Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

Committee: 3rd sitting (Hansard): House of Lords
Monday 11th September 2017 Lords Chamber

[The Earl of Kinnoull (CB)]

My Lords, I rise briefly to speak to Amendment 56, which is in my name. I note that the clause on setting standards, which is only 11 lines long, has eight amendments. That underlines its importance.

The origins of Amendment 56 are my concerns with the behaviour of the Financial Conduct Authority; I have been regulated by it and its predecessors for the whole of my commercial career. I realise that the single financial guidance body will only be a client organisation of it, but I am concerned about FCA ethos leaking down to the SFGB.

Perhaps I should explain further. When a regulated client rings up the FCA with a specific question, asking for help in the interpretation of its rules, the FCA, in my direct experience, simply says, “We can’t give you any help in interpreting those rules”. That is quite unlike regulators in other jurisdictions in other places—I originally wrote down “competitor regulators”. That is very unhelpful, but while it is unhelpful in the financial services world, firms are usually big enough to afford advice from big firms of solicitors. Here we are often dealing with very small charities that do not have access to £1,000 per hour for Allen & Overy, so it is important that the SFGB offers that advice.

It has been said to me that there is a big problem concerning resourcing. I think that that is quite a difficult position to maintain. First, other similar regulators in other jurisdictions do not perceive those resourcing problems. In fact, most of the questions that come up, such as on a drafting issue, do so repeatedly and the same question will be asked by many of those being regulated. Secondly, just thinking about one particular bit of FCA regulation because I know about it—the regulation of insurance brokers—the FCA and those that are being regulated bear the cost of that regulation, which is more than twice as expensive as Ireland, Bermuda and Hong Kong. That multiple is far bigger than for France and Germany. I do not therefore think that good regulation has to be expensive.

The amendment is aimed at trying to ensure that that sort of behaviour is not replicated and that the SFGB remains friendly and helpful in interpreting the regulations that it will impose on those that it regulates.

[Baroness Altmann (Con)]

My Lords, I add my support to Amendment 56. It is important that if those who are involved in the actions that will be part of the new body want to know and to clarify what their duties are, there is clear direction for them. I share the concerns that a number of financial companies have offered to me: they want to abide by the regulations, yet when they ask the FCA, “If I do this, would that be compliant?” the response often is, “If you do it and we don’t like it, we’ll see you in court”, which really is not very helpful.

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[Baroness Altmann]

My Lords, I too support the thrust of this amendment moved by the noble Baroness, Lady Drake, and the remarks of the noble Baroness, Lady Kramer. I hope my noble friends on the Front Bench will take seriously the efforts being made around the House to improve protection for consumers. I whole- heartedly support the aims of the Bill and I congratulate my noble friends on bringing it before the Committee, but adding to it measures such as this would very much strengthen protection for the public.

[Lord McKenzie of Luton]

My Lords, I support my noble friend, who has drawn a strong parallel with the experience of Pension Wise, with which she was heavily involved. She made the point that it is not only those who might be termed traditionally vulnerable people who are at risk from the ingenuity of impersonators but those who might be more sophisticated.

I should like to make a brief reference to paragraph 17 of the memorandum that the DWP sent to the Delegated Powers Committee. It says:

“Deferring the announcement of the name will also help protect the new body’s brand and reduce the likelihood of the setting up of ‘imposter’ websites as a means of deceiving and defrauding the public. Imposter websites could put members of the public at risk”,


and,

“were an issue when the Pension Wise brand was launched”.

If they were at risk before the naming of the body, what will give strong protection once the body is named? That seems to be the thrust of my noble friend’s amendment, which I support.

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[Baroness Kramer]

My Lords, I will speak in support of this very important amendment moved by the noble Baroness, Lady Drake. Much of the difficulty in the conversations we have had around this Bill has come over the role and obligations of the FCA. If the Minister or her officials care to look at the FCA website, they will understand that consumer protection is very much interpreted in the realm of preventing mis-selling and preventing scams; it is not a broader protection of the consumer in the way that some might interpret that language—for example, to make sure that the consumer has successful routes to navigate financial services.

