Savings (Government Contributions) Bill
Public Bill Committee, 25 October 2016.
Examination of Witnesses
Peter Dowd (Labour, Bootle)
This is to Ms Knight. In a press release response to the Budget, you welcomed the lifetime individual savings account and said:Q
“The Lifetime ISA will encourage further tax-exempt saving and a dedicated account to save for a home and save for retirement.”
How do you perceive the marketing of the LISA in relation to traditional pension products?
Peter Dowd (Labour, Bootle)
Ms Braun, would you like to comment on that question?
Peter Dowd (Labour, Bootle)
Q You mentioned the potential confusion. How do you think that could be avoided, because there is concern that these things will either meld or send out a confusing message?
Peter Dowd (Labour, Bootle)
Q To follow up on Carol’s comment earlier, you have expressed disappointment about the early withdrawal charges.
Peter Dowd (Labour, Bootle)
Okay. In the past you have expressed disappointment about early withdrawal charges. What would you suggest instead?
Peter Dowd (Labour, Bootle)
Q Okay. It has been reported that many financial providers may not want or be able to offer a lifetime ISA by the time of its launch. Some have ruled out participating in it altogether. What is your organisation’s view on that?
Peter Dowd (Labour, Bootle)
Q Do you think that the proposed lead-in time is reasonable?
Peter Dowd (Labour, Bootle)
Q I will come to Ms Braun in a second, but on that point, what is your assessment of the awareness of employees and employers of this particular scheme—the lifetime ISA? It is a short run-in period.
Peter Dowd (Labour, Bootle)
Q How about awareness, given that you think the run-in period is pretty tight?
Peter Dowd (Labour, Bootle)
Q I will ask you both to answer this one, if I may. Would you welcome a deferral for a period of time, beyond the suggested introduction date?
Melanie Onn (Labour, Great Grimsby)
I wonderQ whether I could follow up on the point about some financial providers choosing not to participate in the scheme at all. Do you have any further information on that? Do you have any percentage figures for organisations that are either not going to be ready or are not choosing to participate in the scheme at all?
Jeremy Quin (Conservative, Horsham)
May I pick up on a couple of points made by the witnesses? First, a powerful point was made that, although auto-enrolment has been a success, the self-employed do not have access to it, and this is an option, a vehicle, for the self-employed to improve their long-term savings. Could you expand on that?Q
Jeremy Quin (Conservative, Horsham)
Q I am grateful—it is 15% and 50%. I am a glass-half-full type of person, but I am sure the points were noted.
The other point I want to tease out is the reference to not everybody being ready, and the potential for delay. Hearing what Carol was saying, in particular, I take it that there is no sign that there will be an insufficient number of people to provide a market. There will be a market, and if people have to catch up they will have to catch up. We are offering a good product at an early stage—would that be fair?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
A lotQ has been said about auto-enrolment and those who have been left behind in the process up till now—the self-employed. Given that we know there is going to be a review of auto-enrolment in 2017, is there an argument for postponing this until we deal with auto-enrolment and those who need to be included?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q How concerned would you be on that issue, Yvonne, particularly given what you said previously—that nobody will be better off with an ISA than they would be with investing in a pension scheme? I think that the figures that you gave to the Work and Pensions Committee were quite illuminating, because they demonstrated that someone earning £25,000 a year and putting 4% of their salary in over a 40-year period would be 33% worse off with a LISA. How concerned are you that people may be seduced into investing in a LISA over the opportunities and the benefits of investing in a pension?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q In order to achieve that, how would you architect the guidance and advice that consumers need to get, to make sure that they don’t fall into the trap of investing in an ISA when a pension would be better for them?
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
IQ want to continue along very similar lines to the previous questioner, because I was also very struck by the evidence that the Association of British Insurers submitted to the Work and Pensions Committee. I particularly note that a £25,000-a-year salary would be roughly the average female salary in this country. There has also been quite a lot of talk today about people on lower incomes, and it seems to me quite striking that if you are a person on an average or below-average salary, it is unlikely that you are going to “max out” your employer contributions or your annual allowance in any given year. So it does not seem to me that there are many advantages for a low or average-wage person in the LISA, and it seems that they would be better advised to invest in a pension. Looking at the discrepancy pointed out in the evidence, that could be £53,000 over a lifetime’s saving. Is it really advisable from a financial perspective to encourage anyone to invest in a LISA if they are on a low or average income?
