Cathy Jamieson
Main Page: Cathy Jamieson (Labour (Co-op) - Kilmarnock and Loudoun)Department Debates - View all Cathy Jamieson's debates with the HM Treasury
Taxation of Pensions Bill
Cathy Jamieson Excerpts(10 years ago)
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Mr Gauke
At the time of the Budget, we set out our estimates of the implications for the public finances, certified by the Office for Budget Responsibility. We have also made a number of announcements since the Budget that will have a revenue impact. The Office for Budget Responsibility will return to this issue at the autumn statement, when it will set out its numbers in the usual way. The estimates have yet to be certified by the Office for Budget Responsibility—as one would expect, given that we are still some way from the autumn statement—but an update on the numbers that were published in March will also be set out in December.
The changes we have announced have resulted in moving some revenue from one year to another, rather than fundamentally changing the face of the public finances, so in broad terms their overall tax impact is not considerable, certainly when compared with the substantial changes that the Government have made, such as increasing the state retirement age or reforming public sector pensions.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
To follow up the question from my hon. Friend the Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), there has been a suggestion that the change could lead to a windfall for the Treasury at a time when that would be very helpful for future Budgets. What does the Minister say to that suggestion, which has been made by some in the real world out there?
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I look forward to an interesting debate on the detail of the Bill, both today and in Committee.
Opening the debate on Second Reading of the Pension Schemes Bill, the Minister for Pensions said:
“we will be very busy over the remaining months…taking the pensions system to a…better place.”—[Official Report, 2 September 2014; Vol. 585, c. 195.]
I agree with the first part of that statement: we will indeed be very busy. As for the second part, the extent to which we can improve the Bill remains to be seen. The efficacy of any Bill should be judged only according to its outcomes, and at this stage there are a number of concerns about the outcomes of this Bill, which are far from certain. There are a number of unanswered questions. My hon. Friends have asked a number of them today, and I am sure that more will arise during the Bill’s passage.
As the Institute for Fiscal Studies said at the time of the Budget, the reforms in the Bill will change the pensions landscape dramatically, in the ways in which people take income in retirement and the pensions industry is structured. As the Minister has explained, from 6 April 2015 those aged 55 and older—I should perhaps declare an interest, as I am a member of that age group—will be granted far more freedom. They will be able to gain access to as much of their pension savings as they wish, as often as they wish.
The Minister for Pensions has described the Opposition’s view of the new freedom as “ambivalent”, but that is something of a misrepresentation. We are not ambivalent about what the Bill purports to achieve. Since the reforms were announced in the Budget statement, our position has been consistent, but, for the avoidance of doubt, I shall restate it. We support increased flexibility and choice for savers, which is why we have long advocated reform of the annuities market to help people shop around to get a better deal. However, it would be remiss of us not to identify and highlight the potential problems and pitfalls that the Bill presents. One of my main concerns, which has already been raised today, relates not just to what it seeks to achieve, but to the speed at which it seeks to achieve it.
Sammy Wilson (East Antrim) (DUP)
Does the shadow Minister agree that, given the increasing array of choices now available, one of the most important decisions anyone can make will be how comfortably can they live in retirement? The guidance and help the Government provide on making these difficult choices is very poor.
Cathy Jamieson
The hon. Gentleman makes a very important point which I will deal with in some detail. It is one of the most crucial issues not just in respect of the Bill, but of the wider pensions landscape.
Dame Anne Begg
There is confusion as to what the proposals will mean in practice because there has not been the discussion across the political spectrum and among social partners that took place for the accumulation stage—making sure that more people save for their retirement. There has been little if any discussion about the decumulation stage, beyond criticising annuities. That is part of the problem with this process: the Government pulled a rabbit out of a hat at the Budget, without building a broad consensus to ensure that everybody is on board.
Cathy Jamieson
My hon. Friend makes a valuable point which I will address in due course. Before I do so, I want to put on the record one of the concerns expressed by the TUC, which, in keeping with the point made by my hon. Friend, said that it believes that
“the measures contained in the Bill are being rushed in, thus overturning the emphasis on consensus and consultation that has been a positive feature of pensions policy making over the last decade.”
