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Lord Marlesford: My Lords, I thank all noble Lords who took part in the debate for their many and diverse views. Like all good debates, many of the views conflicted. I particularly thank the Minister for such a helpful wind-up. In answer to the question as to timing, I hope that the debate may be an input for the Government in producing their policies in a few weeks' time. I beg leave to withdraw the Motion.
The noble Baroness said: My Lords, my first duty this evening is to thank all noble Lords who will be taking part in this debate. I am aware that the subject has been done to death in the financial pages of the press, but still feel that to debate the issue in your Lordships' House may bring it into sharper focus and, as I am for ever hopeful, may encourage Her Majesty's Government to reconsider some of the less attractive aspects of the proposals.
I am fully aware that we are in the throes of the consultation period and there has been consultation. A great deal of material has been submitted to the Inland Revenue. As an aside, and speaking as the daughter of that most unloved breed of people, a senior civil servant in the Inland Revenue, an inspector of taxes, I cannot but express sympathy for the current plight of that arm of the Civil Service. It has been up to its eyes in the introduction of self-assessment. A great deal of effort has been expended in sending out reminders to recalcitrant taxpayers (and even to those whose forms were sent in long before the September deadline--but I blame the computer for that, not the unloved tax inspectors). And now they have to deal with consulting widely on the new individual savings account--and getting even more unloved in the process. Perhaps I should encourage the Government to be more considerate towards them. Change for the sake of change is never a good thing.
I believe that this is a timely debate. In just over four weeks we shall know what the Government will decide about the future of a significant part of the savings sector. The financial services industry has had the chance to make its views known and we now have the chance to make our views known. I am sure that in the normal mode of the noble Lord the Minister he will listen carefully to all the contributions with an open mind, consider them and add them to the mountain of views already expressed on the consultation document.
I wish this debate to be constructive, to help in the consultation process, to give credit where credit is due and to be critical only in a constructive way. The first grant of credit where credit is due relates to the actual consultative document of December 1997. The content may not be to the general liking of those who are both current holders of PEPs and TESSAs but at least it is readable, and beautifully produced.
an admirable objective and one with which I concur wholeheartedly. Through such encouragement personal reliance is encouraged and this, in turn, will alleviate the burden on the state of an ever-increasing ageing population. Surveys have shown that over half the current holders of PEPs and TESSAs have invested in the instrument as a saving for their retirement and that one in three of those with TESSAs are aged 60 or over. Actually, it seems rather strange that, although these instruments are so linked with provision for retirement, they are being dealt with outside the pensions' review, when presumably such a review will include examination of pension tax relief.
Saving for retirement is acknowledged as being essential. Indeed, the necessity for it was underlined only this week when the Chancellor of the Exchequer was reported as saying, "The welfare state isn't working". All of us have to take more responsibility for our old age, and saving is the best way. Perhaps the new slogan should be, "Those who can, should save; those who cannot, should be supported". The two major criteria for people who are saving for their retirement
When PEPs were introduced there was a slow take-up of the product. The concept was new; it was different; and as such was viewed with a certain amount of scepticism by many. Because of the stringency, quite rightly, of the regulations regarding the selling of financial and saving products, the advertisements and other marketing tools used for the promotion of PEPs and TESSAs were pretty dull. One has only to look at the back pages of the weekend papers to see that one has to read an awful lot of turgid words before getting to the basic facts about these products. A "switch on" they are not. Just assess the attractiveness of the advertisements compared with those for new cars, coffee or cosmetics. However, looking around the Chamber, I realise that there are probably not too many of your Lordships who are familiar with advertisements for cosmetics.
It has taken a long time for PEPs and TESSAs to be accepted as more than alphabet soup. But they have been very successful. As we see from the Government's own figures, some 6.5 million people currently have either PEPs or TESSAs--some 3 million in the case of the former and 4.5 million in the case of the latter, with some people of course having both. My first question to the Minister is: why abandon what is a successful concept, one that has become both understandable and attractive to those whom the Government wish to encourage to save?
I am aware that that is probably a fairly stupid question as we have been told that the objective of replacing PEPs and TESSAs with ISAs is to encourage, and I quote once more from the consultation document,
to save. However, investors on "more modest incomes" are already saving through PEPs. Work done by the financial services industry shows that over half the current investors in PEPs are basic rate or lower rate taxpayers. Surely what one does not want to do is to discourage saving by these people by, first, breaking faith with them and, secondly, replacing a comprehensible and attractive product with a complex one, which will entail getting to grips with yet more small print and convoluted regulations.
I have no evidence to support the view that Members of your Lordships' House are probably reasonably financially literate. I am sure that you are. However, do we really need to have to go through more rigmarole when we consider that we are happy with the current situation?
Before I proceed, I feel I must state why I think the Government's proposals are breaking faith. Rightly or wrongly, there is a general acceptance of an unwritten contract between savers and the Government which says that savings schemes launched and entered into in good faith today will not be undone tomorrow. It is a contract that exists for good reason. Without it, financial planning would become a game of chance and few
I am sure I am not alone in having saved for many years in Post Office savings accounts, National Savings and even Premium Bonds, always secure in the knowledge that my money was "as safe as the Bank of England", as we used to say. The Government had set the rules and the Government would not change those rules or break faith. When PEPs and TESSAs were introduced I felt that, although the risk was different and, to use those words at the end of every commercial for savings products, "the value of the investment could go up or down", as the Government had set the rules the rules would not change. But the rules will be changed if the proposals in the consultation document are implemented.
If the Government do not like PEPs and TESSAs, they should simply stop issuing new ones and cap the total amount that can be accumulated within them. But the Government are not proposing to take that step. They are considering forcing people to shut down PEPs and TESSAs and breaking the deal. The result will threaten the nation's's saving habit by disturbing it. It will also cause administrative chaos, a point I shall return to later.
