Financial Guidance and Claims Bill [Lords]

Alex Cunningham Excerpts

3rd reading: House of Commons & Report: 3rd sitting: House of Commons
Tuesday 24th April 2018 Commons Chamber

[Crispin Blunt (Reigate) (Con)]

I will speak to amendment 41, which is in my name. My amendment is intended to make a point to the Minister, and I am utterly certain that I will get the assurance that I need in order to do nothing more than discuss it now.

I welcome the introduction of a single financial guidance body, as it should result in a simpler, smarter and smoother experience for the user, helping them to make informed financial decisions. However, we ought to use the opportunity of this Bill not only to ensure that we get the guidance bodies all in one place; we also need to recognise the different types of finance or retirement income that need to be signposted. Financial decision making can be complex, often requiring advice and support, particularly during events such as buying a first home, on retirement or following a bereavement.

I tabled this amendment because people ought to consider their finances in the round. In other words, all liquid and illiquid assets—cash and property—should be considered together. My amendment follows the lead of the noble Lady Greengross in the other place, asking the Government to ensure that this new guidance body highlights the full range of options available, so that its users get the best possible advice to help them to make informed choices about their finances and their futures.

The report published last month by the Housing, Communities and Local Government Committee describes equity release as one of the key tools available to those predominantly in later life. It ensures that older householders are able to pay for care costs or home improvements to give them the option to stay in the homes in which they have built lives and brought up their families. Equity release means that our constituents aged 55 and over who might be asset rich but cash poor can have the option of staying in their own homes by accessing the wealth that they have accrued in that home.

The Equity Release Council published a research paper last April called “Equity Release Rebooted”, in which it estimated that the average value of a defined contribution pension in 2012 to 2014 was £30,200, while over-55s in England possess approximately £1.8 trillion in housing wealth and more than 80% of over-65s own a home. For many, if not most people coming towards the position of making a decision about their retirement, their property is much their greatest asset. It must therefore be sensible for equity release to be signposted and to form at least part of any discussion about funding retirement and later life.

[Alex Cunningham (Stockton North) (Lab)]

I agree with what the hon. Gentleman is saying. Does he not think, therefore, that there is considerable merit in new clause 2, which promotes the idea of specific guidance for people in mid-life so that they get proper and clear advice on some of the decisions that they may have to make?

[Crispin Blunt]

I am sure that there is enormous merit in new clause 2, and I hope that the hon. Gentleman has the opportunity to make the case further. There is obviously a common theme of making sure that people have the information about all their assets to enable them to make the best possible decision. We must make sure, in setting up the body in this Bill, that we do not have to come back to this later on because, in practice, we are not delivering the best advice to people about all the assets with which they have to plan.

The pensions advice allowance allows people to withdraw £500, tax-free, from their pension pots to pay for financial advice on their retirement, including on housing wealth, but some people will be unwilling or unable to use this facility. It is incumbent on the single financial guidance body to provide free, impartial guidance and to ensure that this encompasses housing wealth. It is likely that any signposting requirement would push consumers towards the Equity Release Council, the industry body for the equity release sector. Members of the Equity Release Council are committed to product standards and consumer safeguards.

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At the heart of any marketing prohibition lies the well-founded fear of scams. The amount likely to be saved by UK pension savers, each with their own personal defined-contribution pot, massively expanded by the successful roll-out of auto-enrolment, will in time be truly vast. There are currently 9.3 million people enrolled in workplace pensions. Where pension saving was once a rarity, particularly for the low-paid and the under-30s, it is thankfully now becoming the norm. A rough and ready calculation shows that in time the number of people enrolled in workplace pensions could well rise from 9.3 million to 15 million; I am sure that will be the appropriate figure in time. When we consider that from 5 April 2019, the combined employee and employer contributions will be 8%, we see that if that stays steady, using average salaries, and with a working lifetime of, say, 35 years, that will mean a pension pot in this country of over £1 trillion, and that is without investment growth. Of course, investment growth could be dented by the Labour party’s plans for a Robin Hood tax on financial transactions, but that is a debate for another day.

