It is a pleasure to be called to speak in the debate. I rise to speak to new clause 7 and amendments 7 to 11 and 13 to 22, which were tabled in my name and those of my hon. Friends.
We in the SNP—[Interruption.] I see that Conservative Members are laughing, but if the Government had taken this issue seriously and accepted some well-intentioned amendments in Committee, we would not have had to table all these amendments this evening. Let me tell Conservative Members that this Bill is a seriously bad piece of legislation, and they should take it seriously, not scoff at it.
The Scottish National party has consistently warned of the dangers of the Bill and its consequences for savers. The SNP is supportive of any initiative that promotes savings, but the lifetime ISA is a gimmick, as it will work only for those who can afford to save to the levels demanded by the Government to get the bonus. The LISA falls short of real pension reform, and it is a distraction to allow the Treasury access to taxes today rather than having to wait for tomorrow.
Savings into a LISA are made out of after-tax income; pension contributions are tax exempt and tend to receive employer contributions. Saving through pensions remains the most attractive method of saving for retirement. While anything that encourages saving for later life has to be welcomed, the danger is that the Government will derail auto-enrolment. Help to Save is another example: we agree working to encourage savings is welcome, but once again the UK Government are only scratching the surface, rather than really targeting those struggling to plan for emergencies or later life.
The Bill risks seducing young people away from investing in a pension by encouraging investment in a lifetime ISA. We have said before that no one investing in an ISA can be better off than someone investing in a pension. Why are the Government persisting with the Bill? Let us be clear: if we pass the Bill tonight, we could create circumstances in which young people might be sold a lifetime ISA when their interests would be better served by investing in a pension. That is what we will do if we pass this Bill.
In Committee, we sought to make sure that safeguards were in place and that advice was available for applicants to remove that risk, but for some reason the Government refused to accept our reasonable proposals. This evening, we are pressing new clause 7, which would require the Secretary of State to make regulations requiring all providers of LISAs or Help to Save accounts to provide applicants, at the point of application, with both advice on the suitability of the products to the individual and information on automatic enrolment and workplace pension schemes. Auto-enrolment is still in its infancy and is due to be reviewed next year, although we heard today that increases in payments to auto-enrolment schemes are now off the agenda. That too should be debated by the House and changed.
That has to be our priority for savings, but if we are not successful in pressing the new clause tonight, our only alternative is amendment 15, which would completely remove the LISA from the Bill. Our primary problem with the Bill as drafted is the LISA. While the UK Government rely on low opt-out rates from auto-enrolment to justify their claim that the LISA would not risk pension savings, we are not convinced. The Bill is a missed opportunity to focus on strengthening pension saving, rather than tinker with the savings landscape.
The amendments we tabled in Committee aimed to delay the LISA until safeguards were built in; they also highlighted the need for mandatory advice. The Government say that the LISA is a complementary product, not an alternative to pension saving, but they have given no real thought to the difficulties facing consumers in understanding their options and, for those who have savings, whether they are in the best product for their needs. Pensions are already confusing and complex; the LISA as it stands adds to that complexity. We need to build trust in savings. That can only come if consumers have confidence in what is offered to them. A new suite of savings products that in many cases are inferior to existing offerings does not help build confidence in savings.
On Second Reading the Financial Secretary said:
“What is attractive about the lifetime ISA is that people do not have to make an immediate decision about why they are saving this money…people not having to make that decision at an early stage when they cannot see what is ahead.”—[Official Report, 17 October 2016; Vol. 615, c. 607.]
That is an astonishing statement. Why is the Financial Secretary not saying that we ought to be encouraging pension savings? I get the point that we need to consider ways to help young people to get on the housing ladder. Perhaps we need to think about how investments in pension savings might help in that regard. That is one of the reasons I keep asking for the establishment of a pensions and savings commission, so we can look at these matters in a holistic manner. I keep making the point, and I make no apology for saying again, that nobody should be better off with a LISA than with pension savings.