Sheila Gilmore (Edinburgh East) (Lab)
Is my hon. Friend concerned that, given the speed of these changes, some of the other longer-term reforms such as auto-enrolment may be impacted on? Is she worried that these issues might not have been properly looked at?
Cathy Jamieson
There are two pension Bills running side by side in the House and I do not want to stray into discussing the detail of the other one which is being considered in Committee—I am sure you would not allow me to do so, Mr Deputy Speaker. However, my hon. Friend makes a valuable point.
Lady Hermon
The hon. Lady is being very generous in taking a number of interventions. She has the opportunity to confirm that the Labour party would support an amendment to the Bill to make it a specific criminal offence for unscrupulous, so-called pensions advisers to swindle innocent people out of their pensions and lifetime savings. Is that not a valuable amendment that could easily be made and confirmed by the Financial Secretary this afternoon?
Cathy Jamieson
The hon. Lady makes an important point, and I listened carefully to her intervention on the Financial Secretary. As a constituency MP, I am aware of people who have been swindled out of their life savings through unregulated, unscrupulous people giving them bad advice; indeed, the Financial Secretary has heard me talk about this issue when considering other Bills. I am very interested in what the hon. Lady said about such an amendment, which we would want to consider to give as much protection as possible to consumers.
Sammy Wilson
A point that the Financial Secretary skirted round when he announced the changes to annuities was that they can now go down, as well as up, as a result of this legislation. Does that not bear out the concern raised by the hon. Member for North Down (Lady Hermon)? If such flexibility is provided for the providers, there is a real danger that people could be sold a pup and find that their income unexpectedly diminishes over time?
Cathy Jamieson
That is an important point, and these are exactly the reasons why it might have been useful if more time had been provided for discussion within the industry and with the partners in the process, so that we can get to that better place that I talked about at the outset. It is not just about giving people more choice; it is about giving them the ability to make choices that are wise not only at the moment when they choose to draw down or take part of the lump sum, but that are based on providing for the future.
One of our concerns is that although the reforms may well give greater choice, we have to consider whether that greater choice translates into better value and a better deal for those involved in the process. People making use of the flexibility will of course have new opportunities, but as we have heard, new opportunities potentially bring new risks. Those who purchase the wrong products, invest unwisely or fall victim to unscrupulous practices in the unregulated market will see their money swiftly evaporate. Those who use the new flexibility to take out cash from their pension savings may find that they are paying a higher rate of tax. We can also expect a deluge of new products to flood the market, and while some of them may well be good, by the very nature of things, some may well be less so. That is why it is important that people get good-quality guidance to help them make the right choice.
Debbie Abrahams
Is my hon. Friend concerned about the question of the capacity to deliver the advice that the guidance guarantee is meant to supply? According to evidence that the Pension Schemes Bill Committee took last week, the figure is less than 25%. It is not just that poor advice might be given; there may be none at all.
Cathy Jamieson
My hon. Friend makes an important point, and I read with interest the transcript of the Committee’s evidence session. People need good-quality guidance to help them make the right choices. We must guard against mis-selling, for example—we cannot afford a repeat of the payment protection insurance scandal. We must prevent people from falling victim to exploitation and illegality. We know that pension liberation fraud has already endangered millions of pounds in savings, affecting many people. That is the reason why I am concerned about the way the Government have handled these reforms, which to some seem a bit rushed and haphazard.
Barbara Keeley (Worsley and Eccles South) (Lab)
Is there not also the concern that people will end up spending a lot more of the pensions they have drawn down into savings accounts on social care? This Government have forcibly removed £4 billion from adult social care budgets, so we know that people are paying more for social care. If the money is held just in savings accounts, many more people will end up being liable for those costs.
Cathy Jamieson
The point my hon. Friend makes is absolutely crucial for many people, which it is why it is so important that they get guidance, so they can make sensible decisions to provide for the long term. I will say a bit more about social care and other services later, if I have the opportunity to do so.
