Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

Report: 1st sitting: House of Lords
Tuesday 24th October 2017 Lords Chamber

[Baroness Buscombe]

My Lords, before turning to Amendment 3, it may be helpful to the House if I were to say now that, in the light of earlier Divisions, the Government will accept Amendment 7 as it is consequential on Amendment 1.

Amendments 3, 5 and 6 address concerns raised by the noble Baroness, Lady Drake, and referred to by other noble Baronesses, including the noble Baroness, Lady Coussins. They provide certainty that the information, guidance and advice services provided by the single financial guidance body and its delivery partners will be impartial and free to members of the public.

As we stated in the Government’s response to the consultation on the single financial guidance body—and as I confirmed in Committee—it has always been the Government’s firm intention that the body’s information, guidance and advice services should be provided free to members of the public. We recognise the concerns that often the people most in need of financial guidance or debt advice are already in financial difficulty. The existing organisations already provide free services and we are clear that this should not be any different when those services transfer to the new body.

In Committee, the noble Baroness, Lady Drake, made a number of very pertinent points about the importance of the new body being wholly customer-focused and not influenced by commercial interests. She highlighted that, in the case of guidance, the body needed to be trusted to take the customer up to, but not into, the “decide and buy” or “decide and act” moment. She stressed that a commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs.

We agree that guidance from a provider with a vested interest in the decision a customer makes carries a greater risk of being partial. Impartiality—ensuring that the person or organisation giving the information, guidance and advice has no vested interest, whether that be the single financial guidance body itself or its delivery partners—should be central to the new body’s ethos. This amendment provides certainty on these two important matters. It places impartiality at the heart of the body’s culture and ensures that its services will be free to members of the public. For these reasons, I beg to move.

[Baroness Drake (Lab)]

My Lords, I support and very much welcome these government amendments. I thank the Minister for the consideration she has given to the arguments put forward in Committee. These amendments would make the guidance and advice free to the user and impartial. It is very important that it should be free to the user and not vulnerable to ministerial discretion to decide to charge a fee at some later point for three important reasons.

I do not want to prolong the debate, having got the amendments but, just in case there were ever to be reconsideration of the point, I say that if the new body is to be effective in meeting its objectives it needs to be trusted and universally recognised for supporting members of the public and those most in need. To charge for information and guidance would make the relationship transactional, which risks undermining trust and public perception of the purpose and ethos of the service. It also needs to be free to the user if it is to reach the people who need it most. Charging a fee could deter many people on low and moderate incomes. In many instances, getting customers even to seek guidance often needs a pull, and charging just makes that problem more difficult. If the service is not free to the user but subject to a fee, the new body’s priorities and impartiality could be compromised because of potential conflicts over where to put resource from the organisation—towards those most in need or to the services with the greatest potential to raise revenues.

The requirement in the Bill that guidance and advice given must be impartial is very important. The Minister referenced arguments used in Committee that there are so many providers of information and guidance that they nudge or encourage the consumer in directions that are not driven solely by their needs. It will be the fact that the new body is impartial in the advice and guidance it gives that will distinguish it and allow it to build trust and to deliver its statutory objectives. I thank the Minister for bringing these amendments forward.

[Baroness Kramer]

My Lords, I join in thanking the Minister for bringing these amendments forward. I think she recognises that the three existing bodies to be merged all have a reputation for impartiality. Their services are free and she is making it absolutely clear that those vital elements which she respects and appreciates so much in the existing bodies will carry through into the new body. It seems to me that stating it clearly, rather than leaving it to be read and potentially misconstrued, is exceptionally helpful.

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Moved by

[Baroness Drake]

4: Clause 2, page 2, line 21, at end insert “including by means of provision to the public of a pensions dashboard.”

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[Baroness Drake]

My Lords, the intent of Amendment 4 is to require that the introduction of a pensions dashboard shall be as a single, public service dashboard overseen and hosted by the single financial guidance body, a safe viewing space where an individual can see all the information on their state and other pensions savings. I welcome the Government’s recent statement that the Department for Work and Pensions is to take ownership of the dashboard project and take it forward to the next phase. Releasing data on individuals’ state pension entitlement to the dashboard is a key criterion for its success. The DWP being now responsible for the database of state pension entitlements and taking ownership of the project is in itself reassuring, because the department could never allow release of this personal state data through the dashboard unless it was completely satisfied with the governance, standards and protection of individuals.

The industry has done a good job in driving the dashboard project forward and the recent report on the project from the ABI asserts,

“that it is possible to build the ‘plumbing’ to connect multiple pension schemes to dashboards and for people to see their pensions in one place … infrastructure can be delivered, and a data standard for sharing information can be agreed … industry can work successfully with FinTech providers to make this happen”.

That is good and it has done good work, but the project now needs to move into a new phase, owned and driven forward by the Government, engaging a wide body of stakeholders, including, importantly, consumer groups. The public need to see clear proof of concept from the perspective of the consumer’s interest and the public good.

Within the dashboard there will be a pension finder service: the engine that sends out messages to search the records of all providers and schemes records to see if there is a match to the customer details. The engine then collects that data to populate the consumer’s front-end viewing space. If introduced, the data of millions of people will be accessible through the dashboard—high standards, tough regulation and sound governance will be required. To be successful, a dashboard requires all providers to release their data, but there are some big and significant questions still to be answered on governance, implementation and consumer protection before the Government can move to compel all providers to provide their data, which the industry is calling for.

There is a major governance challenge to be addressed: the consumer protection of millions of people in both the provision of the dashboard and the infrastructure that supports it. Issues such as identify validation and security, data matching and pension-finding consent need to be overseen and policed.

The ABI report acknowledges,

“the need for strong governance to make clear what obligations, liabilities and controls are in place … to oversee the setup and maintenance”,

of the dashboard. Under what circumstances should individuals’ data be shared with third parties? What will be the requirements around consent and protection? What happens if those parties are not regulated? Certainly, any unregulated party must be excluded from using dashboard data. After all, the consumer will be giving permission for the use of their personal data to search for pension savings, and for the provider or scheme to share that data with the dashboard.

The dashboard, in requiring near-universal coverage, raises the governance bar on protecting consumers from bad behaviour by both regulated and unregulated providers, scammers and consumers’ own vulnerability when all their pensions and savings data can be identified and viewed in one place, accessible through a digital identity. Oversight of that governance must rest with a public body with the right powers to work with regulators and industry to deliver what is required.

The potential scale of the dashboard raises the importance of public control over its implementation and rollout. There will be the constraint of the minimum viable product, but a staged implementation approach to full coverage will reduce the risk to the consumer. I recognise the dashboard is only as useful as the data that populates it, so a pathway to full coverage is needed for its success, but that needs public control.

The Government need to give clarity on the consumer benefits and public policy outcomes that a pension dash- board is expected to deliver. Any decisions on the project must be benchmarked against these desired benefits and outcomes. The dashboard may provide people with the information they need to consider their options but, of itself, it will not enable them to make informed decisions. It is important that support structures exist around the dashboard to avoid people making poor decisions with the information they have accessed.

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I am grateful to all noble Lords who have taken part in this debate. I am very pleased that I could say what I have already said this evening—so on that basis, given that I was able to set out the proposals to which the Government are committed for taking this work forward, I hope that the noble Baroness will be willing to withdraw her amendment.

[Baroness Drake]

My Lords, I am grateful to the Minister for her reply. I tabled my amendment for two reasons: the first from conviction, and the second to ensure that I could secure the fullest possible statement from the Government on Report. I recognise that ownership is being transferred to the DWP. I consider that to be very positive, first, because of its remit and experience; and secondly, because it has an alignment of interest over its own database, which is the state database. The Minister has already confirmed that the Bill would not preclude having a public governor of the dashboard in the single financial guidance body if that was the policy decision. In her statement, she has quite clearly said that the Government accept that the dashboard must be of use to individuals; that consumers must be at the heart of the design; that it has to be viable, and that the framework of governance must hold public confidence. The Minister referred to a report being produced in spring next year, and I recognise that there is a lot of work to be done, but I think she can assume that there will certainly be several Members of this House who will be looking to scrutinise what the Government say in the report. On that basis, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

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[Viscount Brookeborough]

My Lords, could I just look at one other aspect of vulnerability? It is looked on as being a disability of some kind, but vulnerability is also down to isolation, where one might live and being on the periphery. Look at banking in particular—the most basic place that somebody goes or would like to go for financial advice or help at first if they live out in the country. Look at the number of banks that are closing branches left, right and centre. Of course it is business, but we have to realise what is really going on there. They say that they have consulted and we had various banks, without naming them, which came in front of our committee and said, “We consulted before we closed”. But we did not find one instance where a bank had changed its mind because it had consulted. It is as simple as that. We have to look at it on those terms.

Actually, we had Nationwide. I must forgive it for a minute, because I rather liked it. Nationwide said, “We are opening some branches”—and it is being novel about it. It could be opening a branch with one man, who will sit in what could be an office or a caravan. He could be visiting a village or whatever. When the customer says to somebody he probably knows, “Bill, listen. What can you do? I need a loan or a mortgage”, he says, “Hold on”, and presses a button. Up comes Peter from the loans office who says, “Just sit down and we’ll have a chat about this”. He says, “Would you like some coffee?” and the guy says, “Yes please”—because he likes getting anything free that he can. He presses a button and the coffee arrives from next door. The whole thing is very homely. He says, “When I have this loan, what about a mortgage?”. He says, “I’ll bring in Charles on that and the three of us can talk about how it will work”.

Ultimately that is no different from what always used to happen—you went into your bank to the man you knew and he then took you into an office to see somebody else—but this is novel thinking. Banks will always worry about their business, but they should not necessarily be closing branches and we have to encourage them to be novel. The internet is there and the banks must watch out. I heard a comment the other day or saw it in the Financial Times. It was something about banks becoming vulnerable, because people might not keep their money there. The sooner the banks catch on to what is going on and come up with novel ideas, the sooner the vulnerable will not be as vulnerable as they appear at the moment.

I live on the border with the Republic, and we will talk about Brexit another time. The banks have literally all come back from the border. Societies in those villages are increasingly vulnerable. They are beginning to be scared. They have to drive 20 miles, so they had better have something good to talk to the bank about. They had better know exactly what they are doing before they go. A lot of them may be older people without the internet. Something like the Nationwide’s idea is the way we should be going. We must treat vulnerability not only as those who may be medically vulnerable but as vulnerable members of our society.

[Baroness Drake]

I will carry on the spirit of the contribution of the noble Lord, Lord Kirkwood. In Committee, several Peers ran several amendments trying to capture this issue of vulnerability—whether it was vulnerability because of a health shock or because of some standing reason. As the noble Baroness, Lady Finlay, explained in moving her amendment, the attraction of Amendment 11 is that it does not seek to list or define. It just tries to capture the principle that there is a category of people who become or who are vulnerable for a series of reasons, and they need to be addressed.

The purpose of the single financial guidance body is to achieve a series of improved public and individual outcomes by improving a person’s financial capability, but a person’s capability cannot be improved—it just cannot happen—if they are excluded from the market for financial services or denied the access or the means to make good decisions. As my noble friend Lord McKenzie and I frequently say, the fundamental, immutable requirement of financial capability is that you are included and have access. You cannot begin to become capable without it. One feels the sense around the Chamber, which I hope the Minister is able to find a way of recognising, of a wide concern and a very constructive amendment. It is not overprescriptive but allows the financial guidance body to recognise that it needs to address this problem.

[Lord McKenzie of Luton]

My Lords, this has been a good debate. I emphasise that we support the amendment, which is no surprise given that I put my name to it. I am sorry that we pre-empted someone: I am happy to step back.

This is a very elegant formulation, which stops a whole list being produced. It instinctively recognises that people might be vulnerable for reasons to do with their circumstances but that this is not necessarily something endemic to them. There are fluctuating circumstances which particularly fit that description: in our short debate we have had discussion of learning disabilities, mental capacity and addictions. A broader issue, but still within the key definition of vulnerability, is isolation. The noble Viscount, Lord Brookeborough, made a very telling point on that. The noble Lord, Lord Kirkwood—I keep calling him my noble friend; we have debated too often over the years—spoke about the impact of vulnerability because of destitution. We should recognise that people may be perfectly fit and able-bodied and have all their mental capacity but if they are broke and have no money then they are potentially vulnerable or in vulnerable circumstances.

The formulation is powerful and succinct and we support it. I hope the Minister will find some way of incorporating it into the Bill—even if not in the precise wording, although it seems excellent to me—so that we can support it.

Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Monday 11th September 2017 Lords Chamber

Moved by

[Baroness Drake]

62: After Clause 7, insert the following new Clause—
“Offence of falsely claiming to be giving guidance and advice on behalf of the single financial guidance body
(1) It is an offence for a person who is not giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body—(a) to describe themselves (in whatever terms) as a person who is doing so, or(b) to behave, or otherwise hold themselves out, in a manner which indicates (or which is reasonably likely to be understood as indicating) that they are doing so.(2) In proceedings for an offence under this section, it is a defence for the accused to show that the accused took all reasonable precautions and exercised all due diligence to avoid committing the offence.(3) A person guilty of an offence under this section is liable on summary conviction—(a) in England and Wales, to imprisonment for a term not exceeding 51 weeks or a fine, or both;(b) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding level 5 on the standard scale, or both;(c) in Northern Ireland, to imprisonment for a term not exceeding six months or a fine not exceeding level 5 on the standard scale, or both.”

[Baroness Drake (Lab)]

My Lords, Amendment 62 seeks to make it a criminal offence for a person to mimic, impersonate or behave in a way which indicates that they are giving advice and guidance on behalf of the single financial guidance body when they not in fact giving guidance on its behalf and are not authorised to do so. This is not a novel proposal. Under existing legislation, it is a criminal offence to impersonate Pension Wise. This provision would not stop every organisation seeking to use or mimic government initiative statements to give credibility to their approach to attract members of the public, but it would be a powerful deterrent. A deterrent is definitely needed because the human cost of receiving fraudulent, wrong, conflicted or partial guidance from organisations or persons who win people’s trust by misleading them into believing they are acting under an authorised government initiative can be just dreadful, leading to irreversible financial losses, life-changing losses, debt and more.

Those vulnerable to the activities of the misleading, mimicking guidance operators are not only the struggling, the stretched and those with more basic levels of numeracy and literacy, although their needs are very important; in the context of finances, those individuals who are vulnerable and at risk go up the income chain as consumers deal with products and services that can be diverse, complex and rapidly changing. Those with retirement savings, for example, are usually people who have typically had good and sustained periods of employment over their working life and have usually compulsorily or voluntarily set aside money aside for their later life. These impersonators can be ingenious in their hunt to claim fresh victims, as a recent press release from the Pensions Regulator demonstrated when it warned that,

“rogue pension websites that are carrying anti-scam messages to try to trick consumers into believing that they are legitimate businesses”.

Some even imply they are regulated by carrying warning messages designed to prevent people falling victim to scams. These imitators are using material owned by the regulators or other government initiatives to impersonate and mislead the public. Therefore, in this instance, a mechanism designed to protect consumers is now used to dupe them.

The deterrent of criminal proceedings is needed not only to protect the public and the integrity of the services of the new financial guidance body but to protect the legacy names of its predecessor bodies, such as Pension Wise and the Pensions Advisory Service, names which the public will continue to recollect for some time before they recognise and internalise the name of the new body. It must be a criminal act to mimic not only the new brand but any of the existing brands that will move into the new single financial guidance body.

The Government thought it necessary to make an explicit criminal offence to imitate Pension Wise but no provision is contained in the Bill for it to be an offence to mimic the new financial guidance body. At Second Reading the Minister commented that there was no need for such a criminal offence provision in the Bill, as:

“The brand and service offer of the new body will be protected by existing stringent criminal offences under fraud and copyright laws”.—[Official Report, 5/7/17; col. 946.]


However, that view was not considered sufficient to protect the public from operators imitating Pension Wise—such imitation was made a specific criminal offence. I remain concerned that the absence of a specific provision to make it a criminal offence to mimic the new financial guidance body is a weakness in the Bill. Why was it considered appropriate to create a specific criminal offence of imitating Pension Wise rather than relying on existing fraud and copyright laws? Which existing legislation would ensure that any form of imitation of the new financial guidance body was a criminal offence, and why is that not referenced in the Bill? How will the Government ensure that imitating any of the existing brands that will move into the new single financial guidance body, including Pension Wise, will continue to be a criminal offence? I beg to move.

[Baroness Kramer (LD)]

My Lords, I strongly support the amendment moved by the noble Baroness, Lady Drake. This is an area where we need belt and braces—every mechanism that we can to make the new body and the services that it will deliver resistant to the scammers, who are ingenious beyond the capacity that most of us find credible, until we experience or hear about a scam ourselves.

In many cases, when people seek advice or guidance over an important matter in their lives, they turn to an organisation in which they have built trust over many years, where they have a whole series of experience and where they have neighbours and friends who share that experience. From that, they can be quite informed in choosing to whom they turn. However, that tends not to be true in the kind of issues that this body will deal with. People who are under debt pressure often panic when they finally reach the moment when they feel they must turn to somebody. It makes them particularly open to scammers, who will do things such as charging them, taking commission and exploiting their vulnerability at that moment. In the area of pensions people are exceedingly confused and, again, are hesitant to turn to names that they might know or which are well established for fear that they will meet a sales opportunity. Therefore, someone who sets themselves up as providing impartial advice suddenly becomes productive. Again, they have no testing mechanism due to previous experience of that body.

Therefore, in supporting the noble Baroness, Lady Drake, on this amendment, we very much seek belt-and-braces protection for consumers, recognising that people are increasingly vulnerable to scamming, particularly with modern instruments such as the internet. The Government need to be motivated to make sure that real and significant protection is in place.

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[Lord Young of Cookham (Con)]

My Lords, the co-pilot is back. I thank the noble Baroness, Lady Drake, for tabling this amendment, which would make it a criminal offence to falsely claim to be giving pensions guidance, money guidance or debt advice on behalf of the single financial guidance body. She set out very clearly the devastating impact that misleading or criminal advice can have on people’s lives. Both she and the noble Baroness, Lady Kramer, identified the ingenuity and adaptability employed by scammers and fraudsters to con people.

I was very interested in this amendment and made inquiries to see who would be caught by it. Clearly, people who claimed to give advice on behalf of the SFGB, or whatever it is called, would be caught but, as it stands, I understand that it would not cover someone pretending to give advice on behalf of a delivery partner. The noble Baroness may like to think about that.

Protecting people from financial fraud and scams is important, and I say to my noble friend Lady Altmann that the Government take it very seriously. Anyone who has served in another place will have seen at first hand the devastating impact that this can have on people’s lives. We will come on to cold calling when we reach Clauses 16 and 17.

Ensuring that people have confidence in the financial guidance and debt advice provided by, or on behalf of, the SFGB will be central to its success and to the success of other government policies to improve people’s financial well-being. This is a matter that we have explored in depth with the existing service providers—the MAS, TPAS and Pension Wise. As the noble Baroness said when she moved her amendment, of those three, only guidance provided under the Pension Wise banner is covered by a specific measure making it an offence to falsely claim to give such guidance. The MAS and TPAS rely on existing criminal offences.

In response to the speeches made, we have considered very carefully whether to go down the Pension Wise route and create a new, bespoke offence to cover all the single guidance body’s guidance and advice services. We have weighed up whether there is evidence to suggest that a bespoke offence would have any greater effect than existing criminal offences, taking into account that the Pension Wise offence has never been used in a prosecution.

There are already criminal offences that would cover imitation of the new body; again, the noble Baroness referred to these. For example, if an individual was misled by someone dishonestly claiming to give guidance or advice on behalf of the body with the intention of causing financial loss, this would amount to an offence. In England, Wales and Northern Ireland a person could be prosecuted under Sections 1 and 2 of the Fraud Act, and in Scotland such conduct would likely amount to the common-law offence of fraud.

In addition, under the Consumer Protection from Unfair Trading Regulations 2008, Regulation 9 makes it an offence to advertise or market a service in a manner that deceives or is likely to deceive the average member of the public. If that advertising or marketing causes or is likely to cause an average person to take a decision they would not have taken otherwise, again, this is an offence. This would make it a criminal act, for example, for scammers to use the logo of the new body.

Offences under the Fraud Act are subject to a maximum term of imprisonment of 10 years and offences under the Consumer Protection from Unfair Trading Regulations carry a maximum term of imprisonment of two years. As a deterrent, both maximum terms are significantly greater than the maximum 12 months envisaged by the amendment.

For these reasons, and having listened to the arguments, our assessment is that there are already existing offences which will provide for the single financial guidance body to take action against people claiming fraudulently to be delivering its services or using the body’s brand and reputation to mislead members of the public. Where people seek to scam and defraud by falsely claiming to be acting on behalf of the body, they will be liable to prosecution under existing offences, leading to the possibility of a custodial sentence. We believe that the protections in existing offences are sufficient and I therefore urge the noble Baroness to withdraw her amendment.

[Baroness Drake]

I thank the Minister for his response. I am not sure all my questions were answered, particularly on how to protect from the mimicking of existing bodies that go into the organisation, while they still have credibility, until the new body’s name becomes absorbed by the public. However, in responding to his points, I borrow the phrase of the noble Baroness, Lady Kramer: the Bill needs to be belt-and-braces in terms of it being a criminal offence to mimic this body.

The new body’s guidance will influence people’s decision-making—that is why it is being set up. It recognises a market failure and many consumers who would use the guidance service could be at risk if they go in the wrong direction and to an organisation which is mimicking it. I note the Minister’s point that my amendment would not cover all the circumstances of the criminal offence, but the fact that my amendment could be improved is not a reason for not having explicitly in the Bill a provision that expressly says it is a criminal offence to mimic this body.

There are two strands to my argument: first, it should be expressly in the Bill that it is a criminal offence to mimic, impersonate or imitate the service of the single financial guidance body; and, secondly, there must be some reference to the legislation under which that would be an offence. A Bill would normally refer to the legislation or spell out specifically new legal provisions about the criminal offence. At the moment, however, the Bill is silent on the issue. That is a gap in the Bill. I beg leave to withdraw the amendment.

Amendment 62 withdrawn.

Moved by

[Baroness Drake]

63: After Clause 7, insert the following new Clause—
“FCA: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice
(1) The Financial Services and Markets Act 2000 is amended as follows.(2) After section 137FBB insert—“137FD FCA general rules: requirement to signpost to the single financial guidance body for pension guidance, money guidance and debt advice(1) The FCA must make general rules requiring information about the availability of pensions guidance, money guidance and debt advice from the single financial guidance body to be given by relevant organisations to any category of individuals who may benefit.(2) Before the FCA publishes a draft of any rules to be made by virtue of this section, it must consult—(a) the Secretary of State;(b) the Treasury; and(c) the single financial guidance body.””

[Baroness Drake]

My Lords, Amendment 63 places a requirement on the FCA to make rules requiring information about the availability of advice and guidance from the new body to be given by relevant organisations to individuals who would benefit from it—otherwise referred to as signposting.

If the new body is to deliver on its function to increase people’s ability to manage their financial affairs, there needs to be public use of the guidance. It has to have extensive reach. Experience shows that simply relying on high levels of marketing expenditure is not a cost-effective way of engaging with the public, although from time to time there may be a good reason for running a focused bespoke campaign and, in certain defined circumstances, there is a role for compulsory referral to the guidance service.

Two effective levers for driving public use—they are not exclusive but they are effective—are achieving high levels of public trust by delivering a service which has a spreading reputation for impartiality and efficiency, and the relevant organisations such as market providers and other key bodies actively signposting those who would benefit from it to the guidance available. Evidence of the public need for guidance has been well rehearsed in this Chamber. Research by the Money Advice Service reveals that across a range of measures, financial capability and resilience has got worse over the past 12 years, and other reputable data sources confirm this. Effective signposting will improve the public use of guidance and, in some circumstances, address the known barriers put in place by some providers who are reluctant to see their customers accessing impartial guidance for fear that it increases the risk that they will not buy a product or a service from them. Effective signposting means not just compliance but organisations actively promoting the guidance service.

The Government expect the FCA to review its rules on signposting, but that leaves room for ambiguity, argument and yet more consultation. This amendment would remove any ambiguity and would put into the Bill a requirement on the FCA to set rules to secure the effective signposting to guidance for those most likely to benefit from it. On pensions guidance there is currently a legal requirement on providers to signpost to Pension Wise. DWP figures show that of the people who use Pension Wise, 58% heard about it from their provider and only 8% from advertising. The take-up of Pension Wise has been modest, but I suspect that that is in part because some providers have not actively signposted and in part because, in the first year of pensions freedom, those accessing pots would have included many for whom their DC or AVC pot would not have been a significant part of their retirement income. That will change over time as DC savings become more dominant. The use of guidance will increase, as indeed the Pension Wise figures are increasing.

Signposting to TPAS dispute services is captured in various occupational, personal and local government pension scheme regulations—some 12 sets in all, I think. My amendment would strengthen the FCA duty to set rules on signposting across the financial guidance space. Signposting needs to happen at the right point for those who would benefit from it and be actively supported by providers and other relevant organisations. The ABI has worked with the existing guidance bodies on signposting, such as on the template for Pension Wise, with the result that more people hear about the service through that route. They have indicated that they want to work with the FCA and DWP to improve communications and promote the use of Pension Wise as the norm.

