Pension Schemes Bill

Lord Best Excerpts

Monday 12th January 2015 Lords Chamber

This is such a high-stakes decision, with lasting consequences for individuals and their families, that I think some additional measures are necessary. Indeed, similar measures already apply in the case of many routine and far less significant purchases that people make. Will the Minister assure us that both the Treasury and the FCA will be made to work more closely together to ensure that a seamless information and guidance process comes into existence, for the benefit of all consumers? I beg to move.

[Lord Best (CB)]

My Lords, my name is down in support of these amendments from the noble Baroness, Lady Greengross. I declare an unremunerated role as a member of the Equity Release Council’s advisory board, and I speak particularly as chair of the All-Party Parliamentary Group on Housing and Care for Older People. I shall concentrate on the interrelationship of advice about pensions and advice about the use of capital assets to fund one’s retirement.

I strongly support the case made by the noble Baroness that the advice provided by Citizens Advice and the Pensions Advisory Service, under the guidance guarantee introduced by the Bill, should ensure that an individual’s assets, particularly their housing wealth, are taken into account properly. The resources in an individual’s pension pot—their defined contribution pension savings—account on average for around £20,000, which represents only some 4% of their total wealth, compared with over £270,000, 55% of their wealth, which is held in the equity of their home after deducting any outstanding mortgages. Four per cent of wealth in their pension savings and 55% in their property—talk about the elephant in the room. It seems essential that in these important advice sessions attention is drawn, where relevant, to the individual’s wealth bound up in their property, which of course can be turned into cash, either by downsizing to a cheaper home or through an equity release product.

When thinking about buying annuities or choosing other investments, it is extremely important to consider holistically one’s wealth as a whole. The DWP Minister in the other place Steve Webb has agreed that advisers, under the proposed arrangements as spelt out in the near-final version of his department’s rules for giving guidance, should ask whether the consumer is an owner-occupier or a tenant and should ask, perhaps a bit vaguely, about personal circumstances. However, the rules for this interview do not include any explicit reference to housing wealth.

Amendment 35 would make clear that the guaranteed guidance from Citizens Advice and the Pensions Advisory Service should include prompting individuals to look carefully at their housing assets. Without the guidance pre-empting the professional advice of an independent financial adviser, this should be the moment when the interplay of housing and pensions gets aired. Those fulfilling the guidance guarantee should help consumers ask the right questions of an independent financial adviser.

The All-Party Parliamentary Group on Housing and Care for Older People, supported by the think tank Demos, published a report at the end of last year on affordable downsizing. It called for new measures to assist those in their extended middle age who want to move from family housing to a tailor-made apartment or bungalow. Such moves, as well as preventing and pre-empting problems in later life, have very positive financial effects with savings in fuel bills, maintenance costs, garden upkeep and the rest. We also noted the complexities involved in the financial aspects of trading down or equity release. We called for a “help to move” package comprising access to equity loans for movers, as for young people through the Help to Buy scheme, plus concessions on stamp duty, which were partly answered by the Government’s reforms of that tax, and, very importantly, guaranteed guidance on the financial arrangements, piggybacking on the pensions guidance featured in this Bill. These amendments would use the guidance guarantee that covers people’s defined pension contributions to draw attention to bigger questions relating to other assets, particularly housing wealth. They would make the guidance sessions much more meaningful in a country where 14 times more of our wealth in older age is tied up in our properties than in our pension savings. I support the amendments.