Budget: Saving for Retirement

Baroness Greengross Excerpts

Thursday 16th March 2017 Lords Chamber

Asked by

[Baroness Greengross]

To ask Her Majesty’s Government what assessment they have made of the impact of the Budget on people saving for retirement.

[The Commercial Secretary to the Treasury (Baroness Neville-Rolfe) (Con)]

My Lords, the Budget has supported people saving for retirement through setting a market-leading rate for the NS&I investment bond. More broadly, the Government continue to support people to save through automatic enrolment into workplace pensions. This will lead to 10 million people newly saving or saving more by 2018.

[Baroness Greengross (CB)]

I thank the noble Baroness for that response but could she explain to the House how the ordinary person—we are given to understand that the Prime Minister is committed to protecting such people—can possibly plan for the future given changes such as those just announced to dividends, together with the introduction of lifetime ISAs, primarily designed to assist younger people in house purchase but which could undermine saving? How, with an ageing population and an ultra-low savings ratio, can we make sure of the vital necessity of younger generations saving for the future? What is the Government’s plan to improve savings for much longer later life, which people on the whole do not even realise that they will experience?

[Baroness Neville-Rolfe]

I thank the noble Baroness for that and for all she does in this important area. I think we have a clear sense of direction and a plan to restructure our finances and to invest in the future. Of course, all taxes and reliefs are kept under review through the annual Budget process. Our priority has been to increase the personal allowance, which benefits everyone. The lifetime ISA, which comes into operation very shortly, complements automatic enrolment, which will help people to save so much more. All these changes will help people. I know that the changes to automatic enrolment are expected to generate an estimated £17 billion a year more in total workplace pensions saving by 2019-20. I know noble Lords here were involved in that. It will make a lot of difference. Obviously, we have longer-term problems but the sense of direction is important.

Savings (Government Contributions) Bill

Baroness Greengross Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 12th January 2017 Lords Chamber

[Baroness Greengross (CB)]

My Lords, having just heard from two fantastic acknowledged experts on this issue, I shall be much more general and very brief. We ought to start by looking at the total lack of knowledge of financial services that the general population in this country have. They have no idea how long they are going to live or about what their savings are going to provide for them when they retire. There are worries at the moment as well about what will happen to our economy in the shorter term.

I congratulate the Government and their predecessor on introducing auto-enrolment, which is a great success. However, I share the worries that have been put forward about these being early days and we cannot really estimate at the moment quite what the benefits are.

The International Longevity Centre UK, which I am privileged to head up, recently published a report called Consensus Revisited. It elaborates on the ignorance that the general public have, saying that even with the planned changes to state pension age, people will still require sufficient savings to fund up to one-third of their adult lives in retirement, which is over 20 years. In 2012, women left the workforce at 63 while men left slightly later, which means that men are going to fund 21 years in retirement and women 26, which is a long time. I do not think the public really understand that or have grasped those figures.

In future, therefore, adequate retirement income will hinge on people saving enough through defined contribution schemes, but as yet we know that is not the case. Projections suggest that unless contributions into DC schemes rise, fewer than half of median earners will be able to secure an adequate retirement through auto-enrolment. On average, employees contribute just 2.9% of their salary to a DC pot, whereas members of defined benefit schemes put in 5.9%, so there is a big difference. The difference in the employer contribution is even starker: just over 6% for DC schemes but over 15% for DB schemes. So there is still quite a lot of worry, and there are many things to sort out before we get this right. Given the lack of knowledge about longevity and what the two previous speakers have so wisely said, I agree that we must be careful with the LISA because it could be a threat to pensions, damage pension saving and, at any rate, cause quite a lot of confusion.

I was privileged to attend a meeting of experts, who all agreed that we need to promote pensions and explain them much better. I hope the Government have plans to engage in that. User-friendly communications, more education and much more engagement are essential.

The other thing we ought to note is that there is quite a lot of feeling that more employer engagement is necessary. It is important to ensure that employers become more involved in pension provision and get engaged in retirement savings for their staff. I do a lot of work with Business in the Community, as I know the Minister has done for many years, and I have chaired the CSR All-Party Group for years and now do so jointly with a Member of the Commons. Perhaps through that we can do more to promote the best of this. At the moment, though, it is important that we wait and look again at the LISA threat. I agree with the noble Baronesses about its dangers. Perhaps there is a chance to look again in some detail at what we are discussing.

Pension Schemes Bill

Baroness Greengross Excerpts

Tuesday 27th January 2015 Lords Chamber

We have the chance today to make these reforms succeed. By succeed, I mean that we will help people when they are approaching retirement to make the right choices about what to do with their pension pots so they can live a secure, comfortable life and not face the terrible consequence of having to turn round at some point in their retirement years and seek benefits.