The long-term cost of forgoing annual employer contributions worth 3% of salary by saving into a LISA would be substantial. For a basic rate taxpayer, the impact would be savings of roughly one third less in a LISA over a pension by the age of 60. For example, an employee earning £25,000 per annum and saving 4% of their income each year would see a difference in excess
of £53,000. After 42 years, someone saving through a pension scheme would have a pot worth £166,289.99 at a growth rate of 3%; in a LISA at the same growth rate the value would be only £112,646.75. That is difference of over £53,000, and the difference would be even greater if wage growth was factored in. That is why we cannot support the Government tonight on the LISA elements of the Bill.
Without the introduction of advice, we are creating the circumstances in which mis-selling can take place. How can we stop someone being sold a LISA when a pension plan would be better for the consumer’s needs? We cannot. That, quite simply, is why the Bill is wrong. The Government ought to be thoroughly ashamed of themselves. They are creating the circumstances in which mis-selling can take place. I point the finger of blame at the Government for introducing this Bill and at every Member who is prepared to go through the Lobby tonight to support the Bill. Dwell on the example I gave where someone earning £25,000 per annum saving 4% of their salary could be as much as £53,000 worse off after 42 years. Who can honestly support that? That is not in consumers’ interests. It is de facto committing a fraud on savers in this country.
Today research has been published by True Potential. A poll of 2,000 employees showed that 30% of people aged between 25 and 40 would chose a LISA instead of a pension and that 58% of 25 to 34-year-olds would use their LISA for retirement savings. These statistics are the early warnings of the potential for mis-selling. Tonight, the House must vote to protect the consumer interest by backing new clause 7 to put in place an advice regime; failing that, Members should support amendment 15, which would delete LISAs from the Bill. Failure to do so will be a failure to take responsibility by each and every Member of this House.
I said on Second Reading:
"We would resist any further attempts to undermine pension saving and, specifically, to change the tax status of pension savings. That would be little more than an underhand way of driving up tax receipts—sweet talking workers to invest after-tax income in LISAs when their interests are best served by investing in pensions.”—[Official Report, 17 October 2016; Vol. 615, c. 620]
The sheer fact that the use of LISAs for retirement savings will be encouraged will confuse the public that this is a pension product and could disincentivise retirement savings in what should be traditional products. The Government's response that an amendment on advice would not work in practice, as it would create a barrier to accessing the LISA, is another quite extraordinary argument, as all that advice would do is make sure that consumers can make informed decisions. If there are consumers who choose to invest in a pension rather than a LISA product, I would be delighted, and so should the Government be.
The Government said it would be the role of the Financial Conduct Authority to ensure that sufficient safeguards are put in place. Specifically on advice, we welcome the FCA’s proposed protections: firms will be required to give specific risk warnings at the point of sale, which include reminding consumers of the importance of ensuring an appropriate mix of assets is held in the LISA; they will also have to remind consumers of the early withdrawal charge and any other charges and they will have to offer a 30-day cancellation period after selling the LISA. However, still the risk is simply too
great for the Government to treat it as an afterthought. There must be a formal mechanism to assist those seeking to increase saving, particularly where they are looking for a retirement product.
Even the Association of British Insurers, which cautiously welcomes the LISA, has said:
“LISA (and other ISA products) receives savings from money that is already taxed. This keeps the burden of taxation with working age people and takes money out of the real economy”.
This takes us back to why we are here and what the Government are proposing and why it is wrong.
As I also said on Second Reading:
“SNP Members welcome any reasonable proposals that encourage savings—we will work, where we can, with the UK Government to seek to encourage pension ?savings—but we very much see the Bill as a missed opportunity for us all to champion what we should be focusing on, which is strengthening pensions savings. Instead we have another wheeze that emanated from the laboratory of ideas of the previous Chancellor, the right hon. Member for Tatton (Mr Osborne), and his advisers, who had form on constantly tinkering with the savings landscape. The right hon. Gentleman may have gone from the Front Bench, but his memory lingers on with this Bill.
Let us recall what the former Chancellor said in his Budget speech this year:
‘too many young people in their 20s and 30s have no pension and few savings. Ask them and they will tell you why. It is because they find pensions too complicated and inflexible, and most young people face an agonising choice of either saving to buy a home or saving for their retirement.’”—Official Report, 17 October 2016; Vol. 615, c. 618-19.]
