Pension Schemes Bill

Crispin Blunt Excerpts

Tuesday 25th November 2014 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

Given the current cost of living crisis, it is certainly the case that people struggling to set aside money for the future need access to pension schemes that they can trust to give good value for money and to provide them with a decent income in retirement. We welcome the improved opportunities that we hope the Bill will provide, as we have throughout the debates on the Bill.

A lot of important detail is still to come; this is an enabling Bill. However, as interventions from my hon. Friends the Members for Edmonton (Mr. Love) and for Central Ayrshire (Mr Donohoe) and from the right hon. Member for East Yorkshire (Sir Greg Knight) have pointed out, it is pretty extraordinary and very unsatisfactory that in an important Bill, which has in total 55 clauses, we should at this very late stage be debating 33 Government new clauses and 72 new Government amendments.

The Minister knows very well that this is not a field in which haste is fruitful. He attempted in his response to one intervention to make a virtue of the fact that he was “picking these things up in real time.” What he actually means is “making it up on the hoof.” I do not think that is a good way to legislate on pensions. The scope for mistakes in drafting very technical measures such as these is too great.

The point of having proper parliamentary scrutiny is to spot problems early and to allow for them to be corrected. As it is, there will, of course, be many mistakes in the 70 pages, or whatever, of new material in front of the House for our brief debate this afternoon. We can only hope that Members in the other place will spot them and be able to put them right, but things are bound to go wrong. Having said that, I think that the risks are significantly less in this group of amendments than they are in the next, on which I will have more to say. However, it is troubling that there is so much new and technical material here.

I wanted to ask about one particular point. As the Minister has said, the new clauses are imposing new obligations on scheme trustees. As I understand it—I may be mistaken; if I am, I know that the Minister will correct me—the Government have not provided an estimate of the cost of meeting those obligations for scheme trustees. I wonder why not; normally, I would have expected there to be an impact assessment with an estimate. Will the Minister comment, first, on whether I am right—that there is no estimate or at least none has been published so far—and, if so, the reason for that?

Will the Minister set out his intentions over the numerous sets of regulations that are envisaged? Is he able to tell us at this stage which of those sets of regulations are going to be subject to the affirmative as opposed to the negative procedure, so that we can be assured of future debate about those more detailed provisions when they become available?

[Crispin Blunt (Reigate) (Con)]

I have listened to the right hon. Gentleman’s critique of all the new clauses coming forward at this time, but he will have had them at least for some time and the resources of the Opposition have been available to him. I have tabled the only non-Government amendment this afternoon. The right hon. Gentleman is a replacement—a senior one—for the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont). Is he able to say whether the Opposition are going to table further amendments in the other place?

[Stephen Timms]

As the hon. Gentleman is well aware, we have not tabled amendments on Report. Of course, we debated in Committee three Opposition amendments, but we were sadly unsuccessful. I am delighted that the hon. Gentleman has tabled an amendment, which will provide us with a little relief when we get to the second group; at least it will not be entirely Government material on the amendment paper. I commend the hon. Gentleman for his amendment, and he is right that the Opposition have not tabled amendments today.

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[Stephen Timms]

We are now embarking on a debate on 27 Government new clauses, 40 new Government amendments and—providing welcome relief—an amendment from the hon. Member for Reigate (Crispin Blunt) and the right hon. Member for Sutton and Cheam (Paul Burstow).

The changes the Government have announced will introduce much-increased flexibility for savers, which is welcome. They will also make the pensions market more diverse and complicated and lead to a whole new range of products about which consumers have not had to make decisions in the past. Of course it is right that safeguards need to be in place to protect savers adequately from the danger of being taken advantage of, as we have seen happen in this market in the past.

We are dealing with an area full of technicalities, some of which we have just been hearing about, and fraught with difficulty. I appreciate that the Minister had no choice but to introduce these measures at the same time as the implementation of the Budget changes, but he will recognise, as the House certainly will, that there is a danger, in providing so little opportunity for the House to conduct proper scrutiny, of creating serious problems and a future mis-selling scandal.

