Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

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.

[Baroness Coussins (CB)]

My Lords, I very much welcome the proposal at the heart of the amendment, and indeed the very similar idea of the breathing space on which the Treasury announced its consultation last week. At this stage I have just one question on which I seek clarification from both the noble Lord, Lord Stevenson, and the Minister. I remind the House of my interest as president of the Money Advice Trust. In my view, it is essential that any breathing space scheme covers public sector creditors as well as lenders in the private sector. The noble Lord, Lord Sharkey, touched on this point.

Debts to public bodies are an increasing feature of the UK’s personal debt landscape. The Money Advice Trust, for example, reports that 25% of callers to its national debtline service had council tax arrears last year, up from just 14% a decade ago. Calls about benefit overpayments and other public sector debts have also increased, and so too has scrutiny of the debt collection practices of these public sector organisations. So for any new debt respite or breathing space scheme to be truly effective, it must provide breathing space from all creditors, including local councils, the DWP and HMRC in particular, so as to give people the time they need to seek advice and tackle their debt problems. I would be most grateful if the noble Lord, Lord Stevenson, confirmed that the intention behind his amendment is to include public sector creditors, and if the Minister said whether she expects public sector creditors to be included in the Treasury plans.

--- Later in debate ---

[Baroness Altmann]

My Lords, I have added my name to this very important amendment. Of course, I welcome this very important Bill. Providing guidance for consumers is absolutely vital, and I congratulate the Government on bringing forward the Bill. However, the intention of this amendment is to make it work better for the public.

I support this amendment wholeheartedly as it would be a major step forward in ensuring that the pension freedoms work better for the public. As the noble Lord, Lord Sharkey, rightly said, too few people are making use of the excellent Pension Wise service, which was set up to help them make well-informed decisions about their pensions. Indeed, when the Government announced the new pension rules, they rightly recognised that the public were not well equipped to understand the important features of their pension savings and the new landscape that would allow them to make the best use of this excellent new policy, so they also announced what they referred to as the guidance guarantee to ensure that everyone could have free impartial support before making decisions about their defined contribution pensions.

Pension Wise has consistently high satisfaction ratings of 90% or more, as the noble Lord has already mentioned, but the majority of people are at risk of poor outcomes and a worse quality of life in retirement than they could otherwise enjoy because they do not get the guidance. So far, pension providers have been left to encourage people to use the guidance by sending a Pension Wise leaflet with all their so-called wake-up packs. These are sent to a customer about six months before their previously chosen pension age. Providers have to mention that Pension Wise is available, but clearly the message is not getting through. Pension Wise is merely presented as an option for customers rather than what it needs to be: a normal part of the pension access process. Too often, the public do not read the materials they are sent or are encouraged also to call the providers’ own hotlines. Once they have done that, people often feel they have already had free help and, even if they do not realise that it is not unbiased or impartial and may not have explained all the issues they need to consider, they do not go on to Pension Wise.

As we are automatically enrolling people into pensions, I believe it is also right to consider automatically encouraging the use of free guidance to help people before they make these irreversible decisions. The two should go hand in hand. Creating the new single financial guidance body, which is warmly welcomed on all sides of the House, could be an excellent opportunity to deliver a new approach to guidance designed to make using the Pension Wise successor body the expected norm. That is what this amendment attempts to achieve, with people automatically being told that they have an appointment waiting for them, perhaps a voucher of some kind that gives them the time of a telephone appointment that has already been made for them but also makes it clear that they can change this if they prefer a different time or have a face-to-face appointment, if they would like.

An ILC-UK survey of consumers found that only half of defined contribution pension customers thought they understood quite well or very well what an annuity is, and that a shockingly low 3% said this about draw -down. Another study by the Pensions and Lifetime Savings Association found that just over half of pension-age customers wrongly thought that draw-down products offer them a guaranteed retirement income, and about a quarter thought that draw-down carried no investment risk at all. Given such findings, it is surely clear that we urgently need better regulatory requirements to help non-advised customers to receive the guidance and fulfil much better the absolutely appropriate promise of this guidance guarantee. The lack of safeguards for pensions seems out of proportion to the known risks of consumer detriment. Research from Just Group, which has also been pushing for this amendment, suggests that defined contribution pension customers aged over 55 who had Pension Wise guidance believe that the investment of time in seeking such guidance was worth while, with 90% saying that all customers should use it.

This amendment would allow the use of similar principles to auto-enrolment and would help to overcome the inertia and lack of engagement with the complexity of pensions. By arranging or directing customers to free guidance rather than just mentioning it to them, take-up is likely to be much higher. Such auto-enrolment into guidance can be organised in a number of ways. However, the current guidance service management with whom I have liaised has already suggested to me that it believes that providers could book appointments for customers who call up with a request to transfer money from their pension or take some money out of it. I point out to noble Lords that guidance for some transfers is important, not just for when people take money out, because the customer could be helped to avoid falling for a scam scheme. Pension Wise has already managed to stop some customers from losing their pension when they responded to a cold call that was urging them to transfer rapidly out of a good scheme to a scam one.

To ensure that people have a guidance session before they engage with their provider about the possible options for their pension is more likely to result in them not taking out money yet, which the provider may not tell them about, or realising that there are many reasons to keep the money in pensions, such as not being taxed or losing the tax benefits of pensions. Of course, financial advisers can help here, but for those who do not have such independent advice the free guidance service is important. I hope that the Government will accept these sensible ideas, which have wide support from across the House, and which would be a major step forward for consumer protection in pensions.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we should be grateful to the noble Lord, Lord Kirkwood, for moving the amendment on behalf of the noble Baroness, Lady Meacher. If I understand the points he made it looks as though this will be another issue for us to consider on Third Reading, so I do not propose to dwell on it extensively. If that is not the case it will be good if the Minister tells us.

The thrust of the amendment is to try to get interim rules in place to put a cap on the charges levied, particularly relating to PPI as the ability to claim is coming to the end of its natural life. The noble Lord raised an interesting point on what the remedy would be when people exceed the cap. Will the Minister confirm that the route would be that the excess is recoverable by the claimant, rather than some other more direct remedy? I look forward to his reply.

[Baroness Altmann]

My Lords, I thank the noble Lord, Lord Kirkwood, for moving the amendment on behalf of the noble Baroness, Lady Meacher. I ask the Minister whether we have considered the issue, supported by a number of consumer groups, that I raised in Committee requiring a company that has been found to need to pay out on a claim to pay the claims management fee, rather than taking it out of the compensation. That should perhaps be more acceptable with a cap, but also more effective for those who receive compensation, as well as encouraging companies that have mis-sold something or perpetrated harm to the consumer to voluntarily contact consumers who have been harmed, rather than waiting for a claims management firm to do so on their behalf, thus saving them the extra cost of the claims management fee.

[Lord Young of Cookham]

My Lords, I join the noble Lord, Lord McKenzie, in thanking the noble Lord, Lord Kirkwood, for moving the amendment in the absence of the noble Baroness, Lady Meacher. We are sorry that she had to leave for family reasons. I again pay tribute to the work she has put into this amendment. She has pursued it with diligence.

