Pension Schemes Bill [Lords]

Debate between Angela Eagle and Nigel Mills

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Monday 16th November 2020 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in the debate, to follow the right hon. Member for East Ham (Stephen Timms), the Chair of the Select Committee and to speak to the amendments that he has tabled and I have signed. I will start where he did, with the issue of mandatory guidance—or as near mandatory as we could make it, as I raised on Second Reading.

The right hon. Gentleman quoted the key statistics, which show that the take-up of this excellent, high-quality service—it attracts brilliantly good feedback from those who use it, and the people who provide that service accept that it changes the mind of 70-something per cent. of those who actually use it—is feebly low. Trials showed that the figure was somewhere around 3%, before the nudge was implemented. That is not what this Parliament envisaged when, five or so years ago, we introduced the pension freedoms. The safeguard we put in place at that time was to create the Pension Wise service: free guidance so that people would have the chance to check what they were doing was the right thing for them in exercising choices they did not used to have. Those choices are incredibly complicated. In many cases, they are a once-and-for-all: once they have done something, they cannot reverse out of it.

That is why, as a Parliament, we were so keen for people to have that chance of a warning and to understand how this all works. They save up all their money for 40 or so years at work and get to the very end point. In many cases, they do not understand all the options. They do not know what they are being sold and they buy the wrong thing. The data in the FCA’s own retirement outcomes review from about three years ago shows that a high proportion of people are just defaulting into a drawdown scheme with their existing pension provider. They are not shopping around and looking at the other options.

[Ms Angela Eagle]

Does the hon. Gentleman agree that at the moment the decumulation pension industry is unregulated, so there is no transparency on costs or on the kind of charges that may be applied to drawdown schemes? That is another area where people might be being scammed.

[Nigel Mills]

I am grateful to the hon. Lady. If only she was on the Select Committee, because that is an issue I have raised on a few occasions. Over the past decade or so, we have very effectively regulated the accumulation phase, but we have not yet got the decumulation phase in quite the same position, with charge caps. The default pathways are a great step forward that will help people, but there is a real danger even with that that people will end up on a default pathway with their default provider, rather than looking around to see whether there are any better options in the market.

We desperately need to find ways to get more people to access the free high-quality guidance. There is no reason for them not to do so. They do not have to pay a huge fee or wait a long time, and it is not a painful experience. It can be a relatively short phone call just to alert them to the situation and provide information. We need to get those numbers up. Last time we had a pensions Bill we had amendments calling for default guidance. We accepted a compromise that the FCA would do some work and find a way of increasing take-up so we would not need to legislate. The problem is that the FCA, I am afraid, took quite a long time to get round to starting the process. It did studies with some larger pension providers, showing that if they used the nudge with an extra reminder and gave them the information that Pension Wise exists, they could get take-up up to about 14%, or one in seven people.

I accept that we do not want or need 100% of people approaching retirement to take pension guidance. Some will be on such large pensions they will take advice that they pay for. In that situation, there is not much need for them to have simpler guidance. The irony is that the data shows a lot of people use pension guidance as a first step towards advice. They use guidance to work out what their options are and what they might need advice on, and then they go and get advice. That is a perfectly sensible use of guidance. I am not standing here saying let us have 100% of people, no matter if they have a tiny pension pot and there really is not much they can do with it, or if they have such huge ones they should be taking paid-for advice, but the right answer cannot be 14%. Even if we manage to roll out the nudge across every pension scheme in the country, we can only get to 14% of people. That cannot be the extent of our aspiration. That is why there have been various proposals on how we send people an appointment. If they do not take it, they can rearrange it, but until they have taken that appointment, or until they have signed to say that they understand they could have one but that they really, really do not want it, they cannot access their pension pot. I appreciate that some people will be rather angry when they pick up the phone to their pension scheme and are told they have to wait three weeks for a Pension Wise appointment before they can do that, but that, I think, is a price worth paying for them not to make a terrible mistake that they cannot reverse.

There is a real danger if people only get the nudge from their existing provider. We have all heard or taken part in those phone calls where we are told, “Now I’m going to have to switch the recorder on and read out some regulatory messages, but don’t worry, it’s all a bit of nonsense. It’s just one of those things we have to tell you. You don’t really need to listen. At the end just say yes.” Then they record the phone call and in that long spiel of “nonsense” there are the words, “and you have agreed to opt out of your Pension Wise appointment” and that is sufficient. That is the situation we are trying to avoid: people relying on one provider for their information.

