Savings (Government Contributions) Bill Debate
Full Debate: Read Full DebateIan Blackford
Main Page: Ian Blackford (Scottish National Party - Ross, Skye and Lochaber)Department Debates - View all Ian Blackford's debates with the HM Treasury
(7 years, 10 months ago)
Commons ChamberThat interaction has been addressed in the Bill’s impact assessment. There was some concern about the Help to Buy ISA and the interaction with automatic enrolment, but we have seen no evidence of it driving a higher opt-out rate. In fact, the opt-out rate for automatic enrolment is lower than forecast—even on the forecast that was revised down. I note the hon. Gentleman’s concern but I think it has been addressed in the work that we have done.
What is attractive about the lifetime ISA is that people do not have to make an immediate decision about why they are saving this money, which goes back to the hon. Gentleman’s point about people not having to make that decision at an early stage when they cannot see what is ahead.
Anyone saving into an auto-enrolment pension will get tax relief up front, but anyone who invests in a lifetime ISA will be making that investment out of taxed income. Does the Minister see the unfairness in that?
Obviously, we have the Government bonus, which I mentioned, but I go back to the point about this not being an either/or choice; this is about people having potentially complementary products that are for different purposes. This product is not about replacing a pension; it is about giving people a complementary product to help them save for later in life, while keeping open the option of building up money to put towards a house. As we have seen, many hundreds of thousands of people have taken that opportunity with the previous ISA product.
The lifetime ISA can be used by people to get on to the property ladder for the first time and can be put towards a home worth less than £450,000. Through this Bill, from April next year a new, more flexible way to save will be available to people, as one of a number of options.
The Bill also introduces Help to Save, which is about finding a better way to support families who are just about managing but are struggling to build up their savings. All Members will be aware of the research carried out by a number of bodies, particularly the excellent Centre for Social Justice, which estimates that 3 million low-income households have no savings at all. That is not a nice position for anyone to be in: living without having any kind of financial safety net in place and knowing that if they lose their job, they have barely got enough money to pay next month’s rent.
It is a pleasure to follow the hon. Member for Newark (Robert Jenrick). I was interested that he closed by talking about a long-term savings plan for the Government. I suppose the long-term economic plan has crashed and burned, so they need another anachronism that they can use for the future.
SNP Members welcome any reasonable proposals that encourage savings—we will work, where we can, with the UK Government to seek to encourage pension savings—but we very much see the Bill as a missed opportunity for us all to champion what we should be focusing on, which is strengthening pensions savings. Instead we have another wheeze that emanated from the laboratory of ideas of the previous Chancellor, the right hon. Member for Tatton (Mr Osborne), and his advisers, who had form on constantly tinkering with the savings landscape. The right hon. Gentleman may have gone from the Front Bench, but his memory lingers on with this Bill.
Let us recall what the former Chancellor said in his Budget speech this year:
“too many young people in their 20s and 30s have no pension and few savings. Ask them and they will tell you why. It is because they find pensions too complicated and inflexible, and most young people face an agonising choice of either saving to buy a home or saving for their retirement.”—[Official Report, 16 March 2016; Vol. 607, c. 966.]
The problem was that that assertion was not backed up by evidence, and it was half-baked. Young people under the age of 30 have the lowest level of opt-out rates of all those who have been automatically enrolled into workplace pensions. Department for Work and Pensions research found that for under-30s the opt-out rate is 8%, compared with 9% for 30 to 49-year-olds and 50% for those aged 50 and over. One would have thought that the Chancellor and the Minister had looked at the DWP evidence and recognised that the assertion behind the justification for these measures is quite simply wrong. The fundamental principle, that young people are not saving for a pension when presented with a solution for pension saving such as auto-enrolment, is wrong. After much effort, automatic enrolment has been successful in encouraging young people to save. We must not undermine those efforts by inadvertently encouraging people to opt out and confusing consumers with new, competing products. As has been stated by the likes of Zurich Insurance:
“There is a real danger that the LISA could significantly derail auto-enrolment and reverse the progress made in encouraging people to save for later life.”
I agree with that. Why would we want to undermine pension savings?
Of course we know that the Treasury has flown kites on moving from the existing arrangements for pensions—exempt, exempt, tax—to considering tax, exempt, exempt. That would have a drastic impact on incentivising pension savings, but clearly from the Government’s point of view it would mean higher tax receipts today rather than pensions being taxed on exit. This is a wheeze from the previous Chancellor to deliver higher taxation income today, rather than taxing consumption in the future—a modern day reverse Robin Hood.