The Government are proposing to replace PEPs and TESSAs with the ISA, the new Individual Savings Account. Before I deal with the merits of the ISA--and there are some--I think it would be worth while to ask the Minister a second question. In the event of ISAs being introduced in April 1999, will the "unwritten contract", to which I have already referred, be replaced by a written contract to the effect that ISA reliefs will not be withdrawn at a later date, in contrast to the proposed changed treatment of PEPs and TESSAs?
In the spirit of giving credit where credit is due, I believe that the ISA has some good points. The ISA is proposed to have an annual investment limit of £5,000 and can involve investment in cash, stocks and shares (including unit trusts), life insurance and National Savings. The good point is that cash is now included in the option of saving through an ISA. I think that this is an admirable proposal. I am not so enthusiastic about the proposal that life insurance should be included as an option. Life insurance is a highly specialised subject. It is something one does not lightly take on without good advice. That advice does not come cheap. In fact, it is generally recognised that the insurance companies often take up the first two years' premiums in fees. How would this affect the investor in an ISA?
The whole subject of fee structure cannot be glossed over. Financial advisers have to earn their salaries like everyone else. We rely on them to give us the best advice for our particular circumstances. In order to be able to supply that advice, they have had to do an immense amount of analysis, carry out investigations into competing products and tailor-make products to the needs of individual customers. All of this takes time and dedication, for which they have to be paid. They are paid out of the commission structure which in the case of life insurance is often covered by the first two years' premiums. I find it hard to believe that the adviser will be willing to spend a great deal of time and effort on
The ISA proposals allow withdrawals from the account at any time, but savers must be made aware of the risks of early encashment of life insurance or equity-based products. I look for assurance from the Minister that this would be highlighted in all the literature published and in all the discussions held with potential savers. Perhaps I have missed something, and in the spirit of being constructive I should like some assurance from the Minister that my conclusions are not justified.
The proposed ISA is more flexible than the current PEPs or TESSAs--and that is good. My suggestion is that the current PEPs and/or TESSAs could be modified to incorporate more flexibility. This would obviate the need for the introduction of a totally new savings instrument and would not jeopardise the established savings pattern of 6.5 million people.
Throughout my business career I have always looked for opportunities and not focused on problems. I frequently irritated colleagues by stating, "There are no such things as problems--only opportunities" and "A problem is an opportunity waiting to happen". The development of the proposal to introduce the ISA could well be in the category of a problem being an opportunity waiting to happen if the Government decided to adjust the current savings instruments to encompass the widening of these instruments and included the better parts of the ISA concept.
If, however, the Government persist in introducing the ISA they could be on the horns of a dilemma. Due to the differing statutory requirements for the selling of each type of savings product the ISA could become an administrative nightmare. The cooling off period, whereby the investor has time to change his or her mind, is different in the case of equities and insurance policies. I do not need to take up time explaining what could happen to the hapless investor if he or she decided to split the investments in the ISA in all four categories proposed. A problem--but an opportunity; the job creation possibilities would increase for postmen, envelope manufacturers and forestry workers, with all that paper, to mention but three. Somehow I do not think that that is what the Government have in mind.
I would like to turn to the proposals concerning the current holders of PEPs and TESSAs. Having already mentioned the "breaking faith" issue I do not need to dwell on it again--doubtless other contributors in this debate will do so, and probably in a more comprehensive way.
If the opinion has changed, I would like to make a proposal which has a precedent in the previous change of heart in matters financial; namely, when the rules of insurance companies were changed in 1984. To remind your Lordships, any policy taken out before the rules were changed continued to be governed by the old rules; any policy taken out after the rules changed was subject to the new rules. In this way, the current holders of PEPs and TESSAs would be able to freeze their accounts and start their new savings in April 1999 with an ISA. This would avoid the horrendous administrative tangle, which is inevitable in the transfer of existing PEPs and TESSAs to the new savings instrument.
I believe that the Government's proposals have engendered more concern about this administration point than about any other. Of course, anger has been expressed about the lifetime limit, but I am sure that sense will prevail and that the submissions on this point will be heeded. Of course, anger has been expressed about the Treasury take, and I would like to believe that there is no hidden agenda by the Treasury to the effect that it felt too much tax relief was being given. But the genuine concern about the size of the administrative task which would be generated if the current proposals went through without modification--on a pretty massive scale, too--is significant.
It is several years since I first mentioned the millennium bug problem in your Lordships' House. I was told that the problem was under control. I hope; I hope. The widespread realisation of the problem has resulted in a huge demand for IT staff. Cobol writers are being paid more per hour than the daily subsistence allowance in this House! Most large organisations in the financial services industry aim to be millennium compliant by the end of September 1998. At that stage, and only at that stage, will the systems people be able to turn their attention to the production of new systems to facilitate the transfer of PEPs and TESSAs to ISAs.
The complexity of such systems work should not be underestimated. In order to ensure that the systems are foolproof in April 1999, they must be ready for final testing in December 1998. This allows just three months to devise completely new systems for a completely new savings product, with the additional complexity of being able to effect the transfer of some millions of accounts currently held in PEPs and TESSAs.
I ask the Minister whether he is confident that such a mammoth task can be accomplished in such a short timescale. I know that he is fully aware of the ramifications of the IT problems I describe and I would be greatly heartened if he could give me that assurance. Perhaps I should brush up on my 30-plus years old knowledge of Cobol and offer him my assistance. But where would I save the earnings I could command for such work?
I am greatly looking forward to all the contributions in this debate this evening and I am sure that we will learn a great deal. I hope that my contribution will be accepted by the Minister as a well-meaning contribution to the consultative process on what is an important subject. My Lords, I beg to move for Papers.
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