But there is no unanimity of view in the industry. Some providers set up guidance units as part of their own commercial proposition and not all will want to actively signpost customers to impartial and independent guidance which could impact on their own company sales and customer retention. It is estimated that, by 2030, workplace defined contribution schemes will hold £1.7 trillion, five times the £340 billion held in 2015. As DC savings become the new norm, the need to support consumers will increase. The FCA’s recent Retirement Outcomes Review Interim Report scopes the problem well, observing that pension freedoms have made retirement decisions much more complex than ever before, and that consumers can struggle to understand their options and to think through the implications, leading to decisions which may not be best for them. They can choose the “path of least resistance” on drawdown and stay within the walled garden of their existing provider without shopping around. Some 94% of non-advised drawdown sales were made to existing customers. Some consumers cannot, or will not, engage with these decisions. Not all of them will take advice because of its cost and availability— a market gap.

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[Baroness Buscombe]

My Lords, I very much thank the noble Baroness, Lady Drake, for her amendment. I agree with much of what she said, but her amendment would amend the Financial Services and Markets Act 2000 to require the Financial Conduct Authority to create a new rule. That would require all relevant firms regulated by the FCA to signpost their customers to the new single financial body.

The noble Baroness outlined her concerns on the matter on Second Reading. She said:

“There should be a requirement on the industry and relevant players to clearly signpost the services of the new body to the public”.—[Official Report, 5/7/17; col. 919.]


The Government agree with the noble Baroness that signposting has an important role to play in helping to improve public access to guidance. A key challenge for the body will be promoting its services in an effective and efficient way to ensure that those who need support can easily access it.

The new body will need to think creatively about how it works with the financial services industry, the devolved Administrations, and the public and voluntary sectors to target and promote the services it offers. The FCA is clearly a key player in this. Both the Government and the FCA are determined to help members of the public to take advantage of the financial guidance available to them. We envisage that signposting by authorised firms will be a crucial way of encouraging people to engage with the new body.

I should note that the FCA already has some measures in place to ensure that firms promote the Money Advice Service’s guidance offering. To take one example, consumer credit firms cannot communicate a financial promotion with relation to high-cost short-term credit without a risk warning that points consumers to the Money Advice Service. However, the Government believe that the FCA should review its current rules and expand them where necessary. The creation of the new body provides an excellent opportunity for such an exercise to be conducted. Indeed, the Government’s response to the most recent consultation noted that they expect the FCA to review these rules in the light of the creation of the new body so that individuals are signposted to the body by industry at moments when they are most likely to benefit from guidance. I am pleased to say that the FCA has now committed to updating its current measures and, where appropriate, will look into creating new rules to increase uptake of the new body’s services.

I will offer a couple of further examples of current FCA rules that I hope in some way respond to the noble Baroness’s concerns. For example, if the customer falls into arrears on a regulated mortgage contract, a mortgage firm must provide a customer with a Money Advice Service information sheet called Problems Paying Your Mortgage in 15 days. In its first communication with a customer a debt management firm must inform customers that free debt counselling, debt adjusting and provision of credit information services is available and that the customer can find out more by contacting the Money Advice Service. Also, a debt management firm must provide a link on its website to the Money Advice Service’s debt advice locator tool.

In the light of the FCA’s commitment to review its rules, create new rules and increase uptake of the new body’s services, I do not believe that legislation is required to achieve the worthy aims set out in the noble Baroness’s amendment. I am grateful to her for giving me the opportunity to put on record the Government’s view on this very important matter. Having done so, I hope that she will be prepared to withdraw her amendment.

[Baroness Drake]

I thank the Minister for her reply. My amendment does not seek to set down in detail what the FCA’s rule should be or specifically cover, or whether it should require signposting in every instance. The driver is that there should be signposting where those individuals would benefit from guidance. That is obviously a judgment to be made in the circumstances that would apply.

Although the Government expect the FCA to review its signposting rules, a review is a review—that is what it is. There will be lots of discussions and consultation. Not everybody in the industry will support active signposting. Putting the duty on the FCA in the Bill removes any ambiguity about the fact that, to get the public to engage with the guidance service, there has to be an effective system of active signposting by providers and organisations relevant to the service. It is a simple proposition: the new guidance body will fail in its strategic objectives if it does not get public use of the service it provides. It would be a wonderful Rolls-Royce service; it is just nobody would be using it. We know in many instances that the behaviour of the provider defines the consumer experience. There is merit in putting in the Bill that the FCA has a duty to come up with signposting rules that will ensure that those who benefit the most from guidance will be actively and effectively signposted. I beg leave to withdraw my amendment.

Amendment 63 withdrawn.

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Moved by

[Baroness Drake]

68: Schedule 3, page 24, line 21, leave out paragraph 12 and insert—
“12_ For section 3S (the consumer financial education body) substitute— “3S Duty of the FCA in respect of the single financial guidance bodyIn discharging its duty to approve standards set by the single financial guidance body under section 6(2) of the Financial Guidance and Claims Act 2017, the FCA will act in the interests of consumers and promote financial inclusion.””

[Baroness Drake]

My Lords, Clause 6 requires the single financial guidance body to set and publish the standards that it will meet in the provision of information, guidance and debt advice. It is specifically required to obtain the approval of the FCA to those standards. Clause 7 requires that every three years the FCA must review whether those standards are appropriate, review how they are being monitored and enforced, and make recommendations. Amendment 68 would place a requirement on the FCA that, when discharging its duty to approve these standards, it will act in the interests of consumers and promote financial inclusion. The intention of the amendment is to strengthen the remit of the FCA, in this instance, to act in the consumer’s interests.

The single financial guidance body is an organisation whose function is expressly to support individual members of the public. Its objectives are to improve individuals’ financial capability and their ability to make informed decisions and to manage debt. Problems of access undermine the general principle that consumers should take responsibility for their own decisions. People cannot reasonably exercise that responsibility if they struggle to understand the nature, processes, terms and conditions of products and services.

The financial guidance body standards have to be approved by the FCA, whose remit is different—its remit is to ensure well-functioning competitive markets. If there is a gap in the market, the FCA often does not have the power to fill it, and if there is a market failure it seeks to address it by improving competition, even though in many instances the weakness of the consumer buy-side market forces cannot exert the necessary force to achieve a well-functioning market in parts of the financial services industry. The FCA acknowledged in its Retirement Outcomes Review Interim Report that competition is not working well for consumers who do not seek advice; it has concerns about whether a competitive market can develop in future; and consumers can struggle with the complexity of decisions. This echoes the view of the OFT, in its 2013 report on workplace pensions, that the buy side there was one of the weakest that it had ever encountered.

Competition will not always be an effective way to overcome access problems; the very creation of the financial body is a recognition of that fact. As for the wider market, in its paper on Access to Financial Services in the UK, the FCA observed that,

“left to the market, some consumers will be unable to access the products or services they want or at a price they are willing or able to pay”.

The market can go only so far in addressing the various financial needs of people.

The FCA is an economic regulator with a statutory objective to secure an appropriate degree of protection for consumers of financial services, which is largely focused on the provision of information and disclosure, given the general principle that consumers should take responsibility for their decisions and providers should give consumers a level of care that is appropriate, having regard to the capabilities of the consumer. However, the FCA does not have a specific objective or duty relating to consumers’ access to financial services or financial inclusion. The extent of the FCA toolkit in assisting vulnerable customers can appear uncertain.

The single financial guidance body, by comparison, is created to focus expressly on the needs of the public and the consumer, to improve their financial capability to make informed decisions. It is given the power in Clause 2(3) to do anything that is conducive to the exercise of its function.

So there is clearly a potential for tension between the remit of the FCA, when it considers whether to authorise the guidance body standards, and the aspirations of the guidance body on how to support the public when setting those standards. The objectives of the FCA and the financial guidance body need to be aligned when the standards for the provision of service by the new body are set and approved. That is the purpose of my amendment, which would give the FCA the duty to act in the consumer’s interest when authorising those standards.

The standards are a matter for the new body when it is set up. I do not seek to debate what the standards should be, but as a way of illustrating my point I could speculate on matters where tensions could arise: the qualitative standards for the guidance and how far guiders can go in their role in enhancing individuals’ ability to manage their financial affairs and make informed decisions; the guidance output given to the customer; standards for determining when the provision of guidance and debt advice are considered lacking such that the new body has a locus; the consumer’s journey, including how they get the guidance; the ability of vulnerable customers to access financial guidance; and the extent of active promotion of the financial guidance service by relevant organisations.

The answers to the questions of what the standards should be on these and other matters may be different depending on whether they are looked at wholly through the lens of the individual—the consumer’s interest—or from the perspective of a competitive, well-functioning market. The FCA and the new financial guidance body should look at these standards through the same lens, that of the consumer’s interest. That is what my amendment seeks to do. I beg to move.

[Baroness Kramer]

My Lords, I will speak in support of this very important amendment moved by the noble Baroness, Lady Drake. Much of the difficulty in the conversations we have had around this Bill has come over the role and obligations of the FCA. If the Minister or her officials care to look at the FCA website, they will understand that consumer protection is very much interpreted in the realm of preventing mis-selling and preventing scams; it is not a broader protection of the consumer in the way that some might interpret that language—for example, to make sure that the consumer has successful routes to navigate financial services.

I can give the Minister one simple example of which she will be aware. Many of us around this Committee—and, indeed, probably the Minister herself—believe that a breathing space scheme would be very advantageous in helping people to move through debt management to restore their finances. However, the FCA cannot mandate such a thing. It cannot act, as it were, to protect the consumer even though one might consider, if using just the English language, that such an action would be captured by the words “consumer protection”.

In the same way, on the issue of access the FCA can try and act so that a banking institution, for example, does not put up barriers that would discriminate or set itself up in such a way that people could not get on to the relevant website to access the service, but that is not access as in, “What financial services do members of the public require, and are those kinds of services being provided by the financial service sector and industry?”. So it cannot gap-fill. Actually, it is quite unusual to have an arrangement where such gap-filling is not possible. For example, in the United States, that may be done indirectly through things such as the Community Reinvestment Act, so there are paths by which that kind of back-filling can be pursued by the regulator.

I hope very much that the Government will understand that, in terms of providing advice and guidance, the FCA in looking at the standards that have been set cannot operate within the usual realm of an economic regulator of essentially promoting market efficiency or market fairness, which is its fundamental and underlying approach and responsibility. That is why the inclusion of language that talks about acting in the interests of consumers and about promoting financial inclusion is very appropriate when the FCA is now engaged in something that steps outside its traditional, typical overarching role.

--- Later in debate ---

[Baroness Buscombe]

My Lords, there is much agreement around the House about this issue. I am hoping to persuade noble Lords that, while absolutely agreeing in principle, I believe that it is unnecessary to have this provision in the Bill.

I thank the noble Baroness for her amendment, which would impose a legislative requirement on the Financial Conduct Authority to act in the interests of consumers and to promote financial inclusion while discharging its duty to approve standards set by the single financial guidance body under Clause 6(2). We have discussed the setting and publication of standards and the monitoring and enforcement of those standards in our useful debate on Clauses 6 and 7. The standards are designed to provide ongoing assurance to members of the public about the quality of the services provided by the new body. Those standards will apply to the body itself when delivering its services directly, and to any delivery partner organisations that it engages to deliver services on its behalf.

We have already covered the role of the FCA in the standards-setting process. The FCA will add value by providing useful independent scrutiny, and the standards will benefit from the FCA’s expertise in relation to the debt advice sector and its experience in setting the standards for Pension Wise. We are confident that the FCA will, of course, act in the interests of consumers throughout this process; as noble Lords may know, the FCA already has a statutory objective to secure appropriate protection for consumers.

On the topic of financial inclusion, I am aware that the statutory objectives of the FCA were of some debate during the Lords ad hoc Select Committee on Financial Exclusion. One of the committee’s recommendations included giving the FCA a new objective to promote financial inclusion. As the current amendment touches on the subject, I observe that the FCA has already taken several steps to promote financial inclusion. Access to financial services is already written into its competition objective, which states that the FCA may have regard to,

“the ease with which consumers who may wish to use”,

financial,

“services, including consumers in areas affected by social or economic deprivation, can access them”.

