Occupational Pensions: Survivor Benefits

Lord Bradley Excerpts

Monday 13th July 2015 Lords Chamber

[Baroness Altmann]

My Lords, the Government are absolutely committed to equality, and all accruals from now are on an absolutely equal basis. However, past funding of pension schemes would not have built in the cost estimates for equality. That is why we have to be careful and consider the issue most carefully before imposing a cost of £3.3 billion on these pension schemes. The cost for public sector pension schemes would be £2.9 billion, which has not been funded, and the cost for private sector schemes would be £400 million, which has also not been funded. Finding that kind of money when employers are already struggling is not straightforward.

[Lord Bradley (Lab)]

My Lords, the Minister said in the Sunday Times last November:

“There has been so much unfairness in pensions over the years. Sadly, this is another unfairness, and should not be permitted these days”.

In the light of that, are the Government going to bring forward proposals quickly to match those words? What provision have they now made to meet the costs of addressing restrictions on survivor benefit payments if that decision is lifted?

[Baroness Altmann]

The current treatment has been challenged in the courts and been found to be lawful. If the Government had a ready source of funding, the issue would have been dealt with by now. These issues are complex and are still being considered. We will issue our response in due course.

Pensions: Reforms

Lord Bradley Excerpts

Thursday 18th June 2015 Lords Chamber

[Lord Bradley (Lab)]

My Lords, I also congratulate the noble Lord, Lord Flight, on initiating this wide-ranging and thoughtful debate. I was particularly struck by his statistic on the average age of the House. Having recently reached state retirement age, I am pleased that I still fall below the average age in this House. I also welcome the noble Baroness, Lady Altmann, to her new position as Pensions Minister and, like all noble Lords, I look forward to her maiden speech at the conclusion of this debate. As has been rightly said, we know that she has tremendous expertise in this area, which everyone in this House will benefit from. She is warmly welcomed.

In the limited time available to me, I will concentrate on the issue that I believe is currently foremost in the public’s mind—that is, how the pension freedoms flowing from the Taxation of Pensions Act and the Pension Schemes Act, which came into force in April of this year, are being implemented and how they are impacting on customers. I said at Third Reading of these Acts that implementation was barely nine weeks away, that I remained deeply concerned at the speed at which changes were being introduced and that the issue,

“will be closely scrutinised both inside and outside this House to ensure that the public’s interests are properly and fully thought through and protected”.—[Official Report, 5/2/15; col. 797.]

It is clear that this remains our number one priority, although I recognise from the very thoughtful contributions to this debate that there are a number of other important issues, such as the single-tier pension, the triple lock and auto-enrolment, which we must return to in future debates.

Let me be clear again that Labour supports the introduction of greater flexibilities in how people access their defined contribution pensions, as we believe that it is right for people to choose how to use the money that they have saved. However, we have said that there are three tests for the reforms. The advice test—is there robust advice for people providing for their retirement and measures to prevent mis-selling? The fairness test—the new system must be fair, with those on middle and low incomes still being able to access the products that give them the certainty in retirement that they want, and the billions that we spend on pension tax relief must be available across the board. The cost test—the Government must ensure that this does not result in extra costs to the state, either through social care or pensioners falling back on means-tested benefits, such as housing benefit. We will continue to monitor the implementation of the reforms against these tests.

In the run-up to the introduction of the reforms, we called for the FCA to introduce a second line of defence, requiring providers to give information to those looking to access their pension pots. We were pleased that during the passage of the Bill the Government accepted that call from this side of the House.

We also called for the Government to consult on developing a charge cap for income draw-down products, with a focus on those offered by a saver’s own pension provider, on the assumption that these customers may have taken the least active approach to choosing a new product. At that time we highlighted the research from Which?, and I quote from it again:

“Based on a scenario of someone with the typical pension pot of £36,000, drawing down £2,000 a year, we calculate that a cap of 0.5% would leave someone in our scenario around £10,300 better off than with charges at 2.75%. A 0.75% cap would mean that they have a total of around £8,800 more over their retirement and a 1% cap would give them around £7,500 more”.