We have set out three tests for the new flexibility. First, is there reliable advice for people saving for their retirement? Secondly, is the system fair to those on middle and lower incomes who want to secure retirement income? Thirdly, are the Government confident that the changes will not result in extra costs to the state, either through social care costs or by increasing the cost of housing benefit? I would welcome the Minister’s comments on the extent to which he believes the changes before the House will meet those tests.

The annual workplace pension survey carried out by the National Association of Pension Funds this year showed that only 19% of savers feel very capable of knowing what to do with their savings. That is ahead of the very major changes about to take effect, and we can be certain that consumer bewilderment will rocket from next April. The new arrangements are supposed to be in place from that date—in less than six months—but we do not yet know how they will work.

In previous discussion about the form that the guidance will take, the Minister said that

“it is not formal, detailed or product-specific”.

That is rather different from what was said by the Financial Conduct Authority when it launched its consultation on guidance. It seemed to envisage something rather more substantial than the Minister suggested in his remarks, but the FCA will produce only the standards; Her Majesty’s Treasury will oversee the drafting of the guidance. Nobody can yet feel confident about what will emerge from that process. A number of questions must be asked, such as the one posed by my hon. Friend the Member for Edmonton (Mr Love) earlier. It is not clear even who exactly will pay for the advice or through what mechanism it will be paid for. I would welcome the Minister’s comments on how he envisages that process working.

The challenges were helpfully illuminated by the article on the front page of The Daily Telegraph on Saturday which said, “Pension mis-selling: scandal hits 100,000 retired savers a year”. The article explained that

“one in four pensioners who retired with a private pension in the past seven years is entitled to a larger annual pension income.

Savers with medical conditions including diabetes, high blood pressure and even smokers should have been offered an increased annuity based on their lower life expectancy.”

It went on to say that

“just seven per cent of those who are entitled to the increased pay outs have automatically received them. Studies indicate the true figure should be closer to 60 per cent.

Now Aviva, Britain’s largest insurer, is paying compensation and increasing the annual payouts of hundreds of customers after discovering staff sold inappropriate deals.”

[Crispin Blunt]

I am interested in the issue because two highly innovative companies in my constituency, Partnership and Just Retirement, sold these products to people approaching the point where they had to make a decision about an annuity. Of course, they are anxious about guidance because if people are given guidance about the nature of the market, they can then go to the right place to make those decisions. Is the right hon. Gentleman saying that existing providers should have provided such guidance? He used the words “should have”. These products were available in the market. There was a failure in the previous annuity market which I hope this guidance will address, pointing people to the right kinds of provider.

[Stephen Timms]

We welcomed the new flexibility that is being provided. I hope the guidance that we are legislating for will deliver the improvement that the hon. Gentleman describes, but we cannot yet be confident that that will be the case. This brief debate gives us an opportunity to press the Minister to give us rather more reassurance about that. I shall refer to some of the comments of JustRetirement, one of the companies that the hon. Member for Reigate (Crispin Blunt) mentioned.

The most recent Association of British Insurers data show that overall annuity sales are down 14% from the second quarter of this year, and by 56% compared with the third quarter of last year. Consumers are presumably waiting until the reforms go live in April next year before deciding how to use their defined contribution pension savings. The same ABI data show external annuity sales—that is, annuities bought on the open market—down from 49% to 35% in the third quarter of this year. Internal annuity sales, where an annuity is bought from the incumbent pension provider, have increased from 51% to 65% in the same period. The overall share of enhanced annuity sales has fallen from 28% to 22%.

The ABI data highlight the risk of the kind of consumer detriment described in the article in The Daily Telegraph on Saturday. Together, they suggest that problems will continue unless the Financial Conduct Authority intervenes actively. Just Retirement makes the point particularly strongly and effectively that there is an urgent need for a second line of defence requirement for providers. What happens if the guidance on offer is not taken up? That is not provided for in the amendments.

Legal and General has highlighted the lesson from the pilot that it undertook with public support—that in practice the guidance on offer will very likely not be taken up. As the Minister knows, the take-up was very small—2.5%—in the pilot that it set up and supported. If that happens on a significant scale when these arrangements come into force next year, it opens up the possibility of very large-scale new consumer detriment. JustRetirement, along with others, is right to argue that by introducing a second line of defence requirement, the FCA can apply a crucial brake against this potential future consumer detriment by requiring providers to check consumers’ circumstances when they come to access their DC pension savings.

