Saving Gateway Accounts Bill

I sympathise with the sentiment behind the amendment. We all want to ensure that savers benefit from good returns on their savings when funds are transferred out of saving gateway accounts that have matured; we disagree on whether that should be mandated. In many ways, the amendment is a good example of the considerations that the Government need to take into account when designing policy. The hon. Member for Fareham (Mr. Hoban) will no doubt be familiar with the work of Thaler and Sunstein, whose book ““Nudge”” discusses the setting of sensible default options. I am particularly interested in the application of behavioural economics to policy making. I recommend the works of Daniel Karmann, as much as I would that of Thaler and Sunstein. We can have a legitimate debate about how we address the issues. We are all clear on the policy objective, which is to kick-start a savings habit. We want to make sure that the saving continues in the longer term, when the account matures. We want to see saving gateway accounts transferring on maturity to an appropriate account, through which the individual continues to save. The issue is whether we should mandate a default roll-over account into which funds should be transferred when the account holder does not give any instructions about what should happen to their account balance at maturity, or whether there should be more choice and no mandatory requirement. As part of that, we considered carefully whether default roll-over accounts should be ISAs, for example. We have decided against that for a number of reasons, some of which I explained in Committee. However, I point out again that we have said that we will permit transfers from matured saving gateway accounts into ISAs to be treated as previous-year subscriptions. That is an important point—in other words, those accounts will not count towards the annual ISA subscription limit. That means that savers can continue to save tax free and gain the benefits of ISAs. As the House will be aware, about one in three people in the country—more than 18 million UK adults—already have an ISA account. The amendment would take a prescriptive route in trying to achieve the outcome by mandating a default account; we have decided to take a permissive approach because we think that account holders may want some flexibility. As my hon. Friend the Member for South Thanet (Dr. Ladyman) rightly said, account holders may well find themselves in different financial circumstances and have different requirements, so it would not be right to mandate one particular type of account. Providers may also wish to have some flexibility to ensure that the account into which accounts roll over will be appropriate for their customers. As soon as conditions are laid down for what these accounts will look like, that flexibility would constricted or eroded. The amendment’s prescriptive approach would also mean additional costs and complexity. It would require the account into which saving gateway funds are transferred to pay interest at a rate at least as good as that of an ISA offered by the provider in question, or as good as any account offered by a provider that does not offer ISAs. I applaud the hon. Member for Fareham for the ingenuity with which he phrased his amendment following the discussions that we had in Committee. However, it does not mention for how long this requirement would need to be met beyond the point of transfer. This would need to be monitored and policed to ensure that it was effective, and that process would add costs and complexity for providers and for Government in administering the scheme. The hon. Gentleman mentioned Alan Cook, the managing director of the Post Office, who said:"““If there is over-prescription, you will introduce extra costs. We do business in different ways with our customers, and we should allow the organisations to play to their strengths.””––[Official Report, Saving Gateway Accounts Public Bill Committee, 27 January 2009; c. 28, Q52.]" We need to take that into account. I have every sympathy with the hon. Gentleman’s intentions. We want to see good rates of return being offered to savers, and I am aware of the need to consider the setting of sensible defaults because there may well be inertia and people will not be making active decisions. Nevertheless, I still think that the balance of the argument lies with not being prescriptive, and I want to give two reasons for that. First, under the banking code and the requirement to treat customers fairly, banks or others that offer saving gateway accounts that are being rolled over should be offering interest-bearing accounts that are appropriate to the interests and needs of their customers. Our expectation is that at the end of the two-year period, funds will be transferred into the most appropriate account that the provider offers. Of course, we will want to monitor that very closely. Secondly, as I stressed in Committee, we want competition and a marketplace. We want saving gateway customers to have good deals that are offered by saving gateway providers. Part of that package should involve setting and offering a good default option for when accounts roll over at the end of the two-year period. The more providers there are, the greater the range of options that are available, and the more competition that there is for savings when saving gateway accounts mature, the better that will be for the customer. We want individual savers to be able to choose what happens when their account reaches maturity. If they do not believe that the default option that is being offered to them by their provider is right for them, they have the right to move their saving gateway account, on maturity, to an account that is more appropriate. Obviously the advice and support that account holders receive as their account nears maturity is critical, and we want to continue to work on that with providers and intermediaries. The balance of argument that has influenced our policy design has been to say that the obligation to treat customers fairly, the competition and marketplace that we think will be there, and the need to give consumers choice rather than have it constrained for them outweigh a requirement to set a mandatory default option. We will of course want to monitor the situation closely. Everyone would be concerned if it became common practice that people offering saving gateway accounts were then encouraging people, on maturity, to roll over into accounts that provided no or very low levels of interest, or certainly levels that were not competitive. For the reasons I have set out, we do not believe the prescriptive approach that the amendment proposes is the right basis on which to proceed. I hope that I have explained my reasons for the Government’s decision.