So obviously it is pleasing that the Government are now consulting, through the FCA, on these caps. As we have heard in the debate, though, these charges and the consultation must be transparent, and we must come to a sound but quick conclusion to ensure that customers do not continue to be ripped off by high charges.

During the implementation phase, in the wake of consistent concern about fraud, we asked the Government to take action to give savers greater protection. We suggested that a Labour Government would introduce a new cross-government task force on tackling fraud and scams, overseen by the Pensions Minister. We also suggested a new kitemark so that savers could recognise regulated pension products, and a cooling-off period so that savers had the time to make a final decision about their pension pot to protect them from handing over a lifetime’s savings to potential fraudsters. I am sure that the new Pensions Minister will want to reflect on those proposals in her new role.

Let us consider a little further what has happened in the three months since the introduction of the flexibilities. Already, in the wake of their introduction, many concerns have been reported about fraud and, as my noble friend Lord Hutton mentioned, restrictions on the public’s access to their savings. First, I turn to fraud again—I think it is a very important matter. There remain persistent concerns that companies offering fraudulent or poor-value products will use the reforms as an opportunity to persuade savers to part with their cash. The Daily Mail reported on 23 May this year that:

“Pension savers are being warned to be on their guard against fraudsters who pass themselves off as working for Pension Wise, the Government-backed pension guidance service—but whose aim is to con you out of your savings”.

Research from the consumer group Which?, published six weeks after the pension reforms came into effect, found that one-third of over-55s who are not yet retired have already been contacted by someone looking to sell them a potentially poor product. The Minister has suggested that tackling this kind of fraud is one of her priorities in her new role as Pensions Minister. What action are the Government taking now to monitor the levels of potential fraud in the market, and how are they ensuring that, alongside the prevention of fraudulent products, savers are protected from products that may offer a higher degree of risk than they realise they are taking on without full knowledge?

Secondly, there is the difficulty of accessing savings. The Daily Telegraph has been running a campaign highlighting the difficulties that some savers face in accessing their pension savings in the way that they want to. There are two main issues: first, providers do not yet offer the type of income draw-down products, or options for taking some of their savings as cash, that the savers actually want. The ABI has been robust in defending pension providers’ behaviour in this context and highlights the fact that these reforms have been introduced at speed. A Financial Times report on 13 June quoted Huw Evans, chief executive of the ABI, who said that the industry said that it had been set an unrealistic timetable to implement the changes announced by the coalition Government in the 2014 Budget. He went on to say:

“So much has been done at the last minute … The first thing we need is absolute regulatory certainty about what providers can do and what they can’t do”.

I would be grateful if the Government would comment further on what they are doing to look at that issue.

The third issue that I want to highlight is advice, which several noble Lords have mentioned, and which is a crucial part of public confidence in the new system. Let us consider providers requiring savers to access advice before accessing their pension pot. Several providers require savers to access advice before taking out their pensions as cash or in an income draw-down scheme. This highlights two problems. First, some providers see a lack of regulatory clarity around their responsibility if savers take up options that prove not to be of best value, or indeed detrimental to their finances. The FCA has published guidance to providers but says that it will review it this summer. Providers argue that this could be seen as a consequence of the rushed nature of the reforms. Secondly, there is a lack of affordable advice to those with smaller pension pots. Pension Wise can offer only guidance, not regulated advice. I would be grateful if the Minister would clarify the circumstances in which the Government believe that people should take advice before accessing their pension pot, and set out what they are doing to ensure that affordable services are there for all those who need them.

Most importantly on the question of advice, what action are the Government taking to monitor the take-up of Pension Wise and advice from citizens advice bureaux, and the level of customer satisfaction with the service? I put down some Parliamentary Questions on this matter but, unfortunately, to date they have not been answered—otherwise, I might not have had to press the Minister on those points today. There also appears to be an absence of any plans for the collection and publication of data on Pension Wise usage. This would be an important measure, providing basic user feedback on the service itself, its quality and whether it was helping people to navigate the new pension freedoms.

What action are the Government taking to monitor the type of products that people are accessing, and the implications of this for access to means-tested benefits and further cost to the Government as a consequence? What current assessment have they made of whether the increase in tax revenue that they were predicting in 2014 from the freedoms will be realised? Are the Government enabling people to sell annuities that they have already purchased in exchange for a cash sum? What progress are they making on that reform?