The amendment seeks to put in place a fee cap from two months after Royal Assent until the FCA implements its own cap. We debated this in Committee. I am grateful to noble Lords who contributed to this debate for highlighting it again.

Clause 17 already makes great strides to secure fair and proportionate prices for consumers by giving the FCA a duty to cap fees charged for financial services claims. However, as a number of noble Lords pointed out in Committee, the implementation of a new regulatory regime and an effective, robust cap will necessarily take some time, during which consumers could continue to be charged disproportionate fees. In that debate, noble Lords expressed concerns that the FCA’s PPI claims deadline may have passed by the time its fee cap is in place. That point was made by the noble Lord, Lord McKenzie. We already know that 90% of financial services claims relate to PPI and therefore we want to ensure that consumers are protected against excessive fees for PPI claims as soon as possible. That is why, as the noble Lord, Lord Kirkwood, anticipated with commendable foresight, the Government intend to table an amendment at Third Reading to introduce an interim fee cap in respect of PPI claims management services.

The amendment will set a fee cap at 20%, excluding VAT, of the claim value and will be enforced by relevant regulators on commencement two months after the Bill receives Royal Assent. The Claims Management Regulation Unit consulted on a 15% cap. The data that it collected on the costs to CMCs of processing claims and market analysis of profit margins resulted in proposals to introduce a 20% excluding VAT cap on claims management services. The amendment supports the Government’s aim of ensuring that the claims management sector works in the interests of consumers by protecting them from excessive fees.

The amendment tabled by the noble Baroness, Lady Meacher, and moved by the noble Lord, Lord Kirkwood, would go some way towards ensuring that consumers are protected during this interim period. However, the government amendment will go further in two key areas. First, it will have a wider application than the amendment tabled by the noble Baroness. The interim fee cap will apply to both CMCs and legal services providers that carry out claims management services in relation to PPI claims, to be enforced by the relevant regulators.

Secondly, it will include in primary legislation a prohibition against charging more than 20% of the claim value for PPI claims, which will enable the regulators to implement the cap quickly. As I said a moment ago, this level was reached using the helpful and comprehensive responses to the Ministry of Justice’s consultation on proposals to introduce a fee-capping regime for CMCs handling financial services claims.

On the procedure for claiming any excesses imposed over the cap, anyone in breach of the interim fee cap will be subject to regulatory enforcement, which could include fines. Furthermore, a contract to receive or pay a sum in excess of the fee cap would be unenforceable, thereby ensuring that firms cannot profit from their malpractice and that consumers are entitled to recover excessive fees.

My noble friend Lady Altmann raised a question about compensation. As we will revert to this issue at Third Reading, perhaps we could deal with it then.

I make it clear that the interim cap is intended to be a temporary measure and, as such, will apply only until the FCA has implemented its new rules under Clause 17. It will also apply only to PPI claims, whereas the FCA’s cap will apply to all claims relating to financial products and services. We remain of the view that the FCA, as the incoming regulator, will be well placed to develop its own cap, or caps, based on an assessment of the market. Given the Government’s undertaking to table an amendment on this matter at Third Reading, I hope that the noble Lord will feel able to withdraw the amendment.

--- Later in debate ---

The Minister has told us that we will receive the Government’s response to the Select Committee report before Third Reading. Are there any pearls that might be shared with us today, given the strong recommendations that it makes around duty of care?

[Baroness Altmann]

My Lords, I congratulate my noble friend Lord Holmes on persisting with the amendment. I support the need to make sure that regulated firms have this duty of care, especially in circumstances such as the diagnosis of cancer and other illnesses, from which people can recover but for which they need particular care during that period. While the Bill is going through the House, it would be excellent for the market if we were able to introduce measures of this nature, but I also look forward to hearing from my noble friend and seeing the Government’s response before Third Reading.

[Lord Young of Cookham]

My Lords, I am grateful to my noble friend Lord Holmes for moving the amendment. He mentioned that he was a member of my flock. He displays exactly the right independence of thought tempered by loyalty to the party that any Whip could wish for. I am grateful to the noble Baroness, Lady Kramer, the noble Lord, Lord McKenzie, and my noble friend Lady Altmann for speaking to the amendment, which seeks to ensure that the FCA adheres to a set of regulatory principles in relation to acting in the best interest of consumers and managing conflicts of interest fairly. Noble Lords also raised the broader issue of duty of care, which is not mentioned specifically in the amendment but is obviously relevant. As noble Lords may remember, my noble friend tabled a similar amendment in Committee.

Aside from the provisions in general consumer law, the FCA already applies rules on firms conducting regulated activities in relation to their dealings with consumers. First, the FCA’s rules set out in Principles for Businesses require firms to conduct their business,

“with due skill, care and diligence”,

and to,

“pay due regard to the interests of … customers and treat them fairly”.

Principle 8 sets out:

“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.


That accurately mirrors proposed new subsection 1(b) in the amendment, so there is a congruity of objective there.

Secondly, the rules on clients’ best interests require a firm to act in its client’s best interests across most regulated activities. The client’s best interests rule states:

“A firm must act honestly, fairly and professionally in accordance with the best interests of its client”.


Again, those are exactly the words used in my noble friend’s amendment, so there is no disagreement over objective.

Thirdly and finally, a number of FCA rules contain an obligation on firms to take “reasonable care” for certain activities. For example, one of the Insurance: Conduct of Business rules states:

“A firm must take reasonable care to ensure the suitability of its advice for any customer who is entitled to rely upon its judgment”.


Those rules in the FCA Handbook are supplemented by more specific rules in various FCA sourcebooks. The FCA will be able to apply its existing Principles for Businesses, which I have just quoted, to claims management companies and to make any other sector-specific rules that may be necessary, under its existing objectives. The FCA supervises against these rules and other provisions and, where necessary, can take enforcement action against firms to secure appropriate consumer protection.

The FCA is of the view that its current regulatory toolkit is sufficient to enable it to fulfil its consumer protection objective. The FCA will consider the precise rules that apply to claims management services and how they fit together as an overall regime. In doing this, the FCA will take into account its statutory operational objectives, including its objective of securing an appropriate degree of protection for consumers. It will also consult publicly on its proposed rules.

Turning to the broader issue of duty of care, the noble Lord, Lord McKenzie, asked whether there were any pearls. I think the oyster is still at work so the pearls are not available for display this evening. The words “duty of care” mean different things to different people and the precise scope and content of any proposed duty of care are uncertain. The impact of a duty of care obligation needs to be fully considered, as do the cost, complexity and time that might be involved in customers seeking to bring firms to court as a result of a duty of care obligation.

I was asked to say something about the timescale of the work on this. A duty of care could have an effect on many of the FCA’s provisions in its handbook, including the need to replace or remove some. The FCA intends to undertake a comprehensive review of the handbook post Brexit. The FCA believes that it would be best to include duty of care in that review, particularly as the FCA’s ability to change its rules in some areas will depend on the relationship between the EU and UK post withdrawal. Many of the FCA’s current rules are based on EU legislation. Once the relationship between the EU and the UK following withdrawal is clear, there will be more clarity around the degree of discretion that the FCA has to amend its rules.