After the Chancellor announced the overall pensions reforms to the House in the Budget statement, we set out three tests against which we believe they should be measured. The first was the advice test: would there be robust advice for people on providing for their retirement and measures to prevent mis-selling? The second was the fairness test: that the new system would 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. The third was the cost test: that the Government must ensure that these reforms do not result in extra costs to the state, either through social care or pensioners falling back at a later stage on means-tested benefits such as housing benefit. We stand by those tests and would argue that so far, the Government have been unable to give assurances on any of those points.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Is my hon. Friend aware of a study carried out by Ipsos MORI which showed that 12% of those who were eligible to do so would withdraw their pension pot entirely next year? When asked what they would do with it, one in five suggested that they would use at least part of it for a holiday.
Cathy Jamieson
Yes, I am indeed aware of that report. I shall go on to raise similar concerns and seek answers from the Minister to them in due course.
In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.
I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.
The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.
To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that
“good consultation and a good period to execute”
improved the chances of legislation being successful.
However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.
I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.
However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:
“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”
The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.
I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:
“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]
Perhaps the Minister will be able to respond to that question when he sums up the debate today.
In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.
Mr Gauke
As ever, the hon. Lady is making a thoughtful and probing speech. It would be fair to say, however, that her tone is not one of great enthusiasm for greater flexibility and choice in the pensions system. Will she tell the House whether her party is considering reversing the changes that we are introducing today?
Cathy Jamieson
I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise
“complex, opaque and overpriced products”
that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.
Cathy Jamieson
I agree with my hon. Friend. That fiasco is a recent memory for many of us, and it is our responsibility to ensure that all the risks, as well as all the upsides, are explored.
I should like to quote the ABI, which has stated:
“Giving customers more choice is welcome but it is also imperative to recognise that good guidance and advice is vital to prevent people making decisions which could lead to retirement poverty and/or to them giving up valuable benefits.”
That is a very important point. People in the industry also recognise that we need to have some caution and ensure that we do the right thing.
That brings me neatly to the fraught issue of the guidance guarantee. The Minister talked a bit about that in responding to interventions, and although I recognise that it is not within the specific ambit of the Bill, it has a great bearing on it. That guarantee is integral to the measures in the Bill, because if the Bill is to be a success, the guidance must be fit for purpose. It is not unfair to say that the continuing concerns and confusion over the guidance guarantee do not give confidence to people who are worried about how they are going to access the guidance. It seems as though the guidance was a secondary consideration. As I have said, the pension reforms were announced without the prior consultation with the industry that we might have expected. Some of the confusion was added to when the Chancellor stated that his reforms would be accompanied by advice, given that we know that what he really meant to say, and what was promised in the Budget, was unregulated guidance.
We then had the unedifying and unhelpful intervention by the Pensions Minister, who appeared to make light of the need for guidance by saying:
“If people…get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”
That is not helpful at all and has not been during the process. On Second Reading of the Pension Schemes Bill, the hon. Member for Reigate (Crispin Blunt), who is in his place, asked for clarification on how the guidance guarantee would be funded. The Pensions Minister answered by saying that
“the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off seedcorn, getting-the-thing-going fund…if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so.”—[Official Report, 2 September 2014; Vol. 585, c. 198-99.]
That is a bit vague and non-specific. Less than a year from when this Bill comes into force, surely he should know exactly what the guidance will look like.
We now know that the Government propose to deliver the guidance across three platforms, only one of which will be face to-face guidance—that was what was initially promised. We also know that the Money Advice Service will not be involved in the delivery. The three agencies involved will be: the Pensions Advisory Service, which will provide over-the-phone guidance; Citizens Advice, providing face-to-face guidance; and gov.uk, to which this Minister referred. That raises the question of how the Government will ensure that guidance delivered across three different mediums will be of a consistent standard.
The crux of the matter, and what the consumer needs to understand, is: what will the guidance consist of? Will it be an interactive exchange, or will it be a list of questions that must be asked and areas that must be covered? The Financial Conduct Authority appears to think it will be the former, saying it should cover:
“the key facts and consequences of each”—
option—
including financial consequences, e.g. tax implications.”