Indeed, noble Lords will be aware of the good work that the FCA has done to promote financial inclusion through its occasional papers on vulnerability and access, as well as through its work to promote financial technology. To take one example, the FCA’s TechSprint events have brought together teams from the technology industry and across financial services to develop ideas and proof of concepts. The first of these events focused on identifying potential solutions to improve financial inclusion and access to financial services. In light of that work, I do not believe it necessary to amend the FCA’s objectives or specify financial inclusion in the context of the body’s standards. Indeed, I have provided definitions of financial inclusion and capability on other occasions, as has my co-pilot, and I hope that these definitions have convinced noble Lords that it would be unhelpful to connect financial inclusion to the new body within legislation.

In relation to the previous amendment I made reference to the fact that the FCA has committed to creating new rules on access, to increase uptake of the new body’s services. The new body will be focused on financial capability, and the standards are very much focused on the body’s ability to deliver high-quality guidance, information and advice that will help members of the public to make informed financial decisions. To be clear, the standards do not concern financial inclusion, which is about the supply of useful and affordable financial services and products by the financial services industry.

In response to my noble friend Lady Altmann, I absolutely agree that the focus for the FCA in terms of the new body has to be protection in new ways of the interests of consumers. In our negotiations and discussions with the FCA, we feel very much that that is the way forward. It is correct that the FCA has a number of objectives, of which consumer protection is only one. Given the strength of the debate, I shall of course consider this fully between now and Report. It is important that maybe we think about this a little further, in terms of the relationship between the FCA and the new body, because clearly it raises concern across your Lordships’ House.

It is important to note that the FCA has a lot of relevant expertise in setting the framework for the financial advice provided to consumers and setting standards for the Pension Wise service—just two examples. However, given the strength of the debate, if noble Lords are supportive, it would be sensible for us to have the opportunity to consider the matter between now and Report. Perhaps we could have another meeting with all interested Members to discuss this very important issue. The relationship between the two bodies will focus on the consumer, and I am working hard to persuade noble Lords that that will work—but, clearly, they feel that there is more to be done and more reassurance to be given. I am very happy to be able to do that before Report. I hope on that basis that the noble Baroness will withdraw her amendment.

[Baroness Drake]

I thank the Minister. I am very pleased that she has agreed to consider the matter further before Report. I stress that this is not a criticism of the FCA but a recognition that the creation of the financial guidance body is in part to deal with market failure. Consumers cannot exercise their influence; if the authoriser has to look at functioning markets, but the person seeking the authorisation exists solely to be a consumer champion, there is a dysfunctionality in how standards are assessed and how efficient that guidance body can be in fulfilling its remit. However, I shall not labour the point, because the Minister has very kindly agreed to consider the matter before Report. I beg leave to withdraw my amendment.

Amendment 68 withdrawn.

Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

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

Moved by

[Baroness Drake]

24: Clause 2, page 2, line 34, at end insert—
“( ) The single financial guidance body must produce a report advising the Secretary of State on how government departments might best assess the impact on financial inclusion, financial capability and household debt of any proposals for a change to public expenditure, administration or policy. ( ) The report must be published within the period of 12 months beginning with the day on which this Act is passed.”

[Baroness Drake (Lab)]

My Lords, we all know that the UK faces a series of systemic challenges, which drives the need for the new financial guidance body as part of the armoury of response. Within the population there are persistently low levels of financial capability, rising indebtedness, falling financial resilience, and poor understanding of pensions and other complex financial products. The financial capability challenge is not restricted to the squeezed and financially struggling; it goes up the income value chain. The Money Advice Service figures, on a range of measures, reveal that the picture has got worse since 2005. The growth of these problems has many roots, but they are compounded by inefficiencies in the financial services market, such as the poverty premium paid by the poor to access credit; the asymmetry of knowledge and understanding of products and services, which disadvantages consumers across the income range; and geographic and digital access barriers.

I shall scope the scale of the national challenge. ONS statistics reveal that the proportion of disposable income that goes into savings has fallen to a record low. Wages have been weak for much of the period since 2008, and the Bank of England’s chief economist has observed that the structural factors contributing to weakening wages are unlikely to reverse any time soon. Household debt is rising. Recent Bank of England figures reveal £200 billion owed in consumer credit, excluding mortgages, and the biggest surge in the number of customers missing loan repayments and default rates on credit card overdrafts since 2008. Figures for unsecured loans and car finance are even worse, and some 3 million people are struggling with severe debt.

The Lords Select Committee report on financial exclusion sets out clearly the multiple causes of exclusion and its effect on different groups of society, compounded by the barriers that the low-incomed, elderly and disabled face in accessing financial services. Auto-enrolment has seen the rise of defined contribution workplace pension savings as a mass market, involving some 16 million workers, their savings expected to reach £1.7 trillion by 2030. The largest increase in workplace pension participation rates has been for those earning between £10,000 and £20,000. That is all good news on pension savings but over time, as more workers save into defined contribution schemes, the financial capability challenge gets greater. In future, individuals will bear more risk than previous generations of pensioners, yet many are ill equipped to manage those risks and make complex decisions. Many accessing defined contribution pension pots today have other main sources of retirement income, such as a defined benefit pension. That will not be true for future generations.

The financial resilience of the public has weakened. A growing sense of unfairness and heightened insecurity across both low and moderately incomed households is eliciting behavioural responses. The Bill gives the financial guidance body a strategic function to co-ordinate the development of a national strategy on financial capability and managing debt. However, that remit cannot displace the need for government leadership and overall co-ordination. The lessons of the past confirm that substantial funding of national financial capability programmes does not deliver the step change needed in the absence of government ownership and drive.

The new body will be an executive non-departmental public body—a delivery arm of government. One has to be realistic about how far its authority and resources can reach. It will have a demanding focus on delivering front-line support for millions of people. The new body can map, measure and identify problems, and it can provide insight, give guidance and support a national strategy, but it cannot manage the process of government—it will have neither the means nor the resources.

Public policy in many areas can be looked at through the lens of financial inclusion and capability, such as taxation, welfare, education, the regulation of markets, health and transport. The whole tanker of government has to be moved to mainstream consideration of the problem and to get departments to assess how their policies, administration and expenditure impact the financial capability of the UK population. Indeed, the Prime Minister herself observed in January that the Government needed to,

“recalibrate how we approach policy development to ensure that everything we do … helps to give those who are just getting by a fair chance—while still helping those who are most disadvantaged ... they need a government that will make the system work for them”.

An important way in which the new body can discharge its function to support a national strategy is to give it a remit to produce a report advising the Secretary of State on how government departments might best assess the impact on financial inclusion, capability and household debt of any proposal for a change to public expenditure, administration or policy. The concept is not novel—impact assessments are already required from departments on a range of matters, such as regulatory burden or equalities. There are impact assessment toolkits in use; the NAO audits their quality and effectiveness.

This amendment gives a new ingredient by placing a requirement on the guidance body to deploy its expertise and report to the Government on how departments might best assess the impact of their actions on financial capability and household debt. Giving the new body a duty to produce such a report, to which the Government will need to respond, will contribute to achieving greater government ownership and engagement in delivering a national strategy.

I return to the theme of my opening comments. The UK faces a series of systemic challenges which require a shift in the nature of government engagement—something on which I think the Prime Minister and I agree. Without the formal discipline of government mainstreaming and assessing the impact of public policy, a national strategy on financial capability and household debt will not deliver the desired outcomes. Just giving a large budget to an NDPB is not going to do it. The Government have to buy in to mainstreaming and delivering a strategy to meet these challenges. I beg to move.

--- Later in debate ---

[Lord Young of Cookham]

I would love to give a direct and helpful response to the noble Lord’s very reasonable question. It would be irresponsible of me so to do. There are a lot of government departments involved in this. I cannot give an exact timetable at the Dispatch Box today, but I will make some inquiries and see whether we can shed some light on a publication date perhaps later in our proceedings.

I think I was at the end my peroration, imploring the noble Baroness, Lady Drake, to withdraw her amendment.

[Baroness Drake]

I thank the Minister for his reply. I totally disagree with most of what he said. I thoroughly agreed with the bit where he agreed with my analysis— it was just the bit about the amendment not being practical. This will be neither onerous nor expensive, which is really his only argument against it. This is not saying to map every problem that contributes to financial capability or financial exclusion, but to give a report that sets out in the methodology how best to make an impact assessment across government departments when they are pursuing their policy.

This is not novel; it is a methodology and a discipline that operates in a range of areas. A huge amount of work has already been done. A national strategy has already been created by the work of the Money Advice Service—there is already its capability survey. It has mapped the problem. I was rereading it over the weekend. There is no need to reinvent the wheel. A lot of that work exists and it is an organisation that is going into the new organisation. The Bill already gives to the new financial guidance body responsibility for co-ordinating and developing a national strategy. The Government have already given it the heavyweight bit, which is to co-ordinate and develop the national strategy, but ensuring that that strategy is effective and delivered—ensuring that the whole machinery of government is responsive to the challenge—is a methodological challenge in terms of what I am proposing on how you assess the impact so you can take it into account.

I do not accept that it is expensive or onerous. It is a challenge of how one guides departments to make those impact assessments. There is plenty of advice and guidance from the NAO, other government departments and other bodies that have given guidance to the Government on how to make impact assessments. If there is such a resistance to making impact assessments, how is the Prime Minister to meet her commitment? If she wants to make the Government function better she has to stand back, look at the problem and make an assessment. All I am saying here is that simply giving a budget to an NDPB and saying, “Get on with developing and co-ordinating a strategy; we as a Government have now discharged our function”, is not sufficient. The whole machinery of government has to be told that when it comes up with its actions or policies that it has to assess the impact it will have on capability and debt. The Government will go on to make their policies, but they have to put a discipline in. Just handing over the more labour-intensive bit to the NDPB, not the least labour-intensive bits that I am suggesting, will not get good outcomes for the country.

I reject the premise of the Minister’s argument that it will be very expensive and labour intensive to do. A lot of the groundwork has already been done by the MAS. None the less, I beg leave to withdraw my amendment.

Amendment 24 withdrawn.

--- Later in debate ---

Moved by

[Baroness Drake]

27: Clause 2, page 2, line 38, at end insert—
“( ) to improve the ability of members of the public to plan for and address sudden variations in income,”

[Baroness Drake]

My Lords, Amendment 27 adds an objective for the new guidance body,

“to improve the ability of members of the public to plan for and address sudden variations in income”.

Clause 2 sets out that the new body’s money guidance function is to provide,

“information and guidance … to enhance people’s … ability to manage their own financial affairs”,

but the effective exercising of that function must involve improving people’s ability to manage income shock and strengthening households’ financial resilience. Improving resilience includes assisting households both to manage better once in the grip of a financial crisis or debt and to anticipate and protect against financial crisis or shock through a savings buffer, insurance buffer or some other means. Prevention and cure for households in financial difficulty are both within the remit of the financial guidance body and both require attention.

Evidence of weakening financial resilience within the UK population is abundant. Eight out of 10 people have little or no savings to pay an unexpected bill of £300. The Money Advice Service’s Milestones & Millstones report in 2015 showed that 3.3 million people face an income shock each year. The work, health and disability Green Paper, Improving Lives, reveals that each year almost 2 million people suffer a prolonged sickness absence from work caused by cancer, accident or other major illness, which usually leads to a sudden and significant fall in household income; and 1 million experience divorce, separation or death of a partner, again, often leading to a substantial fall in household income.

Many people lack the financial resilience to weather such a storm and consequently any children they have will also be bruised and buffeted. According to the Children’s Society, financial shocks leading to problem debt have a significant impact on children’s well-being, with many struggling with school and suffering anxiety or depression as a result of enforcement action by creditors. A recent report by Aviva, Protecting Our Families, suggests that three in 10 UK adults have seen their finances hit as a result of temporary or permanent leave from work due to ill health, a cancer diagnosis or death within the family; 31% of adults took forced leave from work, of which 77%—12 million people—saw their income drop by an average of 24%. The Aviva report also reveals that 27% of parents with dependent children have suffered a health crisis, with 91% of these suffering financially. They are quite stark figures. I was quite surprised at the volume when I started to drill down into this.

At Second Reading we heard from the noble Lord, Lord Holmes of Richmond, that by 2020 50% of us will have had or will experience a cancer episode in our lifetime, yet only one in 10 will tell their bank or building society that they have a cancer diagnosis. The noble Lord recounted the experience of John—mid-40s, mortgage, diagnosis of cancer—who can get no engagement from the financial services providers to help him manage through this financial crisis. This experience is consistent with the FCA’s observation in its Occasional Paper 17, Access to Financial Services in the UK, which specifically identified the poor access, particularly to insurance, that people who have experienced serious illness suffer. It cites the statistic that 2.5 million people living with and after cancer—forecast to rise to 4 million by 2030—would find themselves in the non-standard category for a financial services “imperfect customer”. It went on to define what that meant but I think the House is quite capable of determining what a phrase like that means. Lynda Thomas, chief executive of Macmillan Cancer Support, observed:

“Every day, I see people, and I hear of people, whose finances have been really badly hit because of their cancer diagnosis. What our frontline experience shows us is that people affected by cancer find it really, really difficult to access ... all insurance products”.

