance available.

Reverting to the debate that we had before the dinner break, the body will not provide advice on specific products. Its role is to provide general information and guidance on the options open to people so that they can make their own more informed financial decisions. It is not in the remit of the body to provide financial advice. In some instances, though—this was touched on during our debate—it may be that the body would need to refer an individual to an independent financial adviser, who would be able to advise them which products were the most suitable in their circumstances; I think that is what the noble Baroness, Lady Kramer, was implying. That in itself is a helpful service; we know that often, people are reluctant to seek financial advice or unsure of where to go. The body and its partners can play a role in breaking down those barriers, enabling people to understand when it will be beneficial or necessary for them to seek financial advice.

Housing wealth, as the noble Baroness knows better than anyone, is a complex area. Equity release schemes, as an example, may be a suitable option for some, but it is important that people are made aware of the associated risks. The FCA’s ageing population study, to be published later this year, will consider how lending in retirement can be made to work better for older consumers—again, evidence that the FCA is conscious of its responsibility to consumers. That study will consider product innovation and building upon existing industry initiatives to facilitate mortgage lending to older consumers. The Government are clear that anyone considering equity release should seek independent financial advice to ensure that the product is appropriate to their individual circumstances.

The noble Baroness, Lady Finlay, raised a number of issues. I may have to write to her about the transparency of exit charges. In a nutshell, though, so far as equity release is concerned, the FCA, as I think she said, has responsibility for the regulation of equity release products and advice on these. The Equity Release Council is the industry body for the sector and sets out rules and guidance that all members have to comply with. All customers must receive independent legal advice before taking out an equity release product. I hope that addresses some of the issues the noble Baroness raised about undue pressure being exercised by family members with an interest. The borrower has to provide a written suitability report, and the FCA requires the borrower to be provided with a “key facts” illustration for each product. Independent solicitors must also verify understanding before proceeding, and the customer must signal receipt and acceptance of the written suitability report. That report explains why they believe that equity release is suitable and why a particular product is being recommended to that customer. I think the noble Baroness raised the issue that people do not have to get regulated advice. I would like to reflect on that and perhaps drop her a line.

So while the body may provide general information on these schemes, that is an example where it would be best placed to make people aware that they should be speaking to regulated advisers, and signpost them to the appropriate place. As I explained, the body is required to provide guidance to replace the pension guidance guarantee. That is because we want to ensure that the move to a single body in no way reduces the guidance on offer for those who wish to consider exercising their pension flexibilities.

To conclude, the SFGB’s money guidance and pensions guidance functions already enable it to provide people with information and guidance on retirement planning, saving in a pension scheme, different sources of retirement income and, where appropriate, to signpost them to regulated advisers. These are all services which MAS and TPAS deliver now, and the body will continue to do that but in a more joined-up way for customers.

Against that background, I ask the noble Baroness to withdraw her amendment.

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[Lord Young of Cookham]

I thank all those who have taken part in this debate for these amendments on the specifics of the pensions guidance function.

Amendment 42B, tabled by the noble Lord, Lord Sharkey, and my noble friend Lady Altmann, seeks to ensure that people have taken guidance or regulated advice before accessing their defined contribution pension pot. The pension flexibilities introduced in 2015, which a number of noble Lords who have taken part in the debate have spoken about, gave people the freedom and choice to decide how to access their defined contribution pension savings. The flexibilities give people control of their money and allow them to make choices which tailor their approach to their own particular circumstances. As has been mentioned in the debate, at the point of introduction, this provision was not there.

Since 2015, we have provided Pension Wise as a source of free and impartial guidance to help people make more informed decisions. There have been over 5.3 million visits to the Pension Wise website since launch and there have been more than 154,000 appointments. Customer satisfaction with Pension Wise remains very high. In 2015-16, Pension Wise delivered 61,000 guidance appointments. In 2016-17, this had increased to 66,000. By the end of July this year, there had already been nearly 27,000 appointments. This clearly demonstrates that the work we and the industry are doing to promote Pension Wise guidance is working.

It is important that people know that help is available when making important decisions about their pensions. Clause 3 ensures that the Government’s guidance guarantee will continue to be met by the new body. It is also important, however, that people have the freedom to choose sources of information, guidance or regulated advice that are right for them before making a decision about their pensions. It is not immediately clear that such an intervention at this point in the journey would be effective in changing people’s behaviour, and it might serve only to frustrate people who have already made the decision about accessing their money. As has been mentioned, such an approach would not be without cost, which would fall on the firms that pay the levy. Additional costs would need to be justified with clear benefits in terms of better outcomes for people.

Pension schemes and providers are required by law to signpost people to Pension Wise guidance. We know that this is working: pension providers are consistently cited by around half of the people who contact Pension Wise as the place they first heard of the advice. We are working with providers to ensure we continuously improve the effectiveness of signposting. We are also working with a number of employers, locally and nationally, to promote the Pension Wise service.