Is it not the case that when this idea was kicked into the long grass along came the Chancellor with proposals to achieve the same ends through the backdoor? Is this the first step to moving towards tax, exempt, exempt? If it is, the Government should come clean. If they do so, we on the Scottish National party Benches will vigorously oppose it, because it would amount to an attack on pension savings. We should recall, after all, that it was Gordon Brown, when he was Chancellor, who raided pension schemes with his dividend tax changes—an attack that seriously undermined defined benefit pension schemes in particular.
Does the hon. Gentleman not agree that what Gordon Brown did when he was Prime Minister—taxing pension schemes—was catastrophic? I know that, because I had a pension scheme and stopped paying into it.
I absolutely agree with the hon. Gentleman that that was the beginning of the end for defined benefit pension schemes in this country. At the time, just about every company in the FTSE 100 had a defined benefit pension scheme. There are hardly any today. My criticism of what the Government are doing with the Bill is that they are once again undermining pension saving. I will come on to the facts of the matter. We cannot get away from this: anybody saving into a pension does so out of pre-tax income. Anybody investing in the LISA will be doing so out of taxed income. That is unfair and unjust. As I mentioned earlier, this is more about a wheeze for the Government to generate taxation income. It is wrong and they should not be doing it without proper incentives for the young people they are targeting.
We would resist any further attempts to undermine pension saving and, specifically, to change the tax status of pension savings. That would be little more than an underhand way of driving up tax receipts—sweet talking workers to invest after-tax income in LISAs when their interests are best served by investing in pensions. We have considerable challenges in ensuring that we take appropriate action and provide the right kind of leadership to encourage pension savings above all else. That is not happening under this Conservative Government. Pension savings are the most tax-efficient arrangement for savers and that is what we ought to prioritise
We also need to revisit the issue of pension tax relief to make it fairer to pension savers. Many commentators and providers, such as Zurich, have suggested that a flat rate of pension tax relief could increase saving among low earners. While ensuring pensions remain an attractive investment for higher earners, it would be inherently fairer. Coupled with auto-enrolment, it would give a powerful boost to the pensions of millions of workers and help the vast majority of people to save more for retirement. It would also end the complexity of the current regime and set tax relief at a sustainable level for the longer term. That kind of approach rather flies in the face of what the Minister has signed off in the impact assessment, which states:
“The government could have done nothing more, relying on existing tax incentives to promote saving among younger people and working families on low income. However, this would have failed to provide the necessary level of support for those who are unable to use existing support to plan and save for their future.”
This is bunkum. Tax relief can be addressed, as I have said, but we must also take into account the fact that a review of auto-enrolment is due in 2017. We can strengthen auto-enrolment to deliver inclusion and encourage pension saving. We want to work with the Government to strengthen auto-enrolment and pension savings, which are the most efficient way for young people to save.
Just today, as we debate the Bill, the Financial Times has published an article highlighting new analysis on pension savings conducted by Aon. The analysis concluded that UK pension savings have a massive deficit of £11 billion a year. A poll of 2,000 pension savers indicates that only 16% of workers are saving enough to maintain their standard of living when they stop work. Why on earth do we want to take attention away, through the Bill the Government are bringing forward, from pension savings? Why are we not focusing on what we should be doing: fixing the problems in the pension industry? That is the priority of those of us on the SNP Benches.
The Aon analysis suggests that members of defined contribution schemes on average need to pay an extra £1,400 a year to achieve a decent retirement income. That is what we should be addressing in this Chamber here tonight. My message to the Government is this: let us all work together to tackle the under-investment in pension savings, to deal with the many challenges we face, and to enhance the attractions of pension savings. That is the priority. Today, too many people are excluded from workplace pensions.
I commend the introduction of auto-enrolment, but recognise that more needs to be done to enhance auto-enrolment and seek to offer affordable solutions to the low-paid, women and the self-employed who, to use the Prime Minister’s term, have been left behind. We need to tackle the issue of those who are currently excluded, such as the 20% of workers who earn less than £10,000 a year. We need to make sure we have an inclusive approach to pension savings that works for all workers.
The average value of conventional ISAs held by those aged between 25 and 34 is £5,186. The annual allowance for the lifetime ISA as proposed is £4,000, so from experience of ISAs this question needs to be addressed: who exactly will benefit? It looks like yet another policy to benefit the rich who can afford to save at such a level and therefore get the full benefits of the Government bonus. So much for the sermon from the Prime Minister about delivering policies for those left behind. It looks to us more like the same old policies for the benefit of the wealthy. When we look at the news today we see that the UK is looking to spend billions of pounds for the City to access the single market—and we should not be surprised. It is yet another case of the poor subsidising the rich.
