Financial Guidance and Claims Bill [HL]

Written evid ence submitted by Age UK (FGCB14 )

 

Financial Guidance and Claims Bill

 

Our view on key amendments

 

1. New clauses 1 and 2 on guidance

1.1. Age UK believes a saver withdrawing their pension pot should automatically be defaulted into guidance, with the right to opt out.

1.2. Unfortunately we do not think new clauses 1 and 2 achieve this.

1.3. We welcome the broad intent behind these Government amendments and recognise that they would provide an extra ‘check’ in the process where an individual would have to explicitly say they wish to proceed without guidance.

1.4. However, we think this does not go far enough in making the receipt of guidance default on an opt-out basis. It also puts all the onus on the consumer to make a decision to say whether or not they want advice. We think a true default on an opt-out basis, where savers automatically receive guidance by default until they turn it down, would result in a more significant increase in savers receiving guidance.

1.5. We think it is important that the Government works with regulators and the new guidance body to put in place a system that achieves this, and we are now calling for the Government amendments to be adapted to this effect.

1.6. One way to do this would be to insert a new line requiring trustees or managers to take specified steps to support the individual to seek guidance. These steps for a default guidance procedure could be determined by the FCA through consultation at a later stage.

2. Amendments 26 and 32 on the pensions dashboard

2.1. We are pleased that the Government has committed to launching an easy-to-use, accessible pensions dashboard by 2019.

2.2. While we accept that progress is ongoing, we are concerned that legislation may be required to ensure adequate progress and to bring all providers on board. W ithout comprehensive coverage it may not provide a service that offers sufficient help with retirement planning.

2.3. We also think it would be most effective as a single ‘white labelled’ dashboard, rather than individual providers using their own versions. It is vital that consumers trust the dashboard, and can recognize it as the single ‘authorised’ version.

2.4. We support amendments 26 and 32 in bringing provision of a dashboard into the body’s remit and welcome the opportunity these amendm ents present to debate progress.

3. Amendment 23 on independence

3.1. We were pleased that minister gave assurances in previous stages that the new body is designed to be both independent and impartial.

3.2. We support amendment 23 as a means to ensure the body is as independent as reasonably possible .

4. The single financial guidance body

 

4.1. Age UK welcomes the Financial Guidance and Claims Bill and the resulting single financial guidance body (SFGB) as a way to improve the provision of advice available to older people.

4.2. We also welcome the broad drafting of the body’s objectives and functions 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.

4.3. However, we think more clarity would be useful in the following areas:

4.4. Information, advice and guidance must be of high quality, adequate detail and impartial, currently the Bill makes no reference to quality of information, other than the requirement for the new body to set standards for services it provides.

4.5. When having regard to the cost effectiveness of provision, the new body must also take into account the needs of those who are not confident internet users, who may indeed be most in need of the services of the new body.

4.6. Assessing those most in need will require further consideration, e.g. do we focus resources on those at risk of falling into problem debt in the short term, or those who with some more support could make their money go much further and so be more financially resilient in the longer term.

5. Independence and impartiality

5.1. While we agree that the SFGB should not duplicate existing good quality information or guidance, this material must be impartial, or it will not be trusted by consumers. There has been a view that the Money Advice Service should not duplicate material provided by the industry. We believe that the SFGB must be free to deliver services where existing provision does not meet adequate standards, including impartiality.

5.2. Age UK supported amendments in the House of Lords to clarify expectations about how the new body will seek to complement other sources of advice. We are pleased the minister gave assurance in response to these amendments and that the new body is designed to be both independent and impartial. We think that amendment is needed to the legislation to ensure that the SFGB is not prevented from delivering information and advice where content exists elsewhere but does not meet adequate standards, including impartiality.

6. Standards

6.1. The Bill provides for the new body to set standards for delivery of its own services. This continues an approach which already exists in some of the functions but will be new for others, including delivery of money guidance and information.

6.2. Although the standards are designed to be provided by the new body and by others delivering services on its behalf, they are likely to affect the wider sector and the new body should have regards to this as it develops standards for money guidance.