The FCA’s Retirement Outcomes Review: Interim Report found that take-up of Pension Wise was low. However, it also highlighted a number of mitigating contextual factors which should be considered. It found that 53% of pots had been fully withdrawn, but that the vast majority of these were small pots—60% were smaller than £10,000 and 90% were smaller than £30,000. It also found that 94% of people making full withdrawals had other sources of retirement income on top of the state pension, and so the FCA did not see this as evidence of people squandering their pension savings. Lastly, some people who did not use Pension Wise decided that financial advice was the right route for them. Between October 2015 and September 2016, sales to people who took regulated financial advice accounted for 37% of annuity sales and 70% of draw-down sales.

Having said all that, I find this all quite difficult. As noble Lords have suggested during this debate, it may well be the case that people could benefit from using more guidance. However, the landscape is somewhat complex and bears further scrutiny. I am not persuaded that the amendment in front of us is the right way to go. I listened with interest to a number of the alternative suggestions that were made.

I return to my script. The interim report to which I referred a moment ago has raised a number of issues, and the FCA has proposed a number of remedies. It has invited views and is actively engaging with government, regulators, industry and consumer bodies before delivering its final report in the first half of 2018. The right way forward may be to wait for the full report of the FCA and consider its recommendations, which may pick up some of the points made in this debate, in light of all of the information and evidence. This will ensure that we make the right interventions at the right time, which help people make the right choices for their circumstances.

Amendment 42C—which I was never attracted to—tabled by the noble Lord, Lord Sharkey, would require the new body to report annually on the usage of pension guidance and regulated financial advice by members of the public accessing their pension pots. The noble Lord made it clear that, on reflection, he thought that this might not be the best way to proceed, so it might be for the interest of the House if I skip the next four paragraphs of my remarks, as I think that the noble Lord indicated that this may not be the best way to go forward. There is already a robust process in place in this area, and we should not seek to duplicate work which is already in train and well advanced. The FCA has already identified a range of indicators that are intended to give a snapshot of the market for financial advice and establish a baseline.

I think that I have dealt with the points that have been raised in the debate; if I have not, I would like to write on them. However, against the background of what I have just said, I hope that the noble Lord may feel able to withdraw his amendment.

[Lord Sharkey]

My Lords, I thank the noble Baroness, Lady Altmann, and the noble Lord, Lord McKenzie, for their contributions to the debate. In a way, I am not quite certain where this leaves us. I listened quite carefully to what the Minister said, and I can understand the merit in having this completely underworked, over-resourced FCA carry out yet another inquiry in its spare time into this again. However, I can also understand the merits of doing something fairly concrete, fairly soon, about what I think we all agree is a problem. I am also puzzled about why it is quite so difficult, in the sense that this is what happens when you take out a mortgage. It seems to me perfectly reasonable to suggest this is also what should happen when you access your pension.

In passing, I should say that, first, I am quite grateful for the Minister’s speedy dispatch of the second amendment—I will not dwell on that—but I disagree with him when he talks about Pension Wise working. That is not right or accurate; it is misleading. A more accurate view is that it works exceptionally well for the very small number of people who use it. That is a better statement than the blanket statement that Pension Wise is working. That is one of the roots of the problems that we face here.

In the face of the lack of absolute enthusiasm for the first amendment, I will withdraw it. However, we should continue the conversation about this and not just wait for the FCA to opine. There is perhaps room for a more round-table general discussion about what advances we can make without waiting for whenever—shortly or in due course—the FCA will publish its findings. However, in the meantime, I beg leave to withdraw.

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[Lord McKenzie of Luton]

My Lords, we support the thrust of the amendment, but there is just a query on its precise ramifications which perhaps I may raise now. The amendment states:

“As part of its pensions guidance function, the single financial guidance body must provide information and guidance regarding unsolicited communications and make provision to ensure that members of the public receive this information and guidance before taking any action following an unsolicited communication”.


I am not quite sure how that could be caused to happen; that is, where the knowledge of an unsolicited communication is and how that feeds through to encourage people not to take any action until they have considered these matters. When the Minister winds up, she might expand a little on that.

I certainly support what the amendment is trying to achieve. The idea of taking a power in the Bill to seek to move forward more quickly once it has left this House is certainly worth considering. But I guess that my key message is to the Government. Their response to the consultation document was robust and covered not only cold calling, but we have this equivocation as to when it is going to happen. I find it difficult to understand, given everything that is going on with Brexit, which is changing the world, why we cannot move swiftly to introduce provisions in a vital area where there is clear consumer detriment that is destroying many people’s lives. It would be helpful to have that clarification in the wind-up, and subject to that we support the amendment.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Buscombe) (Con)]

Perhaps I may give an indication of my support in principle for banning cold calling of every type by saying that I have given up my landline because so many calls now are nuisance calls. They are about pensions and all sorts of other things. Apparently I have more accidents in my car than hot lunches. We have all had enough of it and this is an issue which is close to the hearts of many, if not all, noble Lords.

