The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move, That the Bill be now read a Second time.
Security in retirement has been a central part of the Government’s agenda. It is important that we adapt to the needs of a population who live longer and who are increasingly active in old age. In the course of this Parliament we have significantly improved the state support on offer to pensioners. From April 2016, the new state pension will give people certainty about what they can expect from the state during their retirement and reduce the likelihood that they will require means-tested benefits. The triple lock introduced at the beginning of this Parliament ensures that increases for the basic state pension will not be outstripped by earnings, growth or inflation. This means that pensioners are now £440 a year better off than they would have been had the state pension only been increased by average earnings since 2011.
We have also taken steps to help people saving for their retirement. Automatic enrolment, introduced in 2012, gives all employers a duty to enrol all eligible employees into a qualifying pension scheme. In the past two years, approximately 4 million people have been newly enrolled into a pension. By the time the programme is fully rolled out in 2016 up to 9 million will be newly saving for their retirement. This radical reform will transform our culture of saving and increase the amount being saved in workplace pensions by about £11 billion a year.
Automatic enrolment will ensure that individuals have the opportunity to save into a pension, but we also need to ensure that when they come to access those savings they get a fair deal. This Government have always believed in personal responsibility. If people work hard and save all their lives, when they reach retirement they should be given the freedom to choose how they spend those savings. Through the Bill, we are introducing fundamental reforms to how people can access their defined contribution pension savings. This is the most radical change in the way people take their pensions for almost a century. The Bill contains provisions to: remove the limits on withdrawals from drawdown; make annuities more flexible; create a new way to take money directly from one’s pension savings; prevent the reforms from being exploited for unintended tax purposes; and restrict and reduce tax charges payable on certain lump sum death benefits.
We have consulted extensively on how best to implement these changes. Given that it is a highly technical and complex area, we have also taken the step of publishing a briefing, available on gov.uk, which explains clearly what each section of the Bill does. Alongside that, Her Majesty’s Revenue and Customs guidance, which is also on the gov.uk website, explains in more detail how the changes are intended to work. The Department for Work and Pensions’ Pension Schemes Bill, which is in Committee, covers the regulatory side to those freedoms, notably the guidance guarantee. These issues are being debated thoroughly as part of the Bill.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
Will the Minister explain why there has been a change in terminology from “advice”—which the Chancellor mentioned in his introduction of the proposed measures—to “guidance”, which, unlike advice, legal protections are not associated with?
Mr Gauke
We made it clear, in the documentation that was published at the time of the March Budget, that the legal status of the support we have provided is “guidance”. That means that there is not a recommendation of a specific product; none the less, that support will be hugely helpful for those who will face choices. It is right that the role that we play—or facilitate—is about providing support in the form of guidance, rather than making recommendations of particular products.
I would like to provide Members with an overview of the different parts of the Bill. At Budget 2014, the Chancellor announced that everyone with a defined contribution pension could take it as they wished from age 55, and would no longer be subject to drawdown limits or income tests before being able to take their money flexibly. The current system denies people flexibility at the point of taking their pension. For those with the smallest and largest pension savings, there is the option to take their pension as cash, but for everyone else there are considerable restrictions. They have two main options: purchase an annuity or enter capped drawdown. Capped drawdown limits how much someone can take out each year to an amount calculated by reference to the amount they might have received from an annuity purchased with their fund.
Flexible drawdown already lets those with very high levels of savings to take their money however they want, taxed at their marginal rate, if they can prove that they have a guaranteed pension income for the rest of their life of at least £12,000. The Government have already reduced that from £20,000 to give many more people flexibility, but the first main change provided for in the Bill goes much further, making unlimited drawdown available to anyone with a defined-contribution pension and removing the limits on what can be withdrawn from those funds.
The Bill also ensures that existing drawdown funds can, if the individual wants, be converted to flexi-access drawdown, so that those currently in capped drawdown will be able to benefit too. The aim of the changes is to give all the 320,000 people who retire every year with defined contribution savings greater choice about how to access those savings, regardless of how big their pension pot is. The changes will take effect from 6 April 2015.