--- Later in debate ---

[Baroness Buscombe]

My Lords, perhaps I may address Amendment 27, in the name of the noble Baroness, Lady Drake, and Amendment 27A, in the name of the noble Lord, Lord Sharkey. The first of these amendments seeks to include an additional objective for the single financial guidance body, which is,

“to improve the ability of members of the public to plan for and address sudden variations in income”.

The second amendment would amend the body’s second objective so that the body must support the provision “and use” of information, guidance and advice in areas where it is lacking.

I thank the noble Baroness and the noble Lord for their contributions on the important topic of financial capability during Second Reading, and during the first day of Committee before the summer break. For instance, I agree with the noble Baroness that many people in the UK need help with boosting their financial resilience. People need to know how to plan for and address sudden variations in income, and she gave a number of very pertinent examples.

The Money Advice Service is involved in some important work in this area. In developing its financial capability strategy, MAS supports the work of a wide range of organisations across the public, private and voluntary sectors. As I have said, the strategy looks to address not just people’s skills and knowledge around money management but the attitudes and motivations that can hold them back. As I stressed on a previous amendment, I believe that that is truly important in this exercise.

To take an example, some of MAS’s “What Works” projects targeting young adults are focused on helping them adjust to the income shocks and financial implications brought about by the life transitions they experience, as they move between welfare and work and/or further and higher education. For example, MAS is funding a project with The Mix, a leading national digital youth agency and helpline, to explore how we can engage young adults with money guidance as they make such life transitions between post-school education and the labour market. MAS’s research shows that this work is vital. Almost one-third of UK adults have experienced a serious financial shock in the past five years, such as losing their job or being unable to work due to injury.

The noble Baroness, Lady Drake, specifically referenced cancer. In line with its objectives to focus its efforts on the most in need, the body should, as part of its money guidance function, provide support for those who fall into financial difficulty as a result of cancer. More broadly, as part of its objective to increase the financial capability of members of the public, the body should help to build individuals’ ability to deal with such income shocks.

We also know that there is a gap between the number of people experiencing unexpected events and those who have a plan in place to safeguard their finances. Research, again by the Money Advice Service, shows that three-quarters of households receive an unexpected bill every year but that 26% of working-age adults have no savings to fall back on, while a further 29% have less than £1,000 saved. That is why we have provided that the new body should have the money guidance function, giving it a duty to provide information and guidance designed to enhance people’s understanding and knowledge of financial matters, and their ability to manage their own financial affairs. The Government would therefore expect that the duty proposed by the noble Baroness’s amendment—

“to improve the ability of members of the public to plan for and address sudden variations in income”—

would inherently be addressed by the money guidance function.

The MAS research that I previously referenced is a clear example of the type of work that the new body would be expected to carry out under its money guidance function. Clearly, enhancing people’s understanding and knowledge of financial matters must include both expected events, such as retirement, and the more unexpected, negative income shocks caused by events such as a job loss. This also includes financial education initiatives aimed at children.

In the same vein, I reassure the noble Lord, Lord Sharkey, that the body will support members of the public to use information, guidance and advice under its current statutory functions and objectives. This is because the ability to use information, guidance and advice is at the heart of building financial capability and, therefore, already provided for within the body’s statutory objectives. To be more specific, the provision of help to support members of the public use information is implicit in the money guidance function and the body’s first objective, both of which are designed to enhance people’s understanding of financial matters and their ability to manage financial affairs generally. My view is that the objectives set out in the Bill, alongside the money guidance function and the strategic function, already allow the body to support people so that they are better able to deal with income shocks and to use information, guidance and advice.

Given a number of things that noble Lords have said this evening, it is important to add to this debate some of the initiatives that the Government themselves, and government creditors, have in the support systems that are in place for those struggling to repay their debts. We have to look at this in the round, and departments have taken steps to ensure that they collect debt in a responsible way. For example, HMRC can put what we call a time to pay arrangement—TTP—in place, which enables a debtor to pay the debt in affordable instalments over time. These arrangements are entered into on a case-by-case basis and tailored to the ability of the customer to pay, taking into account their circumstances.

As another example, the Department for Work and Pensions will always look to introduce a sustainable repayment plan that is bespoke to the individual’s circumstances. Its existing approach includes the provision of breaks in debt repayments or reductions in the rate of repayment for individuals who are experiencing hardship. There are a number of other examples, but as a final one the DWP has also established personal budgeting support for universal credit, which aims to prepare all claimants for the financial changes that universal credit brings. The need for budgeting support is assessed for all claimants at the start of the claim and support can be requested at any time. I include these initiatives at this stage because it is important to recognise that we are creating a framework for this body to work within and develop, using its skills and expertise.

We are grateful for these debates because to have noble Lords stress, and explain in Hansard, their concerns with regard to the kind of work that this body should undertake will, I am sure, be enormously helpful in the development of its strategic functions. On that basis, I hope that the noble Baroness, having heard this explanation, will withdraw her amendment.

[Baroness Drake]

I thank the Minister for her sympathetic reply. Sadly, the path of life does not always run smoothly. Illness, bereavement, divorce and unemployment can intervene and be quite devastating in their impact. The market can be very reluctant to deal with people in those vulnerable situations. This is something that the FCA observed in its recent paper on access to financial services. It recognised that its remit does not allow it alone to deal with this situation in the market, for the very reasons that the noble Baroness, Lady Kramer, observed, and that addressing these issues needs a wider approach.

The main purpose of my amendment was to highlight the need for the guidance function to help people address the need to plan ahead and anticipate the preventive approach as much as the curative approach. I thank the Minister for her reply, and I beg leave to withdraw the amendment.

Amendment 27 withdrawn.

Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

Committee: 1st sitting (Hansard): House of Lords
Wednesday 19th July 2017 Lords Chamber

Moved by

[Baroness Drake]

6: Clause 2, page 2, line 13, at end insert—
“that must remain free at the point of use for members of the public.”

[Baroness Drake (Lab)]

My Lords, I shall speak also to Amendments 28, 29, 30 and 32. I refer the Committee to my interests in the register, including TPAS.

Amendment 6 would put in the Bill the requirement that the functions delivered by the financial guidance body remain free at the point of use for members of the public. Supporting vulnerable individuals and increasing people’s ability to manage their financial affairs and make informed decisions are a major public policy challenge which has systemic roots. It underpins the creation of the new body to improve life outcomes for members of the public. The policy will need to be long term, as will the essential ingredient, “free at the point of use”. For it not to be free risks undermining the body’s reach to those who most need it and compromising its impartiality, because introducing charges raises conflict as to where organisational effort and resource are directed, as between most in need and potential to raise revenue.

Amendments 28, 29, 30 and 32 are all directed at requiring the provision of information, guidance and advice by the new body to be independent and impartial. Much in this Bill is at high level, which is understandable because of two requirements: the new board needs scope to build an organisation fit for purpose; and the new body needs flexibility so that it does not duplicate fit-for-purpose information and guidance sources that already exist, but also so that, over time, it is allowed to go wherever it identifies it needs to go in provision to assist and support the public. However, in meeting these two requirements, the Bill cannot be so imprecise that it introduces uncertainty. There should be little ambiguity as to the footprint of the new body’s functions and objectives, as hard experience tells us that in the field of public provision of financial information and guidance such ambiguity has not been a good thing.

My amendment would address that problem by amending Clause 2 so that the objective of,

“to support the provision of information, guidance and advice in areas where it is lacking”,

was amended to read,

“to support the provision of independent and impartial information, guidance and advice”.

Introducing “independent and impartial” would set qualitative parameters to what is provided, commissioned or otherwise approved or endorsed by the financial guidance body brand. It must be wholly customer focused, driven by the interests of the individual and not fettered by commercial or other vested interests. If the new body is not independent and impartial, it will not be trusted by the public and it will compromise its own objective to enable people to make informed decisions. A commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs. Guidance from a provider with a vested interest in the decision a customer makes is likely to be partial.

--- Later in debate ---

[Baroness Buscombe]

As I just said, we will need to take back and clarify this point. My understanding is certainly that we should focus on an individual’s finances, as opposed to finances attached to their business.

Once again, I thank noble Lords for bringing forward these amendments. I hope they will agree that they are unnecessary in the context of the Bill. I am grateful to the noble Lords because we have had the opportunity to make it clear—it will be clear in Hansard—that it is unnecessary to put into the Bill additional terminology. I urge the noble Lords, Lord McKenzie and Lord Stevenson, and the noble Baroness, Lady Drake, not to press their amendments.

[Baroness Drake]

I thank the Minister for her reply. We are in danger of breaking out into agreement, because I agreed with a lot of what she said. However, the Bill does not state what the intention is. I completely agree with the body being cost effective. I do not want to engage in duplication. I agree with its focus on the front line and that it must identify and address where information and guidance are lacking. I do not believe that any of my amendments contradict any of those requirements or the desirable directions that the Government want to take. But when the body seeks to implement the objective of identifying where something is lacking—and therefore where it has a footprint and something to do—there is a test to be met, and there is no guidance or reference or indication of any kind in the Bill as to how that test would be met. My argument is that of course one would not want to be too prescriptive but that independence and impartiality must be the essential characteristics of any test.

This will be a controversial area. There are lots of private sector guidance and information functions. There will be contests over where the boundary of the footprint of the single financial guidance body ends and commercial practice begins. I do not want to detract from the Government’s aspiration for the body but I think there is a gap, because there is no legal or legislative guidance for the test to determine what is lacking. I ask the Minister to reflect on that. I said at Second Reading that if ever there was a word that needed testing, it was “lacking”. If something is lacking, there has to be a test to identify that. I beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

Committee: 1st sitting (Hansard - continued): House of Lords
Wednesday 19th July 2017 Lords Chamber

9: Clause 2, page 2, line 20, after “occupational” insert “, state”

[Baroness Drake (Lab)]

My Lords, in the interests of efficiency, I will move Amendment 9 and speak to Amendment 10.

Amendment 9 adds to the pensions guidance function of the new body matters relating to the state pension. In moving it, I do not seek to interfere or intervene in the role of the Government’s Pension Service. My focus is on the ability of the new body to give holistic guidance in helping members of the public. For many, the state pension will be the most important risk-free element of their income in retirement. Understanding how it and state benefits sit alongside their private savings will be important when considering their options and choices, and then making informed decisions—as will securing entitlements to state pensions, particularly for women where actively claiming credits for caring can be important. Pensions guidance gains from being informed by all of an individual’s benefits and savings. That view will be facilitated if a pensions dashboard is successfully implemented.

Amendment 10 has the effect of extending the pensions guidance function of the new body to provide a single, public good pensions dashboard as a trusted consumer hub. Responsibility for provision in later life is shifting towards the individual. People rely on state, workplace and personal pensions and other savings to varying degrees. There will be multiple channels for them to keep track of and understand. A pensions dashboard would be a digital interface, a viewing space, where an individual can see all the information on their state pension and their different pensions savings pots. They can access their viewing space with their own digital identity.

A pilot dashboard is being developed by 17 providers under the auspices of the Treasury. A successful dashboard could evolve over time to include information such as ISAs and income drawdown—a range of information about an individual’s finances, savings and investments. The fintech industry may develop the basic dashboard to include more tailored personal finance products.

--- Later in debate ---

In light of the explanations I have given, I very much hope the noble Baroness will not press her amendment and feel able to withdraw the amendment in the name of the noble Lord, Lord McKenzie.

[Baroness Drake]

My Lords, I thank the Minister for her reply. I hope she will indulge me as there was quite a lot of detail, which I would like to pick up on. I completely accept the point that the single financial guidance body cannot take on the responsibility of the state, as delivered through the Pension Service, in determining what a person’s state pension entitlements are. I was not seeking to transfer authority from one to the other. As the Minister mentioned, two elements of the “seamless journey” are that guidance can be made easier—because of the ability to access or integrate state pension information into the guidance process—and, if the pension dashboard is a success, it unlocks transparency of information quite considerably and transforms how guidance can be performed.

The Bill is silent on the state pension. It would be welcome if there were some clarification—even if it is a sort of future banking—of what the function can embrace, in a way that is acceptable to the Government and the Government’s Pension Service guidance embracing the state pension.

On the dashboard, I was not arguing—and I hoped I had stressed that—that the dashboard had to be a single entity. I was arguing, first, that there must be a public dashboard. It should not be the case that the public are dependent on a commercial provider for use of the dashboard. Secondly, there has to be a pretty clear statement, fairly soon, about some kind of public ownership of the governance and the dashboard. One cannot encourage 20 million people and rising—and every holder of data on an individual—to allow the data to be drawn down, unless these issues are addressed and the public have that level of assurance.