In addition, the FCA is currently identifying the necessary changes to its rules to ensure that they continue to operate as a coherent set of rules following EU withdrawal. This work is being done in parallel with the work across government to review directly applicable EU legislation. It is a significant, complex and time-critical exercise that must be progressed immediately. If noble Lords have any concerns about the timing of the discussion paper, that is primarily a matter for the FCA.

Returning to the amendment, it is not necessary to include regulatory principles in the Bill because of the provisions the FCA already has. For that reason, I would request—or suggest—to my noble friend Lord Holmes that he withdraw his amendment.

--- Later in debate ---

I hope that the Minister’s promise remains open. It would be extremely disappointing and very odd if it were now to be withdrawn. If the Minister intends to withdraw this timely and welcome promise, I hope she will tell the House why, and explain why a problem she saw clearly as requiring urgent action last Tuesday no longer requires it this Tuesday. It really is hard to see how this would make any sense, or be seen as fair or reasonable. The Minister could of course accept the amendment before us as a way of doing by other means what she promised last Tuesday. But one way or the other, it is time that we put a speedy and definitive end to these flagrant and damaging abuses. I beg to move.

[Baroness Altmann]

My Lords, briefly, I support this amendment as well. Cold calling and other unsolicited approaches are a growing nuisance. I have not come across a group pushing to stop the Government from banning these cold calls. Direct marketing to people’s home phones or personal mobiles surely has no place in modern business practice. Leaving responsibility for a ban to Ofcom and the ICO is simply not an effective strategy. It clearly is not working.

The measures in Amendment 42, which has been deliberately and carefully crafted by the noble Lord, Lord Sharkey, supported by the noble Earl, Lord Kinnoull, are designed to prevent the cold calls rather than trying to catch cold callers afterwards, once they have already plagued the public. If firms engage in unsolicited approaches to encourage consumers to make claims which may or may not be valid, using the data thereby obtained would also be an offence. We could finally tell the public that any people who call them out of the blue, or contact them in some unsolicited way, are breaking the law; they should therefore not engage with them.

This provision would not stop claims management companies advertising broadly to offer claims management services, but it would help to stop the speculative nuisance calls, texts or emails which are plaguing millions of British people so frequently. The crucial additional power would be the role of the FCA. Using the regulator and forcing firms to demonstrate, if challenged, that they have not obtained business as a result of leads from cold calls would then mean that they would be at risk of losing their licence. It would be a much more effective strategy to stop the cold calls in the first place. I welcomed my noble friend Lady Buscombe’s words during our previous day on Report, which promised that there would indeed be some action from the Government in another place. I hope that we will get broad reassurance on those points in tonight’s debate.

[The Earl of Kinnoull]

My Lords, I will be very brief indeed, as we have heard two very clear and good speeches from the noble Lord, Lord Sharkey, and the noble Baroness, Lady Altmann. The first point I made at Second Reading was on the importance of maintaining access to justice for our citizens. The point I make now is that I see nothing in Amendment 42 which in any way fetters access to justice. I see only good features of it, and I very much hope that we will hear good news from the Government in due course.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

Report: 1st sitting: House of Lords
Tuesday 24th October 2017 Lords Chamber

[Baroness Kramer]

My Lords, I congratulate the noble Baroness, Lady Drake, on such an extraordinarily comprehensive but succinct speech framing the future structure of the kind of pensions dashboard that I think everybody in this House feels consumers deserve. I also congratulate the Government on their willingness now to step forward and take ownership of this process. As the noble Baroness, Lady Drake, said, the two key underlying issues that will be crucial to the public are protection of data—the whole issue of access to data—and quality guidance to enable them to make use of the information that comes to them through that dashboard as they try and structure their future financial circumstances.

I assure the House that although very often we on this side will try to write an amendment that we think is comprehensive and will basically create the legal framework we want the Government to follow, there are times—this is one of them—when we recognise that the need for development and the underlying complexity of the issue mean that the far better route is government ownership of the policy and the project to take it forward. The Minister will know from having listened to the noble Baroness, Lady Drake, and others in the House that we will always be here with scrutiny and with recommendations to the Government, but it will be exciting to see the process that they now put in place to make sure that this goes from merely a possibility enabled by technology to a very real service for consumers in this country.

[Baroness Altmann (Con)]

My Lords, I too congratulate the Government on their decision to host the pensions dashboard and to put in place the necessary measures for the dashboard to be held in one place. I congratulate the noble Baroness, Lady Drake, on her persistence and her excellent description of why it is so important that this measure is implemented in the manner she set out.

The public need a single dashboard. If individual private sector organisations each released their own dashboard, it would be too confusing for the public. One thing that will certainly assist in any dashboard is standardised statements, required perhaps by the FCA and the Pensions Regulator, whereby anyone who receives a statement about what pension they have—what terms it has and so on—has to be given a piece of paper. Sometimes called a pensions passport—although it does not matter what it is called—this will be a standardised, simple statement that tells people in one place what they have and clearly explains the kind of terms that the pension has, its value and any special features. Sadly, too often, the private sector has not been able to achieve that. Very often the statements that people get are almost unintelligible. They are sometimes far too long and use different language for the same type of pension, so that people struggle. I support this amendment and congratulate the Government and the noble Baroness.

[Lord McKenzie of Luton]

My Lords, I too thank the Government for the announcement that the dashboard is to be taken forward and acknowledge the role that has been played by several Members of your Lordships’ House, particularly my noble friend Lady Drake, who with her impeccable logic and powers of persuasion has really led the charge on this. I also acknowledge the noble Baroness, Lady Altmann, who has long campaigned on this issue.

We know that the delivery of the dashboard will be a huge challenge, but it is an opportunity for individuals to see all their savings and pensions in one place, including the state pension. As my noble friend Lady Drake said, the key fact is that it is a single, public service dashboard, so that individuals who use it can have confidence that there will not be a conflict of interest between those seeking to use information and data to sell products and those who are genuinely attempting to help people to understand the pension pots that they have. The data shows that over their lifetime people could change their jobs 11 times. I am not sure how current that is, but 11 changes of jobs could mean as many as 11 pension pots. We know the challenges of small pension pots and how difficult it is for people to access those—they forget where they are. It is particularly an issue for women.

Hearing that the dashboard is to be taken forward makes this a good day. There is lots of hard work to do, and there are many governance issues for your Lordships’ House and others to keep an eye on as it gets developed.

--- Later in debate ---

[Baroness Kramer]

My Lords, we on these Benches would gladly have added our names to this amendment but the list was full, which is always good news, particularly when the inspiration and leadership come from the Cross Benches. I just want to make it clear that we are very supportive of the amendment.

