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Even if personal accounts and auto-enrolment work perfectly and the turnout is 80 or 90 per cent, which I hope it will be, we will still be left with a nation that is undersaving to a degree that has not yet dawned on the majority of people. It is therefore essential, not
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One of the important elements of this is that there is obviously a bigger risk to people over 50, who if they are not careful will fall foul of this by taking the wrong decision. It is not right for the House to pass this legislation without being really clear about what we expect from ordinary folk when coping with this big question. This cannot be done unless there is an element of interpretation in the information service that is currently being proposed. I understand that this is hard and may be expensive. I would prefer it to be face to face. It will not be needed by everyone, but the people who need it really will need it. If they do not get it they will suffer, and that is in no one’s interests. Whether we get anything like what my noble friend has proposed—a gold-plated service that I am absolutely in favour of, although it may be too expensive—we need something. If it is not this, it must be something else, because information by itself is not enough.
Baroness Turner of Camden: My Lords, I very much support what my noble friend Lady Hollis has said about the amendment. The amendment is well intended—I really do support its intention—but I wonder about the practicalities. Mention was made of the Pensions Advisory Service. I was associated with that service for many years, and my noble friend is presently associated with it. TPAS offers a countrywide service on an individualised basis, which would be very appropriate in the provision of information as some guidance is involved. It would be available to everyone and not simply to people aged 50 or over, because people much younger than that will also require information and some assistance. I am therefore not particularly happy about the wording. The amendment as it stands is not a very practical solution to something which I agree is a real need.
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Lord Skelmersdale: My Lords, not for the first time, the noble Baroness, Lady Turner of Camden, has taken the words right out of my mouth in criticising the drafting of this amendment. Not many years ago, one of my colleagues on the Front Bench had a researcher who was just out of university and had debts of £30,000, which I gather was extreme then. The noble Baroness, Lady Howe of Idlicote, is nodding. As a university person—if I may put it that way—she will know that these days it is not unusual for young people to come out of university with debts of £20,000.
There is no question but that those people will need individualised advice. To that extent, I have sympathy with the amendment proposed by the noble Lord, Lord Oakeshott. Because the Minister has told us—at col. 956 on 17 June 2008—we know that we do not envisage the employer being engaged in giving advice. The employer, particularly the small employer, almost certainly will not have the skills at hand to give viable, accurate advice, which will have to be on a one-to-one
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I gather that the noble Lord, Lord Oakeshott, wrote the amendment the first time around and, for all I know, wrote this one, although the noble Baroness, Lady Thomas of Winchester, spoke to it on both occasions. I do not think that we have got to the point where we can put our hand on our heart and say that this is the appropriate way to do things. I am sorry for that, but I cannot support the amendment as it is.
Baroness Howe of Idlicote: My Lords, we have heard a great deal today about just how little knowledge people have on pensions, their entitlements and so on. It is quite clear that in the current frightening circumstances the situation will get very much worse and people will be very concerned about what to do with their money and how much should be put under their pillows. We certainly heard about that on the wireless today regarding those who can lay their hands on any money.
This is an important amendment, which I hope will make the Government think. I am not totally convinced that advice is the right approach, but there must be some form of advice because the detailed information necessary will have to be relevant to an individual’s circumstances. How else can that be done? There is concern about any money being spent by the Government or anyone else now and everyone has particular projects on which they would prefer money to be spent. However, I am inclined to support this amendment. I will of course wait to hear what the Minister has to say and hope that he will give serious consideration to just how people will be better informed in the future.
I like the idea of provision for the 50-pluses. Obviously the amendment cannot be perfectly comprehensive, but could it not take into account those with learning difficulties, about whom mention has been made? However, it will be the older generation that is more likely to be disadvantaged, so the amendment prioritises that group, given the limited amount of money involved.
I hope that we will hear something convincing from the Minister. I support in particular the need to ensure that, given the added demands that will be placed on voluntary organisations such as Citizens Advice, they will be properly funded.
