Examination of Witnesses (Questions 120-132)
MR MICK
MCATEER,
MS TERESA
PERCHARD, MR
MIKE BARRY
AND MS
CLAIRE WHYLEY
24 JANUARY 2006
Q120 Mr Love: The Consumer Credit
Counselling Service, the Finance and Leasing Association and the
CAB and Money Advice, were getting together to try and find the
resources to do this network. How is it getting on?
Mr McAteer: I am a trustee of
that network, what is called the Consumer Debt Advice Gateway
Trust, and we are certainly trying to work on developing a single
telephone helpline for providing debt advice where people will
ring up a single number and then they will be directed to whichever
participating organisation has the capacity to provide—.
Q121 Chairman: Could you send us
information on that.
Mr McAteer: Yes, absolutely.[11]
Q122 Peter Viggers: The Citizens Advice
Bureau has been immensely helpful to a number of my constituents.
I am grateful for that. Can I ask about savings on those below
average incomes? Can people on low incomes afford to save and
what are the products that are most suitable for their savings?
Mr McAteer: I think we have done
a fairly big programme of research to try and understand why people
do not save for the future, and so on, and our research tells
us that the main reasons why people are not saving are basic unaffordability
compounded by the record levels of personal debt and the housing
market, and so on. We think that the retail sector is cost based
and does not allow us to reach those parts of the market that
should be saving, so there are economic inefficiencies built into
the system. There is a lack of incentive due to the lower long-term
investment returns when you can get 4.5% from a safe cash ISA
account and you only get 4% from a risky stock market account
after charges, and so on. What is important as well is the lack
of confidence and trust in the providers. Our surveys tell us
only 31% of people trust the financial industry to run their pension
schemes, and they seem to have lost trust in stock market based
products, and so on, and other riskier products, so I think there
is a combination of factors, there is a confluence of events which
has undermined the willingness of people to save for the future.
It is not just a single affordability issue but a confluence of
things.
Ms Whyley: I think it is important
to recognise in the context of financial exclusion or inclusion
that saving means lots of different things, and I think saving
for the future simply is not on the radar of people who are financially
excluded and on very low incomes, and that is probably quite appropriate.
I think the sort of saving that they are looking to do is the
day to day saving so that they can smooth their income a bit and,
if they are able, putting a little bit more aside for the rainy
day, the new pair of shoes, something that comes up unexpectedly.
There clearly is an affordability issue, but I think any of us,
however much we earn, would say we cannot afford to save as much
as we like, so I think it is important to unpick that. Where the
right interventions have taken place, it can be as possible for
some people who are currently financially excluded or on low incomes
to save small amounts of money. The credit union initiatives,
for example: people have discovered that actually, even if it
is only a pound a week or couple of pounds a week, they can afford
to do that. I think one of the big barriers is the lack of appropriate
products where you can save one pound a week or two pounds a week
or something like that, and I think, although there is evidence
about the right incentives for encouraging people to save, we
are perhaps not building on them as much as we could. Clearly
the credit union model, where a pound saved is worth three pounds
credit, actually make a big difference when people are weighing
up what to use that pound for. Things like tax incentives, I think,
are just so opaque and they are not particularly progressive in
the benefits that they offer for people on the lowest incomes.
The other point I would add is that in terms of freeing up money
for people to save, if we could crack some of the other problems
of financial exclusion, which means people taking this extra £800
a year of cost, we are looking at a much greater potential to
save and I think we need to see those things in parallel.
Q123 Peter Viggers: And matched savings
schemes like the Gateway scheme?
Ms Whyley: Yes, because they are
simple, they are easy to communicate, but there is a real tangible
benefit that they offer to saving rather than spending, and I
think that is all we need. It is a very simple model but it actually
works. I am not sure why there is any need to go any more complicated
than that.
Q124 Peter Viggers: Now some trenchant
criticism of the FSA and specifically to Mick McAteer. The savings
industry has stated that sometimes regulation of product sales,
whilst designed to help the consumer, can actually have an adverse
impact on access to financial services, particularly for the low
paid. How sound is that analysis? You have given us written representation,
but if you can briefly respond?
Mr McAteer: I think regulation
can have two impacts when it comes in for encouraging saving for
the long term. If it is done properly it can promote confidence
in the system and encourage people to save. We have seen Equitable
Life and other scandals where we think the regulation has failed
to bring confidence, and that has had a detrimental effect on
individual confidence to save for the future, but regulation can
have another impact on long-term savings. It can distort the market.
We think it is very unfortunate that the FSA seems to have what
I can only describe as walked into an elephant trap set by the
industry in terms of regulation. When you actually look at the
cost of regulation, for example the Pensions Commission Report,
the Pension Commissions Report sets out quite clearly how much
money the industry spends on marketing and administration and
compares that with the cost of regulation, and if you look at
the Commission's figures, a small proportion of the cost of distributing
products is actually down to regulation. The vast bulk of the
industry's costs is in the marketing and prospecting for new business
and providing incentives to sales consultants and staff and so
on; so we do not accept that the cost of regulation per se
is preventing industry from selling to the Government's target
market, we think the industry simply cannot serve the Government's
target market because the economics of access do not allow it.
Our economic monitoring shows us that the industry would need
to be charged about 3% a year to distribute their annual management
charges to sell to the Government's target market, so I think
this idea of relaxing rules and regulations preventing the industry
from selling to the Government's target market is a smokescreen.
Q125 Peter Viggers: Very good. The
basic advice regime for the sale of stakeholder investment products
in April 2005—do you believe that will make a contribution?
