Financial Guidance and Claims Bill [HL]

Lord McKenzie of Luton Excerpts

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

Tabled by

[Lord McKenzie of Luton]

9: Clause 2, page 2, line 20, after “occupational” insert “, state”

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[Baroness Kramer]

My Lords, I very much support the amendments moved and spoken to by the noble Baroness, Lady Drake, and the pressure they create on the Government to come up with some coherent answers to the very significant questions which have been posed. We are great supporters of the dashboard, as is, I suspect, almost everybody in this House who is engaged in pensions, savings and investment issues. However, I also spend quite a bit of time now trying to understand where artificial intelligence is taking us. The first question that is always asked is: who controls the data? Secondly, who controls the best analytics to be able to turn the data into a marketing opportunity?

The data will clearly become dominated very quickly by a limited number of companies. That in itself will become a mechanism that limits options for individuals and makes it extremely difficult for them to compare the options that they could source from a variety of providers. It tends to tie them back to a single, dominant provider. The Government surely have an interest in preventing the development of either those quasi- cartel or monopolistic structures, but early intervention is needed to make that possible. Who controls the dashboard will be an issue of real significance and there is a strong argument that it cannot be one of the commercial players, in whose interests it would always be to manage that dashboard to the advantage of their own proprietary products. I hope that the Minister will engage with this opportunity, because events are taking over in this area and government has a relatively limited scope in which to intervene to shape the framework.

[Lord McKenzie of Luton]

My Lords, briefly, I support my noble friend Lady Drake and the powerful case she has made for the public service dashboard. I will also speak to the proposal that pension guidance functions should include the state pension.

Decisions around receipt of the state pension are not necessarily a straightforward matter. As we know only too well, there has been some confusion over the age at which some—particularly women—reach state pension age and are entitled to access their pension. Reaching state pension age does not of course necessitate giving up employment. Deferring the state pension can generate a higher rate of pension and therefore possibly tax, albeit no longer with a lump sum. But deferral will not earn an income uplift in weeks where certain benefits might be in payment, for example for carer’s allowance. The deferral increase is not inheritable. There are transitional rules for those reaching state pension age before 6 April 2016. As entitlement depends on a person’s national insurance record, paid or credited, there may be decisions about the appropriateness of buying extra years. These are just some of the intricacies surrounding the state pension.

It is accepted that the Pension Service will provide details, including forecasts of entitlement, but should these matters not be considered in the round, particularly with the person’s broader retirement planning? After all, for many people the state pension will constitute their biggest single risk-free income source for the rest of their lives. In their response to the final SFGB consultation, on page 10, the Government stated:

“the government believes people would benefit from access to joined up information and guidance to help them develop the financial capability they need”.

Surely an understanding of what might flow from the state pension system is as important as an understanding of choices around pension pots. Indeed, given the recognition that the service should be directed at those most in need, are they not likely to be those for whom the state pension represents a significant part of their income?

My noble friend Lady Drake made, as ever, a powerful case for the pensions dashboard, and in collecting together details of all of a person’s pension pots it is important that it should include the state pension. To be clear, we do not argue for SFGB to replace the Pension Service but for it to be able to feed its choices into how it might fit together with other pension opportunities.

[Baroness Buscombe]

I thank noble Lords for their contributions to this debate about the pensions guidance function. I shall begin by focusing my response on the questions around the state pension and shall then move on to the dashboard.

On Amendment 9, the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, raised a question about information and guidance in relation to the state pension. It is, of course, vital that people have access to information about their state pension. Noble Lords will be aware that the Department for Work and Pensions is responsible for the policy and administration of the state pension. DWP offers a range of information and guidance through a variety of contact channels for people wanting to know about their state pension. The GOV.UK website is a key source of that information and guidance. It includes links which take people to the online services. For those who prefer to access information offline, DWP also provides leaflets, letters and other guidance on the state pension. All these forms of communication contain telephone numbers and the addresses of pension centres.

People seeking information about their state pension age or wanting a forecast of their state pension are able to contact DWP via telephone, textphone or email or, alternatively, they can write if they prefer. DWP also offers a digital service called “Check your State Pension” where customers can check a version of their state pension statement. Customers using this service can ask questions or raise queries by completing an online form. However, as with the current services, it is not appropriate for the body to become involved in specific issues relating to the detail or the handling by DWP of an individual’s state pension entitlement, for example, where a person has not received their state pension. These are matters that only DWP can properly respond to. As it has access to national insurance contribution records, DWP is the right organisation to deal with state pension-related questions, information and guidance. It would be inappropriate to expect pension schemes or the financial services sector to fund guidance on the state pension.

