Savings (Government Contributions) Bill

Lord Tunnicliffe Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 12th January 2017 Lords Chamber

[Lord Tunnicliffe (Lab)]

My Lords, I start by welcoming the Minister to the esoteric world of Treasury legislation. In the light of the debate so far, she is no doubt taking some comfort in the words in parenthesis after “Second Reading”, which read “and remaining stages”. The noble Baroness will not always be quite so lucky.

I thank the Minister for introducing this Bill and those who have spoken in this debate. I will do my best to follow the pension experts and my noble friends Lord McKenzie and Lady Drake, who did a far better job than I could ever hope to do in mapping out the implications of this Bill for the pensions landscape.

Labour supports measures that allow more people to save for the future. At a time when household debt stands at record highs and when having tens of thousands of pounds of debt is regarded as the norm for many young people, policies that can contribute to bringing about a culture change towards saving must be welcome. That being said, we are not sure that the two measures outlined in the Bill—the establishment of a lifetime ISA and the Help to Save scheme—will do what they are designed to do. More worrying is the concern from some sectors that they will undermine the progress that has been made, specifically on auto-enrolment.

I will pick up on three points that have attracted cross-party consensus and discuss some of the issues that have arisen since this Bill left the other place: how lifetime ISAs will impact the pensions market, appropriate advice services and the factors involved in the Help to Save scheme.

One of the most contested aspects of the Bill is the impact that these measures, particularly the lifetime ISA, will have on the broader pension savings market. The Minister in the other place has said that the new ISA and traditional pension products are complementary, but pension experts do not share that confidence. Indeed, in the case of one or two pension experts, particularly the noble Baroness, Lady Altmann, that is something of an understatement. We must avoid adding to the already complex quagmire that is the pensions landscape. These proposals came out of a government consultation on reforming pensions tax relief in July 2015, which seemed to acknowledge the scale of the challenge that reform would present without providing conclusions on how to tackle these challenges. Instead, the then Chancellor, George Osborne, stated that it was clear that there was no consensus.

We are concerned that these policies have been thought up without full consideration of the short and long-term implications. The FoI request by New Model Adviser confirms that the DWP has not carried out its own assessment of auto-enrolment opt-out rates caused by the lifetime ISA because there is a Treasury assumption that people will not opt out of workplace pensions. Therefore, it did not feel the need to carry out its own separate evaluations.

My colleagues in the other place asked the Government to consider reviewing annually the impact that the lifetime ISA was having on the rate of auto-enrolment. The response to the FoI request said that the DWP regularly meets the Treasury to discuss pensions and savings policy, but I wonder whether the Minister can expand on that and explain, in the light of this new information, why a review would not be appropriate. I believe that many of the fears voiced about the impact of this scheme on auto-enrolment could be sensibly assuaged if we knew that a regular review was being carried out. As Tom Selby, senior analyst at AJ Bell, said:

“At this stage we are totally blind to the number of people who could opt out of a workplace pension ... Ideally the government would have tested how the lifetime ISA will interact with auto-enrolment ahead of the product’s launch next year”.

The Work and Pensions Select Committee was unambiguous when it said:

“Opting out of AE to save for retirement in a LISA will leave people worse off”.

A review would ensure that if such trends were identified, the worst effects could be mitigated. It is difficult to understand how the Government can disagree with something that seeks to safeguard one of the few positive changes to have taken place in the pensions industry in recent decades. I would be grateful if the Minister could address these concerns.

I now turn to the issue of appropriate advice which should accompany the rollout of lifetime ISAs and the Help to Save schemes. The Work and Pensions Select Committee, which I have just quoted, was clear about the possible negative impact that switching to a lifetime ISA could have on a person’s finances. Therefore, it is crucial that such implications are widely known and that information about these products is easily accessible. The FCA has stated that investors in the lifetime ISA should be given a specific risk warning about incurring the early withdrawal charge, which would lead to them receiving less from their lifetime ISA than they paid in. There are clearly concerns about how the product will work in practice. I think that the following quotation speaks volumes:

“I consider myself moderately financially literate. Yet I confess to not being able to make the remotest sense of pensions. Conversations with countless experts and independent financial advisers have confirmed for me only one thing—that they have no clue either. That is a desperately poor basis for sound financial planning”.