We need to address the unintended consequences of quantitative easing, which has driven down yields, moderating expectations of future growth for pension funds and substantially increasing the deficit for many defined pension schemes, as the hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned. If we add to that the decline in annuity rates, which is cutting expectations of pensioner income, it means that savers have to increase their contributions to defined contribution schemes. This makes for a challenging environment for pension savers, which needs to be addressed.
On 11 July, the former Secretary of State for Work and Pensions, the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), said that
“there is a very real systemic issue with DB pension schemes that we need to look at, and my Department will be discussing it further in the months ahead.”—[Official Report, 11 July 2016; Vol. 613, c. 10.]
Since that statement, there has been silence from the Government. Where is the response to the fundamental challenges for today’s pensions and, as some might argue, the crisis in both defined benefit and defined contribution schemes?
We know of the significant factors affecting the BHS and British Steel schemes, and we know that hundreds of other schemes are facing significant deficits. Rather than seeing the Government face up to these challenges and the threat to the many beneficiaries of the schemes, we see a missed opportunity to tackle what ought to be the priorities. When will the Government respond in detail to what the former Secretary of State for Work and Pensions admitted, which we all know to be the case? I give the Minister the opportunity to intervene and tell us what the Government have done since the announcement of the previous Secretary of State. Where is the Government’s response? What do they have to say about the deficit on defined pension schemes? I see Government Members on the Front Bench looking down, but we need answers. What we get from this Government is no action.
I draw the House’s attention to the fact that we had DWP questions earlier today, and I am sure the hon. Gentleman took the opportunity to put his question then.
That was a politic answer. I cannot help but remark that I asked the Secretary of State for Work and Pensions a question earlier today, which was enlightening in itself. I asked a question about the WASPI women. I raised a specific point, saying that the SNP had put proposals in front of this Government as we were asked to do. We said that we could deal with the WASPI issue by spending £8 million, which, by the way, the Government could afford to spend because there is a surplus of nearly £30 billion sitting in the national insurance fund. What was the answer we got from the Secretary of State? It was to get the Scottish Government to do that. What he failed to realise is that this House has not given the Scottish Parliament the responsibility for pensions. Why not do that now, then? The Scottish Parliament and the Scottish Government would certainly take responsibility for pensions and for pensioners, which this Government are walking away from.
Nothing is being done by this Government. They are like rabbits caught in headlights. That is exactly what we got when the Financial Secretary intervened just now. This is a Government who have no answers to the real issues and the real problems that affect us in the pension landscape. They have been caught doing nothing in the face of systemic risk, which the Government themselves recognise. The Financial Secretary turned around and said, “It is not for me, but for the Department for Work and Pensions”. Well, I am sorry, but she is a Minister of the Government, and this is a Government responsibility. She should be coming to this place with answers.
We also need to recognise that although this Bill will help some savers, it does little to help those who cannot afford to save for later life. Of course, we have had the benefit of the Work and Pensions Select Committee holding an inquiry into the effect of the lifetime ISA on auto-enrolment. Evidence from the Association of British Insurers stated:
“Presented as a choice, no employee will be better off saving into a Lifetime ISA than they would under automatic enrolment. This is due to the loss of employer contributions.”
A recent Standard Life analysis shows that the typical gain from tax breaks and minimum employer top-ups to a qualifying workplace pension for a basic rate taxpayer is between 70% and 85%, compared with the return of 25% from a LISA. That is the con that this Government are trying to inflict on the people of this country. The long-term cost of forgoing annual employer contributions worth 3% of salary by saving into a LISA instead of a workplace pension would be substantial. For a basic rate taxpayer, the impact would be savings of roughly one third less by the age of 60. For example, an employee earning £25,000 per annum and saving 4% of their income each year would see a difference in excess of £53,000. After 42 years, someone saving through a pension scheme would have a pot worth £166,289.99 at a growth rate of 3%. Under a LISA at the same growth rate the value would be £112,646.75. Is the Minister going to defend this?
My hon. Friend is making a really important point about the advantages of pension saving over the new LISA, but does he share my concern that the real beneficiary of the LISA will not be people on low and middle incomes, but exceptionally rich people looking for a tax-efficient way to save very large amounts in a year?
