Financial Guidance and Claims Bill [HL]

Debate between Lord Sharkey and Baroness Altmann

Report: 2nd sitting (Hansard): House of Lords
Tuesday 31st October 2017 Lords Chamber

[Lord Sharkey (LD)]

My Lords, we on these Benches very strongly support the amendment, for which the noble Lord, Lord Stevenson, has made such a detailed, eloquent and powerful case. The notion of a breathing space or debt respite scheme has attracted a lot of support both in this Chamber and outside.

The Minister herself has acknowledged the merits of such a scheme. She said at Second Reading:

“A breathing space scheme could help people affected by serious debt by stopping creditor enforcement and freezing further interest and charges on unpaid debt”.—[Official Report, 5/7/17; col. 943.]


There is really no need for the conditional “could” in that assessment. The evidence from the existing scheme in Scotland makes it clear that such a scheme does help people affected by serious debt—and help is very definitely needed.

Last week, the FCA published its detailed study of the financial lives of UK adults. This is a truly remarkable and detailed study and an exceptionally useful piece of work, and I congratulate the FCA on producing it. But it is also a truly worrying piece of work. Among its many findings was the fact that in the case of 400,000 adults who were behind on payments and had contacted their provider, their provider did not encourage seeking free debt advice. Another 300,000 adults in the same position reported that their provider did not allow time to pay. Worst of all, for 100,000 adults in arrears, their providers were unsympathetic, did not encourage seeking free debt advice and did not allow more time to pay.

A debt respite scheme would certainly help the debtor, but Scotland shows that it would also help the creditor, who would recover more of the debt. This is a win-win situation. Both sides gain. The case for a debt respite scheme is clear and compelling. That is why, no doubt, the commitment to such a scheme was contained in the Conservatives’ 2017 general election manifesto. But the Minister seemed to feel, when we discussed this at earlier stages, that the issue was so complex that delay was necessary. She said in Committee:

“The Government’s manifesto … proposed the introduction of a statutory breathing space scheme and statutory debt repayment plan. This is an important and complex issue. It requires thorough preparation and consultation on details, such as who could be eligible, which debts could be in scope and how someone could enter into a breathing space”.—[Official Report, 19/7/17; col. 1683.]


All this is quite right, of course, and includes the important and unresolved question of whether rent and utilities arrears should be included in any such scheme. In that context, it is worth repeating what the noble Lord, Lord Stevenson, mentioned a few moments ago: a debt respite scheme already has the backing of at least part of the utilities sector, Water UK.

But focusing on these undoubtedly important questions avoids the simple question of when. It ignores the fact that primary legislation can establish the framework and leave the details to secondary legislation. However, the noble Lord, Lord Young, said last Friday in this Chamber:

“The legislative programme for this Session is already at full capacity and there is no scope for additional measures”.—[Official Report, 27/10/17; col. 1148.]


So, if the question is when there will be a legislative vehicle that will allow the construction of a breathing space, the noble Lord, Lord Stevenson, has provided the answer. The answer is this Bill and this amendment. I hope that the Minister will see its obvious merit and be able to accept it as an obvious way of making progress without further delay.

[Baroness Altmann (Con)]

My Lords, I too have added my name to the amendment, which I hope my noble friend will be minded seriously to consider and, if necessary, bring back at a later stage still. There is clearly widespread support across the House and indeed the country for such a scheme. There is also rising concern about the level of consumer debt within the economy as a whole. We know that more and more people are falling into debt, having perhaps been enticed into borrowing at teaser loan rates that have then risen. We also know that the trend in interest rates may well start to go up, which again would cause significant difficulties for those who have taken on perhaps unwise levels of debt. In practical terms, just giving this breathing space, which I know the Government support, could help to manage a situation that has gone beyond manageable for many vulnerable people. I hope that noble Lords across the House will support this, and indeed that my noble friends on the Front Bench will be able to as well.

Financial Guidance and Claims Bill [HL]

Debate between Lord Sharkey and Baroness Altmann

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

[Lord Sharkey]

My Lords, Amendment 42B is in my name and that of the noble Baroness, Lady Altmann, for whose support I am extremely grateful. I will speak also to Amendment 42C. Amendment 42B is very simple. It provides that, before accessing pension pots, people must have received the appropriate information and guidance either from the SFGB or from a regulated adviser. I touched on the need for this in my earlier remarks on Amendment 27A, and I am sure that I do not need to remind the Committee that take-up of advice on pensions is very low and that financial capability and understanding are also at very low levels. Conversely, financial misunderstanding is at very high levels. This augurs badly for sensible pension decisions.

