Bank of England and Financial Services Bill [HL]

Lord McKenzie of Luton Excerpts

Tuesday 3rd May 2016 Lords Chamber

[Baroness Kramer]

My Lords, I echo the objections just raised by the noble Baroness, Lady Drake. It is quite inexplicable that “retrospective” does not mean that the new regime will be recalculated from the date that people were able to access their pension pots. It seems equally unfair for people to have paid an inappropriate exit fee a year ago as it is for them to pay an inappropriate exit fee a year from now. Has the Minister considered how this will tend to inhibit decision-making by families until the new regulations are revealed? Instead of making the best decision for the family, there will be great pressure to delay that decision until the rules are clearer and, presumably, the exit fees are removed.

The amount of money involved in this process cannot be substantial but to the individual family that has been impacted, it is certainly significant. I really do not understand the Government’s thinking on this issue.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for his early warning of this amendment, for facilitating the meeting with officials and for addressing at that meeting some of the incisive and expert questions posed by my noble friend Lady Drake. As we have heard, the new clause places a requirement on the FCA to make rules to prohibit or cap certain early exit charges in regulated schemes which act as a deterrent to people accessing their pensions under the new pension freedoms. So far as it goes, this should be supported.

As the Minister’s letter of 16 March sets out,

“after the reforms took effect last April, it has become increasingly clear that early exit charges were preventing some people from accessing their pension flexibly under the freedoms”.

This was substantiated by the government consultation and evidence-gathering by the FCA and the Pensions Regulator. This process identified a number of weaknesses in the application of the freedoms policy: not just the early exit charges but a lack of clarity in the process for transferring pension savings and uncertainty around the need for financial advice when making transfers involving safeguarded benefits.

Although early exit charges are not an issue for the majority of those eligible to access freedoms, the Government have concluded that significant numbers of eligible individuals face charges which in absolute or relative terms present a “real barrier” to early access. This begs the obvious question of why this matter was not addressed as a fundamental component of the design of pensions flexibility in the first place. Why has it seemingly come as such a surprise to the Government that these early exit charges exist and could act as a deterrent? This is symptomatic of the rushed nature of the introduction of this policy more generally, which lacked the consultation and consensus-building that have typically characterised good pensions policy development.

It might be argued that before the introduction of the FCA cap—to be in place before the end of March 2017, as we have heard—there has been no detriment because by definition exit fees could not have been a deterrent to the 400,000 times that pension pots have been accessed to date. But it seems that exit fees could be a deterrent, making it less likely, weighed against other factors, that someone would access their pension pot, without these fees being an absolute bar. That is why, as my noble friend has argued, we consider that any capping should be applied not only to existing as well as new contracts but to pensions accessed from the start of the pension freedoms regime in 2015, a point supported by the noble Baroness, Lady Kramer.