As I said, time is very limited and these are extremely important issues for us to debate. I commend all the contributions that have been made. I am sure that all of us across the House seek to ensure that the consumer’s interests are always protected and that the public remain confident that the new freedoms being rolled out are in their best interest. I know that we will receive a very thoughtful response in the maiden speech of the noble Baroness, Lady Altmann, to all the issues raised in the debate. I welcome the Minister to the Dispatch Box.

Pensions: Draw-down Charges

Lord Bradley Excerpts

Tuesday 9th June 2015 Lords Chamber

Asked by

[Lord Bradley]

To ask Her Majesty’s Government what assessment they have made of charges on drawndown pension products; what plans they have to assess such charges on an ongoing basis; and whether they have any plans to impose a cap on those charges.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

The new pension flexibilities have given people greater choice to select the retirement product that is right for them. The pensions industry is designing new draw-down products and will actively monitor the market as it develops. We already have the power to limit or ban decumulation charges and if we see that providers are charging excessive fees, we will not hesitate to act.

[Lord Bradley (Lab)]

But does the Minister agree with his new ministerial colleague, the Pensions Minister, the noble Baroness, Lady Altmann, who I am pleased to see on the government Bench, when she said in the Guardian this year that a cap on draw-down charges was important,

“so that customers are not ripped off”?

She further said:

“A 2% a year charge just to keep your pension invested and have access to it would take away much of the investment return and be a terrible deal for customers”.

In the light of these comments, do the Government intend to introduce a cap on such draw-down charges?

[Lord Freud]

We are going to see how the market develops. It has been going for only two months, and if it looks appropriate, as I just said, we will introduce a cap on charges. I know that my new noble friend, the Minister for Pensions, absolutely agrees with that. The Prime Minister has also promised that we will keep a close eye on this.

Underoccupancy Charge: Carers

Lord Bradley Excerpts

Monday 10th November 2014 Lords Chamber

[Lord Freud]

We have aimed to get rid of some of the areas where people are just not taking part in the economic life of the country. One of the things that has been happening is that the proportion of people who have been outside the labour market and in social housing has dropped dramatically from a peak of 49% at the beginning of this Parliament to 41% now—the lowest-ever level. We need to look to help all people that we possibly can to take a full part in the economic life of this country.

[Lord Bradley (Lab)]

My Lords, the Minister’s department claims that the focus and scope of the family test is on strong and stable family relationships, with particular focus on extended families, particularly when they are playing a role in raising children or caring for older or disabled family members. Can the Minister explain to the House how the bedroom tax passes this test?

[Lord Freud]

The removal of the spare room subsidy is designed, at its heart, to save money—it saves £500 million a year—and make sure that housing is allocated more efficiently. There are signs of that policy now working.

Jobseeker’s Allowance

Lord Bradley Excerpts

Monday 21st July 2014 Lords Chamber

[Lord Freud]

I think it would be pointless to slow down universal credit, which is now rolling out smoothly. This year, we are rolling it out right the way through the north-west, moving through couples and families. Any delay to that process withdraws support from the people who need it. We have, however, rolled out the claimant commitment, which is part of universal credit, right through the country. The whole drive of that reform is to help and coach people into work, and that seems to be having a good effect.

[Lord Bradley (Lab)]

My Lords, the Minister will no doubt have seen the recent report from the Resolution Foundation suggesting that the extent of the fall in real wages has been underestimated due to the rise in self-employment. What steps are being taken to ensure that we have an accurate assessment of real wages?

[Lord Freud]

The self-employment figures are up strongly, but I need to point out that 60% of the gain in self-employment since 2010 has been in higher-skilled, managerial and professional jobs. It is interesting, when you look at real, living wages, that recent settlements have moved above inflation. There is a lot of variation within the pay settlements, and those in finance and business services have fallen by 0.7%, whereas the figure for retail is up by 2.2% and for manufacturing by 1.8%, running with or above inflation. Some of the suffering being seen in the City is something that I suspect the party opposite would not weep too hard for.