Lord Oakeshott of Seagrove Bay: My Lords, I should say first to the noble Lord, Lord Skelmersdale, that the drafting of the amendment was very much a joint effort between me, my noble friend Lady Thomas and the officials of the House, who have been very helpful. The amendment has been carefully constructed. I thank the noble Baronesses, Lady Hollis and Lady Turner, for their support in principle, but the answer to their points are the striking figures quoted by the
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These responses and those of the Government suggest that the Government do not begin to appreciate the scale of the problem. It is not a question of slightly stepping up a gear; we are dealing with 10 million people, many of whom are, as we know, very unsophisticated. That is why we believe that something much more substantial and radical—a one-stop gateway, if I can put it like that—is required. Of course there are many good individuals doing different kinds of work, but they are not getting through to people now and they certainly will not get through when 10 million are involved. I do not think that experts such as the noble Baronesses or the Government have any concept of how big the problem is going to be.
We say clearly from these Benches that it is wrong to auto-enrol vulnerable groups into what for some of them will be a pay cut—let us be quite straightforward about that—without auto-enrolment to face-to-face advice. Of course, auto-enrolment means that there will be an option not to enrol; it does not mean that you have to have it and many people will not want it. However, the network must be in place. By making sure that at least the most vulnerable groups—research by the PPF and others shows that the over-50s are most at risk—have in place a serious framework of advice, we know that things will happen.
The noble Baroness, Lady Hollis, asked how long we had to do this and how much it would cost. We have four years if the Government start facing up to it now. On my rough figures, I think that the people who are auto-enrolled will be paying around £5 billion a year of their pay into this scheme. In particular, the over-50s will be paying in something approaching £1,500 million a year. Those are enormous sums. Are we seriously saying that the money cannot be found to fund a provision that we suggest is likely to cost around £100 million a year? Just think about those numbers.
I am disappointed that, although the Conservatives feel that means-testing is a problem, they do not quite like this approach because of their concerns about public expenditure commitments—I wish that we could engage and talk about how it could be done. However, the fact is that the amendment has been deliberately drafted so that it does not specify the method of paying for it. If the amendment is passed, it would be open to us to ask industry for a contribution.
We are saying that the Government, in bringing in this legislation, must make a commitment to auto-enrolled advice, particularly for vulnerable groups. It was bad enough even before the desperate credit crunch, which is clearly not going to go away any time soon, but when two-fifths of all households have negative monthly cash flows and with pension saving virtually down to nil—the squeeze has basically destroyed pension saving at the moment—it is essential that we do not start off personal accounts on the wrong note. If people, particularly the over-50s, were to find that they were
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I ask the House and the Government to face up to the fact that a much more substantial commitment to providing advice through a single gateway—a one-stop shop—is essential. The exact way to do that is not sacrosanct for us. We feel that Citizens Advice is the right base because it has a trusted name that people know. I say with great respect to the Pensions Advisory Service that if it carried out an opinion poll I would be interested to know how many people had ever heard of it. It is important to use a name that people know, to build on that and to work around it.
I am afraid to say that last week’s Pensions Minister, Mike O’Brien, displayed a very cavalier attitude. What a way to run a Government and a long-term policy. However, we are delighted that our own Minister is now more closely involved. The Government will run the serious risk of derailing the pensions consensus if they persist in their attitude that there is not a serious problem and in their piecemeal approach to giving people proper advice on the toxic interrelationship between debt, means-tested benefits and what is now looming as a pay cut for many people. I warn the Government that we shall not stand by if they do not move on this issue.
Baroness Hollis of Heigham: My Lords, given the noble Lord’s interesting speech, perhaps he can help us a little further. I was interested in his approximate, broad-brush estimate of £100 million. Perhaps he will say a word or two about how he got to that figure. I would be very interested in his assumptions.
Lord Oakeshott of Seagrove Bay: My Lords, this does not relate only to pensions; this builds on work that I have done with Vince Cable in the other place on the need for a rollout of a national debt advice service. That is the key point. The incremental cost may be even less. This is clearly a pensions debate, but we have been saying in all the warnings that Vince Cable has been giving about debt generally that we need to move to a much higher gear. That is the kind of figure that we are thinking about. We can talk further about it but that is roughly the figure, on our analysis, as part of an overall national debt advice service.
