Financial Guidance and Claims Bill [HL] — House of Lords, 2017-09-11
Topic: Domestic Commerce
Jean Lesley Patricia Drake (Labour, Centre-left): My Lords, Amendment 63 places a requirement on the FCA to make rules requiring information about the availability of advice and guidance from the new body to be given by relevant organisations to individuals who would benefit from it—otherwise referred to as signposting If the new body is to deliver on its function to increase people’s ability to manage their financial affairs, there needs to be public use of the guidance. It has to have extensive reach. Experience shows that simply relying on high levels of marketing expenditure is not a cost-effective way of engaging with the public, although from time to time there may be a good reason for running a focused bespoke campaign and, in certain defined circumstances, there is a role for compulsory referral to the guidance service Two effective levers for driving public use—they are not exclusive but they are effective—are achieving high levels of public trust by delivering a service which has a spreading reputation for impartiality and efficiency, and the relevant organisations such as market providers and other key bodies actively signposting those who would benefit from it to the guidance available. Evidence of the public need for guidance has been well rehearsed in this Chamber. Research by the Money Advice Service reveals that across a range of measures, financial capability and resilience has got worse over the past 12 years, and other reputable data sources confirm this. Effective signposting will improve the public use of guidance and, in some circumstances, address the known barriers put in place by some providers who are reluctant to see their customers accessing impartial guidance for fear that it increases the risk that they will not buy a product or a service from them. Effective signposting means not just compliance but organisations actively promoting the guidance service. The Government expect the FCA to review its rules on signposting, but that leaves room for ambiguity, argument and yet more consultation. This amendment would remove any ambiguity and would put into the Bill a requirement on the FCA to set rules to secure the effective signposting to guidance for those most likely to benefit from it. On pensions guidance there is currently a legal requirement on providers to signpost to Pension Wise. DWP figures show that of the people who use Pension Wise, 58% heard about it from their provider and only 8% from advertising. The take-up of Pension Wise has been modest, but I suspect that that is in part because some providers have not actively signposted and in part because, in the first year of pensions freedom, those accessing pots would have included many for whom their DC or AVC pot would not have been a significant part of their retirement income. That will change over time as DC savings become more dominant. The use of guidance will increase, as indeed the Pension Wise figures are increasing Signposting to TPAS dispute services is captured in various occupational, personal and local government pension scheme regulations—some 12 sets in all, I think. My amendment would strengthen the FCA duty to set rules on signposting across the financial guidance space. Signposting needs to happen at the right point for those who would benefit from it and be actively supported by providers and other relevant organisations. The ABI has worked with the existing guidance bodies on signposting, such as on the template for Pension Wise, with the result that more people hear about the service through that route. They have indicated that they want to work with the FCA and DWP to improve communications and promote the use of Pension Wise as the norm But there is no unanimity of view in the industry. Some providers set up guidance units as part of their own commercial proposition and not all will want to actively signpost customers to impartial and independent guidance which could impact on their own company sales and customer retention. It is estimated that, by 2030, workplace defined contribution schemes will hold £1.7 trillion, five times the £340 billion held in 2015. As DC savings become the new norm, the need to support consumers will increase. The FCA’s recent Retirement Outcomes Review Interim Report scopes the problem well, observing that pension freedoms have made retirement decisions much more complex than ever before, and that consumers can struggle to understand their options and to think through the implications, leading to decisions which may not be best for them. They can choose the "path of least resistance" on drawdown and stay within the walled garden of their existing provider without shopping around. Some 94% of non-advised drawdown sales were made to existing customers. Some consumers cannot, or will not, engage with these decisions. Not all of them will take advice because of its cost and availability— a market gap.