Financial Guidance and Claims Bill [Lords]

Mark Tami Excerpts

3rd reading: House of Commons & Report: 3rd sitting: House of Commons
Tuesday 24th April 2018 Commons Chamber

[Crispin Blunt]

I am grateful to the hon. Gentleman, and I agree. He will note the very distinguished role that his predecessor played in the whole business of promoting equity release. It ought to be a really major option given the construction of people’s resources and where they sit on the scale of property ownership in the UK. We need to be clear about how important an asset it is and how important it is to make sure that this industry has the opportunity to give the best possible service to people in their life plans.

Consumers must obtain qualified financial and independent legal advice before they confirm their decision to go ahead and purchase any equity release product. Guarantees include the right to remain in the property for life or until moving into long-term care. Another key safeguard provided by members of the Equity Release Council is the “no negative equity” guarantee, whereby the repayment of the loan is never greater than the value of the home.

A major reason why the single financial guidance body signpost should include housing wealth is the growth in the equity release sector. Homeowners released £3 billion worth of equity in 2017, with 37,000 new customers signing up for equity release products for the first time.

[Mark Tami (Alyn and Deeside) (Lab)]

The hon. Gentleman keeps saying that this is about releasing equity. What people are actually doing is borrowing against the perceived wealth of the property.

[Crispin Blunt]

They are not borrowing against the perceived wealth of the property—it is the actual wealth of the property. If someone is in a position of planning for their retirement and they do not have an adequate pension pot, and given the scale of the imbalance between people’s assets in property as opposed to the pension provision they have made, it is obvious that, in making the assessments for their retirement, they should consider accessing the wealth they have accrued that is in their home.

With 37,000 customers signing up for equity release products for the first time in 2017, the number of these products has also risen enormously over the last decade—by 225%—and 78 product options with the necessary range of flexibilities are now available. This can only improve and grow as the industry develops. Consumers utilise equity release for various reasons, such as paying off a mortgage, making adaptations to the home, boosting retirement income, or as a means of providing deposits to children and grandchildren to enable them to take their first step on the housing ladder. Equity release can help in meeting some of the challenges in social care and in housing.

We should be more ambitious, ensuring that the new body signposts solutions such as equity release to all those we represent who might really benefit from unlocking the main source of their wealth overall, which will be the equity in their home. I look forward to hearing from the Minister how we are going to make a reality of that in practice through the guidance.

--- Later in debate ---

[Jack Brereton (Stoke-on-Trent South) (Con)]

I am pleased to be called to speak in this debate, Madam Deputy Speaker, because the issues are of particular interest to me as a member of the Work and Pensions Committee. I want to reflect on some of the evidence the Committee has heard in its inquiry into pension freedoms and choice, as it relates to some of the changes proposed in the Bill.

While I am extremely supportive of the work the Government have done to increase the freedom of our constituents in respect of their pension savings, it has undoubtedly created new challenges that must be addressed. I am pleased that the Bill has been brought forward as an opportunity to address them. The first challenge is advice. It was apparent from our sessions on the British Steel pension fund that those who find themselves needing to switch often struggle to get the advice they need. There were mixed experiences, with some people receiving very good local advice and others receiving very bad advice or none at all.

[Mark Tami]

On the British Steel pension scheme, does the hon. Gentleman agree that the FCA has been very slow to react, when it was clear in certain locations that there were many problems with the way some people were advising people to get out of the scheme?

[Jack Brereton]

That issue certainly came up in our evidence. Those who saw our evidence sessions will know that there was quite a significant grilling of the FCA.

Those experiences show that some irrational decisions—often described as “emotional” decisions—were made in the moment. Sadly, those short-term decisions were not the best investment decisions for the longer term. Unfortunately, this vulnerability—the vulnerability of immediacy or a form of panic, one might say—allowed predatory vulture companies to take advantage of an emotionally charged situation, with people reinvesting their pension pots without the full, impartial advice that is needed. Those vultures exploited scheme holders, framing what they were doing as giving impartial advice, when it was nothing of the sort. Many people felt that they were not fully informed of the consequences of the complex investment decisions they were having to make.

The accessibility of free independent advice in such situations has, in some cases, been woefully limited. More generally, the often perplexing nature of pensions leaves many people making decisions about their investments that are not necessarily in their best interests. Evidence presented to the Select Committee by the Association of British Insurers from the FCA’s “Financial Advice Market Review: Baseline report” suggests that not even one in 10 UK adults—just 6%—had received regulated financial advice. Worryingly, 25% of people who needed advice about their finances did not access it.

There are a number of reasons why our constituents are not accessing the advice they need, but what has been demonstrated is that not enough people are currently accessing the free independent advice that is available. The Association of British Insurers suggested that although 44% of people who are approaching retirement had access to some sort of advice, only 10% used the Pensions Advisory Service and only 7% used Pension Wise. The lack of clear advice combined with confusion about who to trust for independent advice has made it too challenging for those making investment decisions. Not enough people are getting the advice that they need to make properly informed judgments.

Secondly, we also found that very limited numbers of people are making the active decision to shop around and switch providers. Often, the tendency of those changing schemes is to stick to the same provider, so switching—active consumerism—is another challenge. There are, of course, a number of reasons why people might find it difficult to switch providers, not least the lack of good information and advice about the choices available, as I just related. It is also a major barrier to consumer activity, so I am pleased that part of the Bill proposes to create a single guidance body. That will make it much clearer for our constituents to see where they can turn for the right advice to make informed decisions and manage their finances for the future.