Credit Unions

Debate between Lord German and Lord Newby

Tuesday 3rd February 2015 Lords Chamber

[Lord Newby]

My Lords, there is scope to look at a whole raft of new initiatives, to make sure that there is access to finance for people on more modest incomes. One development in recent weeks has been agreement with the banks on fee-free basic bank accounts, which will be a good improvement for many people who are currently denied even the most basic bank accounts.

[Lord German (LD)]

My Lords, the Credit Union Expansion Project was designed to enable people on lower incomes to have access to modern banking methods. One of the problems for people in this category is that they have not been able to get cheaper electricity and gas bills because they have been unable to pay by direct debit. Can my noble friend say what progress has been made by both credit unions and the Post Office card account to enable people to access those cheaper bills through the direct debit mechanism?

[Lord Newby]

As my noble friend says, this is a very important issue for people on low incomes. A number of the largest credit unions already offer current accounts that have a direct debit facility. However, they are still a small minority. This is an area where the Credit Union Expansion Project is very important, as it will allow more of them to offer such services.

More generally, the Government’s announcement in December about basic bank accounts means that people who open such accounts will have access to a range of normal personal current account facilities, including direct debits.

Pension Schemes Bill

Debate between Lord German and Lord Newby

Monday 12th January 2015 Lords Chamber

[Lord Newby]

It is difficult to give a precise answer to the noble Lord’s first question, about maturity. The Treasury is, for good or ill, going to keep its mitts on this process until we are very satisfied that it is working well and is seen to be in a stable and successful state.

As for the single session, noble Lords will be aware that people will be able to access the service either online, on the phone or in person. The hope is that by giving people all the financial information that they require, by encouraging them, in the case of pension providers, and by explaining to people, before they turn up to their session, the kind of information that we are looking for, it will be possible to give adequate guidance in one session. We accept that that will not be enough for some people; they will have forgotten something or a thought will occur to them once they have left. We hope that of those cases, which we hope will be a small minority, a majority will be able to get an adequate response to a specific query by going to the website.

We accept, however, that for some people that will not be the case, and that in a minority of cases some people will need to go back, either to make a subsequent phone call or to have a subsequent meeting. However, we are working very hard to minimise that necessity—because, obviously, getting things right first time will be in everyone’s interest.

[Lord German (LD)]

My Lords, perhaps I could follow the point that my noble friend and the noble Lord opposite have just raised in respect of the same document. Box 2.A on FCA standards requires the people delivering the service to have a range of skills, which are numbered i to viii. I shall refer to a report last week in a newspaper that prints on pink paper, in which it was trying to seek from Citizens Advice and the Pensions Advisory Service the qualities of the people that they would employ. The report in the Financial Times that I am quoting from says:

“Citizens Advice said details of where the”,

agents and case workers,

“would be deployed throughout its … bureaux … were still being finalised. However, it conceded that consumers could be required to make a further appointment if their questions could not be answered during their … guidance sessions”.

That raises two separate issues: one is the quality and skills of the people who are delivering the guidance service, and the other is whether Citizens Advice is on side with the idea of delivering it in one go. The comment seems to suggest that its people may not have answers to the questions that are being raised by those people seeking guidance in their first interview. I wonder whether the range of flexibility on the two is at all appropriate.

[Lord Newby]

My Lords, we are keen to make sure that by the time people have been through the guidance process, they are able to make the best decisions for themselves. As I say, we hope that that will be possible in the vast bulk of cases first time around.

I think that what will happen in giving guidance in this area, as happens elsewhere, is that there will be a number of very special cases, but the vast bulk of people will have the same issues as others. The CAB, which after all has to give advice on the whole benefits system, which if anything is even more complicated than the pensions system, has a proven track record of developing the skills of people, and is very good at this—while this is, of course, what the Pensions Advisory Service does.

So we are confident that there are going to be well qualified people. We are building flexibility into the system—partly by having three ways of accessing it and partly, as I say, by, in exceptional circumstances or in a minority of circumstances, allowing people to go back—and we hope we are going to make sure that at the end of the day people will all have the degree of guidance that they need, relevant to their needs, to enable them to make well informed decisions.

Credit Unions

Debate between Lord German and Lord Newby

Thursday 16th October 2014 Lords Chamber

[Lord Newby]

I begin by recognising the valuable work that the noble Lord does with Lloyds in this respect. The part that the big commercial banks can play, not so much in funding—although that is useful—but also in transferring expertise, is very important. One of the key things now for credit unions in increasing the amount of capital they have at their disposal is to encourage large numbers of people with some relatively small amounts of capital to become members of a local credit union and deposit some capital with it. The work of the Church of England, for example, is potentially very important. There are many members of the church who would be able to join a credit union and put in a relatively small amount of money which could collectively transform the capital position of the many credit unions with a very small capital base.

[Lord German (LD)]

My Lords, the investment made by the Government in the credit union movement has paid dividends. We note with pleasure that 7% of the Scottish adult population is now registered with a credit union. However, for them to rationalise, streamline, offer new products and help people avoid payday lenders, credit unions need to have good back-office bank functions and new products. What progress has been made with the banking sector and the Post Office to provide those appropriate back-office functions which will allow them to become more streamlined and help people to keep out of the hands of payday lenders?