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Q Would you agree that there is a serious risk of mis-selling in this context?
James Cartlidge (Conservative, South Suffolk)
This is continuing on the same point but looking at it from the other point of view, as someone who has been involved in the housing market a lot. Surely it is not unreasonable that a young person who lives in an area where property is very expensive has an opportunity at last for their savings to be protected, other than in extreme circumstances, from house price inflation, and to be able to play catch-up. The biggest problem in the boom years was that you could save, but prices would be roaring ahead of what you could realistically save. Therefore, quite understandably, someone in that position who is many decades from retirement might think to themselves, “I’m going to put everything into this, because I am desperate to get a home. It is very expensive, but this is an opportunity.” To me, it is surely not unreasonable for someone in that position to make that choiceQ .
James Cartlidge (Conservative, South Suffolk)
Q Obviously if someone gets on the property ladder with a capital repayment mortgage at the age of, say, 25, in theory when they retire they should not have any housing costs—that was the old idea. So we should remember that there is an extra benefit in this. There are many other benefits to home ownership and many aspirations, but I take your point that we have to have the advice in such a way that anyone making the choice knows what the choices are. That, as always, will be the challenge.
Kelvin Hopkins (Labour, Luton North)
I am concerned about the whole idea of persuading people to save when they are young. Is it not the sensible way forward to have a compulsory state scheme for everybody based on income? Young people with either high rent or a mortgage or children are constantly up against it financially—even those with an income better than £23,000 a year, which is a tiny amount for mortgages in particular. Is it not time to say that the Government have got it completely wrong, that all these complicated schemes will not actually benefit the people who really need help—those on low incomes with high expenditures they have to meet—and that replacing all those schemes with a compulsory state scheme with defined contributions and benefits at the end would be much better? If the better-off want to go and invest somewhere else, that is fine, but we are talking about ordinary people on relatively low incomes. Do tell the Government that they have got it completely wrong if you want to—no need to be too politeQ .
Kelvin Hopkins (Labour, Luton North)
Q But the state pension is not earnings-related; it is for everyone. I agree with you—a much higher basic state pension would be a good idea as well—but earnings-related income on top of that means that those on better incomes do not suddenly drop down to the basic state pension when they reach retirement. They are compelled to save so that they can have a comfortable retirement.
Kelvin Hopkins (Labour, Luton North)
Q I have just one more question. If it were a compulsory state scheme with defined benefits, it would not be stock market-related; it would be a state fund. It would be extremely efficient, like national insurance is extremely efficient in how it works, and the whole thing would be better for those retiring at the end of their working lives and also provide a wonderful fund for Government investment in infrastructure or whatever, which would have returns. It is not a new idea. Barbara Castle, a great hero of mine, was talking about this sort of thing 40 years ago, and we are still fiddling around with all sorts of complicated schemes that do not actually provide the benefits that they should.
Kelvin Hopkins (Labour, Luton North)
Q I agree that the Government would not wish to do it for other reasons, but would it not be a sensible idea?
Kelvin Hopkins (Labour, Luton North)
I have made my point.
Lucy Frazer (Conservative, South East Cambridgeshire)
The Bill provides that you can take your savings out to buy your first home. Are there any other circumstances in which you think you ought to be able to take your money outQ ?
Lucy Frazer (Conservative, South East Cambridgeshire)
Q If you were an independent financial adviser and you were assessing the risk for a client, on a scale of one to 10, where 10 is the most risky and one is the least risky, what would you assess the risk as?
Lucy Frazer (Conservative, South East Cambridgeshire)
Of investing in a lifetime ISA.
David Rutley (Conservative, Macclesfield)
How risky is the investment?
Lucy Frazer (Conservative, South East Cambridgeshire)
Is there anything that you would like to add?
Huw Merriman (Conservative, Bexhill and Battle)
I want to pick up on something that Ms Knight said, and I have two questions as a result. First, the complexity of this product has been talked about. If you add the critical illness and redundancy rationales for withdrawal, have you not just made it more complex and are you not turning it more into an assurance or insurance-based product as a resultQ ?
