The Minister for Pensions (Steve Webb)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
Government new clause 2—Power to impose requirements about factors used to determine each benefit.
Government new clause 3—Power to impose requirements about dealing with a deficit or surplus.
Government new clause 4—Requirement to wind up scheme in specified circumstances.
Government new clause 5—Policies about winding up.
Government new clause 6—Working out which assets are available for the provision of which benefits.
Government amendments 2, 3, 5 to 23, 25, 31, 32, 38, 43, 47, 51 to 55.
Steve Webb
It is good to see a packed House for this vital pensions Bill. The amendments are in two groups that correspond broadly with the Bill’s two main themes—the new definitions of pension schemes and pension scheme benefits, and budget pensions flexibilities.
Mr Andrew Love (Edmonton) (Lab/Co-op)
May I invite the Minister to apologise to the Chamber? I estimate that on Report there are 33 new clauses, 62 amendments, and one new schedule. Does he think that is rather a lot for us to cope with?
Steve Webb
I am encouraged by the fact that the hon. Gentleman and his friends in opposition have not tabled a single amendment to the Bill. I am pleased that the Opposition thought the Bill was flawless, but the Government did not. In Committee I tried to flag up that additional amendments would be tabled on Report, and I wrote to all members of the Committee setting out what those would be. I will not speculate, but if we use all the time available this afternoon I will be surprised. I hope we have time to properly consider the amendments.
Let us consider the first group of amendments. There are quite a few—the hon. Gentleman makes a fair point—and I hope the House will bear with me while I put on the record what the purpose of them is. I am happy to provide any clarification that may be sought. The majority of the amendments and new clauses change parts 1 and 2 of the Bill in respect of the new pension categories and collective benefits. New clause 1 is minor and technical and relates to provisions on judicial pensions—I will return later to that point.
Changes to parts 1 and 2 of the Bill have been made following debates in the House and in response to points raised by one of the hon. Gentleman’s colleagues on Second Reading. We have continued to talk to what are known in the trade as “stakeholders”—people who care about this stuff—and they have provided us with further feedback. It therefore makes sense to try to amend the Bill while it is going through the House, rather than at a later stage. The changes are in two broad categories: the addition of two regulation-making powers relating to the new pension scheme category definitions in part 1, which will offer more clarity; and to provide more detail and additional regulation-making powers on certain aspects of collective benefits in part 2. They are designed to bolster member safeguards in relation to key activities in the scheme.
Part 1 of the Bill contains provisions for a new framework for categories of pension scheme. The categories are based on the experience of the member about what certainty they have, while they are saving, about their retirement benefit. The intention is to create recognition and to encourage innovation in the shared risk, or defined ambition, category. The three mutually exclusive categories are: defined benefits; shared risk, sometimes known as defined ambition; and defined contribution. The definitions describe certain features of schemes that determine which category they fall into. This framework operates at a scheme level, and as such does not affect the requirements on pension schemes in relation to matters such as scheme funding, which operate at a benefit level. It should be clear from the definitions where existing schemes fit within this framework. The definitions also allow for new scheme designs.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
I am beginning to see why my hon. Friend the Member for Edmonton (Mr Love) raised the question of the number of amendments and what they entail. I worry about how that will be interpreted by whoever happens to be a trustee of a pension fund. It will cost an inordinate amount of money, will it not?
Steve Webb
I am not sure that I follow the hon. Gentleman’s reasoning. The thing that would cost money would be poorly drafted, ambiguous legislation. What we are doing at the moment is listening and talking to people as the Bill goes through the House. We talk a lot to trustees, pensioners’ lawyers and pensions professionals, as well as to representative bodies of scheme members and so on, to ensure that we pick these things up in real time. I think the hon. Gentleman can take heart from the fact that, rather than stubbornly insisting that the first version of the Bill we published was immaculate, we are saying that we are creating new categories of pension scheme. There have to be rules on wind-ups, divorce and so on. Let us get them right now by further amendment, rather than by stubbornly insisting on our Bill and later discovering that we have a problem. I hope he will be reassured that that is what we are doing this afternoon.
Amendment 22 ensures that trustees or managers of schemes providing collective benefits can be required to seek actuarial advice before making any specified decisions or taking any other specified steps.
Government new clauses 4, 5 and 6, and amendments 14 to 21, all relate to the issue of winding-up schemes with collective benefits. This group of amendments is the result of continuing development of policy on creating the right legal framework for collective benefits. Winding up a pension scheme can be a difficult and complex process, and we need to ensure we have the necessary legislative framework in place. Collective benefits are different, so we need broad regulation-making powers to allow us to work with the pensions industry and others to get the detail right and to respond to developments.
This group of amendments covers: new clause 4, which provides for regulations to set out circumstances where a scheme, or part of a scheme, providing collective benefits must be wound up; and new clause 5, which requires trustees or managers to have and follow a policy about winding up a scheme that provides collective benefits. New clause 6, which is also part of this group, provides a power to make regulations setting out how to work out which assets are available for which benefits. This is not specific to winding up, as it may be used for other purposes as well. There are also a number of amendments that will ensure we can make regulations to ensure schemes providing collective benefits wind up effectively.
Amendments 14 to 17 provide for additional powers to enable regulations to make provision about the winding up of a pension scheme containing collective benefits and to make it clear how collective benefits will be treated when a scheme winds up. Amendments 18 and 19 ensure we can amend existing legislation that might need to change to cater for winding-up schemes providing collective benefits. Amendments 20 and 21 remove the limitation that changes to existing legislation relating to wind-up are only in relation to collective benefits.
Amendment 2 provides for regulations to specify additional requirements which must be met in order for a scheme to fall within the defined benefits scheme definition. Part 1 of the Bill contains provisions for three mutually exclusive categories of pension scheme, as I have mentioned. Government amendment 2 provides for regulations to specify additional requirements which must be met in order for a scheme to fall within the defined benefits scheme definition. It is appropriate for this to be dealt with by regulations and in consultation with the industry rather than on the face of the Bill, because this is about being able to respond to future scheme design and a theoretical risk. The regulations enable additional clarification to ensure policy intent is delivered in respect of future scheme design.
Amendment 2 has been made in response to discussions with industry and testing of the definitions, specifically in relation to theoretical and potential avoidance risks in new scheme designs, which would undermine the delivery of the policy intent for part 1. For example, we would not want a scheme that shared investment risk with the member to be categorised as a defined benefits scheme. Therefore, this regulation-making power provides that regulations can ensure that, as we intended, only schemes that provide members with certainty throughout the accumulation phase about the level of retirement income to be provided will fall within the defined benefits scheme definition.
We are confident that all existing scheme shapes we know about are covered by the definition of a defined benefits scheme in the Bill as it stands, but this does not preclude the possibility that a scheme might be designed in the future satisfying the requirements but also including an element of risk that could be passed on to members. We would not want such a scheme to be included in the defined benefits category. The power is therefore intended as a belt and braces measure to ensure that the policy intent behind the categorisation is not undermined. This is only about which category schemes will fall into; it is not to disallow or prevent forms of scheme design and has no effect on scheme funding commitments or member rights within a given scheme design.
Continuing my canter through this group, amendment 3 addresses the meaning of
“at a time before the benefit comes into payment”,
where a defined contributions scheme might find itself mis-categorised as a shared risk scheme. Clause 5 explains what is meant by the term “pensions promise”, including that it must be made at a time before the benefit comes into payment. Amendment 3, which amends clause 5, is in response to a point raised by the Chair of the Work and Pensions Committee, the hon. Member for Aberdeen South (Dame Anne Begg), when referring on Second Reading to a document from the Law Society of Scotland. The query was about the precise meaning of references to “at a time” and the intended application and effect. Amendment 3 addresses that point by excluding certain promises from the definition of pensions promise—if they are made at a particular point in time and conditional on coming into payment by a particular date—and enables the Secretary of State to make regulations on this matter.
We want to capture promises made in relation to income or saving while the member is saving—that is broadly what clause 5 already does—but the amendment caters for defined contributions schemes that also provide an income stream in retirement. Technically, such schemes will need to discuss and make a commitment to the member about that retirement income before the first payment is made. The schemes will usually only make the promise in relation to income that may be derived from the final pot and only in the immediate run-up to the retirement date. This means, in effect, that it provides no more certainty to the member than other defined contributions schemes and so should fall within the defined contributions scheme definition. However, the phrase
“at a time before the benefit comes into payment”,
in the meaning of “pensions promise”, might mean that it would be defined as a shared risk scheme. The amendment and the regulation-making power therefore make an exception in relation to this type of promise and ensure that this type of scheme falls within the defined contributions scheme definition.
We are on the home straight, Madam Deputy Speaker. Clause 49 makes amendments to bring the Bill within the scope of existing references to “pensions legislation” in the Pensions Act 2004 for specific purposes. The purpose behind amendments 32 and 51 to 55 is to move the text of clause 49 into schedule 3. This is sensible because of structural changes made to the Bill as amended in Committee. Having made several structural changes to the Bill in Committee, it makes sense to move what are essentially consequential amendments out of part 6 and into schedule 3. We believe that these changes sit better in schedule 3, which deals with amendments to existing legislation related to parts 1 and 2.
Finally, on judicial pensions, we have a minor amendment required to ensure that fee-paid judges who are subsequently appointed to the salaried judiciary are extended the same transitional protection rights as members moving between existing public service pension schemes. The clause provides that service as a fee-paid judge prior to 1 April 2012 has the transitional protections derived from the Public Service Pensions Act 2013 and the Public Service Pensions Act (Northern Ireland) 2014 applied to it, if that judge subsequently moves to salaried office. Following the O’Brien and Miller judgments in respect of fee-paid pension entitlement, the Lord Chancellor is required to establish a fee-paid judicial pension scheme. In order to ensure no less favourable treatment in the provision of pensions for fee-paid judges, the intention is to provide for transitional protection to apply to members of the fee-paid scheme. Transitional protections are a feature of both the 2013 Act and the 2014 Act. Regulations establishing new public service pension schemes may provide for transitional protection, extending the availability of pension benefits for certain members under existing schemes beyond 31 March 2015.
Sir Greg Knight (East Yorkshire) (Con)
Before the Minister sits down, will he tell the House whether steps are being taken within his Department to reduce the number of Government amendments introduced during the passage of future Bills?
Steve Webb
I am grateful to my right hon. Friend. The Bill was originally much shorter and obtaining the approval of, originally, the Government to bring it forward took place before the Budget. Therefore, the Budget measures, which both sides of the House welcomed, required substantial additional legislation. The entire second group of amendments relates to measures that were not envisaged when the Bill was published but which implement Budget measures. In other circumstances, there would have been a separate Bill but as we are in the final Session of a Parliament, everything has been on an accelerated timetable.
I can reassure my right hon. Friend that although these amendments have been tabled at a relatively late stage, they reflect extensive consultation over a period of years. The world that will have to deliver these things, as it were, has been extensively involved. In most cases, they are not new policies but are simply technical changes to implement a policy intent that has been well known for some time. But I entirely accept my right hon. Friend’s point; it would be better if these things were brought forward earlier. That is absolutely my view.
I commend to the House the new clauses and amendments. Throughout the Bill we have sought to try to alert members of the Public Bill Committee ahead of time when we knew that we had to table amendments on Report. I hope that the House will agree that the Bill is made much better by these new clauses and amendments, which I commend to the House.
Stephen Timms
As the hon. Gentleman is well aware, we have not tabled amendments on Report. Of course, we debated in Committee three Opposition amendments, but we were sadly unsuccessful. I am delighted that the hon. Gentleman has tabled an amendment, which will provide us with a little relief when we get to the second group; at least it will not be entirely Government material on the amendment paper. I commend the hon. Gentleman for his amendment, and he is right that the Opposition have not tabled amendments today.
Steve Webb
I shall not detain the House for long, but the right hon. Member for East Ham (Stephen Timms) asked a couple of specific questions. The impact of regulations brought in under the primary Bill in front of us would depend on what they can contain. We cannot do an impact assessment because we have not yet written the regulations. Generally when we produce regulations and they have a cost on business, there is an impact assessment to go with them. I hope that explains why we have not published an assessment at this stage.
On the timing, our broad goal is to have all this in place by April 2016. The right hon. Gentleman will know that a very significant change in April 2016 will be the end of contracting out, so defined benefit pension schemes will be considering what they do in response to that. In particular, if a shared risk scheme or something of that sort is envisaged, there clearly needs to be a legislative framework by around that time—not right on the day, but about that time. That is our goal and the rough timetable that applies.
The right hon. Gentleman asked about the negative and affirmative resolutions. The collective and shared risk regulations are generally subject to the negative procedure. He will see that clause 41 deals more generally with regulation-making powers and considers when they should be negative and when affirmative. In general, as I say, most of these are relatively technical regulations, so the negative procedure applies. I hope that is helpful. I commend the new clause to the House.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 2
Power to impose requirements about factors used to determine each benefit
Regulations may make provision as to the factors to be used to determine what proportion of the amount available for the provision of any collective benefits by a pension scheme is to be available for the provision of a particular collective benefit.—(Steve Webb.)
This amendment allows regulations to set out the factors that must be used to calculate members’ benefits.
Brought up, read the First and Second time, and added to the Bill.
New Clause 3
Power to impose requirements about dealing with a deficit or surplus
(1) Regulations may specify circumstances in which a deficit or surplus in respect of any collective benefits that may be provided by a pension scheme must be dealt with in a particular way.
(2) The regulations may, in particular, specify steps that must be taken by the trustees or managers and the period or periods within which any steps must be taken.—(Steve Webb.)
The amendment allows regulations to set out how a deficit or surplus must be dealt with in specific circumstances, the steps trustees or managers may be required to take and the time period within which those steps must be taken.
Brought up, read the First and Second time, and added to the Bill.
New Clause 4
Requirement to wind up scheme in specified circumstances
(1) Regulations may require the trustees or managers of a pension scheme under which collective benefits may be provided to wind up the whole or part of the scheme in specified circumstances.
(2) The regulations may, in particular—
(a) provide for the winding up of the scheme or part to be as effective in law as if it had been made under powers conferred by or under the scheme;
(b) require the scheme or part to be wound up in spite of any legislative provision or rule of law, or any scheme rule, which would otherwise operate to prevent the winding up;
(c) require the scheme or part to be wound up without regard to any legislative provision, rule of law or scheme rule that would otherwise require, or might otherwise be taken to require, the implementation of any procedure or the obtaining of any consent with a view to the winding up.”—(Steve Webb.)
This allows regulations to require the trustees or managers of a pension scheme under which collective benefits may be provided to wind up the scheme or part of it in circumstances specified in the regulations.
Brought up, read the First and Second time, and added to the Bill.
New Clause 5
Policies about winding up
(1) Regulations may require the trustees or managers of a pension scheme under which collective benefits may be provided—
(a) to have a policy about the winding up of the scheme or part of it;
(b) to follow that policy.
(2) The regulations may, in particular—
(a) require the trustees or managers to consult about the policy;
(b) make provision about the content of the policy;
(c) set out matters that the trustees or managers must take into account, or principles they must follow, in formulating the policy;
(d) make provision about reviewing and revising the policy.
(3) The regulations may, in particular, require the policy—
(a) to contain an explanation of the circumstances in which the trustees or managers are permitted or required to wind up the scheme or part and any requirements about the distribution of assets (including any order of priority);
(b) to contain an explanation of how the trustees or managers intend to use any powers to wind up the scheme or part and how they intend to use any powers in relation to the distribution of assets (including any order of priority);
(c) to contain an explanation of how the costs of winding up are required to be met or how the trustees or managers will use any powers to decide how those costs are to be met.—(Steve Webb.)
This allows regulations to be made requiring the trustees or managers of a pension scheme under which collective benefits may be provided to have a policy about winding up.
Brought up, read the First and Second time, and added to the Bill.
New Clause 6
Working out which assets are available for the provision of which benefits
Regulations may make provision, in relation to a scheme under which any of the benefits that may be provided are collective benefits, about how to work out—
(a) which assets held by the scheme are held for the purposes of providing collective benefits;
(b) which assets held by the scheme are held for the purposes of providing which collective benefits;
(c) which assets held by the scheme are held for the purposes of providing any benefits other than collective benefits.—(Steve Webb.)
This regulation making power will allow provision to be made about how to work out which assets are held for the purposes of providing which benefits.
Brought up, read the First and Second time, and added to the Bill.
New Clause 7
Independent advice in respect of conversions and transfers: Great Britain
(1) Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before—
(a) converting any of the benefits into different benefits that are flexible benefits under the scheme;
(b) making a transfer payment in respect of any of the benefits with a view to acquiring
flexible benefits for the member or survivor under another pension scheme.
(2) The Secretary of State may by regulations make provision about—
(a) what the trustees or managers must do to check that a member or survivor has received
appropriate independent advice for the purposes of subsection (1), and
(b) when the check must be carried out for the purposes of that subsection.
(3) The Secretary of State may by regulations create exceptions to subsection (1).
(4) In subsection (1)(b) the reference to another pension scheme includes a scheme established in a country or territory outside Great Britain.
(5) Where the trustees or managers fail to carry out a check required by this section, section 10 of the Pensions Act 1995 (civil penalties) applies to any trustee or manager who failed to take reasonable steps to ensure that the check was carried out.
(6) Failure to carry out a check required by this section does not affect the validity of any transaction.
(7) In this section—
“appropriate independent advice” has the meaning given by regulations made by the Secretary of State;
“safeguarded benefits” means any benefits other than—
(a) money purchase benefits, and
(b) cash balance benefits.”—(Steve Webb.)
This provides that before trustees or managers of a pension scheme (in Great Britain) in which a person has safeguarded benefits convert them into flexible benefits, or make a transfer to another scheme to acquire flexible benefits, they must check that the person has received appropriate independent advice.
Brought up, and read the First time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
Government new clause 8—Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain).
Government new clause 9—Independent advice: consequential amendments—Great Britain.
Government new clause 10—Independent advice in respect of conversions and transfers: Northern Ireland.
Government new clause 11—Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland).
Government new clause 12—Independent advice: consequential amendments—Northern Ireland.
Government new clause 13—Independent advice: income tax exemption.
Government new clause 14—Sums or assets that may be designated as available for drawdown: Great Britain.
Government new clause 15—Provision about conversion of certain benefits for drawdown: Great Britain.
Government new clause 16—Provision about calculation of lump sums: Great Britain.
Government new clause 17—Restrictions on conversion of benefits during winding up etc: Great Britain.
Government new clause 18—Restriction on payment of lump sums during PPF assessment period: Great Britain.
Government new clause 19—Sums or assets that may be designated as available for drawdown: Northern Ireland.
Government new clause 20—Provision about conversion of certain benefits for drawdown: Northern Ireland.
Government new clause 21—Provision about calculation of lump sums: Northern Ireland.
Government new clause 22—Restrictions on conversion of benefits during winding up etc: Northern Ireland.
Government new clause 23—Restriction on payment of lump sums during PPF assessment period: Northern Ireland.
Government new clause 24—Rights to transfer benefits.
Government new clause 25—Restriction on transfers out of public service defined benefits schemes: Great Britain.
Government new clause 26—Reduction of cash equivalents: funded public service defined benefits schemes: Great Britain.
Government new clause 27—Public service defined benefits schemes: consequential amendments: Great Britain.
Government new clause 28—Restriction on transfers out of public service defined benefits schemes: Northern Ireland.
Government new clause 29—Reduction of cash equivalents: funded public service defined benefits schemes: Northern Ireland.
Government new clause 30—Public service defined benefits schemes: consequential amendments: Northern Ireland.
Government new clause 31—Meaning of “flexible benefit”.
Government new clause 32—Meaning of “cash balance benefit”.
Government new clause 33—Interpretation of Part 4.
Government amendments 4, 24, 26 to 30, 33, 34 to 37, 39 to 42, 44 to 46, 48.
Government new schedule 1—Rights to transfer benefits.
Government amendments 49, 50, 56 to 72.
Amendment 73, page 46, line 25, in schedule 4, at end insert—
‘(1A) Individuals delivering the pensions guidance must ask those receiving the guidance about other potential sources of retirement income in addition to defined contribution pension schemes; this must include an assessment of assets such as housing wealth, savings and investments.”
Government amendment 1.
Steve Webb
I am not sure whether the House will be thrilled to know that I have a slightly fuller note on this second group of new clauses and amendments. They are clearly very important, because they relate to the 2014 Budget freedoms that have been so widely welcomed in the House—and, particularly, outside it.
In the 2014 Budget statement, the Government announced that individuals with defined contribution pensions would be able to access their entire pensions flexibly from April 2015 if they wished to do so. This is the most radical reform of how people access their pensions for almost a century, and it returns choice to individuals by trusting them with their own finances. The Government believe that people should be free to make their own choices about how to use their savings, and our reform will give the 320,000 individuals who retire with defined contribution pension wealth every year choice as to how to access those savings.
We have committed ourselves to supporting the pension flexibilities through free, impartial guidance to help people to make informed and confident decisions about how to use their defined contribution pension savings in retirement. The new clauses and amendments cover a number of topics relating to the new flexibilities, and we notified members of the Public Bill Committee that they would be forthcoming. They include new clauses that provide safeguards for individuals who want to transfer to pension schemes to which the flexibilities apply; restrictions on transfers from public service pension schemes; a number of changes to pensions legislation to ensure that the flexibilities work as they are intended to; and further amendments relating to guidance to ensure that the arrangements run smoothly.