7. Funding the new body

7.1. The scale of funding is unclear.

7.2. It would be helpful to have some indication of the resources likely to be available in order to deliver the objectives and a commitment from the government to maintain a level of funding which permits high quality, impartial information and advice to be widely available to the public.

8. Public Policy role

8.1. The new body will be an important source of evidence and insight into how well financial services markets are working for consumers. It is therefore important that it has a mandate to engage appropriately in relevant public policy.

8.2. Some of this may take place as part of work on the Financial Capability Strategy, however the role needs to extend beyond the Strategy. Engagement in public policy should include research, evidence collection, responding to consultations, sharing market insight with relevant government departments and other bodies e.g. regulators and if necessary highlighting issues affecting its functions within public debate. The new body should be able to make public statements to this effect, where the current Bill appears to potentially limit this role to passing casework on to the FCA.

8.3. We would support amendments to the Bill to clarify and strengthen this important public policy role.

Pensions

 

9. Pensions scams and cold calling

9.1. We are pleased the Bill has been amended to strengthen provision in this area with a consumer protection function and role for the SFGB in advising the Secretary of State by conducting an annual assessment (Clause 4).

9.2. On 21 August the Government published its response to the consultation on pensions scams and we are pleased the Government has announced that a ban on all pensions calling will indeed go ahead – including approaches by text and email - and that there will be new restrictions on pension scheme transfers.

9.3. We think the legislation and the ban itself should now be introduced as soon as possible as any delay will lead to more people losing money.

9.4. The previous amendment will provide valuable protection for the future. However, we would like to see the Bill go further to plug the gap in protection sooner.

9.5. The Work and Pensions Committee published its report in December on pension scams and proposed a new clause requiring the Government to introduce a ban by June 2018.

9.6. We were pleased to see support for progress on tackling cold calling during the Bill’s Second Reading . We hope the Government will now bring for ward an amendment of its own to address this issue.

10. Pensions dashboard

10.1. We are pleased that the Government has committed to launching an easy-to-use, accessible pensions dashboard by 2019.

10.2. In order for it to be a success, it needs to ensure that it works for all savers, especially those with multiple small pots. We believe that legislation is needed to bring all providers on board. Without comprehensive coverage it may not provide a service that offers sufficient help with retirement planning.  

10.3. It could be placed as a duty on the Secretary of State to bring forward regulation requiring the disclosure of customer information by providers of defined benefits schemes and defined contribution pensions schemes for the purpose of a public pensions dashboard. A similar duty on banks to provide ‘open banking’ already exists under the Competition and Markets Authority’s ‘Open banking remedy’ and the European Payment Services Directive 2 (PSD2).

10.4. We believe it should also include a State Pension summary; calculators to enable people to test what different decumulation options might mean for their income, including the impact on tax and benefit eligibility; information on charges; and information on any benefits such as guaranteed annuity rates that people might be tempted to give up. 

10.5. We also think it would be more effective as a single ‘white labelled’ dashboard, rather than individual providers using their own versions. It is vital that consumers trust the dashboard, and can recognize it as the single ‘authorised’ version.

10.6. While we accept that progress is ongoing, we are concerned that legislation may be required to ensure adequate progress and involvement from the industry.

10.7. We hope to see the Government announce significant progress on this by the end of March and would welcome any opportunity the Bill’s progress provides to clarify plans for how the dashboard will progress and what form it is expected to take.

11. Pension freedoms and withdrawal of pension pots

11.1. The FCA recently published its interim findings of the retirement outcomes review. This analyses how the retirement income market has changed since the introduction of pension freedoms.

11.2. Over half (52%) of fully withdrawn pots were not spent but were moved into other savings or investments. This can result in consumers paying too much tax, missing out on investment growth or losing out on other benefits. Consumers are also increasingly accessing drawdown without taking advice and without ‘shopping around’.