Lord McKenzie of Luton: My Lords, I thank all noble Lords who have participated in the debate and particularly the noble Baroness, Lady Thomas, for moving the amendment on a subject of shared concern—it is certainly a concern for the Government. She referred to the economic backdrop, as did other noble Lords, and clearly these are challenging times for our economy. Our priority as a Government is to guide the country through them on a basis that is focused on being fair. Of course, the thrust of our pensions legislation is to look at the long term.
Let me start by giving one or two statistics because issues around practicalities and capacity were very much on the minds of some noble Lords. We have
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Although I share the concerns of the noble Lord and noble Baroness, the amendment implies that the Government need to be forced to provide information to those being auto-enrolled. That is simply not the case. We are actively considering how to ensure that everyone who is auto-enrolled can find the information they need quickly and easily. It is, after all, in our interests to do so. Those who have questions and cannot get an answer that reassures them may well decide that the safest option is to opt out. That puts our reforms at risk, so we have common cause on this issue.
5.30 pm
I assure the noble Baroness that we share the same vision: a clear, simple route for every individual to the information they need in a format they find convenient. To do that, we expect to make available a simple set of contact points in different formats—web, phone and so on—and to link the services together so that people can find their way through them easily.
We want to build on existing services, including those that offer face-to-face help, using their expertise and experience. I know that the noble Baroness shares my high regard for those who are already involved in this field. Citizens Advice and TPAS, which have already been mentioned, have strong records in this regard. But those services will need to be added to, adapted and linked to create the unified offering we all want. The development of the money guidance service proposed by Otto Thoresen will make the task considerably simpler.
If there is a distance between us, it is in the assumption which underlies the amendment that face-to-face provision is the best approach. In effect, the amendment would mean that individuals were enrolled into face-to-face advice unless they actively opted out. It is not self-evident that most people will find face-to-face sessions the most convenient and helpful. For many people who are used to using the internet or phone services, being able to get the information they need in their own living room or even at their desk will be far preferable to finding the time to visit an adviser.
Otto Thoresen, in his review of money guidance, concluded that face-to-face provision should represent no more than a minor part of the package. Indeed, the New Zealand pension reforms have succeeded without any offer of free face-to-face advice.
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Lord Oakeshott of Seagrove Bay: My Lords, if we had a basic state pension anything like New Zealand’s, we would be delighted not to have any face-to-face advice.
Lord McKenzie of Luton: That is an interesting, but superfluous, point.
The amendment is also based on the presumption that being over 50 is, in itself, a good indicator of poor returns on private pension savings. This is simply not the case. Noble Lords will be aware of the analytical work programme we are doing with stakeholders on incentives to save. Our analysis shows that age is not, in itself, a good indicator of poor returns. So rather than second-guess now what people will want, we are undertaking research to find out. Not to do so could damage these reforms, and that is what concerns me about the amendment.
In the first place, it could seriously distort the allocation of resources, diverting them towards the wrong provision. If the Government were under a legal obligation to enrol everyone for face-to-face advice unless they opted out, we would need to ensure that we could meet the potential demand. The fact that face-to-face services would be the default option would increase demand over and above that which we could expect if there were a level playing field for all channels. People may conclude that if the Government considered it necessary to offer face-to-face advice in this way, they had better use it. Demand would be unpredictable, varying in different locations at different times, yet people would need to be able to get to a face-to-face adviser at a place and time convenient to them before they made the decision on opt out. If the opt-out period is 30 days, that is a very substantial logistical issue.
Providing for this service would be extremely expensive. It is estimated that just an hour’s advice for all people aged over 50 could cost up to £150 million, an ongoing cost as people move in and out of work. We would risk wasting money on advisers who were underemployed. At best, we would spend money on providing face-to-face advice to people who may have been better served by other means. That is not the best way to direct resources.
I am also concerned that if an individual cannot make the time to take up this face-to-face advice before making their opt-out decision, they may conclude that they should err on the side of caution and opt out. No doubt some will promise themselves to look at it again when they have time, but we all know how that situation ends.
There is a serious risk that the amendment undermines the simplicity we have been striving to achieve in the auto-enrolment process and threatens the success of the reforms. Of course we recognise that face-to-face support ought to be a component of what people can access. My noble friend Lady Hollis emphasised the limited knowledge that there is of financial matters but referred also to practicality and capacity.