I also want to add one comment. I know that sometimes the use of the term “vulnerable” is challenged but, as I know from dealing with legislation in the other place, although that was quite some time ago, there is a long and very established history of using the term “vulnerable”, certainly at least—although, I am sure, not limited to—among the utilities, which obviously have to recognise and identify all kinds of vulnerable customers for a whole range of purposes. It allows what I would call reasonable common sense to apply in identifying the full scope of people who are vulnerable. Some of the examples that we have had today have been around mental capacity issues and learning difficulties, but it seems to me that nothing in the many historical ways in which this term has been used in legislation previously would limit it or prevent it, for example, applying to care leavers or, in terms of financial education, to younger children and to the broader group that we are discussing.

Therefore, I hope that the Minister will accept that there is a well-tried, true and well-trodden path setting out how we identify vulnerable people. The term is frequently used to tackle a variety of needs and there is plenty of legislative precedent that makes this a very effective amendment.

[Baroness Altmann]

My Lords, I add my support for the amendment and congratulate the Cross Benches and the noble Lord, Lord McKenzie, on tabling it. In a way, it is very sad that the financial services industry is not making more effort to look after vulnerable customers or indeed to present materials in the ways that the noble Baroness described. I think that doing so pictorially could help everybody. So far, financial services are all about dense words and jargon that people struggle to understand.

This body is due to be financed by the industry and the industry has perhaps not always taken enough care. One hears stories from cancer charities where somebody would call up their bank and say, “Look, I am going through some treatment. Is there any chance I could either have a loan or some respite from repayments?”. It simply is not on their agenda to help people in that way, even when people approach them and explain their vulnerability and their circumstances. So it is right that this body should introduce some measures that are designed particularly for vulnerable customers and, indeed, change the narrative and the language used to explain finance, educate people and inform them about finance, in ways that the industry seems not yet to have been able to do.

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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

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.

--- Later in debate ---

[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.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

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

The need for collaboration has been the basis on which we have made progress in this area, along with the requirement to look carefully at how we operate in Scotland, Wales and Northern Ireland to ensure that we get the best out of the system for the good of the whole. I beg to move.

[Baroness Altmann (Con)]

My Lords, I support the amendments. As a passenger behind my noble pilots, I thank the Minister for the helpful letter she sent to me about the issue of guidance versus advice. As the noble Lord, Lord Stevenson, rightly said, we seem to be back to this old chestnut, and I am very pleased that he has tabled his amendment. Perhaps my noble friend has rather missed the point in so far as there is an important element of confusion among the public, which will extend over into the new body if we choose not to address it in the Bill, over what constitutes guidance and what constitutes advice, particularly in the context of debt. This also goes to the point made by the noble Baroness, Lady Kramer, about gaps as far as FCA coverage is concerned.

This financial guidance body is meant to offer holistic services—the point of Amendment 34 is, rightly, to suggest that if someone needs one element of the financial guidance body, they should be able to be passed straight to another to help them with their particular issues—but the new body sits in the middle of the confusion between the word “advice” and the word “guidance” as they apply elsewhere. In particular, the FCA, the department and the Government have not recognised that the existence of auto-enrolment fundamentally changes the position of individuals when they approach the new body. If someone needs advice on their debt, as defined in the current FCA regulations, it is impossible to take account of whether they should or should not opt out of a workplace pension. That is really important in helping people improve their financial circumstances and deal with their financial position.

I beg my noble friends on the Front Bench to take this opportunity to explore once again the issue of guidance versus advice from the point of view of individuals who need to use the service. It will be important for the new body to help people understand what service they will be getting when they come for help, but it is also important that whoever is helping the public has the best possible chance of ensuring that they will understand what is going on. If someone is trying to reschedule their debts and work out a repayment plan, which would be called debt advice, they may ask what they should do about their pension, but the person they are speaking to cannot tell them. That person can send them back to the pensions section, but they also cannot tell them whether to opt out, they will tell them that they need advice, and the person will say, “I have just had advice on my debts”, but they will say, “No, that is different from advice on your pension”. Over time, this will keep coming back and confuse the public.

I support Amendments 33 and 34, and think that we need to consider the matter in a wider context. I support the idea in Amendment 36 that we need to work collaboratively. The service must work with the financial services industry, charities and the voluntary sector. Perhaps we should also consider asking the new body to work with employers. The more one considers the situation around the country, the more one sees that the workplace could be an ideal conduit to promote the service, not only to deliver financial education and debt management, in some cases, but to signpost people to the new service.

I am struck by some further figures which, if I may, I add to the debate this evening: 17 million working-age Britons have less than £100 in savings; debt has risen by 25% since 2014; 33% of employees say that debt worries impact on their work—so employers clearly have an interest in helping. Those figures come from a company called SalaryFinance, which helps employees consolidate and manage their debt more cheaply and is making strides as a social business working with employers. Finally, the Money and Mental Health Policy Institute states that people with debt problems are twice as likely to suffer from a major depression. Employers could well make good use of this financial guidance body and perhaps incorporate it into workplace intranets. For the self-employed, we could work with other networks and organisations to ensure that this body is promoted. That takes us back to Amendment 27A, tabled by the noble Lord, Lord Sharkey, to encourage people to use the service rather than just to ensure that it is available.

I support the amendments and hope that the Government will consider them carefully.

--- Later in debate ---

[Baroness Buscombe]

I am very grateful to the noble Lord, who has mitigated the situation. Even so, it is very last-minute, and let us put the blame at my door as the Minister responsible. It is important that we try to address this to the best of our ability.

I can assure all noble Lords that we have spent a considerable amount of time this summer, when perhaps I should have been on the beach, discussing this issue with different people in the industry along with MAS and TPAS. What I hear from consumers and those involved on a day-to-day basis is a very different tale from what I hear from noble Lords this evening. The public have the ability to understand the difference between advice and guidance, but we need to convince noble Lords of that—I appreciate that.

I thank noble Lords for the opportunity to clarify the important issues raised by these amendments. I begin by discussing Amendments 33 and 34, which concern guidance and advice; I will then move on to Amendments 36 and 37, which concern collaboration with the financial services industry and the devolved Administrations. Amendment 33 would add an objective for the body to ensure that at every stage of communicating with members of the public about its services, people are clear whether they are receiving guidance or advice. It will, of course, be important that members of the public are aware whether they are receiving financial guidance or financial advice. We discussed the distinction between guidance and advice in some depth in July, and I believe our conversation has highlighted the importance of clarity in this issue. Indeed, we have taken on board the points made by noble Lords, and I have had a number of meetings with officials, who have worked on a detailed information paper, which I hoped would be helpful.

In the meantime, I do not think that the amendment as drafted is appropriate or necessary. We fully appreciate the risk that members of the public may receive guidance, take it as advice and then go on to make financial decisions when they ought to seek further assistance. However, I can reassure noble Lords that there are already appropriate measures in place to mitigate that type of risk. In fact, I can quote the exact wording currently given to customers by the Pensions Advisory Service and Pension Wise on this matter. In the case of TPAS, clients who ring the helpline will hear a message telling them that it does not provide regulated financial advice and that its service provides generic information and personalised guidance on occupational and private pension-related matters.

