Saving Gateway Accounts Bill

My Lords, we have a low savings ratio in this country compared to, say, Germany—one of the points interestingly made by the noble Lord, Lord Blackwell—because our savings are largely embedded in houses and pensions, neither of which counts towards the savings ratio, which is essentially get-at-able, rainy-day, liquid savings. That low ratio may not matter very much when we have full employment, the opportunity for overtime and an approximate matching of income and expenditure, but increasingly, as the recession deepens and financial insecurity grows, people need rainy-day savings. We in this country have not done very well in allowing people to access their illiquid savings—to get early access to the tax-free lump sum of their pension during their working life, for example, if they face repossession—or to draw down capital from their home through safe equity-release schemes in retirement to cope with growing need, particularly the wish to stay at home rather than go into long-term care. We make it very difficult for people to borrow from themselves, to move between capital and income and to move, as the noble Lord, Lord Blackwell, said, between pre-retirement and post-retirement assets. We have hung on to financial products that are increasingly not fit for purpose, designed for one gender and a different generation. The saving gateway is therefore to be welcomed, especially as it will include help for carers, which is excellent news, as my noble friend Lady Pitkeathley indicated. Since 1997 we have transformed income welfare; tax credits and pension credits, underpinned by the minimum wage and greatly improved state pensions, together have tackled poverty. But the disparities in wealth are still twice as great as those in income. Following in the footsteps of the child trust fund, we are increasingly engaged not only in income welfare but in asset welfare, and rightly so. In the saving gateway, as my noble friend explained to us, the Government will be adding 50p to every £1 saved over two years, to a maximum of £25 a month or £900 in total. The early gateway pilots, as he said, showed that people who had not hitherto saved did so, and that, even when the 50p-matching incentive stopped, they none the less continued to save. They regained control over their lives. They worried less when the washing machine broke down; they could plan a little more, weather stress a little better, spread their bumpy outgoings and avoid high-cost borrowing or getting into debt. As one participant said of the saving gateway: ""It made me feel more secure and I didn’t feel so panicky. Before, I would panic if I thought something was going wrong"." The scheme is limited to people of working age on low incomes, passported on to it by their benefit claims—income support, JSA, tax credits and now the carer’s allowance. Incidentally, they are passported, not means-tested, which is good to note. Why, as the noble Lord, Lord Blackwell, said, is the scheme confined to people of working age? Why are pensioners denied access to it? My noble friend was typically generous in addressing that issue, and I am grateful—at least, I think I am—for his pre-emptive strike. Essentially, his case was that pensioners are thought to have less need and greater resources, and therefore they can cope. I challenge that. On any needs and resources analysis, I argue, pensioners have the greater claim. My understanding is that pensioners were excluded because the Government followed the recommendations of the IPPR report by Sodha and Lister, researchers I expect to respect. The need of pensioners, however, is dismissed in their report of nearly 70 pages in under seven lines. Excluding pensioners, they say, ""is sensible, as it makes most financial sense for pensioners to be consuming resources they have saved during their working lifetimes"." They add that only better-off pensioners would take it up, and that instead their pension credit should be increased. I do not know whether their remarks are underpinned by research about pensioners’ savings, expenditure, coping strategies, vulnerability, needs or indeed their likelihood to panic if the washing machine breaks down. There is certainly no evidence of any of that in their report, merely the statement offered that those of working age should acquire the savings habit while those of pension age should acquire the spending habit. I see why they might say that—they do not want pensioners going without in order to leave something to their family—but the notion that denying them the saving gateway would thereby encourage pensioners to change their behaviour and spend is, in my view, flawed and possibly pernicious. The IPPR believes that pensioners need income, hence the recommendation on pension credit rather than capital. It is wrong—they need both. Of course the IPPR’s proposal to increase pension credit is nice but, the £1 billion or £3 billion price tag aside, it rather misses the point. Pension credit supports income. The 70 year-old needs modest savings just as much as the 40 year-old. Pensioners on pension credit do not usually have—in the words of the IPPR’s report—"spare" resources to consume, which is why they are eligible for pension credit in the first place. They are usually poorer, older women. They do not have occupational pensions, they certainly will be too old for the personal accounts that my noble friend cited, and they may well be pensioners for 25 years or more. In comparison, the typical lone parent on income support is on that benefit, on average, for less than three years. The notion that pensioners should consume, run down and run out of any tiny savings they may have, and expose themselves to the buffeting of every minor financial calamity over 25 years, seems to be the height of folly. We are asking pensioners to gamble on their own longevity. Will your washing machine die before you do? Will you be in residential care before you need to repair your roof? Their needs over time—and the length of time is key—will grow. Far from consuming, they, too, need to save if they do not have a cushion behind them. As for their resources and their ability to meet those needs, half a million pensioners have no savings at all. One and a half million have less than £3,000. How will they manage? They will not necessarily go into debt; instead they will go into denial—of heating or of food. Many simply have no margin at all to deal with the unexpected. Pensioners at 70 need to smooth out bumpy expenditure just as they did when they were 40. They have the same need to feel in control of their finances, the same hunger for a bit of security, and the same neediness and vulnerability if that is denied. In other words, the 70 year-old, as much as the 40-year old, needs not only income, but capital as well. We do not require claimants of IS or JSA to have consumed all their savings before they can get benefit and be passported on to the saving gateway. Their first £6,000 of capital is disregarded, and thereafter a notional tariff applies, just as in pension credit—and rightly so. It is a false economy of the state to strip out, 1930s-style, any modest savings. Why then is it acceptable for someone on JSA to have £6,000 of capital yet be eligible for the saving gateway, but for a pensioner with only £600 of capital to be excluded? Just because the first person is 40 and the second person is 70 will not quite do, with an equality Bill coming our way. I beg my noble friend to bring forward an amendment to bring poorer pensioners—those on pension credit—into the saving gateway. We have tackled wonderfully well the issue of the poverty of pensioner income. We now need to think again about the poverty of pensioner savings. Then the saving gateway would really make a difference.