That was Andy Haldane, the Bank of England’s chief economist. When he admits that pensions have become so complex that even he cannot make the remotest sense of them, I think it is time to reflect on the quality of the service being provided.

In Committee in the other place the Financial Secretary to the Treasury stated that people would be able to access the relevant information about these products through government websites, as well as by working with the Money Advice Service and its successor. What materials do the Government envisage that the MAS will produce, and how do they intend to ensure that, once the MAS is abolished, continuity in the accessibility and accuracy of information will be ensured? Furthermore, what correspondence have the Government had with the FCA regarding communication requirements? This concern has been echoed by a number of speakers in this debate. Surely we are entering an ever-more complex scene, with less and less assurance that the right advice will be available.

I turn finally to the Help to Save scheme, which has been designed for those in receipt of universal credit or working tax credits. As the IFS has stated:

“Key issue is whether those who use Help to Save will be the under-savers”.

The saving gateway scheme, piloted in 2010, offered similar support. However, the IFS evaluation found,

“no evidence of an increase in overall savings”.

Can the Minister explain how the Government have used this lesson and adapted the current scheme appropriately? Furthermore, can the Minister expand on the rationale for the two-year limit? It would be useful to get a better understanding of the Government’s thinking on this matter.

I will close as I began, by thanking those who have spoken in this debate. I look forward to the Minister’s response.

[Baroness Neville-Rolfe]

My Lords, I thank all noble Lords who have contributed to the debate today, and I thank the noble Lord, Lord Tunnicliffe, for his very kind welcome. I certainly look forward to working with him and other noble Lords in this esoteric and interesting area and bringing light to the issues.

I think we all agree on the importance of people having effective tools to help them save money. As the noble Lord, Lord McKenzie of Luton, suggested, saving is important and we need the right quiver of incentives—and I welcome his support for Help to Save. I think there is an equal consensus around the need to encourage more people to save. I take the point that there may be more to do to publicise the progress that we have made on defined benefit pensions, described by my noble friend Lady Altmann—who is in a great position to encourage pensions saving and to explain how valuable it can be. However, I do not agree with her conclusion on the lifetime ISA: it has been supported by many, including the ABI, individual members and, indeed, Martin Lewis.

I turn to the link between the lifetime ISA and automatic enrolment, which was first raised by the noble Baroness, Lady Drake. I am well aware of her great expertise on pensions and, indeed, her role in the seminal Turner commission report—I remember well that huge report, which was very authoritative, arriving on my mat when I was responsible for pensions at Tesco, where we really cared a lot about helping people both to have a good pension and to save for their retirement. Those of us who care about pensions can be champions, as the noble Baroness, Lady Greengross, said. I share her respect for the work of Business in the Community, as she well knows.

I stress that we are fully committed to supporting people through the pensions system. Automatic enrolment will help 10 million people to be newly saving or saving more by 2018. The lifetime ISA is designed to complement that. It gives young people more choice in how they save for the long term. It is not a replacement for pensions. The Government’s policy towards employers reflects this. Employers have a statutory obligation to contribute towards pensions under automatic enrolment, as well as a direct incentive. Neither is the case with the lifetime ISA. Our impact assessment, based on an OBR-certified costing note, is clear that we do not assume that anybody will opt out of a workplace pension to save into a lifetime ISA—as the noble Baroness, Lady Drake, said.

The Help to Buy ISA is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home.

[Lord Tunnicliffe]

May I check the logic of that? Is the Minister saying that the OBR has certified that it is a reasonable assumption that nobody will opt out as a result of a lifetime ISA, or merely that it took that as an input assumption in doing its analysis?

[Baroness Neville-Rolfe]

As with all impact assessments, it is an estimate. We looked at the Help to Buy ISA, which is similar to the lifetime ISA in that it gives a 25% bonus to support people to buy a first home. That has not led to a surge in opt-outs. Instead, opt-out rates for automatic enrolment are still much lower than the Government expected, as several noble Lords said; they are currently 9%. The overall programme assumption was, I understand, 28%. We will of course regularly monitor the lifetime ISA going forward to make sure that it is achieving its aim—as the noble Baroness, Lady Greengross, suggested, and indeed as we do with all important policy areas. But I am not convinced, to respond to the point made by the noble Lord, Lord Tunnicliffe, that we need a formal annual review.