The Pensions Minister, however, seems to think it will be the latter. He has said that there is a “world of difference” between
“a guidance conversation to get people to base camp”
and a
“sophisticated, individualised, tailored piece of…financial advice recommending products.”
The Pensions Minister has, however, been keen to assure us that the guidance is not being offered on the cheap—his preferred epithet is “budget”. The levy on the pensions industry will not be set at the level required to pay for
“full-blown, regulated, independent, tailored financial advice.”—[Official Report, 2 September 2014; Vol. 585, c. 199.]
Rather, it will be designed to generate only so much as is required to pay for what he terms the “cost-efficient” guidance version. To summarise, the guidance guarantee seems to amount to the following: it will not be regulated, personalised, or product-specific; it will be “cost efficient”, “substantially cheaper” than advice and funded by a “modest” levy on the industry—enough to get people to “base camp.”
That was what was said almost two months ago, but, sadly, judging by the evidence given to the Pension Schemes Bill Committee, things have not progressed much since. So bereft has been the Government’s approach to information gathering and analysis that we still do not know how many people are likely to take advantage of the new flexibilities. In evidence to the Work and Pensions Committee in April, the Pensions Minister was unable to give any firm indication. He said:
“I am not sure there is much point in me guessing. As I say, HMRC assumed that about 30% would take the cash...some of the annuity providers are saying it might be 70%- odd. We do not know.”
We are also reduced to guessing because, despite a freedom of information request from the shadow Pensions Minister, the Government have refused to publish any analysis they have conducted of the behavioural impact of these reforms. We do not know how many people are likely to make use of the new guidance, but a guidance pilot conducted by Legal & General found that only 2.5% of those offered guidance accepted it. The Pensions Advisory Service has estimated that take-up in the first year will be about 25%, so what happens in respect of the 75% who do not take the guidance? What backstop measures, or second line of defence, will be in place for those who do not take up the offer of guidance? In the first year at least, the answer appears that there will be none at all.
Again, the FCA has raised concerns about that, saying,
“we will have the usual supervisory work going on keeping a very close eye on products as they develop. If people choose not to take the guidance, they choose not to take the guidance.”
That means that, potentially, up to 75% of people using the flexibility in the first year will access their pensions and use the money without taking any guidance at all. I do not know whether the Minister finds that concerning, but I do, and I am not the only one. Just Retirement has described the lack of a backstop as
“a massive threat to the pensions freedom reforms.”
The need to install a second line of defence was endorsed by others within the pensions industry, including the ABI, which also expressed doubt about the rigour of the FCA’s consultation on guidance.
The ABI’s head of policy said:
“We have discussed it with our members. We are a little concerned the FCA consultation…was narrowly drawn, which is understandable because it didn’t have much time.”
Why did it not have much time? Is it because the Government are in such a terrific hurry to force these reforms through? We are being left in a situation where the first tranche of people taking advantage of these reforms could be seen to be the guinea pigs in this process, and that is not acceptable.
Let me deal with a point that my colleague raised about the Ipsos MORI research. The extent of the concern has been laid bare by that, because it found that up to 200,000 pension investors could take advantage of the new flexibility in the first year alone. It is estimated that that would generate an additional £1.6 billion of pension income for Treasury coffers, which is why I was asking the Minister what estimate he had made as to what the Treasury would receive. It might be seen as good news for the Treasury, but perhaps not as such great news for savers, because only 38% of these pension investors were able to state accurately how much tax would be deducted from a medium-sized pot and only 6% could accurately predict what rate of tax would be applied to large pension pots.
Sammy Wilson
I know that the shadow spokesperson is not as cynical as I would be about some of this, but does she accept that HMRC’s own figures indicate that over the next budget period there will be a £4 billion windfall to the Treasury as a result of these changes? Of course, in the much longer term tax revenues will fall because there will be less income from the tax on annuities.
Cathy Jamieson
I would never suggest that the hon. Gentleman is cynical. He raises an important point, which again shows why I was trying to press the Minister on some of that.