The hon. Member for Gloucester (Richard Graham) asked whether the guidance would take account of other financial assets beyond DC pension savings. That is a good question.

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[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.

[Crispin Blunt]

I am delighted to follow the right hon. Member for East Ham (Stephen Timms) and to know that I have the opportunity to persuade the massed ranks of the Labour party of the merits of my amendment. I shall do my very best to do so.

Four of the most significant players in the United Kingdom pensions market are based in my constituency of Reigate: Just Retirement, Legal and General, Partnership, and Fidelity. I should declare, if it is an interest, that my son works for one of those companies—Just Retirement. Between them, they employ a pretty significant number of the constituents I am privileged to represent. The past six months since the announcement in the Budget of the measures in this Bill have not been easy for them. The number of annuities purchased has dropped off a cliff, as customers and financial advisers await the implementation of the reforms.

Overall, however, the need for and the rightness of the reforms cannot be doubted. The pensions market has for too long been shackled by the obligation to annuitise; annuity rates have fallen consistently over the past two decades; and strenuous competition and liberalisation is just what the industry needs if each new batch of retirees are not going to find themselves commensurately worse off than their predecessors. The proposals are right not only on a practical level, but ethically as well. It is farcical that we have deemed retirees incapable of managing their own finances and have paternalistically restricted access to the money for which they have worked hard throughout their lives.

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[Richard Graham]

My hon. Friend is making some good points on an important issue, but does he agree that the providers and creators in financial companies have missed a trick over the years with regard to product innovation, and that they have depended too much on the monopoly of annuitisation, which has inhibited them—in effect, it has prevented them—from creating new products more suited to many of our constituents?

[Crispin Blunt]

My hon. Friend is absolutely right. That is the market in which Just Retirement and Partnership, as two smaller companies, identified the need for better, value-for-money products for individuals such as smokers and others with more limited life expectancy so that they could get greater annuity rates. They tried to promote those products in the market, but their problem was inertia in the market. People simply did not evaluate the options open to them and simply rolled over their pension pot provision in order to get an annuity from their existing provider, without looking at what was available in the rest of the market. What we are trying to do with the guidance—this is why I wholeheartedly support the reforms—is make sure that we create a much more active, liberal market whereby people are aware that they have choices to exercise and are able get the information in order to do so in an informed way.

[Richard Graham]

Some Opposition members of the Bill Committee raised concerns about guidance, but does my hon. Friend agree that the fundamental point of the changes that this Bill and the Treasury’s Taxation of Pensions Bill will introduce is recognition that annuitisation as was will undoubtedly lead to some scandals and mis-selling, which this Bill should put right and prevent in the future?

[Crispin Blunt]

That was the exact result of the paternalistic way in which we legislated to require annuities. Frankly, it led to market failure as a result of inertia in the market and people not exercising the choices available to them, because we seemed to be telling them precisely what they had to do. Now that we are liberalising the system and giving people the responsibility to manage the money they have saved, we obviously have to deal with the vexed issue of guidance to make sure that people make sensible decisions, by and large, but at least they should be informed decisions about the resources they have saved. These market reforms are founded on a belief in consumer empowerment, but without the effective implementation of the guidance guarantee, they may fail. That is why the guidance guarantee is so important.

We have already heard about the detail of and debated the need for a second line of defence, in that the Financial Conduct Authority must protect the estimated 8% to 96% of people—rather a wide estimate—who might not take up the guidance. That, however, is not the purpose of amendment 73.

The industry and consumers need the Treasury to take a lead and confirm the contents of the guidance. Why the Treasury continues to maintain its conspiracy of silence is a mystery to me. It is of some concern that four and a half months before the start date, the FCA, Citizens Advice, the Pensions Advisory Service and providers have no concrete clue about exactly what the guidance will entail, including whether it will consider sources of income that are alternatives to defined contribution pension schemes.

Dominic Lindley, an author and consultant at Which?, gave evidence in Committee suggesting that as little as 4% of a saver’s wealth is tied up in defined- contribution schemes. The over-55s have an average of £271,000 invested in property, and it is natural that such assets should increasingly form a component of retirement income. The average amount lent through an equity release scheme jumped 12% to £67,000 last year, while defined contribution pension pots remain stagnant at £20,000 on average.