The noble Lord, Lord Kirkwood, said that information is not enough—it also needs to be interpreted. That is right, but in a sense that is the situation for people who have the opportunity to enter into a pension scheme. The fact that there will be personal accounts and
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We have a shared concern to make sure that these reforms work and that they enable people to access pension savings when they have not been able to previously. We need to ensure that they are helped to make the proper decisions by providing information. We need to recognise that some people will need additional face-to-face support, but the proposition before us is not the way forward. Indeed, it could be a diversion of resources which could and should be used more generally to support these pension reforms.
Baroness Thomas of Winchester: My Lords, I thank all noble Lords who have spoken in this important debate. I am not surprised by the level of ignorance about pensions found by the noble Baroness, Lady Hollis. Employees will be told that their contribution will be 4 per cent—3 per cent from the employer and 1 per cent tax relief. We must not forget that some years ago the Treasury found that only 50 per cent of people in the whole country knew what 50 per cent meant.
There are people under 50 who have large debts, but they have much longer to pay their contributions across their working lives. In addition, they will undoubtedly be able to use the internet to get the information they need; the over-50s will not. I think that it was the Pensions Policy Institute which in previous research highlighted that the people whom it then considered to be in most need of help were the over-50s who would rent in retirement. The situation since that research has changed completely: we are now told that the real problem is people remortgaging their houses and finding life very difficult as a result. The best should not be the enemy of the good. This amendment will be even more important in years to come than it is now. My noble friend Lord Oakeshott answered the question about payment for the important advice that would be provided. I commend the amendment to the House.
5.39 pm
On Question, Whether the said amendment (No. 16) shall be agreed to?
Their Lordships divided: Contents, 66; Not-Contents, 151.
Addington, L. [Teller]
Avebury, L.
Barker, B.
Bonham-Carter of Yarnbury, B.
Bradshaw, L.
Burnett, L.
Chelmsford, Bp.
Clement-Jones, L.
Colville of Culross, V.
Cotter, L.
Craigavon, V.
Dholakia, L.
Dykes, L.
Falkland, V.
Fearn, L.
Garden of Frognal, B.
Glasgow, E.
Goodhart, L.
Greaves, L.
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Greenway, L.
Hamwee, B.
Hannay of Chiswick, L.
Harris of Richmond, B.
Howe of Idlicote, B.
Kirkwood of Kirkhope, L.
Lee of Trafford, L.
Lewis of Newnham, L.
Listowel, E.
Mackie of Benshie, L.
McNally, L.
Mar and Kellie, E.
Miller of Chilthorne Domer, B.
Neuberger, B.
Newby, L.
Northover, B.
Oakeshott of Seagrove Bay, L.
O'Neill of Bengarve, B.
Razzall, L.
Redesdale, L.
Ripon and Leeds, Bp.
Roberts of Llandudno, L.
Roper, L.
St. John of Bletso, L.
Sandwich, E.
Scott of Needham Market, B.
Sharp of Guildford, B.
Shutt of Greetland, L. [Teller]
Skidelsky, L.
Slynn of Hadley, L.
Smith of Clifton, L.
Steel of Aikwood, L.
Stern, B.
Stoddart of Swindon, L.
Sutherland of Houndwood, L.
Teverson, L.
Thomas of Gresford, L.
Thomas of Walliswood, B.
Thomas of Winchester, B.
Tonge, B.
Tordoff, L.
Tyler, L.
Wallace of Saltaire, L.
Wallace of Tankerness, L.
Walmsley, B.
Williamson of Horton, L.
Adams of Craigielea, B.
Ahmed, L.
Amos, B.
Anderson of Swansea, L.
Andrews, B.
Archer of Sandwell, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L. [Teller]
Berkeley, L.
Bernstein of Craigweil, L.
Bhatia, L.
Bhattacharyya, L.
Bilston, L.
Blackstone, B.
Blood, B.
Borrie, L.
Boyd of Duncansby, L.
Bradley, L.
Brett, L.
Brookman, L.
Cameron of Dillington, L.
Campbell-Savours, L.
Carter of Coles, L.
Christopher, L.
Clark of Windermere, L.
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