Some people think that this change—allowing everyone access to their own hard-earned money—will cause people to spend recklessly what they made sacrifices to save. The Government do not agree. Those who have saved the money over a lifetime should be trusted to make their own decisions about how best to use it to provide themselves with an income in retirement. Through the guidance guarantee, we are making sure that customers have access to impartial guidance on how to make the most of their money.
Dame Anne Begg
We agree that it is important that people can access their money and use it how they best see fit, but might not the introduction of these flexibilities lead to there being so many products on offer that some unscrupulous people might offer individuals unsuitable products? What will the Government do to ensure that people are not mis-sold products that are not suitable for them or, indeed, that err on the side of illegality?
Mr Gauke
The hon. Lady raises an important point. First, the guidance guarantee will ensure that guidance is available to people on what their options might be, to point them in the right direction. Secondly, we recognise that the regulators have an important role to play. The Financial Conduct Authority is very engaged in this matter, setting standards and ensuring proper enforcement. She is right that we must deal seriously with any unscrupulous businesses out there that seek to exploit people, but we have a regulatory regime in place to address that very point.
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Will the Minister elaborate on the tax implications for the Treasury of these legislative and policy changes?
Tom Blenkinsop
What are the Treasury’s estimates of the tax take to the Revenue arising from this Bill?
Mr Gauke
At the time of the Budget, we set out our estimates of the implications for the public finances, certified by the Office for Budget Responsibility. We have also made a number of announcements since the Budget that will have a revenue impact. The Office for Budget Responsibility will return to this issue at the autumn statement, when it will set out its numbers in the usual way. The estimates have yet to be certified by the Office for Budget Responsibility—as one would expect, given that we are still some way from the autumn statement—but an update on the numbers that were published in March will also be set out in December.
The changes we have announced have resulted in moving some revenue from one year to another, rather than fundamentally changing the face of the public finances, so in broad terms their overall tax impact is not considerable, certainly when compared with the substantial changes that the Government have made, such as increasing the state retirement age or reforming public sector pensions.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
To follow up the question from my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), there has been a suggestion that the change could lead to a windfall for the Treasury at a time when that would be very helpful for future Budgets. What does the Minister say to that suggestion, which has been made by some in the real world out there?
Mr Gauke
The numbers that we and the OBR believe are likely to be changed as a consequence of the policy were set out in the March document. We very much doubt that there will be a huge windfall for the Exchequer as a consequence of these changes, whatever the appeal of that might be. As I have said, some revenues have been moved from future years into earlier years, but some of the claims about the impact are somewhat exaggerated and highly unlikely.
Lady Hermon (North Down) (Ind)
To pick up on the important point made by the Chair of the Work and Pensions Committee, will the Minister seriously consider putting on the face of the Bill a criminal offence of trying to deceive people out of their pension savings? That will act as a deterrent to unscrupulous organisations or individuals from the moment the legislation goes on to the statute book.
Mr Gauke
The Financial Conduct Authority has already made it clear that if, for example, anyone attempts to present themselves as providing guidance under the guidance guarantee when they are not in a position to do so, that will be looked at very seriously. There is a strong determination to ensure that the dishonest, the unscrupulous and those seeking to mislead people are treated very seriously indeed. We are talking, after all, about a regulated sector, and those who try to conduct regulated activities who are not properly regulated already face offences. I recognise the hon. Lady’s concern about whether we are determined to address those who try to defraud our constituents. Yes, we are absolutely determined to address that, and the FCA is very engaged in that process.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
I, too, would like to press the Minister on the issue of consumer protection. At the moment, if someone gets bad advice from a financial adviser, they have a degree of protection through the FCA. If people receive advice from those who are not professionals in financial matters—the Minister has conceded that these are complex matters—what comeback will they have?