Richard Graham (Gloucester) (Con)
Will “appropriate independent advice” include consideration of financial assets other than defined contribution pensions? Does the Minister expect the Financial Conduct Authority to clarify in due course what constitutes “appropriate independent advice”?
Steve Webb
The issue that my hon. Friend has raised is covered by amendment 73, tabled by our hon. Friend the Member for Reigate (Crispin Blunt). If the House will allow me, I intend to allow our hon. Friend and others to make their points and then to respond to them, rather than trying to pre-empt that debate now. However, the FCA will indeed have more to say on these matters in due course.
New clauses 7 to 12 and new clause 13 create a safeguard to ensure that those who transfer from defined benefit to defined contribution schemes have received appropriate independent advice before doing so. That is important, because continuing membership of a DB scheme is likely to remain most people’s best option. However, the Government recognise that the attractiveness of transferring from DB to DC may increase for a limited number of people as a result of the reforms to DC savings.
New clause 7 creates a requirement for trustees and managers of a scheme to check that a member has received appropriate independent advice before converting a “safeguarded benefit” to a “flexible benefit”, or making a transfer payment in respect of safeguarded benefits to a scheme in which the member will acquire flexible benefits. In this context, the term “member” extends to any current or former employee, and any survivor of a member with subsisting rights to “safeguarded benefits”.
Subsection (2) enables the Secretary of State to set out in regulations the exact details of the regime that trustees or managers must abide by in checking that advice has been taken. Subsection (3) allows the Secretary of State to make regulations to allow exceptions to be made to the advice requirement, which will allow us, for example, to exempt those with a small amount of defined benefit wealth from the requirement to take advice. That approach was set out in the Government’s response to the consultation on freedom and choice in pensions, which was published in July this year.
Subsection (6) establishes that should a trustee or scheme manager fail to carry out a check, the scheme member will not be disadvantaged if the conversion or transfer of his or her benefits is ruled invalid. To ensure that trustees and scheme members carry out the required check, subsection (5) provides for certain civil penalties already used in the regulation of pensions to apply.
New clause 8 enables the Secretary of State to make regulations that set out the circumstances in which employers must pay for advice that is required by the advice safeguard. As we say in our response, we intend these circumstances to be, first, when a transfer is as a result of an employer-led transfer exercise, and secondly when a transfer is between DB and DC sections within the same scheme.
Subsection (2) allows the Secretary of State to ensure that the arrangement is fair for the employer by making regulations that can cap the amount that the employer must pay for advice on behalf of the member. It also allows the Secretary of State to take fairness to the member into account by making regulations preventing employers from attempting to pass the costs of advice back to members. Subsection (3) enables the Secretary of State to make regulations ensuring that employers will have to pay for the advice of former employees who continue to hold accrued DB rights in the employer’s scheme, as well as current employees.
New clause 9 is consequential to new clause 7. It ensures that trustees or scheme managers are not penalised for failing to comply with the provisions in new clause 7 for reasons outside their control—for example, when a check has been carried out, but it has not been possible to establish whether the member received appropriate independent advice. New clauses 10, 11 and 12 and amendments 82, 83 and 84 make provision parallel to that in clauses 7, 8 and 9 for Northern Ireland.
Mr Love
The Minister rightly talks about the safeguards introduced for people who want to transfer from DB to DC schemes, yet he does not think there is a need for a safeguard for people who do not access the guidance guarantee. Should not there be some safeguard for them, because they could lose substantially as people transferring schemes?
Steve Webb
The hon. Gentleman raises an important point. Our first strategy is to ensure that the guidance guarantee is accessed by as many people as possible. We are placing a legal duty on schemes and providers to flag up the guidance guarantee to people, both in wake-up packs and when people approach schemes to access their money.
The hon. Gentleman raises the issue of people who do not access the guidance—and indeed those who do, come to think of it, although particularly those who do not. The FCA will have more to say on the requirements on schemes and providers when people approach them having not accessed the guidance. There is already a general duty on providers to “treat customers fairly”, but the FCA will have more to say on whether that safeguard goes far enough, or whether further safeguards are necessary. I am grateful to the hon. Gentleman for raising that point.
As well as the changes in relation to transfers from unfunded public sector schemes and transfers of defined benefit rights, which I will deal with in a moment, new clause 24 and its accompanying schedule amend the existing transfer rights in the Pensions Schemes Act 1993 to ensure that the new flexibilities operate as intended. We will do that by extending the current transfer rights for those with “flexible benefits” up to and beyond their schemes’ normal retirement age, and applying statutory transfer rights at benefit categories, rather than at scheme level. Amending the transfer rules will ensure that individuals with uncrystallised flexible benefits will have the option to transfer their rights to another pension scheme.
Those amendments will also give individuals greater flexibility by giving members a statutory right to transfer at benefit category level, rather than at scheme level. Where an individual has more than one category of benefits under a scheme, they will now have an option to transfer out of a particular category of benefit, or their entire pot if they wish to, provided they have ceased to accrue rights in that particular category of benefit. Amendments 28, 49 and 50 make minor consequential change in respect of new clause 24 and new schedule 1.
New clauses 25 to 30 and Government amendment 29 address the implications of the new flexibilities for public service pension schemes. Regarding new clause 25 and, for Northern Ireland, new clause 28, following further policy development, that clarifies that the ban on transfers is limited to transfers from unfunded defined benefit public service pension schemes to schemes from which flexible benefits can be obtained. Further, the amendment ensures that the changes are delivered in the Pension Schemes Act 1993, rather than in regulations made by HM Treasury.
Additionally, new clause 26—new clause 29 for Northern Ireland—implements a safeguard for transfers out of funded public service pension schemes that is similar to that available in the private sector for reducing transfer values in specific circumstances.
New clause 25 restricts the right under the Pension Schemes Act 1993 to transfer from one pension scheme to another, so as to prevent a member of an unfunded public service defined benefit scheme from using that right to transfer to another pension scheme in which they can obtain flexible benefits. New clause 28 does the same for Northern Ireland. The new clauses also allow the Treasury—and in Northern Ireland, the Department of Finance and Personnel—to make regulations providing for exceptions to the transfer ban.
New clause 26 introduces a new safeguard that gives Ministers a power to designate a funded defined benefit public service pension scheme and in that way require the reduction of cash equivalent transfer values in respect of transfers from that scheme to pension schemes from which flexible benefits can be obtained. New clause 29 does the same for Northern Ireland. The use of the power will be restricted to cases in which the relevant Minister considers that transfers, either singly or in combination with other factors, increase the risk or amount of taxpayer intervention in the scheme.
The new clauses provide a power which, when used, will require the reduction of transfer values in respect of transfers requested after a scheme is designated, and completed before the scheme is no longer designated. The new clauses time-limit the use of the power and place an obligation on the scheme trustees or managers to alert the relevant Minister should they believe either that the power needs to be used or that, having been used, it is no longer needed.
We intend that the level of the reduction to be applied should be set out in regulations made by the Treasury, and new clause 26 also provides regulation-making powers for the Treasury to determine the amount of the reduction that should be made when a pension scheme is designated. Additionally, in the case of certain Scottish schemes, the power to designate a scheme is to be conferred on Scottish Ministers. New clause 29 makes parallel provision for Northern Ireland. In respect of parliamentary and ministerial schemes in England, Scotland and Northern Ireland, the new clauses give that power to the relevant trustees or scheme managers. Finally—that is an interim “finally”, not a final “finally”, by the way—new clauses 27 and 30 make amendments to pensions legislation that are consequential to new clauses 25, 26, 28 and 29.
I should like to explain the thinking behind these measures, Currently, only a small number of transfers take place out of the public service pension schemes to defined contribution schemes, but the introduction of the flexibilities might make transfers out to defined contribution schemes more attractive for some. In unfunded public service pension schemes, there is no fund of assets with which to finance transfer payments. Instead, they are funded from contributions and through general Government expenditure. So for every extra pound paid out in transfers, the Government will have a pound less to spend that year on public services. We have estimated that if 1% of all public service workers reaching retirement took their benefits flexibly, it would cost the taxpayer £200 million a year, and we do not think it fair to ask the taxpayer to meet those up-front costs.
Unlike with unfunded schemes, there is a pool of assets to support the payment of pensions in funded public service pension schemes, which can be used to meet the immediate cost of transfers out. Our expectation therefore is that, in the vast majority of cases, allowing greater flexibility in the funded public service pension schemes will not impact on public finances. However, it would be inappropriate for the Government to provide these freedoms to members of public service pension schemes and provide no back-stop protection to taxpayers, should transfers—either singly or in combination with other factors—contribute to a scheme needing support from local or national taxpayers to meet the cost of its liabilities. This is aligned with the position the Government have taken on the unfunded pension schemes, in which we have taken the decision to ban such transfers in the light of the cost risk to the Exchequer, and ultimately the taxpayer. Should a situation arise in which there is a risk to the taxpayer, this new safeguard will give Ministers and scheme managers the appropriate tools to address it.
The Government intend to legislate for some limited exceptions to this ban, and these provisions give the Treasury powers to make regulations providing exceptions to the transfer ban. It is intended that the Treasury will prescribe certain limited circumstances in which a transfer will be permitted. We will announce further details in due course, but we are considering options such as some specific circumstances under Fair Deal. Amendment 29 removes clause 36 and, as discussed earlier, new clause 25 is the replacement provision.
Moving on to the treatment of draw-down and to the Pension Protection Fund assessment, which are covered by new clauses 14 to 23, we are introducing changes to allow occupational pension schemes to offer the new forms of access to pension saving being created by the Taxation of Pensions Bill. In future, schemes will be able to offer more options for decumulation, including draw-down pensions and lump sums. Schemes will be able to offer options to allow all or part of money purchase funds, as defined under tax legislation, to be designated for draw-down after the minimum age—generally 55—is reached. They will also be able of offer members the option to take one or more lump sums from their money purchase funds after the minimum age has been reached.
We are making changes to pensions legislation to allow occupational pension schemes to offer flexibilities to members, and to ensure that the flexibilities operate as intended in relation to cash balance benefits when schemes wind up or enter the Pension Protection Fund assessment period. Cash balance benefits involve guarantees about the amount of a member’s accrued fund and cannot easily be designated for the payment of draw-down. For draw-down funds to operate as intended, cash balance benefits need to be turned into money purchase benefits before designated as “draw-down”. New clause 14 limits draw-down to money purchase benefits.
In addition, the Government will bring forward regulations to allow modification of scheme rules to convert cash balance benefits into money purchase benefits, where the member wants to exercise draw-down. Schemes will need to convert cash balance benefits into money purchase benefits, and new clauses 15 and 16 contain regulation- making powers for this conversion process. They are fall-back powers, as no scheme is currently offering the extended forms of access and we have no evidence of how such conversions might be undertaken. If there is evidence that schemes are not offering fair value for cash balance benefits in conversion or as a lump sum, we will bring forward regulations to impose requirements.
If an occupational pension scheme is underfunded at wind-up, assets relating to non-money purchase benefits shall be distributed according to a specified priority order. Members therefore see a reduction in their benefits in accordance with that priority order. New clause 17 contains provisions about the conversion of benefits during wind up. We want to prevent some members from avoiding any reduction to Pension Protection Fund levels of compensation. Therefore, we want to prevent members from converting non-money purchase benefits to money purchase after a scheme begins to wind up. If we did not do that, there would be a risk that benefits converted to money purchase would be discharged in full, to the potential detriment of other members.
If schemes offer the new decumulation options, we need to set out how rights under the scheme are treated if the scheme enters the PPF. Our provisions restrict what can be done with non-money purchase benefits when a scheme is in a PPF assessment period. New clause 17 prevents the conversion or replacement of non-money purchase benefits with money purchase benefits. New clause 18 restricts the payment of lump sums to those that would be payable if the scheme transferred into the PPF. Crucially, a scheme needs to be in as steady a state as possible while it is assessed for transfer into the PPF, so that its overall financial position can be determined. In addition, if members were able to transfer or discharge their benefits, this would delay the process and deplete the assets available to be transferred with which to pay compensation to other members. There are no restrictions on the payment, transfer or discharge of money purchase benefits. New clauses 19 and 23 replicate these provisions for Northern Ireland.
In new clauses 31 and 33, we introduce several definitional terms that will apply to a number of areas we are amending under part 4 of the Bill. New clause 31 introduces the definition of a “flexible benefit”, which will determine whether the requirements relating to independent advice, draw-down, treatment of lump sums and transfers will apply to that form of benefit or not. New clause 32 contains definitions of “cash balance benefits”. which are a form of benefit that will fall within the scope of flexible benefits. Those definitions seek to ensure that where a member’s pension saving results in a cash amount, as opposed to an income amount, they are able to access those benefits flexibly. The definition of “flexible benefit” is intended to include all those benefit categories that fall within the scope of the flexibilities introduced by the Taxation of Pensions Bill. The definition includes money purchase benefits, cash balance benefits and a residual category of benefits which are neither money purchase nor cash balance benefits for the purposes of pensions legislation, other than the provisions relating to pensions in the Finance Act 2004. This residual category may include a benefit structure which provides a sum of money at the member’s retirement date but is also subject to an additional guarantee, such as the option of a guaranteed annuity rate offered before the member becomes entitled to receive their pension. New clause 33 also defines a range of terms to ensure that the flexibilities apply to the right individuals, both members and those who may be entitled to survivor rights, as well as at the right points in time.
Government amendments 56 to 72 relate to the smooth running of the pensions guidance service and ensure that the legislative framework works as it should. They fall into three groups, the first of which comprises those aligning definitions with the ones used in the rest of the Bill. The second group comprises those ensuring that those delivering guidance work together effectively and share information. The third group comprises the consequential amendments. I outlined earlier the new definition of “flexible benefits”, which is used in this Bill to refer to money purchase or defined contribution schemes. Amendments 56 and 57 introduce the language of flexible benefits into the high-level definition of pensions guidance. Amendments 30, 58, 67, 68, 69 and 72 are necessary as a consequence of these definitional changes.
On information sharing, amendment 60 inserts new section 333EA in new part 20A of the Financial Services and Markets Act 2000. Subsection (1) provides for a duty on designated guidance providers and the Treasury to co-operate in the giving of pensions guidance. Subsection (2) provides for a gateway to share information. Ensuring that delivery partners and the Treasury are under an obligation to work together and, importantly, that they may share information with each other, subject to the usual data protection requirements, is important. It ensures a well-integrated and well-functioning guidance service; allows delivery partners to learn from each other and for evaluation of the overall service; and, finally and most importantly, facilitates a smooth journey for consumers through the service. The remaining provisions in this group make minor or consequential changes, principally to ensure that the guidance framework slots into the Financial Services and Markets Act 2000. They include amendments 61 and 63.
Mr Love
I apologise to the Minister for asking this now. He was going at such a pace that I did not catch up with him until he had moved on to a separate set of amendments. I want to press him on the guidance amendments. Will guidance be rationed to a once-only offer, or will the Financial Conduct Authority introduce some flexibility in that regard?
Steve Webb
Obviously, that issue is not spelled out in the Bill, but it is important none the less. What we envisage is that people will contact the guidance service, which by then will have a brand, an identity, a phone number and all the rest of it, and will make an appointment if they want face-to-face or telephone-based guidance. Obviously, they can access the website as many times as they like, but if they wish to have face-to-face or telephone-based guidance, it will be at a set time on a set date. There will be a period between the initial contact and the guidance appointment for the gathering of information to make the session more useful. Coming out of that session will be documentation and signposting for further sources of information, guidance and, if they wish, regulated financial advice.
Clearly, we want everybody to be able to access the guidance, so the core model is that a person does that once. But the Pensions Advisory Service has a business as usual role anyway and it is inconceivable that, even if a person has had their formal guidance session with the service and then rang it up the next day with a question, it would put the phone down on them; of course it would not, so there would be flexibility. Clearly, we need to think further on that. We need to reflect on the fact that if someone has a guidance session and then has additional needs, is a formal second guidance session appropriate or necessary or are there other ways of dealing with those needs? The core model is one session, but other resources, such as signposting, are available on tap. We are considering whether further flexibility could be introduced.
I hope that I am near to conclusion. I ran through the relatively minor and consequential amendments that come towards the back of the Bill and that are relatively uncontentious. On the title of the Bill, amendment 1 amends the title of the Bill to include
“provision designed to give people greater flexibility in accessing benefits and to help them make informed decisions about what to do with benefits.”
That change is to reflect more accurately the content of the Bill in the light of the new amendments on the pension flexibilities.
In sum, these new provisions are designed to ensure that the guidance guarantee works as effectively as possible; that the various rules on transfers do not act to the detriment of people who are left behind in the schemes; and that the process is properly overseen with the provision of independent financial advice. They also spell out who pays for the help, and whether or not it is taxed. The provisions help to flesh out some of the detail of this important policy, and I commend new clause 7 to the House.
Stephen Timms
We are now embarking on a debate on 27 Government new clauses, 40 new Government amendments and—providing welcome relief—an amendment from the hon. Member for Reigate (Crispin Blunt) and the right hon. Member for Sutton and Cheam (Paul Burstow).
The changes the Government have announced will introduce much-increased flexibility for savers, which is welcome. They will also make the pensions market more diverse and complicated and lead to a whole new range of products about which consumers have not had to make decisions in the past. Of course it is right that safeguards need to be in place to protect savers adequately from the danger of being taken advantage of, as we have seen happen in this market in the past.
We are dealing with an area full of technicalities, some of which we have just been hearing about, and fraught with difficulty. I appreciate that the Minister had no choice but to introduce these measures at the same time as the implementation of the Budget changes, but he will recognise, as the House certainly will, that there is a danger, in providing so little opportunity for the House to conduct proper scrutiny, of creating serious problems and a future mis-selling scandal.
We have set out three tests for the new flexibility. First, is there reliable advice for people saving for their retirement? Secondly, is the system fair to those on middle and lower incomes who want to secure retirement income? Thirdly, are the Government confident that the changes will not result in extra costs to the state, either through social care costs or by increasing the cost of housing benefit? I would welcome the Minister’s comments on the extent to which he believes the changes before the House will meet those tests.
The annual workplace pension survey carried out by the National Association of Pension Funds this year showed that only 19% of savers feel very capable of knowing what to do with their savings. That is ahead of the very major changes about to take effect, and we can be certain that consumer bewilderment will rocket from next April. The new arrangements are supposed to be in place from that date—in less than six months—but we do not yet know how they will work.
In previous discussion about the form that the guidance will take, the Minister said that
“it is not formal, detailed or product-specific”.
That is rather different from what was said by the Financial Conduct Authority when it launched its consultation on guidance. It seemed to envisage something rather more substantial than the Minister suggested in his remarks, but the FCA will produce only the standards; Her Majesty’s Treasury will oversee the drafting of the guidance. Nobody can yet feel confident about what will emerge from that process. A number of questions must be asked, such as the one posed by my hon. Friend the Member for Edmonton (Mr Love) earlier. It is not clear even who exactly will pay for the advice or through what mechanism it will be paid for. I would welcome the Minister’s comments on how he envisages that process working.
The challenges were helpfully illuminated by the article on the front page of The Daily Telegraph on Saturday which said, “Pension mis-selling: scandal hits 100,000 retired savers a year”. The article explained that
“one in four pensioners who retired with a private pension in the past seven years is entitled to a larger annual pension income.
Savers with medical conditions including diabetes, high blood pressure and even smokers should have been offered an increased annuity based on their lower life expectancy.”
It went on to say that
“just seven per cent of those who are entitled to the increased pay outs have automatically received them. Studies indicate the true figure should be closer to 60 per cent.
Now Aviva, Britain’s largest insurer, is paying compensation and increasing the annual payouts of hundreds of customers after discovering staff sold inappropriate deals.”
Steve Webb
This has been a helpful debate covering a wide range of issues. I shall address the questions raised by the right hon. Member for East Ham (Stephen Timms), particularly about the Government new clauses, before moving on to the guidance guarantee.
On the budget freedoms, the right hon. Gentleman said the Labour party had set out three tests. I assume he thinks that if any of them are not successful, Labour will oppose the budget freedoms, though I am not clear if that is the logic of his position. We think those tests are met—I shall run through them—but I think Labour is a little ambivalent: it is instinctively paternalistic and does not really like these freedoms, but it realises they are popular so it decides to set some tests so it sounds as if it is scrutinising. It is unclear, however, whether Labour is committed to seeing these things through if it takes up office—but we will see, perhaps.
The right hon. Gentleman set out his three tests. First, he asked whether reliable advice would be available. He said “advice”, but we are not promising advice; we are promising guidance. He knows that those are different, so I am not sure that the test is the right question. If the question is, “Will reliable guidance be available?”, the answer is, “Absolutely”. We have made it clear that people will have the choice of face-to-face, phone-based or internet-based guidance, and that it will be of a high quality and delivered by trusted partners, such as the Pensions Advisory Service, the network of citizens advice bureaux and the Treasury’s own website. We will require providers to flag the guidance up when people try to access their money, possibly through the provision of wake-up packs.
On take-up, which my hon. Friend the Member for Reigate (Crispin Blunt) joked about, clearly there have been a variety of trials, tests and surveys. The Legal & General pilot, which was mentioned, had a 2% or 3% take-up, but the Chartered Insurance Institute explained it to people and told us that demand could be as high as 90%. I am confident it will be in the latter range. It is important to stress, however, that we are evolving—a theme to which I shall return in a moment. This is work in progress. We are talking to people in this target group about what they want from the guidance; using behavioural insights to maximise take-up; and trying to find out what people want from the sessions and what means of communication work for them.
