Queen’s Speech

Baroness Greengross Excerpts

Tuesday 10th June 2014 Lords Chamber

[Baroness Greengross (CB)]

My Lords, as chair of the all-party group on responsible business practice, I look forward to being involved in legislation related to business and enterprise. However, today I will confine my remarks to the two Bills related to pensions. I welcome any changes designed to improve the circumstances of people in later life. However, I am not sure that these two Bills will achieve exactly what the Government want, as they are rather contradictory in their aspirations: one seeks to bring flexibility, the other certainty. It can be very difficult to provide both.

The pensions tax Bill will let older people with defined contribution pensions withdraw their savings and spend them as they wish. No one will be required to buy an annuity. We all hope that any funds so withdrawn will not be included in the means test for publicly funded care provision. Can the Minister clarify the position regarding the non-inclusion of any cash withdrawn in the care fees means test?

The private pensions Bill will encourage people into new defined ambition group schemes, where members’ contributions are pooled and, rather than any form of annuitisation, the pension will be paid as income from the collective fund. These schemes are still a long way from the defined benefit guaranteed gold standard, as the payout on retirement remains uncertain. Critics complain of a loss of control for the individual investor. Others have warned that with DA schemes the benefits of scale are rather exaggerated. What is certain is that there are no guarantees—not even the certainty of a fixed income you get with an annuity.

How does such a scheme decide how much pension to pay each member? It would be obliged to maintain records of each individual entitlement, just as it would for conventional DC schemes. I hope the Government will be able to tell us where they anticipate any DA scheme operational savings will be made. Also, how do the Government propose to ensure take-up of the DA schemes, given the support for DC schemes implicit in auto-enrolment? DA relies on scale, but achieving scale may be challenging, given that DC schemes are now the main vehicle for the occupational pensions market. Who will provide the DA schemes? Perhaps we can also learn about that from the Government.

Bearing in mind the low level of financial capability in the UK, many commentators might argue that, for individuals to benefit from these new freedoms and minimise their exposure to risk, the degree of advice surrounding DA and DC schemes and pension fund transactions may need to be very extensive. If the Government agree, do they have any proposals as to who will provide and pay for such provision?

On this contradictory point, and underpinning the major emphasis on DC schemes, under the pensions tax Bill the Government want pension savers to have unrestricted access to the money in their DC schemes. This could not work with defined ambition pooled funds because no set sum of money is assigned to each member, who has no personal pot. Can the Minister clarify remarks attributed to the Government which imply that significant cash sums can indeed be withdrawn from DA schemes?

Finally, there is no mention of the coherence of DA schemes with care fees funding, which is very important, and the absence of a personal pot could make such compatibility difficult to achieve. How are the Government going to achieve that compatibility? I hope that the Minister can enlighten us.