Financial Guidance and Claims Bill [HL]

Baroness Greengross Excerpts

2nd reading (Hansard): House of Lords
Wednesday 5th July 2017 Lords Chamber

[Baroness Greengross (CB)]

My Lords, I welcome the Bill because, like many noble Lords, I am very concerned that many people approaching retirement age are doing so with insufficient assets or income to provide them with the sort of quality of life that they are expecting. Most people are ill informed, certainly about how long they might expect to live, and they are also underadvised. Even if they are aware of their situation, they do not know where to go to get advice and guidance, and, as the Minister said, they certainly do not know the difference between them.

The whole system has been made more complex by the new flexibilities. While this provides more opportunity for people to make a tailored financial plan, it also provides greater opportunity for financial mistakes, unless people have proper advice and guidance. This was amply demonstrated when, only last week, several reports on pension wealth warned that many Britons have given little thought to their retirement, how long it will last or how their needs will change.

The ONS wealth and assets survey found that two in three of the country’s 40 million adults—about 27 million people—have given no thought to the number of years they need to fund when they stop working. Only half feel confident they will have a big enough pension pot once they retire. The ONS found that most new savers are using auto-enrolment workplace pension schemes, but they are putting in the minimum of just 1% of their salary, which is matched by another 1% from their employer. Saving at this rate means that nearly three-quarters of young workers are set to retire with a £9,000 shortfall on their pension because they are not saving enough. This is a wake-up call. Millions of our fellow citizens are sleep-walking into a disappointing retirement by failing to give proper thought to their financial future.

A survey of staff by Scottish Widows argues that auto-enrolment may be,

“lulling people into a false sense of security”.

It showed that younger staff expect, on average, an annual income of just over £23,000 for a comfortable retirement. But based on the amounts they are saving, the insurer calculated they would actually get only £15,200. A 30 year-old contributing the 1% minimum to their workplace pension will get an annual pension of just £9,734. Even when the minimum auto-enrolment contributions rise to 8%, they will get only £14,047—almost £9,000 below their expectations.

A third report from the Prudential revealed that women are more at risk than men of living in poverty in old age, with the retirement income gender gap growing by £1,100 over the past year. On average, a woman retiring in 2017 will be £6,400 a year worse off than a man retiring this year—up from £5,300 in 2016. There is now compelling evidence that women will need to review their retirement provision at the earliest opportunity possible.

Another significant contributor to a satisfactory retirement is housing wealth. Recent research from CML further endorses the idea that it is vital to adopt a more joined-up approach to delivering advice to older borrowers. Households headed by individuals aged 55 or over form a significant part of the market, numbering approximately 11.8 million or 46% of all households, with the over-55s holding £6.4 trillion-worth of wealth and £2.5 trillion-worth of property wealth.

There is quite a lot there to look at in view of the fact that older people have to make complex, often interrelated decisions about a range of financial services products, from pensions, wealth management and mainstream mortgages, to equity release. More flexible ways to borrow and use housing equity throughout life will play an increasingly key role in how these decisions are made. With advice regimes segmented due to different regulatory conduct rules and permissions, different types of adviser and different product heritage, many observers have long been calling for a smoother experience for consumers.

The CML research shows that many consumers see a disconnect between their need and the services provided. There is a desire for clearer signposting to their options. Many indicators show that demand for borrowing in later life is growing, in particular as a form of financing retirement. However, this research reveals that consumers struggle to navigate the market and that lenders and advisers generally operate in silos which prevent consumers comparing across the whole market. So I fully endorse the Government’s belief that they are best placed to facilitate this signposting role as they develop their single financial guidance body under this Bill. A single body should be easy to understand. It should be much easier to find out where to go and easier for the Government and other people to advertise—no one really understands the difference between the existing bodies at the moment—so I welcome the Bill.

