The Minister for Pensions (Steve Webb)
I beg to move, That this House agrees with Lords amendment 1.
Mr Speaker
With this is will be convenient to take Lords amendments 2 to 9, 44, 49, 56 to 65, and 117.
Steve Webb
I believe that the Bill is in a better state as a result of the two groups of Lords amendments that we shall discuss today. Many of them are Government amendments, designed to tidy things up or deal with errors, and some reflect their lordships’ desire for the affirmative procedure to be used in the case of certain statutory instruments. The amendments are largely technical, but I shall of course be happy to deal with them in more detail if the House wishes me to do so.
Lords amendments 1 to 9, 49, and 59 to 65 deal with defined ambition and collectives. The Bill contains key reforms to private pensions; encouraging and enabling “defined ambition” or “shared risk” pension schemes and “collective benefits”. In the following amendments, their lordships sought to refine or build on the legislation since it had left the Commons.
Lords amendments 1, 2, 3 and 6 introduce minor changes to ensure drafting consistency. Clause 27 provides for regulations to require a scheme providing collective benefits to wind up the whole or part of the scheme, while clause 37 provides for regulations to impose a duty on managers of non-trust-based schemes to act in the best interests of the members when making certain decisions. Both clauses refer to different types of obligation that may apply in relation to the scheme, including those that are part of the scheme—that is, provisions of the scheme—and those contained in legislation that applies to the scheme. The amendments provide for descriptive consistency in the clauses in relation to those different types of obligation.
Lords amendments 4 and 5 clarify “publication of documents” provisions. Powers in part 2 of the Bill may require trustees or managers of schemes providing collective benefits to have policies in relation to a number of matters, including the factors used to calculate member benefits, the calculation of transfer values, and steps to deal with a deficit or surplus in relation to the target. Clause 32 allows regulations made under part 2, which require trustees or managers to prepare or obtain any document, to include requirements relating to the publication of those documents and the sending of copies to a specified person. Specified persons could include members and regulators.
The publication of various policies is a key feature of the regime that we are seeking to introduce in order to ensure that it is clear how members’ assets and benefits will be managed or calculated by the scheme. It ensures that there will be transparency in regard to the way in which collective benefit assets are treated in certain circumstances, because there is a less direct relationship than there is in a money purchase benefit when it comes to a member’s entitlement in relation to contributions. We also have regulation-making powers to make certain requirements in relation to the policy. An amendment was required to put it beyond doubt that the provisions of clause 32 also apply to the policies specifically. The amendment ensures there is no possibility of a scheme’s “having” a policy that we cannot require to be published or sent to a specified person.
Lords amendment 7 puts the meaning of the amendment made by clause 45 beyond doubt. The change to section 67A of the Pensions Act in the clause makes any modification to an occupational pension scheme that would replace a member’s accrued rights with a right to a collective benefit a “protected modification”. Protected modifications can be made only if the member consents. Lords amendment 7 makes it clear that the provision applies only when the existing accrued right is not a right to a collective benefit.
Lords amendments 8, 9, 59 and 60 address an omission in the current legislation. While the changes made by the Bill were being checked, omissions in the Pensions Act 2014 came to light. The amendments that were needed all relate to overriding legislation. When legislation overrides conflicting provision in the scheme rules, there are circumstances in which that legislation needs to be treated as if it were part of the scheme rules. The amendments ensure that overriding requirements made under regulations provided for by schedules 17 and 18 to the Pensions Act will be treated as part of the scheme rules for the purposes of the Pensions Act 2004, in the case of Lords amendments 64 and 65, and subsisting rights provisions in the 1995 Act, in the case of Lords amendments 8 and 9. The amendments provide for consistency and clarity in the way in which the overriding provisions are dealt with.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
I thank the Minister for his explanation of amendment 1 and those with which it is grouped. Let me make a number of points. There are two parts of this Bill, and we will come to the second part regarding the way it interacts with the pension budget flexibilities announced in last year’s Budget in a moment. I would like to put on record my thanks to the other place and particularly those on the Opposition Front Bench who have done such a sterling job on what is often a rather technical Bill. I also want to put on record my appreciation for the work done by Baronesses Drake and Hollis who have done so much to make this a better piece of legislation.