Huw Merriman (Conservative, Bexhill and Battle)
Q The second point was with regard to your suggestion to permit the product to be used for second home owners. Is there not a danger that we already have challenges as it is with first-time buyers getting into the housing market? Effectively giving Government subsidies to help second home purchasers would perhaps strike some as a bit much. What is your observation on that comment?
Huw Merriman (Conservative, Bexhill and Battle)
Thank you.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q I want to come back to the issue of risk. We all know that when you invest in a pension scheme, the trustees will then look at the appreciation of risk that you would expect to take on board. They obviously look at the timeline of when you expect to retire and gear any assets according to that assessment.
If we have a situation here where an individual can invest in an ISA, and can invest up to 100% in equities, they may decide to draw down that pot at any time for a particular type of event. We know that there is always a risk of a downturn in the market. Most actuaries will tell you there is a one in seven year risk of a downturn in the market. Are we not inadvertently exposing consumers to risk? Does it not come back to the point that was raised by my hon. Friend the Member for Banff and Buchan that we are exposing consumers to risk, not just of mis-selling, but of investing in an asset where there could be a risk of a downturn in the market seriously impacting the choices that they then make?
David Rutley (Conservative, Macclesfield)
Q You have talked about some of the issues around signposting and also discussed the pros and cons versus pensions. That is clearly a very big issue. This issue is not quite as big, but do you have any views about the LISA versus the help to buy ISA, and any potential confusion that could cause in the minds of first-time buyers?
Peter Dowd (Labour, Bootle)
Q Mr McPhail, in the information you provided, you give your views on the Bill, and then you say:
“However, in the longer term we believe that the LISA is a misguided policy, emerging from a fudged review of pension taxation and that its introduction makes the decision making process for investors harder rather than easier and that it will therefore potentially undermine savings behaviour.”
Could you elaborate on that, please?
Peter Dowd (Labour, Bootle)
Q You referred to the fact that there are more challenges for investors, and to the effect that those challenges will have. Can you elaborate on what the effects of the challenges will be?
Peter Dowd (Labour, Bootle)
Q Are you concerned, in the light of the fact that you believe that the area is becoming increasing complex, that there is the capacity out there to give the good information and advice that we seem to be getting told we need? It seems to me that the answer to everything we asked was, “More information, more information, good information, good information,” without it being said exactly what that meant. Would you agree?
Peter Dowd (Labour, Bootle)
Q I have a final point and, if I may, Chair, I will ask Mr Wren to make an observation as well. You say that this will potentially undermine savings behaviour, which is exactly the opposite of what anybody wants. Could you tease that out more? It is fine to say that it is complex, but could you put some more meat on the bones? Why will this undermine savings behaviour?
Peter Dowd (Labour, Bootle)
Mr Wren, have you any observations on that question?
Peter Dowd (Labour, Bootle)
Q In the information you provided, you say:
“There are concerns that savers may end up with the wrong investments leading to the wrong outcomes as a result of the route through which they enter the market rather than as a result of a conscious investment decision.”
Again, it is important to try to unwrap that. Could you unwrap it a little more for us, please?
Maria Caulfield (Conservative, Lewes)
Tom, I want to go back to your point that this would make the market too complicated and crowded in terms of what products are available. Is it not true that for a long time, many people have been left out of savings altogether—I am particularly thinking of people on low incomes, the self-employed and those with multiple, low-paid occupations? Actually, there is a lack of culture around savings; it is just not the norm for some people. While the auto-enrolment pension will go some way to addressing the pensions issue, as we heard in the previous session, this is in addition to, not instead of, auto-enrolment. Is it not that the product is right, but the key is getting that advice available to people so they can make that decision? This will open up the market to people for whom savings have not been an option beforeQ .
Maria Caulfield (Conservative, Lewes)
Q You say that in the short term it might work, but in the long term it is not going to help. Why is that?
Maria Caulfield (Conservative, Lewes)
Q To push you a bit further on that, a lot of people only have a pension thanks to auto-enrolment. Do you not agree that anything that gets people saving and that encourages them into a culture of saving, whether it be for their first home or for later in life, is a good thing?
Maria Caulfield (Conservative, Lewes)
Q Is it not better that they have a savings scheme rather than not save at all?