These amendments seek, under the pensions guidance function, to give the single financial guidance body a duty to provide information and guidance to members of the public about unsolicited communications. I should like to start by thanking my noble friend and all noble Lords for their contributions to this topic at Second Reading and during the first day of Committee. I really do understand that pension scams, and particularly unsolicited communications, have to be dealt with. As I have sought to reassure noble Lords, the Government also take the threat of pension scams extremely seriously and have committed to taking action to tackle the issue. Noble Lords have already made reference to the fact that last month the Government published their response to the consultation on pension scams, and in that document the Government underlined their commitment to bring forward a package of measures designed to tackle such scams.

As noble Lords will be aware, the Government intend to introduce legislation in a finance Bill later this year to tighten the rules in order to stop scammers opening fraudulent pension schemes. Tougher measures to prevent the transfer of money from an occupational pension scheme into a fraudulent one will be introduced following the rollout of the master trust authorisation regime in 2018-19. The Pensions Regulator will be given new supervisory measures to authorise and deauthorise master trusts according to strict governance standards, and the Government will consider how the legislation to limit transfers should align with these measures.

On pensions cold calling, which is the subject of my noble friend’s amendment, the Government’s consultation response committed to bringing forward legislation when parliamentary time allows. I really would like to reassure noble Lords that work is under way to ensure that the ban, which will include emails and text messages, is robust. We will continue to work with stakeholders and those with an interest in this space as work progresses. We hope to be able to outline more about our plans for engagement on Report. I say that, but I also ought to make it clear that, as the noble Lord, Lord Sharkey, has said, while we would love to do this overnight, the truth is that this is not in the scope of the Bill. I wish noble Lords could be flies on the wall at some of the meetings I have had with officials from the DWP and the Treasury, and also with ministerial colleagues including the Pensions Minister. We have been searching every which way to find an opportunity to introduce this legislation. We will not be overcome. We are determined to do it as soon as is practically possible. Indeed, it was not until I became a Minister that I realised how hard it is. It is easier for me now to understand, even after nearly 20 years in your Lordships’ House, how difficult it is to get some of these things done in practice.

I hope my strength of feeling is coming across: we are genuinely working on this as we speak. We are not dragging our heels. There is no lack of willingness. We are absolutely clear that we want to take this forward, but at the same time we need to be really careful about how the legislation is drafted—for example, by being careful not to exclude legitimate transactions and so on. I have the result of the consultation in front of me, which sets out in some detail the reasons why we have to be a little bit careful about how this is drafted, but I assure noble Lords that if it was in scope it would be in this Bill. Unfortunately, it is not in scope and we have been given clear instructions on that by all the powers that be who advise us on drafting of legislation in Parliament.

I turn to the amendment tabled by noble Lords on the pensions guidance function. This function allows for the body to provide information and guidance on matters relating to occupational and personal pensions. The noble Lords’ amendment would see the single financial guidance body given a duty to provide information and guidance on pensions cold calling and a duty to ensure that members of the public receive this information and guidance before taking any action following a cold call.

I will take each part of the amendment in turn and will first talk to the duty to provide information and guidance on pensions cold calling. As my noble friend and all noble Lords will be aware, information on spotting, avoiding and dealing with scams is currently provided by the Money Advice Service, TPAS and Pension Wise. Information on pensions scams is also available via the Financial Conduct Authority’s and the Pensions Regulator’s websites. This function allows for the body to provide information and guidance on matters relating to occupational and personal pensions, but the amendment would give the single financial guidance body a duty to provide information and guidance on pensions cold calling and a duty to ensure that members of the public receive this information and guidance before taking any action following a cold call.

Under the new body’s money guidance function, which will allow the body to provide information and guidance to enhance people’s financial capability, the Government would expect the body to continue to provide information of this sort. However, the Government believe that the new body will be best placed to determine exactly what information and guidance it provides. It will have the ability to assess the landscape and see what information and guidance is already out there. I agree that information on avoiding financial scams is vital, and, as I have already said, the Government expect that the body will continue the existing services’ good work in this area, but I do not agree that it is necessary to specify this in legislation.