The noble Baroness, Lady Greengross, asked how many people using Help to Save were eligible for automatic enrolment. We set out our expectations of take-up of Help to Save. I am afraid that, as with all forecasts, there is uncertainty, so at this stage we are not able to say how many of these people will also be eligible for automatic enrolment.

Several noble Lords talked about guidance and communication. The Government announced in October 2016 that they plan to replace the three government-sponsored financial guidance providers—the Money Advice Service, the Pensions Advisory Service and Pension Wise—with a new, single financial guidance body, which I welcome. Through creating a single body we intend to make it as easy as possible for consumers to access the help they need to get all their financial questions answered. For example, this could be through helping families to balance their household budget or for individuals considering their options in retirement. Consultation on the precise design of the single guidance body is currently live and closes on 13 February. MAS, TPAS and Pension Wise will continue to provide guidance to consumers until the new body goes live.

The noble Baroness, Lady Drake, raised the issue of pensions tax relief, as did other noble Lords. Our responses to the Treasury’s pensions tax consultation indicated that there was no clear consensus for reform and, therefore, that it was not the right time to undertake fundamental reform to the pensions tax system. But obviously the Government have moved, with the Bill, to encourage younger people to save through the lifetime ISA—and that was a key theme that came out of the consultation.

The noble Baroness, Lady Drake, raised the question of mis-selling risk, which was also a concern of my noble friend Lady Altmann. I agree that it is very important for individuals to have clear information on their products. That is why we will publish factual information about the lifetime ISA on GOV.UK, as well as working with the Money Advice Service and its successor to ensure that they make appropriate and impartial information available. As was said, it is the independent Financial Conduct Authority’s role to regulate account providers, including how they sell a product to consumers. It is currently consulting on the approach and has set out its proposals.

Having said all of that, the communication issue has come up under several different headings. If noble Lords would find it helpful, I will undertake to look through Hansard at the various points that have been made on communication and set out in a letter to noble Lords who have taken part in this debate just what our plans are. That will enable me, for example, to check with the FCA about its current plans and take account of any consultation responses that may already be available. We need to make sure that at the point of sale providers are transparent about risks, including any potential early withdrawal charge and with information on automatic enrolment. That theme came through from almost all noble Lords who spoke. It is a very important area. As has been said, this is a Money Bill, but that does not mean that we cannot set out how we see these things being properly communicated.

The noble Lord, Lord Sharkey, questioned the impact assessment. I understand, from checking with the experts, that it is correct. I was glad that he raised housing because it is an important area. The OBR has noted that the effect of the lifetime ISA on house prices is highly uncertain and its predicted impact is significantly smaller than overall house price movements. As we know, a number of factors can affect house prices, which will be subject to change in future years. For example, we are taking steps to boost housing supply. Following the announcement of £5.3 billion additional investment in housing in the Autumn Statement, we expect to double our annual capital spending on housing during this Parliament. We will publish a housing White Paper shortly, which I hope will address some of the supply issues the noble Lord raised and allow this House to have further exchanges on this incredibly important issue for the future of our economy and our industrial strategy. I believe the lifetime ISA is one way to make sure that first-time buyers have the support they need to get on to the housing ladder.

I will address a number of technical points raised by the noble Baroness, Lady Drake. She asked whether the Government would commit to a 50% participation rate for Help to Save. The Government are not setting any specific target around take-up of Help to Save because we want opening an account to be an active decision by those who feel Help to Save is right for them. However, we will continue to work with the account provider and other interested parties to ensure that people are made aware of the scheme and receive the right support and guidance.

The noble Lord, Lord McKenzie, talked about eligibility for the under-25s. A person aged under 25 is eligible for working tax credit if they work a minimum of 16 hours a week and have a child or a disability—I am learning a lot from this debate. Our intention is to passport people into eligibility for Help to Save. This is a well-established way of targeting support at people on lower incomes. Importantly, it removes the need for people to complete a further means test to prove that they are eligible, which we know could deter people from opening accounts.