As Michelle Cracknell, the chief executive of TPAS, said to me:

“We give a simple disclosure: ‘We cannot tell you what to do’”.


She also said that, as debt advice is defined as a regulated activity, it would be confusing to describe it as anything else in the Bill. She has made that point very strongly, as have others in the industry. When I was sitting with an incredibly experienced, thoughtful and helpful group of people working at TPAS, giving advice to people and working through their systems on the web and on the telephone, I was hugely impressed. They have not had one problem in 34 years with people being confused or complaining about thinking that they were receiving guidance when they were actually receiving advice. It has never been a problem. So we are getting a different story outside, with the user, and we must not underestimate the public, who have the ability to understand the difference between advice and guidance. The whole purpose of this body is to provide a more seamless customer journey so that people can obtain guidance and advice without there being a problem.

[Baroness Altmann]

I apologise to my noble friend for intervening, but this is a really important issue. The points she makes are absolutely correct and I do not disagree with them—and nor, I think, would noble Lords around the House—but they are beside the point. When we have a new body it is designed to be holistic. At the moment, Pension Wise deals with pensions, so people will not be confused, and the Money Advice Service, or debt advice, deals with debt. We are trying in this Bill, apparently, to bring everything under one roof. The big change that will not have been relevant over the past 30 years or so, is with auto-enrolment, when people come to the new, holistic single body with a debt problem and need someone to help them with their pension, but the person trying to rescale their debts cannot take that into account. It may well be that we have alighted on a problem that extends to the FCA and the regulatory system—that perhaps the FCA is not concerned enough, in the new environment whereby next year or the year after any worker earning more than £10,000 a year will be in a workplace pension, and debt advice needs to be able to consider the question of whether that person should opt out of the workplace pension. Currently, it cannot do so. It could do, but at the moment there is this regulatory hole.

[Baroness Buscombe]

I thank my noble friend for her intervention. Perhaps I am not making it clear that it is not necessarily one person who will be able to give guidance and advice in one session. The point, notwithstanding that it is becoming one body, is that we do not expect a situation in which someone receives all that information from one individual. When someone is in problem debt, for example, and worried about bailiffs, the initial outcome of the debt advice session has to be on stabilising the situation. That may be followed with more in-depth support to understand the root causes of the debt problem and how to address them. It may involve bringing in people who have different types of expertise, depending on the person’s needs. We do not expect that because it is one body—bringing three bodies together—it will necessarily be the same person in one session who gives advice and guidance. As I have learned this summer through visiting these bodies, different people have different kinds of expertise. We want it to be as seamless as possible and provide a more seamless customer journey, but it will not be perfect, given that advice is regulated and guidance is not. However, as there is time pressure on your Lordships’ House, I shall take this issue away and talk again with my noble friend, and the noble Lord, Lord Stevenson, and others to see if we can find a solution to it.

As I was saying, in my experience of talking to those dealing with this matter on a day-to-day basis, they have every expectation that the new body will be able to cope perfectly well with the definitions as they are. As noble Lords will see from the note that we sent out this morning, there could be some serious confusion and regulatory issues if we changed definitions, so we have to take that into account as well. So it is a tough one.

These processes are robust, and we will ensure to the best of our ability that they are carried forward to the equivalent services offered by the new body. In fact, as I said, the Pensions Advisory Service has not received a complaint from a customer that he or she has received regulated advice. We have to make sure that processes are in place to protect consumers who might take guidance for advice in this new body. Those objectives are not specific requirements to do X, Y or Z, but broad, overarching principles and aims to which the body must have regard while exercising its functions. The objectives guide the body in the exercise of its functions; they should not provide a to-do list for the body.

Amendment 34 would alter the wording of the Bill to add a new objective that would require the new body to signpost appropriately to each of the body’s functions if people need multiple kinds of help. As I have said, the Government agree with the intent behind this amendment. We recognise that members of the public will have overlapping issues which require a mix of advice and guidance relating to debt, money and pensions. The body will be well placed to deliver this seamless service, including through warm handovers and signposting to the different functions it offers. This will be central to ensuring that members of the public receive the personalised, holistic support they need. It is important to remember that one of the key aims of bringing together the functions of the Money Advice Service, the Pensions Advisory Service, and Pension Wise is to improve the co-ordination of these services.

However, while we agree with the sentiment of the amendment, I do not think that it is required. I have already explained the purpose of the statutory objectives and we expect the body to signpost members of the public to the most appropriate source of help in order to provide a joined-up and holistic service. Having met some of these wonderfully skilled people who have many years of experience in the financial services industry and already operate in this sphere, I can only assume—because of their brilliant expertise and the way that they handle the public and the advice and guidance that they are able to offer—that they will achieve this. The current objectives enable the body to do just that. Indeed, for the reasons given, I believe that Amendment 34 is, with respect, rather narrow and inappropriate to include within the broader objectives specified within the primary legislation.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

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

Moved by

[Baroness Altmann]

4: Clause 2, page 2, line 11, leave out “advice” and insert “counselling”

[Baroness Altmann (Con)]

My Lords, this amendment goes to the heart of the consumer experience of what we are trying to do in the Bill. The single financial guidance body aims to provide holistic help, guidance, information and education to the public on their financial issues. The public are understandably often confused about what constitutes help, guidance, information and education versus what is called “advice” in a regulated sense. There is confusion at the regulatory level about the word “advice”, which itself has fed through into the wording of the Bill.

I respectfully request that my noble friend the Minister carefully considers the perspective of the person coming to this single financial guidance body and expecting to receive a holistic service that will cover their financial circumstances, in particular the circumstances of somebody who has significant debts and is looking for assistance in managing those debts in the best way for them. In the past, without auto-enrolment, the issue would have much easier, which may be why we are in this position, because there would have been no expectation that somebody in significant debt could also be contributing to a pension scheme, and increasingly, that is likely to be the case. The Bill is very clear that when it comes to pensions, money and other finances, this body will only give guidance, but when it comes to debt the word used is advice, because that is the word that has been used always in the past.

I have been trying to understand the customer experience of someone who will be coming to this body. I am informed that if that person has large debts, and goes for what is called in this Bill “debt advice”, the adviser will not be able to advise them on whether or not they should opt out of their auto-enrolment workplace pension scheme. Naturally, they would want to know that, but they cannot have a recommendation from this service, even though it is called an advice service. The only advice they can get is restricted and narrowly focused on what to do about the debt. We immediately have a potential confusion set up for the customer. We have an opportunity in the Bill to start to remedy this, but so far we have not.

There are two important points. First, advisers at the Citizens Advice money advice service have told me that the words “debt advice” are often off-putting for those who are in debt. They do not like terms such as “advice” or “financial advice” for some reason. Furthermore, the regulated activity is actually called “counselling”, and the definition that the regulator uses for “debt counselling” says that it involves the several elements, including advice given,

“to a borrower about the liquidation of a debt due under a credit agreement”.