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Q I can see why lifetime ISAs are a very attractive savings option for the very wealthy, high-earning young people, and those who have maxed out their pensions allowance, but to my mind, the real challenge has been encouraging people on low and middle incomes to save for retirement purposes. From what I have heard in evidence so far, you seem to agree that auto-enrolment is an important step forward. Reflecting back on the questions I asked the earlier panel, would you agree that most people on low and middle incomes would be better advised to invest in pension schemes?
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Q Could you say a bit more about the sort of incentives that you think might actually help?
Huw Merriman (Conservative, Bexhill and Battle)
Q You keep touching on the complexity of this product. I have read the blurb in the overview of the Bill and I understand the eligibility criteria—I am too old—and the withdrawal terms. I am inviting you to bamboozle me, as it were. What is so complicated about this product that I am missing?
Huw Merriman (Conservative, Bexhill and Battle)
Q I have one more question. This takes me back to my misspent youth, more than 25 years ago, when for four years as a student I worked for Abbey National as a cashier and customer service adviser. We would sell this type of product. We had a whole suite of products that had penalties if, say, you were five years into a bond and withdrew early. This is not rocket science. We could explain that to our customers, and that was without the benefits of the internet. I am still a bit sceptical about why this landscape is so complex to your members; it does not seem that different, and we were easily able to sell things 25 years ago.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q David, in your submission, you say:
“In particular, there is a concern that cash held in LISAs will only be suitable for those looking to buy a home, whilst stocks and shares will be more suitable for those investing for later life, looking towards retirement.”
Is there not a risk that if an individual invests in stocks and shares and then buys a home at the wrong time because the market has fallen, we inadvertently expose consumers to risk as a consequence of this policy?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q There was this debate about moving from “exempt, exempt, taxed” to “taxed, exempt, exempt”, which was taken off the table. Was this not really just a back-door way for the previous Chancellor to bring forward this policy?
James Cartlidge (Conservative, South Suffolk)
Q I want to carry on with this point about complexity, because it seems to me that you are using the word “complexity” where others might use the word “flexibility”, dare I say. As we discussed with the previous witnesses, it is surely not unreasonable for a young family to be entirely focused on buying property, particularly if they live in areas that are very expensive. Perhaps they are on a short-hold tenancy with less security, and so on. Therefore, when presented with a savings option, they will want to opt for a deposit.
I take your point about help to buy ISAs, but they are going in two years, we understand. Do you accept that the flexibility that comes from a pseudo-pension product that could be used for a mid-life event—in other words, buying a house—is what makes LISAs unique, unlike auto-enrolment? There is a big market for this, and there are a lot of people who would welcome that choice.
Maria Caulfield (Conservative, Lewes)
Q From an industry point of view, which product would make you most money from selling it, a lifetime ISA or a pension scheme?
Maria Caulfield (Conservative, Lewes)
Even a lifetime ISA?
Kelvin Hopkins (Labour, Luton North)
Q I have listened to you both with interest. I have to say that this scheme will do nothing for a high proportion of our population who are less well off and less sophisticated. Again, all these schemes seem to be designed for the better-off and the more articulate. I have had to ask to have my life insurance schemes explained to me two or three times, but I have not got a clue what those who explained it were talking about—and I am a graduate in economics and mathematics. Half the population are not numerate, and a fifth of the population are not functionally literate. We need a state automatic scheme to help people like that, going beyond auto-enrolment—a defined-benefit scheme, and that can only be done in the state sector.
Peter Dowd (Labour, Bootle)
The proposal for the lifetime individual savings account followed a wider public consultation about the future of tax relief in pension provision. How do you think the LISA, as proposed, fits into that wider public debateQ 4747? Mr Surtees first.
Peter Dowd (Labour, Bootle)
Q Given that response, I will try another angle. Some of the suggestions that we have had about the LISA are that although it might well be a simple product on its own, in the context of a wider market full of God knows how many products it just complicates things. Do you have a view on that?
Peter Dowd (Labour, Bootle)
Q Okay. If we’re talking about encouraging people to save in one fashion or another, do you think that Help to Save adds to that in any substantial way? Will people save significantly more as a result of it?