Mr Gauke
As I say, the FCA is very engaged in this area and has already set out its determination to ensure that those seeking to mislead face punishment. The FCA has responsibility for ensuring that regulated firms treat their customers fairly and communicate in a way that is clear and not misleading. We believe that it has considerable powers here. Of course, the Pension Schemes Bill is also important in ensuring that the FCA puts in place standards for the guidance guarantee—standards that anyone delivering that service must comply with.
Lady Hermon
I am extremely grateful to the Minister for taking a second intervention so quickly. He has been careful in his words regarding the FCA. We are talking about those who are manipulative and try to deceive people out of their entire life’s pension; it is a really serious issue. I would like him to confirm that when he refers to “serious” punishment and this being taken “very seriously”, it means a criminal conviction for these people. Will he confirm that that is how seriously the FCA will treat this offence?
Mr Gauke
The FCA will certainly treat this extremely seriously. I entirely share the hon. Lady’s view that this is an important matter and that it is right to take the strongest action to ensure that those who attempt to defraud our constituents of their life savings face severe sanctions. This Bill is about the tax changes; the Pension Schemes Bill deals with the wider issues, and it gives the FCA powers to set standards for the guidance guarantee. Regulated firms have responsibilities to treat their customers fairly, and the FCA has made it clear that it expects firms to comply with that, in this context as in others.
Dame Anne Begg
Even the Association of British Insurers says that there should be more regulation around this issue. Is the Minister listening closely to what the ABI is saying?
Mr Gauke
We of course engage closely with the ABI and other bodies involved in this area. Indeed, the work in this Bill and in the Pension Schemes Bill is a result of close engagement with the ABI. The Government are determined to ensure that we have a regulatory system that protects our constituents from the unscrupulous. This is principally an issue for the FCA, but we are determined to ensure that it has the powers that it needs. Much in the Pension Schemes Bill relates to that.
Nigel Mills (Amber Valley) (Con)
May I remind the Minister that one reason for bringing forward these freedoms was to try to tackle the mis-selling that already goes on, whereby people are effectively forced by the law to buy annuities, which in many cases are totally unsuitable for them? That has led to real cases of detriment. The mis-selling issues under these freedoms are not new; they have been around for a long time.
Mr Gauke
I would like to make a little progress. That brings me to the second main change in the Bill, which is to make annuities more flexible. Current tax legislation caters for two broad categories of retirement income: lifetime annuities and drawdown. As I have set out, we are making drawdown much more flexible. Let me explain how we are doing the same for annuities.
We think annuities will still be the right product for many people, as they provide the valuable security of a guaranteed income for life. The current requirements for a lifetime annuity, however, lead to an inflexible and restrictive product, and there is a clear demand for more flexible ways of getting income from one’s pension pot. We want these reforms to stimulate competition and innovation in the retirement income market. We want providers to innovate and create new products that will more closely reflect the changing needs of their customers. We have consulted extensively with industry on the changes that it would like us to make to enable this kind of innovation. The Bill will deliver those changes by allowing annuities to decrease, and by removing the 10-year guarantee period for guaranteed annuities. That gives significantly more flexibility to providers to offer products that meet individuals’ needs more closely. Those changes will apply to annuities sold after 6 April 2015.
The third major change in the Bill is a new method by which people can access their pension. Currently, people who want to take their pension as cash have to take their whole tax-free lump sum—25% of their fund—and place the other 75% in a drawdown fund. Any money they then draw down is taxed at their marginal rate. The Bill will introduce a new option by giving individuals the flexibility to take one or more lump sums from their pension fund—with 25% of each payment tax-free and 75% taxed at their marginal rate—without having to enter into drawdown. This lump sum is known as an uncrystallised funds pension lump sum, or an UFPLS. [Interruption.] It is perhaps not the most elegant of names, but try doing better with “uncrystallised funds pension lump sum”. These payments can be taken from funds that are uncrystallised—that is, have not yet been accessed. It will be open to schemes to provide this option from 6 April 2015 onwards. This does not change the amount of tax people pay on their pension, but it does provide them with extra flexibility and further choice about when and how to access their savings in a way that suits them.