I welcome the Minister’s statement that the legislation allows the financial guidance body to be the provider of a public dashboard. I am assuming—and I invite her to correct me if I am wrong—that Clause 2(3) and (4) would be the source of the legislative authority for the financial guidance body to be a provider of the public dashboard.

Where I disagree with the Minister is on the suggestion that these are early days. These are not early days; people are getting anxious. People wish the dashboard well; I wish it well. If we get it right, it is a transformational, welcome and great piece of progress. If we get it wrong, it is a high-risk consumer issue. I assure the Minister that increasing numbers of people are getting anxious about the governance issue. I have had lots of people—once they have seen my amendment—saying that these issues need to be rehearsed; they need to be brought out in public.

I ask the Minister seriously to think about using the opportunity of the Bill at the very least to write the fullest statement that the Government can give about their attitude to governance, the priority of the consumer interest driving this and the role of public governance, ownership and oversight of the dashboard, because there is real anxiety. People want to know. Sometimes, when one is sitting closely with the people working on the dashboard, one misses the growing anxiety of the wider community—including in the industry—on the issue.

I welcome confirmation that the legislation specifically allows for this, if the Government decide to do so, but there is a real need for the Government not simply to say that these are early days—we accept that these are complicated issues—but to come forward with the fullest possible statement recognising the challenge. People want that.

[Baroness Buscombe]

I very much thank the noble Baroness for her proposal, and I will certainly take her suggestion away. That is a sensible way forward, because the Government have at the forefront of their mind the importance of developing the dashboard with great care. The priority should be the consumer—indeed, this is a consumer-based Bill—and the role of public governance. So I will take her suggestion away and hope to come back with a full statement on Report.

[Baroness Drake]

I beg leave to withdraw my amendment.

Amendment 9 withdrawn.

Pensions

Baroness Drake Excerpts

Wednesday 19th July 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, it is the role of the Government Actuary, as set out formally in legislation, to advise the Government on trends in life expectancy to inform the state pension age. His duties are quite clearly set down in that respect. The John Cridland review was intended also to embrace wider considerations, such as socioeconomic differences and other matters, so it is disappointing that the Statement does not respond on any such issues at all—not one. I was quite surprised by that, so I take the opportunity to raise one associated issue that was addressed by John Cridland and on which he made a recommendation.

We know that auto-enrolment has seen the rise of defined contribution workplace pension saving as a mass market, and it is anticipated that some £1.7 trillion will be held in workplace schemes by 2030, which is all good news for pension savings. However, as more workers save into DC schemes, the financial capability challenge gets greater, because millions have to manage more complexity and choices. I ask the Minister: will the Government take the opportunity of the Financial Guidance and Claims Bill, the purpose of which is to raise the capacity of people to make informed financial decisions, to implement John Cridland’s recommendation and put into legislation universal access for all those in their 50s to get a mid-life financial MOT?

[Baroness Buscombe]

My Lords, I thank the noble Baroness for her question. I am conscious that she knows an enormous amount more than I do about the whole issue of pensions. A number of wider recommendations were put forward by John Cridland, and the Government have been listening responsively to the whole question of a mid-life MOT. This will be part of an ongoing review process. Whether or not it is right for that to be in the legislation on the single financial guidance body is another issue, but I assure the noble Baroness that the Government believe that this, among other recommendations, is seriously worthy of further review and discussion.

Financial Guidance and Claims Bill [HL]

Baroness Drake Excerpts

2nd reading (Hansard): House of Lords
Wednesday 5th July 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I draw attention to my interest as a board member of the Pensions Advisory Service. I certainly welcome the introduction of this Bill and I wish the new financial guidance body fair wind. Much of the Bill is high-level—understandable in part because the new board needs to build an organisation fit for purpose. The Secretary of State has the power to guide and direct the new body. I will reflect on considerations the Government should make in exercising that power and where clarity is needed on how the body will operate.

Research consistently identifies the low levels of financial capability, rising indebtedness, poor understanding of pensions and the growing need for independent and impartial support to help people make informed and better decisions. The problem is compounded by an asymmetry of understanding and conflicts of interests in the financial services market, which place the consumer at a disadvantage. People’s personal management of their finances is often very poor, leaving them vulnerable throughout their adult life. The Money Advice Service’s financial capability survey highlights that a lack of saving is a key risk to financial resilience. Some 17.3 million of the working-age population do not have £100 in savings. Nearly eight out of 10 with little or no savings could not spare the money to pay a bill of £300.

Recent ONS statistics reveal that the proportion of disposable income that goes into savings has fallen to a record low against a background of weak wage growth. The financial resilience of the UK public is getting ever weaker. An admirable Select Committee report confirmed the scale of the problem of financial exclusion, compounded by the poverty premium paid to access financial services and high-cost credit, which in turn fuels a household’s debt.

Addressing these challenges is a strategic driver for creating the new body, but I am less clear on the Government’s vision of what good outcomes look like. What level of demand for the new body’s services are they targeting? How scalable do they want the services to be across each of the three functions? To what extent will public policy use nudges to drive take-up of the services? Nudges could be applied when customers are more motivated to act, such as by a life event, receiving a brown envelope with a crown on it, or when they are most at risk. Will John Cridland’s proposal of a midlife financial MOT for those in their 50s be implemented and delivered by this body? It would be helpful if the Minister could comment on those matters.

There should be a requirement on the industry and relevant players to clearly signpost the services of the new body to the public. Signposting will improve public access and address the barriers put in place by some providers reluctant to see their customers access guidance for fear it increases the risk that they will not buy a product or service from them.

Efficiencies and economies of scale are necessary for a successful new body but the public need requires each of the three important functions to be fulfilled—pension guidance, debt advice and money guidance—and not traded off against each other on integration. Future-proofing the financial capability of future generations is very necessary, but the money and the mandate needed to fund effective and impartial information, guidance and debt advice in the here and now to those currently experiencing difficulties with debt, pensions or finances remain. To not address the real needs of many thousands of people here and now would add public failure to market failure.

The new body has a strategic function to co-ordinate the development of a national strategy. There is a need for a single cohesive strategy which embraces financial inclusion, financial decision-making and financial capability. Delivering that strategy cuts across government departments, devolved Administrations, local authorities, business and the voluntary sectors.

The new body cannot deliver something over which it has no control, and realistically how far can its authority reach in co-ordinating the input of others? The Government must provide the strong leadership and overall co-ordination of any public initiatives that might add to or detract from the national strategy. Policies on tax, welfare benefits, pensions, the minimum wage, education and market regulation can all be looked at through the lens of financial inclusion and capability, quality of personal decision-making and avoidance of debt.

The Treasury has the power to issue guidance and instructions to the new body. When can we expect to see from it a comprehensive strategy on tackling financial exclusion and financial capability into which the financial guidance body and its remit can be rooted?

An objective of the new body is provision of information, guidance and advice where it is lacking. What is meant by “lacking” is ripe for probing. As a public service, the new body will address market failures—where the providers will not, cannot or do not meet the individual’s need. A market failure manifests as a lack of trust, hence the need for an independent and impartial public service.

Whether something is lacking is not simply a question of whether another party is making provision; it requires an assessment of that provision—is it independent and impartial and not linked to selling a product or service? If it is not, there is a need for the new body to provide a service that is lacking.

Guidance delivered by a public service can go much further than guidance from a provider fettered by its product suite. A commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs. There will be instances, too, where it may be right for the new body to offer the same tool as the market. The pensions dashboard is a tool to allow savers to view all their long-term savings and small pots in one place. The Treasury intends the dashboard to be available to the public through industry providers. There is no proposal for people to have access to the dashboard independently of providers, who can use it as a sales tool. In Australia, through its tax office, and in Sweden, through a not-for-profit organisation, the public have access to one clean version of a dashboard not associated with any provider with a product suite. Our new body could provide governance for the UK dashboard, governance which even the CEO of the Pensions Regulator has stressed needs urgently to be looked at.

The public are increasingly vulnerable to scams, coerced into buying products and services that hurt them—from out-and-out fraud through to inappropriate, high-charging credit and risky investments. The new body must have an important role in helping customers and sharing insights into scams. Will the Government make it a criminal act to mimic the services of the new body, as they did with Pension Wise, so helping to protect the public?

The new body’s purpose is to meet the relevant needs of the public, putting their needs first. The FCA has an important role in improving the standards which the new body must meet in delivering on its three key functions. However, the FCA is not a consumer champion; its strategic remit is to ensure that the relevant markets function well. One can anticipate occasions when the role of the new body meeting the remit of the FCA creates a tension; for example, in the extent of the guidance that can be given by the body, when a provision is deemed lacking, or in detailed requirements on signposting.

Capping high-cost, short-term payday loans to protect vulnerable customers may not have been possible but for the introduction of a clause in the banking reform Act which specifically allowed the FCA to do that. This Bill should also make it clear that, in discharging its duty to approve standards set by the financial guidance body, the FCA will act in the best interests of consumers. Similar arguments apply to strengthening the FCA remit on financial inclusion.

Functioning markets do not serve and are not serving the poor. I look forward to Committee. I welcome the Bill. This is an important issue and I hope we have an opportunity to drill down into some of these matters.

Pension Schemes Bill [HL]

Baroness Drake Excerpts

Ping Pong (Hansard): House of Lords
Wednesday 5th April 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, the Bill, in strengthening the regulation of master trusts, is indeed welcome. I noted that a recent release by the ONS on funded pensions and insurance in the UK national accounts referred to the significance of the establishment of DC master trusts, so in general there is increasing recognition of the importance of having fit-for-purpose regulation of master trusts. However, the government amendments in this group raise certain questions that I would like to put to the Minister.

Amendment 2 to Clause 9 simply deletes the provision for a funder of last resort. That is disappointing. Will the Minister update the House on what further action the Government have taken since the Bill was last considered by this House to address the protection of scheme member benefits in the event of a master trust winding up with insufficient resources to meet the cost of complying with and obligations under the Bill? The noble Lord, Lord Freud, implied that there was ongoing work and discussions with the industry, so it would be helpful to know what actions have been taken.

The other government amendments in this group, to Clauses 25 and 34, addressed the issue of allowing, in a wind-up on failure, the transfer of scheme members and their benefits to a receiving scheme that is not a master trust—for example, a group personal pension. While not wanting to disagree in principle with widening the pool of schemes to which transfers can be made, I think that that change to the Bill raises some questions. Given that the Pensions Regulator will be authorising a transfer to a scheme that has not been subject to the master trust authorisation regime, how will it satisfy itself that the receiving scheme on transfer is both sustainable and well governed?

The Bill provides under Clause 34 for a prohibition on increasing or imposing new charges on members by either the transferring or the receiving scheme in order to meet the cost of resolving failure. As a non-master trust receiving scheme will not have been subject to the authorisation regime and the continuity and implementation strategy requirements in the Bill, how will the Pensions Regulator apply the prohibition on increasing charges and police it after the transfer of members to a non-master trust, given that the receiving scheme will not be in its regulatory jurisdiction?

Government Amendment 13 provides for regulations to allow for transfers from a master trust to a contract-based scheme. Given that the transfer will be from a trust to a contract arrangement, do the Government consider that there are any special considerations that the regulations will need to address? If so, what are they?

[Baroness Altmann (Con)]

My Lords, I welcome much of the thrust of the Bill. I am also delighted to see Amendments 3 and 4, which, I hope, ensure that insured master trusts will not be forced to separate from their insurance parent, which would have forced them to face higher costs and reduced the security of their members. I am very grateful to my noble friend for taking on board the comments made during the Bill’s passage through this House.

It strikes me that Amendment 2 should be considered separately from those to which it has been joined. I reiterate my strong concern—notwithstanding the reassurances from my noble friend—about leaving out Clause 9. I understand that there is a view that it is unnecessary and that the new regime will ensure that master trusts have sufficient resources, are financially sustainable and have capital adequacy in place. However, even with new schemes and the best will in the world, capital adequacy tests may prove inadequate. No provision in the Bill would cover members of a very large pension scheme that suffered a catastrophic computer failure and lost member records. The cost of restoring that could be well above the capital adequacy put in place, and nothing in the Bill explains where the cost of restoring those records would be covered. The only place might be the members’ pots themselves, which is not supposed to happen.

I vividly recall assurances given by Ministers on defined benefit schemes during the 1990s, when the minimum funding requirement was supposed to ensure that schemes would always have enough money to pay pensions. No one foresaw the problems evident in the early 2000s, when schemes that had met MFR legislation wound up and ended up without enough money to pay any money to some members on the pensions that they were owed.