Peter Dowd (Labour, Bootle)
Q Can I just ask, on that basis, how well targeted you think Help to Save is on those with the lowest income? It is all very well to say “Save”, but if you have no money because you are on benefits or have a low income, how well targeted is that particular product?
Maria Caulfield (Conservative, Lewes)
I want to touchQ on one of the points raised in our previous evidence session, which was that someone can withdraw money from this lifetime ISA if they want to buy a home, but if they want to withdraw money for any other reason—you touched on some examples, such as if their washing machine breaks down or they have an urgent need to get money quickly—they face a penalty of between 5% and 6%. Are there certain criteria you would like to see where there are other options to withdraw money without hitting a penalty?
Maria Caulfield (Conservative, Lewes)
Q But do you think that there should be an option for those people to withdraw money quickly rather than just having being able to buy property as a penalty-free reason?
Maria Caulfield (Conservative, Lewes)
Yes, on the lifetime ISA.
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Some of the evidence we have taken this morning has already been more about long-term savings. In the evidence you presented just now, you emphasised the issue of accessibility and the need for people to be able to access their savings quickly to deal with external shocks. What kind of products do you think would be beneficial for people on low and average incomes for longer-term saving?Q
Huw Merriman (Conservative, Bexhill and Battle)
I am conscious that half of UK adults have less than £500 set aside for emergencies. Do you believe that the financial services market has done enough to attract and incentivise savers who are perhaps struggling with income? Do you think that the Help to Save initiative will help to plug thatQ gap?
Huw Merriman (Conservative, Bexhill and Battle)
Q Have you made recommendations to Government about how they can link up with benefit payment providers, local authorities and the third sector to ensure that the market we are talking about is signposted adequately to this type of product?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Have you done any analysis of how many in this target market are currently in the area that would benefit from auto-enrolment? How do you see the interaction between auto-enrolment and Help to Save in that regard? What comments would you make on the incentives there for pension investment against the incentives there for Help to SaveQ ?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q Thank you for that. Those were interesting answers from both of you. Ed, when you talk about how you see that auto-enrolment can deal with some of the challenges that you have outlined, I wonder whether you would see as an example something like an insurance wrapper that would give the kind of benefits that you are talking about as an advancement of auto-enrolment.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Maybe something like an insurance wrapper could give the kind of benefits that you are talking about—people losing their job and benefits and what they could get. There are things you could do perhaps to auto-enrolment that would give the kind of opportunities for people that we are talking about.
James Cartlidge (Conservative, South Suffolk)
I just wanted to ask you about the interaction with debt. You are talking about people who will potentially have payday loans or whatever. FirstQ , will there be legal protection for the savings that they have in respect of those lenders? On the other hand, it may well be the case that the most sensible thing for them to do with their savings, once they get bonuses et cetera, is to pay off some of their debt, especially if it is at a very high annual percentage rate. I wondered what sort of advice there would be.
You mentioned universal credit, where there is quite an important point. The thing that is really good here is that you are getting people into a habit but this is initially clearly for short-term savings, which I think will actually incentivise them more on the realisation that it can help them. It is a matter of how it interacts with the debt dynamic, because a lot of them will be in that area.
Melanie Onn (Labour, Great Grimsby)
I have a quick question. I am pleased that the line of questioning has taken us to problem debt. I am slightly worried that the way in which we are viewing this is through a prism where people are in regular work, on reasonable incomes and perhaps where, if they experience debt, it is a one-off emergency. In fact, a lot of families experience debt over an incremental, lengthier period of time, so they are regularly exceeding their income and then find themselves in a difficult position.Q
When it comes to the lifetime ISA, is it not the case that lots of people on lower incomes and struggling are not going to get the best deal? They will take the cash LISA rather than the investment ISA and will not benefit as much as other people who are in regular work, who are higher earners and already in a much better financial position than people on lower incomes.
Lucy Frazer (Conservative, South East Cambridgeshire)
You have identified that the two different measures, the LISA and Help to Save, are targeted at different people in society. If that is the case, do you see these measures as adding not complexity to the system but more choiceQ ?
Lucy Frazer (Conservative, South East Cambridgeshire)
I have another question, but I presume that that is it.
Examination of Witness
Peter Dowd (Labour, Bootle)
Q I wanted a sense in the round of how you think the proposals in the Bill for LISA and Help to Save demonstrate a coherent approach to the Government’s objective of making it easier for everyone to build up savings as they need. How do they fit into that landscape?