My hon. Friend is spot on. Those who are already investing large amounts into pension schemes and perhaps approaching the cap will be turning around and saying, “Thank you very much.” This is not a policy for low and middle-income workers; this is a policy for the rich. It is the same old thing from this Tory Government who learn nothing. No wonder they are so out of touch in Scotland and no wonder that they have only one Member of Parliament in Scotland when they do not do the right thing for the pensioners in our country.
There are clear risks for young people in taking the wrong decisions if they do not get appropriate advice—something that is lacking from these proposals. Will the Government make it clear that young people will be advised of the likely outcomes of opting for a LISA over pension savings? If not, why not?
The SNP is supportive of any initiative that promotes savings for later life, but the LISA is simply a gimmick that benefits only those who can afford to save to the levels demanded by the Government to get the bonus. Help to Save is another example. We agree that working to encourage savings is welcome, but in this case again, the UK Government have only scratched the surface rather than really targeting those who are struggling to plan for emergencies or later life. Individuals eligible for Help to Save have only limited resources for saving by definition, and they will now have more difficult choices to make between medium-term savings and longer-term aspirations.
The very fact that the Government expect the policy to cost only £70 million in 2020-21 implies that the Government top-up will, on average, be only £20 per eligible individual in that year. Yes, £20—that is what this Government are proposing in this Bill. The Institute for Fiscal Studies has taken the view that Help to Save is poorly targeted, and it questioned the purpose of the scheme, stating:
“There is also a deeper and critical question about which groups are really ‘under-saving’. The key justification for giving a household extra money only if it places funds in a savings account, rather than giving it extra money regardless and letting the household decide what to do with it, is that we have reason to believe that the household is saving less than is ‘appropriate’ given its circumstances.”
The charity StepChange found through its work with poorer families and those with existing problem debt that four in 10 people struggling to save experience an income shock, such as a broken boiler or car repairs, at least every six months; that 60% of those facing an income shock turned to borrowing; and that a third of them cut back on essentials such as food to cover the costs. It found that half a million families could avoid problem debt if they had £1,000 of savings.
Responding to the Government’s consultation on Help to Save, the charity had three concerns: the proposed two-year period over which a Help to Save account will run may disincentivise applicants, and the Government should think “very carefully” about the way in which the scheme is advertised, in order to minimise a potential problem caused by the perception of a rigid two-year account length; the Treasury should amend the eligibility criteria so that those aged under 25 who work at least 30 hours a week can apply for a Help to Save account; and the Treasury should look closely at the debt-collection and insolvency implications of the scheme, and the Government should protect money in Help to Save accounts from third-party debt orders or insolvency proceedings. The charity concluded:
“At the very least any bonus accrued should be protected.”
Once again, we have seen a missed opportunity to tackle the pension saving deficit head on. While helping some, the Bill does little for those who cannot afford to save for later life. The Government must be much more ambitious if they are to deliver real dignity in retirement. We do not intend to oppose the Bill tonight, for which I am sure the House will be grateful, but we will seek to deal with the missed opportunities and to strengthen the Bill in Committee.
My hon. Friend has touched on an interesting issue. What she has said reflects one of the observations made by the hon. Member for Ross, Skye and Lochaber (Ian Blackford). Over the past three or four decades people have, perhaps, been infantilised in respect of the financial choices that they make, and politicians in the House of Commons may have sought to make their choices for them. Personally, I would like the opportunity to decide between a lifetime ISA, a pension and a normal ISA, for instance, but then I am a chartered accountant of moderate skill—deeply moderate; I resigned on the day I qualified for exactly that reason—but I recognise that plenty of people feel confused and are unable to do so. We have taken the power away from them over the years, and we must start to reverse that. We must either put choice back into their hands, or educate them so that they can make those choices in the future. The financial world is becoming ever more complicated, and if people are to do well out of it—particularly those on lower incomes—they will need to have that kind of knowledge.
Another reason why people should take an interest in acquiring assets rather than the mere ins and outs of their monthly incomes is the fact that a number have missed out, recently in particular, on what could have been a big upswing in their wealth. Brexit has seen a massive rise in the stock market, and anyone who has had stocks and shares over the last couple of months will have done extremely well. Similarly, the housing market has risen prodigiously over the last three or four years.
Does the hon. Gentleman not realise that there has been a massive 16% decline in the value of sterling over the last couple of months? Moreover, the fact that the market has risen as much as it has is due, quite simply, to the overseas earnings of United Kingdom companies. It is not that the world thinks the United Kingdom has become a more investable case; indeed, some would argue that it has become a basket case.