Let me pick the Minister up on a couple of things, particularly around clause 8. He referred in his explanation to clause 8 and the delegated powers contained therein. He will be aware that the debates in the other place focused for some time on the implications of clause 8 because, of course, it is a key and critical provision setting the definition of what are collective benefits, on which the rest of the clauses in part 2, and many of the associated delegated powers, depend. That is why it is so critical in its construct and its definition of the delegated powers associated with it.
In the other place, Baroness Drake made it clear that in her view the power to set regulations under clause 8(3)(b) should be subject to the affirmative procedure because a definition of what is or is not a collective benefit is critical to the whole scope of part 2, which deals with collective benefits. Clause 8(3)(b) would allow the Government to use regulations to avoid schemes being subject to the expense of meeting the detailed requirements set out in clauses 9 to 35 if they are deemed not to be proper collective benefits, but the clause, in granting the Government power to significantly alter by regulation the constituent benefits that are not included in the definition of collective benefits, has the ability potentially to remove members of schemes from the protection of the requirements in the other clauses in part 2.
The Minister will know that this could have considerable implications for members and the scope of the whole of part 2. The potential of this regulation to remove members from the protections they may already have by being in a designated collective benefit scheme which subsequently a change of regulation deems they are no longer in makes it in our view compelling that this should remain a power that is subject to the affirmative procedure. The Government’s reply to the scrutiny from the Opposition in the other place was to say, “Well, the affirmative procedure will be used in first use, but subsequently not,” but surely this is worth considering. I will be interested to hear the Minister’s response.
In the other place, the Government gave a detailed response to this critique. As anyone who reads the debates will see, it revolved around the fact that the first use will be by affirmative procedure, but the affirmative procedure might be used in the first instance on something quite straightforward, such as that an obvious with-profits policy arrangement is not to be included in collective benefits, but the subsequent use of the regulation under the negative procedure might go-to the heart, to something much more fundamental such as an existing collective benefit scheme. We must be aware of the possibility that regulations could be used to weaken the protections scheme members have.
In response to this specific point, Lord Bourne said in the other place that the negative procedure will still provide a measure of protection, but we know that is not the level of protection that would be provided by the affirmative procedure. This is rather technical, but it does bear upon a very important aspect, which is that moving towards a negative position rather than a positive position through an affirmative vote could be a way in which the protections are weakened—I am sure against the Minister’s inclinations and desires. I would appreciate hearing his observations on that part of the debate in the other place.
More widely, much of the debate in the other place on this part of the Bill focused on clauses relating to the duties of fiduciaries or managers of the schemes. The Minister and I have had that debate a number of times, but given all the regulatory complication of setting up the independent governance committees and giving them fiduciary responsibilities to monitor the behaviour of private pension providers while exempting the private providers themselves, this just seems an unnecessary complication. Pensions are complex enough without making them that much more complex. The responsibility should be put directly on the decision makers in the pensions industry by applying a fiduciary obligation not to them themselves, but to trustees to do the job of governance throughout.
The Minister will be aware that Professor John Kay, reporting for the Government—and particularly for the yellow-tinged part of the Government, as the Minister will no doubt be aware—was clear that everyone managing someone else’s money or advising on investment should be subject to fiduciary standards of care. I have argued on a number of occasions—and if it is exhausting for me, it must be exhausting for those listening—for extending a clear fiduciary duty to those who have discretion over the management of other people’s money. The Australians have that principle at the heart of their system, and while that system is not perfect, that aspect of it makes it clear unequivocally that conflicts of interest must be resolved in favour of beneficiaries.