[Baroness Greengross (CB)]

My Lords, I put my name to this amendment. I thank the Ministers, with whom I have had the pleasure of discussing it, for the work they have done in making sure that the FCA has come to its extremely welcome conclusion. I echo what the noble Lord, Lord Hutton, has just said. We want to know a bit more about exactly how this will work and whether it is sufficient. In the mean time, I have nothing more to add except that, with a great deal of pleasure, there is no longer the need for an amendment, so far as I am concerned—so I will leave other noble Lords to speak to it.

[Lord Newby (LD)]

My Lords, I declare that I have no known Welsh connections.

Pension Schemes Bill

Baroness Greengross Excerpts

Monday 12th January 2015 Lords Chamber

Moved by

[Baroness Greengross]

34: Schedule 3, page 65, line 17, at end insert—
“( ) The Treasury must publish an annual report on outcomes being experienced by people with flexible benefits.”

[Baroness Greengross (CB)]

My Lords, I will take all the amendments in my name together. At Second Reading, I welcomed the overall intention of the Bill, which includes the creation of a new type of pension scheme—a collective benefits scheme. Potentially, such schemes could provide individuals with a greater degree of certainty over the level of pension benefit they might receive. As they enter retirement, it could help them make better choices and informed decisions, but the accompanying new freedoms and choices for people also hold many greater risks. To understand these risks, people have to be very much better informed. If they are unable to manage their money effectively over what in this day and age can be a 40-year retirement, and if they are poorly advised or sold poor-value products, the impact on pensioner poverty more widely could be significant.

We have a narrow window of opportunity to ensure that these reforms work as intended because currently many people at the point of retirement still have the security of defined benefit pensions. Even so, the Pensions Policy Institute, of which I am privileged to be the president, has highlighted that 41% of people who are now aged between 50 and the state pension age—2.3 million people—have no DB savings and so are heavily reliant on DC savings to support their retirement.

On day one of Committee, the noble Lord, Lord Bradley, proposed a new clause on decumulation aimed at protecting savers who default into an annuity with the same savings provider. This was by providing safeguards for people who do not take advantage of the new flexibilities because, for them, an annuity remains the best product. It guarantees them a set income for the rest of their life. In his response to the noble Lord, Lord Bradley, the Minister reminded us that the recent FCA thematic review of annuities and the findings from its market study concluded that competition in the annuity market does not work effectively and consumers are not getting the most out of their hard-earned savings. These reports provided further evidence for the need for a route map through the annuity process for consumers, and the amendment moved by the noble Lord, Lord Bradley, would have established an independent annuity brokerage service to resolve this by providing scheme members with an assisted pathway through the annuity process, ensuring access to most annuity providers and minimising the cost. His amendment was withdrawn but perhaps we need to discuss this further because some sort of alternative navigation support across this fault line between guidance and advice must be necessary. Plainly, this is in the remit of the FCA, but the FCA itself has made it very clear that the supervision of guidance does not lie with it but with the Treasury, so there is something of a stalemate there.

--- Later in debate ---

[Lord Newby]

My understanding is that that is not the intention, but I shall write to the noble Baroness to clarify that point.

[Baroness Greengross]

My Lords, I thank the Minister for his very comprehensive reply. I also thank the noble Lords, Lord Best and Lord German, and the noble Baroness, Lady Hollis, who joined in the discussion.

I thought that the Minister’s response was very helpful and inclusive of most of the issues I have raised. He took on board the idea of a prompt, or several prompts, and I think that the wider issues of including other sources of wealth and income were taken. There may be other issues that I have forgotten, but there is time to look at those. I thank the Minister very sincerely for trying to meet all the requirements that I mentioned and for clarifying the role of the FCA and the Treasury, talking about a full programme of monitoring, and looking at the relevant issues that need to be considered in more depth and the rules about guidance that are going to go back to the FCA. The Minister has addressed most of the issues that I raised and I will look between now and the next stage to see whether there are any others that he forgot. In the mean time, I beg leave to withdraw the amendment.

Amendment 34 withdrawn.

Pension Schemes Bill

Baroness Greengross Excerpts

Tuesday 16th December 2014 Lords Chamber

[Baroness Greengross (CB)]

My Lords, I add my personal tribute to the noble Lord, Lord Jenkin of Roding, whom I have known for many years. He has always been very gracious in his various roles when I have wanted to discuss issues with him. He has made a huge contribution, and I shall miss him very much, personally and professionally.