11.3. In light of these findings, Age UK believes a saver withdrawing their pension pot should automatically be defaulted into guidance , with the right to opt out . Unfortunately we do not think new clauses 1 and 2 achieve this.

12. New clauses 1 and 2

12.1. We welcome the broad intent behind these Government amendments and recognise that they would provide an extra ‘check’ in the process where an individual would have to explicitly say they wish to proceed without guidance.

12.2. However, we think this does not go far enough in making the receipt of guidance default on an opt-out basis. It also puts all the onus on the consumer to make a decision to say whether or not they want advice. We think a true default on an opt-out basis, where savers automatically receive guidance by default until they turn it down, would result in a more significant increase in savers receiving guidance.

12.3. We think it is important that the Government works with regulators and the new guidance body to put in place a system that achieves this, and we are now calling for the Government amendments to be adapted to this effect.

12.4. One way to do this would be to insert a new line requiring trustees or managers to take specified steps to support the individual to seek guidance. These steps for a default guidance procedure could be determined by the FCA through consultation at a later stage.

13. The Pensions Advisory Service (TPAS)

13.1. In addition to delivering the telephone element of Pension Wise, TPAS provides a function of supporting members of the public with general and technical inquiries about their pension schemes and provision. This service is delivered online and is used by over 1 million unique users, and over the telephone, receiving 200,000 calls in the last year.

13.2. We are pleased the Bill allows this service to continue and would to stress that TPAS is a vitally important function that should not be compromised as the Bill progresses.

Other topics not included in the Bill

 

14. Pensions saving – Government contribution and net pay tax relief

14.1. The Bill could have been an opportunity to end the scandal of non-taxpayers under a net-pay payroll system not receiving tax relief. 

14.2. Under a net pay system the employer deducts pension contributions before tax, meaning that if an employee doesn’t pay tax then they are not benefiting from pensions tax relief, reducing the saving level of many lower earners.

14.3. This is very unfair and breaks the implicit contract set out under auto-enrolment – that the Government will help people save. The amount lost to lower earners will increase as the personal allowance is increased, and the amounts will become even larger when contributions start from the first pound, as the Government has proposed following the recent auto-enrolment review.

15. Pensions flexibilities - Tax on lump sums

15.1. Since the introduction of the pensions flexibilities in 2015 many people have accessed their pension as cash. While this may be a sensible decision for some, it can also lead to unintended consequences for others. This includes people paying too much tax – HMRC figures reveal people paid a total of £1.5 billion in 2015/16 - £1.2 billion more than expected. 

15.2. We are concerned that people are paying too much tax and not claiming it back.

15.3. For example, if someone takes a cash lump sum from their pension pot in April, as it is the first month of the tax year, HMRC will assume this payment will be repeated each month, and people will be taxed accordingly, often at the higher rate. People are only taxed accurately if their pension scheme provides HMRC with their tax code, which rarely happens in practice.  

15.4. We would like to see a mechanism in place which will help HMRC tax people at the right level , for example by the pension scheme passing HMRC the tax code, or make it much easier to re-claim overpayments.

16. Career Review at 50 – A chance to boost savings

16.1. Mid Life Career Reviews were piloted by BIS in 2013/14. These were very successful, and provided a form of career, learning and future-planning guidance to people at approximately the age of 50.

16.2. We recently published a report on ‘career MOTs at 50’, highlighting the need for an intervention at this age in order to help prepare people for a longer working life, as well as ensuring they have saved enough money to retire.

16.3. It proved a popular idea, with around half (51%) of those surveyed in favour of taking part. Alongside in-depth career and retirement planning advice, the new research also highlights that many people want to receive guidance on how they can boost their savings.

16.4. The MOT could therefore include a ‘nudge’ to increase pension contributions and explore how they can put enough money aside for the future while there’s still time to make a difference. This is particularly important if the State Pension Age continues to rise over the coming decades.

16.5. We are calling for the Government to create a career MOT at 50 for all, including careers advice and guidance on boosting pension saving .

January 2018

 

Prepared 1st February 2018