I hear the plea of my hon. Friend the Member for Reigate and the firms in his constituency—they want certainty, they want it now, they want it in the Bill—but the crucial thing is that when we get to April, we have something that works and which has been tested and refined. That is the tension.
Everybody wants certainty; barely a day goes by when I am not at a pensions conference where someone is not asking about guidance and demanding certainty, when what they really want is something that works. That is one of our reservations about trying to spell it all out in the Bill. We want to talk to the people affected. It has been said that the Pensions Advisory Service does not know what it will be asked to do, but it is in and out of my office and the Treasury all the time. It has people on the Treasury team drawing up the plans. Of course, these things are not finalised, but the PAS and Citizens Advice are working hand in glove with the Treasury as our delivery partners.
Crispin Blunt
I would be grateful if the Minister got it across to his Treasury colleagues that this is not just about ensuring that the guidance works; it is about the detailed regulations, as yet unavailable, for the products that will replace much of the annuity market and which companies will have immense difficulty designing if they are not told the exact requirements. I realise this is an issue for the Treasury and the Prudential Regulation Authority—as I understand it—but I would be grateful if he took that message back to them.
Steve Webb
I can perhaps distinguish between the specification by the Government and the Financial Conduct Authority of what the guidance will contain and the issue of product regulation, which are obviously two different things. On the former, my hon. Friend will know that the FCA set out some ideas about what the guidance should contain and consulted on them, and we will shortly be publishing its conclusions.
This has been a consultative process. We were condemned on Budget day for not having consulted, but when we consult extensively, we are condemned for not having definite answers—you’re damned if you do and damned if you don’t. I hear what my hon. Friend says though. We are trying to get to a position where we can be as clear as possible as soon as possible about the content of the guidance and the process, while trying to evolve, learn, listen and refine our approach, so that when it goes live in April we are in a good place.
I am not absolutely sure I understand what people who are thinking of bringing out products need to know. There is already an FCA regulatory regime and a duty on providers to treat customers fairly. In general the FCA does not pre-approve products so it is not the case that a provider comes up with a product, goes off to the FCA and says, “Is this all right?” That is not the way it works, but I do know that the FCA is in dialogue with the product providers, including those in my hon. Friend’s constituency, about the sorts of products they are thinking of bringing forward.
Crispin Blunt
There is a different set of issues, arising particularly out of EU Solvency II, but there is the same time scale and it is the PRA that is having to provide product regulation around this. That is not an issue for the Minister’s Department, but I just thought, as I am seeking a meeting with the Exchequer Secretary to address this—we have yet to get a date—that I would use this occasion to make a similar point to the Minister and invite him to get that message across.
Steve Webb
I am very happy to relay to the Exchequer Secretary that my hon. Friend is seeking such a meeting.
We believe that reliable and high-quality guidance will be available. The right hon. Member for East Ham asked about those on lower incomes. The irony is that in the bad old world it was the people in the middle who were completely stuck. If someone had a tiny pension pot, they could take the cash, and if they had a big pension pot, they had choices and draw-down and probably paid for some advice. It was all those poor souls in the middle who just ended up having to buy an annuity faute de mieux. This new reform gives new options and new choices to those on lower and middle incomes who have not had them before, so it seems to us that we are being fairer to those in that group. They can buy an annuity if they want to, but we are giving them new options, so we do not think we have any problem with that test.
The right hon. Gentleman asked finally about the issue of costs to the Exchequer. He will be aware that these are being updated at the time of the autumn statement, so we will be providing fresh estimates of the tax implications of the changes and the public expenditure implications, but I would say that in its July long-term fiscal report the OBR did not assume any impact on public spending from these reforms. I do not think that by that it meant there would be nil, and I do not mean there would be nil, but think of the context of long-term pension spending, the very substantial reforms we have brought in to the state pension age, the new single tier pension and the multiple tens of billions of pounds-worth of reforms—we are not talking anything like that in respect of the implication for public spending of these new freedoms.
Will there be somebody who blows the lot and claims a means-tested benefit? Yes, there will—having said which, we already have rules in place for those who artificially dispose of their capital, as the right hon. Gentleman well knows. So there are safeguards. We may find that public expenditure is saved; we already know from survey evidence that pension saving is more popular as a result of our freedoms. If more people decide to save for their retirement through pension saving and have more income and wealth in retirement, we may save money. We do not expect a substantial impact on public spending, therefore, although I am not saying it will be zero. We will provide updated estimates at the time of the autumn statement.
The right hon. Gentleman asked about who will pay for the guidance and he seemed to think there was some confusion. I do not think there is any confusion. The £20 million that the Chancellor has identified is seed-corn funding to get the thing going, and it is already being spent as we speak—on designing the website and getting things started. Once it is up and running there will be a levy on the financial services industry. The FCA has already put out a consultation on exactly how that will fall.
Basically, the idea is that those firms that will benefit should pay the levy, but we are also consulting on exempting small firms of advisers with low turnover from paying the levy. So unless I have missed something, I do not think there is any uncertainty about who is going to be paying for this: it will not be the consumer directly; it will be a levy on the financial services industry.
The issue was raised—and this phrase has come up—of a second line of defence, and that is an important concept. As we discussed a moment ago, what happens when people have not accessed the guidance, or indeed if they have? The FCA has committed to consider this issue and it will be publishing an update on its requirement on pension providers very shortly. We have had some discussions as to whether that will be by Christmas, by winter or by late autumn, but it will be very shortly, so we will have more information on that. I assure the House that the FCA is taking this issue seriously.
Steve Webb
This is in response to a consultation. During the consultation, one of the issues raised was about people who had not accessed the guidance. This is the response to that.
Reference was made to a story in The Daily Telegraph about people buying annuities that were not as good as they should have been, given their health condition. The FCA is undertaking a thematic review of the annuity market and looking at at-retirement choices. A lot of reporting and recommendations from the FCA will come out over the next couple of months. The Government have investigated some of the failures of the annuities market. We are tackling them by giving people new choices and it is about time that that was done.
The right hon. Member for East Ham asked about DB to DC transfers and what trustees have to do. They have to make sure that, before a DB to DC transfer happens, the member has accessed independent financial advice by a regulated IFA or similar. They do not have to look at what the IFA has said and see whether it is any good or appropriate; that is not what we mean. But before they say yes to the transfer, each trustee will have to say to the scheme member, “Have you accessed independent financial advice?” That is only right and proper because, in general, we still think that most DB scheme members should remain in DB. That will be the right thing for most. That is why we think the advice test is the right thing to do.
The right hon. Gentleman asked about forbidding draw-down in schemes that provide cash-balance benefits. To be clear: our intention is to ensure that members are appropriately protected by ring-fencing their pots from those of other members. That means that assets must always meet the liabilities in relation to those benefits. Keeping conversion to money purchase is the simplest way of achieving that. This is about ring-fencing cash-balance benefits.
The right hon. Gentleman asked how people would calculate their overall level of pension wealth from the point of view of the £30,000 threshold. Obviously, the details of that will be set out in regulations. We are consulting the NAPF on that. It is interesting that the NAPF thinks that nobody is talking to it; we talk to the NAPF all the time. We are also consulting the ABI and other interested parties.
The nitty-gritty of how we set the £30,000, what it includes and whether it is all of someone’s assets will be subject to detailed discussions and regulation. But the principle has to be right: if we are to require people to have advice, we do not want people to be forced to pay, say, £1,000 for advice if they only have a pension pot of £5,000 or £12,000. There has to be some sort of cut-off. Clearly, we need a sensible operational definition of what that is, but I do not think the principle is at issue.
Stephen Timms
I am grateful to the Minister for giving way and for the thorough way in which he is responding. May I take him back to his response to my question on the duties of trustees in an instance where a member wants to switch from DB to DC? The proposition from the NAPF was that the sole responsibility of trustees should be to require adequate proof from the member that they have received independent financial advice from a person authorised by the FCA to give such advice. It sounds to me that the Minister is saying that that is what he intends. Is he happy with that form of wording proposed by the NAPF?
Steve Webb
I am aware that our conversations are occasionally listened into by lawyers, so I am reluctant on the hoof to say that the wording from the NAPF is better than the wording that my lawyers have come up with, which is in the Bill. Clearly the point is not that the trustees have to second-guess an independent financial adviser—that is absolutely not what we are saying—but we are concerned to make sure that trustees do not simply nod through DB to DC transfers without ensuring that the scheme member has accessed suitable financial advice.
The right hon. Gentleman asked whether regulations will be under the negative procedure or affirmative procedure. In general they will be under the negative procedure, but the regulations under new section 97A(11) in new clause 26 are affirmative. Given the speed at which we are working and the importance of getting all this in place, it is not realistic to think that we will have draft regulations for their lordships’ consideration in a few weeks’ time. But their lordships obviously will want to probe the likely content of the regulations and we will continue to try to be as helpful as we can in that regard.
Stephen Timms
Will the Minister accept that it is pretty unsatisfactory for the Bill to go through both Houses with the Members of neither of them having a draft of the regulations to consider so that they can see what exactly the Government have in mind?
Steve Webb
No, I would not accept that. The right hon. Gentleman will know, from having taken quite a few Bills through the House, that there is a balance to be struck among primary powers, giving the House a general sense of direction, our stating on the record what the regulations seek to do and separate scrutiny for the regulations themselves. We will always try to make clear our intentions and what the regulations will try to achieve and we will continue to talk to the experts outside and inside Government about the fine detail. It is perfectly normal to pass primary legislation without every last regulation being produced in draft form. The right hon. Gentleman was responsible for welfare reform legislation in which large swathes of regulations were not produced in draft form when Royal Assent was given.
Stephen Timms
The right hon. Gentleman is pressing my memory with that, but my understanding of what has generally been regarded as good practice is that there should at least be draft regulations in front of Members. We do not necessarily need every last detail and he is quite right to make the point that there will be further discussions before things are finalised, but for Members of neither House to be able to see even a draft of the regulations is unusual and pretty unsatisfactory.
Steve Webb
I do not agree that it is either unusual or unsatisfactory. It is clearly important that the House accepts and is familiarised with the basic principles of approach and that we set out what will be in the regulations and what we are going to try to achieve through them, but often the regulations will be subject to separate consultation exercises. There is an awful lot of scrutiny; I can assure the right hon. Gentleman that these things are never knowingly unscrutinised.
The right hon. Gentleman asked about the timetable. Let us put it this way: our lawyers are not taking Christmas holidays. We are working as fast as we can.
Mr Gregory Campbell (East Londonderry) (DUP)
The Minister talks about the lawyers not taking Christmas holidays. We are almost in December, so how certain can those people across the United Kingdom who are preparing for retirement in April, May or June of next year be in the weeks that follow the autumn statement and the non-holiday taking of the lawyers that they will have clarity, and that it will come before April?
Steve Webb
I think that the grouping of the amendments means that we are muddying together two completely separate things. The guidance guarantee and the budget freedoms will be in place on 6 April and the legislative framework will be in place—period.
Also in this group are regulations about defined ambition pensions, risk sharing and so on and they must be in place by April 2016. I think perhaps our conversation has been slightly at cross purposes. What has to be in place by April 2015 will be. There has been lots of consultation and a lot of it is not about regulation but about FCA rules. The FCA has already been consulting extensively and will publish more shortly. Separately, we will have many regulations to produce on defined ambition and so on. That will take longer and there will be further consultations on all that. I do not think there is anything particularly unprecedented about any of this.
Let me move on, finally, to amendment 73, tabled by my hon. Friend the Member for Reigate and my right hon. Friend the Member for Sutton and Cheam (Paul Burstow). They obviously raise an important point about the context of the guidance guarantee and the fact that DC pension pots these days, although hopefully not in the distant future, might be only a small part of people’s overall retirement wealth. I would not dispute for a moment the premise that decisions have to be made in context and that, as far as possible, we want well-informed consumers making the best decisions in their own interests.
I do not want to over-promise what this relatively limited conversation can cover or achieve. It clearly is not regulated financial advice. It is not a fact check or a fact finder. It will not lead people to say at the end, “It’s equity release for me.” I am not saying that that is what my right hon. and hon. Friends are saying, but we must be absolutely clear that we will not stretch this thing to achieve other goals, laudable as they might be, when they are not what it is being set up to do. For example, people who do not have DC pension pots might also want to think about equity release, but they will not access the guidance guarantee because they will not have a pot. If we think people should be accessing equity release more often, we need policies to deliver that. Shoehorning them into the guidance guarantee inappropriately will hit some people and not others. We must ensure that the guidance conversation delivers what it is meant to do and if we try to cram too much into it, we risk undermining that. That is one of the things we are testing through the surveying we are doing and through behavioural testing. If we bombard people with lots of products, issues and options, one of the worries is that they will just buy an annuity with their own provider and we will almost go back to where we started. So we are trying to strike that balance, and I wanted to put the caveat in first.
Let me now try to be a little more positive. My hon. Friend the Member for Reigate asked for more detail on the guidance guarantee. Our colleagues at the Treasury have committed to providing further information in an update on progress on implementation that will be published before the end of the year on 31 December. That deals with the guidance guarantee.
To be clear, I would welcome the opportunity provided by my hon. Friends to clarify that the objective of the guidance is to ensure that consumers are empowered to make effective decisions about their retirement income options. While the focal point for the guidance session will be an individual’s DC pot, the guidance will cover the range of issues that affect an individual’s financial decision-making. That includes their wider financial circumstances—debts, others assets including their home and their personal motivations and goals, including attitudes to risk, desire for an income and so forth.
This is all provided for in the FCA’s proposed standards, which will be published in final form very shortly. They require that the guidance service encourages people to provide relevant information about their financial and personal circumstances and their objectives to ensure that they can get maximum value from their guidance. The financial information might include pension pots or benefits, other sources of wealth or income, including where the individual has a spouse or partner, tax status and debt position.
Our colleagues at the Treasury, along with the delivery partners, are working up the detail of the guidance in line with FCA standards, including scope and what it should cover. I hope my right hon. and hon. Friends will accept that it is not appropriate to hardwire those things directly into the Bill. My hon. Friend the Member for Reigate said during the course of the Taxation of Pensions Bill:
“It will have to be capable of being improved in the light of experience”.—[Official Report, 29 October 2014; Vol. 587, c. 340.]
I agree with him on that point. Stipulating these things in legislation does not allow us to adapt the guidance in this way. We want to give people context, but not try to hardwire things into primary legislation when we are trying to evolve the best possible guidance offer.
I should stress, as I have said, that we are not talking about regulated financial advice. Guidance will help consumers consider their assets such as housing, wealth, savings and investment in the context of their retirement decision, but it is not a fully holistic financial planning service, such as one might get from multiple sessions with a professional regulated financial adviser. We are clear that the guidance will not replicate the services of professional financial advice, but will complement it. We will ensure that the consumers know both the value of seeking financial advice and where to go next. Referring again to Second Reading of the Taxation of Pensions Bill, my hon. Friend made the point:
“If the guidance can push people in that direction, to properly regulated and properly informed independent financial advisers, we will have properly informed consumers making proper choices.”—[Official Report, 29 October 2014; Vol. 587, c. 341.]
I am happy to reassure him that the guidance will do just that.
My right hon. Friend the Member for Sutton and Cheam asked about social care. I can assure him that our Treasury colleagues are working on how to hand individuals on to the right place after using guidance. On social care, we are in discussions with a range of organisations, including Age UK, while we are discussing with the Department of Health how to link in to the statutory duty on local authorities, in which I believe my right hon. Friend might have had some involvement, to refer people to local care and advice services. I can assure both my hon. Friend and my right hon. Friend that we take these issues seriously. This is not advice; it is guidance, but it is guidance in a financial context. We want to equip consumers to make the best choices they can. I hope the House will leave us with flexibilities to go on evolving that, while recognising that greater certainty is needed as soon as possible.
Crispin Blunt
I am grateful to my right hon. Friend for his answers. There will obviously be an ongoing debate about this issue. He is right to turn my own words round on me, when I made comments on the other Bill associated with these measures. I shall not seek to press my amendment.
Steve Webb
I am grateful to my hon. Friend and my right hon. Friend the Member for Sutton and Cheam for tabling their amendment, providing an opportunity to discuss these important issues. I commend new clause 7 to the House.
Question put and agreed to.
New clause 7 accordingly read a Second time, and added to the Bill.
New Clause 8
Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain)
‘(1) The Secretary of State may by regulations specify circumstances in which an employer must arrange or pay for a member of a pension scheme, or a survivor of a member of a pension scheme, to receive appropriate independent advice for the purpose of satisfying a requirement imposed by section (Independent advice in respect of conversions and transfers: Great Britain).
(2) Regulations under subsection (1) may, in particular—
(a) impose limitations on the amount that an employer may be required to pay;
(b) prohibit an employer from seeking in any way to recover, from a member or survivor, costs incurred by the employer in complying with the regulations;
(c) provide for section 10 of the Pensions Act 1995 (civil penalties) to apply to a failure by an employer to comply with the regulations.
(3) In this section “employer” has the meaning given by regulations made by the Secretary of State.”—(Steve Webb.)
This gives the Secretary of State the ability to make regulations requiring an employer to pay for the advice required by NC7 in the circumstances specified in the regulations.
Brought up, read the First and Second time, and added to the Bill.
New Clause 9
Independent advice: consequential amendments - Great Britain
‘(1) The Pension Schemes Act 1993 is amended as follows.
(2) In section 99 (trustees’ duties after exercise of option), after subsection (1) insert—
“(1A) Subsection (2) does not apply if—
(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 by reason of factors outside their control, or
(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”
(3) In section 101J (time for compliance with transfer notice in respect of pension credit benefits), after subsection (2) insert—
“(2A) Subsection (1) does not apply if—
(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 by reason of factors outside their control, or
(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”” .—(Steve Webb.)
This amendment is consequential upon NC7
Brought up, read the First and Second time, and added to the Bill.
New Clause 10
Independent advice in respect of conversions and transfers: Northern Ireland
‘(1) Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before—
(a) converting any of the benefits into different benefits that are flexible benefits under the scheme;
(b) making a transfer payment in respect of any of the benefits with a view to acquiring flexible benefits for the member or survivor under another pension scheme.
(2) The Department for Social Development in Northern Ireland may by regulations make provision about—
(a) what the trustees or managers must do to check that a member or survivor has received appropriate independent advice for the purposes of subsection (1), and
(b) when the check must be carried out for the purposes of that subsection.
(3) The Department for Social Development in Northern Ireland may by regulations create exceptions to subsection (1).
(4) In subsection (1)(b) the reference to another pension scheme includes a scheme established in a country or territory outside Northern Ireland.
(5) Where the trustees or managers fail to carry out a check required by this section, Article 10 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (civil penalties) applies to any trustee or manager who failed to take reasonable steps to ensure that the check was carried out.
(6) Failure to carry out a check required by this section does not affect the validity of any transaction.
(7) In this section—
“appropriate independent advice” has the meaning given by regulations made by the Department for Social Development in Northern Ireland;
“safeguarded benefits” means any benefits other than —
(a) money purchase benefits, and
(b) cash balance benefits.”—(Steve Webb.)
This provides that before trustees or managers of a pension scheme (in Northern Ireland) in which a person has safeguarded benefits convert them into flexible benefits, or make a transfer to another scheme to acquire flexible benefits, they must check that the person has received appropriate independent advice.
Brought up, read the First and Second time, and added to the Bill.
New Clause 11
Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland)
‘(1) The Department for Social Development in Northern Ireland may by regulations specify circumstances in which an employer must arrange or pay for a member of a pension scheme, or a survivor of a member of a pension scheme, to receive appropriate independent advice for the purpose of satisfying a requirement imposed by section (Independent advice in respect of conversions and transfers: Northern Ireland).
(2) Regulations under subsection (1) may, in particular—
(a) impose limitations on the amount that an employer may be required to pay;
(b) prohibit an employer from seeking in any way to recover, from a member or survivor, costs incurred by the employer in complying with the regulations;
(c) provide for Article 10 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (civil penalties) to apply to a failure by an employer to comply with the regulations.
(3) In this section “employer” has the meaning given by regulations made by the Department for Social Development in Northern Ireland.” .—(Steve Webb.)
The Department for Social Development in Northern Ireland can make regulations requiring an employer to pay for the advice required by NC10 in the circumstances specified in the regulations.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
Independent advice: consequential amendments - Northern Ireland
‘(1) The Pension Schemes (Northern Ireland) Act 1993 is amended as follows.
(2) In section 95 (trustees’ duties after exercise of option), after subsection (1) insert—
“(1A) Subsection (2) does not apply if—
(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 by reason of factors outside their control, or
(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”
(3) In section 97J (time for compliance with transfer notice in respect of pension credit benefits), after subsection (2) insert—
“(2A) Subsection (1) does not apply if—
(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 by reason of factors outside their control, or
(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”” .—(Steve Webb.)
This amendment is consequential upon NC10.
Brought up, read the First and Second time, and added to the Bill.
New Clause 13
Independent advice: income tax exemption
‘(1) In Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: exemptions), in Chapter 9 (exemptions: pension provision), after section 308A insert—
“308B Independent advice in respect of conversions and transfers of pension scheme benefits
(1) No liability to income tax arises in respect of—
(a) the provision to an employee or former employee of appropriate independent advice, or
(b) the payment or reimbursement, to or in respect of an employee or former employee, of the cost of such advice,
if conditions A to C are met.
(2) Condition A is that the provision, payment or reimbursement is required by regulations under section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain)) or (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland)) of the Pension Schemes Act 2014 (power to require employer to arrange independent advice in respect of conversions and transfers).
