Pension Schemes Bill

Debate between Richard Graham and Stephen Timms

Tuesday 25th November 2014 Commons Chamber

[Stephen Timms]

I fear my hon. Friend is right. If in practice only a tiny proportion of people, or even a modest proportion, take up the guidance being offered, there is every chance of very serious problems in this market in the future. The House cannot be satisfied with that likelihood.

A number of organisations have pressed vigorously for a second line of defence requirement and they make a telling case. Proceeding without that safeguard will leave many consumers exposed—we should bear in mind that this is all supposed to happen from next April—making people guinea pigs and opening up the real possibility of another mis-selling scandal in the coming months.

[Richard Graham]

The right hon. Gentleman raises an issue that may not technically arise from the amendments that we are debating, but in which all hon. Members have some interest. What could a possible second line of defence look like?

[Stephen Timms]

That is a good question. I do not have a proposition to make. I would hope that those who are reflecting on these matters, particularly in the FCA, will be giving that some thought. There is time for it to incorporate something else and to put that second line of defence in its conduct rules. What it would look like, I am not in a position to propose this afternoon, but the need for it is clear. If the hon. Gentleman is about to propose something, I would welcome that.

[Richard Graham]

The right hon. Gentleman is being very generous and Madam Deputy Speaker is indulging us gently so I will be brief. I guess—perhaps the Minister might nod sagely at this stage—that this is an issue primarily for the FCA, but I hope that the message has gone out from us today that we are interested in it.

[Stephen Timms]

I am grateful to the hon. Gentleman. I hope that those who follow these debates will take that as an endorsement of the need for that second line of defence to be devised and put in place. If it was not there, there is a real risk of exposing consumers to risk of a kind that we have all seen before, and which would undermine these important reforms from the outset.

As the Minister explained, independent financial advice amendments are set out in new clauses 7 to 13. New clause 7 requires that when a member requests a transfer of safeguarded benefits, which are anything other than the cash balance or other money purchase benefits, with a view to acquiring flexible benefits, which are anything that is not safeguarded, the trustees

“must check that the member or survivor has received appropriate independent advice”.

I want to pick up a number of issues. What exactly are the trustees being required to do? Are they being asked to evaluate the appropriateness of the advice that was given to the scheme member? It does not seem right that they should be called upon to do that. It is quite a big undertaking for them and they are probably not in a position to do it. That wording could be understood to mean that that is what they are being asked to do. I would be grateful if the Minister commented on that.

We are seeing the creation of two new categories of benefits—safeguarded benefits and flexible benefits. I gather that the use of these terms is completely new; they are not used elsewhere in the statute. We have three new categories of scheme set out in the Bill, but this is the first time that we have had reference to safeguarded and flexible benefits. The use of those terms seems unfortunate, because safeguarded rights has a particular meaning, which was familiar when, admittedly now rather a long time ago, I was in the office that the Minister now holds. In the context of contracting out, safeguarded rights had a particular meaning. That term is now being introduced in the amendments before us to mean something completely different. The term “flexible” also has a specific meaning in pensions tax terms. Again, there is a real risk of confusion in reusing that particular term to mean something very different from the one people familiar with pensions tax arrangements understand it to mean.

The National Association of Pension Funds has argued that the statute should state that where the member has requested a transfer of his or her benefits, other than cash balance or other money purchase benefits to a scheme in which they will be paid a cash balance or money purchase benefits, the trustees should require appropriate proof from the member that he or she has received independent financial advice from a person authorised by the Financial Conduct Authority to give such advice. The regulations could define “appropriate financial advice” in that way. The NAPF makes the point that the language in front of us is rather ambiguous about what exactly is envisaged. Perhaps the Minister could comment on the alternative wording proposed by the NAPF, which it thinks would make it clearer and would not give the impression that trustees were being called upon to do something that is actually very difficult for them.

New schedule 1, as the Minister has told us, deals with the detail of the calculation of the cash equivalent transfer valuation, replacing the current CETV provisions under the 1993 Act. I fear that the tangle gets worse here. The distinction is between money purchase benefits, flexible benefits that are not money purchase benefits—in other words, cash balance benefits—and benefits that are not flexible benefits, previously defined as safeguarded benefits. There are also transferable benefits, which are benefits

“by virtue of which this Chapter applies to the member.”

This is all quite complicated stuff. One of the fears is that the changes in terminology, and the reuse of previously familiar terms to mean completely different things, significantly increase the amount of confusion being created. Instead of just removing the current statutory requirement that all benefits be transferred if a member wants to transfer any benefits, the effect here is to prohibit schemes from having rules that require transfer of other categories of benefits if the member wants to transfer only one category, or that

“prevent a member who exercises a right under this Chapter in relation to a category of benefits from accruing rights to benefits in another category.”

Again, the NAPF makes the point that that last provision is “incredibly wide”. It points out that schemes do not let members participate in various sections willy-nilly; there are all sorts of rules about who can accrue what sorts of benefits and under what circumstances. The fact that somebody has asked for a CETV in one section of the scheme should not entitle them to benefits in other sections, but that is the way that this provision has been written. Perhaps the Minister could comment on whether that is what he really intends.

