Financial Guidance and Claims Bill [HL]

Viscount Thurso Excerpts

Report: 2nd sitting (Hansard): House of Lords
Tuesday 31st October 2017 Lords Chamber

[Viscount Brookeborough]

My Lords, I support the amendment and I thank the noble Lord, Lord Deben, for saying half of what I was going to say.

However, I should like to add one other point. Yes, this is about protection of the consumer and, secondly, advice. However, there is another word for advice: education. This is not simply about advice for people who go to the right places—very often they do not know where to go unless the advice is put in front of them—but about educating people. In our report on financial exclusion and in the FCA report, it is absolutely clear that there has to be continued learning and education throughout people’s lives. They are at school and then go to their first job and may not be able to save much money. Then they think of settling down, then they want a mortgage, then they want a car and so on—and then they want a pension.

We must look at the fact that a vast proportion of post-graduates—I do not have the figure in front of me now but we have all heard it recently—say that the most important omission from their education is financial education. It is therefore not a wonder that we have to do this. Taking the amendment in isolation, I can see why the Government may not want to accept it, because it is another addition to the legislation. However, it would not be so important if the Government accepted that education in schools should be not only controlled but monitored to ensure that it takes place. However, other things have been allowed to lapse. There are not the checks and the compulsory education, which should start at school and then continue. If there were, people would automatically want to be more educated in financial affairs as they go through life because they would know of their importance at an early stage. This is why this kind of amendment must be brought in at this stage to educate people and keep them in line for the future part of their lives.

[The Viscount Thurso (LD)]

My Lords, I have followed the passage of this Bill with great interest but I have not felt the need to intervene. However, today I support my noble friend in this amendment based on two experiences.

The first is as a trustee of the Parliamentary Contributory Pension Fund, which, as I am sure many Members know, is a well-run fund and gives a great deal of excellent advice. However, it is always surprising to discover how many well-educated, highly numerate and literate people fail to grasp much of what there is to do with pensions. If those of us who regard ourselves as reasonably well educated, quite numerate and quite literate are having difficulty with pensions, it stands to reason that many people who have not had those advantages will have even greater problems. To my mind, therefore, the need for advice is a case that is clearly made.

The second experience arises from my time on the banking commission of the Treasury Select Committee in another place. We worked extremely hard to ensure that the Financial Conduct Authority had a proper consumer remit. I am delighted that the Government accepted what we had to say because the FCA has proved to have undertaken the remit well and with a degree of teeth. If we want to ensure that a regulation works, we must make sure that the person promulgating it has teeth. It is absolutely right that the FCA should be the body to make the regulations and to follow up on them.

In summary, it would not surprise me if there is considerable resistance from the Treasury, but that is simply a manifestation of its well-known terminal “not invented here” syndrome. Experience shows that where the Treasury is obliged to take on regulation, it comes round to accepting its wisdom in due course. The test of this amendment, therefore, is not “Why should we?” but “Why shouldn’t we”.

[Lord McKenzie of Luton (Lab)]

My Lords, I have added my name to this amendment. We support not only the manner in which it was moved by the noble Lord, Lord Sharkey, and spoken to by the noble Baroness, Lady Altmann, but all other noble Lords who have spoken in support of it. The noble Baroness, Lady Altmann, said that it was about making the system work better, while the noble Lord, Lord Sharkey, reminded us that it is not about making this mandatory. The noble Earl, Lord Kinnoull, talked about the need to look at pensions. We have looked at mortgages in the past, but now is the time to make sure that pensions are fully protected. The noble Lord, Lord Deben, said that having freedoms is one thing, but being able to use those freedoms effectively with financial knowledge is important. The noble Viscount, Lord Brookeborough, reminded us again of the importance of financial education and the noble Viscount, Lord Thurso, outlined the importance of the FCA.

Amendment 24 is clear in its purpose. The FCA must require all trustees and managers of pension schemes to ask people, at the point at which they seek to access or transfer their pensions, whether they have received the information and guidance available to them from the new financial guidance body under Clause 3. If they have not received that guidance, the FCA may require the trustee or the pension scheme manager to provide the individual with access to it before the manager proceeds with the access or transfer request. In effect, the FCA can require that people at risk are defaulted into guidance through their scheme.

