Pension Schemes Bill

Baroness Greengross Excerpts

Tuesday 16th December 2014 Lords Chamber

[Baroness Greengross (CB)]

My Lords, I add my personal tribute to the noble Lord, Lord Jenkin of Roding, whom I have known for many years. He has always been very gracious in his various roles when I have wanted to discuss issues with him. He has made a huge contribution, and I shall miss him very much, personally and professionally.

I very much welcome the changes made through the Bill, as they seek to strike a new balance between the sensible accumulation of savings for later life and the freedom for people to choose how they spend their money in retirement. I believe that there should be more choice for people entering retirement. Increased choice should help to enable them to save for, and make informed decisions about, their retirement income. However, this means that they must fully understand the risks associated with these choices. My main point is that there are many risks attached to this, in particular, the risks associated with Part 3 of the Taxation of Pensions Bill, which creates the UFPLS. This will provide an additional option for flexible access to a pension, but there are associated risks here which I fear many consumers will not fully appreciate. I will come back to those risks later.

I very much welcome the fact that Schedule 3 to the Pension Schemes Bill will place a duty on the FCA to create and regulate the advice and information part of the “freedom and choice” pension reforms in the shape of the guidance guarantee, which is a crucial part of the reforms. My worry is that individuals are neither aware of the existence of this guidance, nor obliged to seek it, nor to follow it if they find it, and so many will remain seriously ill informed and may make wrong decisions. Recent research from Partnership has disclosed that, with so little time to go before the introduction of this new pension regime, 53% of people over 40 do not know whether they are eligible for the guidance guarantee, 18% said that they were not eligible and only 29% said that they knew they could use the service. There is a lot to be clarified, which we will work on at later stages.

While accepting that the FCA has the role of ensuring the quality of the guidance on offer, I think that there are areas that could helpfully be further clarified in the legislation. The proposed standards will work well for web-based guidance, for example, but I am not sure that they will work well for telephone or face-to-face provision; and that issue needs to be looked at. Perhaps also the guidance guarantee should be regularly reviewed in order to ensure that suitable information is there to make sure that people can make the important decisions that best suit their needs.

Also, a second line of defence regulation has been suggested—certainly, Dr Ros Altmann recently called for this—which would include knowing about dealing with risks such as outliving assets and running out of money or not providing benefits for a spouse on death. These are important issues and I very much hope that we can see some progress in those areas. Lastly, I should like the Government to commit to an annual report on the outcomes for everyone affected, whether they access the guidance or not.

Finally, the levy that will fund the guidance guarantee will come from only those firms regulated by the FCA. However, to create a level playing field, perhaps the guarantee should be funded by all pension and retirement providers, including trust-based pension schemes and master trusts, such as NEST, which currently would not contribute to the levy.

I end by considering people’s care needs. The funding of long-term care, which I mentioned earlier, is a growing concern of many retirees who potentially have to fund all or some of their social care needs out of their retirement funds. The proposals set out in the Care Act of this year will go a long way to helping to address some of those concerns, but these changes provide a good opportunity to encourage people also to consider how they could fund any long-term care needs that might arise. The role of care fees funding in pensions decumulation needs some consideration and should be part of the wider debate. I am wondering just how the Government plan to respond to the question asked by the noble Lord, Lord Hunt of Kings Heath, in last week’s Motion of Regret tabled by the noble Lord, Lord Lipsey: how will a pension pot be treated in relation to the calculation of a non-housing asset? Do the Government expect the new flexibility in assessing pension savings contained in the Taxation of Pensions Bill to have any effect on this policy?

In summary, these bold reforms bring with them new freedoms but many new risks, and we should all strive to ensure that the pensioners of today and tomorrow can fully enjoy the former in the safe knowledge that they will have appropriate information, guidance, advice and choices to minimise the latter.