I want highlight changes that we are making through the Bill to ensure that these reforms, which are intended to give individuals more choices about their income in retirement, are not exploited for tax purposes. If the Government were to take no action, an individual over the age of 55 could divert their salary each year into their pension, take it out immediately and receive 25% of it tax-free, thus avoiding income tax and national insurance contributions on their employment income. That is not the intention of the reforms.
The Government spend a considerable amount a year on pensions tax relief and have a responsibility to ensure that the money is used for genuine pension saving. Under the current system, individuals in flexible drawdown have no annual allowance. They are not entitled to tax relief on anything that they contribute to their pension after they have accessed it flexibly. Extending this rule under the new system would be disproportionate and would disadvantage average savers. We are in an era of much more flexible retirement. An individual might access their pension flexibly and then decide to return to work, or access it while working. They might still want to save into a pension. They might be automatically enrolled into a pension and be subject to a tax charge on the amount contributed. If we kept the current system, there would be a strong incentive to opt out of auto-enrolment.
Instead of having no annual allowance, individuals who access their pensions flexibly will, under the new system, have a lower annual allowance of £10,000, which will apply to their defined contribution savings. This approach allows people the flexibility to contribute to their pension even when they have flexibly accessed their pension rights. At the same time, it ensures that individuals do not use the new flexibilities to avoid paying tax on their current earnings. It will prevent those with the means to divert large sums into pensions from doing so, while allowing the vast majority of individuals to continue to save. The Government have worked very closely with industry to develop this measure, and will continue to do so to ensure that it remains fair and proportionate.
Tom Blenkinsop
The Minister will be aware that the Pension Schemes Bill is in Committee. I am a member of that Committee, and in our fourth sitting, on Thursday 23 October 2014, a gentleman called Mr John Greenwood, a Financial Times journalist who has written quite a lot on this subject, said that the Treasury’s new policy to limit the amount of money that could be taken out at once
“will impact on only 2% of the population”.
Mr Gauke
That is true. However, as I have said, we have tried to ensure that we do not give people an opportunity to use the new arrangements as a way of avoiding substantial amounts of tax, while also ensuring that, in an era of more flexible working, we do not prevent people from gaining access to their pensions and then making further contributions in the circumstances that I have described. We concluded that introducing a reduced £10,000 personal allowance was the best way of striking a balance between those two objectives. We will, of course, continue to look at the matter closely to ensure that the system is not exploited at a significant cost to the Exchequer.
Tom Blenkinsop
The Minister is being very generous with his time. He is also, potentially, being very generous with the Treasury’s coffers. Mr Greenwood said that the allowance
“will impact on only 2% of the population, so it is a penalty with no teeth for 98% of the population.” ––[Official Report, Pension Schemes Public Bill Committee, 23 October 2014; c. 126, Q284.]
What is the Treasury’s forecast of the potential loss of national insurance contributions?
Mr Gauke
The Office for Budget Responsibility will return to the issue of the forecast at the time of the autumn statement. Mr Greenwood’s evidence featured some eye-watering numbers, but they were based on extraordinary assumptions about behaviour. All the changes resulting from the reforms that we have announced since the Budget will be announced in the autumn statement in the usual way. We certainly do not recognise some of the numbers that have been floated in relation to cost, but the numbers have not yet been certified by the OBR, so I cannot give the hon. Gentleman the answer that he seeks at this stage. Of course we have been mindful of the impact on the Exchequer, but we believe that our proposals will not put it at risk of losing substantial sums. As I have said, we are not preventing people over 55 from drawing down part of their pensions while continuing to make contributions, or retaining the flexibility to do so. We might have closed off that option, but we decided not to.
Debbie Abrahams
The Minister is indeed being generous with his time. May I ask when the Treasury is likely to publish its assessment of the risks associated with the delivery of this project? It has obviously identified a number of such risks, and it would be helpful for everyone to see the assessment.