Public pension policy is now predicated on, effectively, dividing pensions into two elements: a saving phase and an access phase. In the saving phase, the barriers to individuals’ acting in the face of complexity, which inhibits optimal decision-making, are recognised and regulated defaults have been introduced—auto-enrolment and default investment funds. In the access phase, policy assumes behaviours to be dramatically different, with individuals bearing direct responsibility for making good choices, even though the evidence is clear that they need more support. People are nudged by public policy to save, but they are left to their own devices when accessing or transferring their savings. As the chief economist at the Bank of England, Andy Haldane, commented on 18 May at the annual dinner of the think tank New City Agenda,

“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”.


The radical reforms to accessing savings, introduced in the 2014 pension freedom and choice flexibilities, introduced new risks attached to individual decision-making, which will only increase over time as more pensioners become dependent on defined contribution savings. Many people are not well-equipped to make informed decisions. Many of the pension draw-down products do not have the governance and value for money requirements that workplace pensions possess in the savings phase. The prevalence of scams has increased as a direct result of the new freedoms as, increasingly, fraudsters try to get hold of people’s hard-earned savings.

As the FCA observed in the interim report on its retirement market study following the introduction of the new pension freedoms, consumers are poorly placed to drive effective competition. The retirement income market is not working well and the introduction of greater choice and more complex products will reduce consumer confidence and weaken the pressures on providers to offer good value.

The governance of the UK private pension system remains a challenge and the creation of the single financial guidance body is intended, in part, to address market failures and support people to make informed decisions that are in their interest. That will happen only if people access the guidance available—if those at risk of poor decisions use it and are referred to it before they make their decisions or their decisions are implemented. That is precisely what the amendment seeks to achieve, by requiring trustees and scheme managers to ask people whether they have taken the guidance available before they access or transfer their pensions and, if necessary, by requiring the trustees and managers to provide access to that guidance, in line with rules drawn up by the FCA, before proceeding to implement the individual’s decision. Requiring providers to ask people before they make their decision whether they have received guidance from the new body will improve public knowledge of the service and, in some circumstances, address the known barriers put in place by some providers that are reluctant to see their customers access impartial guidance, for fear that they will not buy a product or service from them as a result. Requiring trustees and managers to provide access to that guidance before proceeding to act will directly help to protect savers from making poor decisions.

The case for the amendment is also provided by the FCA’s recent Retirement Outcomes Review: Interim Report. The FCA observed that,

“pension freedoms have made consumer decisions much more complex … consumers struggle to understand their options and to think through the implications of their decisions … leading consumers to choose what … may not be the best decision for them”.

Some consumers cannot, or will not, engage with those decisions. Not all will take advice because of its cost and availability. That is a market gap. Indeed, the FCA expressed concern about whether a competitive market in retirement products can ever develop in the future. It identified four areas of remedy, one of which was to get savers to use the free and impartial guidance. That guidance is currently available from Pension Wise, the Pensions Advisory Service and Citizens Advice, but will transfer to the new body. The FCA explicitly recognises that favouring more guidance will,

“require cooperation across the Government, regulators”,

and industry. The amendment is an important requirement in securing that co-operation and protecting the increasing number of vulnerable savers. For the vast majority of people, a poor financial decision at the point of retirement or on transfer is a mistake for life. It cannot be remedied.

In conclusion, if noble Lords needed further reason to support the amendment, I refer them to the briefing from the Association of British Insurers on the amendment, delivered yesterday evening, which states:

“Enhancing access to advice and guidance is essential, and the SFGB has the potential to play a crucial role in helping more people understand their pension options. This should include exploring with industry and the DWP how we can make the use of guidance a recognised, positive norm when people choose to access their pension savings. The ABI would like to explore how this could work in practice, for example through options such as defaulting or auto-enrolling customers to guidance, earlier retirement communications to prompt people to use guidance, and introducing a Midlife MOT”.


I urge support for the amendment.