The FCA’s July interim report on retirement outcomes shows that accessing pension pots early has become the new norm under pension freedoms, as the noble Lord, Lord Young, noted a moment ago, with 72% of pensions accessed by people aged under 65. Most of these people withdrew lump sums. Half withdrew the full value of their pension. The FCA says that it found no evidence of people squandering their pension savings, but expressed concern about why people are shifting their savings out of pensions. Over half of the fully withdrawn pensions were not spent but were transferred into other savings or investments. This suggests, according to the FCA, a mistrust of pensions, and raises the possibility or even probability of new risks, such as paying too much tax and missing out on investment growth and higher retirement income. The FCA also found that most consumers chose the path of least resistance; they usually accepted the draw-down option offered by their existing pension provider without shopping around or even using the information provided by their own pension provider. That is perhaps entirely unsurprising, given the very low levels of take-up of advice and the high levels of ignorance and misunderstanding. It may be unsurprising, but it is also worrying.

The FCA’s Retirement Outcomes Review is the fifth such investigation into the UK’s retirement market. All five investigations have found much the same thing: they have consistently identified DC pension customers’ poor awareness of their options and the distrust, disinclination or inertia that can so easily lead to poor decisions. It is not just poor decisions that are a concern but scams and frauds as well. Without taking proper advice, vulnerability to scams and frauds increases. The FT reported earlier this year that losses from pension scams in March this year alone had risen to a record high of £8 million. Victims of what they described as “liberation fraud” were typically conned into placing their pension funds into investments that do not exist or are illiquid or incapable of delivering the promised returns. Victims are not usually warned about tax charges in liberating their pension funds before the age of 55, which can wipe out half the value of their savings. Being better informed and advised will not, of course, prevent all poor decisions or prevent all scams and frauds, but it is a powerful safeguard against these things. It is not the same as just having information advice out there somewhere; it means accessing and using this information and advice, which is what our Amendment 42B would do. It requires people, before they can access their pension pots, to have received information and guidance either through the SFGB or regulated advisers—the same kind of controls that currently apply to taking out a mortgage. The amendment would make that work for many more people.

I turn briefly to deal with Amendment 42C, which would simply require the SFGB to report annually on the levels of usage of pensions guidance and regulated financial advice by those accessing their pension pots. As I explained earlier, the quality of guides is very high but the take-up is very low. We need to know how well the SFGB is doing in fixing this problem and have the SFGB publish the data. We need to see how successful it is, for example, in raising the level of take-up from the current extremely low 7%. That is a vital way in which to hold the new body to account and what the amendment does—although, having thought about it a little more, I accept that the SFGB may not be the best-placed organisation to do that. The Minister, from whom I gratefully take correction, is nodding as I say that. But I hope that the Minister will give careful and sympathetic consideration to Amendment 42B in particular. I beg to move.

[Baroness Altmann]

My Lords, I support the amendment, to which I have added my name. It would make the take-up of guidance the default option or a mandatory option for anyone who does not have independent, regulated financial advice. We are taking time and spending so much effort setting up a body that is designed to help to guide and inform the public; this amendment would help to ensure that the public actually get the benefit of it.

Clause 5(1) gives the Secretary of State powers to issue,

“directions to the single financial guidance body”,

to do this. Therefore, before anyone could transfer or access their pension savings, they would have received this guidance, which will be set up specifically to make sure they understand the risks before they make any decisions about their pension. Someone would also explain the tax consequences and the potential long-term dangers of giving up a pension because, once they have given it up, they cannot get it back. As the noble Lord, Lord Sharkey, just remarked, the recent FCA research shows that there are some people who are transferring money out of their pension and just putting it into a cash account or a different investment because, clearly, they do not understand the benefits of keeping it in a pension. Having somebody explaining it to them first would be very much the aim of this particular body.

I wholly support the pension freedoms that the Government have introduced, but they are introducing them into a landscape where, for the past few decades, people were encouraged to believe that they did not really need to understand or engage with pensions, because all the decisions were taken for them. For most people, they were in a default fund on their savings journey and then, when they took the money later on, they were put into an annuity and that was it. They did not really need to understand what any options were because they did not really have many options. Unfortunately, people did not understand how annuities worked either. If we make this guidance a default or mandatory option then we make sure that we are protecting the public as well as giving them the freedoms. It is right that we give them the opportunity to make decisions that will suit them, but we have to make sure that we give them the opportunity of making properly informed decisions and as fair a chance as possible of making the freedoms work for them.

Providers too often want people to make a decision when they are too young, for example. It is not just in the freedoms landscape that people are taking their pensions early; the majority of people were buying annuities well before the age of 65 under the previous system, too. I hope that the Government will seriously consider that the 7% take-up rate for Pension Wise is woefully low—we need to find a way to increase that and we need to make sure that we protect the public and give them the fairest chance of making the freedoms work. Pension Wise or the new body could, for example, issue vouchers for everybody who is coming to the stage at which they might need to make a decision about their pension. They could be sent a voucher for a free guidance session. The financial guidance body, perhaps with the FCA and with providers, can work on ways of boosting take-up, but it is definitely something that would make the work that we are doing in this Committee so much more valuable around the country. I support this amendment.