Even more concerning than that is that the Bill is being introduced when 80 or so master trusts are already in existence in the market with a huge number of members across the country already saving in a pension. These trusts have not been subject to the capital adequacy test or other tests that the Bill will rightly introduce. What is the protection for members of existing schemes who are saving in good faith? They are not protected at all. That was why I was very pleased that we passed the amendment concerning the scheme funder of last resort. I echo the question of the noble Baroness, Lady Drake: what discussions have taken place with the industry to find a solution to cover the eventuality—we do not expect it and it is, I admit, a small probability—that an existing master trust winds up without enough funding to cover the costs of administration to sort out its records and transfer them over to another scheme? I should be grateful for some information from my noble friend about whether there are ongoing discussions and how the department sees that eventuality being covered: where would the money be found?

On Amendments 5 to 19, I share some of the reservations mentioned by the noble Baroness, Lady Drake, such as the regulatory disparity between a master trust, which would be regulated by the Pensions Regulator—and therefore under its control, if you like —and a master trust transferred under the amendments to a pension scheme regulated by the Financial Conduct Authority. How would the regulatory systems work together when they are under different legislation?

I have other concerns, but I may raise them under the next group.

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2017

Baroness Drake Excerpts

Thursday 9th March 2017 Grand Committee

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I thank the noble Lord the Minister for his instructive introduction to the order and for the fact that the number of women who are now enrolling has increased considerably. That is very good news.

I welcome the fact that the earnings trigger above which people will be automatically enrolled will remain at £10,000, which seems very reasonable. A lower threshold would bring more people into pensions, but, as the Minister indicated, with a state pension currently providing over £8,000 in retirement, there is obviously a limit to how far the Government want to be enrolling people who earn approximately £9,000, taking into account the cost to employers of setting up schemes, making payroll changes and so on. As has been indicated, the earnings trigger will undergo a fundamental review as part of the automatic enrolment review later this year. It would perhaps be better to wait for that and to look then at altering the trigger threshold.

The lower and upper limits for the band of qualifying earnings, on which contributions are due, are currently linked to the lower and upper limits for national insurance contributions. The order maintains that connection. However, I note that the Chancellor of the Exchequer raised the upper limit for national insurance contributions from £43,000 to £45,000. The order does the same and means that higher earners will be putting pension contributions in over a slightly wider band. That is welcome, but they can of course opt out if they wish to.

Although I welcome the regulations, I flag up my concern about people who have multiple jobs whose individual incomes will be below the threshold but cumulatively above it. They might earn £6,000 in one job and £5,000 in another. Such people are excluded from automatic enrolment; perhaps that can be considered on another occasion.

The Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2017/18: Supporting Analysis report, which was published in December 2016, refers to an important point about the 280,000 people who earn between £10,000, the automatic enrolment trigger, and £11,500, the current tax threshold, who get tax relief. However, they get their tax relief only if it is administered according to the relief-at-source tax system, but not if their tax relief is administered according to another system, the net pay arrangement. That arrangement is somewhat obscure and the Government have failed to address the issue in the order. Those are minor points, however, and I generally welcome the order.

[Baroness Drake (Lab)]

My Lords, I remain concerned that the earnings trigger of £10,000 for auto-enrolment still excludes too many people, particularly women, from the benefit of a pot of savings supported by an employer contribution. I am also a little disappointed that the Secretary of State has not taken the opportunity of the annual review to reduce the trigger. Although it has been held at £10,000 for three years, it is still too high, although this approach is preferable to aligning it with the personal income tax threshold, as happened between 2011 and 2015, which excluded ever more women every year.

Of the 11 million workers in the eligible target population for automatic enrolment, only 36% are female, and 3.5 million workers are ineligible because they earn less than £10,000 in any one job. The impact assessment confirms the disproportionate impact on women, because it shows that simply freezing the trigger at £10,000 will bring an additional 70,000 workers into auto-enrolment, over 52,000 of whom will be women.

The impact assessment reasons that auto-enrolment is in a challenging phase with the rollout to small and micro employers, so the earnings trigger should be held at £10,000. That is an understandable argument but not one that can fairly hold over time as a reason for not lowering the trigger. DWP figures reveal that of those working for smaller employers with 10 or fewer employees, 61% meet the eligibility criteria for auto-enrolment, compared to 90% of workers for large employers with 500 or more employees, and 55% of people employed in the service sector—where there is a concentration of women workers—meet the criteria, compared to between 70% and 90% of workers in other sectors.

The DWP analysis suggests that these discrepancies between small and large employers are largely driven by workers not meeting the earnings threshold. That is a pretty predictable observation. There are nearly 15 million women in work, 42% of whom work part-time. The ONS figures show that the smaller the company, the lower the level of earnings for part-time workers. Sweepingly, anyone working 25 hours or less on the national minimum wage of £7.50 is ineligible for auto-enrolment. The DWP’s analysis also shows that reducing the trigger to the national insurance primary threshold of £8,164 would bring more than 500,000 women—and nearly 750,000 workers overall—into auto-enrolment.

An argument deployed by the Secretary of State in 2011 for excluding lower earners was that the state system itself delivered an adequate replacement rate of income. Indeed, that argument is deployed again in the current impact assessment, which states that the earnings trigger,

“should be set at a level that ensures as many people as possible are eligible for AE without disproportionately capturing those lowest earners for whom it makes little sense to save for retirement”.

Lowering the £10,000 trigger, however, would not disproportionately capture lower earners. Very often, low earners are not low-paid throughout their working lifetime. Earnings are dynamic, but persistency of savings throughout working life is very important. Many women who earn less than £10,000 will, during their lives, have periods of full-time employment on higher earnings and periods of part-time employment on lower earnings, when they are caring. Persistency of saving throughout both periods and retaining the employer contribution improves their financial outcomes in retirement. Many, or most, very low earners are women who live in households with others with higher earnings and/or receiving working tax credits. They may well be workers who should be automatically enrolled.

As to excluding lower earners because the state system delivers an adequate replacement rate of income, “freedom and choice” means that individuals are no longer required to secure even a minimum income stream, and are free to spend all their money as they wish from the age of 55. Securing a replacement income is no longer a requirement of private pensions policy. Excluding so many lower earners from a pot of long-term savings supported by an employer contribution and the tax credits system is not fair because it simply denies them the opportunity to accrue a savings pot and build financial resilience in later life.

Pension Schemes Bill [HL]

Baroness Drake Excerpts

Report stage (Hansard - continued): House of Lords
Monday 19th December 2016 Lords Chamber

Moved by

[Baroness Drake]

6: After Clause 8, insert the following new Clause—
“Scheme funder of last resort
Notwithstanding the provisions of section 8, the Secretary of State shall make provision for a funder of last resort, to manage any cases where the Master Trust has insufficient resources to meet the cost of complying with subsection (3)(b) of that section.”

[Baroness Drake (Lab)]

My Lords, a key purpose of the Bill is to protect the pension pots of ordinary people from being raided in the event of a master trust pension scheme failing. At the moment, the considerable costs, including administrative costs incurred when a failing scheme is wound up and the members transfer to another scheme, are borne by the members themselves through the charges imposed. The intention of the Bill is to prevent that happening in future. It places a capital adequacy requirement on authorised master trusts to have available sufficient resources to meet such costs in the event of failure and provides for members’ pots to be transferred to another master trust. The Government argue that, in the event of a scheme failure, the capital adequacy and transfer regime will always work. There is no provision if it does not.

The provisions in this Bill, while welcome, cannot guarantee that there will always be sufficient resources available to a failing scheme to finance the costs of wind-up or that another master trust will always willingly pick up all the pieces and costs. No regulator is infallible. The amendment introduces a requirement on the Secretary of State to make provision for funds of last resort to manage those instances of failure. It does not prescribe what that provision should be—for example, a pension scheme with a last-resort public service obligation, or an obligation on master trusts for tail-risk insurance. But without such a provision, the Government cannot claim as they have that from the day it becomes law the Bill will protect scheme members and their pots from the costs of managing failure.

The reasons for this amendment are several: the Pensions Regulator will need to rely significantly on the judgment of its supervisors to assess whether a master trust meets the requirements for ongoing authorisation, to assess not only against current risks but also future risks and make judgments on when it is necessary to intervene. It will not be regulating a legacy system but the future evolving and expanding system, covering millions of members for a very long time. The Bill places a prohibition on using members’ pots to fund a wind-up, but that does not mean that it will all sort itself out. If providers go insolvent, who ultimately will ensure that the wind-up and transfer actually happens? Pots could be left in limbo for many months. Even if the trustees have a legal duty to make such a transfer, they will not be able to pay for advice and administrative services to enable it to happen.

The year 2008 taught us that even the grandest institutions with strong reputations can fail. No regulator can guarantee to remove all risk, and the Pensions Regulator is no exception. However exceptional, a situation could arise whereby a failing master trust will not have sufficient resources on wind-up. Regulator assessment of capital adequacy requirements may simply have been wrong. I hope that that never occurs, but the Government cannot guarantee that it will not. Administrative disarray, failure of controls in the outsourcing to third-party administrators, major computer failure or other failures can hike up costs and cause costly delay in wind-up.

I recently read The Prudential Regulation Authority’s Approach to Banking Supervision of March 2016, and paragraph 44 says:

“The PRA’s supervisory judgements are based on evidence and analysis. It is, however, inherent in a forward-looking system that … there will be occasions when events will show that the supervisor’s judgement, in hindsight, was wrong”.

The resolution regime when a trust fails provides for transferring members’ pots to another master trust. The Government are relying on the industry to always step up to the plate, but they cannot be certain that it always will. I am sure that there are master trusts now that are already concerned about what that means and will not want to commit to being part of a panel or carousel of providers which will always guarantee to accept the transfer of members. They may consider the unknown future exposure to costs or the liability for the administrative errors or failures of a failed scheme too unpalatable. They may want to cherry pick, leaving a less-profitable section of the members stranded. It is not difficult to imagine the sorts of problems that could occur. The Government cannot assume that the increase in scale achieved from accepting a transfer of members from a failed trust is a sufficient incentive for another provider to always volunteer to rescue.

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[Baroness Drake]

I thank the Minister for his response and will address some of the arguments he put. The amendment does not introduce a sledge-hammer: it leaves the provision to the Secretary of State. It does not require a large infrastructure to deliver such a provision. It can be as straightforward as requiring master trusts to have tail-end risk insurance. It can use a precedent that is used in many other areas of identifying a provider or operator who carries the public service—

[Lord Freud]

I should make it clear to the noble Baroness that we looked closely at tail-end risk insurance. It works within the legislation and the regulator can accept it. We have not made it a major issue at this stage because, at the moment, no such insurance is available in the market. That may change, of course.

[Baroness Drake]

Perhaps I may finish my point. I understand what the Minister has described but is he saying that the Government will consider a provision such as tail-end risk insurance?

[Lord Freud]

I am saying that the clause is carefully drafted to allow tail-end insurance as part of the capital adequacy when the regulator looks at what is required. We are not in a position to do any more at this stage because that particular insurance is not available in the market. It may well become available in the market as people see the requirement.

[Baroness Drake]

I come back to my point that I am seeking not to tie the Government down to a particular provision or how they choose to interpret it, but to answer the question that no Government or regulator can guarantee that they can remove all risk of regulatory failure. In the Bill at the moment—unless the Minister wishes to contradict me—I can find no provision as to where responsibility would fall in the event of such failure occurring and there is not the funding to deal with the wind-up and the transfer.

I do not accept that it increases the chances of moral hazard. The Bill gives the regulators considerable power to set tough requirements. Indeed, the whole purpose of the regime is to address the moral hazard of introducing a profit motive into a trust-based arrangement. The existing regulation and legislation does not deal with that. However much we iteratively discuss this—I welcome the Minister contradicting me—in the event of a regulatory failure and a trust that does not have the means to finance wind-up, there is nothing in the Bill to show how a member is protected.

[Lord Freud]

I am grateful to the noble Baroness for inviting me to intervene again. Under the Bill, if there are costs, they will not fall on the members, so who is she trying to protect? As to my point about the sledge-hammer, if we could have found tail-end insurance, which the noble Baroness mentioned, it would have been cheaper. Other ways that I can think of are quite expensive. It is not appropriate to suggest a solution that is not available.

[Baroness Drake]

The Government are asserting that the costs will not fall on the member because they have put in place a prohibition to say that the costs will not fall on the member. However, if the member is in a master trust of some size which has to go into wind-up, and there are not the resources to deal with that wind-up, there is no answer to the question of who will bear the costs. An answer has to be given, and this amendment is asking the Government to put in place a provision to give effect to that prohibition and say that there will be an alternative provision to ensure that the costs do not fall on the member. I do not believe that the Minister has answered the questions. There are millions of people with potentially billions-worth of assets under the regime, and this is a fundamental question which remains unanswered.