Mr Gauke
A number of elements are involved. We have already estimated the costs resulting from the Budget announcement, and, as is customary, we will update the House about the cost of further changes that we have made in the autumn statement. We need to take account of a number of policy announcements that have been made since the Budget. The information will be available once the numbers have been certified by the Office for Budget Responsibility—that is, at the time of the autumn statement.
The last change that I want to explain is the change that the Government are making to the tax charges on pensions when someone dies. We will table amendments in due course to enact those changes in detail, but the Bill currently provides for certain lump sums to be paid from pension schemes when someone dies under the age of 75. It ensures that when someone dies with money in a drawdown account before reaching the age of 75 and a lump sum is paid from it, that sum can be paid tax-free. It also ensures that if someone dies with a pension after reaching the age of 75, the tax charge on a lump sum paid from it is reduced from 55% to 45%, and it reduces the tax charge when someone over 75 receives a serious ill-health lump sum to 45%.
The Bill makes a number of other changes, which I will summarise briefly. They include the introduction of a permissive statutory override, which will allow schemes to make the types of payments set out in this Bill without the need to change their scheme rules; provisions to ensure that the new system is reflected in the rules governing overseas schemes involving UK tax-relieved funds; allowing payments from guaranteed annuities to be paid to beneficiaries as a lump sum if they are under £30,000; and measures to ensure that people cannot gain an unintended tax advantage by becoming temporarily non-resident.
Our pension reforms have been extensive and fundamental. We have taken steps to provide a solid foundation for private saving by reforming the state support that is on offer and introducing automatic enrolment. However, it is also vital to give people an informed choice, and the Bill introduces welcome changes to ensure that that happens. It makes the tax system fairer by ensuring that people have more choice in regard to how they access their savings, while also preventing people from exploiting the new flexibility in order to gain unintended tax advantages. At the heart of it are three key principles: responsibility, fairness, and individual choice. I commend it to the House.
Cathy Jamieson
Yes, I am indeed aware of that report. I shall go on to raise similar concerns and seek answers from the Minister to them in due course.
In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.
I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.
The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.
To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that
“good consultation and a good period to execute”
improved the chances of legislation being successful.
However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.
I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.
However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:
“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”
The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.
I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:
“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]
Perhaps the Minister will be able to respond to that question when he sums up the debate today.
In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.
Mr Gauke
As ever, the hon. Lady is making a thoughtful and probing speech. It would be fair to say, however, that her tone is not one of great enthusiasm for greater flexibility and choice in the pensions system. Will she tell the House whether her party is considering reversing the changes that we are introducing today?
Cathy Jamieson
I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise
“complex, opaque and overpriced products”
that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.
The Exchequer Secretary to the Treasury (Priti Patel)
This has been a wide-ranging and constructive debate; it has been engaged and informed, and I thank everybody who has participated. Before I address some of the specific points raised, I wish to reiterate the main purpose of the Bill.
The Bill is intended to put in place the most radical reform to the way people take their pensions for nearly a century. It is a fundamental principle for this Government that those who have worked hard and saved all their lives should be free when they reach retirement to choose how they spend those savings. That is because we believe in personal responsibility, and that the money someone has earned is their money.
The Bill will remove the limits on withdrawals from drawdown and the restrictions on the shape of annuities, and it will create new and more flexible ways for someone to put the money in their pension pot to good use and provide for their future as they wish. As a result of the reforms, people will rightly have the freedom to choose how to spend their savings. That, in turn, will incentivise the pension industry to provide real choice through a range of innovative new products.
I would like to address points raised by the Opposition; first, the myth that the Government have not consulted. The Government have consulted extensively on implementation and legislation, and we have received wide support from consumer groups and the industry. I note that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) quoted the chief executive of the ABI. He has also said that the ABI
“welcomed the reforms as good for those who were faced with the double challenges of increased longevity and very low interest rates when they came to make retirement decisions. The industry is behind these reforms. We want them to be a success and our members are working flat out to get everything ready for April 2015.”