Financial Guidance and Claims Bill [HL]

Baroness Greengross Excerpts

Committee: 2nd sitting (Hansard - continued): House of Lords
Wednesday 6th September 2017 Lords Chamber

Moved by

[Baroness Greengross]

42A: Clause 3, page 3, line 15, at end insert—
“( ) As part of its pensions guidance function, the single financial guidance body must provide guidance on other sources of retirement income, including housing wealth, to enable members of the public to make fully informed decisions about pensions and retirement income.”

[Baroness Greengross (CB)]

My Lords, we all know that because of the profound changes since pension freedoms were introduced, retirement income decisions have become much more complex. From the age of 55 there are a greater number of options for using the pension pot, including taking the pension as cash, keeping the fund invested or purchasing an annuity. Accordingly, I welcome the broad drafting in this Bill of the objectives and functions of the single financial guidance body and, in particular, the recognition of provision of advice as well as guidance, and the continuation of the vital role played by the Money Advice Service in support of the financial capability strategy.

Financial decision-making is complex and retirees must consider their long-term, not just their short-term, retirement income needs. The SFGB needs to encourage this by ensuring that consumers understand the full range of options available, including the potential role of any housing wealth. Consideration of the potential role of housing wealth is already included in the pensions advice allowance, which allows people to withdraw £500 tax-free from their pension pots on up to three occasions, to pay for financial advice on their retirement. I welcome that inclusion and think it should be extended.

This means that pension income and the value of housing equity are considered alongside one another. Because some people will feel unable to afford, or be unwilling to pay for, such advice, it is crucial that free impartial guidance is available through the SFGB. The Equity Release Council’s White Paper, Equity Release Rebooted, estimates that over-55s in England possess about £1.8 trillion in housing wealth, and that is expected to double to £3.6 trillion by 2036. Meanwhile, the average value of a defined contribution pension in 2012-14 was £30,300. Research by the Equity Release Council estimates that while the average 55 to 64 year-old should have a pension pot of £123,000, they may only have an average of £30,200, indicating that a likely future need for supplementary retirement income is there, such as from housing wealth.

I would want not to push people into equity release but to look holistically at their assets. In one important area affecting retirement assets, the FCA’s prediction means that approximately 2.6 million interest-only mortgages will reach maturity over the next 30 years, with estimates that 48% of borrowers may not have enough money to fully repay their loan. It is not surprising that statistics from the council’s spring 2017 market report indicated that the use of property wealth to fund lifestyle and health in old age is growing rapidly, and is likely to continue to grow in the coming years.

In 2013, Demos estimated that the over-60s were holding unmortgaged housing wealth of £1.23 trillion; that figure would be significantly higher now. The Aviva Real Retirement Report suggested in 2016 that 46% of homeowners aged over 45— approximately 6 million households—see property as a key part of their retirement income planning, increasing to 58% among 45 to 54-year-olds. This is borne out by the Equity Release Council seeing a year-on-year equity release lending growth of £342 million. The average amount lent under an equity release policy during the second half of 2016 was very high, at £92,376 for lump-sum plans and £54,584 through drawdown plans, with an additional £37,751 reserved for future use.

I share the view of Age UK and many commentators that a saver withdrawing their pension pot should receive guidance, including on housing wealth, by default. But since that is the subject of a later amendment, I shall not discuss it any further here. In summary, as part of this wider landscape of helping people to preserve their lifestyles and well-being in retirement, a consideration of the important role of housing wealth should be an explicit part of the advice envelope proffered by the new body. I hope that that might be acceptable. I beg to move.

[Baroness Finlay of Llandaff (CB)]

I support this amendment from my noble friend Lady Greengross because, as she has outlined, a lot of people have the majority of their wealth tied up in their property. The current equity release schemes are much more flexible than they used to be and contain a variety of safeguards. The Equity Release Council’s statement of principle, by which all the council members must abide, mandates that all equity release customers must receive independent financial advice. Can the Minister clarify whether all equity release schemes will fall under the FCA? I understand that currently it is only those from members who are part of the Equity Release Council, which means that we will potentially have twin-track standards going on for the customer.