The Conservative party and I presume our allies—including the right hon. Member for Sutton and Cheam (Paul Burstow), who supports my amendment 73—have always believed in the value of property ownership, and the Government must reflect that in their pensions policy. That is why we must recognise that equity release will be a critical part of future retirement provision. When we appreciate that £1.4 trillion-worth of property assets are held by older people, that puts into perspective the scale of the assets that have the potential to give older people a more comfortable retirement, if they can properly access them.

In Committee, the Minister said that he anticipated—he repeated this in an intervention—that the information that consumers would be encouraged to gather in a standardised format before they received the guidance would include state pension rights and assets such as housing equity. He also remarked that the more they put into the guidance session, the more they would get out of it.

The Equity Release Council is pleased by the recognition that assets other than defined contribution pension savings should be taken into consideration. However, that has not been explicitly stated in the Bill, and so far it relates only to the initial phone call to set up the guidance session. I support the Equity Release Council’s wish for the Government explicitly to recognise that housing wealth represents a significant source of potential retirement income, and for that to be considered during the delivery of pensions guidance.

I will therefore listen very carefully to the Minister before I invite the massed ranks of Opposition Members and, I hope, Government Members to support my amendment 73. I am reasonably hopeful that the Minister will give me a satisfactory response.

[Mr Love]

There is a clear—well, not so clear—dividing line between generic advice and product-specific advice. The hon. Gentleman seems to be suggesting that where there are significant housing assets, part of the guidance guarantee should include advice on equity release. Is he straying across that line?

[Crispin Blunt]

I am trying to suggest what is in the amendment:

“Individuals delivering the pensions guidance must ask those receiving the guidance about other potential sources of retirement income in addition to defined contribution pension schemes; this must include an assessment of assets such as housing wealth, savings and investments.”

It is not meant to be prescriptive, but if someone has a tiny portfolio as their defined contribution scheme, relative to their whole portfolio, why are they not directed to their major asset, which is likely to be their house? What consideration might they give to using that asset to make their retirement more comfortable than it would otherwise be?

Pension reform seeks to give people sensible access to their assets, and for them to make sensible decisions. With equity release, for example, does it make sense to sell and downsize and give the estate agent a whack of money while being forced to move in order to release assets, or rather to stay in the house and release assets through an equity release scheme?

[Richard Graham]

It is an interesting point, and I am sure my hon. Friend would agree that the difficulty in the wording is because it is up to the individual to explain their circumstances and list their own assets, if indeed they have any. The vast majority of my constituents—and, I suspect, those of many other Members—have little in the way of assets, other than what they have been encouraged or able to save through their pension.

[Crispin Blunt]

Everybody’s position will be different. There will be people with small pensions sitting in quite large houses, and they will have limited income but a significant capital asset. When they receive advice on pension provision on retirement, what is their plan to be? We must try to get such people into the best possible place and to make sensible decisions about their future. It is not only the Equity Release Council saying that.

[David Mowat (Warrington South) (Con)]

I have been reflecting on the wording of the amendment and the use of the word “must”. Had adequate guidance been provided, it would have taken into account the whole gamut of somebody’s circumstances. If that question was not asked, however, what remedy does my hon. Friend suggest? Is he saying that the guidance would void future contracts? If an advisor or guider had not asked the question suggested in the amendment, would any contract subsequently entered into be voided?

[Crispin Blunt]

Those would be matters for the FCA. It would regulate the guidance and say how it should be implemented, and state the consequences if people are misguided in the process. The point about putting “must” into the Bill is to be clear that the rather basic duty to assess everybody’s assets would be a requirement. What the consequences would be if misguidance was delivered would be a matter for the FCA. I do not want to get into that territory—it is a rather more expert territory than I would want to address to provide the solution my hon. Friend seeks.