[Alex Cunningham]

The hon. Gentleman talks about a total pot in the trillions, but for the vast majority of people, particularly part-time workers, their pot, although better than nothing, will be relatively small. Does he agree that several groups are still excluded from auto-enrolment, and that the Government need to do something to bring them in?

[Craig Mackinlay]

I thank the hon. Gentleman for that contribution. There is a wide debate—I have taken part in it—about whether the self-employed are playing a full role in getting pension provision. I think that there are measures that could be taken, perhaps using the national insurance system, to provide them with greater certainty. The primary purpose of the Bill is to ensure greater financial understanding among the general population. They need to know where to turn at the right time. I have confidence that the single financial guidance body will achieve just that.

I close with a suggestion that is probably best directed to the Financial Secretary to the Treasury. It has some relevance to the honest proposals put forward by the hon. Member for Birmingham, Erdington (Jack Dromey) on mid-life reviews. Employees, as they work through their working lives, obviously have an employer. Employers are very well aware—possibly more than anybody else—of when an employee is approaching retirement. I am sure that most responsible employers will be keen to help. I recommend that the Secretary of State discuss amendments to the Income Tax (Earnings and Pensions) Act 2003 to allow employers to pay for advice, outside of any benefit-in-kind tax charge, so that advice can be provided to employees and paid for tax-free. That would extend a benefit-in-kind exemption similar to what we see when advice relating to settlement agreements, or payment for CV writing and recruitment advice upon redundancy, is duly paid for by an employer tax-free.

In my view, the Bill is fit for purpose and I very much support it.

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[Alex Sobel]

I am here to support the amendments in the names of my hon. Friends the Members for Walthamstow (Stella Creasy) and for Harrow West (Gareth Thomas), which are complementary. I have also put my name to amendments 1, 2 and 31 in the name of my hon. Friend the Member for Harrow West.

Why do the poorest in our society have to pay more for the same services as the wealthiest? Why do they have to pay more for the same gas and electricity? Why do they have to pay more interest for the same loans? Why is credit more difficult to access and at much higher interest for the poorest in society? The structure of our society is such that growing inequality is in-built, because those with capital can further accrue it through cheap finance and lower costs, while those without capital cannot pursue their dreams through the high costs and limited availability of debt finance. Today we have an opportunity to make a small step in reversing that trend, casting light on the practices of high-cost credit providers and enshrining the duty to ensure that information about credit unions is provided by the single financial guidance body. The very mission of credit unions is to provide low-cost finance to people who are deemed high risk by traditional institutions, and they are owned by their own members.

Martin Luther King said:

“it is obvious that if a man is to redeem his spiritual and moral ‘lag,’ he must go all out to bridge the social and economic gulf between the ‘haves’ and ‘have not’s’ of the world. Poverty is one of the most urgent items on the agenda of modern life.”

Today we have the opportunity to pass these most excellent amendments and make a step towards bridging that social and economic gulf, not just because it makes sense in terms of financial justice, but on a spiritual and moral level.

The United States acted 40 years ago on the spiritual and moral lag that Dr King talked about, by introducing the Community Reinvestment Act. The Act was established to ensure that banking needs were met and monitored in low-income neighbourhoods, which had seen a retreat of traditional banking services and rising interest—a situation that we have faced in this country for far too long. My hon. Friend the Member for Harrow West gave an excellent explanation of the Community Reinvestment Act, so I will not repeat it. The banks in America have responded to the Community Reinvestment Act by establishing plans to service those communities and ensure that their services are not restricted. Banks in the US with community investment plans not only commit capital at affordable rates for loans, but invest in community development.

The amendments are needed before we can implement a community reinvestment Act. Without the disclosure of financial data and a statutory duty to promote credit unions, we cannot achieve community reinvestment by the large banks. The amendments are a necessary but insufficient precursor to getting real financial justice for communities that struggle to access affordable credit, but today we can make the first step to ensuring financial justice and legislating for a full community reinvestment Act. I hope that the Treasury Bench takes on board these excellent amendments and responds to them in kind.