Peter Dowd (Labour, Bootle)
Q In that sense, given that there does not appear to be any appetite for any substantial review of the sort that you are talking about, let us take it at face value that that will not happen. Do you get the sense that this is—I will not say a gimmick, but simply the Government feeling that they have got to do something by chucking another product into the market as a smokescreen, or call it what you will?
Peter Dowd (Labour, Bootle)
Q Can I take this in a slightly different direction? I suppose it is linked, to some extent, to some people’s concern about self-employment. That is perfectly legitimate and okay, but there are many people in effect being forced, de facto, down the self-employment line to take pressure off employers to pay national insurance and so on. Are there concerns that employers will encourage their employees to choose a LISA instead of a workplace pension, in effect reducing their contributions?
Huw Merriman (Conservative, Bexhill and Battle)
Q Mr Davies, could you help me a little? I have not come across Union Pension Services Limited before. Is there a formal link to the trade unions or do you represent anyone?
Huw Merriman (Conservative, Bexhill and Battle)
So your clients are the trade unions?
Huw Merriman (Conservative, Bexhill and Battle)
Q That means my next question is relevant—I wanted to make sure. I would have thought that, for a lot of trade union members who are trying to save up, perhaps for their first home, the LISA would be absolutely tailor-made. Also, for those trade union members on very low wages, Help to Save should be a boost to help them save and get some income in place. Is that welcomed by the trade union movement that you represent?
Huw Merriman (Conservative, Bexhill and Battle)
Q Perhaps I can just ask one more question—maybe it is more of a point. Surely one of the issues is that Help to Save will be targeted at many people who will be on benefits, but what has not been offered is a commercial product that treats them exactly the same as some of the people who may read the adverts in the financial press, who may not require help so much. Again, I would have thought it would play to the sector that you are representing that, all of a sudden, those people are in the game as well and being supported.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q I wonder, Mr Davies, whether you would agree that it is unlikely that there could be a scenario where a saver would be better off in a LISA than they would be in a workplace pension scheme. Could you just comment on the fact that we have not got the final architecture of automatic enrolment, in so far as it affects low-paid workers and the self-employed, and there is a danger in the short term, if this were adopted, that workers could be seduced into taking out LISAs when their best interests would be served through a workplace pension?
James Cartlidge (Conservative, South Suffolk)
Q In respect of Help to Save, it seems to me that there is a real crisis of people who are living week to week, who are often using payday lenders or other forms of debt which are not sustainable for them and who are near the precipice all the time. I take your point that some may not have any spare income at all, but if a savings product such as this, which is so generous, is not going to help them save for those emergency funds that give them greater independence and less reliance on the lenders, which is important, what possibly could?
Kelvin Hopkins (Labour, Luton North)
We are old colleagues from the TUC, so I have to say that I have great sympathy with everything you have said so far. It has always struck me that these alleged savings schemes—tax-exempt special savings accounts, personal equity plans and ISAs—help at the margin with people who are relatively comfortably off, but do not help those people who cannot save anything at all because they are too poor. Is this another of those schemes, which will help some people but not those in the most desperate need? They will be the people who are slightly better off and can afford to save something. Would it not be better Q to have some sort of universal state scheme for pensions, for one thing, but also, on the other hand, to have an emergency scheme where you can give more money to poor people one way or another? Raising their incomes is what the problem really is.
Kelvin Hopkins (Labour, Luton North)
I would like to ask several more questions, but I will not.
Maria Caulfield (Conservative, Lewes)
Q In your professional capacity, do you advise your clients to have pensions or savings or do you advise them to have both?
Maria Caulfield (Conservative, Lewes)
Q I am interested in why industry experts seem so against these schemes to encourage people to save, when we have heard from the experts in social mobility that these are good schemes to start people off on the savings process. Do you have a reason why that difference would be?
Jeremy Quin (Conservative, Horsham)
You mentioned earlier, Mr Davies, that we had to respect the decisions made by people. I am totally with you that pensions are the right way for most people to save for their retirement. You have spoken eloquently about the problems and difficulties faced by the people who most need to save but find it most difficult to do so. Do you really want to deprive them of that ability to get £5 from £4 for another yearQ ?