I will conclude with a quote in support of my arguments from the director of policy and deputy director general of the Association of British Insurers, Huw Evans. He made it clear today that:

“While the Treasury is responsible for deciding the content of the guidance and delivering the online service, other critical partners also need certainty soon including the pension providers who have to signpost their customers to it, the FCA which needs to regulate it and the Government’s formal delivery partners, Citizens Advice and the Pensions Advisory Service…It is critical for the success of the reforms that the vast majority of customers use their new-found freedoms to make a choice that is right for them…It is very important at this stage that Ministers hold their nerve and stick to their original plan of a broader based guidance service that can genuinely help people approaching retirement to consider everything they need to be thinking about to take decisions about their finances…The Chancellor was right to think a guidance service was a necessary ingredient in the new world of pension freedom; now he needs to ensure it is worth having.”

That is what amendment 73 seeks to assist in doing.

[Paul Burstow (Sutton and Cheam) (LD)]

I will be very brief in my support of the amendment that stands in my name and the name of my hon. Friend the Member for Reigate (Crispin Blunt).

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[Steve Webb]

This has been a helpful debate covering a wide range of issues. I shall address the questions raised by the right hon. Member for East Ham (Stephen Timms), particularly about the Government new clauses, before moving on to the guidance guarantee.

On the budget freedoms, the right hon. Gentleman said the Labour party had set out three tests. I assume he thinks that if any of them are not successful, Labour will oppose the budget freedoms, though I am not clear if that is the logic of his position. We think those tests are met—I shall run through them—but I think Labour is a little ambivalent: it is instinctively paternalistic and does not really like these freedoms, but it realises they are popular so it decides to set some tests so it sounds as if it is scrutinising. It is unclear, however, whether Labour is committed to seeing these things through if it takes up office—but we will see, perhaps.

The right hon. Gentleman set out his three tests. First, he asked whether reliable advice would be available. He said “advice”, but we are not promising advice; we are promising guidance. He knows that those are different, so I am not sure that the test is the right question. If the question is, “Will reliable guidance be available?”, the answer is, “Absolutely”. We have made it clear that people will have the choice of face-to-face, phone-based or internet-based guidance, and that it will be of a high quality and delivered by trusted partners, such as the Pensions Advisory Service, the network of citizens advice bureaux and the Treasury’s own website. We will require providers to flag the guidance up when people try to access their money, possibly through the provision of wake-up packs.

On take-up, which my hon. Friend the Member for Reigate (Crispin Blunt) joked about, clearly there have been a variety of trials, tests and surveys. The Legal & General pilot, which was mentioned, had a 2% or 3% take-up, but the Chartered Insurance Institute explained it to people and told us that demand could be as high as 90%. I am confident it will be in the latter range. It is important to stress, however, that we are evolving—a theme to which I shall return in a moment. This is work in progress. We are talking to people in this target group about what they want from the guidance; using behavioural insights to maximise take-up; and trying to find out what people want from the sessions and what means of communication work for them.

I hear the plea of my hon. Friend the Member for Reigate and the firms in his constituency—they want certainty, they want it now, they want it in the Bill—but the crucial thing is that when we get to April, we have something that works and which has been tested and refined. That is the tension.

Everybody wants certainty; barely a day goes by when I am not at a pensions conference where someone is not asking about guidance and demanding certainty, when what they really want is something that works. That is one of our reservations about trying to spell it all out in the Bill. We want to talk to the people affected. It has been said that the Pensions Advisory Service does not know what it will be asked to do, but it is in and out of my office and the Treasury all the time. It has people on the Treasury team drawing up the plans. Of course, these things are not finalised, but the PAS and Citizens Advice are working hand in glove with the Treasury as our delivery partners.

[Crispin Blunt]

I would be grateful if the Minister got it across to his Treasury colleagues that this is not just about ensuring that the guidance works; it is about the detailed regulations, as yet unavailable, for the products that will replace much of the annuity market and which companies will have immense difficulty designing if they are not told the exact requirements. I realise this is an issue for the Treasury and the Prudential Regulation Authority—as I understand it—but I would be grateful if he took that message back to them.

[Steve Webb]

I can perhaps distinguish between the specification by the Government and the Financial Conduct Authority of what the guidance will contain and the issue of product regulation, which are obviously two different things. On the former, my hon. Friend will know that the FCA set out some ideas about what the guidance should contain and consulted on them, and we will shortly be publishing its conclusions.