(3) If condition A is met only as respects part of the payment or reimbursement because the amount of the payment or reimbursement exceeds the amount required to be paid or reimbursed, subsection (1) applies in respect of that part.
(4) Condition B is that the provision, payment or reimbursement is not pursuant to relevant salary sacrifice arrangements.
(5) Condition C is that such other requirements as may be specified in regulations made by the Treasury are satisfied in relation to the provision, payment or reimbursement.
(6) In this section—
“appropriate independent advice”—
(a) in relation to England and Wales and Scotland, has the meaning given by regulations under section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014;
(b) in relation to Northern Ireland, has the meaning given by regulations under section (Independent advice in respect of conversions and transfers: Northern Ireland) of that Act;
“relevant salary sacrifice arrangements” means arrangements (whenever made, whether before or after the employment began) under which an employee gives up the right to receive an amount of general earnings or specific employment income in return for the provision of appropriate independent advice or the payment or reimbursement of the cost of such advice.”
(2) In that Part of that Act, in section 228 (effect of exemptions on liability under provisions outside Part 2), in subsection (2), after paragraph (d) insert—
“(da) section 308B (independent advice in respect of conversions and transfers of pension scheme benefits),”.
(3) The amendments made by this section have effect for the tax year 2015-16 and subsequent tax years.” .—(Steve Webb.)
This amendment is consequential upon NC7, NC8, NC10 and NC11. It prevents the cost of independent financial advice, relating to the conversion or transfer of certain pension benefits, that is paid for or reimbursed by an employer from being treated as a taxable benefit in kind for income tax purposes if conditions are met.
Brought up, read the First and Second time, and added to the Bill.
New Clause 14
Sums or assets that may be designated as available for drawdown: Great Britain
‘(1) In the case of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of drawdown pension for the member under the scheme are sums or assets held for the purposes of providing money purchase benefits to or in respect of the member.
(2) In the case of a survivor of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of dependants’ drawdown pension for the survivor under the scheme are sums or assets held for the purposes of providing money purchase benefits to the survivor.
(3) This section overrides any provision of an occupational pension scheme to the extent that there is a conflict.
(4) This section does not apply in relation to sums or assets designated before 6 April 2015.” .—(Steve Webb.)
This ensures that occupational pension schemes may only pay drawdown pensions out of assets held for the purpose of providing money purchase benefits. The requirement applies to assets designated on or after 6 April 2015 as available for payment of drawdown, and overrides any conflicting provision in scheme rules.
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Provision about conversion of certain benefits for drawdown: Great Britain
‘(1) The Secretary of State may by regulations make provision about the conversion of benefits under an occupational pension scheme in circumstances where—
(a) a member of the scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and
(b) the member or survivor exercises an option to convert any of the benefits into money purchase benefits for the purposes of enabling sums or assets to be designated as available for the payment of drawdown pension or dependants’ drawdown pension.
(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any benefits not converted are to be calculated in future.
(3) In relation to a conversion that takes place before the member or survivor reaches normal pension age, regulations under subsection (1) may in particular make provision about—
(a) the manner in which benefits are to be calculated for the purpose of converting them into money purchase benefits;
(b) the use of any power to reduce benefits.
(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)
This provides a power to make regulations in relation to the conversion of flexible benefits into money purchase benefits for the purpose of paying a drawdown pension, where an occupational scheme offers that option to members or their survivors. The clause outlines particular areas which such regulations may cover.
Brought up, read the First and Second time, and added to the Bill.
New Clause 16
Provision about calculation of lump sums: Great Britain
‘(1) The Secretary of State may by regulations make provision about the calculation of lump sums in circumstances where—
(a) a member of an occupational pension scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and
(b) the member or survivor exercises an option to be paid a lump sum in respect of any of those benefits.
(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any remaining benefits are to be calculated in future.
(3) In a case where a member or survivor exercises an option to be paid a lump sum before reaching normal pension age, regulations under subsection (1) may in particular make provision about—
(a) the manner in which benefits are to be calculated for the purpose of determining the amount available for the payment of the lump sum;
(a) the use of any power to reduce the amount of the lump sum.
(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)
This provides a power to make regulations in relation to the payment of lump sums by occupational pension schemes in respect of flexible benefits. The clause outlines particular areas which such regulations may cover.
Brought up, read the First and Second time, and added to the Bill.
New Clause 17
Restrictions on conversion of benefits during winding up etc: Great Britain
‘(1) In section 73A of the Pensions Act 1995 (operation of scheme during winding up period), after subsection (6) insert—
“(6A) During the winding up period no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules.”
(2) In section 73B of that Act (sections 73 and 73A: supplementary), in subsections (1) and (3), after “section 73A(3)” insert “or (6A)”.
(3) In section 135 of the Pensions Act 2004 (restrictions on winding up, discharge of liabilities etc during assessment period), in subsection (4), before paragraph (a) insert—
“(za) no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules,”.” .—(Steve Webb.)
Where an occupational pension scheme is winding up or being assessed for transfer into the Pension Protection Fund, this amendment prevents any right under the scheme to a benefit which is not a money purchase benefit being converted into a money purchase benefit.
Brought up, read the First and Second time, and added to the Bill.
New Clause 18
Restriction on payment of lump sums during PPF assessment period: Great Britain
‘(1) Section 138 of the Pensions Act 2004 (payment of scheme benefits during assessment period) is amended as follows.
(2) In subsection (1), after “Subsections (2)” insert “, (2A)”.
(3) After subsection (2) insert—
“(2A) Benefits in the form of a lump sum may be paid to or in respect of a member under the scheme rules during the assessment period only in the circumstances in which, and to the extent to which, lump sum compensation would be payable to or in respect of the member in accordance with this Chapter if—
(a) the Board assumed responsibility for the scheme in accordance with this Chapter, and
(b) the assessment date referred to in Schedule 7 were the date on which the assessment period began.”
(4) In subsection (3), omit “But”.
(5) In subsection (5), for “subsection (2)” substitute “subsections (2) and (2A)”.
(6) In subsection (6), for “subsection (3)” substitute “subsections (2A) and (3)”.
(7) In subsection (7), after “Subsections (2),” insert “(2A),”.
(8) In subsection (8), after “subsections (2)” insert “, (2A)”.
(9) In subsection (9), for “subsections (2) and (3)” substitute “subsections (2) to (3)”.
(10) After subsection (9) insert—
“(9A) Regulations may make provision as to circumstances in which benefits in the form of a lump sum are to be treated for the purposes of subsection (2A) as being paid in the circumstances in which lump sum compensation would be payable in accordance with this Chapter.
(9B) Regulations may create exceptions to subsection (2A).”
(11) In subsection (12), for “subsection (2)” substitute “subsections (2) and (2A)”.
(12) In subsection (13), after “subsection (2)” insert “, (2A)”.” .—(Steve Webb.)
This clarifies restrictions on the payment of benefits by an occupational pension scheme which is being assessed for transfer into the Pension Protection Fund. It specifies the types of lump sums that can be paid, and includes a power to make further provision in relation to particular circumstances.
Brought up, read the First and Second time, and added to the Bill.
New Clause 19
Sums or assets that may be designated as available for drawdown: Northern Ireland
‘(1) In the case of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of drawdown pension for the member under the scheme are sums or assets held for the purposes of providing money purchase benefits to or in respect of the member.
(2) In the case of a survivor of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of dependants’ drawdown pension for the survivor under the scheme are sums or assets held for the purposes of providing money purchase benefits to the survivor.
(3) This section overrides any provision of an occupational pension scheme to the extent that there is a conflict.
(4) This section does not apply in relation to sums or assets designated before 6 April 2015.” .—(Steve Webb.)
This ensures that occupational pension schemes may only pay drawdown pensions out of assets held for the purpose of providing money purchase benefits. The requirement applies to assets designated on or after 6 April 2015 as available for payment of drawdown, and overrides any conflicting provision in scheme rules.
Brought up, read the First and Second time, and added to the Bill.
New Clause 20
Provision about conversion of certain benefits for drawdown: Northern Ireland
‘(1) The Department for Social Development in Northern Ireland may by regulations make provision about the conversion of benefits under an occupational pension scheme in circumstances where—
(a) a member of the scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and
(b) the member or survivor exercises an option to convert any of the benefits into money purchase benefits for the purposes of enabling sums or assets to be designated as available for the payment of drawdown pension or dependants’ drawdown pension.
(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any benefits not converted are to be calculated in future.
(3) In relation to a conversion that takes place before the member or survivor reaches normal pension age, regulations under subsection (1) may in particular make provision about—
(a) the manner in which benefits are to be calculated for the purpose of converting them into money purchase benefits;
(b) the use of any power to reduce benefits.
(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)
This provides a power to make regulations in relation to the conversion of flexible benefits into money purchase benefits for the purpose of paying a drawdown pension, where an occupational scheme offers that option to members or their survivors. The clause outlines particular areas which such regulations may cover.
Brought up, read the First and Second time, and added to the Bill.
New Clause 21
Provision about calculation of lump sums: Northern Ireland
‘(1) The Department for Social Development in Northern Ireland may by regulations make provision about the calculation of lump sums in circumstances where—
(a) a member of an occupational pension scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and
(b) the member or survivor exercises an option to be paid a lump sum in respect of any of those benefits.
(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any remaining benefits are to be calculated in future.
(3) In a case where a member or survivor exercises an option to be paid a lump sum before reaching normal pension age, regulations under subsection (1) may in particular make provision about—
(a) the manner in which benefits are to be calculated for the purpose of determining the amount available for the payment of the lump sum;
(a) the use of any power to reduce the amount of the lump sum.
(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)
This provides a power to make regulations in relation to the payment of lump sums by occupational pension schemes in respect of flexible benefits. The clause outlines particular areas which such regulations may cover.
Brought up, read the First and Second time, and added to the Bill.
New Clause 22
Restrictions on conversion of benefits during winding up etc: Northern Ireland
‘(1) In Article 73A of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (operation of scheme during winding up period), after paragraph (6) insert—
“(6A) During the winding up period no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules.”
(2) In Article 73B of that Order (Articles 73 and 73A: supplementary), in paragraphs (1) and (3), after “Article 73A(3)” insert “or (6A)”.
(3) In Article 119 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)) (restrictions on winding up, discharge of liabilities etc during assessment period), in paragraph (4), before sub-paragraph (a) insert—
“(za) no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules,”.” .—(Steve Webb.)
Where an occupational pension scheme is winding up or being assessed for transfer into the Pension Protection Fund, this amendment prevents any right under the scheme to a benefit which is not a money purchase benefit being converted into a money purchase benefit.
Brought up, read the First and Second time, and added to the Bill.
New Clause 24
Rights to transfer benefits
Schedule (Rights to transfer benefits) contains amendments that confer new statutory rights to transfer benefits.” .—(Steve Webb.)
This introduces a new Schedule which makes changes to the right a member has to transfer their pension savings prior to accessing those savings.
Brought up, read the First and Second time, and added to the Bill.
New Clause 25
Restriction on transfers out of public service defined benefits schemes: Great Britain
‘(1) The Pension Schemes Act 1993 is amended as follows.
(2) In section 95 (ways of taking right to cash equivalent), in subsection (2), after “occupational pension scheme” insert “that is not an unfunded public service defined benefits scheme”.
(3) In section 95, after subsection (2) insert—
“(2A) In the case of a member of an occupational pension scheme that is an unfunded public service defined benefits scheme, the ways referred to in subsection (1) are—
(a) for acquiring transfer credits allowed under the rules of another occupational pension scheme if—
(i) the benefits that may be provided under the other scheme by virtue of the transfer credits are not flexible benefits,
(ii) the trustees or managers of the other scheme are able and willing to accept payment in respect of the member’s transferrable rights, and
(iii) the other scheme satisfies requirements prescribed in regulations made by the Secretary of State or the Treasury;
(b) for acquiring rights allowed under the rules of a personal pension scheme if—
(i) the benefits that may be provided under the personal pension scheme by virtue of the acquired rights are not flexible benefits,
(ii) the trustees or managers of the personal pension scheme are able and willing to accept payment in respect of the member’s transferrable rights, and
(iii) the personal pension scheme satisfies requirements prescribed in regulations made by the Secretary of State or the Treasury;
(c) for purchasing from one or more insurers such as are mentioned in section 19(4)(a), chosen by the member and willing to accept payment on account of the member from the trustees or managers, one or more annuities which satisfy requirements prescribed in regulations made by the Secretary of State or the Treasury;
(d) for subscribing to other pension arrangements which satisfy requirements prescribed in regulations made by the Secretary of State or the Treasury.
(2B) The Treasury may by regulations provide for sub-paragraph (i) of subsection (2A)(a) or (b) not to apply in prescribed circumstances or in relation to prescribed schemes or schemes of a prescribed description.
(2C) In subsection (2A) “unfunded public service defined benefits scheme” means a public service pension scheme that—
(a) is a defined benefits scheme within the meaning given by section 37 of the Public Service Pensions Act 2013, and
(b) meets some or all of its liabilities otherwise than out of a fund accumulated for the purpose during the life of the scheme.”
(4) In section 95(5)(a), for “subsection (2) is” substitute “subsections (2) and (2A) are”.
(5) In section 95(6)—
(a) after “subsections (2)” insert “, (2A)”;
(b) after “subsection (2)” insert “or (2A)”.
(6) In section 96 (further provisions concerning exercise of option under section 95), in subsection (2)(b), after “subsection (2)” insert “, subsection (2A)”.
(7) In section 100 (withdrawal of applications), in subsection (2), after “subsection (2)” insert “, subsection (2A)”.
(8) The amendments made by this section have no effect in relation to an application made under section 95(1) of the Pension Schemes Act 1993 before 6 April 2015.
(9) Until the coming into force of the first regulations made under a provision of section 95(2A) of the Pension Schemes Act 1993 specified in the first column of the table, regulations made under the provision of section 95(2) of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—
Provision of section 95(2A) | Provision of section 95(2) |
|---|---|
Paragraph (a)(iii) | Paragraph (a)(ii) |
Paragraph (b)(iii) | Paragraph (b)(ii) |
Paragraph (c) | Paragraph (c) |
Paragraph (d) | Paragraph (d).” |
This amendment restricts the right under the Pension Schemes Act 1993 to transfer from one pension scheme to another, so as to prevent a member of an unfunded public service defined benefits scheme using that right to transfer to another pension scheme in which they can obtain flexible benefits.—(Steve Webb.)
Brought up, read the First and Second time, and added to the Bill.
New Clause 27
Public service defined benefits schemes: consequential amendments: Great Britain
‘(1) In the Pension Schemes Act 1993, in section 182 (orders and regulations: general provisions), after subsection (1) insert—
“(1A) Subsection (1) does not apply to the power of the Scottish Ministers to make regulations under section 97B(11).”
(2) In that Act, in section 185 (consultations about other regulations), after subsection (5) insert—
“(5A) Subject to subsection (5C), before the Treasury (acting alone) make any regulations under section 95, 97A or 97C they shall consult such persons as they may consider appropriate.
(5B) Subject to subsection (5C), before the Scottish Ministers make any regulations under section 97B(11) they shall consult such persons as they may consider appropriate.
(5C) Subsections (5A) and (5B) do not apply to regulations in the case of which the Treasury or (as the case may be) the Scottish Ministers consider consultation inexpedient because of urgency or to regulations of the type described in subsection (2)(b) or (e)).”
(3) In that Act, in section 186 (Parliamentary control of orders and regulations)—
(a) in subsection (1) (negative procedure), after “Secretary of State” insert “or the Treasury”;
(b) in subsection (3) (affirmative procedure), after paragraph (e) insert “, or
(f) regulations made under section 97A(11)”;
(c) after subsection (5) insert—
“(6) Regulations made by the Scottish Ministers under section 97B(11) are subject to the affirmative procedure (see Part 2 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10)).”
(4) In the Pensions Act 2004, in section 18 (pension liberation: interpretation), in subsection (4)(a) (meaning of “authorised way”), omit “subsection (2) or, as the case may be, subsection (3) of”.
(5) The consultation requirement in section 185(5A) of the Pension Schemes Act 1993 (inserted by subsection (2)) may be satisfied by things done before the day on which this Act is passed.” .—(Steve Webb.)
This amendment makes amendments to pensions legislation that are consequential on NC25 and NC26.
Brought up, read the First and Second time, and added to the Bill.
New Clause 28
Restriction on transfers out of public service defined benefits schemes: Northern Ireland
‘(1) The Pension Schemes (Northern Ireland) Act 1993 is amended as follows.
(2) In section 91(2), after “occupational pension scheme” insert “that is not an unfunded public service defined benefits scheme”.
(3) In section 91, after subsection (2) insert—
“(2A) In the case of a member of an occupational pension scheme that is an unfunded public service defined benefits scheme, the ways referred to in subsection (1) are—
(a) for acquiring transfer credits allowed under the rules of another occupational pension scheme if—
(i) the benefits that may be provided under the other scheme by virtue of the transfer credits are not flexible benefits,
(ii) the trustees or managers of the other scheme are able and willing to accept payment in respect of the member’s transferrable rights, and
(iii) the other scheme satisfies requirements prescribed in regulations made by the Department or the Department of Finance and Personnel;
(b) for acquiring rights allowed under the rules of a personal pension scheme if—
(i) the benefits that may be provided under the personal pension scheme by virtue of the acquired rights are not flexible benefits,
(ii) the trustees or managers of the personal pension scheme are able and willing to accept payment in respect of the member’s transferrable rights, and
(iii) the personal pension scheme satisfies requirements prescribed in regulations made by the Department or the Department of Finance and Personnel;
(c) for purchasing from one or more insurers such as are mentioned in section 15(4)(a), chosen by the member and willing to accept payment on account of the member from the trustees or managers, one or more annuities which satisfy requirements prescribed in regulations made by the Department or the Department of Finance and Personnel;
(d) for subscribing to other pension arrangements which satisfy requirements prescribed in regulations made by the Department or the Department of Finance and Personnel.
(2B) The Department of Finance and Personnel may by regulations provide for sub-paragraph (i) of subsection (2A)(a) or (b) not to apply in specified circumstances or in relation to specified schemes or schemes of a specified description.
(2C) In subsection (2A) “unfunded public service defined benefits scheme” means a public service pension scheme that—
(a) is a defined benefits scheme within the meaning given by section 34 of the Public Service Pensions Act (Northern Ireland) 2014, and
(b) meets some or all of its liabilities otherwise than out of a fund accumulated for the purpose during the life of the scheme.”
(4) In section 91(5)(a), for “subsection (2) is” substitute “subsections (2) and (2A) are”.
(5) In section 91(6)—
(a) after “subsections (2)” insert “, (2A)”;
(b) after “subsection (2)” insert “or (2A)”.
(6) In section 92 (further provisions concerning exercise of option under section 91), in subsection (2)(b), after “subsection (2)” insert “, subsection (2A)”.
(7) In section 96 (withdrawal of applications), in subsection (2), after “subsection (2)” insert “, subsection (2A)”.
(8) The amendments made by this section have no effect in relation to an application made under section 91 of the Pension Schemes (Northern Ireland) Act 1993 before 6 April 2015.
(9) Until the coming into force of the first regulations made under a provision of section 91(2A) of the Pension Schemes (Northern Ireland) Act 1993 specified in the first column of the table, regulations made under the provision of section 91(2) of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—
Provision of section 91(2A) | Provision of section 91(2) |
|---|---|
Paragraph (a)(iii) | Paragraph (a)(ii) |
Paragraph (b)(iii) | Paragraph (b)(ii) |
Paragraph (c) | Paragraph (c) |
Paragraph (d) | Paragraph (d).” |
This amendment makes for Northern Ireland provision parallel to that made by NC25.—(Steve Webb.)
Brought up, read the First and Second time, and added to the Bill.
New Clause 29
Reduction of cash equivalents: funded public service defined benefits schemes: Northern Ireland
‘(1) The Pension Schemes (Northern Ireland) Act 1993 is amended as follows.
(2) In section 93 (calculation of cash equivalents), in subsection (1)—
(a) after “verified” insert “—
(a) ”;
(b) at the end insert “, and
(b) where a designation has been made under section 93A, in accordance with regulations under section 93B.”
(3) After section 93 insert—
“93A Designation of funded public service defined benefits schemes
(1) The relevant Department may designate a funded public service defined benefits scheme as a scheme to which regulations under section 93B are to apply for a specified period of no more than 2 years.
(2) The power under subsection (1) may be exercised only if the relevant person considers that—
(a) there is an increased likelihood of payments out of public funds, or increased payments out of public funds, having to be made into the scheme so that it can meet its liabilities, and
(b) the increased likelihood is connected with the exercise or expected future exercise of rights to take a cash equivalent acquired under section 90.
(3) The power under subsection (1) may be exercised in relation to the whole or any part of a scheme.
(4) In the application of subsection (2) to part of a scheme, paragraph (a) is to be read as if it referred to the scheme’s liabilities relating to that part.
(5) A designation under subsection (1)—
(a) may be extended (on more than one occasion) for a period of no more than 2 years;
(b) may be revoked.
(6) The relevant Department must give notice in writing of a designation or its extension or revocation to the trustees or managers of the scheme (except in a case where the relevant Department is the trustees or managers).