The single financial guidance body will be able to provide general guidance on the state pension in the same way as the existing services do now, for example, as general information on its website or as part of discussions with people. It will also direct people to the correct part of the GOV.UK website or provide the relevant telephone number or leaflet if a state pension query is raised during a face-to-face discussion, call or web chat or online inquiry. We expect the single financial guidance body to look for opportunities for a more seamless customer journey in the future as part of its programme of transformation across all its delivery functions.

I hope that I have clarified, in relation to state pensions, what the single financial guidance body can do and also the extensive service the DWP already provides to the public. Of course one of the key issues is the huge challenge which the noble Baroness, Lady Drake, referred to with reference to dashboards, and the same applies to the state pension in detail. The priority has to be around consumer protection safeguards, as she quite rightly said.

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Moved by

[Lord McKenzie of Luton]

14: Clause 2, page 2, line 24, leave out “provide” and insert “ensure provision of”

[Lord McKenzie of Luton (Lab)]

My Lords, I shall speak also to Amendments 15 and 20 in this group. Amendment 14 is straightforward and clarifies that the money advice function must ensure provision of advice as opposed to providing it—an issue over which we have already ranged. Amendment 15 spells out some of the aspects of the money guidance function. Amendment 20 adds to the strategic function,

“the awareness of scams and frauds relating to financial products”—

again, an issue we have touched upon already.

The Bill is drafted in somewhat general terms and states that the function is to provide information and guidance,

“to enhance people’s understanding and knowledge of financial matters and their ability to manage their own financial affairs”.

When exercising these functions, the SFGB must have regard to its objectives, which include improving,

“the ability of members of the public to make informed financial decisions”,

and focusing on where information, guidance and advice is lacking and is most needed, and where it can be provided in the most cost-effective way. This must be set in the context of the acknowledgment that financial capability—what this is all about—in the UK is low, and many people face challenges when it comes to managing money.

In July 2017, in the response to the consultation, the Government recognised the importance of providing information and guidance by delivering, or signposting to, information on all money matters, including budgeting and saving, insurance, financial advice, bank accounts, protection from fraud and scams, planning for retirement and debt solutions. Therefore, it seems that a broad remit is anticipated, and we would support this. However, there seems to be no good reason why these functions could not be spelled out in more detail in the Bill. Can the Minister say whether any of the matters set out in the amendment are considered outwith the Government’s intended scope of the money advice function and, if so, which?

Financial scams are, unfortunately, many and varied. We have already heard about that matter, so I will be brief. The people who perpetrate them are inventive and merciless. According to the Economic Crime Directorate of the City of London Police, financial crime has cost the UK a staggering £50-plus billion. Techniques encompass scams such as phishing, bogus investment opportunities—particularly for pensioners—intercepting home deposits, freebie scams, fake websites and many more. They can devastate people’s lives, and, as we have heard, can destroy a person’s retirement. Given the so-called pensions freedom, people around the age of 55 are being bombarded with investment opportunities. Citizens Advice calculates that nearly 11 million consumers have received calls about their provision since 2015. Given the hour, I do not propose to go further into that, because we have discussed it already. I beg to move.

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[Lord McKenzie of Luton]

My Lords, I thank the Minister for that reply. I think we are in agreement on where the Government are on this issue. However, I would like to clarify one point. Can she say whether any of the money guidance functions listed in the amendment are now off the table?

[Baroness Buscombe]

At this time of night I want to be absolutely clear that I give the right answer, in which case I will write to the noble Lord.

[Lord McKenzie of Luton]

My Lords, I beg leave to withdraw the amendment.

Amendment 14 withdrawn.

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[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.

[Lord McKenzie of Luton]

My Lords, we would support a proposition which broadens as widely as possible the provision of financial education, but the issue that arises is how it will be delivered. I say to the noble Viscount, Lord Brookeborough, who was the leading voice on the committee in favour of financial education and led the charge on it, that if he is around September he will see that we have tabled a couple of amendments which deal specifically with two of the recommendations in the report about making it part of the curriculum in the primary sector, because we are behind the devolved Administrations in that regard. Latching on to the Ofsted framework is a means of getting some leverage, but, even with that, we know that it will be a challenging task. However, it is hugely important.