I am not expecting the Minister dramatically to change course at this stage, but I would just point out that the Financial Conduct Authority’s recent investigations into the pensions industry have provided substantial arguments in favour of the proposition that I and others have been advancing. We have now had numerous reports on how the market is not serving pension scheme savers well, whether they have legacy schemes or annuities, owing to a lack of transparency, charges and many other factors.
Steve Webb
As the hon. Gentleman says, we have discussed these issues before. Will he just clarify which of the amendments he is referring to, so that I can respond helpfully to him?
Gregg McClymont
I was referring to clause 8, to which the Minister has also referred, as well as referring to that part of the Bill more widely where it pertains to governance. I am sure that the Minister will be weary of the debates that we have had on these issues, and that he will be keen to set out his current thinking on this aspect of the Bill. He will be aware that this issue is central to his ambitions for collective defined contribution. If it were not, he would not have set out the Bill in this fashion.
I should like to put on record again my thanks to the other place and in particular those on the Opposition Front Bench, including the good Baroness Drake and the good Baroness Hollis. I am grateful, too, for the constructive spirit in which the Government in the other place have approached the Bill. I look forward to hearing the Minister’s observations on the issues relating to delegated powers and, more widely, on the governance of the pension schemes that he rightly wants to make permissible under the Bill.
Steve Webb
I shall respond briefly to the issues that the hon. Gentleman has raised. I am grateful to him for his comments, and I should like to extend my thanks to our noble Friends in another place for bringing the Bill forward on our behalf. I also share his respect for his colleagues, Baroness Drake and Baroness Hollis, for their knowledge and their contribution to the debates.
As the hon. Gentleman says, the issue of whether the affirmative or negative procedure is used in regard to regulations in clause 8 was debated at length. He pointed out that Baroness Drake wanted the affirmative procedure to be used in all cases, while the Government originally planned always to use the negative procedure. The Government then responded to the views of the Delegated Powers and Regulatory Reform Committee and agreed that, on first use, the affirmative procedure would be used. Obviously we could say that everything should always be decided through the affirmative procedure, but there is a balance to be struck here. The Committee wanted that, but the Government do not consider that to be appropriate because we sometimes need the flexibility to act quickly if schemes are being inappropriately caught by the collective benefits definition.
There is always a trade-off in these circumstances. Sometimes in the world of pensions, things happen that we do not expect. People might be in the wrong place, for example, or their rights might be at risk or inappropriately protected, and the Government need to be able to move quickly rather than having to go through the rather lengthy parliamentary process that the affirmative procedure requires.
We accept, however, that clause 8 is a key provision and I can put on record that it is not our intention for members who are in schemes providing collective benefits, and subject to the provisions, suddenly to lose the important protection that the regulations made under part 2 of the Bill will provide. If the situation were to arise in which those protections were to be taken away, we would want to understand the situation and ensure that it was appropriate and necessary before taking action and laying regulations. As the hon. Gentleman said, even under the negative procedure there is scope for praying against the regulations if a particular concern should arise, and for a debate to take place.
Most of my experience has been from the Opposition Benches, and during the passage of primary legislation, the Opposition always seem desperate for everything to be conducted under the affirmative procedure while the Government want nothing, but many of the affirmative statutory instruments that the hon. Gentleman and I have dealt with, over the past however many years it has been, have been over in 10 minutes. We get very exercised about the need for affirmative scrutiny, but when we get to that scrutiny, it can occasionally border on the desultory. I hope that we are striking the right balance in recognising that these are important matters and providing affirmative protection on the first use and further parliamentary scrutiny on any subsequent use through the normal processes.
Mr Speaker
With this it will be convenient to consider Lords amendments 11 to 43, 45 to 48, 50 to 55 and 66 to 116.
Steve Webb
This group of amendments relates primarily to the new pensions freedoms announced by the Chancellor in the Budget last year, which will generally come into effect on 6 April this year. I shall begin with the pension guidance and guarantee, now known as Pension Wise, covered by amendment 10 and amendments 66 to72. The Government intend that all those who stand to benefit directly from the new pensions flexibilities provided by the Taxation of Pensions Act 2014 should have access to guidance. The amendments to clause 47 and schedule 3 are technical amendments to ensure that that is the case.
