My Lords, I shall speak also to Amendments 28, 29, 30 and 32. I refer the Committee to my interests in the register, including TPAS.
Amendment 6 would put in the Bill the requirement that the functions delivered by the financial guidance body remain free at the point of use for members of the public. Supporting vulnerable individuals and increasing people’s ability to manage their financial affairs and make informed decisions are a major public policy challenge which has systemic roots. It underpins the creation of the new body to improve life outcomes for members of the public. The policy will need to be long term, as will the essential ingredient, “free at the point of use”. For it not to be free risks undermining the body’s reach to those who most need it and compromising
its impartiality, because introducing charges raises conflict as to where organisational effort and resource are directed, as between most in need and potential to raise revenue.
Amendments 28, 29, 30 and 32 are all directed at requiring the provision of information, guidance and advice by the new body to be independent and impartial. Much in this Bill is at high level, which is understandable because of two requirements: the new board needs scope to build an organisation fit for purpose; and the new body needs flexibility so that it does not duplicate fit-for-purpose information and guidance sources that already exist, but also so that, over time, it is allowed to go wherever it identifies it needs to go in provision to assist and support the public. However, in meeting these two requirements, the Bill cannot be so imprecise that it introduces uncertainty. There should be little ambiguity as to the footprint of the new body’s functions and objectives, as hard experience tells us that in the field of public provision of financial information and guidance such ambiguity has not been a good thing.
My amendment would address that problem by amending Clause 2 so that the objective of,
“to support the provision of information, guidance and advice in areas where it is lacking”,
was amended to read,
“to support the provision of independent and impartial information, guidance and advice”.
Introducing “independent and impartial” would set qualitative parameters to what is provided, commissioned or otherwise approved or endorsed by the financial guidance body brand. It must be wholly customer focused, driven by the interests of the individual and not fettered by commercial or other vested interests. If the new body is not independent and impartial, it will not be trusted by the public and it will compromise its own objective to enable people to make informed decisions. A commercial comparison website that takes commission is very different from a factual comparison table that provides information based on customer needs. Guidance from a provider with a vested interest in the decision a customer makes is likely to be partial.
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The new body will also address market failures where providers will not, cannot or do not meet an individual’s needs—failures which manifest as a lack of trust, hence the need for an impartial public service. In its recently published Retirement Outcomes Review, the FCA commented that potential remedies for inefficiencies in the marketplace include appropriate protections for those least able to engage, and services to help consumers make good choices primarily by building on existing guidance initiatives. The FCA observed that mistrust of pension products is a concern in itself but can also give rise to decisions that directly harm the consumer: for example, if they pay too much tax or miss out on employer contributions and investment growth—and, I would add, get sucked in by scams or exposed to inappropriate investment products.
Similar observations can be made about other financial products and services where the knowledge and understanding of members of the public is low. The Bill requires the new body to support provision of
information, guidance and advice in areas where it is lacking. But what is meant by “lacking”: how is it defined? Not having some parameters for the definition precludes scrutiny. The Government’s policy note does not help. The public certainly have an interest in knowing in which areas the provision is lacking.
Whether something is lacking in an area is not simply a question of whether some kind of provision by other organisations is available; it requires an assessment of that provision. Is it impartial, based wholly on customer need and not compromised by a vested interest? There are numerous sources of information and guidance in the market and the public space. How it is presented, whether it is partial or nudges the individual in a direction not driven only by their needs, and whether it exploits the consumer’s inertia and tendency to choose the path of least resistance, will determine whether the provision meets the new body’s objective of improving the ability of members of the public to make informed decisions. This is an important issue. It will be a contested matter as to when the new body should provide information and guidance because it is lacking and when this should be left to organisations. Without greater clarity there is ambiguity.
The essential components of guidance are personalised —otherwise, it is just information. It should diagnose the real issue; the presenting question is often not the real issue due to complexity and lack of customer knowledge. It needs to be accessible and free at the point of use—and it needs to be trusted, with no real or perceived conflicts of interest. The guidance must be impartial to deliver these components because it requires the collation of personal information. The diagnosis of the customer’s choices may conflict with commercial drivers: for example, the customer may benefit from transferring from a high-charge contract to a new one. Guidance may be needed across all the customer’s financial means, both state and private.
Money guidance and pensions guidance are not regulated activities, so they cannot give customers a definitive course of action. But guidance that is independent and impartial can be more trusted to take the customer up to, but not into, the “decide and buy” or “decide and act” moment as there is no conflict; the guider has no vested interest in the customer’s decision.
The extent of guidance varies with customer need, but I will conclude with a simple published case. Its simplicity makes it all the more compelling. During the time when selling an annuity was under consideration, a customer who wanted to cash in their pension contacted the Pensions Advisory Service, having been told by another advisory body that they could cash it in. The guider discovered that it was an annuity in payment which could not then be cashed in or sold. On hearing that they could not sell it until April 2017, the customer replied, “But, dear, I will be 82 then. The issue is that my fridge freezer has broken. I have had it for 17 years and I cannot afford to buy a new one as I only have a state pension apart from this pension”. The conversation continued and the guider found that tax had been deducted from the annuity since it had been set up, despite the fact that the customer was not a taxpayer. The outcome was that the customer discovered that they had the option to keep the annuity and apply for a tax refund, with which they could buy a fridge freezer.