(7) If the trustees or managers of a funded public service defined benefits scheme, or part of such a scheme, that is not designated under this section consider that the conditions in paragraphs (a) and (b) of subsection (2) are met in relation to the scheme or part they must notify—
(a) the Department of Finance and Personnel, and
(b) (where relevant) each Northern Ireland department by whom, or with whose approval, the scheme was established.
(8) If the trustees or managers of a scheme, or part of a scheme, that is designated under this section consider that the conditions in paragraphs (a) and (b) of subsection (2) are no longer met in relation to the scheme or part they must notify—
(a) the Department of Finance and Personnel, and
(b) (where relevant) each Northern Ireland department by whom, or with whose approval, the scheme was established.
(9) In this section—
“funded public service defined benefits scheme” means a public service pension scheme that—
(a) is a defined benefits scheme within the meaning given by section 34 of the Public Service Pensions Act (Northern Ireland) 2014, and
(b) meets its liabilities out of a fund accumulated for the purpose during the life of the scheme;
“local authority” means a district council constituted under section 1 of the Local Government Act (Northern Ireland) 1972;
“payment out of public funds” means a payment provided directly or indirectly—
(a) out of the Northern Ireland Consolidated Fund;
(b) by a local authority;
“the relevant Department”, in relation to a funded public service defined benefits scheme, means either of the following—
(a) the Department of Finance and Personnel, or
(b) any Northern Ireland department by whom, or with whose approval, the scheme was established.
(10) The Department of Finance and Personnel may by regulations make modifications of the definition of “the relevant Department” in subsection (9).”
(4) After section 93A (inserted by subsection (3)) insert—
“93B Reduction of cash equivalents in case of section 93A designated schemes
(1) The Department of Finance and Personnel may by regulations provide that where, under section 91(1), a member of a designated scheme requires the trustees or managers to use a cash equivalent for acquiring flexible benefits under the rules of another pension scheme the cash equivalent must be reduced by an amount determined in accordance with the regulations.
(2) Regulations under subsection (1) may not require a reduction in cases where a scheme ceases to be a designated scheme before the date on which the trustees or managers do what is needed to carry out what the member requires.
(3) Regulations under subsection (1) may produce the result (alone or in conjunction with regulations under section 93) that the amount by which a cash equivalent is to be reduced is such an amount that a member has no right to receive anything.
(4) In subsection (1), “designated scheme” means a funded public service defined benefits scheme, or part of such a scheme, that (on the date of the application under section 91(1)) is designated under section 93A.”” .—(Steve Webb.)
This amendment makes for Northern Ireland provision parallel to that made by NC26.
Brought up, read the First and Second time, and added to the Bill.
New Clause 30
Public service defined benefits schemes: consequential amendments: Northern Ireland
‘(1) In the Pension Schemes (Northern Ireland) Act 1993, in section 176 (general interpretation), in subsection (1), in the definition of “regulations”, after “means” insert “, unless the context otherwise requires,”.
(2) In that Act, in section 181 (Assembly etc control of regulations and orders)—
(a) in subsection (2) (regulations and orders subject to confirmatory procedure), at the end insert “and to regulations made by the Department of Finance and Personnel under section 93A(10)”;
(b) in subsection (4) (regulations and orders subject to negative resolution), for “shall” substitute “and regulations made by the Department of Finance and Personnel under section 91 or 93B shall”.
(3) In the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)), in Article 14 (pension liberation: interpretation), in paragraph (4)(a) (meaning of “authorised way”), omit “subsection (2) or, as the case may be, subsection (3) of”.” .—(Steve Webb.)
This amendment makes amendments to pensions legislation that are consequential on NC28 and NC29.
Brought up, read the First and Second time, and added to the Bill.
New Clause 31
Meaning of “flexible benefit”
In this Part “flexible benefit”, in relation to a member of a pension scheme, means—
(a) a money purchase benefit,
(b) a cash balance benefit, or
(c) a benefit, other than a money purchase benefit or cash balance benefit, calculated by reference to an amount available for the provision of benefits to or in respect of the member (whether the amount so available is calculated by reference to payments made by the member or any other person in respect of the member or any other factor).” .—(Steve Webb.)
This is to be added to Part 4 of the Bill. The definitions are intended to govern the interpretation of the new clauses about independent advice, drawdown and lump sums (also to be added to Part 4). The definitions are also applied by some of the amendments to other legislation.
Brought up, read the First and Second time, and added to the Bill.
New Clause 32
Meaning of “cash balance benefit
‘(1) In this Part “cash balance benefit”, in relation to a member of a pension scheme, means a benefit calculated by reference to an amount available for the provision of benefits to or in respect of the member (“the available amount”) where there is a promise about that amount.
(2) But a benefit is not a “cash balance benefit” if, under the scheme—
(a) a pension may be provided from the available amount to or in respect of the member, and
(b) there is a promise about the rate of that pension.
(3) The promise mentioned in subsection (1) includes, in particular, a promise about the change in the value of, or the return from, payments made by the member or any other person in respect of the member. The promise mentioned in subsection (2)(b) includes a promise that—
(a) the available amount will be sufficient to provide a pension of a particular rate;
(b) the rate of a pension will represent a particular proportion of the available amount.
(4) A benefit is not excluded from the definition of “cash balance benefit” by subsection (2) merely because under the scheme there is a promise that—
(a) the rate or amount of the benefit payable in respect of a deceased member will be a particular proportion of the rate or amount of the benefit which was (or would have been) payable to the member, or
(b) the amount of a lump sum payable to a member, or in respect of a deceased member, will represent a particular proportion of the available amount.” .—(Steve Webb.)
This is to be added to Part 4 of the Bill. The definitions are intended to govern the interpretation of the new clauses about independent advice, drawdown and lump sums (also to be added to Part 4). The definitions are also applied by some of the amendments to other legislation.
Brought up, read the First and Second time, and added to the Bill.
New Clause 33
Interpretation of Part 4
UK definitions
‘(1) In this Part— In any provision of this Part as it extends to England and Wales and Scotland— In any provision of this Part as it extends to Northern Ireland—
“cash balance benefit” has the meaning given by section (Meaning of “cash balance benefit”);
“dependants’ drawdown pension”, in relation to a member, has the meaning given by paragraph 18 of Schedule 28 to the Finance Act 2004;
“drawdown pension”, in relation to a survivor, has the meaning given by paragraph 4 of Schedule 28 to the Finance Act 2004;
“flexible benefit” has the meaning given by section (Meaning of “flexible benefit”);
“normal pension age”, in relation to a benefit for a member of a pension scheme or a survivor of a member, means—
(a) the earliest age at which, or earliest occasion on which, the member or survivor is entitled to receive the benefit without adjustment for taking it early or late (disregarding any special provision as to early payment on the grounds of ill health or otherwise), or
(b) if there is no such age or occasion, normal minimum pension age as defined by section 279(1) of the Finance Act 2004;
“subsisting right”—
(a) in relation to a member of a pension scheme means—
(b) in relation to a survivor of a member of a pension scheme, means any right to future benefits, or entitlement to benefits, which the survivor has under the scheme in respect of the member;
“survivor”, in relation to a member of an occupational pension scheme, means a person who has survived the member and has a right to future benefits, or is entitled to benefits, under the scheme in respect of the member;
“trustees or managers” means—
(a) in relation to a scheme established under a trust, the trustees, and
(b) in relation to any other scheme, the managers.
Great Britain only definitions
“money purchase benefits” has the meaning given by section 181 of the Pension Schemes Act 1993;
“occupational pension scheme” has the meaning given by section 1 of the Pension Schemes Act 1993;
“pension scheme” has the meaning given by section 1(5) of the Pension Schemes Act 1993.
Northern Ireland only definitions
“money purchase benefits” has the meaning given by section 176 of the Pension Schemes (Northern Ireland) Act 1993;
“occupational pension scheme” has the meaning given by section 1 of the Pension Schemes (Northern Ireland) Act 1993;
“pension scheme” has the meaning given by section 1(5) of the Pension Schemes (Northern Ireland) Act 1993.” .—(Steve Webb.)
This is expected to be added to Part 4 of the Bill and is intended to govern the interpretation of the new clauses about independent advice, drawdown and lump sums (which are also expected to be added to Part 4).
Brought up, read the First and Second time, and added to the Bill.
Clause 2
Defined Benefits scheme
Amendment made: 2, page 2, line 2, at end insert “, and
(d) such other requirements as may be specified in regulations are met.” .—(Steve Webb.)
This amendment enables the Secretary of State to make regulations to prescribe additional requirements which must be met in order for a scheme to fall within the defined benefit scheme definition.)
Clause 5
Meanings of “Pensions Promise”
Amendment made: 3, page 3, line 4, at end insert—
‘( ) A promise about the level of retirement income is not to be treated as a pensions promise if—
(a) the promise is conditional on the retirement income coming into payment by a particular date,
(b) the scheme provides for the member to be first given the promise during such period ending on that date as may be specified in regulations, and
(c) the promise is not of a description specified in regulations.”—(Steve Webb.)
Under clause 5 a pensions promise is a promise made at a time before the benefit comes into payment. This amendment makes an exception to that provision.
Clause 7
Interpretation of Part 1
Amendment made: 4, page 4, line 5 at end insert—
““regulations” means regulations made by the Secretary of State;”—(Steve Webb.)
This amendment is consequential on amendment 34. Provision about by whom regulations may be made is now to be dealt with in the relevant Part or clause.
Clause 19
Policy for Dealing with a Deficit or Surplus
Amendments made: 5, page 8, line 29, at end insert—
“() set out matters that the trustees or managers must take into account, or principles they must follow, in formulating the policy;”
The amendment allows regulations which require trustees or managers to have a policy relating to a deficit or surplus to make provision about matters to take into account and principles they must follow.
Amendment 6, page 8, line 36, after “policy” insert “, or any requirements imposed by regulations under section (Power to impose requirements about dealing with a deficit or surplus),”—(Steve Webb.)
This amendment allows regulations to require that the policy on deficits and surpluses explains the possible effect on members of any requirements imposed by regulations made under NC3.)
.
Clause 22
Transfer Value: Policy for Calculating Cash Equivalent of Benefits
Amendments made: 7, page 9, line 24, after “in” insert “the following—
(a) ”
This is one of a group of amendments to ensure the policy on calculating cash equivalents applies in all cases where trustees or managers need to calculate a cash equivalent for the member’s benefits.
Amendment 8, page 9, line 25, leave out “93A(1ZB)” and insert “93A(3)”
This is consequential on NS1, which replaces the provision mentioned in clause 22(2).
Amendment 9, page 9, line 25, at end insert—
“(b) section 101H(1) of that Act;
(c) section 29(2) and (3) of the Welfare Reform and Pensions Act 1999;
(d) any other provision specified in regulations.”
This amendment extends the scope of the policy on calculating cash equivalents to cover cash equivalents calculated for the purposes of provisions about transfers of pension credit rights and pension sharing on divorce and for other purposes specified in regulations.
Amendment 10, page 9, line 26, leave out “The regulations” and insert “Regulations under subsection (1)”
This is consequential on amendment 9.
Amendment 11, page 9, line 29, after “97” insert “or 101I”
This is consequential on amendment 9.
Amendment 12, page 9, line 30, at end insert “or section 30 of the Welfare Reform and Pensions Act 1999 or any other specified requirements”
This is consequential on amendment 9.
Amendment 13, page 9, line 31, at end insert—
“() set out matters that the trustees or managers must take into account, or principles they must follow, in formulating the policy;”—(Steve Webb.)
The amendment allows regulations which require trustees or managers to have a policy on calculating cash equivalents to make provision about matters to take into account and principles they must follow.)
Clause 23
Winding up
Amendments made: 14, page 9, line 34, at end insert—
‘( ) Regulations may make provision about the winding up of a pension scheme under which collective benefits may be provided or part of such a scheme.
( ) The regulations may, in particular, make provision about—
(a) the distribution of assets (including any order of priority);
(b) the operation of the scheme during winding up;
(c) the discharge of liabilities;
(d) excess assets on winding up.”
This confers a broader power to make provision about the winding up of schemes that provide collective benefits or parts of those schemes. Where appropriate, this will enable provision to be made that is neither corresponding nor similar to the provisions currently listed in clause 23.
Amendment 15, page 9, line 35, at the beginning insert “The”
This is consequential on amendment 14.
Amendment 16, page 9, line 35, after “may” insert “, in particular”
This is consequential on amendment 14.
Amendment 17, page 9, line 36, leave out “modify” and insert “amend or otherwise modify”
This allows the provisions listed in clause 23 to be amended.
Amendment 18, page 9, line 36, after “sections” insert “38,”
This adds to the list of winding up provisions that may be disapplied or modified etc under clause 23.
Amendment 19, page 9, line 36, leave out “and 74” and insert “, 74 and 76”
This adds to the list of winding up provisions that may be disapplied or modified etc under clause 23.
Amendment 20, page 9, line 37, leave out “in relation to collective benefits”
This amendment and amendment 21 broaden the power to make provision about winding up. In a case where a scheme contains a mixture of benefits, it might be necessary to make provision about the non-collective benefits as well as the collective benefits.
Amendment 21, page 9, line 39, leave out “in relation to collective benefits”—(Steve Webb.)
See Member’s explanatory statement for amendment 20.
Clause 24
Requirements to Obtain Actuarial Advice
Amendment made: 22, page 10, line 5, leave out “required by regulations under this Part”—(Steve Webb.)
This amendment extends the power to specify when trustees and managers must seek actuarial advice so that it can relate to decisions and actions that are beyond the scope of regulations made under Part 2 of the Bill.
Clause 29
Interpretation of Part 2
Amendments made: 23, page 10, line 34, at end insert—
““deficit”, in respect of a collective benefit, has the meaning given by section19 (but this definition does not apply in section20, which contains its own definition);”
This amendment inserts a definition of “deficit” into clause 29, and gives it the same meaning as the definition included in clause 19.
Amendment 24, page 10, line 38, at end insert—
““regulations” means regulations made by the Secretary of State;”
See Member’s explanatory statement for amendment 4.
Amendment 25, page 11, line, at end insert—
““surplus”, in respect of a collective benefit, has the meaning given by section19;”—(Steve Webb.)
This amendment inserts a definition of “surplus” into clause 29, and gives it the same meaning as the definition included in clause 19.
Clause 30
Pensions promise obtained from third party
Amendment made: 26, page 11, line 17, leave out “Regulations may” and insert “The Secretary of State may by regulations” .—(Steve Webb.)
See Member’s explanatory statement for amendment 4.
Clause 31
Duty to act in the best interests of members
Amendment made: 27, page 11, line 40, leave out “Regulations may” and insert “The Secretary of State may by regulations” .—(Steve Webb.)
See Member’s explanatory statement for amendment 4
Page 14
Amendments made: 28, page 14, line 26 leave out Clause 35
Clause 35 and Schedule 2 are superseded by NC24 and NS1.
Amendment 29, page 14, line 28,leave out Clause 36.—(Steve Webb.)
This amendment removes clause 36. For the replacement provision imposing restrictions on transfers out of public service defined benefits schemes in Great Britain, see NC25
Clause 43
Pensions guidance
Amendment made: 30, page 17, line 32, leave out “cash balance benefits or other money purchase” and insert “flexible”.—(Steve Webb.)
This amendment is consequential on amendment 56
Clause 45
Pension Scheme for Fee-paid Judges
Amendment made: 31, page 18, line 24, at end insert—
‘( ) The power under section 18(5) of the Public Service Pensions Act 2013 is to include power to provide for exceptions in the case of a person who—
(a) served as a fee-paid judge before 1 April 2012, and
(b) has been notified by the appropriate Minister that he or she will potentially be eligible for benefits under a scheme under this section in relation to that service,
(and section 18(6) to (8) of the 2013 Act apply accordingly).
( ) The power under section 18(5) of the Public Service Pensions Act (Northern Ireland) 2014 is to include power to provide for exceptions in the case of a person who—
(a) served as a fee-paid judge before 1 April 2012, and
(b) has been notified by the appropriate Minister that he or she will potentially be eligible for benefits under a scheme under this section in relation to that service,
(and section 18(7) to (9) of the 2014 Act apply accordingly).”—(Steve Webb.)
Among other things this amendment would allow regulations to be made ensuring that fee-paid judges who are subsequently appointed to the salaried judiciary are extended the same transitional protection rights as members moving between existing public service pension schemes.
Amendment made: 32, page 19, line 37, leave out clause 49—(Steve Webb.)
The purpose behind this amendment and amendments 43, 47, 51, 52, 53, 54 and 55 is to move the text of clause 49 into Schedule 3 to the Bill. This is desirable because of structural changes made to the Bill as amended in Public Bill Committee.
Clause 50
Power to make consequential amendments
Amendment made: 33, page 20, line 21, after “State” insert “or the Treasury”.—(Steve Webb.)
This gives the Treasury power to make consequential amendments etc under clause 50.
Clause 51
Regulations
Amendments made: 34, page 20, line 30, leave out subsection (1)
See Member’s explanatory statement for amendment 4.
Amendment 35, page 20, line 32, after “Regulations” insert “made by the Secretary of State or the Treasury”
This amendment is consequential upon amendment 33.
Amendment 36, page 20, line 32, at end insert—
‘( ) A power of the Department for Social Development in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”
This amendment is consequential on the new clauses to do with independent advice and drawdown.
Amendment 37, page 20, line 40, at end insert—
‘( ) Regulations made by the Department for Social Development in Northern Ireland under this Act are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).”.—(Steve Webb.)
This amendment is consequential on the new clauses to do with independent advice and drawdown.
Clause 52
Crown application
Amendment made: 38, page 21, line 7, at end insert—
“() section31,”
This amendment ensures that clause 31 applies to schemes managed by or on behalf of the Crown.
Amendment made: 39, page 21, line 7, at end insert—
“() section (Independent advice in respect of conversions and transfers: Great Britain),
() section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain)),
() section (Independent advice in respect of conversions and transfers: Northern Ireland),
() section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland)),
“() section (Sums or assets that may be designated as available for drawdown: Great Britain),
() section (Provision about conversion of certain benefits for drawdown: Great Britain),
() section (Provision about calculation of lump sums: Great Britain),
() section (Sums or assets that may be designated as available for drawdown: Northern Ireland),
() section (Provision about conversion of certain benefits for drawdown: Northern Ireland), and
() section (Provision about calculation of lump sums: Northern Ireland).”.—(Steve Webb.)
This amendment ensures that the provisions listed in the amendment apply to schemes managed by or on behalf of the Crown.
Clause 53
Extent
Amendments made: 40, page 21, line 24, leave out subsection (4) and insert—
‘( ) The following extend also to Northern Ireland—
(a) section (Independent advice: income tax exemption)(3);
(b) section (Meaning of “flexible benefit”);
(c) section (Meaning of “cash balance benefit”);
(d) section (Interpretation of Part 4);
(e) this Part.”
This amendment ensures that the provisions listed have UK extent. It also replicates the effect of the subsection left out by the amendment, whilst taking account of the changes described in the Member’s explanatory statement for amendment 32.
Amendment 41, page 21, line 24, at end insert—
‘( ) The following extend to Northern Ireland only—
(a) section (Independent advice in respect of conversions and transfers: Northern Ireland);
(b) section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland));
(c) section (Sums or assets that may be designated as available for drawdown: Northern Ireland);
(d) section (Provision about conversion of certain benefits for drawdown: Northern Ireland);
(e) section (Provision about calculation of lump sums: Northern Ireland);
(f) section (Restriction on transfers out of public service defined benefits schemes: Northern Ireland)(8) and (9).”.—(Steve Webb.)
This amendment provides for the provisions listed in the amendment to extend to Northern Ireland only.
Clause 54
Commencement
Amendments made: 42, page 21, line 26, at end insert—
“() section43;
() section (Independent advice: income tax exemption);
() section (Provision about conversion of certain benefits for drawdown: Great Britain);
() section (Provision about calculation of lump sums: Great Britain);
() section (Provision about conversion of certain benefits for drawdown: Northern Ireland);
() section (Provision about calculation of lump sums: Northern Ireland);
() section (Rights to transfer benefits);
“() section (Reduction of cash equivalents: funded public service defined benefits schemes: Great Britain)(1) and (4);
() section (Public service defined benefits schemes: consequential amendments: Great Britain);
() section (Reduction of cash equivalents: funded public service defined benefits schemes: Northern Ireland)(1) and (4);
() section (Public service defined benefits schemes: consequential amendments: Northern Ireland);
() section (Meaning of “flexible benefit”);
() section (Meaning of “cash balance benefit”);
() section (Interpretation of Part 4);
() Schedule4;
() Schedule (Rights to transfer benefits);”
This amendment provides the provisions listed in the amendment to come into force on Royal Assent. The Bill currently provides for clause 43 and Schedule 4 (which are about the giving of pensions guidance) to be brought into force by regulations.
Amendment 44, page 21, line 29, at end insert—
‘( ) The following come into force on 6 April 2015—
(a) section (Independent advice in respect of conversions and transfers: Great Britain);
(b) section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain));
(c) section (Independent advice: consequential amendments - Great Britain);
(d) section (Independent advice in respect of conversions and transfers: Northern Ireland);
(e) section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland));
(f) section (Independent advice: consequential amendments - Northern Ireland);
(g) section (Sums or assets that may be designated as available for drawdown: Great Britain);
(h) section (Restrictions on conversion of benefits during winding up etc: Great Britain);
(i) section (Restriction on payment of lump sums during PPF assessment period: Great Britain);
(j) section (Sums or assets that may be designated as available for drawdown: Northern Ireland);
(k) section (Restrictions on conversion of benefits during winding up etc: Northern Ireland);
(l) section (Restriction on payment of lump sums during PPF assessment period: Northern Ireland);
(m) section (Restriction on transfers out of public service defined benefits schemes: Great Britain);
(n) section (Reduction of cash equivalents: funded public service defined benefits schemes: Great Britain)(2) and (3);
(o) section (Restriction on transfers out of public service defined benefits schemes: Northern Ireland);
(p) section (Reduction of cash equivalents: funded public service defined benefits schemes: Northern Ireland)(2) and (3).”