This has been a consultative process. We were condemned on Budget day for not having consulted, but when we consult extensively, we are condemned for not having definite answers—you’re damned if you do and damned if you don’t. I hear what my hon. Friend says though. We are trying to get to a position where we can be as clear as possible as soon as possible about the content of the guidance and the process, while trying to evolve, learn, listen and refine our approach, so that when it goes live in April we are in a good place.

I am not absolutely sure I understand what people who are thinking of bringing out products need to know. There is already an FCA regulatory regime and a duty on providers to treat customers fairly. In general the FCA does not pre-approve products so it is not the case that a provider comes up with a product, goes off to the FCA and says, “Is this all right?” That is not the way it works, but I do know that the FCA is in dialogue with the product providers, including those in my hon. Friend’s constituency, about the sorts of products they are thinking of bringing forward.

[Crispin Blunt]

There is a different set of issues, arising particularly out of EU Solvency II, but there is the same time scale and it is the PRA that is having to provide product regulation around this. That is not an issue for the Minister’s Department, but I just thought, as I am seeking a meeting with the Exchequer Secretary to address this—we have yet to get a date—that I would use this occasion to make a similar point to the Minister and invite him to get that message across.

[Steve Webb]

I am very happy to relay to the Exchequer Secretary that my hon. Friend is seeking such a meeting.

We believe that reliable and high-quality guidance will be available. The right hon. Member for East Ham asked about those on lower incomes. The irony is that in the bad old world it was the people in the middle who were completely stuck. If someone had a tiny pension pot, they could take the cash, and if they had a big pension pot, they had choices and draw-down and probably paid for some advice. It was all those poor souls in the middle who just ended up having to buy an annuity faute de mieux. This new reform gives new options and new choices to those on lower and middle incomes who have not had them before, so it seems to us that we are being fairer to those in that group. They can buy an annuity if they want to, but we are giving them new options, so we do not think we have any problem with that test.

The right hon. Gentleman asked finally about the issue of costs to the Exchequer. He will be aware that these are being updated at the time of the autumn statement, so we will be providing fresh estimates of the tax implications of the changes and the public expenditure implications, but I would say that in its July long-term fiscal report the OBR did not assume any impact on public spending from these reforms. I do not think that by that it meant there would be nil, and I do not mean there would be nil, but think of the context of long-term pension spending, the very substantial reforms we have brought in to the state pension age, the new single tier pension and the multiple tens of billions of pounds-worth of reforms—we are not talking anything like that in respect of the implication for public spending of these new freedoms.

Will there be somebody who blows the lot and claims a means-tested benefit? Yes, there will—having said which, we already have rules in place for those who artificially dispose of their capital, as the right hon. Gentleman well knows. So there are safeguards. We may find that public expenditure is saved; we already know from survey evidence that pension saving is more popular as a result of our freedoms. If more people decide to save for their retirement through pension saving and have more income and wealth in retirement, we may save money. We do not expect a substantial impact on public spending, therefore, although I am not saying it will be zero. We will provide updated estimates at the time of the autumn statement.

The right hon. Gentleman asked about who will pay for the guidance and he seemed to think there was some confusion. I do not think there is any confusion. The £20 million that the Chancellor has identified is seed-corn funding to get the thing going, and it is already being spent as we speak—on designing the website and getting things started. Once it is up and running there will be a levy on the financial services industry. The FCA has already put out a consultation on exactly how that will fall.

Basically, the idea is that those firms that will benefit should pay the levy, but we are also consulting on exempting small firms of advisers with low turnover from paying the levy. So unless I have missed something, I do not think there is any uncertainty about who is going to be paying for this: it will not be the consumer directly; it will be a levy on the financial services industry.

The issue was raised—and this phrase has come up—of a second line of defence, and that is an important concept. As we discussed a moment ago, what happens when people have not accessed the guidance, or indeed if they have? The FCA has committed to consider this issue and it will be publishing an update on its requirement on pension providers very shortly. We have had some discussions as to whether that will be by Christmas, by winter or by late autumn, but it will be very shortly, so we will have more information on that. I assure the House that the FCA is taking this issue seriously.

--- Later in debate ---

[Crispin Blunt]

I am grateful to my right hon. Friend for his answers. There will obviously be an ongoing debate about this issue. He is right to turn my own words round on me, when I made comments on the other Bill associated with these measures. I shall not seek to press my amendment.