The data show that by getting to young people at school you can embed those ideas early, and they stick. Of course, a framework is there within which it can be delivered. Notwithstanding that it has been a requirement of the secondary sector for a number of years, as the noble Viscount said, we know of its patchy delivery—and there are clearly funding issues. I have pre-empted a little the amendment which we will come back to in September. We will perhaps pick up this important issue again then. Certainly, making sure that such education is available to the most vulnerable is important, and we support it.

[Baroness Buscombe]

My Lords, Amendments 16A, 17, and 18, tabled respectively by the noble Earl, Lord Listowel, my noble friend Lady Altmann, the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, would alter the strategic function on matters relating to financial education. However, I thank all of them for highlighting the important issue of financial education. While I appreciate the points that they make, the amendments as drafted simply do not work and are not appropriate.

Financial education is a specific area under the body’s strategic function targeted specifically at children and people of a young age to ensure that they are supported at an early stage on how to manage their finances—for example, by learning the benefits of budgeting and saving. I entirely agree with what the noble Viscount, Lord Brookeborough, said in this regard. It is crucial to “capture them young”, as I think the expression goes. Perhaps it would be more useful if I set out more fully what is covered by the body’s strategic function and the financial education element within that.

Through its strategic function, the single financial guidance body will bring together interested partners in the financial services industry, the public and voluntary sectors, and the devolved Administrations with the aim of improving the ability of members of the public to manage their finances. To deliver that, the body will support and co-ordinate a strategy. The premise of the strategy is that one organisation working independently will have little chance of greatly impacting financial capability, but many working together will—a point referenced by the noble Lord, Lord Sharkey. It is question of delivery. One body cannot deliver to all; it simply would not be practical for that one body to be in charge of every stage in life. The strategy should therefore be seen as a collective effort by multiple parties. The role of the new body will be to drive the process forward and oversee implementation.

More specifically, financial education is a subsection of that effort under Clause 2(7)(c). The SFGB will have a co-ordinating role to match funders and providers of financial education projects and initiatives aimed at children, and will ensure that they are targeted where evidence has shown them to be more effective. This falls within the wider strategic financial capability work of the body and should form part of a national strategy to enhance people’s financial capability. The Money Advice Service has been undertaking that role, which is one of the aspects that respondents to the Government’s consultations overwhelmingly agreed the new body should continue working on.

Amendment 16A would alter this function so that a strategy for the provision of financial education was extended to care leavers. I thank the noble Earl for raising this important issue. The Money Advice Service in its financial capability strategy recognises that more needs to be done to address care leavers’ financial needs and skills for independent living. The Government agree, and we expect the new body to consider further initiatives to support care leavers, but also other young people from marginalised backgrounds—for example, those leaving youth detention or with learning difficulties. The Government believe all these segments of the population are already covered in this section under the provision for young people. Specifying a provision for care leavers would create a specific requirement for the body and remove its discretion to target those most in need.

Amendment 17 would alter the wording of the Bill so that the strategy for the provision of financial education extended not to children and young people but to children and adults. Amendment 18 would make provision specifically for adults contemplating difficult financial decisions, such as mortgages, pensions and vehicle finance plans. As my noble friend Lady Altmann stressed, it is important that adults are informed and educated throughout their lives about how to manage their money well and avoid falling into problem debt. However, this is the role of the SFGB as a whole, as it delivers money and pensions guidance and debt advice. Also, the strategic function under Clause 2(7)(a) already gives the body a specific responsibility to work to improve the financial capability of adult members of the public, including in relation to the areas highlighted in the amendment tabled by the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey.

We believe that it is unwise to give the new body a requirement to advise the Secretary of State on explicit issues, as worthy as those issues are. There are several topics that the body may wish to look into as part of its strategic function. Choosing a few could risk limiting the body’s ability to look widely at the sector and have regard to emerging issues in future.

I want to make further reference to what the noble Viscount, Lord Brookeborough, said this evening. I entirely support much of what he said on teaching basic skills in managing finances. I am aware that the Lords Select Committee on Financial Exclusion raised the primary school curriculum in its recent report on financial inclusion. The Government will address the committee’s recommendations on this issue when they publish their response in due course. I just add that the first recommendation made in that report proposed that we should have a Minister for financial exclusion. We preferred to refer to “inclusion”, and my honourable friend Guy Opperman MP is the first Minister for Pensions and Financial Inclusion. I have already been in discussions with him about how we can work with the Minister for Education in another place to take forward some of the recommendations in the report and discuss in further detail the concerns raised in it, particularly about primary school education. For those reasons, I hope noble Lords will accept that the amendments are not necessary. I urge the noble Earl to withdraw the amendment.