Savings (Government Contributions) Bill (Third sitting)

Debate between Peter Dowd and David Rutley

Thursday 27th October 2016 Public Bill Committees

[Peter Dowd]

I genuinely do not think that ours is a defeatist attitude. The responsibility of this House when we pass complicated laws, which we do all the time, is to make clear what they mean. I would rather we spent more time in here dealing with these matters, teasing and winkling out the issues, and being clear about what we mean. I would rather spend 10 hours in here dealing with an issue and sorting it out than one hour in here and 10 hours out there trying to unravel it.

[David Rutley (Macclesfield) (Con)]

I understand the hon. Gentleman’s point. However, I agree with my hon. Friend the Member for Bexhill and Battle in his previous comments. In the Hansard of the witness hearings, Martin Lewis is very clear:

“The argument that they are too complicated is just a complete load of palpable balderdash.”––[Official Report, Savings (Government Contributions) Public Bill Committee, 25 October 2016; c. 56-7, Q100.]

Those are not my words but his. He went on to say that there might be sections of the industry that think that they have products that could compete with those in the Bill, but if there is a product that is right, we should be getting on with introducing it.

[Peter Dowd]

There is a danger of an “angels dancing on a pinhead” argument here. Mr Lewis said that an assertion had been made—an assertion attributed to Mr McPhail—that this was a complicated product, and that has clouded the issue. I am trying to get clarity that that was not what was said. It is not the product per se that is complicated; it is the landscape in which it is delivered. There are so many products that people may get confused, depending on how much information and simple terminology they are provided with. All I am trying to do is pin this issue down.

If, having been auto-enrolled in a pension, someone opts out of it to go into a LISA, it is important that they have all the boxes ticked and understand exactly what they are doing. I say that only because of the point I made earlier. There have been so many scams and so much mis-selling in the past that when we introduce a product that some see, rightly or wrongly, as being in direct competition with a pension, we must ensure that people make their decision in full knowledge. We are trying to tie independent financial advice into the legislation. The Government may or may not accept that; that is a matter for them. I am trying to put the idea into the mix and get discussion on it.

Savings (Government Contributions) Bill (Second sitting)

Debate between Peter Dowd and David Rutley

Tuesday 25th October 2016 Public Bill Committees

[Peter Dowd]

Q Thanks. I have a question for Ms Lowe. I do not know whether you have a comment on my original statement. If you do, please feel free to give it. Also, a distributional analysis by the Women’s Budget Group shows that by 2020, single female pensioners will experience a whopping drop in living standards. Is there anything in this product, for the sake of argument, that you think will help to deal with, alleviate or mitigate that?

Jonquil Lowe: No, we do not. That is the short answer. Martin touched on this: is the money being given to the right people? Certainly the lifetime ISA is less regressive than the existing system of pension tax reliefs, in that it gives a flat-rate 25% bonus to everybody. However, we still think that this is a very regressive way to use taxpayers’ money. Simply making a product available to everyone does not make it gender-neutral. You also need to take into account people’s opportunity to take up these products.

The lifetime ISA targets people who can already afford to save. There are huge swathes of people, mainly women but some men, who are contributing to the economy in the form of unpaid work, rather than paid work. Their decisions on care—caring for children and adults—mean that they are more likely to be in part-time work and are more likely to have periods out of work. When in work, they are more likely to be in sectors where their earnings are low, which tends to affect them not just at that time but for the rest of their working life. It is much more difficult for women to take advantage of these products, so we do not really see the lifetime ISA as a solution to women’s poverty.

We are also concerned, as Martin said, that the lifetime ISA may be a simple product, but it throws up complex decisions. The worry is that people may well choose to go with the lifetime ISA, rather than a pension, simply because it seems a simple product and they feel that they have more control, but in doing so, they are going to lose the employer’s contribution under automatic enrolment. They will be making decisions that are actually not in their best interests, which is a concern to us.

[David Rutley]

Q Mr Lewis, you mentioned some concerns about transitional arrangements between help to buy ISAs and LISAs. Could you expand a little on that? I then have a question to both of you. One of the issues with financial service products is getting younger people interested in them. The great thing about the lifetime ISA is that it applies to youngsters at 18. We have some young people in the audience from Macclesfield. How would we seek to get young people more interested in these products early on?

Martin Lewis: First, there is a difference between the two. The help to buy ISA is available at 16, which is one issue. The second issue is that help to buy ISAs are limited to properties worth £250,000, or £450,000 in London, but for the lifetime ISA it is £450,000 across the country, which is a good thing.

Here’s where it gets rather complicated. You can use a help to buy ISA effectively after three months. You need £1,600 in it; that’s £1,200 in the first month, and £200 each month for two months. We have some people who have done it in two months and thirty days. We are allowing people to transfer their help to buy ISA into the lifetime ISA within the first year, which is a good rule, because it allows people to move it across and then they can put more in their lifetime ISA. However, the lifetime ISA has a one-year minimum hold before it can be used on cash, so I could have had a help to buy ISA for three years, transfer it across into the lifetime ISA and then save more money in, and then suddenly discover that I cannot buy the house that I want and have found, even though I have been saving in the help to buy ISA for three years, because I have to have held the lifetime ISA for a year.

A simple arrangement to fix that would be to ensure that the trigger-point, if you transfer a help to buy ISA into a lifetime ISA, is the start-point of the help to buy ISA, not the start-point of the lifetime ISA, so you would have had your year. Those are the types of transitional arrangements I am talking about. They are not big-picture, I think, even at this stage of a Bill Committee, and they are ones that we have had a discussion on the phone about.

The other classic thing that I would be very wary of—I will throw this in while we are talking about this—is that, as I have suggested, both these products will not be perfect. There will be unintended issues, such as the help to buy ISA issue—that it was a mortgage deposit, and some people thought it would exchange. It always was at that point, but it was revealed by the newspapers. I would strongly suggest that with both these products, there is a pre-arranged one-year review, where minor terms can be tweaked to make better products, and where we discover the things that none of the clever people who have given evidence or who are sitting around the table have thought of yet. That’s a sensible way to introduce products such as these, which are so complicated—especially the lifetime ISA—to be honest with you. Those are the types of transitional arrangements I am talking about. Forgive me, what was the second part of your question?