[Steve Webb]

I am grateful to my hon. Friend and my right hon. Friend the Member for Sutton and Cheam for tabling their amendment, providing an opportunity to discuss these important issues. I commend new clause 7 to the House.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

New Clause 8

Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain)

‘(1) The Secretary of State may by regulations specify circumstances in which an employer must arrange or pay for a member of a pension scheme, or a survivor of a member of a pension scheme, to receive appropriate independent advice for the purpose of satisfying a requirement imposed by section (Independent advice in respect of conversions and transfers: Great Britain).

(2) Regulations under subsection (1) may, in particular—

(a) impose limitations on the amount that an employer may be required to pay;

(b) prohibit an employer from seeking in any way to recover, from a member or survivor, costs incurred by the employer in complying with the regulations;

(c) provide for section 10 of the Pensions Act 1995 (civil penalties) to apply to a failure by an employer to comply with the regulations.

(3) In this section “employer” has the meaning given by regulations made by the Secretary of State.”—(Steve Webb.)

This gives the Secretary of State the ability to make regulations requiring an employer to pay for the advice required by NC7 in the circumstances specified in the regulations.

Brought up, read the First and Second time, and added to the Bill.

New Clause 9

Independent advice: consequential amendments - Great Britain

‘(1) The Pension Schemes Act 1993 is amended as follows.

(2) In section 99 (trustees’ duties after exercise of option), after subsection (1) insert—

“(1A) Subsection (2) does not apply if—

(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 by reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”

(3) In section 101J (time for compliance with transfer notice in respect of pension credit benefits), after subsection (2) insert—

“(2A) Subsection (1) does not apply if—

(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 by reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”” .—(Steve Webb.)

This amendment is consequential upon NC7

Brought up, read the First and Second time, and added to the Bill.

New Clause 10

Independent advice in respect of conversions and transfers: Northern Ireland

‘(1) Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before—

(a) converting any of the benefits into different benefits that are flexible benefits under the scheme;

(b) making a transfer payment in respect of any of the benefits with a view to acquiring flexible benefits for the member or survivor under another pension scheme.

(2) The Department for Social Development in Northern Ireland may by regulations make provision about—

(a) what the trustees or managers must do to check that a member or survivor has received appropriate independent advice for the purposes of subsection (1), and

(b) when the check must be carried out for the purposes of that subsection.

(3) The Department for Social Development in Northern Ireland may by regulations create exceptions to subsection (1).

(4) In subsection (1)(b) the reference to another pension scheme includes a scheme established in a country or territory outside Northern Ireland.

(5) Where the trustees or managers fail to carry out a check required by this section, Article 10 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (civil penalties) applies to any trustee or manager who failed to take reasonable steps to ensure that the check was carried out.

(6) Failure to carry out a check required by this section does not affect the validity of any transaction.

(7) In this section—

“appropriate independent advice” has the meaning given by regulations made by the Department for Social Development in Northern Ireland;

“safeguarded benefits” means any benefits other than —

(a) money purchase benefits, and

(b) cash balance benefits.”—(Steve Webb.)

This provides that before trustees or managers of a pension scheme (in Northern Ireland) in which a person has safeguarded benefits convert them into flexible benefits, or make a transfer to another scheme to acquire flexible benefits, they must check that the person has received appropriate independent advice.

Brought up, read the First and Second time, and added to the Bill.



New Clause 11

Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland)

‘(1) The Department for Social Development in Northern Ireland may by regulations specify circumstances in which an employer must arrange or pay for a member of a pension scheme, or a survivor of a member of a pension scheme, to receive appropriate independent advice for the purpose of satisfying a requirement imposed by section (Independent advice in respect of conversions and transfers: Northern Ireland).

(2) Regulations under subsection (1) may, in particular—

(a) impose limitations on the amount that an employer may be required to pay;

(b) prohibit an employer from seeking in any way to recover, from a member or survivor, costs incurred by the employer in complying with the regulations;

(c) provide for Article 10 of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (civil penalties) to apply to a failure by an employer to comply with the regulations.

(3) In this section “employer” has the meaning given by regulations made by the Department for Social Development in Northern Ireland.” .—(Steve Webb.)