The amendments adjust the definition of pensions guidance in new sections 333A and 137FB of the Financial Services and Markets Act 2000 to extend pensions guidance to survivors of members who have flexible benefits, rather than just the members of pension schemes. This is needed because in some circumstances pension schemes may provide benefits to survivors of members of the scheme other than insurance-based products or cash lump sums—that is, flexible benefits—without their becoming members of the scheme.
Amendments 11 to 18 and amendment 50 provide advice safeguards. Clauses 48 and 51 were amended in the Lords via Government amendment. These contain the provisions creating the advice safeguard, which requires schemes to check that financial advice has been received before an individual exchanges their safeguarded rights for those that can be taken flexibly. Clause 48 makes provision for Great Britain, while clause 51 makes corresponding provision for Northern Ireland. Amendments 11 and 15 improve the drafting of clauses 48 and 51, while amendments 12 and 16 ensure that the requirement to take advice also applies when a member takes an uncrystallised funds pension lump sum from benefits that are safeguarded.
On Report in the other place, a second group of amendments to those clauses were made in response to the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendments 13 and 17 specifically provide for the only exception to the advice requirement that is intended to be in effect by 6 April—namely, an exemption from checking that advice has been received in the case of those with safeguarded wealth of £30,000 and below. Amendment 50 provides that regulations creating this exception are subject to the negative procedure, while regulations creating any other type of exception are subject to the affirmative procedure.
Amendment 14 provides more detail on the nature of the “appropriate independent advice” that is to be required under the safeguard. It provides that “appropriate independent advice” must be given by an “authorised independent adviser”, who has permission under the Financial Services and Markets Act 2000 to carry out a regulated activity specified in regulations. The Financial Conduct Authority sets out the standards for regulated activities in its rules, and that will allow it to set the standards for advice provided under the advice safeguard. Amendment 18 makes corresponding provision for Northern Ireland.
Let me now deal with amendments 19 to 21, 23 to 25, and 38 to 43, which are amendments to clauses 55 and 56, consequential on the Taxation of Pensions Act 2014. They allow a person to leave any remaining money purchase funds to a nominee or a successor. Schemes will be able to offer both nominees and successors a drawdown fund, so they need to be included in the clauses which deal with such arrangements. Amendments to clauses 60 and 61 do the same thing for legislation covering Northern Ireland, while amendments to clauses 72 to 74 make small changes to the definitions of terms used in part 4 of the Bill.
Let me now deal with amendments 22, 26 and 73 to 116, which are technical amendments to reflect the extension of the statutory right to transfer benefits and to ensure that the transfer process continues to operate smoothly after the requirement to take “appropriate independent advice” comes into force in April. Without these amendments there is a risk that the new transfer rights would not operate as intended after the new flexibilities come into force. Schedule 4 of the Bill amends the existing transfer rights provisions contained in part 4 of the Pension Schemes Act 1993 to give scheme members a statutory right to transfer a particular category of benefits, and gives scheme members with flexible benefits a statutory right to transfer these rights up to and beyond their scheme’s normal retirement age. Amendments 73, 92, 94, 96 and 115 would make consequential amendments to reflect numbering changes made elsewhere in schedule 4.
Amendments 22, 82 and 83 ensure that clause 55 and regulations under clauses 56 and 57 override any pension scheme rules which conflict with the statutory right to transfer overriding provisions for the purposes of the definition of “scheme rules”. These provisions amend the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004, while amendments 26, 105 and 106 make corresponding provision for Northern Ireland. Amendment 75 replicates existing powers in the 1993 Act and will be used to preserve the effect of existing regulations under those powers, while amendment 98 makes identical provisions for Northern Ireland legislation.