I very much welcome the changes made through the Bill, as they seek to strike a new balance between the sensible accumulation of savings for later life and the freedom for people to choose how they spend their money in retirement. I believe that there should be more choice for people entering retirement. Increased choice should help to enable them to save for, and make informed decisions about, their retirement income. However, this means that they must fully understand the risks associated with these choices. My main point is that there are many risks attached to this, in particular, the risks associated with Part 3 of the Taxation of Pensions Bill, which creates the UFPLS. This will provide an additional option for flexible access to a pension, but there are associated risks here which I fear many consumers will not fully appreciate. I will come back to those risks later.

I very much welcome the fact that Schedule 3 to the Pension Schemes Bill will place a duty on the FCA to create and regulate the advice and information part of the “freedom and choice” pension reforms in the shape of the guidance guarantee, which is a crucial part of the reforms. My worry is that individuals are neither aware of the existence of this guidance, nor obliged to seek it, nor to follow it if they find it, and so many will remain seriously ill informed and may make wrong decisions. Recent research from Partnership has disclosed that, with so little time to go before the introduction of this new pension regime, 53% of people over 40 do not know whether they are eligible for the guidance guarantee, 18% said that they were not eligible and only 29% said that they knew they could use the service. There is a lot to be clarified, which we will work on at later stages.

While accepting that the FCA has the role of ensuring the quality of the guidance on offer, I think that there are areas that could helpfully be further clarified in the legislation. The proposed standards will work well for web-based guidance, for example, but I am not sure that they will work well for telephone or face-to-face provision; and that issue needs to be looked at. Perhaps also the guidance guarantee should be regularly reviewed in order to ensure that suitable information is there to make sure that people can make the important decisions that best suit their needs.

Also, a second line of defence regulation has been suggested—certainly, Dr Ros Altmann recently called for this—which would include knowing about dealing with risks such as outliving assets and running out of money or not providing benefits for a spouse on death. These are important issues and I very much hope that we can see some progress in those areas. Lastly, I should like the Government to commit to an annual report on the outcomes for everyone affected, whether they access the guidance or not.

Finally, the levy that will fund the guidance guarantee will come from only those firms regulated by the FCA. However, to create a level playing field, perhaps the guarantee should be funded by all pension and retirement providers, including trust-based pension schemes and master trusts, such as NEST, which currently would not contribute to the levy.

I end by considering people’s care needs. The funding of long-term care, which I mentioned earlier, is a growing concern of many retirees who potentially have to fund all or some of their social care needs out of their retirement funds. The proposals set out in the Care Act of this year will go a long way to helping to address some of those concerns, but these changes provide a good opportunity to encourage people also to consider how they could fund any long-term care needs that might arise. The role of care fees funding in pensions decumulation needs some consideration and should be part of the wider debate. I am wondering just how the Government plan to respond to the question asked by the noble Lord, Lord Hunt of Kings Heath, in last week’s Motion of Regret tabled by the noble Lord, Lord Lipsey: how will a pension pot be treated in relation to the calculation of a non-housing asset? Do the Government expect the new flexibility in assessing pension savings contained in the Taxation of Pensions Bill to have any effect on this policy?

In summary, these bold reforms bring with them new freedoms but many new risks, and we should all strive to ensure that the pensioners of today and tomorrow can fully enjoy the former in the safe knowledge that they will have appropriate information, guidance, advice and choices to minimise the latter.

Pensions

Baroness Greengross Excerpts

Thursday 21st October 2010 Lords Chamber

Asked By

[Baroness Greengross]

To ask Her Majesty’s Government how they will ensure that people get value for money when purchasing a pension annuity.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

The Government believe that it is important to incentivise individuals to save for retirement and recognise the importance of the annuities market. We support the open market option, which enables individuals to shop around for the best rate, and continue to consider ways to make this more effective. Complementing this, we will continue to work with interested groups to improve the quality of pre-retirement advice, including seeking independent financial advice, so that consumers can make an informed choice on how best to draw benefits from their pension fund.

[Baroness Greengross]

I thank the Minister for that helpful reply. However, as we know, many potential annuitants do not realise that there is an open market option. Has the noble Lord considered introducing the approach that the Pension Income Choice Association, PICA, has put forward? It believes that the default option should be for everyone to have the opportunity to review their options when they retire. It would like to see the production of a personalised statement—a sort of passport—which would contain sufficient information for people to use to obtain quotations.

[Lord Sassoon]

My Lords, I am grateful to the noble Baroness for raising this important topic. Some 450,000 annuity policies are written every year, with around £11 billion in annual premiums. I am aware that the Pension Income Choice Association has recently met my honourable friend the Financial Secretary to discuss its proposals. We encourage consumers to shop around under the open market option and we welcome all suggestions as to how this can be made more effective.