Q
70Mr.
Timpson: It is likely that when the take-up of this
account starts to come to fruition, there will be different levels of
financial understanding and acumen among the people who are opening the
accounts. The pilots that have taken place have borne out some
confusion among those who took part, as to exactly what will happen
when they make repayments, or the timescales for repayments and
withdrawals, and also on what happens when the account matures. Have
you given it any thought, or is too early to say what type of
mechanisms you will put in place to advise and provide guidance to
account holders, to ensure that as part of their wish to embrace the
savings culture, they actually understand the mechanisms for doing
so? Helen
Banks: If I can answer that, our members have
certainly given consideration to that aspect. We have also spoken to
HBOS, which provided the pilot service, to understand its learning from
carrying out those pilots. The need to spend sufficient time helping
savers to understand how the account will work and what will what
happen at the end of the account is an integral part of acting as a
provider and, of course, it has to be taken into consideration when
looking at the overall cost of providing these structures. Members have
already considered what they would need to do, for example, to train
people at branches, in way that is similar to that used now for basic
bank accounts. Staff members are trained in how to deal with customers
who approach them in that context and it would be a very similar role
for this too.
Alan
Cook: From the Post Office’s perspective, we
would have two types of branch. For the typical sub-Post Office, in a
village or rural area, this is what they think that they were put on
this planet do; to help their customers manage their daily lives. We
would need to be really clear on the training. One of the biggest costs
will be getting the training right, to make sure that they are giving
the right information—advice would be the wrong word.
Clearly, we
would produce documentation, but it would be the conversation with the
sub-postmaster that would produce the action. Kevin referred earlier to
the Post Office card account; the benefits card. It was the actions of
the sub-postmasters talking to their customers that resulted in 5
million people taking out one of those accounts. It is that community
that we are talking to here, so we will put a lot of effort into it.
That will be the primary activity. As I said earlier, there is the
administration, which we have all talked about and highlighted
but,
although I would hesitate to call it the sales process, as that would be
rather grandiose, the conversation that results in an individual taking
out an account is really important and we put a lot of effort into
it. The
Chairman: Thank you. Stephen, is it on this
point?
Q
71Dr.
Ladyman: Yes, it is. It concerns the issue of advice,
which we discussed in considerable depth this morning. The people who
gave evidence were firm about the need for proper support and advice
when choosing the appropriate product, but also at the end of the
scheme, on what to do with the money; whether to put it into an ISA or
something else. I thought that they were all a bit po-faced this
morning. They all seemed to think that the purpose of saving was to
save for a rainy day. I acknowledge that that is one of the reasons for
saving, but the other reason for saving is to buy yourself something
nice when you saved up for
it. Adrian
Coles: Go on
holiday.
Dr.
Ladyman: Exactly. People borrow the money to buy
themselves a pair of Jimmy Choo's or whatever. But I do think that the
witnesses were right in saying that these schemes will have to go hand
in hand with proper advice and support to help people make the right
decisions and benefit from them. One of you mentioned earlier that you
are probably going to have to do that in partnership with somebody.
What sort of partners were you thinking of that might provide this
advice and support to
people? Mark
Lyonette: Perhaps I can kick off. We certainly would
expect to work with a number of our existing partners. Probably going
on for a third of our members already have partnerships with people
like Citizens Advice, and I know that you talked to them this morning.
They certainly help people with budgeting and income maximisation and
all those kinds of things. Whether they would be in a position to help
them with anything approaching regulated financial advice, I do not
think so in many cases. Similarly, social landlords have an interest in
this largely because they are already one of the major sources of
credit in the country, through rent arrears. They are keen to see the
benefits of people having a little bit aside to protect against
emergencies. I am not sure that the wider financial community, in terms
of independent financial advisers, will get too involved in this
process. I do not think that it would come across their radar. I am
also not sure necessarily at the starting point how much advice people
need.
It is not
purchasing a product in the sense of parting with money that you have
then lost. It is on the other side of the balance sheet, putting away
£10 a month and seeing what happens after six months. To be
honest, if people have not got the habit after two years, and if they
have gone all the way to term with this and not realised that it is
quite a good idea and that perhaps they should do it for Christmas as
well, I am not sure that sitting down with a third sector intermediary
will make a blind bit of difference. I am not entirely sure that there
is a big package of encouragement to start this in that sense for the
agencies. I am sure that the partners we have will work with us on it
with general promotion and that kind of
thing.
Adrian
Coles: Yes. We must be careful not to suggest that
too much advice is needed on this. That may put the customers off. It
would also put the institutions off if they had to train their staff to
too high a level for the amount of money
involved. Helen
Banks: Although we are considering it as part of the
overall provision of the account, our members would give guidance or
information on an appropriate product for the money to go into at the
end, if that is what the saver chooses to do. There should be some
flexibility around the default option—whether the money would
automatically go into some form of savings account—and then it
would be for the consumer to choose what to do with that money
thereafter. Kevin
Seller: May I chip in? I am convinced that the
process that we would follow in the Post Office would be that customers
got a letter outlining their options and the first thing they would do
is go down to the Post Office with that letter asking what to do about
it. To emphasise Alan’s point, we have to get the training
absolutely right when we get to that point in the process.
Q
72Mr.
Mudie: This is a variation on that. Do you have an exit
strategy thought out for individuals? In the Treasury Committee we have
had terrible trouble with your industry in terms of basic bank accounts
and getting people into a saving habit. You could get them to open
basic bank accounts or even not so basic bank accounts. I get the
impression that the Post Office is very keen to take the footprint
because of its coverage, but would want the banks or building societies
to administer it. Do you envisage them going into
banks? Helen
Banks: I certainly think that providers would be
looking at retaining the saving amount that had been built up and
transferring it into an appropriate account from their suite of
products. The difficulty is that there was some discussion in the early
documentation about automatic roll-over into an ISA. Providers disagree
about whether that is the appropriate route for the people in this
category. The idea would be to set up a default account, which would be
some form of savings account that is right for this market. The
customer could then explore what other options might be
available.