Amendments 76 and 78 provide powers to extend the period within which a member who has received a statement of entitlement must take the cash equivalent of their accrued rights, and for the right to take the cash equivalent to lapse. Amendment 80 provides a power to extend the time in which the trustees of a scheme must do what the member requires. Amendments 88 and 89 make similar provision to extend time for pension credit members, and for trustees to act on members’ instructions. Amendments 99, 101, 103, 111 and 112 make similar amendments to the corresponding Northern Ireland legislation.
Amendments 79 and 102 make changes to section 98(1) of the 1993 Act and clarify that a member’s right to take a cash equivalent falls away where the trustees’ duty to carry out the member’s wishes is extinguished because they have been unable to confirm that the member has taken appropriate independent advice. Amendments 81, 86, 93 and 95 ensure that the definitions of scheme rules in the 1993 Act and the 2004 Act work for personal pension schemes. Amendments 82, 83 and 105 ensure that the definitions of “scheme rules” in the 1993 and 2004 Acts also apply for personal pensions, while taking account of any provisions that override these rules. Amendments 104, 109 and 116 do the same for Northern Ireland. Amendment 87 inserts a power to disapply the right of a pension credit member to transfer their pension credit rights in relation to prescribed descriptions of persons. Amendment 110 makes a similar amendment to Northern Ireland legislation. The remaining amendments in this group make a number of drafting, technical and consequential amendments to schedule 4 of the Bill.
Amendments 27 to 37 relate to public service scheme transfers. These are technical changes to improve drafting and ensure that the new safeguard applies where it should. The remaining amendments 45 to 48 and 51 to 55 are general amendments to part 6 of the Bill and are what are often known as the “back of the Bill” provisions. Amendments to clauses 80 and 81 would extend provisions to Northern Ireland, while the amendment to clause 84 would ensure that pension flexibilities provisions come into force at Royal Assent. I hope that what I have said has been helpful, and I commend the amendments to the House.
Gregg McClymont
The Minister raced through his text, much to the chagrin of the whole House I am sure, as we were enjoying it so much. Let me pick up on a couple of issues. We are dealing with the part of the Bill that has created some complexities because, to put it politely, it dovetails with the 2014 Act. If we were being less kind, we would say that some tensions are created because we cannot examine this Bill while, side by side, scrutinising that Act. I put that point on the record, although it has been discussed previously.
Lords amendments 13, 14, 17, 18 and 50 refer to the much-discussed guidance that those eligible to access their pension pots from April will be offered. The Minister mentioned Government amendments being tabled in the other place. Of course, the amendments are welcome, both as a necessary second line of defence and because they show that the Government are listening to the Opposition in this place and in the other place, and to the campaign led by interested pensions organisations outside the House. Why is it so important to have that second line of defence? As the Government accept, it is simply because it is one thing to offer guidance online from gov.uk, in person from citizens advice bureaux and by telephone through the Pensions Advisory Service, but what happens when an individual discusses buying a product from a provider is another thing entirely.
Much of the debate on this Bill and other pensions Bills in this Parliament has revolved around that issue. According to the FCA studies and a variety of sources, decisions often end up being much more in the interest of those selling the product than those buying it. The Government have recognised that when someone comes to consider buying a product, the provider must check that they have received the appropriate guidance, either from the services I mentioned or from other sources. It is welcome that they have accepted the argument of the Opposition and others on putting in place a second line of defence, which the Minister calls the “advice safeguard”.
That brings us to one question that relates to part of the 2014 Act, as well as this Bill: how do we ensure that individuals are equipped to make what at times are complex financial decisions about what to do with their retirement income? Much of the legislation pertaining to this important aspect lies in the 2014 Act and, on one level, is outwith the bounds of what we are discussing today. But it is important to put on the record that significant questions remain about how the guidance guarantee will work from April. That view has been heard repeatedly from those in the pensions world and I am sure that the Minister, if he is not having sleepless nights about it, is paying close attention to it.
