That is an interesting point. The hon. Gentleman is absolutely right to say that auto-enrolment is not good for the self-employed, and there are other aspects of it, including women’s savings, that could be improved. Yes, there has been success, but my “yes” is a cautious one. After all, auto-enrolment has not been going for very long. The real test will be over the next couple of years when up to 4 million people could come into the scheme, taking it from roughly 6.9 million savers at the moment to more than 10 million fairly soon. We will have to see whether they come in with the same enthusiasm as did those who work for larger employers. My point is that introducing the lifetime ISA at this stage, before we know how smaller employers and their employees are going to react, risks undermining the success of auto-enrolment so far.
In 2005, the Pensions Commission described pensions, and the tax relief on pensions, as
“poorly understood, unevenly distributed, and the cost is significant.”
It was absolutely right. The cost to the Treasury is £34 billion a year, and it receives back some £13 billion in tax on pensions, so there is a huge cost involved. I am pretty sure that that is why the Treasury is rightly trying to shape a savings policy that is both good for individuals and not so expensive for taxpayers or for the Treasury as the intermediary. I would like to see a much more co-ordinated effort by the Treasury and the Department for Work and Pensions to look closely at the existing range of savings offerings, pensions included, to see how they can be rationalised in order to come up with a simpler, less expensive method of encouraging people to save.
It is interesting that the online information sheet on the lifetime ISA does not mention the fact that contributions come from someone’s salary after they have paid tax. It also strongly urges people to
“use it to save for retirement”.
That is exactly what we would expect people to do with a pensions product, so the concept that the lifetime ISA is not competitive with auto-enrolment and other pensions offerings is slightly disingenuous. Others have made the point that it is competitive with auto-enrolment and therefore offers significant potential for many of our constituents. Let me quote briefly from one or two of those who have highlighted this issue.
The Pensions and Lifetime Savings Association, which used to be called the National Association of Pension Funds, illustrates my point that all pensions are now, rightly, considered to be savings products. It comments:
“We look forward to working with the Government to help make sure that the Lifetime ISA does help younger people build up their savings.”
It goes on to say that it is important to ensure that
“the regulation on charges and governance of the Lifetime ISA are comparable to those for pensions, which have been reviewed to make sure they offer savers good value”.
That refers to the cap on charges and the increased governance. The association is implicitly recognising that this product will be considered by consumers as an alternative to saving. Indeed, former pensions Minister Steve Webb says:
“There is a real danger that the new product will mean that many young people will not start saving for their retirement until their thirties”
because that option is available to them through the lifetime ISA.
It is also interesting that the Association of British Insurers, Zurich and Hargreaves Lansdown have all expressed concern. One of the points raised by the Institute for Fiscal Studies is exactly the same point that I made in an article earlier today in which I referred to the lack of clarity over the extent to which there will be new savings, as against the shifting of existing funds by people who have already saved in ISAs. We must recognise the fact that 21 million people have invested in ISAs. That is not a small body of people. It is not a narrow cohort consisting exclusively of the very rich, for example. If savings are recycled and 80% of the people who put money into a cash ISA in 2014-15 recycle their money into a lifetime ISA to get the 25% Government bonus, that would not necessarily demonstrate a success for the Government in terms of bringing in new savers and people who would not otherwise have the chance of getting on to the housing ladder. Rather, it would demonstrate
that people who already have savings are being given an opportunity to increase the return on those savings, and that higher-rate earners will have an opportunity to provide lifetime ISAs for their children or grandchildren.
It would help if the Minister clarified what impact assessment the Treasury has carried out. How much money does it expect to come in from new savers? How much does it expect to be recycled from existing ISA-holders? Who will be the beneficiaries of the lifetime ISA? My concern is that the main beneficiaries of the vast weight of the £850 million that this will cost the Treasury and therefore the taxpayer will be people who already earn quite a lot, or their children, and that the benefits will not reach the many, even though that is the intention behind the Bill.
I have tried to address some of the issues and unintended consequences that could arise from the Bill. Hargreaves Lansdown has written a useful paper on simplifying ISAs and pensions, in which it proposes a number of changes to ISAs. It is worth flagging them up today. It proposes: consolidating six different types of ISA into one; limiting the cost to the Exchequer of the Government top-up to the lifetime ISA; simplifying ISA decision making for investors; reducing the administrative burden for the industry; retaining the help-to-buy element of the lifetime ISA in one simple ISA product; and eliminating the risk that the ISA will undermine pension saving. It goes on to make a similar number of recommendations on pensions as well. The last point about eliminating the risk that the LISA will undermine pension saving is the one to which I keep returning because it is possible to do these things in a different way.
The Pensions Policy Institute found that Canada, Australia, New Zealand, US and Singapore—all countries that broadly follow Anglo-Saxon approaches to finance and investment—allow early access from the same product used for pension saving. That is critical because it means that people do not have to choose between a LISA or auto-enrolment and that they can decide whether they want to save to get on to the housing ladder or to save for their retirement through the same product. It would be a major achievement of this Government and Treasury and DWP Ministers if they could work together to rationalise the structure of pensions and savings so that individual consumers can access the same product for different reasons without having to subscribe separately. That would eliminate the main concern of many about the unintended consequence of the LISA directly and negatively impacting auto-enrolment. That is why I will certainly not be voting against the Government but will abstain from voting on the Bill this evening.
6.51 pm