This amendment provides for the provisions listed in the amendment to come into force on 6 April 2015.
Amendment 45, page 21, line 31, after “regulations” insert “made by the Secretary of State”
See Member’s explanatory statement for amendment 4.
Amendment 46, page 21, line 32, leave out “4” and insert “3”
This amendment is consequential on amendment 42.
Amendment 48, page 21, line 36, leave out “Regulations may” and insert “The Secretary of State or the Department for Social Development in Northern Ireland may by regulations” .—(Steve Webb.)
See Member’s explanatory statement for amendment 4.
New Schedule 1
Rights to Transfer Benefits
Part 1
Great Britain amendments
Pension Schemes Act 1993 (c. 48)
1 The Pension Schemes Act 1993 is amended as follows.
2 (1) Chapters 4 and 5 of Part 4 of the Act become Chapters 1 and 2 of a new Part 4ZA.
(2) Accordingly—
(a) before section 93 (and before the Chapter heading above it) insert—
“Part 4ZA
Transfers and contribution refunds”;
(b) for the Chapter heading above section 93 substitute—
“Chapter 1
Transfer rights: general”;
(c) for the Chapter heading above section 101AA substitute—
“Chapter 2
Early leavers: cash transfer sums and contribution refunds”.
3 Until the coming into force of its repeal by Schedule 13 to the Pensions Act 2014, section 56 of the Pension Schemes Act 1993 (payment of state scheme premiums on termination of certified status: supplementary) has effect as if, in subsection (4)(b), for “Chapter 5 of Part 4” there were substituted “Chapter 2 of Part 4ZA”.
4 In section 73 (form of short service benefit and its alternatives), in subsection (3), for “Chapter IV of this Part” substitute “Chapter 1 of Part 4ZA”.
5 For sections 93 to 94 substitute—
“93 Scope of Chapter 1
(1) This Chapter applies to a member of a pension scheme if all of the following conditions are met.
(2) Condition 1 is that the member has accrued rights to any category of benefits under the scheme rules.
(3) Condition 2 is that no crystallisation event has occurred in relation to the member’s accrued rights to benefits in that category (see subsection (7)).
(4) Condition 3 is that—
(a) the member is no longer accruing rights to benefits in that category (see subsection (8)), and
(b) in the case of benefits that are not flexible benefits, the member stopped accruing those rights at least one year before normal pension age.
(5) But this Chapter does not apply to—
(a) a member of a salary related occupational pension scheme whose pensionable service terminated before 1 January 1986 and in respect of whom prescribed requirements are satisfied;
(b) a member of a personal pension scheme which is comprised in an annuity contract made before 4 January 1988.
(6) In this Chapter a reference to a “category” of benefits is to one of the following three categories—
(a) money purchase benefits;
(b) flexible benefits other than money purchase benefits;
(c) benefits that are not flexible benefits.
(7) For the purposes of Condition 2 a crystallisation event occurs in relation to a member’s accrued rights to benefits in a category when—
(a) payment of a pension in respect of any of the benefits has begun,
(b) in the case of money purchase benefits, sums or assets held for the purpose of providing any of the benefits are designated as available for the payment of drawdown pension (as defined by paragraph 4 of Schedule 28 to the Finance Act 2004), or
(c) in the case of a personal pension scheme, sums or assets held for the purpose of providing any of the benefits are applied for purchasing an annuity or insurance policy.
(8) For the purposes of Condition 3 a member stops accruing rights to a category of benefits when there are no longer arrangements in place for the accrual of rights to benefits in that category for or in respect of the member.
(9) In this section a reference to accrued rights does not include pension credit rights.
(10) Regulations may—
(a) provide for this Chapter not to apply in relation to a person of a prescribed description;
(b) modify the application of this Chapter in relation to a member who has accrued rights to benefits of a prescribed description.
(11) In the following provisions of this Chapter—
(a) a reference to a “member” of a pension scheme is a reference to a member to whom this Chapter applies, and
(b) a reference to a member’s “transferrable rights” are to any rights in relation to a category of benefits by virtue of which this Chapter applies to the member.
93A Right to statement of entitlement: benefits other than money purchase
‘(1) The trustees or managers of a pension scheme must, on the application of any member, provide the member with a statement of entitlement in respect of the member’s transferrable rights in relation to categories of benefits other than money purchase benefits.
(2) In the case of a member with transferrable rights in relation to two categories of benefits other than money purchase benefits, the application may relate to transferrable rights in relation to either or both of those categories.
(3) For the purposes of this Chapter a member’s “statement of entitlement” is a written statement of the amount of the cash equivalent at the guarantee date of the transferrable rights to which the application under subsection (1) relates.
(4) In this Chapter “the guarantee date” means the date by reference to which the value of the cash equivalent is calculated, and must be—
(a) within the prescribed period beginning with the date of the application, and
(b) within the prescribed period ending with the date on which the statement of entitlement is provided to the member.
(5) Regulations may make provision in relation to applications under this section and may, in particular, restrict the making of successive applications.
(6) If the trustees or managers of a pension scheme fail to comply with subsection (1), section 10 of the Pensions Act 1995 (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
“94 Right to cash equivalent
(1) A member of a pension scheme who has received a statement of entitlement under section 93A acquires a right to take the cash equivalent shown in that statement in accordance with this Chapter.
(2) A member of a pension scheme who has transferrable rights in relation to money purchase benefits acquires a right to take their cash equivalent in accordance with this Chapter.”
6 (1) Section 95 (ways of taking right to cash equivalent) is amended as follows.
(2) For subsection (1) substitute—
“(1) A member of a pension scheme who has acquired a right to take a cash equivalent in accordance with this Chapter may only take it by making an application in writing to the trustees or managers of the scheme requiring them to use the cash equivalent in one of the ways specified below.
(1A) In the case of a right acquired under section 94(1), the application must be made—
(a) within the period of 3 months beginning with the guarantee date shown in the relevant statement of entitlement, and
(b) if the cash equivalent relates to benefits that are not flexible benefits, by no later than the date that falls one year before the member attains normal pension age.”
(3) In subsections (2)(a)(i) and (b)(i) and (3)(a)(i) and (b)(i), for “accrued rights” substitute “transferrable rights”.
(4) Omit subsections (7) and (8).
7 (1) Section 96 (further provisions concerning exercise of option under section 95) is amended as follows.
(2) For subsection (1) substitute—
“(1) A member who has acquired a right to take a cash equivalent under section 94(1) or (2) may exercise the option conferred by section 95(1) in relation to different portions of that cash equivalent in different ways, but a member who exercises that option must do so—
(a) in relation to the whole of that cash equivalent, or
(b) if subsection (2) applies, in relation to the whole of the balance mentioned in subsection (3).”
(3) For subsection (4) substitute—
“(4) Where a member of a pension scheme—
(a) is entitled to make an application under section 95(1) in relation to any category of benefits, and
(b) is also entitled to give a transfer notice under section 101F(1) to the trustees or managers of the scheme in relation to benefits in the same category (or would be entitled to do so but for section 101G(2)),
the member may not, if the scheme so provides, make an application under section 95(1) in relation to that category of benefits without also giving a transfer notice under section 101F(1) in relation to that category of benefits.”
8 (1) Section 97 (calculation of cash equivalents) is amended as follows.
(2) After subsection (1) insert—
“(1A) Where a member applies under section 95 to take a cash equivalent that relates to money purchase benefits, the cash equivalent is to be calculated by reference to the date of the application.”
(3) In subsection (2)—
(a) in the opening words, for “except guaranteed cash equivalents” substitute “that relate to money purchase benefits”;
(b) in paragraph (aa), for “, including a guaranteed cash equivalent,” substitute “that relates to any category of benefits”.
(4) In subsection (3), omit paragraph (a).
(5) For subsection (3A) substitute—
“(3A) For the purposes of subsection (3), the “appropriate date”—
(a) in relation to a cash equivalent that relates to benefits other than money purchase benefits, means the guarantee date for the purposes of the relevant statement of entitlement under section 93A, and
(b) in relation to a cash equivalent that relates to money purchase benefits, means the date on which the trustees or managers receive an application from the member under section 95.”
9 For section 98 substitute—
“98 Loss of right to cash equivalent
(1) A member of a pension scheme who acquires the right to take a cash equivalent under section 94(1) loses that right if no application to take the cash equivalent is made within the period specified in section 95(1A) (but this does not prevent the member later acquiring a new right to take a cash equivalent under section 94(1) in relation to the same benefits).
(2) A member of a pension scheme loses the right to take a cash equivalent in accordance with this Chapter if the scheme is wound up.”
10 (1) Section 99 (trustees’ duties after exercise of option) is amended as follows.
(2) For subsection (2) substitute—
“(2) Subject to the following provisions of this section, if the trustees or managers of a scheme receive an application under section 95 they must do what is needed to carry out what the member requires—
(a) in the case of an application that relates to benefits other than money purchase benefits, within 6 months beginning with the guarantee date shown in the relevant statement of entitlement, and
(b) in the case of an application that relates to money purchase benefits, within 6 months beginning with the date of the application.”
(3) In subsection (3)(a) omit “at any time before the expiry of the 12 months beginning with the termination date”.
(4) Omit subsection (3A).
11 After section 100 insert—
“100A Prohibition on excluding future accruals etc
Except as mentioned in sections 96(4) and 101G(4), a pension scheme may not contain rules that would have the effect of—
(a) preventing a member from exercising a right under this Chapter in relation to a category of benefits without also exercising a right under this Chapter or otherwise to require a transfer payment to be made in respect of another category of benefits, or
(b) preventing a member who exercises a right under this Chapter in relation to a category of benefits from accruing rights to benefits in another category.
100B Meaning of “scheme rules”: occupational pension schemes
‘(1) In this Chapter references to the scheme rules, in relation to an occupational pension scheme, are references to— For the purposes of subsection (1)—
(a) the rules of the scheme, except so far as overridden by a relevant legislative provision,
(b) the relevant legislative provisions, to the extent that they have effect in relation to the scheme and are not reflected in the rules of the scheme, and
(c) any provision which the rules of the scheme do not contain but which the scheme must contain if it is to conform with the requirements of Chapter 1 of Part 4 of this Act.
(d) “relevant legislative provision” means any provision contained in any of the following provisions—
(i) Schedule 5 to the Social Security Act 1989;
(ii) this Part or Chapters 2 or 3 of Part 4 or regulations made under this Part or either of those Chapters;
(iii) Part 4A of this Act or regulations made under that Part;
(iv) section 110(1) of this Act;
(v) Part 1 of the Pensions Act 1995 or subordinate legislation made or having effect as if made under that Part;
(vi) section 31 of the Welfare Reform and Pensions Act 1999;
(vii) any provision mentioned in section 306(2) of the Pensions Act 2004;
(viii) regulations made under Schedule 17 to the Pensions Act 2014;
(ix) regulations made under Schedule 18 to the Pensions Act 2014;
(x) regulations made under Part 2 of the Pension Schemes Act 2014;
(e) a relevant legislative provision is to be taken to override any of the provisions of the scheme if, and only if, it does so by virtue of any of the following provisions—
(i) paragraph 3 of Schedule 5 to the Social Security Act 1989;
(ii) section 129(1) of this Act;
(iii) section 117(1) of the Pensions Act 1995;
(iv) section 31(4) of the Welfare Reform and Pensions Act 1999;
(v) section 306(1) of the Pensions Act 2004;
(vi) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;
(vii) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;
(viii) regulations made under section28 of the Pension Schemes Act 2014.
100C Meaning of “normal pension age” in this Chapter
‘(1) In this Chapter “normal pension age”, in relation to a category of benefits under a pension scheme, means—
(a) in a case where the scheme is an occupational pension scheme and those benefits consist only of a guaranteed minimum pension, the earliest age at which the member is entitled to receive the guaranteed minimum pension on retirement from any employment to which the scheme applies,
(b) in a case where the scheme is an occupational pension scheme and the scheme provides for the member to become entitled to receive any of those benefits at a particular age on retirement from any employment to which the scheme applies, the earliest age at which the member becomes entitled to receive any of the benefits, and
(c) in any other case, normal minimum pension age as defined by section 279(1) of the Finance Act 2004.
(2) For the purposes of subsection (1) any scheme rule making special provision as to early retirement on grounds of ill-health or otherwise is to be disregarded.
100D Interpretation of Chapter
In this Chapter—
“accrued rights”, in relation to a member of a pension scheme, means rights that have accrued to or in respect of the member to benefits under the scheme;
“category”, in relation to benefits, has the meaning given by section 93(6);
“flexible benefit” has the meaning given by section (Meaning of “flexible benefit”) of the Pension Schemes Act 2014;
“guarantee date”, in relation to a member who has received a statement of entitlement, has the meaning given by section 93A;
“member” is to be read in accordance with section 93(11);
“normal pension age” has the meaning given by section 100C;
“pension credit rights”, in relation to a member of a pension scheme, means rights to benefits under the scheme which are attributable (directly or indirectly) to a pension credit;
“salary related occupational pension scheme”: an occupational pension scheme is “salary related” if—
(a) the scheme is not a scheme under which all the benefits that may be provided are money purchase benefits, and
(b) the scheme does not fall within a prescribed class;
“scheme rules”, in relation to an occupational pension scheme, has the meaning given by section 100B;
“statement of entitlement” has the meaning given by section 93A;
“transferrable rights” is to be read in accordance with section 93(11).””
12 (1) In section 101F (power to give transfer notice) is amended as follows.
(2) In subsection (1), for “pension credit benefit” substitute “pension credit rights”.
(3) After subsection (3) insert—
“(3A) An eligible member who has pension credit rights in relation to more than one category of benefits under the scheme may exercise the power to give a transfer notice in relation to the pension credit rights in relation to any one or more of those categories.”
(4) For subsection (4) substitute—
“(4) The cash equivalent for the purposes of subsection (1) shall—
(a) in a case where the pension credit rights relate to a category of benefits other than money purchase benefits, be taken to be the amount shown in the relevant statement under section 101H, and
(b) in a case where the pension credit rights relate to money purchase benefits, be determined by reference to the date the notice under that subsection is given.”
(5) For subsection (6A) substitute—
“(6A) Regulations may—
(a) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;
(b) modify the application of this Chapter in relation to a member who has accrued rights to benefits of a prescribed description.
(6B) In this Chapter a reference to a “category” of benefits is to one of the following three categories—
(a) money purchase benefits;
(b) flexible benefits other than money purchase benefits;
(c) benefits that are not flexible benefits.”
13 For section 101G (restrictions on power to give transfer notice) substitute—
“101G Restrictions on power to give transfer notice
(1) An eligible member may not give a transfer notice in relation to a category of benefits if a crystallisation event has occurred in relation to any of the member’s pension credit rights to benefits in that category.
(2) An eligible member may give a transfer notice in relation to a category of benefits other than money purchase benefits only if—
(a) the member has been provided with a statement under section 101H in relation to benefits in that category, and
(b) not more than 3 months have passed since the date by reference to which the amount shown in the statement is determined.
(3) An eligible member may not give a transfer notice in relation to benefits other than flexible benefits if there is less than one year to go until the member reaches normal benefit age.
(4) Where an eligible member of a qualifying scheme—
(a) is entitled to give a transfer notice in relation to any category of benefits, and
(b) is also entitled to make an application to the trustees or managers of the scheme under section 95(1) in relation to benefits in the same category (or would be entitled to do so but for section 95(1A)(a)),
the member may not, if the scheme so provides, give a transfer notice in relation to that category of benefits without also making an application under section 95(1) in relation to that category of benefits.
(5) A transfer notice may not be given if a previous transfer notice given by the member to the trustees or managers of the scheme is outstanding.
(6) For the purposes of subsection (1) a crystallisation event occurs in relation to a member’s pension credit rights to benefits in a category when—
(a) payment of a pension in respect of any of the benefits has begun,
(b) in the case of money purchase benefits, sums or assets held for the purpose of providing any of the benefits are designated as available for the payment of drawdown pension (as defined by paragraph 4 of Schedule 28 to the Finance Act 2004), or
(c) in the case of a personal pension scheme, sums or assets held for the purpose of providing any of the benefits are applied for purchasing an annuity or insurance policy.”
14 (1) Section 101H (salary related schemes: statements of entitlement) is amended as follows.
(2) For subsection (1) substitute—
“(1) The trustees or managers of a qualifying scheme must, on the application of an eligible member, provide the member with a written statement of the amount of the cash equivalent of the member’s pension credit rights in relation to categories of benefits other than money purchase benefits.
(1A) In the case of a member with pension credit rights in relation to two categories of benefits other than money purchase benefits, the application may relate to pension credit rights in relation to either or both of those categories.”
(3) In the heading for “Salary related schemes” substitute “Benefits other than money purchase”.
15 (1) Section 101J (time for compliance with transfer notice) is amended as follows.
(2) In subsection (1), for paragraphs (a) and (b) substitute—
“(a) in the case of an application that relates to benefits other than money purchase benefits, within 6 months beginning with the valuation date, and
(b) in the case of an application that relates to money purchase benefits, within 6 months of the date on which the notice is given.”
(3) For subsection (7) substitute—
“(7) In subsection (1)(a), “valuation date” means the date by reference to which the amount shown in the relevant statement under section 101H is determined.”
16 After section 101N insert—
“101NA Prohibition on excluding transfers of some rights without others etc
Except as mentioned in sections 96(4) and 101G(4), a pension scheme may not contain rules that would have the effect of—
(a) preventing a member from exercising a right under this Chapter in relation to a category of benefits without also exercising a right under this Chapter or otherwise to require a transfer payment to be made in respect of another category of benefits, or
(b) preventing a member who exercises a right under this Chapter in relation to a category of benefits from accruing rights to benefits in another category.”
17 (1) Section 101P (interpretation) is amended as follows.
(2) In subsection (1), at the appropriate places insert—
““category”, in relation to benefits, has the meaning given by section 101F(6B);”
““flexible benefit” has the meaning given by section (Meaning of “flexible benefit”) of the Pension Schemes Act 2014;”.
(3) Omit subsection (2).
(4) In subsection (3), for “given to the trustees or managers of a salary related occupational pension scheme” substitute “in relation to benefits other than money purchase benefits”.”
18 Omit section 101Q.
19 In section 129 (overriding requirements) for “Chapters II, III, IV and V of Part IV” substitute “Chapters 2 and 3 of Part 4, Chapters 1 and 2 of Part 4ZA”.
20 In section 130 (extra-statutory benefits), in paragraph (b), for “Chapter II, IV or V of Part IV” substitute “Chapter 2 of Part 4 or Chapter 1 or 2 Part 4ZA”.
21 In section 153 (power to modify certain provisions), in subsection (1), for “Chapters II, III and IV of Part IV” substitute “Chapters 2 and 3 of Part 4 and Chapter 1 of Part 4ZA”.
22 In section 179 (linked qualifying service), in subsection (1)(a)—
(a) in the opening words, for “Chapter 4 or 5 of Part 4” substitute “Chapter 1 or 2 of Part 4ZA”;
(b) in sub-paragraph (iii)—
(i) for “Chapter 4 of Part 4” substitute “Chapter 1 of Part 4ZA”;
(ii) for “Chapter 5” substitute “Chapter 2”.
23 In section 181 (interpretation), in subsection (1), in paragraph (b) of the definition of “transfer credits”, for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
Pensions Act 1995 (c. 26)
24 The Pensions Act 1995 is amended as follows.
25 In section 67A (the subsisting rights provisions: interpretation), in subsection (9)(a), for sub-paragraph (ii) substitute—
(ii) Chapter 2 or 3 of Part 4 of the Pension Schemes Act 1993 (certain protection for early leavers) or regulations made under either of those Chapters;
(iia) Chapter 1 or 2 of Part 4ZA of that Act (transfers and contribution refunds) or regulations made under either of those Chapters;”.
26 In section 73 (preferential liabilities on winding up), in subsection (9), for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
27 In section 73B (sections 73 and 73A: supplementary), in subsection (7), for “Chapter 4 of Part 4” substitute “Chapter 1 of Part 4ZA”.
Learning and Skills Act 2000 (c. 21)
28 In section 135 (pensions: interpretation), in subsection (4), for “section 93(1A)” substitute “section 100D”.
Pensions Act 2004 (c. 35)
29 The Pensions Act 2004 is amended as follows.
30 (1) Section 18 (pension liberation: interpretation) is amended as follows.
(2) In subsection (2)(a)—
(a) after “accrued rights” insert “or an entitlement”;
(b) in sub-paragraph (ii), for “the applicable rules” substitute “the scheme rules”.
(3) In subsection (3)—
(a) for paragraph (a) substitute—
“(a) section 94 of the Pension Schemes Act 1993 (right to cash equivalent under Chapter 1 of Part 4ZA of that Act)”;
(b) in paragraph (b), for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
(4) In subsection (4)(d), for “the applicable rules” substitute “the scheme rules”.
(5) Omit subsection (5).
31 In section 23 (freezing orders), in subsection (4)(g), for “salary related schemes” substitute “benefits other than money purchase”.