[Lord Freud]

The noble Baroness has been so generous and I will take the opportunity to go over this because it is slightly back to front from normal. This is not like a defined benefit scheme worth billions of pounds which are at severe risk. This is about the costs of moving the money that is attached to individual people to another master trust. It is a completely different order of risk. I know that she is coloured by what she has seen in the defined benefit world, but this is quite different. It is a much smaller risk. As I have said, in any case the costs do not fall on the members and the mitigation issue is disproportionate.

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[Baroness Hollis of Heigham (Lab)]

My Lords, I hope that my noble friend will pursue this point because, unless the Minister can give a categorical assurance, this is the only way to ensure that the Government take the issue seriously and pursue a remedy that is appropriate to the risk that she has outlined.

[Baroness Drake]

I thank my noble friend for her support. I am not coloured by the defined benefit experience at all because I am quite capable of distinguishing between the two. I am sure that I understand the risk posed in this draft legislation. However, I come back to the point. The Government may wish to assert that the costs of winding-up and transferring could be considerable if the records are in disarray, if no master trust is willing to pick up the pieces, or if other problems occur. The Government can assert as a matter of policy that the costs will not fall on the member, but there is nothing in this Bill to copper-bottom that they will not. I feel that the Minister has not answered that question. I am not proposing a sledge-hammer and I am not tying the Government’s hand, but they must introduce a provision which states that if the policy is to prohibit increasing members’ costs when a wind-up after a failure occurs, in extremis if there is regulatory failure that provision will come into effect. I am not persuaded by the Minister’s reply and on that basis I wish to test the opinion of the House.

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Moved by

[Baroness Drake]

25: Clause 38, page 27, line 11, after “charge”” insert “can include, where appropriate, transaction costs, and subject to that,”

[Baroness Drake]

My Lords, there are four key references to administration charges in this Bill: Clauses 12 and 27, the continuity and implementation strategies for addressing how members’ interests will be protected in a triggering event; Clause 33, the prohibition on increasing members’ charges during a triggering event period; and Clause 40, the statutory override power of any term of a relevant contract on administration charges.

The power of the Secretary of State and the regulator to demand information on, and intervene on, the level of administrative charges, is a key part of the armoury in this Bill for protecting members’ pots. Clause 38 gives a definition of administration charges: that it,

“has the meaning given by paragraph 1 of Schedule 18 to the Pensions Act 2014”.

That schedule relates to the power of the Secretary of State to prohibit or cap administrative charges, as illustrated by the 0.75% cap on charges, excluding transaction costs, on workplace pension scheme default investment funds. But there appears no explicit reference to transaction costs in the definition of administrative charges in paragraph 1 of Schedule 18 to the 2014 Act, and no explicit reference to transaction costs in Clause 38.

The purpose of this amendment is to make it clear that any reference to administration charges in this Bill can include transaction costs, so ensuring that the Secretary of State and the Pensions Regulator have the fullest powers of intervention needed to fully protect members’ charges in master trusts. The transaction costs are an important determinant of the net return into the saver’s pot.

In recent weeks, including since this Bill was introduced into the House, three reports have been published. One addressed disclosure of transaction costs and two provided sustained evidence of continuing dysfunction and weak competition in the pensions and asset management industry. On 5 October 2016, the FCA published a consultation paper proposing rules to improve the disclosure of transaction costs in workplace pensions. Given the potential for multiple parties to be involved in managing pension investments and for transaction costs to be incurred at different levels, the FCA considers it essential that any rules of disclosure,

“enable the flow of information to the governance bodies of those schemes”.

It proposes that all those managing investments should report administration charges and transaction costs to pension schemes and intends to publish its rules in the second quarter of 2017.

On 13 December, the DWP and FCA published their joint review of industry progress in remedying poor-value workplace pensions, following the 2013 OFT report that revealed that more than 333,000 members of workplace pension schemes were still suffering annual management charges in excess of 1%. The review also found that most providers had not fully reviewed the impact of transaction costs in their value-for-money assessments and had no immediate plans for such a fuller review. Providers using in-house investment management services were singled out for particular criticism.

In November, the FCA published its Asset Management Market Study interim report, which provided a hard-hitting critique of the “sustained, high profits” that the industry has earned from savers and pension funds over the years—fund management firms, which three in four British households rely upon to manage their pensions.

The remedies proposed by the FCA include requiring investment managers to adopt an all-inclusive single charge for everything; an up-front estimate of transaction costs; and raising the fiduciary bar for the general obligation to treat customers fairly to a new requirement to act in the best interests of investors. The report also contains a withering critique of “active management”. A recent article in the FT pulled together all the adjectives deployed by the FCA:

“Underperforming, overpaid, too profitable, too expensive, too opaque, too unaccountable and too conflicted”.

The report is quite extraordinary. It compares the net return on a £20,000 investment over 20 years to show the impact of charges. Assuming the same return before charges, in a typical low-cost, passive fund, an investor would earn £9,455 more on a £20,000 investment than an investor in a typical active fund. This figure rises to £14,439 once transaction costs have been taken into account. In an exquisite example of laconic drafting, the FCA reports:

“We find that there is no clear relationship between price and performance—the most expensive funds do not appear to perform better than other funds before or after costs”.

The report makes it clear that seemingly small differences in fees and transaction costs can lead to significant losses for investors over time but finds that more than half of ordinary investors are still unaware that they were paying fund charges, let alone what they are.

I hope that the Government will force a pace on transparency and act to control unfair fees and transaction costs incurred by people who are saving, often through their workplace pensions, and an increasing number through these master trusts. But insofar as the Bill addresses the authorisation, supervision and resolution regime for master trusts, this amendment makes it clear that any reference to administration charges in any provision in the Bill can include transaction charges, so ensuring that the Secretary of State and the Pensions Regulator have the fullest powers of intervention needed to protect members’ savings in master trusts, particularly during triggering event periods. I beg to move.

[Lord Freud]

My Lords, the effect of Amendment 25 would be to widen the definition of administration charges for the purposes of Part 1 of the Bill, so that it is capable of including transaction costs. It may be helpful if I explain that we considered the inclusion of transaction costs when developing this policy. We concluded that the provision that has been made in the Bill under Clause 33, including prohibiting an increase in administration charge levels after a triggering event, was sufficient to minimise the risks faced by savers in master trust schemes.

The term “administration charges” may prompt Peers to believe that the prohibition in Clause 33 applies to only a narrow range of costs and charges faced by members. This is not so. Among the charges intended to be caught by the administration charge definition are fees on set-up, entry, exit, and regular and ad hoc fees paid not only to administrators but also many fees paid to governance bodies, regulators, asset managers, investment consultants, lawyers, accountants, auditors, valuers, bankers, custody banks, platform providers and shareholder service providers.

In the majority of cases, trustees do not currently have access to information about transaction costs. Including them within the scope of the prohibition under Clause 33, therefore, would place many trustees in a difficult position. I can assure noble Lords that we acknowledge the need for improved transparency and understanding by trustees about the transaction costs which the members of their schemes will bear.

Noble Lords will remember that, during the passage of the Pensions Act 2014, my department accepted a legal duty to make regulations requiring that transaction costs would be given to members of occupational pension schemes and be published. The Financial Conduct Authority took similar duties with regard to workplace personal pensions at the same time. Again, I acknowledge and thank my noble friend Lord Lawson for his input into the process of developing that part of the Act. I appreciate that some Peers may be disappointed that we have not yet discharged that duty, but in mitigation I should explain that there has never been a single agreed definition of transaction costs nor a way of calculating them. We have made progress in defining transaction costs, but until recently we made less progress on a way of calculating them. This is because many transaction costs are not explicit costs which appear on a scheme’s balance sheet but implicit “frictional” costs from trading, which need to be calculated. The wide variety of approaches to calculating transaction costs are not simply disputes about the odd one-hundredth of a percent but quite significant differences in methodology, which can result in transaction costs differing by a factor of five.

We clearly need to ensure that trustees of occupational schemes and the independent governance committees of workplace personal pension providers have complete, consistent and standardised cost and charges information before they can report it to members; at this point, they do not. The key stepping stone to putting this information into the hands of trustees and independent governance committees was laid down when the Financial Conduct Authority published in October of this year a consultation on proposals requiring asset managers to disclose information about transaction costs to trustees, and a detailed methodology for calculating those costs. Following the outcome of the FCA’s consultation, we currently plan to consult on the publication and onward disclosure of costs and charges to members in 2017. In conclusion on this point, I can assure Peers that we remain wholly committed to discharging this duty in the course of this Parliament. We want pension scheme members to have sight of all costs and charges, regardless of how they are incurred, and to give members the confidence that there are no other hidden costs and charges.

The noble Baroness, Lady Drake, made us aware of the interim findings of the FCA’s Asset Management Market Study, published last month, which found weak competition in the market and proposed remedies through the introduction of an all-in charge and standardised disclosures to all investors. These are timely findings, because noble Lords may also be aware that the Government announced this month that they would be examining the level of the 0.75% charge cap on administration charges in the default funds of schemes used for automatic enrolment and whether some or all transaction costs should be covered by the cap. This work will be undertaken in 2017 as part of the review of automatic enrolment. It will involve comprehensive engagement with a wide range of stakeholders, including asset managers, which will be important given the potentially complex nature of transaction costs. The outcome of the 2017 exercise will help to determine whether there is a need to amend the definition of administration charges in Schedule 18 to the Pensions Act 2014, and at that point we will consider whether we should also cover transaction costs in the master trust legislation.

I reassure noble Lords that in practice we do not believe that transaction costs are a loophole that will be exploited to drive up charges to the detriment of members. Noble Lords will be aware that the vast majority of defined contribution pension schemes, including master trusts, are invested via investment platforms in pooled funds in which the trustees of the scheme will be just one among many investors. Given this pooled and intermediated nature of pension fund investments, it is highly unlikely that a triggering event experienced by just one of the investors in the fund would drive up the ongoing transaction costs from remaining invested in the fund. Taking these points into account, it does not appear necessary to bring transaction costs into the charge prohibition measure in the Bill.

Before I conclude, I ought to acknowledge that this is the last time I will stand before your Lordships on a Bill as a DWP Minister, although it is not quite my last appearance in the role, because we will have some fun on Wednesday discussing universal credit—I hope we will. On Third Reading in the new year, and when the Bill potentially returns to the House for further consideration after it has been looked at by the Commons, I will be leaving your Lordships in the very capable hands of my noble friend Lord Young—the junior member of the Freud/“Jung” combo. I thank him for all the support and time he has given me, and I am sure that noble Lords will continue to afford him the same courtesy and patience that has been displayed thus far.

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[Baroness Bakewell of Hardington Mandeville]

My Lords, I wish to associate myself and our Benches with the comments that have already been made. We have always found the noble Lord, Lord Freud, extremely accommodating towards us as far as he has able to be so, and I will have something further to say when we come to universal credit. I have taken over this role only fairly recently but I thank the noble Lord for all the help he has given us during the passage of this Bill.

[Baroness Drake]

I thank the Minister for his reply. It is helpful to have his wider statement on the record because this issue of transaction costs is still very controversial. I hope that the FCA’s report increases the Government’s sense of urgency regarding the need to address this issue and to introduce regulation—notwithstanding problems with definition—with master trust regulation benefiting from that as well.

Perhaps I, too, may take the opportunity to make a personal comment because I think this is the last time that I will be talking to the Minister in his current role, although he may not be talking to me at all following the vote. When he was at the Dispatch Box, I always felt that if I had a good argument, argued it well and had a good evidential base, I had a fighting chance that, first, he would listen and, secondly, that he would see whether it was possible to accommodate my concerns. He often made me do my homework and made me work hard on occasions, but that was a fair exchange. However, if I had a good point and good evidence, I knew I would get a fair hearing. That is important in this House. It incentivises one to pursue the argument and the case because one knows that one will get a fair hearing. The Minister is a wonderful example of someone who will listen and consider the arguments.

He has always been friendly, courteous and considerate in giving access to his civil servants and information—very often so that I can improve my knowledge base and not ask awkward questions; on other occasions to fuel my knowledge base to allow me to ask awkward questions. Either way, I was grateful for that.

I hope he takes some rest and has fun—he has worked very hard and deserves some fun—and that we see him back soon, bringing his intellectual skills to the House. I thank him for the statement on charges. I shall still push on transaction charges because millions of people get a rough deal but do not know they are getting a rough deal, which is even worse. I beg leave to withdraw my amendment.

Amendment 25 withdrawn.