Pensions

Debate between Lord German and Lord Newby

Thursday 26th June 2014 Lords Chamber

[Lord Newby]

My Lords, that is the policy. The FCA is working closely with the Pensions Regulator and the DWP to co-ordinate standards to deliver it. In developing the guidance, it is working with consumer groups, the Pensions Advisory Service, the Money Advice Service and Citizens Advice to build on existing good practice. I think that it is fair to say that not everybody will want personal, face-to-face guidance, but to the extent that they do, it will be available.

[Lord German (LD)]

My Lords, for these reforms and freedoms to work, the Government must try to remove some of the mythical mist which surrounds pensions. As the FCA draws up options for the guidance which is to be given, what reassurance has my noble friend had from the pensions and insurance industries that they will support and drive forward these reforms so that the consumer, the owner of the pension pot, is in the driving seat?

[Lord Newby]

My Lords, the Association of British Insurers has produced a detailed response to the consultation that we are undertaking. Within that, it has underlined its commitment to help customers understand their options and enable them to make good decisions. I think that for many people, when the word “pension” is mentioned, a mist descends; so demystifying pensions is a big challenge already. That is why we are devoting £20 million over the next couple of years to getting the new guidance system up and running.

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2013

Debate between Lord German and Lord Newby

Thursday 7th March 2013 Grand Committee

[Lord Newby]

My Lords, I am pleased to introduce this instrument which was laid before the House on 30 January. I am satisfied that it is compatible with the European Convention on Human Rights. The aim of automatic enrolment was to broaden access to workplace pensions and increase savings levels, often from a very low or zero start. Our job today is to consider the figures that will apply from April. This will be the second year of live running when companies employing between 10,000 and 250 people start to go live. The automatic enrolment earnings trigger determines who can save in a workplace pension. It sets the automatic entry point. The qualifying earnings band then determines how much people save and sets employer contribution levels.

This is a balancing act. Automatic enrolment is a tailored policy. It does not force pension saving on to everyone regardless of age, earnings or individual circumstances. In setting the figures in this instrument, our overall aim is to maximise the number of people saving who can afford it, while excluding those who cannot. To do this, we need to exclude those very low earners for whom saving on top of the pension they will get from the state may not make economic sense, especially while they have other family priorities.

We also need to provide low earners access to pension saving, with an employer contribution, if saving is the right decision for them. To meet all these aims, we need to bring in employers who have never provided a workers’ pension, or never paid into one, while being realistic about the costs that they will have to bear. We need to cap minimum employer contributions for higher- paid staff and let existing arrangements cater for this market. To deliver these several objectives, we need a system that makes sense for individual workers and their employers. The way that we set these figures can help to achieve this.

I think that we all accept the powerful arguments for income smoothing. We put money aside now while we have it and while we are earning so we have it in our retirement. But of course the very lowest earners may not have the cash now to sacrifice for retirement saving. That is why we believe that the automatic enrolment trigger should exclude those people who may not be well placed to make that sacrifice unless they themselves want to save.

Saving should be an individual decision for people whose earnings hover around the tax threshold. We believe the state’s role is to provide access to saving where automatic saving is not the right approach. That is why the right to opt in, with an employer contribution, is such an important feature of these reforms.

We fully recognise that any rise in the trigger disproportionately affects women. I want to be completely clear that we are not weighing equality against cost. Gender is not the issue. We think the outcome of this review is right for people on very low incomes, regardless of gender. In particular, we do not believe that it is right automatically to enrol people who do not earn enough to pay tax.

Nevertheless, as noble Lords will know, it is possible for non-taxpayers to get tax relief on pension saving depending on the scheme. This top-up may have an impact on pension savings. We are seeing evidence that schemes designed to cater for the under-pensioned market and those targeting low to moderate earners are using, or intend to use, the relief-at-source mechanism precisely because it helps low earners.

This illustrates the point that however carefully the policy targets the right groups, the enrolment process needs to work in practice. We know that people see their employer as the first port of call for anything connected with wages or their pay slip. Automatic enrolment will work best when it is simple for employers to understand, simple to administer and when pension contributions are simple to explain. We may not be quite there yet in all respects, despite some really clever and effective work from some of the lead companies to demystify pensions in the workplace. Aligning automatic enrolment thresholds with existing recognisable payroll figures can be of considerable assistance and this was strongly recognised in the response to the consultation. This will be the second year of live running and it is likely to be a challenging year, as activity starts to ramp up. The overall message we heard is that this is not the time to change course.

The automatic enrolment trigger does not exist in isolation. It is an entry point to saving that works hand in hand with the qualifying earnings band. The band sets a minimum definition of pensionable pay. In simple terms, if you earn £9,500-odd a year, you will pay pension contributions on anything over £5,500. This point about minimum savings is important. Some schemes will have their own definition of pensionable pay, perhaps more generous than the savings band we set today. We are setting a universal minimum quality standard for pension saving, rather than an aspirational target.