Mr McAteer: I do not think it
is going to make any difference at all, because the economics
of the business means that the industry cannot serve the lower
to middle income consumers, so changing the regulatory regime
is not going to change that fundamental economic barrier.
Q126 Peter Viggers: You have made
representations to us about RU64. We will not need you to repeat
that again. We have to be quite brief. I just want to put on the
record that you have included a submission in which you make strong
representations and I invite you just to say a sentence in conclusion
in order to include it in the record?
Mr McAteer: You want me to say
a few words.
Q127 Peter Viggers: Just a sentence
or two.
Mr McAteer: We think the FSA is
about to make one of gravest regulatory errors since the abolition
of the maximum commission agreement. Abolishing this very important
rule will do two things. It will kill off stakeholder pensions,
because even the FSA itself admits that once it removes this RU64
rule then prices are likely to rise.
Chairman: I think, as a result of your
points, I will write to the FSA and ask for their views.[12]
Q128 Peter Viggers: Thank
you. As long as that is on the record. I want to go to something
that I have made scores of tear-stained speeches about, which
is means-testing. We know that many people who might contemplate
larger scale savings are absolute mugs unless they can save a
very substantial amount of money to get out of the means-testing
Not printed.trap, but the advice that has been given to us
is that means-testing does not really make much difference because
people do not understand about means-testing anyway and have no
intention of saving in the first place. Is there any evidence
that means-testing deters some consumers on below average incomes
from making long-term provision for their retirement?
Mr McAteer: I think it depends
if they understand the system. We did some focused work with a
focused group of people who are not saving and we tried to understand
what impact means-testing was having, and, if we concluded that
if means-testing was having an impact on savings behaviour, then
two conditions had to be met. People had to be thinking about
saving and they had to understand the impact that means-testing
would have on their savings. None of the conditions were met because
they were not even thinking about saving in the first place and
they did not understand the system. We think it still has an effect,
and it makes it harder for advisers to provide advice to people
on the margins, but it is not because consumers are exercising
the means-testing. They may think it is a problem, but once you
actually tell them about it—that is the irony.
Q129 Peter Viggers: It is deeply
sad that many people who do not save at all are better off than
people who do?
Ms Perchard: The issue we have
highlighted in our evidence relating to this is the treatment
of savings in the benefit system. We see people when they are
confronting the fact that it is assumed that any of their saving
above a certain amount, like £6,000, is earning a rate of
return you could not possibly get anywhere on the high street,
and that is penalising them totally unfairly for the amount of
savings they have, and, at the very least, the interest rate assumed
on tariff incomes should be in line with what is reasonably likely
to be available in the market, not twice the Bank of England rate.
Mr Newmark: I gather it is 10.4%, which
is absurd.
Chairman: Put that in your submission,
please.[13]
Q130 Mr Mudie: Coming to equity release,
it would be good if you could provide the Committee with some
details of ways that equity release could alleviate or help financial
inclusion amongst the elderly without the high costs the private
sector are putting on it. There are various schemes going about—I
believe you are collating them. It would be good if we could have
them as examples to put to the Treasury.
Mr McAteer: I should say, we are
in the process of writing that report at the moment. The evidence
needs to be collated and analysed, and so it will not be ready
next week. It may be some time before we actually have it.
Chairman: It might be helpful to us.
Mr Mudie: It would be very good if you
could so we could include it in the evidence.[14]
Chairman: For the record, the Financial
Inclusion Fund, concerns have been expressed in submissions that
there is a speed at which the fund has been allocated and also
the short-term nature of the funding. There are no plans to ensure
the services are delivered at the end of the initiative. I presume
you all share those concerns?
Mr McAteer: Absolutely.
Q131 Chairman: Is there a danger
that the fund may be allocated in geographical areas and that
the provision of credit union and advice services is already above
average rather than seeking to fill the gap where there is no
provision?
Ms Perchard: This is anecdotal,
but certainly some of our managers would feel that in densely
populated urban areas, whilst they may be stretched, the distribution
of the fund for money advice is likely to favour densely populated
urban areas and it will be quite difficult to provide services
in rural areas out of the fund. We have, nevertheless, made a
national bid for service provision in rural areas which do not
show up on the map for financial inclusion because there are not
sufficient people living in those areas to create a darker shaded
area, but that does not mean there is an absence of financial
exclusion.
Ms Whyley: I am on the DTI board
for administering part of that fund, the money advice fund, and
obviously in discussions with DWP about the growth fund. There
are efforts to ensure that the funding is going to areas where
there is not existing provision. We are trying to take some account
of existing provision. The difficulty is that the organisations
that are going to be best able to make the most business-like
bids are the ones that are already in existence, and I think that
does create a disadvantage.
Q132 Chairman: We do not have enough
information on the intelligence of financial inclusion. That is
the point. SAFE has told us that the Financial Inclusion Fund
does not appear to fit into a wider Government funding strategy
or link to funding streams such as the Phoenix Fund. Is that a
concern that you have? Lastly, what they said is that as different
portions of the fund come on line at different times and are administered
by different government departments, the fund does not support
joined-up provision of services. The issue of joined-up provision
is one that you are looking at?
Ms Perchard: Yes, and particularly
partnership working between credit unions that will receive the
growth fund from the DWP and advice agencies that will receive
the DTI funds because the decisions are at different times. That
is the challenge.
Chairman: This is the first of our evidence
sessions in this inquiry and a huge amount has come up this morning.
What you have provided to us has been very helpful to us. If you
can supplement that with written evidence to us that would be
helpful for us as a committee to look at the priority areas. Thank
you very much for your time.
11 Not printed. Back
12
See Ev 311 Back
13
Ev 258 Back
14
Not printed. Back
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