I entirely agree that overseas earnings are rising. That is why the stock market has increased so significantly, and I think that is a good thing. I am proud to say that I voted “out”. I am not sure what the hon. Gentleman thinks should be the level of the pound, but I think it should be at a level that increases our overseas earnings, means that people will re-shore manufacturing—because it is now more expensive for goods to be made overseas—and helps our exporters. I cannot see that that is anything other than beneficial for a country that is carrying a massive current account deficit.
The point that I am trying to make, however, is that 40 or perhaps 30 years ago many more people were investing in the stock market by buying shares in British Gas and all the privatised industries, and those people would have been benefiting from the present upswing. I am proud to ask my postman how his shares are doing every time I see him, and I should like to be able to say the same to most people on low incomes.
Perhaps the hon. Gentleman should ask his postman how much his holiday will cost him next year. There is a real problem for the United Kingdom, which is that inflation is now going to increase. We have already seen the impact of the likes of Unilever seeking to pass on 10% price increases. At a time when wage growth in the United Kingdom is limited, we have choked off next year’s consumption. That is the effect of Brexit. This is not about wealth; it is about an economy that has been damaged by the Brexiters.
My hon. Friend makes a perfectly reasonable point, but he should bear in mind the fact that opt-out rates were expected to be 25% and are averaging 9% so far. The Government’s expectations about opt-out rates have therefore, happily, been proved wrong. He is right to say that the under-30s will become the over-30s, but we should all be trying to encourage those people to stay in and build up their savings through the pensions scheme, rather than introducing a competitive product that could, for various marketing reasons, seem more attractive and therefore divert people of all ages from the good and noble cause, which I think he supports, of building up more savings for their retirement.
Does the hon. Gentleman agree that auto-enrolment has been an enormous success, and that one reason for that success has been the relatively low opt-out rates? Does he also agree, however, that there is more to be done to ensure that we include low-paid workers, particularly women and the self-employed? That should be the focus, but the tragedy of the Bill is that it deflects attention from what we should be doing—namely, incentivising pension saving.
That is an interesting point. The hon. Gentleman is absolutely right to say that auto-enrolment is not good for the self-employed, and there are other aspects of it, including women’s savings, that could be improved. Yes, there has been success, but my “yes” is a cautious one. After all, auto-enrolment has not been going for very long. The real test will be over the next couple of years when up to 4 million people could come into the scheme, taking it from roughly 6.9 million savers at the moment to more than 10 million fairly soon. We will have to see whether they come in with the same enthusiasm as did those who work for larger employers. My point is that introducing the lifetime ISA at this stage, before we know how smaller employers and their employees are going to react, risks undermining the success of auto-enrolment so far.
In 2005, the Pensions Commission described pensions, and the tax relief on pensions, as
“poorly understood, unevenly distributed, and the cost is significant.”
It was absolutely right. The cost to the Treasury is £34 billion a year, and it receives back some £13 billion in tax on pensions, so there is a huge cost involved. I am pretty sure that that is why the Treasury is rightly trying to shape a savings policy that is both good for individuals and not so expensive for taxpayers or for the Treasury as the intermediary. I would like to see a much more co-ordinated effort by the Treasury and the Department for Work and Pensions to look closely at the existing range of savings offerings, pensions included, to see how they can be rationalised in order to come up with a simpler, less expensive method of encouraging people to save.
It is interesting that the online information sheet on the lifetime ISA does not mention the fact that contributions come from someone’s salary after they have paid tax. It also strongly urges people to
“use it to save for retirement”.
That is exactly what we would expect people to do with a pensions product, so the concept that the lifetime ISA is not competitive with auto-enrolment and other pensions offerings is slightly disingenuous. Others have made the point that it is competitive with auto-enrolment and therefore offers significant potential for many of our constituents. Let me quote briefly from one or two of those who have highlighted this issue.
The Pensions and Lifetime Savings Association, which used to be called the National Association of Pension Funds, illustrates my point that all pensions are now, rightly, considered to be savings products. It comments:
“We look forward to working with the Government to help make sure that the Lifetime ISA does help younger people build up their savings.”
It goes on to say that it is important to ensure that
“the regulation on charges and governance of the Lifetime ISA are comparable to those for pensions, which have been reviewed to make sure they offer savers good value”.