I realise that I have taken up a considerable amount of time, and I want to give opportunities for other hon. Members to speak. However, I wish to raise just one other issue as I draw to a conclusion. I have mentioned the areas of uncertainty about the guidance versus advice debate, but I ask the Minister also to comment on the announcement about the abolition of the 55% tax on pensions at death—the so-called “death tax announcement”—made at the conference recently. I think that, at the time, the Minister said that annuities would not benefit from the tax cut. But it was certainly my understanding—the Minister can correct me if I have misunderstood—that the so-called value protected annuities will certainly so benefit, and that is still on the Treasury website. I have written to the Chancellor to ask for information, but I have not yet had a response. Clearly, uncertainty remains over the added potential for tax avoidance, which has been produced by the Bill.
In order to deter avoidance, the Government have introduced money purchase annual allowance rules, which, as the Minister said, places a £10,000 limit on the annual amount that can be saved tax free through money purchase agreements. The intention is to ensure that individuals do not use the new flexibilities to avoid tax on their current earnings. However, the rules still allow for £2,500 a year of salary to be “washed” tax free through salary sacrifice arrangements. I am interested to hear what the Government have done to address that risk and what further action they plan to take to guard against the new flexibilities being used in such a way.
Mr Love
When it was suggested to the Pension Schemes Bill Committee that there would be ways in which people, especially those over the age of 55, could use the new flexibilities to avoid taxation, the Minister did not seem to be at all concerned. Is the shadow Minister concerned, and will it be an issue for the Bill?
Cathy Jamieson
Yes, the shadow Minister is concerned as, I am sure, are the Ministers on the Front Bench, who will have to say something in response as they wind up the debate this afternoon. It is a matter that we will have to explore further in the Bill.
In conclusion, we are serious about getting pension reform right. We want people to have the freedom to choose the retirement product that works for them, and we want them to have good products from which to choose. It would have been better if the Government had consulted further on the reforms and conducted a full and thorough analysis of all the tax implications before they announced the Bill. None the less, we still have the opportunity to look at the Bill in greater detail and on that basis we will not be opposing it today.
Ian Swales
I thank the hon. Lady for her clarification. I am sure that the Exchequer Secretary would be interested to hear more about how she defines “unscrupulous”. I agree with her, but there is more to do to be clear what that means or about conduct that the Financial Conduct Authority would regard as unscrupulous.
All this liberalisation of pensions, as the hon. Member for Amber Valley mentioned, makes pension savings more like other kinds of savings. We are also providing a big tax advantage. Removing restrictions on when pensions are taken and removing some of the tax charges and restrictions on death means that we are moving closer and closer to a simple tax-free savings market. Such a market is especially attractive for people who are very close to retirement. I have done some sums, and if one is about to take one’s pension pot, there is quite an incentive—because of the tax-free 25%—to throw in the maximum possible amount of money in the months before retirement. Somebody paying tax at the basic rate who puts a lot into their pension pot in March and starts their pension in April or May would make a 6% return on their money simply by putting it in and taking it back out again. A higher rate taxpayer would make a 16% return on their money simply by putting a lump sum into their pension pot immediately before they retire and then drawing it out again. There will therefore be clear consequences of the flexibility that we are creating. People will be more inclined to put their money in if they know that they will be able to get it out quickly. There are clear benefits to getting the tax-free amount very quickly.
We have heard about the possible later costs to the state in respect of care and so on. By definition, if people take more out of their pension pots earlier, more people will need state assistance later in life with health or care costs. I know that the Minister is aware of that issue, but I do not know whether the possible costs have been calculated or estimated.
I am more confident than most that the responsible part of the industry will come up with new products and innovations. As I said to somebody from Just Retirement last week, what people need is plain language. Even the word “annuity” is not plain language. People want a secure income in retirement. The vast majority of people who retire do not want to buy a sports car, but to have a certain income throughout their retirement. The more the industry wraps things up in mumbo-jumbo that people do not understand, the more suspicious people are of its motivations.
We are already seeing warning signs. For example, Fidelity is saying, “All this flexibility means complexity, which means higher costs, because we are not set up to run bank accounts.” I am concerned that the industry will see the changes as a new way to levy high charges. It will say that the very flexibility that the Government want to see is expensive to provide. I hope that we see the right level of competition in the market and that people come in who do not levy those high charges.