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This assertion was not backed up by any evidence, and it was also half-baked. Young people under the age of 30 have the lowest level of opt-out rates of all those who have been automatically enrolled into workplace pensions. Department for Work and Pensions research has found that for the under-30s the opt-out rate was 8%, compared with 9% for 30 to 49-year-olds and 15% for those aged 50 and over. One would have thought that the then Chancellor and the Minister today would look at the DWP evidence and recognise that the assertion behind the justification for these measures was wrong. The fundamental principle that young people, when presented with a solution for pension savings, such as is now the case with auto-enrolment, are not saving for a pension is wrong. After much effort, auto-enrolment has been successful at encouraging young people to save. That is what we should be prioritising tonight and it is why we should vote to delete LISAs from this Bill.
Of course we know that the Treasury has been flying kites on moving from the existing arrangements for pensions—exempt, exempt, tax—to one of taxed, exempt, exempt. This in my opinion would have a drastic impact on incentivising pension savings, but clearly from the Government’s point of view it would mean higher tax receipts today rather than pensions being taxed on exit, a wheeze from the previous Chancellor to deliver higher taxation income today rather than taxing consumption in the future—a modern-day reverse Robin Hood. Is it not the case that when this was kicked into the long grass, along came the Chancellor with proposals to achieve the same ends through the back door?
We must focus on pension savings and auto-enrolment. We must not undermine those efforts by inadvertently encouraging people to opt out through by consumers with new competing products. As has been stated by the likes of Zurich Insurance:
“There is a real danger that the LISA could significantly derail auto-enrolment and reverse the progress made in encouraging people to save for later life.”
I agree with that.
What is inconceivable is the reason why the Government are pushing ahead at such haste with the product: with the right hon. Member for Tatton gone from the Cabinet, why are they holding on to his big ideas? Providers have already said that they may not be ready for the implementation date of April 2017. Surely, to ensure quality and safeguards and overcome the challenges of complexity, at least the Government should accept our amendments to remove this ISA on these grounds.
Let me turn briefly to our Help to Save amendments. Currently those aged under 25 only qualify for working tax credits if they work at least 16 hours a week. Amendment 12 would ensure that any individual aged under 25 would qualify for a Help to Save product if they met other specified criteria. Amendments 10, 11, 8 and 9 would allow Help to Save to provide for “top-up” monthly payments above £50 so long as the average payment for every two months is £50. Amendment 14 would enable an auto-enrolment workplace saving scheme which would see an individual automatically signed up to a Help to Save account. He or she may opt out to stop money being deducted from their pay or benefits into a savings account.
Amendment 13 would ensure that individuals subject to a bankruptcy order would not be stripped of their assets. Amendment 7 would reduce the time before the holder of a Help to Save account would receive a Government bonus to six months.
We welcome the Government’s Help to Save, which we believe will help to boost the financial resilience of lower-income households. A survey conducted specifically about the scheme by StepChange demonstrates the importance of helping low-income households to save. Over three-quarters of respondents said that they need to pay an unexpected cost at least once a year, and on average it is worth between £200 and £300.
Without savings, many people have cut back on essentials such as food or heating, or had to borrow money. Boosting accessible cash savings among lower-income groups is vital to keep struggling families out of debt. Having £1,000 in accessible cash savings reduces the likelihood of a household falling into debt by 44%. If every household in the UK had at least £1,000 saved, it would reduce the number in problem debt by 500,000. However, in terms of the entire pensions and savings landscape, the Government could do much more.
We will support these aspects of the Bill. However our amendments simply add further security and protections for those the Government have not considered. StepChange is also calling for the Government to come forward with a plan to tackle anticipated low take-up of Help to Save, to ensure the maximum benefit among eligible households who are just about managing. Our amendment for those under 25 would help to do that.
We also support StepChange’s calls for Ministers to commit to bring forward a plan no longer than six months after Royal Assent of the Bill that shows how Help to Save will reach half of the eligible target group. The review of auto-enrolment should be used to look at how we can enhance the numbers and those eligible for pension savings, and more broadly how we can help families to build short-term savings.
I hope the Government reflect on our amendments. There must be advice for those looking to invest in LISAs. Failing that, I will be seeking to remove LISAs from this Bill through amendment 15. We must as a House protect consumers from any possibility of mis-selling. A failure to do so will see us back in this Chamber discussing the consequences, and it will be the Government at fault.