[Alex Cunningham]

I want to speak briefly to new clause 2. While I am sure, Madam Deputy Speaker, that you have many years to go before you reach your own mid-life point, I am sure you will understand that we could all use a bit of advice at times—even though those of us with six decades or so behind us think it our duty to pass on pearls of wisdom to the younger generation.

There is plenty of talk about young people and their finances—about how they can manage their cash and get on the property ladder, which is of course impossible for many these days. This Bill does something to help young people, and I am pleased about that, but what it fails to do is help those in the mid-life stage—people who may have saved a bit, joined a pension scheme, or bought an ISA or two. More importantly, it does nothing to help those who have done none of those things and simply do not know who or where to turn to when planning their later life.

Although some excellent initiatives have passed through this House, such as Labour’s policy of auto-enrolment into workplace pensions, there have been a number of failures, not least around the issue of ’50s-born women and their state pension age, which was extended by the Tory-Lib Dem coalition by several years, condemning many such people to poverty when they should have been enjoying retirement. We could have hoped that the experience of thousands of women left facing difficulty and uncertainty would act as a salutary lesson to everyone else that they cannot really depend on Governments to deliver the security they need in retirement, but need to find ways to make provision for themselves.

People are now looking at their expected pension provision, if they have any, and then panicking about how they are going to afford to live when they retire, or are faced with the reality that they will have to work beyond retirement age in order to make ends meet. We also have people who have lived their lives just getting by—who have never been able to buy their own home and now do not know how they will afford their rent once they retire. Uncertainty is very much the name of the game in the 21st century, so we have a responsibility in Parliament to make provision to ensure that everyone, whether they can afford it or not, is able to work out how they will live when they are no longer receiving a wage. This new clause to provide targeted information to people from the age of 50 delivers that.

We all know that people can now expect to have several jobs throughout their career, and redundancy, zero-hours contracts and insecure work are clouds hanging over millions of people every day. Some people in their 50s find that they need to retrain for another role, but many do not know where to begin or where to get to the facts. This body, backed by the right promotional campaigns, including multimedia, could be a lifeline for those who ignore their money problems. I am, however, concerned about the capacity of the new body. We need to guarantee that it can expand if we are to reach many more people with guidance. I am yet to be convinced that that capacity will be there. I hope that the Minister will say something about how it can expand. I also hope that he can extend its services to provide the mid-life advice that people need.

[Yvonne Fovargue (Makerfield) (Lab)]

I, too, want to support my hon. Friends the Members for Walthamstow (Stella Creasy) and for Harrow West (Gareth Thomas). I hope that the FCA will look speedily at the total cap on the rent-to-own sector, with its inflated prices for goods and roll-up charges.

I am pleased that the Bill aims to ensure that members of the public can access good-quality, free-to-client impartial financial guidance, pensions advice and debt advice. Clauses 10 and 11, which relate to my amendment 42, require the single financial guidance body to set and enforce standards across the debt advice partners it commissions. I think that everyone agrees that the body will have to have regard to standards of practice for the organisations it commissions, but the respective roles of the single financial guidance body and the FCA should not create uncertainty. There may have to be additional requirements for organisations that it commissions.

However, an independent report to the Debt Advice Steering Group run by the Money Advice Service says that the quality assurance process for the larger debt advice charities should be authorised by the FCA. The concern is that any such new and additional requirements from the single financial guidance body should not replicate the requirements faced by the debt advice organisations from their regulator, the FCA. Having had a contract from the Legal Aid Board where we had three auditors in at one time, I was tempted just to throw the files into the middle of the room and say “Fight over them.” The auditing ought to be in the same capacity, and it should be done under one audit that covers all if there are the same requirements.

The body’s standard-setting powers also need to be matched with principles of good regulation, and conditions ought to be proportionate to the benefits they will bring. Amendment 42 would make that plain. Ensuring that the new body’s standard-setting powers have regard to proportionality would smooth its functioning, guarantee assurance and stop the uncertainty as to whether the FCA or the single financial guidance body has primacy.