Economy: Personal Savings

Lord Palmer of Childs Hill Excerpts

Thursday 12th July 2018 Lords Chamber

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank the noble Lord, Lord Leigh, for introducing this debate because it gives us a chance to look at the various problems and see what assets are available. I also look forward to the maiden speech of the noble Lord, Lord Lilley, which will follow my contribution.

So much more could be done to promote personal investment, but we need to recognise the current problems, which the noble Lord, Lord Leigh, did not dwell on as much as he did on the assets. I have received an email from the Building Societies Association, as I am sure did all the speakers in this debate. It was really a bit of a nerve on the part of the association because building societies and banks are part of the problem. If you want to put money into a building society or bank account, which is the case for a lot of people, the rate of interest you will receive will be something like 1.5% if you are lucky. That is not an inducement to save. He also talked about ISAs. The low rates offered by building societies and banks, which I have already mentioned, are even lower for ISAs. You put your money into an ISA to get the tax benefits, but the building societies pay you less interest. The noble Lord says that ISAs are great, but they are not widely used by those at the bottom end of the income scale for the reasons that he himself mentioned. If the personal savings allowance free of tax is £11,500 and you can earn investment income if you are at the lower end of earnings of £5,000 without paying any tax at all, the benefit of an ISA with a lower rate of interest is not conducive to savings. That is a problem which I hope the Government will find some way to address.

What are the Government doing? They have an NS&I bond which on a one-year bond offers the wonderful sum of 1.45%—again, I am sure, an incredible inducement to those who want to save. Can the Minister ask the Government to consider once again an NS&I bond, which I have mentioned before in the House, paying 4% for a four-year bond? If that were to happen, it would bring in a vast amount of money to the government coffers and would look similar to taxation. It would mean that those people who wanted a secure investment could earn 4% if they tied their money up for four years, which really is not that much.

Can the Minister inform the House whether more people are investing in gambling with the National Lottery? I put my hand up and say that I do the same because ERNIE is probably a better and safer bet than hiding money under the bed, which I do not do, or putting it into a low-earning bank account. I have tried ERNIE and you can probably earn 2% per annum with a reasonable investment, with a big chance of winning a big prize. We have turned ourselves into a nation of gamblers.

Savings are not necessarily the best use of spare cash. For many, especially the heavily indebted, paying down debt is more beneficial than saving—reducing your mortgage is probably a better bet than savings. The noble Lord, Lord Leigh, quite rightly mentioned pensions. I am sure that other people who know far more about the pensions industry than I do will speak about it, but early pension draw-down is presenting a huge problem. Many people are investing their pension funds in inappropriate, costly or inefficient vehicles, severely damaging their savings. Some are actually being scammed. The Liberal Democrats worked hard in the passage of the financial guidance Act to make advice before draw-down a default option. This was sadly resisted by the Government.

The noble Lord, Lord Leigh, talked about unregulated investments. They are great for someone who wants to put a few thousand pounds of their accumulated wealth into something slightly riskier—much riskier in some cases—and probably earn a good rate of return but, if you are at the lower end of the scale, putting all or large sums of your money in unregulated investments is dangerous.

The noble Lord also quite rightly, in a wide-ranging speech, spoke about workplace pensions. It is obviously a good thing to get people to save in the workplace with a pension, but the corollary is that if you are at the lower end of the scale and you are putting money into a workplace pension you are almost certainly not going to have money to put into a savings account because you have a limited amount—you buy a loaf of bread first, pay the rent and what is left is taken for the pension. That is good, but it does not encourage other savings. The Government promised at Section 21(6) of the Act to bring in regulations to prohibit cold calling for pensions by the end of June just past. Will the Minister say, since we are now in July, what the current timetable is?

Getting advice on savings is critical. This passes from the Money Advice Service, which is pretty good, and Pension Wise to the new single financial guidance body set up by the Act. Could the Minister tell the House what progress is being made and how he sees the single financial guidance body operating?

With low rates of return, many people are turning, as they have done historically, to the stock exchange. Confidence in the safety of using a stockbroker has been undermined severely by the failure of Beaufort Securities, a large stockbroking firm. Investors assumed that their investments were ring-fenced, but Beaufort Securities closed down and PwC, that well-known audit firm, was appointed the administrator. It initially said that the charges could be up to £100 million. The surprise was that this came as a first charge on cash and shares—even those of the investors. I believe that, after protests, the administrator’s estimated costs were reduced to a mere £55 million. Of course, the FCA has a compensation scheme, so many of the smaller investors with brokers should be protected. In Beaufort’s case, this leaves eight to 10 larger investors not covered by the compensation scheme.

My noble friend Lord Lee of Trafford has asked Written Questions and Oral Questions on this matter. The answers were quite amazing, because they do not seem to appreciate the damage that the situation is causing. We are asked to increase savings and investment, but the very thought that client assets—cash and shares—are not protected could lead to a flight of clients from very reputable small and medium-sized broking firms: if they remain investors they will flee to the apparent safety of larger firms. Are the Government aware of these fears and are such fears being addressed?

The Motion is about promoting personal savings: it is a good idea. The noble Lord, Lord Leigh, touched on some of the statistics and I will not repeat them, but more than 40% of working-age people have less than £100 in savings for emergencies: that is 17.3 million people without at least £100 in a savings account. If one makes that calculation on all UK adults, not just those in employment, then 13% have no cash savings whatsoever, including all the elderly, who should have savings. Numeracy skills are particularly important. The Money Advice Service has said what affects savings, and I think it is worth repeating:

“Building a savings habit and a savings buffer to protect households from unexpected bills and increase financial resilience is a matter not just of situation (for example, spare cash available to save—determined by income, commitments and debts) but also skills (how engaged people are with their finances and how well equipped they are to manage them—for example, their numeracy) and ‘stance’”?


Do they have a “savings mindset” or a “‘live-for-today’ attitude”? What are their,

“perceptions of their financial situation”?

Do they have “financial confidence”, and what are their,

“feelings and beliefs about financial matters”?

As a chartered accountant, I have always been quite amazed at the lack of numeracy among very large numbers of people. They can probably add up the score in last night’s semi-final, but beyond that they get into a bit more difficulty. What affects savings? It is having money there, and I am not talking about emergency money but money for the future. If you put your money into pensions, that is one thing, but how much else is left? There is a difference that we must identify in this debate between savings for the unexpected—the emergency, something in the pot that can pay for the roof repair or illness in the family or whatever—and such savings as pension contributions. There is a difference, and what we fail to realise is that many at the lower end of the social scale do not have the choice of having enough for the emergency, so they go to loan sharks, as too many of them do, or borrow on their credit card at usurious rates of interest, rather than saving for the future. I am all for promoting savings but I hope that other speakers in this debate will also identify the problems that people at the lower end of the scale have with saving, and that those who do have money must be able to put it in a safe place and earn a reasonable return on their savings.