Pension Schemes Act 2015 (Transitional Provisions and Appropriate Independent Advice) (Amendment No. 2) Regulations 2017

Debate between Baroness Drake and Lord Jones

Wednesday 29th November 2017 Grand Committee

[Lord Jones (Lab)]

My Lords, I thank the Minister for her measured exposition. I note that in the Explanatory Note the word “survivor” crops up. Does she have to hand a legal definition of “survivor”?

[Baroness Drake (Lab)]

My Lords, I refer to my interests as set out in the register, in particular that I am a trustee of two occupational pension schemes. The regulations have the effect of removing some individuals—currently estimated at 2,360 per annum—from the need to get regulated advice before accessing those pension pots with a safeguarded flexible benefit, such as a guaranteed annuity rate. This is a consequence of changing the valuation process to determine whether such benefits meet the greater than £30,000 trigger for requiring the individual to take regulated advice.

The term “safeguarded flexible benefits”—the subject matter of these regulations—can feel imprecise, however many times one reads the background paperwork. I appreciate that there are problems with getting data from both contract- and trust-based schemes, but it is not always clear which benefits are included and which are not. I acknowledge that schemes may well need to seek legal opinion to get that clarity so they are sure about how they are applying these regulations to their own schemes.

I thank the DWP officials who quite late into yesterday evening were still answering my various questions. I take this opportunity to ask the Minister two questions about which safeguarded flexible benefits are included. In occupational schemes where members have a right under the scheme rules to convert their AVC saving into scheme defined-benefit benefits, does that provision come under these regulations? Is it possible to give greater clarity on which guaranteed annuity rates in occupational schemes would not be considered money purchase benefits?

Moving on to the risk warning process, I recognise that these regulations sit alongside a new requirement for schemes to send members with safeguarded flexible benefits a tailored risk warning about the guarantees their benefits offer before they proceed to transfer, convert or flexibly access them. Such risk warnings are welcome, but I have a series of linked questions for the Minister on the process around those risk warnings. First, why can the risk warning not be issued immediately following receipt of a member request to transfer, convert or directly access their flexible benefits and before commencing to process the member request? If the warning is received as late as 14 days before any live request completes, evidence suggests that by then individuals are well set on a course of action, inertia takes over and risk warnings are less effective. Some schemes run a system where there are warnings in place: the first thing is the warning, before the full process is triggered.

Secondly, will the risk warning be sent to any other potential beneficiary of the benefits, such as parties involved in a pensions sharing order or, as my noble friend said, possibly survivors? This is a duplicate question, in that sense. Why is the warning restricted to signposting the member to free and impartial guidance? Is this not exactly the type of case where a person should be given almost a default access to the guidance service in line with the recent amendment agreed to the Financial Guidance and Claims Bill? Just a written reference to signposting can often get lost in the detail of the information sent to members, and we are talking about safeguarded benefits.