I can give the Minister one simple example of which she will be aware. Many of us around this Committee—and, indeed, probably the Minister herself—believe that a breathing space scheme would be very advantageous in helping people to move through debt management to restore their finances. However, the FCA cannot mandate such a thing. It cannot act, as it were, to protect the consumer even though one might consider, if using just the English language, that such an action would be captured by the words “consumer protection”.

In the same way, on the issue of access the FCA can try and act so that a banking institution, for example, does not put up barriers that would discriminate or set itself up in such a way that people could not get on to the relevant website to access the service, but that is not access as in, “What financial services do members of the public require, and are those kinds of services being provided by the financial service sector and industry?”. So it cannot gap-fill. Actually, it is quite unusual to have an arrangement where such gap-filling is not possible. For example, in the United States, that may be done indirectly through things such as the Community Reinvestment Act, so there are paths by which that kind of back-filling can be pursued by the regulator.

I hope very much that the Government will understand that, in terms of providing advice and guidance, the FCA in looking at the standards that have been set cannot operate within the usual realm of an economic regulator of essentially promoting market efficiency or market fairness, which is its fundamental and underlying approach and responsibility. That is why the inclusion of language that talks about acting in the interests of consumers and about promoting financial inclusion is very appropriate when the FCA is now engaged in something that steps outside its traditional, typical overarching role.

[Baroness Altmann]

My Lords, I too support the amendment moved by the noble Baroness, Lady Drake. It is an important amendment, and it would be most welcome if my noble friend would seriously consider extending the protection for consumers that this Bill is rightly aiming to achieve. I echo the comments of the noble Baronesses, Lady Drake and Lady Kramer, in terms of focusing on the FCA promoting the interests of consumer protection, perhaps in new ways from what has happened in the past.

[Lord McKenzie of Luton]

My Lords, like other noble Lords who have spoken, I speak in support of my noble friend’s amendment. As ever, my noble friend has been very concise and focused on this key issue about how we can get the FCA in these arrangements to be seen to act in the interest of consumers and financial inclusion. There is a tension between the FCA as a regulator of the market and what we seek through this Bill—an improvement in financial capability and for guidance to be given to people so that they can make better-informed financial judgments.

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Moved by

[Baroness Altmann]

69: Schedule 3, page 27, line 5, leave out paragraph 33

[Baroness Altmann]

My Lords, Amendment 69 seeks to remove Clause 33, which proposes to cancel legislation, passed by Parliament only last year, which ensures that the pensions guidance body can help members of the public who have bought annuities they neither want nor need, perhaps having been forced to in the environment which existed before the pension freedoms were introduced. Section 2 of the Bank of England and Financial Services Act 2016 amends Section 333A of the Financial Services and Markets Act 2000 and extends the definition of pensions guidance, expanding the scope of Pension Wise so that pensioners who are able to sell their annuity income can access free, impartial guidance before they make this irreversible decision. Since May last year, when the Act was passed, the Government have unexpectedly announced that they have changed their mind and no longer intended to allow people—who had been assured that they would be able to sell unwanted annuities from April 2017—to do so. This decision will obviously have disappointed many of those people, but I accept that Ministers believed it was right.

However, there are two important reasons why it is unwise and unnecessary to revoke the legislation that was enacted just last year. If we retain authorisation for Pension Wise or the new single financial guidance body and the FCA to facilitate mandatory guidance for people who may, in future, be allowed to sell their unwanted annuities, we will not need to take up precious primary legislative time to introduce the measure once more—that has already been done. We do not need to explicitly remove this measure; it can either be considered redundant or, in so far as it relates to something that already exists but is little known, it could be of use to many members of the public.

No further regulations have yet been laid in this connection. However, it is important that the single financial guidance body and the FCA should still have a remit to inform or guide the public on selling an unwanted annuity. The particular reason is that it is already possible for people to sell their existing annuities if they are under £10,000. Although the Government changed their mind on anyone’s overall ability to sell an unwanted annuity, there is the ability—which is not widely known—for people to sell one valued at under £10,000. It is surely important for the single financial guidance body or Pension Wise still to be involved in this area and ensure that there is public information and guidance about the risks of such a sale. I beg to move.

