Baroness Stowell of Beeston
My Lords, one of the great advantages of being a Government Whip is that we get to learn about lots of new areas of policy that we may not have been exposed to before. However, it also brings the great responsibility of sometimes having to respond to debates where those who have participated are far more experienced and provide greater expertise on the matter than the Minister in charge. That is particularly so in this debate. I congratulate the noble Baroness, Lady Greengross, on securing this debate and pay tribute to her for all her work in the world of pensions for so many years.
I reinforce and share the views of my noble friend Lord Patten. I, too, am very concerned about people who have done the right thing and saved hard for their pensions. This is one of the reasons why I am pleased to be here tonight and to participate in this debate. I also note the important point made by the noble Lord, Lord Lipsey: we are talking about people with small pots and, to many people, the small amounts of money that we are talking about make big differences. Like the noble Lord, Lord Kirkwood, I acknowledge that the topic of pensions does not lend itself to politics, and nor should it. However, the Government want people to be able to get the maximum benefit from their pension savings and we recognise that people can, understandably, find making decisions about their pension and the process of securing an income in retirement complicated.
We need to be clear that professional financial advice is not, and never has been, free, as has been acknowledged by many noble Lords tonight. Even though many people may have thought in the past that the advice that they were receiving was free, the cost of paying for advice may outweigh the benefit of receiving it. This is particularly important for those with small pension pots and we should not assume that paying for financial advice is the right option for everyone. It is important that consumers can make a decision about whether approaching a financial adviser represents good value for money. To do this, they need to understand how much it will cost and that the adviser’s interests are aligned with their own. The Government support the Financial Services Authority’s retail distribution review—or the RDR as it is commonly called—which seeks to bring transparency to consumers on these issues. In response to the point made by the noble Lord, Lord Lipsey, and repeated by the noble Lord, Lord McKenzie, that poor people should not receive poor advice, one of the added benefits of the RDR is that financial advisers will be required to have a higher level of qualification to ensure that the quality of their advice is better.
We also need to bear in mind the basics of what people need to know to make these decisions. As has been mentioned, understanding the options available and the language alone can be overwhelming. That is why, as the noble Baroness, Lady Hollis, made clear, the free, generic information and advice offered by the Money Advice Service and the Pensions Advisory Service are so valuable. The advice that is available from those two services, and particularly the Money Advice Service, includes helping people to think about whether professional advice is appropriate for them, because it may not necessarily be necessary.
Clearly it is important that professional financial advice is available for those who have decided that it is appropriate for them. However, we should be wary of overstating the problem about access for those with small pension pots. A recent survey by the FSA revealed that 63% of advisers are planning to continue to offer advice to those with savings and investments of between £20,000 and £75,000. A further 38% of advisers plan to continue offering advice to those with less than £20,000. I will come back a little later to the point made by my noble friend Lord Patten about pooling and whether it is possible to pool in order to access advice.
People have big decisions to make at retirement. I am pleased to say that this Government have already taken steps to ensure that people have more flexibility and better information to support those decisions. Of course those with pension savings below £18,000 have an additional flexibility in their options, which is that they can take their savings as a lump sum. For those who want to be able to guarantee an income for life, from 1 March next year the process of buying an annuity from an ABI member will include making customers consider their options for both the type of annuity that they need and which provider to purchase it from. This is what is known in the jargon as the “open market option”, which, as several noble Lords have said, is all about helping consumers to shop around.
The new ABI code of conduct, as part of the package of measures announced by the OMO review group in March, provides a real step change in the requirements placed on providers and in assistance to annuitants. The package has been developed to ensure that people approaching retirement will receive much greater support to get the best possible retirement income.
The noble Baroness, Lady Greengross, asked whether the Government would set up a forum to discuss the issues that have been raised in this debate. The noble Lord, Lord Kirkwood, in his usual colourful way, wanted me to be sure that there was cross-party working on this area. There is already a group similar to that described by the noble Baroness, which is alive to the issues raised. That is the aforementioned jointly led DWP-Treasury open market option review group. The group includes representatives from industry, consumer organisations, regulators and the Government and has met to discuss these issues since 2007. That has prompted a laugh from the noble Baroness, Lady Hollis. I have noted that.
The group has collaborated to deliver a number of key outcomes over the past five years, including the package of measures announced in March. It was responsible for the joint letter that was sent to the ILC on these matters earlier in the year. The OMO review group is now in the process of agreeing an evaluation strategy for this package. This will include assessing both the impact and success of the new measures but will also aim to consider the extent to which there are issues that remain to be addressed.