The Government are putting in place comprehensive guidance. There has been discussion on guidance—I will come on to it in more detail—and I want to make it abundantly clear that we have brought forward an amendment to the Pension Scheme Bill to achieve just that.
On fairness, the old system was unfair and it disadvantaged those with a moderate amount of savings. Our Government reforms will make the system more flexible and fairer for all. On cost, as the Financial Secretary has clearly stated, we set out the costings at the Budget. Since the Budget, and as a result of consultation, we have introduced further changes and the OBR-certified update will be provided at the autumn statement.
There have been a number of positive views from the industry. It is wrong and misleading to imply that there is no support from the industry. The consultation has been extensive. There has been a 12-week consultation on the best way to implement the changes, followed by consultation on the Bill itself. It is important to move quickly, because people are making binding decisions every day with what are, frankly, limited choices in the current marketplace.
Cathy Jamieson
I am sure the Minister did not intend to suggest that I, or any other Opposition Member, said there was no support from industry. For the record, that is not what we said. We recognised that concerns had been expressed. That is different from saying there was no support.
Priti Patel
I am grateful for that clarification. There is extensive support from the industry. I pay tribute to the industry for the way it has worked with us through the consultation to bring the changes together in such a constructive and supportive way.
Crispin Blunt
On that point, two companies in my constituency, Partnership and Just Retirement, are specialist annuity providers and will be significantly affected. They contributed to the consultation and I know that the Government moved in response to that. I am grateful to the Minister and her officials for the attention they paid in the consultation process.
Priti Patel
I thank my hon. Friend for acknowledging that work and for his thoughtful contribution. He has many pension providers in his constituency. Those insights have helped to inform the debate and shape the Bill.
The aim of guidance is to empower consumers to make informed and confident decisions on how to use their pension savings in retirement. Information alone is not enough to change consumer behaviour. The Government are committed to maximising awareness of the guidance service. Key to that will be the regulatory requirements on providers and schemes to signpost to guidance at key points when individuals are trying to access their pension pot. In its recent consultation on the changes surrounding new pension flexibilities, the FCA has been clear about requiring genuine signposting, including rules that ensure firms cannot circumvent consumers’ right to guidance. An essential part of the development of the guidance will be determining what engages consumers effectively. The Government are assessing engagement and take-up rates, and testing different engagement strategies informed by behavioural insight teams as part of piloting work beginning this autumn. Again, this is about getting it right. My hon. Friend the Member for Redcar (Ian Swales) made an important point about that. We are getting one bite of the cherry and we need to make sure we get it right.
Ian Swales
Can the Minister say a little more about the timing? She said that a consultation is under way; presumably its outcome will affect what the Government do. People who are due to take pensions in April will be considering their options from January and February onwards, so when will we be clearer about the nature of the guidance and the universality of provision, and when will people be told about that?
Priti Patel
Let me assure my hon. Friend that guidance will be available in good time. It is also imperative that we get the guidance right, so we are working assiduously to do exactly that.
The scope of the high-level content of the guidance was set out in the FCA consultation that it ran in anticipation of its standard-setting role. The Treasury and its delivery partners, the Pensions Advisory Service and Citizens Advice, are working up the operational details and the context of the guidance while adhering to the FCA standards.
I will come to some of the other points raised by colleagues, but I would like first to touch on the Ipsos MORI poll that has been referred to. The poll also found that 88% of people would not draw down their entire fund. People said that rather than just spend their funds on a range of things, they would use them for good financial planning. That is exactly what these reforms are all about: trusting people with their money.
David Mowat (Warrington South) (Con)
The Minister talked about guidance a few moments ago. In the event that guidance is found to be inadequate or not to have been offered properly, would that potentially void any transaction made subsequently?
Priti Patel
The guidance that is provided will not make specific recommendations. Information will be provided to individuals not to make specific decisions, but to signpost and guide them through the areas I have touched on.