Jeremy Quin (Conservative, Horsham)
You would not stand against the principle of doing this, but you would like to do more things— I hear that.
Jane Ellison (Conservative, Battersea)
I have just a brief comment. Does Mr Davies have any modelling or research that he has done to support his concerns around the interaction of these products and auto-enrolment? It would be useful if we could have that.Q
Peter Dowd (Labour, Bootle)
Q You have indicated in the past that,
“We at Scottish Friendly, while recognising LISA will not garner universal support, are enthusiastic about the initiative. It deals with one of the biggest problems society faces in the UK: trying to get under 40s to engage with planning for their retirement.”
Peter Dowd (Labour, Bootle)
Yes, I beg your pardon. When Paul Johnson of the Institute for Fiscal Studies came to address the Treasury Committee, he said he did not think that the lifetime ISA would encourage new savers. There seems to be a difference of opinion, although I am not saying that there is. Why are you so enthusiastic about it?
Peter Dowd (Labour, Bootle)
Q Following on from that—I was trying to tease this out earlier—I get the sense that this is another product: “This one hasn’t worked, so let’s introduce another one; that one hasn’t worked, so let’s introduce another one,” or, “People aren’t saving for retirement, let’s introduce another one.” It begins to sound as if we are saying, “Let’s just try another thing. None of them work particularly well, but let’s just chuck this into the mix.”
James Cartlidge (Conservative, South Suffolk)
Q I was very interested in your main point. May I just clarify? Obviously there is this attraction for those who are self-employed, but are you suggesting that, perhaps because of a lack of faith or trust in pensions, even those who might actually be better off focusing on the pension side will simply be attracted to this, as it is something they have more trust and understanding in? Is that your basic point?
James Cartlidge (Conservative, South Suffolk)
Q When this measure was originally brought in, the point was made by the previous Chancellor about the lack of consensus for the big, overarching reform, so these sorts of reforms were proposed. I do not think anyone disputes that they are not a complete answer. Of course, another part of it is Help to Save. You talked about many low-income savers. I just wonder what you think the impact will be of Help to Save on those on the really low incomes, who we want to see saving more.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q You talk about some issues that people have with investing in pensions. Why do you think that is? You described pensions as “broke”. Can you just expand upon what you mean by that?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q A lot of these things, of course, are because of a change in Government policy.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q If you were talking to your clients about the advantages of an auto-enrolment pension, as opposed to looking at a lifetime ISA, how would you explain the different tax incentives?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q So you do not sell pensions, but you would benefit directly from the offering of a LISA?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Thank you.
David Rutley (Conservative, Macclesfield)
You talk about the focus groups that you run, and there seems to be real interest in the LISA productQ .
David Rutley (Conservative, Macclesfield)
Q But your business has a keen interest in LISAs and believes that there is an opportunity.
David Rutley (Conservative, Macclesfield)
Q We are talking about LISAs today. With the lifetime ISA, is your business keen and supportive?
David Rutley (Conservative, Macclesfield)
Q As you think about this product, you realise that the inertia out there in the financial services market is sometimes used by financial services companies in an unhelpful way. Clearly, this is an opportunity to help change people’s behaviours for the better. With your own operation, how would you seek to differentiate this product and get behind it to have the best possible success with your potential customers?
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Q Good afternoon. One of the key issues we are grappling with today is the potential for the lifetime ISA to derail or undermine auto-enrolment. I have been listening very carefully to your evidence. Am I right to infer that you see the LISA as a viable alternative to pensions, rather than a complement to pensions, for some low to modest income people?
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Not really. I am asking whether I am hearing you right when you promote the lifetime ISA to people as a product instead of a pension.
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Q Thanks, that is a helpful clarification. I also wanted to come back to something you said earlier about self-employed people. We took evidence earlier today that around two thirds of self-employed people would not actually qualify for a lifetime ISA. I just wondered whether Scottish Friendly had done alternative modelling or had an alternative assessment of the market.
Melanie Onn (Labour, Great Grimsby)
Q I will follow up along the lines of what the hon. Member for Banff and Buchan asked. Earlier we heard evidence from the Tax Incentivised Savings Association and the Association of British Insurers and their view was very much that a LISA would be complementary to a pension, not in isolation from a pension. Can you clarify your view that people may not actually have a pension and may exclusively go for a LISA? Do you think that will be a secure route for them, in terms of planning for their long-term older age?
