Savings (Government Contributions) Bill (First sitting)

Debate between Maria Caulfield and Peter Dowd

Tuesday 25th October 2016 Public Bill Committees

[Peter Dowd]

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?

David Wren: Absolutely. There were some questions in the previous session about the risks in a lifetime ISA. Ultimately, the lifetime ISA is a wrapper around some assets, and the assets are for you to decide. There will be people who offer only cash lifetime ISAs; they do not offer stocks and shares to any customers, and they will not be offering it for this. There will, presumably, be people who offer only stocks and shares lifetime ISAs. The fact that you have picked up the phone to someone who offers only one particular product may not mean that that is the best product for you. There will hopefully be information out there, and we very much hope the Government will work with us to provide good information to customers on getting the right product.

To answer Tom’s point, to have cash sitting somewhere for 20 years is probably a bad idea, particularly with interest rates as they are at the moment. Similarly, going into stocks and shares for three years is a bad idea—there were questions earlier about the risks that people were exposing themselves to. Helping people get the right access to the right product at the right time is going to be a critical part of making sure that the lifetime ISA is successful.

[Maria Caulfield (Lewes) (Con)]

Q 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 before.

Tom McPhail: Given where we are now, six months before the intended launch, our starting point would be to go ahead with this. However, in the longer term we are still of the opinion that it is not going to achieve those aims you have just described.

We also looked at the 2017 auto-enrolment review as an opportunity to adjust some of the thresholds to recognise the changes that have come about as a result of the pensions freedoms and the importance of giving more people more access to retirement savings, to bring some of the lower paid into the pensions system. We have looked at ways to revisit those questions that were not answered around pension tax reliefs and ways to reward people for saving for retirement, but the lifetime ISA is not going to achieve that.

You heard some numbers about the self-employed. Actually, two thirds of the self-employed are already ineligible for the lifetime ISA. So we have a situation where the one group of the population that, more than any other, sets to benefit from the lifetime ISA is ineligible for it. In what way is this a good policy?

You are right about the low-paid: we need to do more for them. We think there are ways we can do that through the pensions system. I am sure you will hear later about Help to Save, which is not an area I want to comment on, but there are other ways to address that. The lifetime ISA is not going to fix those problems.

Savings (Government Contributions) Bill (Second sitting)

Debate between Maria Caulfield and Peter Dowd

Tuesday 25th October 2016 Public Bill Committees

[Peter Dowd]

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?

Joseph Surtees: I think it is almost as well targeted as it could be without putting a huge onus on banks and, in a scenario in this case, running de facto means testing. We could possibly open up the eligibility. I know that the Institute for Fiscal Studies has done some work on this—which I have one or two questions about—but as a basic proposition it is pretty well targeted at the group that needs the savings the most. If you look at the figures, almost half of families with an income below £14,000, a category that a lot of the Help to Save target families fall into, do not have savings. We have one specific issue, which is to do with how it will help people under 25. That is very much to do with the benefits rules, which I can either discuss now or come back to later.

[Maria Caulfield (Lewes) (Con)]

Q I want to touch 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?

Ed Boyd: As I said before, the detailed knowledge, in terms of the research that the CSJ has done, is on the Help to Save side rather than the ISA side of things. There is a valuable question about the accessibility and flexibility of accessing savings within Help to Save. I could give a comment on that—perhaps it is applicable across to ISAs. I would need you to be the judge of that.