David Mowat
I thank the Minister for that answer, but if a supplier sold a product without offering any guidance and without checking whether that had happened—notwithstanding the question of its not being specific—would that be a problem and could it void the transaction?
Priti Patel
The FCA will be clear in setting out standards. However, I will come to that point shortly, because we have also discussed the consequences of mis-selling and fraud.
I would like to reply to a number of points made in the debate. The hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) talked about the tax revenue implications of the annual allowance and highlighted the evidence given before the Pension Schemes Bill Committee on 23 October. As my hon. Friend the Financial Secretary outlined earlier, the assumptions made in that evidence generated a huge overestimation of the likely cost of the reforms to the Exchequer. The Government believe that the introduction of a £10,000 annual allowance is the appropriate approach to allow people the flexibility to withdraw or contribute to their pensions as they choose from age 55, while ensuring that individuals do not use the new flexibilities to avoid paying tax on current earnings. It will also avoid unnecessary complexity for both consumers and pension providers when the new system comes into place in April 2015.
I would like briefly to touch on the two other contributions. We heard from my hon. Friend the Member for Amber Valley (Nigel Mills), who I understand celebrated his 40th birthday yesterday. He seems far too young to be contributing to pensions debates, although I know he has specialist knowledge in this area. He made a thoughtful contribution and raised a number of points. He mentioned the open market option. To be clear, the open market option will continue to be highlighted in the information that pension schemes are required to provide to their members at retirement. We have simply removed the requirement under the tax rules for the member to have chosen the annuity provider in order for the annuity to be an authorised payment. It is not appropriate for the member to be charged tax because they have been deprived of the opportunity to select an annuity provider.
Other points were raised about a proposed criminal offence for mis-selling. FCA rules are clear and require the responsible sale of products to consumers in a way that is clear, fair and not misleading. The FCA also has powers to take action against firms engaged in authorised business, and is able to prosecute a number of criminal offences. I hope that clarification reassures the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who was very explicit in her points. We are very clear on that. It goes without saying that the FCA and the Pensions Regulator will monitor this whole area to ensure that fraudsters do not use the reforms to take advantage of vulnerable people.
My hon. Friend the Member for Redcar touched on annuities, as did my hon. Friend the Member for Amber Valley. The Government are clear that annuities will remain the right choice for many at some point during their retirement. We believe that many people will still value the security of an annuity, but that is something that individuals—not the state—should decide. As all contributions have made clear, this is about individual choice and opening up the marketplace. As retirement changes, many people may, for example, opt to buy an annuity later in life, allowing them to benefit from higher annuity rates. It is for individuals to buy products that are best suited to their particular circumstances.
In response to my hon. Friend the Member for Redcar—who was firm on the need to get on with this—we understand the scale of the challenge. That is why we have appointed an implementation team in the Treasury for the guidance guarantee, and we are working closely with the industry to ensure that it is ready for April 2015.
Finally, the risk of people spending all their money at once was briefly mentioned. I would like to reiterate that the Government believe that people who have worked hard all their lives should have the freedom to decide how to use their savings and, importantly, should be trusted to do so. The Government do not dictate how people should spend their money generally, so why should it be any different when it comes to their pension savings?
I am grateful to have had the opportunity to explain the issues that have arisen today. We have had a good debate and look forward to more in Committee. A number of important points have been raised. I think all hon. Members have sensed that the main issue is the principle of empowerment and allowing individuals to make choices that are right for them, especially when they come to assess their pensions. The Bill is about choice and it will make that choice possible. I commend it to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Taxation of Pensions Bill (programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Taxation of Pensions Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 20 November 2014.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Mr Gauke.)
Taxation of Pensions Bill (Ways and Means)
Resolved,
That, for the purposes of any Act resulting from the Taxation of Pensions Bill, it is expedient to authorise the making of provision in connection with the taxation of pensions.—(Gavin Barwell.)