My Lords, it is an honour to follow so many excellent speeches from so many noble Lords. This House contributes huge expertise to our legislation. I also welcome my noble friend to her new ministerial role and congratulate her on her excellent speech.
I warmly welcome the aims of the Bill. I am wholly supportive of a unified approach to public financial education and free, impartial and unbiased guidance to help people to make better financial decisions. The level of financial education in Britain is very low and the level of consumer debt worryingly high. The latest figures show that consumer borrowing is rising strongly, and the aim of the Bill—to help the public to understand how to manage their finances—is absolutely right.
However, I am concerned that the wording of the Bill will unhelpfully prolong a major misconception in personal finance that has permeated the industry for years but could at last be addressed. I am talking
about the use of the word “advice”. For far too long there has been a public perception that this thing called “financial advice” is free. In the past, of course, it often was apparently free because so-called advisers were being remunerated by a financial company for selling its products. They were not really advisers; they were salesmen. This commission-driven culture caused many scandals, and it incentivised behaviour that was not in the customers’ best interests. Rightly, the regulator has tried to clamp down on such practices. It now insists on a stark differentiation between what can be called “advice” in personal financial services and what is merely guidance, information or sales. This is not a minor technical point; it is a fundamental issue. Indeed, we need a proper definition of what constitutes guidance, which I do not believe we yet have.
The new single financial guidance body will look at pension guidance, money guidance, a national strategy to improve financial education, and debt advice. In fact this debt advice does not even have to be regulated but in some cases can be delivered by unregulated bodies. That is worrying. The word “advice” is a hangover from past thinking. It is the last vestige of an old system that needs updating. You cannot give what is called “advice” in a personal financial sense without being regulated. Nowadays, with auto-enrolment into workplace pensions and with pension freedoms available to people over 55, focusing only on the debt part will make any so-called debt advice incomplete and thus not holistic. However, if the debt help or counselling takes account of pension matters—as it should, especially given auto-enrolment—then the new service from the single financial guidance body could fall under regulated financial advice rules and would stray beyond pension guidance. This opens up the Government or those delivering the service of the new body to risk, and perpetuates confusion. At last there is an opportunity to address some of the confusion in the context of financial help for individual citizens. Guidance, help, information, education and counselling can be available for free, but advice is not.
There has been much misuse of the word “advice” for so long, even at the top of government. When Chancellor George Osborne announced the pension freedoms, he said the Government would also ensure that members of the public would have access to free impartial advice. What he meant, and what was introduced, was free guidance, not advice. Indeed, the helpful briefing from the House of Lords for today’s debate talks about merging three existing advice channels into a single body, yet those three bodies do not give advice even though their names misleadingly suggest that they do. The Money Advice Service and the Pensions Advisory Service do not actually give financial advice.
The October 2015 consultation on public financial guidance and the March 2016 public financial guidance review led to the decision to replace the Money Advice Service with a new streamlined body for money guidance, and then a second new body to merge the Pensions Advisory Service and Pension Wise. It seems to me that pensions cannot be divorced from other finances, whether that means savings accounts, auto-enrolment, debt or whatever. The thinking behind having two bodies was wrong, and I believe having one body
is right. The old idea was based on products, not people. People have a broader need than one product, and I hope the new guidance body will give us an opportunity to think about it from the point of view of the people who need help, rather than the products that tend to be focused on by the industry.
Unfortunately, the Bill prolongs the problem. If the debt piece is called advice, then it has to take account of the pension piece, and once it is doing that, the pension element will have to be advice too, not just guidance. I ask my noble friend the Minister to consider amending the word used by the single financial guidance body and the FCA so that it is debt guidance, not debt advice. We could use other words, such as debt resolution, counselling or help, but guidance seems to make sense.
On another topic, I am seriously concerned that the Bill must not pose a threat to the marvellous work done by the Pensions Advisory Service, which has rightly been commended by many noble Lords. This is one of the jewels in the public financial guidance system. Staffed significantly by volunteers, TPAS helps the public to understand pension issues and can intervene to assist if there are difficulties with pension schemes. It even has a dedicated helpline for women, who so often lose out in pensions and need special help. It is funded from the general levy on pension schemes, and the costs are low but the value it delivers is high. The Pension Wise service is also funded by the pensions guidance levy, but I note that it has just been announced that the levy for pension guidance has been cut. Satisfaction ratings for those services are really high. Please can my noble friend offer some reassurance that the operations of TPAS and Pension Wise will not be downgraded but will be preserved and protected after the restructuring?
Turning briefly to claims management companies, as has already been pointed out, the Conservative manifesto promised to consider banning claims management companies from cold-calling members of the public. This is absolutely right, and the Bill should clamp down on CMCs which operate unscrupulously and their unsolicited calls or texts—which so many noble Lords, such as me, regularly receive. As the APIL says, lawyers are not allowed to cold call, so why should CMCs? Tougher regulation and capping fees can help, but banning nuisance cold calls that encourage people to make false claims is absolutely right.
Let us not stop there. To echo the calls from, among others, the noble Lords, Lord McKenzie and Lord Sharkey, I ask my noble friend to consider bringing back the abandoned legislation to ban cold-calling on pensions, too. If others do not, I hope to table a probing amendment in Committee on the issue, as it is one that I feel so strongly about and had hoped would be resolved. It is important that we can give the public the message that if someone cold calls them about their pension, they are breaking the law, so just hang up. I am also interested in the idea put forward by consumer group Which?. It suggests requiring companies to pay the claims management firms, rather than consumers having to pay from any compensation. If the companies have to pay, it may deter some of the cowboys, because they will be better able to recognise poor practice.
Finally, I raise two further items. The Bill proposes not carrying over powers for the financial guidance body to help the public with secondary annuities. I know that this has been abandoned for now, but I still hope that somehow a change of heart may arise and that people may indeed be able to sell their unwanted annuities. Transferring this power to the single financial guidance body would at least ensure that there would not be any new unnecessary barriers in the way to that.
The problem of net pay schemes rumbles on. Many of the lowest earners, particularly women, are losing out on money that they should have, and the size of the problem is growing, but employees are powerless to get this money back. I suggest that the single financial guidance body should have a remit to help employers and members to understand the need to ensure that the pension scheme used for low earners in auto-enrolment does not force them to pay more for their pensions than they should. I ask my noble friend to go back to the department and consider this matter again carefully.
Having said all that, I stress that I welcome the Bill and its overall aims and look forward to seeing it pass through Committee and its other stages—slightly amended, I hope—and on to the statute book.
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