That refers to the cap on charges and the increased governance. The association is implicitly recognising that this product will be considered by consumers as an alternative to saving. Indeed, former pensions Minister Steve Webb says:
“There is a real danger that the new product will mean that many young people will not start saving for their retirement until their thirties”
because that option is available to them through the lifetime ISA.
It is also interesting that the Association of British Insurers, Zurich and Hargreaves Lansdown have all expressed concern. One of the points raised by the Institute for Fiscal Studies is exactly the same point that I made in an article earlier today in which I referred to the lack of clarity over the extent to which there will be new savings, as against the shifting of existing funds by people who have already saved in ISAs. We must recognise the fact that 21 million people have invested in ISAs. That is not a small body of people. It is not a narrow cohort consisting exclusively of the very rich, for example. If savings are recycled and 80% of the people who put money into a cash ISA in 2014-15 recycle their money into a lifetime ISA to get the 25% Government bonus, that would not necessarily demonstrate a success for the Government in terms of bringing in new savers and people who would not otherwise have the chance of getting on to the housing ladder. Rather, it would demonstrate that people who already have savings are being given an opportunity to increase the return on those savings, and that higher-rate earners will have an opportunity to provide lifetime ISAs for their children or grandchildren.
It would help if the Minister clarified what impact assessment the Treasury has carried out. How much money does it expect to come in from new savers? How much does it expect to be recycled from existing ISA-holders? Who will be the beneficiaries of the lifetime ISA? My concern is that the main beneficiaries of the vast weight of the £850 million that this will cost the Treasury and therefore the taxpayer will be people who already earn quite a lot, or their children, and that the benefits will not reach the many, even though that is the intention behind the Bill.
I have tried to address some of the issues and unintended consequences that could arise from the Bill. Hargreaves Lansdown has written a useful paper on simplifying ISAs and pensions, in which it proposes a number of changes to ISAs. It is worth flagging them up today. It proposes: consolidating six different types of ISA into one; limiting the cost to the Exchequer of the Government top-up to the lifetime ISA; simplifying ISA decision making for investors; reducing the administrative burden for the industry; retaining the help-to-buy element of the lifetime ISA in one simple ISA product; and eliminating the risk that the ISA will undermine pension saving. It goes on to make a similar number of recommendations on pensions as well. The last point about eliminating the risk that the LISA will undermine pension saving is the one to which I keep returning because it is possible to do these things in a different way.
The Pensions Policy Institute found that Canada, Australia, New Zealand, US and Singapore—all countries that broadly follow Anglo-Saxon approaches to finance and investment—allow early access from the same product used for pension saving. That is critical because it means that people do not have to choose between a LISA or auto-enrolment and that they can decide whether they want to save to get on to the housing ladder or to save for their retirement through the same product. It would be a major achievement of this Government and Treasury and DWP Ministers if they could work together to rationalise the structure of pensions and savings so that individual consumers can access the same product for different reasons without having to subscribe separately. That would eliminate the main concern of many about the unintended consequence of the LISA directly and negatively impacting auto-enrolment. That is why I will certainly not be voting against the Government but will abstain from voting on the Bill this evening.
I understand that clarification and I will touch on that topic in my speech.
Finally, the hon. Member for Morecambe and Lunesdale (David Morris), who supports the Government’s proposals, spoke about his experiences as a self-employed person and said that the proposal is not a supplementary pension but a means of saving.
Labour welcomes the sentiments expressed today on both sides of the House about the need to address savings overall. In general, anything that allows more people to save for the future is to be welcomed. Helping younger people and those on low incomes to save is a particularly legitimate and worthy objective, and the Government are right to consider policies to incentivise it. The majority of people on low incomes or in precarious work—categories sadly growing in Conservative Britain—are far from being in a position to save. Six years of Tory failures and austerity has led to many not knowing from where the next pound will come week in, week out. The Government’s clueless approach to exiting Europe simply compounds the problem on a macroeconomic level.
How is it possible for people to save when it is hardly possible for many to live properly on a weekly basis? How can a person save for the future when they can barely get through the day? The scandal of low retirement savings for the less well-off is an indictment on any notion of a cohesive society. One in seven pensioners lives in poverty and a further 1.2 million have incomes just above the poverty line. Distributional analysis by the Women’s Budget Group shows that single female pensioners will experience a whopping 20% drop in their living standards. It is unconscionable that people who have worked hard and contributed to society are forced to spend their final years in hardship and insecurity. We agree that there are problems that need to be solved urgently but the TUC states:
“Products such as… the forthcoming Lifetime ISA are disconnected from the world of work and prioritise goals other than retirement saving.”