It is clearly narrowly focused on that. The regulatory instructions in the manual about debt counselling spend quite some time trying to unpick what would constitute advice and what would not, but in each case what would constitute advice is not what one would consider to be independent financial advice on someone’s whole financial circumstances. We are supposed to be setting up a holistic guidance body. I am entirely supportive of the aims of the Bill and am not trying in any way to undermine them—they are right. What I am asking noble Lords to consider is whether we can take this opportunity to change the wording in the Bill which says “debt advice” and to use “debt counselling” instead. From what I am told by the advisers, that would be better received by those who need help. It would also be less misleading to those who might think that somebody can help them with the pension decision when this is not the case. I beg to move.

[Viscount Brookeborough (CB)]

My Lords, I support this amendment. I was on the ad hoc Select Committee on Financial Exclusion, which produced the report Tackling Financial Exclusion: A Country that Works for Everyone. We spent a whole Session on it and we covered all these points. I suggest that those who have not looked at the report should do so, not only because I was on the committee but because it is quite concise. We went to places like Toynbee Hall and we saw people who were affected.

If I ask you for your advice, you can just tell me to do this and that, which is the point the noble Baroness is making. Advice may not be helpful, whereas counselling is a two-way thing. To invite people to counselling is not to invite them to take your advice—it is to invite them to discuss what they are willing to find out, and to give them options. It is not speaking to them, it is discussing and talking things through with them.

The word “debt”, which has been mentioned, is not always helpful. Debt is almost considered a crime, but it is not. In fact, very often government institutions and regulations cause people to go into debt—so in many cases the debt is not even their own fault. We must remember that the Bill is about people, the way they think and are approached, and we want to encourage them to take this counselling. We do not want to ask them why they are here and then say, “Here is my advice”. It should be about invitation and discussion. This is a very simple amendment and I support the change of words.

--- Later in debate ---

[Baroness Buscombe]

There is clearly an issue here. This question is being looked at, at the moment. As I explained before the noble Baroness, Lady Kramer, intervened, there is a consultation which covers a range of things, including how best to deliver debt advice and money guidance in a blended fashion, in line with the needs of the individual. This consultation has come about in recognition of the fact that there is no magic bullet at the moment for this issue. However, surely that should not prevent or preclude the creation of a body that will, to the best of its ability, signpost people in the right direction to receive the right guidance and advice as is appropriate.

I note what the noble Baroness, Lady Kramer, said about the name. I hoped that we had made it clear at Second Reading that the reason why we do not want to put the name of the body in the Bill is, unfortunately, we have every good reason to suspect that it could lead to other individuals holding themselves out and mimicking the body. It could lead to all kinds of problems if it was set up online as a spurious website, and so on. Call us cynical, but we have to be particularly cautious about that.

I am not convinced that politicians in Parliament are best placed to decide what the name should be. A lot of the terminology used within your Lordships’ House and beyond in our political lives, by those of us who are of a political leaning, no one understands. For example, when we talk about political wards, and so on, it sounds as though we are in a hospital. It is best left to the people who will be brought on board to run the single body to make those decisions and that that is done, therefore, through delegated legislation. On that basis, I hope my noble friend will withdraw her amendment.

[Baroness Altmann]

I thank my noble friend the Minister for her remarks and all noble Lords for their excellent contributions on these vital issues and for much of their support.

This debate gives a clear example of why these amendments are necessary. There is obviously immense confusion about what advice is, what guidance is, and how they work. If we are setting up one body, it is essential that we are able to have a holistic service. I reiterate that one of the issues at the heart of this, for me, is that the body needs to serve and think about people, not products. Currently, we have different bodies that are geared towards products, whether it is helping people with debt, pensions or other savings, or managing their money. However, we are setting up one body, which is being explained to the public as providing holistic help in one place.

If we continue to call this “debt advice”, I can imagine someone coming along to the body and saying, “Can you help me manage my debts?”, and the body saying, “Yes, go and get your debt advice”. The individual goes for the debt advice and then says, “I have got this workplace pension that I ought to enrol in, what do you think? Should I opt out or not?” The person giving the debt advice currently would have to say to them, “No, you need to get financial advice for that”, because that is what the other activity is called. The individual would say, “But I thought I was here for advice. You are giving me debt advice”. “Yes, I am giving you debt advice, but you need financial advice for the pension. I can only give you guidance on the pension”. So immediately it is not holistic and immediately the person is confused.

The official umbrella term for helping people with debt is “debt counselling”. Debt advice is a subset as a part of that. We have an opportunity now, when we are setting up a unified holistic body, to do something that is in the interests of the person who will come along with complicated circumstances. It would be a missed opportunity if we let this pass without clarifying it for ourselves and changing the words “debt advice” to something else. My noble friend mentioned that the Citizens Advice Bureau does not call it debt advice but “help with debt”. That is a clear indication that the people it serves do not like the term debt advice, which is what it has told me, too.

I accept completely and appreciate that my noble friend the Minister is looking at this and has spent time considering it, so I would ask her to please carry on doing so.

[Baroness Buscombe]

I am mindful of what my noble friend has said, and I hope that she is encouraged by my reference to the consultation that has been set up so that we can somehow overcome the issues around providing a truly seamless and holistic approach to giving people advice and guidance. We will think it through some more before Report, and I shall reflect on all that noble Lords have said. It has been very helpful to have this detailed debate.

[Baroness Altmann]

I thank my noble friend for those remarks and I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

--- Later in debate ---

It is a delicate balance. I have considerable sympathy with the protection that a debt breathing space system would provide, but a lot of risks also need to be taken into account. However, something should be done about all the very cheap loans that last for up to two years until suddenly the interest rate shoots up, perhaps from less than 1% to about 30%, because they are the cause of a lot of individuals’ problems.

[Baroness Altmann]

My Lords, I echo the wise words of my noble friend Lord Trenchard and certainly support the spirit of these amendments. It is right that we in the Committee should debate the concept of the single financial guidance body being able to help the Government in circumstances where the market is failing customers in a significant manner, such as has just been described. We all know that people are being enticed with teaser rates into debts that they are ultimately unlikely to be able to afford to repay. This is sometimes because salespeople are rewarded for the loans that they manage to get people to take on but do not necessarily stay around to worry about whether that debt is ultimately going to be repaid.

I also support the concept of banning cold calling. We will come to other amendments later on the claims management side. I would echo the concept in those on cold calling for pensions. The unsolicited approaches to people, enticing them to do things that are not in their interest, is a real problem. We would be wise to see whether we can find ways to address that while we are concerned with the financial circumstances of the general public in the context of the Bill.

[Lord Stevenson of Balmacara]

My Lords, we are not having much success with our amendments here on the other side. I had hoped that the climate of a Government not having a clear majority in either House and the general spirit of wanting to work together on improving things would allow them to put at least one change of wording into the Bill as it stands, if nothing else. But I see that the tyranny of the Bill is with us still, and that there is a determination in the serried ranks of those looking with stern faces from the sidelines to ensure that Ministers do not depart in a single way from the track by showing weakness. In fact, we think they would be strengthening the Bill by accepting some of our amendments.