Q
73Mr.
Mudie: Do your members welcome the prospect of this number
of customers coming into the banks? They certainly did not with basic
bank
accounts. Helen
Banks: If they decide to act as providers of the
account then that is obviously one of the things that they will be
looking at very carefully.
Q
74Mr.
Mudie: So they do not really, or you have not asked them
yet. Is the number of basic bank accounts still
growing? Helen
Banks: Yes, 50,000 accounts are being opened every
month. To address some of your points, I am aware that issues were
raised at an earlier stage about the hand-holding needed to encourage
or help people in this sector to open accounts. A lot of work is going
on at the moment as part of the work of the Financial Inclusion
Taskforce. The banks have been working to produce some guidelines on
how to make that whole process more acceptable from the
consumer’s side, as well as from the bank’s side. Yes, we
are aware that there were problems, and they have been
addressed.
Q
75Mr.
Mudie: Alan, do you have a tailor-made exit strategy for
these new savers, to keep them coming in and being
customers? Alan
Cook: I think that this will turn out to be the
biggest feature of the scheme. We will be congratulating ourselves
through the two years if there is a good take-up. What happens at the
end of the two years is absolutely critical. I think it was Mark who
said that it is not always the case that people have saved in order to
invest—sorry, perhaps it was you, Dr. Ladyman—but it
might be that there is a destination for this money which is not
another savings account but a spend activity. It might be the holiday
of a lifetime or something for the kids, who knows?
What is
important is that the institution offering the saving gateway accounts
has some options for the customer at the end of that. That is where the
risk is. I do not think that one could be criticised for
“selling” someone a saving gateway account when they are
going to get such a handsome return at the end of it. You might be
criticised for how you handle the saving gateway customer at the end of
the period. As Kevin has already said, that is an area that we would
focus on. We know full well that, whatever we put in writing, the
customer will march straight back to the post office and talk to the
individual behind the counter about what their options are.
There is going
to have to be a default option of some sort, because many of these
people will do nothing at the end of the two years. They will not seek
to spend it or invest it, so we need to have a standard strategy, as we
all will. The simpler and the more standard we can make it, the
better.
Q
76Dr.
Ladyman: I asked earlier about paying interest on the
account. It just occurred to me that one of the options at the end of
the default might simply be that you start paying some interest on it.
At least then, if the person does not move it, the money is not just
sitting there doing nothing. Have any of you considered that?
Helen
Banks: I am sorry if I did not make it
clear—that was what I was trying to imply by saying that the
money would move into an ordinary interest-bearing
account.
Q
77Dr.
Ladyman: What happens if anyone puts more money into one
of these accounts? By my reading of the Bill, that will be possible. If
you put more money into this account than the Government will match,
will that attract interest or will it sit there earning no interest? If
it will, there may be a role for someone to say, “There is no
point putting in this level of money, because the Government will match
£25 a month, but with £30 a month, you are better off
putting the £5 somewhere else.”
Helen
Banks: Again, we have thought about that aspect. It
is difficult to ensure that £25 a month and no more goes into an
account. There would be exit strategies there—for example, the
extra money could be transferred into a separate interest-bearing
account, or returned to the customer. But that is something that would
have to be worked out in detail.
Adrian
Coles: On most regular schemes that the building
societies offer at the moment, at the end of the saving period, the
literature states that the money will be transferred into an instant
access account from which the customer can withdraw their money when
they feel that is appropriate. There is no loss there—it is
virtually there as cash and the customer can just take the money out
when they want. I would have thought that those building societies
offering the account would pursue this option.
Alan
Cook: May I make the additional observation that it
is interesting that, as you get into this, the complexity comes out all
over the place. If we do not fight the complexity, the scheme will not
fly.
Q
78Mr.
Hoban: May I go back to talk about ISAs and why they are
not the right default option? My casual characterisation of an ISA
would be that, on the whole, it pays a better rate of interest than
most instant access accounts. If there was a default option, it would
be much better for it to be an ISA because one would be saving at a
higher rate of interest. Initially, it may be inconvenient to go into
an ISA, but these people are on virtually no income and may not be
paying any tax, so it is even better for them to go into an ISA because
they will get a higher rate of interest, and they will receive it
gross, rather than having to claim back the tax
later. Helen
Banks: I am not suggesting that an ISA is not an
option. Some may offer it, some may not. I guess we are thinking that
people in this category are not going to get the tax benefits of an
ISA, but it is appropriate to look at the interest rate that is
available on whichever account is open to
them. Mark
Lyonette: I would like to think that our
members—it will be different for different members—will
offer the best alternative option in their wherewithal rather than the
worst option. If they have a cash ISA available and it has the best
rate, I should like to think that they would offer that. If they do
not, and there is some other alternative share account or deposit
account, I should like to think that they would offer the best product
that they could find.
Adrian
Coles: It is certainly good that the legislation
allows one to break the usual ISA limit by adding this extra bit from
the saving gateway. To make that mandatory, however, could preclude an
institution offering a better account in some
circumstances.
The
Chairman: Thank you, Helen Banks, Adrian Coles, Mark
Lyonette, Alan Cook, Kevin Seller—otherwise known as the
fearless five, the fabulous five, the formidable five—for
sharing your time and expertise with us this afternoon and early
evening. If hon. Members have no further questions, we have come to the
end of our business for the
day. Ordered,
That further consideration be now
adjourned.—(Mr.
Blizzard.) 5.41
pm Adjourned
till Tuesday 3 February at half-past Ten
o’clock.
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