Pension Schemes Bill

Baroness Hollis of Heigham Excerpts

Monday 12th January 2015 Lords Chamber

[Lord German (LD)]

My Lords, I rise to support the remarks of the noble Lord, Lord Best. In doing so, I declare my interest as an unremunerated member of the advisory committee for the Equity Release Council. I am, I hope, still in extended middle age, which is a new term that I fully endorse.

Housing wealth, along with other assets, means that the guidance is crucial given the disparity between the amount that people tend to have in a DC pot and their housing wealth, which on average is more than 10 times as much. That is a considerable amount of money or resource which people will need to take into account. The FCA standards, which were helpfully published this morning by the Treasury, state that:

“In terms of content, the standards require that the guidance session must … request information about the consumer’s financial and personal circumstances that is relevant to their retirement options”.

That requires the adviser who is going to take people through the guidance session to ask them for information about their housing wealth, but it is not explicit in the standards, and while we know that they are nearly finalised, there is time for the Treasury to make them more transparent about what is required. Because of the relationship between the two amounts of money, the instruction ought to be clarified, perhaps not in the document but in the training so that it is always an issue which people take on board. Will the Minister indicate whether the sentence in the FCA standards set out in the document produced this morning by the Treasury implies that housing wealth, savings and investments will be taken into account? Will he consider making it more explicit in the information that is provided to the consumer and to those providing the guidance?

[Baroness Hollis of Heigham]

My Lords, I would like to ask the Minister a question which is triggered by the important issues raised by the noble Baroness, Lady Greengross, and the noble Lord, Lord Best. However, I want to look at it from the other way round, which is the situation of someone who is 55, is on housing benefit, and has £20,000 locked away in a small pension pot. At the moment, if you have capital of more than £16,000 and you are pre-retirement, that is an absolute block to any further income-related benefits. Different rules apply when you come to retirement. The assumption throughout is that you can access your pension only at the point of retirement, when different rules apply. What will happen now? Can the Minister help us on this? The rules are that if you have capital that you could get at if you applied for it, you are treated as having that capital. While it was tucked away in a pension and not accessible until you reached 60 or 65, you could not have access to it and so it did not affect your entitlement. But in future you will be able to access your capital in such a way that, under the Housing Benefit Regulations 2006, Regulation 49(2), because you can access your capital, you are treated as though you have that capital, which would therefore automatically cut you off at £16,000—you have £20,000 in your pot —from any access to housing benefit. Can the Minister clarify how this will work in the future?

[Lord Newby]

My Lords, I am grateful to the noble Baroness, Lady Greengross, for giving me the chance via the debate on these amendments to address a number of important issues in respect of the guidance service. I turn first to Amendment 34. This seeks to require an annual report on consumer outcomes. As I said in the earlier debate, in terms of the overall policy of greater flexibility, the Government are committed to keeping the policy under continual review, including through the monitoring of information collected on tax returns and tax records. This was confirmed in the debates in the other place late last year on the Taxation of Pensions Bill, which it then was.

How the market evolves to respond to consumer needs is where the regulators come in, in particular the Financial Conduct Authority. As I mentioned earlier in addressing the amendments tabled by the noble Lords, Lord Bradley and Lord McAvoy, the FCA has a strategic objective to ensure that the markets function well and a specific operational objective to ensure that consumers of financial services are appropriately protected. The FCA has recently published the provisional findings of its Retirement Income Market Study. In this report, the FCA committed to monitor the retirement income market, and if consumers appear not to be getting the support or products they need or if competition is failing to drive good value, it will make whatever intervention is appropriate. The noble Baroness will, I hope, be reassured by the specific commitment of the FCA to monitor consumer outcomes,

“we will monitor the market to track developments to assess whether these risks arise and if so, the impact on consumer outcomes”.

I am also grateful for the related amendment from the noble Baroness which seeks to expand the new duty of the FCA to protect consumers using guidance through its role in setting and monitoring standards for the provision of pensions guidance by designated guidance providers. The noble Baroness raised again the question asked earlier about the supervision of guidance and the respective roles of the FCA and the Treasury. To be clear, the FCA has the responsibility for supervising designated guidance providers’ compliance with the standards which it has set. While the Treasury itself is not a designated guidance provider, it has committed in the update published today that it will fully comply with the FCA standards as far as that is appropriate, because the Treasury is responsible for the online channel.

More generally in respect of the FCA and its powers, the noble Baroness will know, I am sure, that the Financial Services Act 2012 gave the FCA wide-ranging product intervention powers. For the first time it is equipped to ensure that new retirement income products are designed and sold in a way that does not cause detriment to consumers. As for assessing the consumer outcomes resulting from the guidance service specifically, with which Clause 3 is concerned, I can assure the noble Baroness, as I have already the noble Lords, Lord McAvoy and Lord Bradley, that the Government are committed to a full programme of monitoring and evaluation of the guidance service, which will encompass the delivery partners’ provision to ensure that the service is operating effectively and successfully in supporting people in their retirement decision-making.

--- Later in debate ---

I hope that I have been able to reassure the noble Baroness, Lady Hollis, on most of her amendments. We are coming on to the second line of defence before long, so I shall deal with that once rather than twice. On the specific question raised by the noble Baroness about whether the £20,000 pension pot would be taken into account, as I said in response to an earlier amendment, the broad principle is that eligibility for benefits should not be significantly altered by this change. However, I will write to her to clarify that.

[Baroness Hollis of Heigham]

The point is that housing benefit is the one benefit that continues in its current form both before and after retirement. Nearly all other benefits change at the point of retirement. Therefore, the issue does not arise. For example, there is no assumption that there is a capital cut-off if you are on pension credit, merely an assumed tariff income. What you are doing now is introducing some of the potential privileges associated with protecting pensions to a pre-pension age. If you do that, that is fine, but if you do not, it means that housing benefit will be wiped out for someone who has capital that they can access, even if they choose not to do so. As the current rules stand, they would have to be treated as if they had accessed that capital, and then housing benefit would be wiped out for someone at the age of 55 in the way it would not be wiped out if that person was 65.