At this moment, we are giving them two options for the breathing space. The very good amendment put down in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, is echoed by Amendment 41, which is in my name and that of the noble Earl, Lord Listowel, and the right reverend Prelate the Bishop of Newcastle, whom I thank very much for their support. There is a bit of a movement across the House whereby the time has come for a breathing space. I hope that the response to this amendment will be better than before.

As has been said—I said this on an earlier amendment—it would be much better if the Long Title of the Bill were such that it would take a real policy direction, and that the amendments were therefore not curtailed in the way that they are. We are having to seek that the body, as part of a strategic function, has generalised powers. Would we go as far as a Henry VIII power? I think that our arms could be twisted on that. As the Minister is aware, they have been offered on previous occasions; in debating the Digital Economy Bill, we were almost throwing Henry VIII powers at them. But they would not take them, the tyranny of the Bill being so strong.

Here is another option: there is no doubt that a scheme called breathing space has been working well in Scotland. It has done so now for nearly 10 years and been through three or four refinements. Some of the questions raised by the noble Viscount, Lord Trenchard, have therefore already been addressed there, and I do not think he would find it quite so bad. I know that the noble Viscount is shocked by having the curtain of secrecy torn down regarding what happens in the creditors’ dark rooms when they discover that they have unpayable debts. However, I can tell him that if a breathing space is built in, as it has been in Scotland, it is possible to get returns to creditors that are much nearer the full 100% which they seek. We may be talking about 60%, 70% or 80%. Indeed, in the Scottish system the debt arrangement scheme has a pretty good record of getting 90% or 95% back to the creditors.

The noble Viscount should not be too worried about small entrepreneurs and others, when this is not their province. We are talking about household bills, credit card companies, banks and, increasingly, the Inland Revenue—it has money to spare, has it not? We are talking about local authorities, store cards and utility companies. These are the bodies creating the conditions, not necessarily in any destructive sense, under which it is too easy for people to borrow beyond their means to repay. The spiral of debt moves very fast when they suddenly get into it and find themselves in a hopeless situation. In StepChange—I am sure it was true of the other debt advice organisations—our best day in the year for business, but our worst day because of what was happening, was 23 January. That is the day when the credit card bills come in for Christmas and at that point, reality sometimes sinks in and people realise that they are out of their depth. They cannot respond and that is when the panic calls start.

One theme that we have not addressed in the Bill so far, but which I want to nail now, is the real problem there is in getting people to engage with the services that are available. We can label or signpost them—we can do what we like—but getting people to move from the vague realisation that there is a problem to actually seeking help in a constructive way that will get them out of their debt is the hidden problem. As well as making sure that the bodies we set up through the Bill work with the sole purpose of making sure that the consumer or individual citizen is at the heart of what they do, we have to recognise that we are not doing it well at the moment and there is still a long way to go.

Research carried out when I was at StepChange showed, I think, that it took about a year from people’s first indication of problems with their debts to seeking a debt management plan and going ahead with one. It must therefore be right that we all make every effort we can to ensure that there are systems, bodies, organisations, structures, mechanisms and techniques that will get people on to a way that gets them out of the debt, because the damage is so great. The breathing space scheme works in Scotland, and it is not difficult to see how it could be adapted to work in England. At the moment, there is no statutory scheme. We are talking about a breathing space period where interests, charges and collection activities are postponed without a requirement to make payments. That would give people time to seek advice and stabilise their finances enough for their debt adviser to recommend how to get out of it.

There is another thing about debt advice. I meant to make this point on an earlier amendment, and I apologise for getting carried away by what we were trying to do when we were discussing names. The physical product of most debt advice that is being exchanged in return for people’s engagement is a budget, which most people do not have. I am guilty of this, and most people in the Chamber probably are as well, as I do not have absolute certainty about where every penny of the very limited number of pennies I have under my direct control goes every month. Multiply that by the 63 million people in this country and you recognise that there is a bit of a problem here. If you ask them, people have no idea of what they are doing with their money. When I first went to Step Change, I was told that of 100 people who rang it, 30 people were obviously suitable to go straight on to a debt management plan and did, but about 10 of them actually had enough money to sort out their problems but did not know it. It was a question of going through every item of their expenditure line by line and making them believe that it was going to be all right and that, although it might take four or five years, there was certainly a solution. They did have the money, but they just did not realise it.

There is both a very simple solution to a lot of the problems we are seeing and a very complicated one, but both would benefit from having time to work through the options and to make sure that people are signed on and can go forward and get out of debt. We have to crack getting people. I think the Minister used the phrase “hot keying”, and I agree. If you catch them at any point in the cycle, hold on to them. Make them do something about their problem. Get them engaged and excited—and not only will you get them out of their debt problems but they will get an educational experience. It is only when people are in the crisis of not knowing what they are going to do, how they are going spend their money and whether they have enough cash to buy a meal for the kids that evening that they begin to feel, “I must get out of this and get it right in future”. That is what we must do.

When you can get a breathing space in, it is a sensible solution. It would work. The problem is that the Bill as currently constructed does not easily allow us to put this in as an amendment, but at the very least can we make sure that the powers exist for this to be taken as the next step forward, because it is certainly worth supporting?

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

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.

--- Later in debate ---

Tabled by

[Baroness Altmann]

17: Clause 2, page 2, line 32, leave out “young people” and insert “adults”

--- Later in debate ---

[Baroness Altmann]

I thank my noble friend for her response. I stress that it is really important for us to overcome the idea that education is something that happens only when you are young. Education should be happening throughout life and, if this body is not going to co-ordinate the development of a national strategy for financial education not just for people who are young, perhaps my noble friend could give some thought to how we will develop such a national strategy.

Amendment 17 not moved.

Pension Protection Fund and Pensions Regulator

Baroness Altmann Excerpts

Thursday 13th July 2017 Lords Chamber

[Baroness Buscombe]

My Lords, the financial settlement regarding BHS is valued in total at £363 million, and £343 million has already been placed in a fully independent escrow account to fund a new scheme. The settlement with Sir Philip Green for the British Home Stores scheme is the largest of its kind the Pensions Regulator has reached to date. Indeed, in total, the Pensions Regulator has secured more than £1 billion for pension schemes through the use of settlement in avoidance cases. Existing members of the scheme now have three options: transfer to the proposed new pension scheme, opt for a lump sum payment, if eligible, or remain in their current scheme, which is expected eventually to transfer to the Pension Protection Fund. However, the new scheme will be a fully independent trust with independent governance and trustees. Neither Sir Philip Green nor the Arcadia Group will be involved in the management of the scheme. In the highly unlikely event that the new scheme fails, members can rely on the Pension Protection Fund.

[Baroness Altmann (Con)]

My Lords, would my noble friend care to agree with me that the Pension Protection Fund is performing a vital function very well? Its investment policies and levy management have achieved a significant funding surplus and tens of thousands of workers are receiving most of their promised pensions, whereas in the pre-PPF days, they would have lost the entire amount.