New clauses 14 to 16 seem to allow the Secretary of State to forbid draw-down from schemes that give members a guaranteed return, because draw-down can only be from money purchase benefits. That seems odd as well. Perhaps the Minister could tell us whether he or his officials discussed that with anybody before producing these new clauses. Certainly, the NAPF tells me that it is not aware of any discussions about that with it, or with anybody else. It well understands that schemes with guarantees must comply with the funding regime, but it does not understand why they should not be allowed to do draw-down or UFPLS—uncrystallised funds pension lump sum. Perhaps the Minister could comment on that.

The Bill requires members of defined benefit schemes to have received independent financial advice before being permitted to transfer into a defined contribution arrangement, unless they have pension wealth amounting to less than £30,000. The NAPF is concerned that that will impose a requirement that it would be very difficult, if not impossible, to meet. People will be required to prove that they do not have pension wealth in excess of £30,000, which will be very difficult for the average saver. There is the potential for a lot of confusion for savers attempting to assess their level of pension wealth. They might not realise that previously crystallised pension assets will be counted towards that threshold. They might find it difficult to assess the current value of such assets.

The average person may well not understand—nor should they be expected to understand—that the £30,000 will be measured not by the current CETV system but using the methodology created to measure benefits against the lifetime allowance, information that members are not currently entitled to get from other schemes. As a result, many defined benefit members will not be able to exercise their rights in the way that the Bill intends. The NAPF urges that savers should be able to access a total of £30,000 of defined benefit benefits calculated on a CETV basis, regardless of any additional defined contributions savings that they may have. Will the Minister respond to that point?

As with the previous group of amendments, I ask the Minister to set out his intentions on the regulations that are envisaged. He gave a clear and helpful response to my earlier question, but as he is well aware, it is good practice where regulations are referred to in primary legislation for Members who are scrutinising that legislation at least to have a draft in front of them when determining whether they support the provisions. The Minister said that it was not possible to give the costs for trustees because there was not yet a draft of the regulations. I think he will accept that it is very difficult for Members to decide whether to support these provisions if the House has not been told the cost for those who have to operate the regulations. Telling Members that the Government have no idea, at this stage, of what the cost of all this will be for everybody makes it impossible for us to do the job that we are required to do in properly scrutinising the costs and benefits that the legislation provides.

I was rather down-hearted by the content of the Minister’s previous answer, but I will ask the question again as regards these measures. Does he anticipate bringing forward the regulations on the same sort of time scale as the one he indicated earlier? Is there any prospect at least that draft regulations might be available to Members in the other place when they scrutinise the Bill? Does he expect that, as he said before, the majority of the regulations will be subject to the negative rather than the affirmative procedure? Will he draw the House’s attention to any exceptions, as he did last time, and point to those that will be subject to the affirmative procedure?

I am not going to urge the House to vote against any of the measures before us. I look forward to hearing the hon. Member for Reigate (Crispin Blunt) speak about his amendment. I have to tell the Minister that the House is being placed in a pretty unsatisfactory situation. I hope that even though we have not been able properly to scrutinise these measures because of the lack of information to support that scrutiny, he might encourage us by saying that those in the other place will have a better chance to do so.

Pensions and Social Security

Debate between Richard Graham and Stephen Timms

Wednesday 13th February 2013 Commons Chamber

[Stephen Timms]

We have made it plain, in all the three uprating debates since the election, that in our view there would have been a case for a temporary move from RPI to CPI uprating, as a contribution to reducing the deficit. Unfortunately, the Government decided that this should not be a temporary move, but a permanent move—or so we thought. Now it turns out that they are not even uprating in line with CPI for a large part of the benefits, but the position is the one that I have set out.

[Richard Graham (Gloucester) (Con)]

Will the right hon. Gentleman confirm whether the change from RPI to CPI, for the pension indexation of Labour party agents, is temporary or permanent?

[Stephen Timms]

I think the hon. Gentleman is asking me a question about the administration of the Labour party on which, I am afraid, I am unable to assist him.

It is worth reflecting on the history of the triple lock. In its first year, it was announced but not actually implemented. If it had been implemented, it would have produced, from the Government’s point of view, an embarrassingly small pension increase. The Minister, sensibly, chose to override it and instead apply a larger increase that in that year was in line with RPI. At its first outing, therefore, it failed. In its second year—last year—it was actually implemented, and delivered an increase in line with CPI, along with working-age benefits. This year it is being applied again, and for the first time it is delivering something better than CPI uprating—a point made by the Minister.

The increase in CPI, as measured last September, was 2.2%, and the uprating amount in line with the triple lock is 2.5%. So that is it: in comparison with the CPI uprating, which until recently was the Government’s policy for working-age benefits, the triple lock has delivered a higher pension by a paltry 0.3%. Of course, if it had been applied in the first year, it would have been less than the CPI uprating. The triple lock has delivered a higher pension of 0.3% over three years—a rather derisory achievement. It is clear that the triple lock has been something of a damp squib. Of course, if it was something other than a damp squib, the Chancellor would have vetoed it long ago.