Savings (Government Contributions) Bill — House of Lords, 2017-01-12
Topic: Labor
Denis Tunnicliffe (Labour, Centre-left): My Lords, I start by welcoming the Minister to the esoteric world of Treasury legislation. In the light of the debate so far, she is no doubt taking some comfort in the words in parenthesis after "Second Reading", which read "and remaining stages". The noble Baroness will not always be quite so lucky I thank the Minister for introducing this Bill and those who have spoken in this debate. I will do my best to follow the pension experts and my noble friends Lord McKenzie and Lady Drake, who did a far better job than I could ever hope to do in mapping out the implications of this Bill for the pensions landscape Labour supports measures that allow more people to save for the future. At a time when household debt stands at record highs and when having tens of thousands of pounds of debt is regarded as the norm for many young people, policies that can contribute to bringing about a culture change towards saving must be welcome. That being said, we are not sure that the two measures outlined in the Bill—the establishment of a lifetime ISA and the Help to Save scheme—will do what they are designed to do. More worrying is the concern from some sectors that they will undermine the progress that has been made, specifically on auto-enrolment I will pick up on three points that have attracted cross-party consensus and discuss some of the issues that have arisen since this Bill left the other place: how lifetime ISAs will impact the pensions market, appropriate advice services and the factors involved in the Help to Save scheme One of the most contested aspects of the Bill is the impact that these measures, particularly the lifetime ISA, will have on the broader pension savings market. The Minister in the other place has said that the new ISA and traditional pension products are complementary, but pension experts do not share that confidence. Indeed, in the case of one or two pension experts, particularly the noble Baroness, Lady Altmann, that is something of an understatement. We must avoid adding to the already complex quagmire that is the pensions landscape. These proposals came out of a government consultation on reforming pensions tax relief in July 2015, which seemed to acknowledge the scale of the challenge that reform would present without providing conclusions on how to tackle these challenges. Instead, the then Chancellor, George Osborne, stated that it was clear that there was no consensus We are concerned that these policies have been thought up without full consideration of the short and long-term implications. The FoI request by New Model Adviser confirms that the DWP has not carried out its own assessment of auto-enrolment opt-out rates caused by the lifetime ISA because there is a Treasury assumption that people will not opt out of workplace pensions. Therefore, it did not feel the need to carry out its own separate evaluations My colleagues in the other place asked the Government to consider reviewing annually the impact that the lifetime ISA was having on the rate of auto-enrolment. The response to the FoI request said that the DWP regularly meets the Treasury to discuss pensions and savings policy, but I wonder whether the Minister can expand on that and explain, in the light of this new information, why a review would not be appropriate. I believe that many of the fears voiced about the impact of this scheme on auto-enrolment could be sensibly assuaged if we knew that a regular review was being carried out. As Tom Selby, senior analyst at AJ Bell, said: "At this stage we are totally blind to the number of people who could opt out of a workplace pension ... Ideally the government would have tested how the lifetime ISA will interact with auto-enrolment ahead of the product’s launch next year" The Work and Pensions Select Committee was unambiguous when it said: "Opting out of AE to save for retirement in a LISA will leave people worse off" A review would ensure that if such trends were identified, the worst effects could be mitigated. It is difficult to understand how the Government can disagree with something that seeks to safeguard one of the few positive changes to have taken place in the pensions industry in recent decades. I would be grateful if the Minister could address these concerns I now turn to the issue of appropriate advice which should accompany the rollout of lifetime ISAs and the Help to Save schemes. The Work and Pensions Select Committee, which I have just quoted, was clear about the possible negative impact that switching to a lifetime ISA could have on a person’s finances. Therefore, it is crucial that such implications are widely known and that information about these products is easily accessible. The FCA has stated that investors in the lifetime ISA should be given a specific risk warning about incurring the early withdrawal charge, which would lead to them receiving less from their lifetime ISA than they paid in. There are clearly concerns about how the product will work in practice. I think that the following quotation speaks volumes: "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" That was Andy Haldane, the Bank of England’s chief economist. When he admits that pensions have become so complex that even he cannot make the remotest sense of them, I think it is time to reflect on the quality of the service being provided In Committee in the other place the Financial Secretary to the Treasury stated that people would be able to access the relevant information about these products through government websites, as well as by working with the Money Advice Service and its successor. What materials do the Government envisage that the MAS will produce, and how do they intend to ensure that, once the MAS is abolished, continuity in the accessibility and accuracy of information will be ensured? Furthermore, what correspondence have the Government had with the FCA regarding communication requirements? This concern has been echoed by a number of speakers in this debate. Surely we are entering an ever-more complex scene, with less and less assurance that the right advice will be available I turn finally to the Help to Save scheme, which has been designed for those in receipt of universal credit or working tax credits. As the IFS has stated: "Key issue is whether those who use Help to Save will be the under-savers" The saving gateway scheme, piloted in 2010, offered similar support. However, the IFS evaluation found, "no evidence of an increase in overall savings" Can the Minister explain how the Government have used this lesson and adapted the current scheme appropriately? Furthermore, can the Minister expand on the rationale for the two-year limit? It would be useful to get a better understanding of the Government’s thinking on this matter I will close as I began, by thanking those who have spoken in this debate. I look forward to the Minister’s response.