The impact of the new flexibilities, which will be introduced from April, on eligibility for means-tested benefits was the subject of much discussion in the other place. This pertains to the guidance amendments and, more widely, to the 2014 Act, which of course goes hand in hand with the Bill. Baroness Hollis asked a series of important questions of the Minister in the other place and the Government about how this new system of pension flexibilities will work in harness with existing eligibility for benefits and, more widely, with Department for Work and Pensions benefit rules. I have to say that it is not that reassuring to hear from the Minister in the other place that all will be revealed before April. As things stand, there is still no clarity over how the new flexibilities will interact with DWP benefit rules, which will concern the whole House.
Steve Webb
I hope that I can respond helpfully to the two sets of issues that the hon. Gentleman raised. I thank him for using the attractive word “dovetailing” to describe what is happening between DWP and HM Treasury legislation.
The hon. Gentleman asked about the second line of defence. I think that there might have been some confusion in what he said. I apologise if the speed with which I went through my remarks put him off the scent. I had assumed that nothing I said would affect what he was going to say, which is why I went so quickly. To clarify: the second line of defence, which is the requirement on providers to ask searching questions of people choosing to do things with their pension pot, is not in the Bill at all. The amendments that refer to advice—as in independent financial advice and regulated advice—are the safeguards for people who are transferring from a defined benefit pension into a defined contribution pension with a view to accessing the flexibilities. The Bill requires them to have taken independent financial advice, and the amendments help to specify exactly what that is. I hope the hon. Gentleman is not confused. The amendments relate to the advice safeguard, which is about things such as DB to DC transfers. But he is right that the issue of a so-called second line of defence is an important one. The Government have listened. We anticipate that the Financial Conduct Authority will bring forward its detailed rules on how that should work in practice and we will be working with the trust-based pensions sector to do the same through the pensions regulator. I agree that those who raise such important issues both within and beyond the House deserve credit for doing so. I am grateful to him for the credit that he gave to the Government for listening to those concerns.
The second set of issues that the hon. Gentleman mentioned were those raised by Baroness Hollis in another place about the interaction with means-tested benefits. He will know, I hope, that my noble colleagues met Baroness Hollis before Third Reading in the Lords, and another meeting is planned to ensure that her concerns are properly addressed. I can tell him that it is largely business as usual. The intention is that the principles of the current rules relating to the treatment of pension funds will remain in place after April 2015. Obviously, we are in a new world, and we will have to consider carefully the impact of pension flexibilities and freedoms on income-related benefits and social care, but the Government want to ensure that someone’s decision to use a flexible pension product does not have a significant effect on how their means-tested benefits or social care charges are assessed.
The hon. Gentleman asked one specific question. I might have some cash in an ISA that the Government would account as capital, whereas if it were in a pension fund they might not, so why not just shove it into a pension fund? It is fine for someone to transfer money from an ISA into a pension pot for the sole purpose of improving their retirement provision, as we do not mind people putting money into a pension to retire on, but if they have done it with the intention of increasing their benefit entitlement we can still take account of the money. That mirrors existing provisions. In other words, if someone has some money in the bank, blows it on a foreign holiday or a sports car and comes along and claims benefit without the capital, one thing we will ask is where the money went. We have deprivation of capital rules so that if someone has artificially engineered their finances to get within the scope of means-tested benefits, we can deem them still to have the money. In the example the hon. Gentleman gave, if someone takes their ISA balance and flips it into a pension simply so they can get more pension credit we can simply say that we will treat them as though they still had the cash.
We think it is right to treat ISAs and pensions differently. ISAs are immediately accessible and are not long-term savings vehicles, so we think that that distinction is important. I can confirm that we will continue to have our conversations with the noble Baroness to ensure that we have addressed her concerns, but the spirit of what we are doing is that of business as usual, with the same broad approach as we had before the reforms were introduced. I hope that that responds to the hon. Gentleman’s concerns and I commend Lords amendment 10 to the House.
Lords amendment 10 agreed to.
Lords amendments 11 to 117 agreed to.