The requirement for a solicitor to sign off the arrangement becomes particularly important when we look at the issues around mental capacity and coercion. When I was at the Equity Release Council’s annual meeting, I was quite shocked to hear from one person there who had been negotiating equity release with a client. She had a suspicion that something did not quite seem right and decided to visit the client without the client’s son present, at which point the client said, “I don’t really want to do this at all. My son’s pushing me to do it”. She had the sense to say, “That’s very simple. I am refusing the equity release, and I will write to you”, and she tore up the forms there and then.

--- Later in debate ---

[Baroness Greengross]

My Lords, first, I thank noble Lords who supported me, at least in principle: the noble Baronesses, Lady Kramer and Lady Finlay, and, in particular, the noble Lord, Lord McKenzie. I do not mind how this happens and I am aware, having done a lot of work over the years on abuse of older people, that there are extreme dangers in people being given the wrong advice, particularly adult family and children. I just want to be sure that older people are being pointed in a direction that will be helpful to them. This is so complex and it is very important that we get it right; I thank the Minister for his obvious commitment to that. As long as it works, I do not mind. I just want to be sure that older people are getting the range of advice that they need. That includes their being sure that they are going along a track that is in their interests in the long term, so that this complicated system of new ways of using your pension is put into action wisely for those who cannot afford the sort of private advice that many of us here would not dream of acting without. I thank the Minister for his understanding of what I am getting at. I am happy to withdraw the amendment; I just hope that we achieve the goals that I think we all share. I beg leave to withdraw the amendment.

Amendment 42A withdrawn.

Financial Guidance and Claims Bill [HL]

Baroness Greengross Excerpts

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

Moved by

[Baroness Greengross]

70ZA: Clause 17, page 14, line 30, after “subsection (1)” insert “by the end of the period of two months beginning with the day on which this Act is passed”

[Baroness Greengross (CB)]

My Lords, the noble Baroness, Lady Meacher, apologises to the House that she is unable to be in her place. However, we both support the objectives of the Bill to protect people from unscrupulous practices by CMCs.

The spirit behind the amendment, as we are all aware, is to ensure that transitional provisions are in place in time to safeguard people who face the risk of a significant detriment as a result of the mis-selling of payment protection insurance. It is of the utmost importance that plans are in place as soon as possible, to respond to the Financial Conduct Authority’s campaign to inform people about the deadline for compensation claims for the substantial numbers of people affected.

--- Later in debate ---

[Lord Young of Cookham]

I will do what I can to shed some more light on those issues. As I said, discussions are going on to see whether we can bring those proposals forward. We will certainly update the House when we come to Report.

In response to the noble Lord, Lord McKenzie, this is a similar point to one he raised earlier, and the answer is very similar. The CMRU regulates CMCs, while the Solicitors Regulation Authority regulates solicitors firms conducting claims activities—I think that I am reading exactly the same note as I received earlier. The full scope of claims management services for the purposes of FCA regulation will be defined through secondary legislation, including the extent of any exemptions. The Government want to ensure that there is a tougher regulatory regime and greater accountability for CMCs, while ensuring that solicitors are not burdened with unnecessary regulation—the more I read, the more familiar the sentences become. Both the scope and the nature of exemptions will be drafted to reflect these priorities.

Against a background of what I have said about the Government seeing whether, if we cannot—as we cannot—implement the full Act within two months, something can be done in the meantime, and against an undertaking to update noble Lords by the time we get to Report, I hope that the noble Baroness might be able to withdraw her amendment.

[Baroness Greengross]

I thank the Minister and the noble Baroness, Lady Kramer, and the noble Lord, Lord McKenzie, for their support on a matter which obviously they and, I hope, others feel sympathetic about. I hope that we can discuss the issue with Ministers before Report and make sure that we can in some way protect these very vulnerable consumers, as everybody has agreed is necessary. On that basis, I beg leave to withdraw the amendment.

Amendment 70ZA withdrawn.