We have been debating how best to set the parameters for pensionable pay for automatic enrolment since the pensions commission reported in 2004. The commission originally recommended aligning private pension saving to the national insurance threshold for the state pension—at around £5,000. That was a starting point. It established a core principle: that private pension saving should build on the foundation of the state pension. The commissioners envisaged year-on-year rises, in line with average earnings.

Perhaps I may take your Lordships back to our target market of low-to-moderate earners. This is a group whose wages are less likely to increase by average earnings, so a qualifying earnings band that rises by average earnings will have a disproportionate impact on these people. We considered a variety of other approaches but perhaps I might deal here with the two distinct ones that came out of the consultation we undertook last autumn: abolishing the lower limit or freezing the band.

Abolition would mean putting contributions on earnings from pound one. This would add around £130 million to employer costs next year. It would also hit low earners very hard indeed, to the extent that pension saving could start to look like something to be avoided rather than embraced. As to freezing this year’s figures, we come back to the practical aspects of automatic enrolment. It should work in practice and it should be easy to explain and to understand. Thresholds that bear no relation to anything else on payslips would fail all those three tests.

As noble Lords will be aware, the national insurance contributions upper limit is going down. If we continue to align with national insurance, the upper limit of the qualifying earnings band would go down too. The upper limit serves two purposes. It caps mandatory employer contributions; it also distinguishes the target group of standard-rate taxpayers from earners in a higher tax band. Higher-rate taxpayers tend to have greater access to a pension scheme offering more that the minimum. The issue is whether a reduction in the top limit of the qualifying earnings band would have a disproportionate impact on the target group. The evidence suggests that it will not. Average earnings in the UK are around £26,500 a year. Average earners would not be affected by a change in a contributions rule that bites on people earning nearly £15,000 more than they do. The evidence suggests that the practical advantages of alignment outweigh a reduction in the nominal value of contributions for a subset of higher-rate taxpayers.

I said earlier that setting these thresholds is a balancing act. There is no perfect answer, either in theory or in practice. Nevertheless, we believe that we have used the evidence to consider how we can best achieve the policy intentions and have made reasonable judgments about the various trade-offs. We believe that these proposals continue to provide broad access to pension saving and maintain contributions for the target group. I commend this instrument to the Committee.

[Lord German]

My Lords, I have a single question on determining the balancing act which the Minister has just talked about. However, my question is in multiple parts. No one is more enthusiastic than I about the raising of the income tax threshold. I have used it in many speeches in your Lordships’ House to illustrate how we have taken many lower earning people out of the tax bracket altogether. However, this is an area where the balancing act does not necessarily work because of the use of the income tax threshold, which has risen well beyond the level of earnings increases and well beyond that of price increases. Here there is a negative aspect to that balance. The number of people who will now be excluded from the automatic element—the “automatic” in the title of the order—is about 420,000 individuals, of whom 320,000, or 76%, are women. The question that primarily worries me and should concern the Committee is whether these are people who should be saving for the future and will be able to maintain over a lifespan the appropriate level of saving for a worthwhile pension. This is where my question splits into several parts.

Of course, people who are excluded as a result of the above earnings increase in the income tax threshold can opt into the system. But there are ways of opting in that may not be as obvious as you might think to many people. I understand that employers are required to make the offer and provide information to their employees if they are below that threshold and within that bracket. Therefore, can the Minister tell me what is the actual requirement on employers to provide information? If it is a piece of paper stuck in an envelope along with the payslip, that may not be the most appropriate information source. This is a tricky area for people to understand and the information may not be being provided in a meaningful way. It should certainly be in clear language. There is probably a whole pension industry that has developed a language of its own in explaining what are essentially straightforward implications in a way that is often impenetrable to many people.

My second question relates to when people are excluded from the automatic element, the declared intention being that it may be inappropriate for some people to save for a pension. Will the Minister explain what “inappropriate” means to lower earners? In the Explanatory Memorandum it is quite clear that people may not need to save if the state will provide. But as noble Lords will know, the pension schemes that the state provides are not static. There is progress towards a single state pension, which may make a difference to the way in which people see their pensions over a longer period of time.

I understand that if people will be low earners for the whole of their working lives it may not be appropriate because they might find that they would get a better deal from just relying on the state. But you cannot determine what the state will provide in 30 or 40 years’ time when you are entering the jobs market at the beginning of your life span. I would be grateful for an explanation of what makes these pension contributions inappropriate for some people.

The third element to the same question is about the relief at source. The Minister has already spoken about that for people who are below the income tax threshold. They can still, using the RAS scheme, benefit from having the tax contribution taken off at source. Do the Government have any intention of promoting the relief at source in order to assist people when making a decision about whether they want to opt into the system? Do they have a view about whether that is something that should be promoted? It is another useful piece of information. If you were told that it would cost you less than if you were paying tax, you would naturally look differently on any contributions that you might have to make. With those few questions rounded into one major question with many parts, I am pleased to support the order.