Of course, the decisions that someone can make at retirement will always be limited by what they have done and how much they have saved before retirement. That is why the Government have taken steps to encourage a culture of saving. The introduction of automatic enrolment will hopefully see between 6 million and 9 million people newly saving or saving more into a pension. The Government have also established NEST, which has been referred to, as a high-quality, low-cost pension scheme to support this. However, our work continues.
For example—the noble Baroness, Lady Hollis, spoke very passionately about this—people change jobs and will tend to leave small dormant pots behind them in their former employers’ schemes. The Government believe that as individuals move jobs their pension pots should follow them, as far as is possible. Consolidating pension pots helps to drive down administrative costs and boosts engagement with saving for retirement. The DWP is working with the pensions industry to develop an automatic transfer system for these small dormant pension pots. The aim is to develop an efficient and cost-effective system that minimises the risks to individuals and works to drive down charges.
This is probably an appropriate point at which to respond to the idea put forward by my noble friend Lord Patten about whether the Government would support an industry initiative to pool pensioners’ assets and increase purchasing powers. The Government welcome innovations to the industry that meet the needs of consumers, so my noble friend’s idea is certainly one that we would want to consider further.
The noble Baroness, Lady Hollis, and the noble Lord, Lord McKenzie, asked in relation to small pots whether legacy pots are yet in the scope of automatic transfer. They are not at this time, but we have not ruled out the option that they will be brought into scope in future. In addition, as of April 2012, up to two small personal pension pots of £2,000 or less can be taken as a lump sum by those aged 60 or over, even where people have other savings.
Baroness Hollis of Heigham
I was looking earlier today at the 2009 regulations, which may be what the noble Baroness is referring to. She may wish to follow this up by letter, but my understanding is that those pots have to have been earned in the previous three years. The problem with legacy pots is that they could have been earned 20 or 30 years before. I realise that this is a policy issue currently under discussion and that the noble Baroness will almost certainly wish to take advice from colleagues, but it would be hugely helpful to all of us if the Government could find a way to bring those legacy pots that are not covered by the 2009 changes into any future system, so that people do not find that some of their smaller pots remain inaccessible.
Baroness Stowell of Beeston
On a matter such as that, I will have to write to the noble Baroness.
Lord McKenzie of Luton
Perhaps the Minister might write on another point: whether or not the automatic transfers—be they legacy pots or otherwise—could be transferred into NEST.
Baroness Stowell of Beeston
I will certainly write to the noble Lord about that matter as well.
The noble Lords, Lord Stoneham and Lord Kirkwood, referred to the Government’s Reinvigorating Workplace Pensions strategy. As they acknowledged, the Pensions Minister, Steve Webb, announced a range of proposals to restore people’s confidence and trust in pensions and to encourage savings. The most significant, in terms of scale, is the defined ambition scheme. I absolutely acknowledge the point made by all noble Lords tonight that there is a serious issue about lack of trust and confidence in pensions and savings; that is something on which the Government are very clear. For me, however, perhaps the most important point made in that strategy—indeed, it is one specifically raised by the noble Lord, Lord Stoneham, although others mentioned it too—was the Minister’s call on industry to use plain language when sending information to its members. As a new reader on this topic, I absolutely share people’s view that the jargon around pensions can create a real barrier.
I have very little time left but would like to say in response to the proposals from the noble Lord, Lord Patten, about perks—as he described them—for well-off pensioners that I will of course highlight to my right honourable friend the Chancellor what has been said. However, if I may beg the indulgence of the House, as my mum will definitely be watching on a matter such as this, I would be doing her a great disservice and be in huge trouble if I did not say that many of her friends, as pensioners, make the point to me on many occasions that they feel passionately about their bus pass. I want to mention that for my mum.
In conclusion, the number of stakeholders who have engaged with the Government in developing all these policies is indicative of common goals and a real drive by all to ensure that consumers can engage with the choices that they need to make about their retirement income. In the future, the FSA will be closely monitoring the impact of the RDR on consumers’ engagement with the market through its post-implementation review. An evaluation strategy will be agreed for measuring the success of the open market option package of measures, including the code of conduct. More generally, the Government remain committed to ensuring that everyone has the information and tools that they need to make responsible and informed decisions at retirement. I will of course follow up this debate with any letters to cover the issues that I have not been able to cover today.