As for the lifetime ISA, it is hard to see how its introduction even begins to tackle the problems to which I have just referred; not only does it represent a missed opportunity to build on the success of automatic enrolment, as those on the SNP Front Bench have said, but its introduction could serve as a distraction to tackling the real issues at hand. It misdirects valuable resources, as the money the Government are spending on this scheme is likely to benefit mostly those on higher incomes, as has been mentioned on a number of occasions. It also needlessly complicates the pensions and savings landscape—an arena already fraught with complexity. Perhaps most dangerously, it has the potential to undermine the emerging consensus that a pension ISA approach would be detrimental in the round. Indeed, it has the potential to introduce just such an approach through the back door. That is a concern and we are seeking assurances from the Government that it is not doing that.
In the months leading up to the Budget, the concept of replacing the existing systems of pensions tax relief with an ISA-style approach was widely debated and almost universally rejected as damaging to people’s retirement prospects. I wonder, as do many others, whether, after enduring an embarrassing rebuff, the Tories are back again with the same intent under the guise of this Bill. Many in the pensions industry have described the LISA as a “stealth” move towards pension ISAs. The Work and Pensions Committee has said that the Government are marketing the LISA as a pension product and there is a high risk that people will opt out of their workplace pension as a result. Let me be perfectly clear: people will not be better off saving into an ISA as opposed to a workplace pension. The Committee found that
“For most employees the decision to save in a LISA instead of through a workplace pension would be detrimental to their retirement savings.”
Can the hon. Gentleman shed some light on why he thinks the Government would introduce a Bill that would make people worse off as a result of investing in an ISA than they would be if they invested in a pension? Does he not think that that is an abdication of responsibility by the Government?
The answer to the first question is that I do not know and the answer to the second is yes.
I have to give credit where credit is due, because the Conservative party has a particular talent for conjuring up political smokescreens and opportunistic gimmicks: it has given us a national living wage, which, by any stretch of the imagination, is not a living wage; we were promised a “big society”, yet the Government set about systematically undermining the notion of a cohesive society; and we were cynically assured by the late, unlamented Chancellor that we were “all in it together”. One thing I do acknowledge is that post-Brexit, given the poor performance of the Ministers responsible for negotiating it, we will all be in it together—and it won’t smell very nice. In the meantime, the Government continue unfairly and unjustly to condemn working people and vulnerable groups to pay for the Government’s failed austerity obsession—and now it is time for the Government to mess up pensions. Do they never learn from their mistakes? Are they so ideologically driven that they simply cannot admit that they get things wrong? These are mistakes, I might add, that others pay for. Have the Government not done enough damage to the prospects of hundreds of thousands of WASPI—Women Against State Pension Inequality Campaign—pensions without thinking that through? Yet again, they have not thought about the potential for millions more to be affected.
When former Conservative pensions Ministers are referring to the LISA as a “Trojan horse” and warning that such “superficial attractions” will “destroy pensions”, alarm bells begin to ring on the Opposition Benches, if not on the other side of the House. Given this scenario, common sense demands ask that we ask this: are we now being presented with a savings Bill that will fundamentally undermine proper planning for pensions for the future? As many others have pointed out, the LISA is a sort of pension and not a sort of pension—it is both and not at the same time—and neither will it necessarily last for a lifetime. This seemingly opportunistically designed product risks even more pensioner poverty, which people can ill afford at any time, let alone in their later years. Moreover, the Tories’ approach of transferring responsibility and risk from the collective to individuals will not work, especially as the incomes of the poorest, the majority of whom are women, are being squeezed by public sector cuts and the roll-out of universal credit.
The Labour party is motivated and inspired by the real principle and value that we are all in it together—this is not a slogan and a soundbite, but a truism. We know that the majority of people are significantly disadvantaged by an individualised, dog-eat-dog approach, as opposed to a collective system that has fairness at its core. Today, people struggle with wages that are still lower than they were before the global financial crisis in 2008. There are now 800,000 people on zero-hours contracts and half a million people in bogus self-employment, and nearly 4 million of our children are living in poverty. Labour’s economic strategy is committed to tackling wage stagnation, particularly among those at the lower end, so that they are able and have the capacity to save for their future as well as living life now.
As the shadow Secretary of State for Work and Pensions has said:
“The pensions system that I want to see ensures dignity in retirement, and a proper reflection of the contribution that older people have made, and continue to make, to our society.”