Melanie Onn (Labour, Great Grimsby)
Q But it is very much, for you, a complementary product to pensions—
Melanie Onn (Labour, Great Grimsby)
Not in isolation.
Kelvin Hopkins (Labour, Luton North)
Q I am somewhat sceptical about the myriad private savings schemes and have argued the case for a much more comprehensive compulsory state savings scheme for everyone, on top of which people could save in other ways as well as in stocks and shares. What would be the case against having a universal state earnings-related system with defined contributions and defined benefits, which would be extremely efficient to operate, easy to administrate and which everybody would know they were going to get a good deal from? What would be the argument against that?
Maria Caulfield (Conservative, Lewes)
Q I want to get to the bottom of the evidence that we were given earlier, especially from the experts and professionals in this sector, that these schemes—whether it is Help to Save or the LISA—are too complicated for those on a lower income really to grapple with, and therefore won’t be taken up and won’t be of use. What’s your experience? Do you think the way that these schemes are being set up is easily understandable and will encourage those on a low income to save?
Maria Caulfield (Conservative, Lewes)
Q Can you understand why some professionals in the financial industry sector are so against these measures, and yet those who promote social mobility are quite supportive of them? Can you understand the rationale as to why some people in your sector are not so supportive?
Examination of Witnesses
Peter Dowd (Labour, Bootle)
Q I will make an assertion here: I think the consensus of opinion today is that the pensions landscape is broken. However, in the absence of more structural change to that landscape, any product that helps—even if it is only a little bit and even if it’s for a limited number of people—is welcome. Mr Lewis, you have made this comment about the LISA:
“For retirement savings it works the same way, but whether it beats a pension or not is a much trickier conversation.”
Could you give us a view about that consensus claim that I just made?
Peter Dowd (Labour, Bootle)
Q Can I pick up that last point on knowledge? That is another issue we have touched on today. In an ideal world, people have complete control of their faculties and decision making, and have capacity and so on, but out there, that does not always happen. The concern that has been expressed today is about that knowledge landscape, and people’s ability to grasp that, without it sounding patronising. Do you think that, out there in the world that this product will be sold in, there is enough information and knowledge for most people to make a reasonable decision?
Peter Dowd (Labour, Bootle)
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?
David Rutley (Conservative, Macclesfield)
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?
David Rutley (Conservative, Macclesfield)
Q With young people, how do you get them interested in these sorts of products early on?
David Rutley (Conservative, Macclesfield)
I think I have.
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Q Thank you, Mr Wilson. We have talked about the need to save and the success of auto-enrolment. Should we not be targeting those who are being missed out, such as the self-employed and those earning less than £10,000—many women are caught up in that? That is the priority we should address first.
Secondly, when you talk about the exercise people will go through to apply for an ISA and those who can engage in auto-enrolment but choose not to, do you not think there will be an issue of people ending up in a LISA when they would be better off in auto-enrolment?
Ian Blackford (Scottish National Party, Ross, Skye and Lochaber)
Both of you.
Huw Merriman (Conservative, Bexhill and Battle)
Q Mr Lewis, this morning we heard from some of the representatives from the financial services industry, who seemed to think that this was a complex product.
Huw Merriman (Conservative, Bexhill and Battle)
I will leave it to you to say that. My question for you—perhaps I should have asked them—is: do you think there is a danger that, as we advance and these products come on stream that people can follow by using the internet, all of a sudden fees will be lost, as people do not need their investment adviser? Perhaps that is why the industry pooh-poohs products such as this and dresses them up as “too complicated”.
Eilidh Whiteford (Scottish National Party, Banff and Buchan)
Q I want to come back to the potential gender differential impacts of the policy and of the LISA in particular, because generally how we ensure that women are able to benefit from public policy decisions is critical. You said that the Women’s Budget Group had concerns that not many women would be able to benefit from it. We also know that, in later life, women are far more likely to be on means-tested benefits because they have smaller pension pots or do not have an occupational pension at all. Has the Women’s Budget Group crunched numbers on that or modelled that in any consistent way?