[Baroness Buscombe]

I thank my noble friend very much for her question. She is completely right. With regard to the British Home Stores financial settlement, the lump sum payment option will be available to members with small pots of up to £18,000 in value. Those who choose not to take a lump sum and opt to transfer to the new scheme will be entitled to the same benefit structure as all other members. The new scheme will also be eligible for the Pension Protection Fund.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

2nd reading (Hansard): House of Lords
Wednesday 5th July 2017 Lords Chamber

[Baroness Altmann (Con)]

My Lords, it is an honour to follow so many excellent speeches from so many noble Lords. This House contributes huge expertise to our legislation. I also welcome my noble friend to her new ministerial role and congratulate her on her excellent speech.

I warmly welcome the aims of the Bill. I am wholly supportive of a unified approach to public financial education and free, impartial and unbiased guidance to help people to make better financial decisions. The level of financial education in Britain is very low and the level of consumer debt worryingly high. The latest figures show that consumer borrowing is rising strongly, and the aim of the Bill—to help the public to understand how to manage their finances—is absolutely right.

However, I am concerned that the wording of the Bill will unhelpfully prolong a major misconception in personal finance that has permeated the industry for years but could at last be addressed. I am talking about the use of the word “advice”. For far too long there has been a public perception that this thing called “financial advice” is free. In the past, of course, it often was apparently free because so-called advisers were being remunerated by a financial company for selling its products. They were not really advisers; they were salesmen. This commission-driven culture caused many scandals, and it incentivised behaviour that was not in the customers’ best interests. Rightly, the regulator has tried to clamp down on such practices. It now insists on a stark differentiation between what can be called “advice” in personal financial services and what is merely guidance, information or sales. This is not a minor technical point; it is a fundamental issue. Indeed, we need a proper definition of what constitutes guidance, which I do not believe we yet have.

The new single financial guidance body will look at pension guidance, money guidance, a national strategy to improve financial education, and debt advice. In fact this debt advice does not even have to be regulated but in some cases can be delivered by unregulated bodies. That is worrying. The word “advice” is a hangover from past thinking. It is the last vestige of an old system that needs updating. You cannot give what is called “advice” in a personal financial sense without being regulated. Nowadays, with auto-enrolment into workplace pensions and with pension freedoms available to people over 55, focusing only on the debt part will make any so-called debt advice incomplete and thus not holistic. However, if the debt help or counselling takes account of pension matters—as it should, especially given auto-enrolment—then the new service from the single financial guidance body could fall under regulated financial advice rules and would stray beyond pension guidance. This opens up the Government or those delivering the service of the new body to risk, and perpetuates confusion. At last there is an opportunity to address some of the confusion in the context of financial help for individual citizens. Guidance, help, information, education and counselling can be available for free, but advice is not.

There has been much misuse of the word “advice” for so long, even at the top of government. When Chancellor George Osborne announced the pension freedoms, he said the Government would also ensure that members of the public would have access to free impartial advice. What he meant, and what was introduced, was free guidance, not advice. Indeed, the helpful briefing from the House of Lords for today’s debate talks about merging three existing advice channels into a single body, yet those three bodies do not give advice even though their names misleadingly suggest that they do. The Money Advice Service and the Pensions Advisory Service do not actually give financial advice.

The October 2015 consultation on public financial guidance and the March 2016 public financial guidance review led to the decision to replace the Money Advice Service with a new streamlined body for money guidance, and then a second new body to merge the Pensions Advisory Service and Pension Wise. It seems to me that pensions cannot be divorced from other finances, whether that means savings accounts, auto-enrolment, debt or whatever. The thinking behind having two bodies was wrong, and I believe having one body is right. The old idea was based on products, not people. People have a broader need than one product, and I hope the new guidance body will give us an opportunity to think about it from the point of view of the people who need help, rather than the products that tend to be focused on by the industry.

Unfortunately, the Bill prolongs the problem. If the debt piece is called advice, then it has to take account of the pension piece, and once it is doing that, the pension element will have to be advice too, not just guidance. I ask my noble friend the Minister to consider amending the word used by the single financial guidance body and the FCA so that it is debt guidance, not debt advice. We could use other words, such as debt resolution, counselling or help, but guidance seems to make sense.

On another topic, I am seriously concerned that the Bill must not pose a threat to the marvellous work done by the Pensions Advisory Service, which has rightly been commended by many noble Lords. This is one of the jewels in the public financial guidance system. Staffed significantly by volunteers, TPAS helps the public to understand pension issues and can intervene to assist if there are difficulties with pension schemes. It even has a dedicated helpline for women, who so often lose out in pensions and need special help. It is funded from the general levy on pension schemes, and the costs are low but the value it delivers is high. The Pension Wise service is also funded by the pensions guidance levy, but I note that it has just been announced that the levy for pension guidance has been cut. Satisfaction ratings for those services are really high. Please can my noble friend offer some reassurance that the operations of TPAS and Pension Wise will not be downgraded but will be preserved and protected after the restructuring?

Turning briefly to claims management companies, as has already been pointed out, the Conservative manifesto promised to consider banning claims management companies from cold-calling members of the public. This is absolutely right, and the Bill should clamp down on CMCs which operate unscrupulously and their unsolicited calls or texts—which so many noble Lords, such as me, regularly receive. As the APIL says, lawyers are not allowed to cold call, so why should CMCs? Tougher regulation and capping fees can help, but banning nuisance cold calls that encourage people to make false claims is absolutely right.

Let us not stop there. To echo the calls from, among others, the noble Lords, Lord McKenzie and Lord Sharkey, I ask my noble friend to consider bringing back the abandoned legislation to ban cold-calling on pensions, too. If others do not, I hope to table a probing amendment in Committee on the issue, as it is one that I feel so strongly about and had hoped would be resolved. It is important that we can give the public the message that if someone cold calls them about their pension, they are breaking the law, so just hang up. I am also interested in the idea put forward by consumer group Which?. It suggests requiring companies to pay the claims management firms, rather than consumers having to pay from any compensation. If the companies have to pay, it may deter some of the cowboys, because they will be better able to recognise poor practice.

Finally, I raise two further items. The Bill proposes not carrying over powers for the financial guidance body to help the public with secondary annuities. I know that this has been abandoned for now, but I still hope that somehow a change of heart may arise and that people may indeed be able to sell their unwanted annuities. Transferring this power to the single financial guidance body would at least ensure that there would not be any new unnecessary barriers in the way to that.

The problem of net pay schemes rumbles on. Many of the lowest earners, particularly women, are losing out on money that they should have, and the size of the problem is growing, but employees are powerless to get this money back. I suggest that the single financial guidance body should have a remit to help employers and members to understand the need to ensure that the pension scheme used for low earners in auto-enrolment does not force them to pay more for their pensions than they should. I ask my noble friend to go back to the department and consider this matter again carefully.

Having said all that, I stress that I welcome the Bill and its overall aims and look forward to seeing it pass through Committee and its other stages—slightly amended, I hope—and on to the statute book.