Labour Members would like the Government categorically, unequivocally and clearly to assure the public that this Bill is not a veiled attack on pensions as we know them.
First, let me thank everyone here today for contributing to this interesting debate. As my hon. Friend the Financial Secretary said in her opening remarks, the measures contained in this Bill are really important priorities for this Government, and both Help to Save and the LISA offer people in this country a new and effective option for how they save their money. Help to Save focuses on giving more support to those on low incomes. It will give a 50% boost to those who can get into the saving habit of putting aside a small, regular amount into their account each month. The LISA focuses on younger people. It is an account that will offer genuine choice and flexibility, not to mention—
I will give way, but I had hoped to address the hon. Gentleman’s many comments later on.
I am grateful to the Minister, but this is an important point. Will he explain to the House why he thinks it is right to encourage people to invest in the lifetime ISA rather than in a pension, given that a pension will give a better return, as has been demonstrated in the figures, such as the one I cited of a 32% difference over a 40-year period? Why are the Government being misguided and prioritising ISAs over pensions?
I thank the hon. Gentleman so much for that intervention, but the Government are not doing what he suggests. We are offering people a choice, and these two schemes are complementary and serve very different purposes. The genuine choice and flexibility to which I alluded are at the core of this Bill, but now let me deal with the specific points raised today.
The hon. Members for Salford and Eccles (Rebecca Long Bailey) and for Harrow West (Mr Thomas) mentioned credit unions. The Government recognise that many credit unions were interested in offering accounts, but it was not clear that a multiple provider model would guarantee national coverage for the scheme. We will continue to explore further options for credit unions to support delivery of the scheme, and I am sure that we will have that conversation in more detail as the Bill progresses.
The hon. Member for Salford and Eccles talked of this scheme being a substitute for benefits, but it is about increasing the financial resilience of low-income families so that if they are hit with an unexpected bill or if someone loses their job, they will have money for a rainy day. If something unexpected happens to their income, they will have savings to bridge the gap. She also asked why two years was chosen. This is the period of time needed to encourage account holders to develop a regular savings habit—a habit all too lacking in many people, especially younger people. I reiterate that the amount is up to £50 a month. People may not be able to afford that amount, but any regular saving is something that all of us should encourage.
I wish to clarify one point. The hon. Lady mentioned that there would be an additional penalty if people took money out of a lifetime ISA. An additional charge will be applied to reflect the long-term nature of the account, and that will act as a disincentive to people removing money unless it is essential or if there is a very important change in circumstances to be taken into account.
I wish to thank my hon. Friend the Member for Newark (Robert Jenrick) for his contribution. Our constituents are looking forward to the introduction of these products, and I agree with him that they contain significant incentives. He also mentioned the abolition of savings tax. It is worth putting it on the record that 95% of people have no savings tax to pay thanks to the new personal savings allowance.
The hon. Member for Ross, Skye and Lochaber (Ian Blackford) mentioned a smorgasbord of issues, a few of which I shall pick up on. He said that women were disadvantaged by automatic enrolment. Before it began, 65% of women employed full time in the private sector did not have a workplace pension; as of 2015, that had fallen to 35%. He said that a lifetime ISA was just for the rich, but it is for anyone between the ages of 18 and 40. They can open it and save into it until they are 50. The maximum annual contribution that an individual can make is £4,000. People can pay less than that and still enjoy the Government bonus. We expect that a large majority of those who use the lifetime ISA will be basic rate taxpayers.
The hon. Gentleman mentioned StepChange. Well, this is what StepChange has said:
“We welcome Government recognition of the need for a savings scheme aimed at those on low incomes. Our research shows that if every household in the UK had £1,000 in rainy day savings, 500,000 would be protected from falling into problem debt.”
He also mentioned the Association of British Insurers, which said in August:
“The industry supports the Lifetime ISA as a vehicle to help people save, in addition to a workplace pension.”
I hope that is fairly clear.
My hon. Friend the Member for North West Hampshire (Kit Malthouse) asked very sensible questions and made some thoughtful points. In particular, he asked about the limit of £50 a month. Individuals saving £50 a month for four years will earn a generous bonus of £1,200. It is probably an appropriate limit for people on low incomes, at whom the scheme is targeted. There has to be a ceiling.
The hon. Member for Harrow West asked about payroll deduction. I have to thank him for a very sensible and measured contribution. There is no reason why payroll deduction cannot take place. I cannot make a commitment to him today, but I can confirm that I am happy to see whether there is more that we can do in that area.