I can accept that, as with all Back-Bench amendments, this proposal is not perfect. Is five years the right time? Are we going to end up spending far more than we need to? If, for some reason, the Minister will not accept this and has not come forward with alternative ways of doing this in law, I hope that he will at least accept that, even if we could roll out the nudge to all the providers that are as good as the ones the FCA used, a 14% aspiration is not sufficient. We could all work together, with the Select Committee and other key players, to work out what we think the right percentage take-up of Pension Wise would be, set that as a target for the FCA and if in two or three years it cannot get to that target, we can come back with legislation and put a default position in place. This would be a final warning to the FCA.

Tax Avoidance

Debate between Angela Eagle and Nigel Mills

Wednesday 16th June 2010 Westminster Hall

[Nigel Mills]

I am afraid that I do not have those data in front of me. Having worked with many businesses on where they want to locate head offices or functions, I know that one of the key determinants of their choice is the tax regime—its simplicity, the ease of compliance and the overall rate. The combination of difficulty of compliance, the rate and ease of getting certainty on tax treatment is what makes people choose where to go. The risk of a general anti-avoidance rule in that situation is that it makes certainty hard to get, and it would be bad to combine that with the UK’s very complex tax regime and some tax rates that are currently not over-competitive, although I hope that that will change. The combination of those three factors might make the UK an unattractive location for people to come to or stay. I am sure that many bodies can provide those data.

The key to tackling tax avoidance is to make tax law simple and understandable to taxpayers. The hon. Gentleman talked about tax avoidance being a way of frustrating the intent of tax law, but at times, it is important that the intent of the tax law is clear in the drafting and that the drafting achieves that intent. Often, commercial situations grow up that tax law does not specifically address, so the intent of Parliament is not easy to establish. If we get the drafting right, it might take away some of those problems. The hon. Gentleman alluded to the finance and Treasury rules, which are incredibly complex and have produced various loopholes that have been exploited in various ways. That is a case of very complex legislation that no taxpayers I can think of could understand, and that the vast majority of tax advisers—myself included—did not really understand. I suspect that a lot of staff at HMRC could not possibly understand it either. If we get that right, some avoidance opportunities will not come up in the first place.

The hon. Gentleman said that he was not the person to draft a general anti-avoidance rule. Where the previous legislation floundered was in the attempt to find words that achieved what was wanted without unnecessarily stopping or discouraging many things that we want people to do. The examples cited at the time were the various tax-advantaged savings schemes, such as individual savings accounts, which in theory would fall within a general anti-avoidance rule unless a lot of care was taken over the exemptions included. Getting the drafting right is extremely difficult, and a lot of detailed consultation will be needed if the Government want to proceed.

I have experience of dealing with some of the existing anti-avoidance legislation, which generally looks at a transaction’s main purpose or one of its main purposes, or at the main benefit or one of its main benefits—one has a choice of which way to go. The difficulty comes in defining “transaction”. What is a scheme of transactions? How many are related? Are we tackling individual components? Should the purpose of the individual components or of the scheme as a whole be looked at? Understanding what is being done becomes very complicated. For example, somebody could decide to buy a UK-headquartered multinational business. We would all say that that is a good commercial purpose, but it commonly needs to be done differently in various territories, depending on the tax needs of those territories. As a result, individual elements of the transaction might be created that look as though they are motivated by a tax benefit, whereas, overall, they are part of a main commercial transaction. We could create great uncertainty about those transactions, which might then fail because the businesses or individuals involved could not be confident that they would get the commercial benefits they were trying to achieve without being drawn into some huge, long tax dispute.

[Ms Angela Eagle]

The hon. Gentleman is making a fascinating speech illustrating precisely the problem that everybody has to grapple with, as the Minister will have to in due course. If one goes for a simple, declaratory and principles-based approach, one has to think about what is motivating people, which is difficult. The only other way of approaching it is the extremely complex and byzantine method of looking at what to do in each circumstance, which the hon. Member for Southport (Dr Pugh) was worrying about. The hon. Member for Amber Valley (Nigel Mills) is illustrating the fact that we get into difficulties whichever route is taken.

[Nigel Mills]

The hon. Lady is correct. The previous Government happened on what is probably the right balance, which is to have principles-based rules targeted at commonly exploited rules, so that taxpayers know when they are wandering on to dangerous ground and therefore need to deal with those rules, rather than having a general principle that might apply to every tax in every situation. The hon. Gentleman mentioned that it puts the burden on taxpayers to declare that what they are doing has a mainly economic benefit rather than being an attempt at tax avoidance. That is a huge burden to put on taxpayers. I am not sure that we should put the burden of knowing how to comply with a general rule in complicated and innocent situations on to every payer of every tax in the country. I am not sure if that is what he intends.