We have seen a huge fall in the number of annuities that have been taken out recently. Just Retirement has seen a 50% fall in demand for annuities. I suspect that that is partly due to uncertainty. People want to be clear what the new rules are before making a decision. Demand may pick up again, particularly if there are new products. However, there is no doubt that fewer people will take out annuity-type products.
Cathy Jamieson
I am listening carefully to what the hon. Gentleman is saying. Does he agree that there are concerns for people who have relatively small pots, because companies might feel that it is not in their financial interest to offer them products? How can we ensure that there is equality?
Ian Swales
The shadow Minister makes a good point. If we create a spectrum of products that is genuinely complex, the charges might be inappropriate even for those with medium-sized pots because of the flexibility that is offered. We need to hear more from the industry about that.
Finally, on timing, I know from personal experience that when the date that one has defined as a potential pension date is approaching, the industry offers what it calls warm-up packages. I have had my first warm-up package for next year. The industry is not waiting until April next year. It has to get on with this right now. If there is any uncertainty in the minds of Ministers, they had better get moving pretty quickly, because the industry has to get all its systems, documentation, regulations and new products in place so that it can offer them to the cohort that is approaching retirement in just a few months’ time—from April onwards. The ABI is already concerned that it is getting towards the eleventh hour, when clarity on all this will be needed.
Despite all the reservations that I have expressed, I very much support the Bill and commend it to the House. I am sure that when it emerges in its finished form, it will be an excellent piece of work.
The Exchequer Secretary to the Treasury (Priti Patel)
This has been a wide-ranging and constructive debate; it has been engaged and informed, and I thank everybody who has participated. Before I address some of the specific points raised, I wish to reiterate the main purpose of the Bill.
The Bill is intended to put in place the most radical reform to the way people take their pensions for nearly a century. It is a fundamental principle for this Government that those who have worked hard and saved all their lives should be free when they reach retirement to choose how they spend those savings. That is because we believe in personal responsibility, and that the money someone has earned is their money.
The Bill will remove the limits on withdrawals from drawdown and the restrictions on the shape of annuities, and it will create new and more flexible ways for someone to put the money in their pension pot to good use and provide for their future as they wish. As a result of the reforms, people will rightly have the freedom to choose how to spend their savings. That, in turn, will incentivise the pension industry to provide real choice through a range of innovative new products.
I would like to address points raised by the Opposition; first, the myth that the Government have not consulted. The Government have consulted extensively on implementation and legislation, and we have received wide support from consumer groups and the industry. I note that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) quoted the chief executive of the ABI. He has also said that the ABI
“welcomed the reforms as good for those who were faced with the double challenges of increased longevity and very low interest rates when they came to make retirement decisions. The industry is behind these reforms. We want them to be a success and our members are working flat out to get everything ready for April 2015.”
The Government are putting in place comprehensive guidance. There has been discussion on guidance—I will come on to it in more detail—and I want to make it abundantly clear that we have brought forward an amendment to the Pension Scheme Bill to achieve just that.
On fairness, the old system was unfair and it disadvantaged those with a moderate amount of savings. Our Government reforms will make the system more flexible and fairer for all. On cost, as the Financial Secretary has clearly stated, we set out the costings at the Budget. Since the Budget, and as a result of consultation, we have introduced further changes and the OBR-certified update will be provided at the autumn statement.
There have been a number of positive views from the industry. It is wrong and misleading to imply that there is no support from the industry. The consultation has been extensive. There has been a 12-week consultation on the best way to implement the changes, followed by consultation on the Bill itself. It is important to move quickly, because people are making binding decisions every day with what are, frankly, limited choices in the current marketplace.
Cathy Jamieson
I am sure the Minister did not intend to suggest that I, or any other Opposition Member, said there was no support from industry. For the record, that is not what we said. We recognised that concerns had been expressed. That is different from saying there was no support.
Priti Patel
I am grateful for that clarification. There is extensive support from the industry. I pay tribute to the industry for the way it has worked with us through the consultation to bring the changes together in such a constructive and supportive way.