32 In section 24 (consequences of freezing order), in subsection (7), for paragraphs (a) and (b) substitute—
“(a) Chapter 1 of Part 4ZA of the Pension Schemes Act 1993 (transfer rights: general), or
(b) Chapter 2 of that Part (early leavers: cash transfer sums and contribution refunds).”
33 In section 73 (inspection of premises), in subsection (2)(d)—
(a) for “Chapter 4 of Part 4” substitute “Chapter 1 of Part 4ZA”;
(b) for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
34 In section 135 (restrictions on winding up, discharge of liabilities etc), in subsection (6)(b), for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
35 In section 138 (payment of scheme benefits), in subsection (3)(b), for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
36 In section 318 (interpretation), in subsection (3)(a), for sub-paragraph (ii) substitute—
(ii) Chapter 2 or 3 of Part 4 of the Pension Schemes Act 1993 (certain protection for early leavers) or regulations made under either of those Chapters;
(iia) Chapter 1 or 2 of Part 4ZA of that Act (transfers and contribution refunds) or regulations made under either of those Chapters;”.
37 (1) Schedule 7 (pension compensation provisions) is amended as follows.
(2) In paragraph 20(1)(c), for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
(3) In paragraph 32(1)(b), for “Chapter 5 of Part 4” substitute “Chapter 2 of Part 4ZA”.
Pensions Act 2014 (c. 19)
38 The Pensions Act 2014 is amended as follows.
39 In section 34 (power to prohibit offer of incentives to transfer pension rights), in subsection (7), in the definition of “salary related occupational pension scheme”, for “section 93(1A)” substitute “section 100D”.
40 In Schedule 17 (automatic transfer of pension benefits etc), in paragraph 1—
(a) in sub-paragraph (4)(d) for “applicable rules” substitute “scheme rules”;
(b) for sub-paragraph (6) substitute—
“(6) In sub-paragraph (4)—
(a) the reference to “scheme rules” is, in relation to an occupational pension scheme, to be read in accordance with section 100B of the Pension Schemes Act 1993;
(b) “benefits” means—
(i) money purchase benefits other than money purchase benefits of a prescribed description, or
(ii) benefits of a prescribed description.”
Part 2
Northern Ireland amendments
Pension Schemes (Northern Ireland) Act 1993 (c. 49)
41 The Pension Schemes (Northern Ireland) Act 1993 is amended as follows.
42 (1) Chapters 4 and 5 of Part 4 of the Act become Chapters 1 and 2 of a new Part 4ZA.
(2) Accordingly—
(a) before section 89 (and before the Chapter heading above it) insert—
“Part 4ZA
Transfers and contribution refunds”;
(b) for the Chapter heading above section 89 substitute—
“Chapter 1
Transfer rights: general”;
(c) for the Chapter heading above section 97AA substitute—
“Chapter 2
Early leavers: cash transfer sums and contribution refunds”.
43 In section 52 (payment of state scheme premiums on termination of certified status: supplementary), in subsection (4)(b), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
44 In section 69 (form of short service benefit and its alternatives), in subsection (3), for “Chapter IV of this Part” substitute “Chapter 1 of Part 4ZA”.
45 For sections 89 to 90 substitute—
“89 Scope of Chapter 1
(1) This Chapter applies to a member of a pension scheme if all of the following conditions are met.
(2) Condition 1 is that the member has accrued rights to any category of benefits under the scheme rules.
(3) Condition 2 is that no crystallisation event has occurred in relation to the member’s accrued rights to benefits in that category (see subsection (7)).
(4) Condition 3 is that—
(a) the member is no longer accruing rights to benefits in that category (see subsection (8)), and
(b) in the case of benefits that are not flexible benefits, the member stopped accruing those rights at least one year before normal pension age.
(5) But this Chapter does not apply to—
(a) a member of a salary related occupational pension scheme whose pensionable service terminated before 1 January 1986 and in respect of whom prescribed requirements are satisfied;
(b) a member of a personal pension scheme which is comprised in an annuity contract made before 4 January 1988.
(6) In this Chapter a reference to a “category” of benefits is to one of the following three categories—
(a) money purchase benefits;
(b) flexible benefits other than money purchase benefits;
(c) benefits that are not flexible benefits.
(7) For the purposes of Condition 2 a crystallisation event occurs in relation to a member’s accrued rights to benefits in a category when—
(a) payment of a pension in respect of any of the benefits has begun,
(b) in the case of money purchase benefits, sums or assets held for the purpose of providing any of the benefits are designated as available for the payment of drawdown pension (as defined by paragraph 4 of Schedule 28 to the Finance Act 2004), or
(c) in the case of a personal pension scheme, sums or assets held for the purpose of providing any of the benefits are applied for purchasing an annuity or insurance policy.
(8) For the purposes of Condition 3 a member stops accruing rights to a category of benefits when there are no longer arrangements in place for the accrual of rights to benefits in that category for or in respect of the member.
(9) In this section a reference to accrued rights does not include pension credit rights.
(10) Regulations may—
(a) provide for this Chapter not to apply in relation to a person of a prescribed description;
(b) modify the application of this Chapter in relation to a member who has accrued rights to benefits of a prescribed description.
(11) In the following provisions of this Chapter—
(a) a reference to a “member” of a pension scheme is a reference to a member to whom this Chapter applies, and
(b) a reference to a member’s “transferrable rights” are to any rights in relation to a category of benefits by virtue of which this Chapter applies to the member.
89A Right to statement of entitlement: benefits other than money purchase
‘(1) The trustees or managers of a pension scheme must, on the application of any member, provide the member with a statement of entitlement in respect of the member’s transferrable rights in relation to categories of benefits other than money purchase benefits.
(2) In the case of a member with transferrable rights in relation to two categories of benefits other than money purchase benefits, the application may relate to transferrable rights in relation to either or both of those categories.
(3) For the purposes of this Chapter a member’s “statement of entitlement” is a written statement of the amount of the cash equivalent at the guarantee date of the transferrable rights to which the application under subsection (1) relates.
(4) In this Chapter “the guarantee date” means the date by reference to which the value of the cash equivalent is calculated, and must be—
(a) within the prescribed period beginning with the date of the application, and
(b) within the prescribed period ending with the date on which the statement of entitlement is provided to the member.
(5) Regulations may make provision in relation to applications under this section and may, in particular, restrict the making of successive applications.
(6) If the trustees or managers of a pension scheme fail to comply with subsection (1), Article 10 of the Pensions (Northern Ireland) Order 1995 (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
“90 Right to cash equivalent
(1) A member of a pension scheme who has received a statement of entitlement under section 89A acquires a right to take the cash equivalent shown in that statement in accordance with this Chapter.
(2) A member of a pension scheme who has transferrable rights in relation to money purchase benefits acquires a right to take their cash equivalent in accordance with this Chapter.”
46 (1) Section 91 (ways of taking right to cash equivalent) is amended as follows.
(2) For subsection (1) substitute—
“(1) A member of a pension scheme who has acquired a right to take a cash equivalent in accordance with this Chapter may only take it by making an application in writing to the trustees or managers of the scheme requiring them to use the cash equivalent in one of the ways specified below.
(1A) In the case of a right acquired under section 90(1), the application must be made—
(a) within the period of 3 months beginning with the guarantee date shown in the relevant statement of entitlement, and
(b) if the cash equivalent relates to benefits that are not flexible benefits, by no later than the date that falls one year before the member attains normal pension age.”
(3) In subsections (2)(a)(i) and (b)(i) and (3)(a)(i) and (b)(i), for “accrued rights” substitute “transferrable rights”.
(4) Omit subsections (7) and (8).
47 (1) Section 92 (further provisions concerning exercise of option under section 91) is amended as follows.
(2) For subsection (1) substitute—
“(1) A member who has acquired a right to take a cash equivalent under section 90(1) or (2) may exercise the option conferred by section 91(1) in relation to different portions of that cash equivalent in different ways, but a member who exercises that option must do so—
(a) in relation to the whole of that cash equivalent, or
(b) if subsection (2) applies, in relation to the whole of the balance mentioned in subsection (3).”
(3) For subsection (4) substitute—
“(4) Where a member of a pension scheme—
(a) is entitled to make an application under section 91(1) in relation to any category of benefits, and
(b) is also entitled to give a transfer notice under section 97F(1) to the trustees or managers of the scheme in relation to benefits in the same category (or would be entitled to do so but for section 97G(2)),
the member may not, if the scheme so provides, make an application under section 91(1) in relation to that category of benefits without also giving a transfer notice under section 97F(1) in relation to that category of benefits.”
48 (1) Section 93 (calculation of cash equivalents) is amended as follows.
(2) After subsection (1) insert—
“(1A) Where a member applies under section 91 to take a cash equivalent that relates to money purchase benefits, the cash equivalent is to be calculated by reference to the date of the application.”
(3) In subsection (2)—
(a) in the opening words, for “except guaranteed cash equivalents (as defined in section 90(1A)” substitute “that relate to money purchase benefits”;
(b) in paragraph (aa), for “, including a guaranteed cash equivalent,” substitute “that relates to any category of benefits”.
(4) In subsection (3), omit paragraph (a).
(5) For subsection (3A) substitute—
“(3A) For the purposes of subsection (3), the “appropriate date”—
(a) in relation to a cash equivalent that relates to benefits other than money purchase benefits, means the guarantee date for the purposes of the relevant statement of entitlement under section 89A, and
(b) in relation to a cash equivalent that relates to money purchase benefits, means the date on which the trustees or managers receive an application from the member under section 91.”
49 For section 94 substitute—
“94 Loss of right to cash equivalent
(1) A member of a pension scheme who acquires the right to take a cash equivalent under section 90(1) loses that right if no application to take the cash equivalent is made within the period specified in section 91(1A) (but this does not prevent the member later acquiring a new right to take a cash equivalent under section 90(1) in relation to the same benefits).
(2) A member of a pension scheme loses the right to take a cash equivalent in accordance with this Chapter if the scheme is wound up.”
50 (1) Section 95 (trustees’ duties after exercise of option) is amended as follows.
(2) For subsection (2) substitute—
“(2) Subject to the following provisions of this section, if the trustees or managers of a scheme receive an application under section 91 they must do what is needed to carry out what the member requires—
(a) in the case of an application that relates to benefits other than money purchase benefits, within 6 months beginning with the guarantee date shown in the relevant statement of entitlement, and
(b) in the case of an application that relates to money purchase benefits, within 6 months beginning with the date of the application.”
(3) In subsection (3)(a) omit “at any time before the expiry of the 12 months beginning with the termination date”.
(4) Omit subsection (3A).
51 After section 96 insert—
“96AA Prohibition on excluding future accruals etc
Except as mentioned in sections 92(4) and 97G(4), a pension scheme may not contain rules that would have the effect of—
(a) preventing a member from exercising a right under this Chapter in relation to a category of benefits without also exercising a right under this Chapter or otherwise to require a transfer payment to be made in respect of another category of benefits, or
(b) preventing a member who exercises a right under this Chapter in relation to a category of benefits from accruing rights to benefits in another category.
96AB Meaning of “scheme rules”: occupational pension schemes
‘(1) In this Chapter references to the scheme rules, in relation to an occupational pension scheme, are references to— For the purposes of subsection (1)—
(a) the rules of the scheme, except so far as overridden by a relevant legislative provision,
(b) the relevant legislative provisions, to the extent that they have effect in relation to the scheme and are not reflected in the rules of the scheme, and
(c) any provision which the rules of the scheme do not contain but which the scheme must contain if it is to conform with the requirements of Chapter 1 of Part 4.
(d) “relevant legislative provision” means any provision contained in any of the following provisions—
(i) Schedule 5 to the Social Security (Northern Ireland) Order 1989;
(ii) this Part or Chapters 2 or 3 of Part 4 or regulations made under this Part or either of those Chapters;
(iii) Part 4A or regulations made under that Part;
(iv) section 106(1);
(v) Part 2 of the Pensions (Northern Ireland) Order 1995 or orders or regulations made or having effect as if made under that Part;
(vi) Article 28 of the Welfare Reform and Pensions (Northern Ireland) Order 1999;
(vii) any provision mentioned in Article 279(2) of the Pensions (Northern Ireland) Order 2005;
(e) a relevant legislative provision is to be taken to override any of the provisions of the scheme if, and only if, it does so by virtue of any of the following provisions—
(i) paragraph 3 of Schedule 5 to the Social Security (Northern Ireland) Order 1989;
(ii) section 125(1);
(iii) Article 114(1) of the Pensions (Northern Ireland) Order 1995;
(iv) Article 28(4) of the Welfare Reform and Pensions (Northern Ireland) Order 1999;
(v) Article 279(1) of the Pensions (Northern Ireland) Order 2005.
96AC Meaning of “normal pension age” in this Chapter
‘(1) In this Chapter “normal pension age”, in relation to a category of benefits under a pension scheme, means—
(a) in a case where the scheme is an occupational pension scheme and those benefits consist only of a guaranteed minimum pension, the earliest age at which the member is entitled to receive the guaranteed minimum pension on retirement from any employment to which the scheme applies,
(b) in a case where the scheme is an occupational pension scheme and the scheme provides for the member to become entitled to receive any of those benefits at a particular age on retirement from any employment to which the scheme applies, the earliest age at which the member becomes entitled to receive any of the benefits, and
(c) in any other case, normal minimum pension age as defined by section 279(1) of the Finance Act 2004.
(2) For the purposes of subsection (1) any scheme rule making special provision as to early retirement on grounds of ill-health or otherwise is to be disregarded.
96AD Interpretation of Chapter
In this Chapter—
“accrued rights”, in relation to a member of a pension scheme, means rights that have accrued to or in respect of the member to benefits under the scheme;
“category”, in relation to benefits, has the meaning given by section 89(6);
“flexible benefit” has the meaning given by section (Meaning of “flexible benefit”) of the Pension Schemes Act 2014;
“guarantee date”, in relation to a member who has received a statement of entitlement, has the meaning given by section 89A;
“member” is to be read in accordance with section 89(11);
“normal pension age” has the meaning given by section 96C;
“pension credit rights”, in relation to a member of a pension scheme, means rights to benefits under the scheme which are attributable (directly or indirectly) to a pension credit;
“salary related occupational pension scheme”: an occupational pension scheme is “salary related” if—
(a) the scheme is not a scheme under which all the benefits that may be provided are money purchase benefits, and
(b) the scheme does not fall within a prescribed class;
“scheme rules”, in relation to an occupational pension scheme, has the meaning given by section 96B;
“statement of entitlement” has the meaning given by section 89A;
“transferrable rights” is to be read in accordance with section 89(11).””
52 (1) In section 97F (power to give transfer notice) is amended as follows.
(2) In subsection (1), for “pension credit benefit” substitute “pension credit rights”.
(3) After subsection (3) insert—
“(3A) An eligible member who has pension credit rights in relation to more than one category of benefits under the scheme may exercise the power to give a transfer notice in relation to the pension credit rights in relation to any one or more of those categories.”
(4) For subsection (4) substitute—
“(4) The cash equivalent for the purposes of subsection (1) shall—
(a) in a case where the pension credit rights relate to a category of benefits other than money purchase benefits, be taken to be the amount shown in the relevant statement under section 97H, and
(b) in a case where the pension credit rights relate to money purchase benefits, be determined by reference to the date the notice under that subsection is given.”
(5) For subsection (6A) substitute—
“(6A) Regulations may—
(a) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;
(b) modify the application of this Chapter in relation to a member who has accrued rights to benefits of a prescribed description.
(6B) In this Chapter a reference to a “category” of benefits is to one of the following three categories—
(a) money purchase benefits;
(b) flexible benefits other than money purchase benefits;
(c) benefits that are not flexible benefits.”
53 For section 97G (restrictions on power to give transfer notice) substitute—
“97G Restrictions on power to give transfer notice
(1) An eligible member may not give a transfer notice in relation to a category of benefits if a crystallisation event has occurred in relation to any of the member’s pension credit rights to benefits in that category.
(2) An eligible member may give a transfer notice in relation to a category of benefits other than money purchase benefits only if—
(a) the member has been provided with a statement under section 97H in relation to benefits in that category, and
(b) not more than 3 months have passed since the date by reference to which the amount shown in the statement is determined.
(3) An eligible member may not give a transfer notice in relation to benefits other than flexible benefits if there is less than one year to go until the member reaches normal benefit age.
(4) Where an eligible member of a qualifying scheme—
(a) is entitled to give a transfer notice in relation to any category of benefits, and
(b) is also entitled to make an application to the trustees or managers of the scheme under section 91(1) in relation to benefits in the same category (or would be entitled to do so but for section 91(1A)(a)),
the member may not, if the scheme so provides, give a transfer notice in relation to that category of benefits without also making an application under section 91(1) in relation to that category of benefits.
(5) A transfer notice may not be given if a previous transfer notice given by the member to the trustees or managers of the scheme is outstanding.
(6) For the purposes of subsection (1) a crystallisation event occurs in relation to a member’s pension credit rights to benefits in a category when—
(a) payment of a pension in respect of any of the benefits has begun,
(b) in the case of money purchase benefits, sums or assets held for the purpose of providing any of the benefits are designated as available for the payment of drawdown pension (as defined by paragraph 4 of Schedule 28 to the Finance Act 2004), or
(c) in the case of a personal pension scheme, sums or assets held for the purpose of providing any of the benefits are applied for purchasing an annuity or insurance policy.”
54 (1) Section 97H (salary related schemes: statements of entitlement) is amended as follows.
(2) For subsection (1) substitute—
“(1) The trustees or managers of a qualifying scheme must, on the application of an eligible member, provide the member with a written statement of the amount of the cash equivalent of the member’s pension credit rights in relation to categories of benefits other than money purchase benefits.
(1A) In the case of a member with pension credit rights in relation to two categories of benefits other than money purchase benefits, the application may relate to pension credit rights in relation to either or both of those categories.”
(3) In the heading for “Salary related schemes” substitute “Benefits other than money purchase”.
55 (1) Section 97J (time for compliance with transfer notice) is amended as follows.
(2) In subsection (1), for paragraphs (a) and (b) substitute—
“(a) in the case of an application that relates to benefits other than money purchase benefits, within 6 months beginning with the valuation date, and
(b) in the case of an application that relates to money purchase benefits, within 6 months of the date on which the notice is given.”
(3) For subsection (7) substitute—
“(7) In subsection (1)(a), “valuation date” means the date by reference to which the amount shown in the relevant statement under section 97H is determined.”
56 After section 97N insert—
“97NA Prohibition on excluding transfers of some rights without others etc
Except as mentioned in sections 92(4) and 97G(4), a pension scheme may not contain rules that would have the effect of—
(a) preventing a member from exercising a right under this Chapter in relation to a category of benefits without also exercising a right under this Chapter or otherwise to require a transfer payment to be made in respect of another category of benefits, or
(b) preventing a member who exercises a right under this Chapter in relation to a category of benefits from accruing rights to benefits in another category.”
57 (1) Section 97P (interpretation) is amended as follows.
(2) In subsection (1), at the appropriate places insert—
““category”, in relation to benefits, has the meaning given by section 97F(6B);”
““flexible benefit” has the meaning given by section (Meaning of “flexible benefit”) of the Pension Schemes Act 2014;”.
(3) Omit subsection (2).
(4) In subsection (3), for “given to the trustees or managers of a salary related occupational pension scheme” substitute “in relation to benefits other than money purchase benefits”.”
58 Omit section 97Q.
59 In section 125 (overriding requirements) for “Chapters II, III, IV and V of Part IV” substitute “Chapters 2 and 3 of Part 4, Chapters 1 and 2 of Part 4ZA”.
60 In section 126 (extra-statutory benefits), in paragraph (b), for “Chapter II, IV or V of Part IV” substitute “Chapter 2 of Part 4 or Chapter 1 or 2 Part 4ZA”.
61 In section 149 (power to modify certain provisions), in subsection (1), for “Chapters II, III and IV of Part IV” substitute “Chapters 2 and 3 of Part 4 and Chapter 1 of Part 4ZA”.
62 In section 174 (linked qualifying service), in subsection (1)(a)—
(a) in the opening words, for “Chapter 4 or 5 of Part IV” substitute “Chapter 1 or 2 of Part 4ZA”;
(b) in sub-paragraph (iii)—
(i) for “Chapter 4 of Part IV” substitute “Chapter 1 of Part 4ZA”;
(ii) for “Chapter 5” substitute “Chapter 2”.
63 In section 176 (interpretation), in subsection (1), in paragraph (b) of the definition of “transfer credits”, for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22))
64 The Pensions (Northern Ireland) Order 1995 is amended as follows.
65 In Article 67A (the subsisting rights provisions: interpretation), in paragraph (9)(a), for head (ii) substitute—
(ii) Chapter 2 or 3 of Part 4 of the Pension Schemes Act (certain protection for early leavers) or regulations made under either of those Chapters;
(iia) Chapter 1 or 2 of Part 4ZA of that Act (transfers and contribution refunds) or regulations made under either of those Chapters;”.
66 In Article 73 (preferential liabilities on winding up), in paragraph (9), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
67 In Article 73B (Article 73 and 73A: supplementary), in paragraph (7), for “Chapter 4 of Part IV” substitute “Chapter 1 of Part 4ZA”.
Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1))
68 The Pensions (Northern Ireland) Order 2005 is amended as follows.
69 In Article 2 (interpretation), in paragraph (4)(a), for head (ii) substitute—
(ii) Chapter 2 or 3 of Part 4 of the Pension Schemes Act (certain protection for early leavers) or regulations made under either of those Chapters;
(iia) Chapter 1 or 2 of Part 4ZA of that Act (transfers and contribution refunds) or regulations made under either of those Chapters;”.
70 (1) Article 14 (pension liberation: interpretation) is amended as follows.
(2) In paragraph (2)(a)—
(a) after “accrued rights” insert “or an entitlement”;
(b) in head (ii), for “the applicable rules” substitute “the scheme rules”.
(3) In paragraph (3)—
(a) for sub-paragraph (a) substitute—
“(a) section 90 of the Pension Schemes Act (right to cash equivalent under Chapter 1 of Part 4ZA of that Act)”;
(b) in sub-paragraph (b), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
(4) In paragraph (4)(d), for “the applicable rules” substitute “the scheme rules”.
(5) Omit paragraph (5).
71 In Article 19 (freezing orders), in paragraph (4)(g), for “salary related schemes” substitute “benefits other than money purchase”.
72 In Article 20 (consequences of freezing order), in paragraph (7), for sub-paragraphs (a) and (b) substitute—
“(a) Chapter 1 of Part 4ZA of the Pension Schemes Act (transfer rights: general), or
(b) Chapter 2 of that Part (early leavers: cash transfer sums and contribution refunds).”
73 In Article 68 (inspection of premises), in paragraph (2)(d)—
(a) for “Chapter 4 of Part IV” substitute “Chapter 1 of Part 4ZA”;
(b) for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
74 In Article 119 (restrictions on winding up, discharge of liabilities etc.), in paragraph (6)(b), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
75 In Article 122 (payment of scheme benefits), in paragraph (3)(b), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
76 (1) Schedule 6 (pension compensation provisions) is amended as follows.
(2) In paragraph 20(1)(c), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.
(3) In paragraph 32(1)(b), for “Chapter 5 of Part IV” substitute “Chapter 2 of Part 4ZA”.”—(Steve Webb.)
This Schedule amends the transfer provisions, providing rights to transfer specific categories of accrued rights to benefit, where two or more categories are held and accrual of the benefits to be transferred has ceased. It also provides rights to transfer flexible benefits up to and beyond normal retirement age.—
Brought up, read the First Time and Second Time and added to the Bill
Amendment made: 49, page 28, line 4 leave out Schedule 2.—(Steve Webb.)
See Member’s explanatory statement for amendment 28
Schedule 3
Other amendments to do with Parts 1 and 2
Amendment made: 50, page 32, line 10, leave out paragraphs 3 to 5.
The paragraphs left out by this amendment are superseded by NC24 and NS1
Amendments made: 51, page 36, line 2, at end insert—
26A In section 13 (improvement notices), in subsection (7)—
(a) omit the “or” at the end of paragraph (d);
(b) after paragraph (e) insert “, or
(f) the Pension Schemes Act 2014.”
See Member’s explanatory statement for amendment 32.
Amendment 52, page 38, line 14, leave out “In section 90 (codes of practice)” and insert—
‘(1) Section 90 (codes of practice) is amended as follows.
(2) .”
See Member’s explanatory statement for amendment 32.
Amendment 53, page 38, line 15, at end insert—
‘(3) In subsection (6), in the definition of “the pensions legislation”—
(a) omit the “or” at the end of paragraph (c);
(b) after paragraph (d) insert—
“(e) Schedule 18 to the Pensions Act 2014, or
“(f) the Pension Schemes Act 2014.”
See Member’s explanatory statement for amendment 32.
Amendment 54, page 39, line 20, at end insert—
34A In section 254 (representative of non-European scheme to be treated as trustee), in subsection (3)—
(a) omit the “or” at the end of paragraph (c);
(b) after paragraph (d) insert “, or
(e) the Pension Schemes Act 2014.”
See Member’s explanatory statement for amendment 32.
Amendment 55, page 39, line 34, at end insert—
36A In section 291 (duty of trustees or managers to act consistently with law of host member state), in subsection (4)—
(a) omit the “or” at the end of paragraph (c);
(b) after paragraph (d) insert “, or
(e) the Pension Schemes Act 2014.”—(Steve Webb)
See Member’s explanatory statement for amendment 32.
Schedule 4
Pensions Guidance
Amendment made: 56, page 43, line 30, leave out “cash balance benefits or other money purchase” and insert “flexible”
This amendment provides for the definition of “pensions guidance” to reflect the new language of “flexible benefits” introduced by amendment NC31.—(Steve Webb.)
Amendment 57, page 43, leave out lines 33 to 36 and insert—
““flexible benefit” has the meaning given by section (Meaning of “flexible benefit”) of the Pension Schemes Act 2014;”
This amendment provides that “flexible benefit” in Part 20A of the Financial Services and Markets Act 2000 will have the same meaning as in the Bill - see NC31.
Amendment 58, page 43, line 38, leave out “150(1) of the Finance Act 2004” and insert “1(5) of the Pension Schemes Act 1993”
This amendment is consequential on amendments 56 and 57.
Amendment 59, page 45, leave out lines 1 and 2
This amendment removes subsection (3) of new section 333D of the Financial Services and Markets Act 2000. It is not needed as a matter of law (silence produces the same result).
Amendment 60, page 45, line 30, at end insert—
“Co-operation and information sharing
333EA Co-operation and information sharing
‘(1) The following must co-operate with one another in matters relating to the giving of pensions guidance—
(a) each designated guidance provider;
(b) the Treasury.
(2) Designated guidance providers and the Treasury may share information for the purposes of subsection (1).”
The new section inserted into the Financial Services and Markets Act 2000 by this amendment requires designated guidance providers and the Treasury to co-operate in delivering pensions guidance and provides that they may share information for this purpose.
Amendment 61, page 46, line 35, at end insert—
“( ) Standards set under this section—
(a) may make different provision for different cases and may, in particular, make different provision in respect of different classes of designated guidance providers or different types of pensions guidance;
(b) may include incidental, supplemental, consequential or transitional provision.”
This amendment provides for the FCA’s power to set standards in new section 333G of the Financial Services and Markets Act 2000 to include the setting of different standards in different cases and regarding different groups of guidance providers and the making of incidental, supplemental, consequential and transitional provision.
Amendment 62, page 47, line 36, after “person” insert “(other than in section 165(11)(d))”
This amendment provides for an amendment to subsection (2) of new section 333H of the Financial Services and Markets Act 2000 such that the connections set out in Schedule 15 to that Act apply.
Amendment 63, page 48, line 19, at end insert—
“(4) If the power conferred by section 333E(3) to revoke a designation is exercised before the power in subsection (1) the reference in subsection (1) to a designated guidance provider is to be read as a reference to a person who, at the time of the failure to comply, was a designated guidance provider.”
This amendment provides for the FCA’s power to make recommendations in new section 333I of the Financial Services and Markets Act 2000 to be effective where, following failure to comply with the standards, the designation of the guidance provider has been revoked by the Treasury under new section 333E(3).
Amendment 64, page 52, line 22, leave out from “guidance” to “whether” in line 24
This amendment is consequential on amendment 65.
Amendment 65, page 52, line 32, at end insert—
“( ) For the purposes of subsection (10)(b) “expenses of designated guidance providers”—
(a) includes expenses incurred by virtue of sections 333G(2), 333I, 333L and 333P, and
(b) where a recommendation or direction has been made by virtue of section 333I(4) or 333M(2), includes expenses of a former designated guidance provider.”
This amendment confirms that the “expenses of designated guidance providers” in subsection (10)(b) of new section 333Q include expenses specified in paragraph (a) and expenses of former guidance providers as specified by paragraph (b).
Amendment 66, page 52, line 37, at end insert—
3A In section 1M (FCA’s general duty to consult), after “section 1B” insert “and its duties under section 333N”.
3B In section 1S (reviews by independent person into discharge of FCA functions), in subsection (3) (excluded functions), after “(4)” insert “or its duties under section 333N(1) and (2)(a)”.”
This amendment provides for amendments to sections 1M and 1S of the Financial Services and Markets Act 2000 in consequence of new section 333N of that Act.
Amendment 67, page 52, line 44, leave out “cash balance benefits or other money purchase” and insert “flexible”
This amendment is consequential on amendments 56 and 57.
Amendment 68, page 53, line 9, leave out “cash balance benefits or other money purchase” and insert “flexible”
This amendment is consequential on amendments 56 and 57.
Amendment 69, page 53, leave out lines 12 to 15 and insert—
““flexible benefit” has the meaning given by section (Meaning of “flexible benefit”) of the Pension Schemes Act 2014;”
This amendment is consequential on amendments 56 and 57.
Amendment 70, page 53, line 23, at end insert—
4A (1) Section 138F (notification of rules) is amended as follows.
(2) The existing text becomes subsection (1).
(3) After that subsection insert—
(2) Subsection (1)(b) does not apply to rules made under or by virtue of section 137FB, 333P or 333Q.””
This amendment provides for an amendment to section 138F of the Financial Services and Markets Act 2000 in consequence of new sections 137FB, 333P and 333Q of that Act.
Amendment 71, page 54, line 17, at end insert—
11A In that Schedule, in paragraph 21 (FCA financial penalty scheme), in sub-paragraph (2) (list of “regulated persons” who may benefit from the scheme)—
(a) omit the “and” at the end of paragraph (c);
(b) at the end of paragraph (d) insert “, and
(e) designated guidance providers.”
This amendment provides for an amendment to paragraph 21 of Schedule 1ZA to the Financial Services and Markets Act 2000 in consequence of new section 333F of that Act.
Amendment 72, page 55, line 44, leave out “cash balance benefits or other money purchase” and insert “flexible”—(Steve Webb.)
This amendment is consequential on amendments 56 and 57.
Title
Amendment made: 1, line 3 at end insert
“and provision designed to give people greater flexibility in accessing benefits and to help them make informed decisions about what to do with benefits”—(Steve Webb.)
Third Reading
Queen’s consent signified.
Steve Webb
I beg to move, That the Bill be now read the Third time.
Together with the Taxation of Pensions Bill, this Bill introduces the latest radical reform of pensions. Its ground-breaking pension reforms were the centrepiece of the Queen’s Speech, and are intended to give people freedom and security in retirement.
The Bill follows the Government’s extensive pensions reform. It is about enabling innovation in the pensions industry better to meet the needs of business and individuals, and about giving people greater flexibility in regard to how and when they access their savings. It will do that in two ways: by encouraging and enabling defined ambition or risk-sharing pension schemes and collective benefits, and by giving individuals new freedom and flexibility in relation to how and when they access their pension savings. It builds on the previous pension reform, including the new state pension and the highly successful implementation of automatic enrolment. Defined ambition legislation is a radical reshaping of pensions legislation to ensure that it remains relevant for future generations. It is intended to reflect, recognise and reinvigorate innovation in consumer-focused product design in shared-risk, or defined ambition, pensions.
The Bill introduces three categories of pension scheme based on the type of promise that the scheme provides for savers during the saving phase about the benefits that will be available to them on retirement. It will also enable schemes in the United Kingdom to offer collective benefits, and to ensure that there is appropriate regulation in regard to such benefits. The crucial point here concerns risk-sharing. The current legislation is based on a binary structure of just money purchase or non-money purchase benefits. While both those types of pension can be the right product for many, is it right that the only future for pensions that our legislation encourages is one that requires either the individual consumer or the employer to take on the full financial risk of such long-term savings? We think not.
Many employers have found the increasing costs of longevity and investment risk too heavy to bear, but if defined contribution schemes are the only alternative, outcomes for savers will be less certain and more volatile than for earlier generations, making it much harder for future generations of savers to plan for later life. That is why the Bill provides for new definitions of private pensions, which include the new defined ambition category and collective benefits.
Mr Love
It would appear that the defined ambition scheme has been created to attract employers who have defined contribution schemes. What evidence is there that there is a demand for defined ambition schemes? Is there not a danger that employers with defined benefit schemes will be encouraged to move to defined ambition schemes?
Steve Webb
Our view is that the shared risk space will suit firms coming from either direction: from DB or DC. I have lost track of the number of times someone has said, “Such and such a measure was the final nail in the coffin of DB.” There must be no more room for any more nails in that coffin. It is clear that, if we do nothing, there will be no DB outside the public sector—sooner or later there will be nothing. The abolition of contracting out may be a further trigger, but if we do nothing we will just have individual DC, so shared risk says that employers who want to do more—employers who are willing to share some of the risk with their employees—should have a space to do that.
We may catch some firms coming out of DB that were going to go out of DB anyway. We may stop them in the middle, rather than going to the opposite extreme, but we may also find employers who offered DC schemes and found that their employees could not afford to retire because the DC benefits were not good enough, or employees who object to the volatility of individual DC and start saying to their bosses, “I want something a bit more predictable and certain. Can you mitigate the risk?” Therefore, my judgment is that some people will come out of DB and some will come out of DC. That does not undermine DB. The writing was on the wall for private sector DB, to be honest.
On the freedom and choice agenda, as we have discussed, Budget 2014 announced radical flexibilities in how and when people access their pension arrangements. The Government undertook a consultation. The response was published in July and draft tax clauses for technical comment were published in August.
This Bill, along with the Taxation of Pensions Bill, will mean that, from April 2015, individuals from the age of 55 will be able to access that pension flexibility if they wish, subject to their marginal rate of income tax, rather than the current 55% tax charge. The Bill will make the required changes to pension legislation. As we have discussed, it includes a guidance guarantee that means everyone with money purchase benefits or cash balance benefits will be offered free, impartial guidance so they are clear on the range of options available to them at retirement. The Bill contains a duty on providers and schemes to ensure that they make people aware of their right to guidance.
The Taxation of Pensions Bill will legislate for the required tax regime changes. The Government will continue to allow members of private sector schemes offering safeguarded benefits—that is, benefits other than money purchase or cash balance benefits—the freedom to transfer to other types of scheme. In the majority of cases where a member has safeguarded benefits, it will continue to be in the best interests of the individual to remain in the scheme.
As we have discussed, there will be two additional safeguards: the requirement to take advice from a financial adviser, and guidance for trustees on using their existing powers to delay transfers and on taking account of scheme funding when deciding transfer values. In addition, the Exchequer will put in place safeguards in general not allowing unfunded public service defined benefit scheme transfers. For funded public service schemes, Ministers will have a power to reduce cash equivalent transfer values.
These are radical reforms that build on the Government’s changes to improve pensions in the UK. We believe that giving people greater choice has to be at the heart of the reforms: greater choice for business on the pensions they offer and greater choice for individuals on how they can access their pension savings. These are important changes to allow the private pensions market to flourish. I commend the Bill to the House.
Stephen Timms
The cost of living crisis underlines the need for people in work who are struggling to set money aside for the future to be able to access pension schemes they can trust to give them good value for money and a decent income in retirement. Therefore, we welcome the proposed establishment of collective defined contribution pension schemes, which my hon. Friends called for earlier this year. Those schemes have the potential to provide a more reliable retirement income than individual defined contribution schemes. For that reason, they are to be welcomed. They operate in other countries: the Netherlands, for example. They are potentially better for individuals than individual defined contribution schemes because they can pool risk across and between generations. Research by the Institute for Public Policy Research at the end of last year concluded that there was “strong public support” for a collective pension, that it was the most popular of the options it tested and that it appealed across different income levels, life stages and ages.
We also support the establishment of shared risk schemes and the rule preventing transfers out of most public service schemes—with some exceptions that the Minister talked about earlier. We support the power to redefine the pension regulator’s powers to appoint or replace trustees and the power that will allow the Secretary of State to make payments into the Remploy pension scheme.
We have not opposed the Bill, and we will not do so this afternoon, although there are parts that, in our view, should have been strengthened. We are also disappointed that the Government have not been willing to make the changes for which we argued in Committee. We welcome the new pension flexibilities that were announced in the Budget, but we are concerned that Ministers are not yet providing adequate safeguards in the Bill to protect the savings of people who have worked hard all their lives from the risk of excessively high charges.
The changes will introduce increased flexibility for savers, and we agree that that is welcome. They will also make the pensions market much more complicated, however, and safeguards need to be put in place to protect savers from being taken advantage of, given the confusion that could arise as the changes bed down. We simply cannot afford to have another pensions mis-selling scandal like the one that was presided over by the last Conservative Government, which did a great deal of damage.
The Bill contains 55 clauses, which were substantially rewritten in Committee, and the fact that the Government have today added 33 new clauses—over half as many as we started out with at the beginning of the afternoon—and made 77 additional new amendments does not inspire confidence that these complex changes in an area of such immense importance have been properly thought through. This looks rather like a case of legislate in haste, repent at leisure. We can only hope that Members in the other place, among whom there is substantial expertise in this area, can make significant improvements. Trying to make these important changes at the same time as enacting the Budget changes is of course making the task more difficult and more risky.
A few minutes ago, towards the end of the last debate, the Minister gave a full answer to my question about regulations, for which I was grateful. His answer was a full one, but it was not particularly satisfactory. He pressed me about my experience of taking Bills through the House. My recollection is that if such a Bill had referred to regulations that were going to be introduced, I would at least have expected to put a note in front of members of the Committee explaining what those regulations were going to do. Ideally, there would be draft regulations to put in front of the Committee. In this case, as far as I can establish, there is no information at all about any of the regulations referred to in the new clauses and amendments. I was disappointed when the Minister said that no such information would be put in front of Members in the other place either.
Steve Webb
I think there is a danger of the right hon. Gentleman overdoing this a bit. A lot of the regulatory framework for the budgetary freedoms involves the Financial Conduct Authority, so we are not talking about statutory instruments or any other stuff that goes through this House. The FCA has consulted and published its principles, and it will be publishing its final statutory guidance. All of that will be entirely available to Members in the other place. So a lot of this stuff is out there already; it has been consulted on and will be published. A lot of the regulations that the right hon. Gentleman is talking about relate to defined ambition and risk-sharing, for which the timetable is much slower.
Stephen Timms
That is helpful, and I am grateful to the right hon. Gentleman, but I was making the point that, in my experience as a Minister, I would normally have expected to be able to provide some documentation about each set of regulations referred to in a clause that I was advocating to the House. There is no such information relating to the significant number of the new clauses and amendments that refer to regulations and that now form part of this Bill. The right hon. Gentleman suggested that that was normal, but I do not think it is. I was recalling my experience from the Welfare Reform Bill, on which I led for the Opposition. There was a problem there, because at the outset no information was provided about regulations being referred to in the Bill. However, by the time we got to the end of the Committee we were reliably getting, before we debated each clause, some information about the regulations being referred to in it. So I urge him, if he can take even more holiday time away from the lawyers, to look at whether he might be able at least to give their lordships some information about each set of regulations being referred to.
In the earlier debate, I mentioned the three tests we have set for the new flexibility, and I am grateful to the Minister for his response to each. My party has commissioned Professor David Blake of the pensions institute at Cass business school to lead a review of how to support a pensions market that works for all, retaining flexibility and choice on how savings are accessed and drawn down, while ensuring that all savers, including those on low and modest incomes, are protected and are able to secure a decent and reliable retirement income. One question he will consider is whether income draw-down products should be subject to a new charge cap, which could offer some safeguards that are not envisaged at the moment.
Widespread concern has been expressed about the crucial guidance provisions. We do not know a great deal yet about how this is all going to work, and it is supposed to be up and running by next April. There is serious worry, which we have debated earlier, that the guidance on offer will not be taken up in practice. We will certainly be looking with great interest at what the FCA says—the Minister has assured us that it will be referring to this—about the second line of defence.
The TUC has made the point that
“half an hour of the best possible advice will not equip people for what could be thirty years of managing their pension pot”.
It has argued for the kind of careful consideration of evidence undertaken by the last Government, which has underpinned the success of auto-enrolment—that successful measure was developed over a period, decided on by the previous Government and taken forward by the current Government and, in particular, the Minister on the Bench today. Everybody would agree that the proper deliberation that underpinned it has been an important element in its success, but we are not seeing the same thing with these changes. I fear that nobody can, as yet, feel confident about what is going to emerge.
The Minister also knows that we have concerns about the governance of collective defined contribution schemes and about the so called “independent governance committees” proposed for defined contribution schemes; and about the restrictions on the National Employment Savings Trust—NEST—which my colleague who normally speaks on these matters has long argued should be removed and which the Minister said in July last year would be removed “as soon as possible “. In fact, they remain in place, and the opportunity to remove them in this Bill has not been taken.
The Bill is worth while, but a worryingly large amount more still needs to be done. Working people must not become the victims of yet another mis-selling scandal—that has happened too often already. The dangers of ill-thought-out and rushed legislation are all too clear, and doing all this at the same time as the Treasury changes makes the risks much worse. We can only hope that Members in the other place will have the information they need and will be able to deliver some of the scrutiny which Members in this House have not, sadly, been able to provide.
Question put and agreed to.
Bill accordingly read the Third time and passed.
Self-Build and Custom Housebuilding bill (Money)
Queen’s recommendation signified.
Resolved,
That, for the purposes of any Act resulting from the Self-build and Custom Housebuilding Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Brandon Lewis.)
Self-Build and Custom Housebuilding bill (Ways and Means)
Resolved,
That, for the purposes of any Act resulting from the Self-build and Custom Housebuilding Bill, it is expedient to authorise the charging of fees under the Act.—(Brandon Lewis.)
Local government (Review of Decisions) Bill: Money
Queen’s Recommendation signified.
Resolved,
That, for the purposes of any Act resulting from the Local Government (Review of Decisions) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Kris Hopkins.)