[Baroness Kramer]

My Lords, I support the noble Baroness, Lady Altmann, on this. Given that we have loosened up pension provision very widely, and recognised people’s ability to make decisions about their future, I have never understood the Government’s decision on taking away the right to sell an unwanted annuity. There are many reasons why this might be the right and appropriate decision for people in some circumstances. People may be facing large mortgages on which, for historic reasons, they are paying very high interest rates and which could be wiped out, to their overall financial benefit, if they could access their annuity. I could understand it if the Government thought that necessary safeguards should be added. In that case, the answer is to add those safeguards. For example, people could be required to access guidance at the very least, or there could be a much stronger recommendation that they access advice under these circumstances. To choose this vehicle, when this issue has been paid very little attention and focus, seems like an under-the-radar change to something absolutely fundamental. I support the amendment.

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[Baroness Buscombe]

My Lords, my noble friend Lady Altmann has moved Amendment 69, which intends to retain the section of the Bank of England and Financial Services Act 2016 which amended FiSMA to allow Pension Wise to offer guidance to consumers wishing to make changes to the payment of their annuity. Pension Wise was set up with the very specific remit of delivering guidance to help people make decisions on their options following the introduction of the pension freedoms. The Pension Wise remit was subsequently extended to include guidance to people who needed help in considering selling their annuity. This would have supported the Government’s proposals at the time to extend the pension freedoms to those who have already purchased an annuity. The Government decided in October 2016 not to proceed with this proposal because of concerns around consumer detriment.

The new body the Government propose to create in this Bill will inherit the guidance guarantee that Pension Wise provided but will also be able to help with guidance on any pension matters. Therefore, this amendment is not needed. I am particularly grateful to the noble Lord, Lord McKenzie; we entirely agree with the Opposition’s view of these proposals, which would allow those who have already purchased an annuity to sell the income they receive for a lump sum. Following extensive engagement with industry, consumer groups and financial regulators, the Government decided they would not continue with these proposals. Indeed, through discussions with stakeholders it had become clear that, while many annuity providers were willing to allow customers to sell their annuities, it is likely that there would be insufficient buyers to create a competitive market.

In September 2016, Money Observer reported a survey of 10 annuity providers, in which only one firm said it would purchase annuities issued by others and six ruled themselves out. This corresponded with government findings of a lack of interest from potential purchasers of annuities. This could have led to consumers receiving poor value for their annuity income streams and suffering higher costs in the sales process. The Government estimated that only 5% of annuity holders would have opted to sell their annuity and, although some people have been disappointed, consumer protection is a top priority for the Government. As the noble Lord, Lord McKenzie, said, priorities have to be thought through and this was not considered a key priority. Although some people have been disappointed, it would not be acceptable to allow a market to develop that could produce poor outcomes for consumers. I therefore encourage my noble friend Lady Altmann to withdraw her amendment.

[Baroness Altmann]

My Lords, I thank my noble friend for her response and thank the noble Baroness, Lady Kramer, for her support. This is about consumer protection. Of course, I respect the Government’s decision not to approve a secondary annuities market at this point. However, that does not address the fact that there are people out there with annuities worth £10,000 or less who are able to sell them, whether or not there is a market. They are particularly at risk, presumably, of obtaining very poor value. It is not clear to me why we need explicitly to undo legislation that is already in place to ensure that the financial guidance body can at least help people who might want to sell an annuity understand what the risks are. If the new body no longer has any requirement to inform or guide people on this issue, we still leave those consumers high and dry. As the legislation is already in place, it seems rather strange that the Government explicitly want to repeal it. They could just leave it on the statute book and make sure that there is adequate information as part of the new pensions guidance framework.

[Baroness Buscombe]

My noble friend referenced the possibility of making the legislation redundant in some way. With respect, that is very problematic. The Government have made it clear that they do not believe it makes sense to mandate guidance on a market that no longer exists, and that therefore it is far better to revoke the legislation. However, the broad remit of pensions and money guidance gives the body the option of guidance on this if it is appropriate.

[Baroness Altmann]

I thank my noble friend. The legislation says that Pension Wise should enable pensioners who are able to sell their annuity income to access free impartial guidance, and some can do so. However, I am reassured to hear that the new pensions guidance body will still be able to carry and promote information and guidance for the public on this matter. I beg leave to withdraw my amendment.

Amendment 69 withdrawn.