On the second part of Amendment 42D, which states that the body should,

“make provision to ensure that members of the public receive this information and guidance”,

after receiving a cold call, I wholeheartedly agree that members of the public should know where they can go to seek information and guidance if they need it. Of course, the Government would expect that any information or guidance that the body provides is as accessible as possible. However, the amendment would not help to achieve this. In practice, it is not possible or reasonable for the body to be required to ensure—the noble Lord, Lord McKenzie, has said it is quite difficult—that people will come to it for help after receiving a cold call. Having said that, I heard an example of this when I was at TPAS. It was absolutely brilliant. It had all been recorded, of course, so one could hear this woman say, “I think I’ve just had a cold call”. Sure enough, this brilliant adviser—the person giving guidance—said, “I’m very sorry to say this sounds very much like a cold call that you should ignore. Well done for calling us, thank you so much”. This is happening daily, as I saw for myself. The body would not know who had received a cold call unless, of course, they went to the service. Even if the industry had access to this information, the body would not have the power to require the industry to ensure that members of the public received information before taking action.

I understand what noble Lords are seeking to achieve with this amendment. However, it would not be helpful to mandate the guidance that the body provides, particularly when there is already a clear expectation that the body should provide it, or to make the body responsible for ensuring that people seek out this guidance. I therefore ask my noble friend to withdraw the amendment.

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[Lord Stevenson of Balmacara (Lab)]

My Lords, it is well past my bedtime and I will therefore be very brief. I think I can be. I was going to say that these are two sides of the same coin but there are three amendments. Let us be imaginative and say they are grouped around a common theme, which is again to get on record the idea that the work that is going on either directly or through the SFGB must ensure that the services delivered are free at the point of use. That is the main point of Amendment 45, which restricts the operations to,

“companies which are established for charitable or not-for-profit purposes”.

It may be argued, and I think I would accept, that many companies operate in a way that has different branches and it may be that the particular branch which deals with, for example, debt advice might be a not-for-profit operation. Provided it is understood that the advice is always free, the actual status of the company is probably of a lesser order and I would understand if the Minister were of a mind to mention that in his very brief response.

Amendment 46 deals with how the objective attaching to the SFGB also applies to the overall system, in the sense that it would be perverse if the arrangements were such that the initial interactions with the partners and organisations working with the SFGB were free at the point of use but these were also referring clients to profit-seeking or charging operations. This is primarily a probing amendment but, again, I am looking to make sure that the advice circle is complete by retaining this free-at-the-point-of-use idea.

Amendment 47 picks up the possibility that with regard to the general governance arrangements that are set in place—which the Secretary of State has responsibility for, as we have learned this evening—the FCA may have an involvement but the single financial guidance body certainly has an arrangement for making sure that governance is properly arranged and the level of accountability is appropriate. One might ask why that was necessary but it would be a rhetorical question and I do not expect a lengthy response. Given that the delivery partners are being supervised by the FCA in most cases, and certainly where clients’ money is concerned, it is a requirement that they be authorised by the FCA. Given that most of these are charities and therefore also subject to the regulatory requirements of the Charity Commission, it is unlikely that the SFGB would be in a situation where governance arrangements were falling short of absolutely perfect. Again, reassurance from the Minister would be most welcome. I beg to move.

[Lord Young of Cookham]

My Lords, I am grateful to the noble Lord, Lord Stevenson, for moving Amendment 45 and then demolishing it, which saves me the task of so doing. I confirm that we are absolutely clear that any help funded by the new body will be free at the point of use. The difficulty we have with his amendment is that it may be appropriate for the body to enter into arrangements with organisations which provide free-to-client advice but also make a profit elsewhere. He made it clear that as long as it is free at the point of use to the client, he was relaxed. That deals with that amendment.

Turning to Amendment 46, we agree it is important that delivery partners refer members of the public to additional help when they are unable to provide the information themselves. The difficulty with the amendment is that it prevents delivery partners referring members of the public to the most relevant source of help in the first instance. For example, if a member of the public needs legal advice, we do not believe that delivery partners should be obliged, as the amendment requires, to refer that individual back to the SFGB. They should be free to refer that person for appropriate legal advice.

Finally, I may need to write to the noble Lord on Amendment 47. Given the SFGB’s relationship with government, it would be inconsistent with the precedent set by other arm’s-length bodies if the sponsoring department sought to interfere with, or have direct involvement in, the contractual arrangements that the body seeks to enter into. But I assure the noble Lord that as an arm’s-length body the SFGB will be required to comply with government policy on public procurement. The sponsoring department will support the SFGB in dealing effectively with any issues that may arise in the area of delivery partner governance and accountability. If the noble Lord wants more information on that, I would be very happy to drop him a line. Against that background and given the hour, I hope he will be able to withdraw the amendment.

[Lord Stevenson of Balmacara]

I thank the Minister for his comments and his brevity. Hansard will have an interesting time trying to unscramble all our mixed-up shorthand for the body that is still yet to have a name. I wish we would get a name quickly and then we would not have to worry about “F”, “S”, “G” and “B”, and my teeth falling out. I will read Hansard very carefully, and I am sure that any additional information that might be provided by letter will be most welcome. I beg leave to withdraw the amendment.