--- Later in debate ---

[Baroness Altmann]

My Lords, I refer to my Amendment 73, which attempts to define cold calling using many more words. That was in the context of banning cold calls for claims management companies. I do not claim that this is the correct version for cold calling.

[Lord Sharkey]

My Lords, I was pleased to add my name to the amendments in the name of the noble Baroness, Lady Altmann. Both amendments address the problem of cold calling and pensions. I would, like the noble Baroness, have preferred an outright ban on cold calling, just as I would like an outright ban on cold calling for the benefit of debt management companies and for claims management companies. We can deal with banning cold calling for claims management companies later in the Bill, as the noble Baroness just pointed out, and she and I have both tabled amendments to do exactly that. Regrettably, banning for pensions and debt management companies is outside the scope of the Bill.

The amendments before us, therefore, cannot and do not go that far, but they do offer a pretty good work-around. They would do two things, as the noble Baroness has explained. They would require the SFGB to provide information and guidance on cold calling. They would also require people to have received this information and guidance before taking any action following a cold call.

Noble Lords have discussed cold calling on many occasions in this Chamber. On every occasion there has been universal dissatisfaction with the process and universal recognition that it is a menace, yet it still goes on. There has been a 180% increase in the past 10 months alone. There are now 2.6 million calls every month. This is an omnipresent menace. But there is no cold calling for mortgages. We banned that. Successive Governments have never got around to banning cold calling for pensions, for debt management or claims management and I know that the Government have promised, yet again, to ban cold calling for pensions. But, yet again, it is a promise without a delivery date. It is a promise that has no obvious legislative vehicle except this one.

I still do not understand why the Government are dragging their heels over this or over debt management and claims management cold calling either. I acknowledge that there will be complexities in devising the details of any ban, but it is surely not beyond the ability of the Government to deal with it speedily if they assign the right priority and the right resources to it. In any case, I remind the Minister that we have already held out in these debates the possibility of an enabling clause in the Bill with the details to follow later in secondary legislation. We have had no response to that—all rather disappointing and mystifying. In the absence of any willingness on the part of the Government to actually do anything in the Bill, these amendments show how progress can be made. I very much hope that the Minister will respond positively.

Financial Guidance and Claims Bill [HL]

Debate between Lord Sharkey and Baroness Altmann

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

[Baroness Altmann (Con)]

My Lords, given the hour I shall speak briefly to my Amendment 17 in this group. The single financial guidance body is being asked to develop a national strategy to improve financial education. At the moment the Bill specifies only that this needs to be delivered to children and young people. However, we need to educate everyone about finances, not just young people. We are auto-enrolling everyone in the workplace into pension schemes. We know that workers will not have been given any financial education at school, so why are we focusing only on children and young people? I would like to replace the phrase “young people” with the word “adults”. By the way, I accept completely the point that care leavers are extremely important. But as a complement to auto-enrolment, making sure that financial education is delivered, perhaps in the workplace alongside auto-enrolment, seems to be an important potential function of the single financial guidance body.

[Lord Sharkey (LD)]

My Lords, I shall speak to Amendment 18 in this group which is tabled in my name and that of my noble friend Lady Kramer. I agree with everything that has been said so far except perhaps for one thing. If the Government accept the amendment tabled by the noble Baroness, Lady Altmann, we will have a universal obligation as regards financial education. I can see the appeal of that in theory, but in practice I wonder how it would work out. Children and adults constitute the whole of the population, but I think that the intention of the Government in Clause 2(7)(c) is to identify groups where particular emphasis on the provision of financial education is needed. That is probably why they specifically mention “children and young people”. I agree with the approach of putting an emphasis on the groups that most need or will most benefit from financial education.

However, there are other critical target groups in need of special attention, and the noble Earl, Lord Listowel, has identified such a group. That is what our amendment is aimed at. It seeks to extend the group of special targets beyond a couple of age demographics to major financial events in the course of people’s lives. It would extend the group of special targets to those who are about to make major financial commitments. It specifies the obvious ones such as mortgages and pensions, and nowadays vehicle finance plans, but leaves it open to the SFGB to decide what other major financial commitments it may want to include in its overall strategy.

The Bill is drawn a little too narrowly on this issue and would benefit from our proposed changes and those proposed by the noble Earl, Lord Listowel. I hope that the Minister will feel able on this last amendment of the first day to break the habit of the day and accept a modest and uncontroversial amendment.