Savings (Government Contributions) Bill (Second sitting)

Maria Caulfield Excerpts

Tuesday 25th October 2016 Public Bill Committees

[Peter Dowd]

Q Can I just ask, on that basis, how well targeted you think Help to Save is on those with the lowest income? It is all very well to say “Save”, but if you have no money because you are on benefits or have a low income, how well targeted is that particular product?

Joseph Surtees: I think it is almost as well targeted as it could be without putting a huge onus on banks and, in a scenario in this case, running de facto means testing. We could possibly open up the eligibility. I know that the Institute for Fiscal Studies has done some work on this—which I have one or two questions about—but as a basic proposition it is pretty well targeted at the group that needs the savings the most. If you look at the figures, almost half of families with an income below £14,000, a category that a lot of the Help to Save target families fall into, do not have savings. We have one specific issue, which is to do with how it will help people under 25. That is very much to do with the benefits rules, which I can either discuss now or come back to later.

[Maria Caulfield (Lewes) (Con)]

Q I want to touch on one of the points raised in our previous evidence session, which was that someone can withdraw money from this lifetime ISA if they want to buy a home, but if they want to withdraw money for any other reason—you touched on some examples, such as if their washing machine breaks down or they have an urgent need to get money quickly—they face a penalty of between 5% and 6%. Are there certain criteria you would like to see where there are other options to withdraw money without hitting a penalty?

Ed Boyd: As I said before, the detailed knowledge, in terms of the research that the CSJ has done, is on the Help to Save side rather than the ISA side of things. There is a valuable question about the accessibility and flexibility of accessing savings within Help to Save. I could give a comment on that—perhaps it is applicable across to ISAs. I would need you to be the judge of that.

[Maria Caulfield]

Q But do you think that there should be an option for those people to withdraw money quickly rather than just having being able to buy property as a penalty-free reason?

Ed Boyd: On ISAs?

[Maria Caulfield]

Yes, on the lifetime ISA.

Ed Boyd: We have not done the research on the ISA, so we do not have a view. I can probably only help with the Help to Save side of things.

Joseph Surtees: On that point, I would say—and this is applicable to both—that a lot of the behavioural research in this area talks about a process called hyperbolic discounting, which is to do with the fact that the further away something is, the less appealing it will be. So, any mechanisms we can have in any of these products that allow people to access them before two years, in the case of Help to Save, or before much further in the future, in terms of the LISA, will appeal and widen the eligibility a lot more.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Q Some of the evidence we have taken this morning has already been more about long-term savings. In the evidence you presented just now, you emphasised the issue of accessibility and the need for people to be able to access their savings quickly to deal with external shocks. What kind of products do you think would be beneficial for people on low and average incomes for longer-term saving?

Ed Boyd: On the flexibility point in terms of accessibility of savings, there is a question. We produced a short paper on Help to Save off the back of a round table of experts in this area. One of the questions that kept coming up was whether there should be some friction for people taking out the money. For example, if someone starts to save for two years with the best intentions to make sure they get their Government bonus, but has one day of giving up on that plan, it would completely undermine it and they would not get the Government bonus. Potential frictions can be put in such as a 24-hour delay in taking out the money. I think that would be completely reasonable.

Where appropriate, someone could name a third party—a family member, husband, wife, carer or whoever—and when they say, “I want to bring it down in 24 hours”, that person is texted to make sure that there is enough friction to ensure that when the money is drawn down as a rainy-day fund, it is used for rainy-day activities and things that they really need the money for, rather than just for general expenditure. This would encourage people to save and make sure the money is used to help stop them getting into problem debt.

Joseph Surtees: I think there are two interesting points here, one of which is on Help to Save. There is a system in the UK that has proved very good at encouraging low-income people to save over a long period, and that is pensions auto-enrolment. So far, the opt-out rate for that is far lower than anticipated. It is only 10% when it was anticipated to be a quarter. People who are enrolled and have not opted out are those just above the enrolment limits.

That sort of approach is incredibly useful in this area, particularly for low-income people. When you look at products such as Help to Save, such as LISA, perhaps, if you can look at how to incorporate an auto-enrolment element into that—with Help to Save, you can in particular do it through the universal credit system. Universal credit has personal budgeting support which helps you to do that. Those sorts of little behavioural incentives will help to make it appeal and work better for these lower-income individuals.

--- Later in debate ---

[Kelvin Hopkins]

I would like to ask several more questions, but I will not.

[Maria Caulfield]

Q In your professional capacity, do you advise your clients to have pensions or savings or do you advise them to have both?

Bryn Davies: I do not give independent financial advice. I have to be very careful on that. I always promote the advantages of collective schemes and point out the advantages of having occupational schemes, and support unions when they are negotiating the best possible collective provision. I do not advise individuals about how to use their money.

[Maria Caulfield]

Q I am interested in why industry experts seem so against these schemes to encourage people to save, when we have heard from the experts in social mobility that these are good schemes to start people off on the savings process. Do you have a reason why that difference would be?

Bryn Davies: It is this interaction. There are all these different vehicles for providing it and the way they interact is not entirely clear. That is why we do need some sort of overarching review—a review of saving sounds quite attractive—specifically of pensions tax relief, so that we do not have these one-off initiatives where it is unclear exactly how they fit into the overall approach of encouraging saving. Taken individually, you could well say this is a good idea, but it is how they all work together that is the problem we face. That is why I am saying that, at this crucial stage of automatic enrolment, we should take a bit more time over introducing LISAs.

[The Chair]

We have two minutes and two Members who want to ask questions. Jeremy Quin.

--- Later in debate ---

[Kelvin Hopkins]

Q I am somewhat sceptical about the myriad private savings schemes and have argued the case for a much more comprehensive compulsory state savings scheme for everyone, on top of which people could save in other ways as well as in stocks and shares. What would be the case against having a universal state earnings-related system with defined contributions and defined benefits, which would be extremely efficient to operate, easy to administrate and which everybody would know they were going to get a good deal from? What would be the argument against that?

Calum Bennie: I don’t think there is an argument against that.

[Maria Caulfield]

Q I want to get to the bottom of the evidence that we were given earlier, especially from the experts and professionals in this sector, that these schemes—whether it is Help to Save or the LISA—are too complicated for those on a lower income really to grapple with, and therefore won’t be taken up and won’t be of use. What’s your experience? Do you think the way that these schemes are being set up is easily understandable and will encourage those on a low income to save?

Calum Bennie: We certainly don’t see any issue with that. If it’s us who are going to be promoting these schemes, then we will certainly make sure that our communications are clear and that they are researched in the first place. For instance, our ISAs—that is the basis of this product; it’s an ISA, with various add-ons—are as complicated or as non-complicated as you want them to be, and they are understood extremely well by our customers.

[Maria Caulfield]

Q Can you understand why some professionals in the financial industry sector are so against these measures, and yet those who promote social mobility are quite supportive of them? Can you understand the rationale as to why some people in your sector are not so supportive?

Calum Bennie: Perhaps they haven’t actually had the experience of working with lower to mid-income groups.

[The Chair]

Would any more Members like to ask questions? If not, I thank the witness for the evidence that he has given. We will now move on to the next panel.

Examination of Witnesses

Martin Lewis OBE and Jonquil Lowe gave evidence.