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Lord McIntosh of Haringey: My Lords, the noble Baroness, Lady Hooper, makes a valid point about the costs of compliance. Sandler addresses this issue in his report. The most important recommendation in his proposals for stakeholder products is that the regulation should be transferred from the seller, which is where all the costs of compliance come in, to the product itself. In other words, a stakeholder savings product, a retail savings product, will itself be subject to regulation at source. Once approval has been given then, comparable to CAT standards, the need for expensive regulation at the point of sale will be reduced. I hope that the company of which the noble Baroness is a non-executive director will recognise and welcome that.
The noble Baroness is also right about training and education. That is why the FSA is investigating that issue. On the general principle that the work of the Financial Services Authority is paid for by the financial services industry—including the consumer education part of its work, which Sandler recommends should be ring-fenced—the industry will be paying for it. I hope that the noble Baroness will agree that ultimately this will be very much to the benefit of the industry.
Baroness Greengross: My Lords, has the Minister seen the report—or reports of it in the press over the week-end—produced by Professor Anthea Tinker of the Age Concern Institute of Gerontology at King's College? It is the first time that I have seen in print the assertion that today's young people will be the first generation to be poorer than their parents. That is a very important point. It sums up why the Sandler review and others that are due are so very important. I hope that we will see the other reviews shortly.
I welcome the Sandler review specifically because we all have to understand that the implications of our ageing society are that we cannot live longer, retire earlier and expect to enjoy a long and prosperous retirement unless we save a very much higher proportion of our earnings over our working lives. What plans do the Government have to make this clear to the population as a whole, and in particular to young people?
I welcome the proposals for making savings and pensions simpler—it has been very problematic—and more flexible, which is also very important. Given their reluctance to introduce any kind of compulsion, do the Government have plans to ensure that people save more? I welcome the specific questions of the noble Lord, Lord Sharman, in regard to those issues and in regard to the huge savings gap. They affect especially the less well off among our population, who will suffer most if we do not get this right.
Lord McIntosh of Haringey: My Lords, I must confess that I have not seen the report to which the noble Baroness referred. Nor have I seen newspaper reports about it over the weekend. From what the noble Baroness said, I am bound to agree with her conclusions. We all know from our own experience that this may be a generation—whether or not it is the first I do not know—in which children are poorer than their parents.
As the noble Baroness said, it is necessary to make people understand the limits of what the state can do without them contributing when the ratio between working and non-working life is changing so radically. In the long term, I suppose, the solution will be to change the ratio back by increasing the retirement age or by increasing the possibility for people to work longer if they are healthy and fit to do so. I am not claiming that that is a government policy, but it is something that we all recognise.
As to the issue of compulsion, there is a substantial level of compulsion already. We have the compulsory national insurance contributions to the basic state pension and the compulsory second state pension for those in work in that they have to contribute to pension schemes up to a certain level. I am not sure how much further one can go in the direction of compulsion, but we should recognise that it already exists.
Lord Lea of Crondall: My Lords, will my noble friend the Minister enlarge further on the question of independent financial advice? On page 3 of the Statement it states:
- "Advice is too often understood as an adjunct to a sale, and not something valued in its own right".
Ten or 15 years ago the advice I received from Lloyd's Bank was probably more reasonable from my point of view than the advice I am allowed to get today. Either Lloyd's Bank will tell me what it is selling or I shall go to someone else who may or may not tell me the basis on which he or she is selling. Are we moving forward—I hope that the answer is in the affirmative; that is why I am asking the question in this slightly barbed tone—to a position where the average punter can believe that there is something called "independent financial advice" which is not intended for any other motivation?
I am still a sceptic in the sense that this is not perhaps what the structure of the industry can provide. Can my noble friend help me in my scepticism?
Lord McIntosh of Haringey: My Lords, there is a detailed analysis of this issue in the report. As my noble friend Lord Lea knows, there is considerable dissatisfaction with the polarisation regime, whereby
you can offer only the products of a single firm or independent advice across the full range of available products. The Sandler review proposes to "tweak" this system in order to encourage the independent financial sector in a depolarised regime. The FSA is considering that proposal. The changes would make advice from independent financial advisers dependent on a payment agreed between the consumer and the adviser rather than through commission agreed between him and the product provider. The first advantage of that will be greater transparency.There will always be a need for independent financial advice. I suspect that that need will grow. We are looking at ways of expanding the advice into something that gives value in its own right. As I said in response to the noble Lord, Lord Sharman, we are enthusiastic about the proposals, for example, to talk to citizens advice bureaux about the possibility of pro bono independent financial advice for those who simply cannot afford it or who think they cannot afford it at the present time. The FSA is very keen on moving that forward.
Lord Brooke of Sutton Mandeville: My Lords, has the irony struck the Minister that a Government which are addicted to double counting in their public expenditure announcements should have been hoist with their own petard in terms of the double counting of pension contributions? Is it not an index of the dominance of the Chancellor of the Exchequer over his subordinate economic Ministers that none of the latter asked the questions which caused that double counting to be exposed but that it was left to the shadow pensions team in the House of Commons, which had less access to information? Secondly, in the month of the fifth anniversary of the stealth tax, when will sufficient time have passed for the Government to analyse whether their economic justification for change has been justified by long-term returns?
Lord McIntosh of Haringey: My Lords, it is only fair to pay tribute to and congratulate the honourable Member, Mr. Willetts. He was perspicacious and uncovered an error that had not been revealed before. It has been corrected.
As to the correction of the anomaly of taxation on pension funds, clearly the benefits vary at different times in the economic cycle. One could call a halt and do a summing up at any stage but I do not believe that would be particularly valuable. In return, I ask when the Conservative Party will say that it would repeal what it calls the stealth tax. Thus far, it has conspicuously failed to do so.
Lord Joffe: My Lords, does the Minister agree that the lack of confidence in the life insurance industry is much more the result of the activities of the industry itself over the past decade than anything the Government might have done? Does the Minister agree also that the costs of compliance are relatively insignificant compared with the amounts paid in commission—which boost the prices paid by consumers for the policies that they purchase? I refer in particular to with-profits bond policies.
Lord McIntosh of Haringey: My Lords, I am reluctant to place all the blame on the life assurance industry. After all, it was invited to indulge in a campaign of mis-selling by the then Conservative Government and the semi-abolition of SERPS in 1998. One cannot blame the industry for taking advantage of the opportunity that was thrust upon it. One can blame the industry for handling that change so badly—as is evidenced by the time it has taken to put matters right. I agree with the noble Lord's second point.
Baroness O'Cathain: My Lords, I thank the Minister for his statement on this massive report. The noble Lord stated that the review contains a broad-ranging analysis of the impacts of taxation systems on the savings industry and urges that they should be as a simple as possible. The lesson seems to be that the Government accept simplification is absolutely essential. I am sure that all Members of your Lordships' House agree. Will the Government give some indication of when they intend putting into train simplification of the whole industry? How will that come about? Will the House debate the matter? Also, do the Government accept the recommendation in paragraph 10.166 at page 208? It states:
- "The Review therefore recommends that, in future, governments should avoid introducing new tax-based savings incentives if their aim is to increase aggregate savings levels. The core objective of policy in this area should be simplification".
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