The Department for Social Development in Northern Ireland can make regulations requiring an employer to pay for the advice required by NC10 in the circumstances specified in the regulations.

Brought up, read the First and Second time, and added to the Bill.



New Clause 12

Independent advice: consequential amendments - Northern Ireland

‘(1) The Pension Schemes (Northern Ireland) Act 1993 is amended as follows.

(2) In section 95 (trustees’ duties after exercise of option), after subsection (1) insert—

“(1A) Subsection (2) does not apply if—

(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 by reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”

(3) In section 97J (time for compliance with transfer notice in respect of pension credit benefits), after subsection (2) insert—

“(2A) Subsection (1) does not apply if—

(a) the trustees or managers have been unable to carry out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 by reason of factors outside their control, or

(b) the trustees or managers have carried out the check required by section (Independent advice in respect of conversions and transfers: Northern Ireland) of the Pension Schemes Act 2014 but the check did not confirm that the member had received appropriate independent advice.”” .—(Steve Webb.)

This amendment is consequential upon NC10.

Brought up, read the First and Second time, and added to the Bill.

New Clause 13

Independent advice: income tax exemption

‘(1) In Part 4 of the Income Tax (Earnings and Pensions) Act 2003 (employment income: exemptions), in Chapter 9 (exemptions: pension provision), after section 308A insert—

“308B Independent advice in respect of conversions and transfers of pension scheme benefits

(1) No liability to income tax arises in respect of—

(a) the provision to an employee or former employee of appropriate independent advice, or

(b) the payment or reimbursement, to or in respect of an employee or former employee, of the cost of such advice,

if conditions A to C are met.

(2) Condition A is that the provision, payment or reimbursement is required by regulations under section (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Great Britain)) or (Power to require employer to arrange advice for purposes of section (Independent advice in respect of conversions and transfers: Northern Ireland)) of the Pension Schemes Act 2014 (power to require employer to arrange independent advice in respect of conversions and transfers).

(3) If condition A is met only as respects part of the payment or reimbursement because the amount of the payment or reimbursement exceeds the amount required to be paid or reimbursed, subsection (1) applies in respect of that part.

(4) Condition B is that the provision, payment or reimbursement is not pursuant to relevant salary sacrifice arrangements.

(5) Condition C is that such other requirements as may be specified in regulations made by the Treasury are satisfied in relation to the provision, payment or reimbursement.

(6) In this section—

“appropriate independent advice”—

(a) in relation to England and Wales and Scotland, has the meaning given by regulations under section (Independent advice in respect of conversions and transfers: Great Britain) of the Pension Schemes Act 2014;

(b) in relation to Northern Ireland, has the meaning given by regulations under section (Independent advice in respect of conversions and transfers: Northern Ireland) of that Act;

“relevant salary sacrifice arrangements” means arrangements (whenever made, whether before or after the employment began) under which an employee gives up the right to receive an amount of general earnings or specific employment income in return for the provision of appropriate independent advice or the payment or reimbursement of the cost of such advice.”

(2) In that Part of that Act, in section 228 (effect of exemptions on liability under provisions outside Part 2), in subsection (2), after paragraph (d) insert—

“(da) section 308B (independent advice in respect of conversions and transfers of pension scheme benefits),”.

(3) The amendments made by this section have effect for the tax year 2015-16 and subsequent tax years.” .—(Steve Webb.)

This amendment is consequential upon NC7, NC8, NC10 and NC11. It prevents the cost of independent financial advice, relating to the conversion or transfer of certain pension benefits, that is paid for or reimbursed by an employer from being treated as a taxable benefit in kind for income tax purposes if conditions are met.

Brought up, read the First and Second time, and added to the Bill.

New Clause 14

Sums or assets that may be designated as available for drawdown: Great Britain

‘(1) In the case of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of drawdown pension for the member under the scheme are sums or assets held for the purposes of providing money purchase benefits to or in respect of the member.

(2) In the case of a survivor of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of dependants’ drawdown pension for the survivor under the scheme are sums or assets held for the purposes of providing money purchase benefits to the survivor.

(3) This section overrides any provision of an occupational pension scheme to the extent that there is a conflict.

(4) This section does not apply in relation to sums or assets designated before 6 April 2015.” .—(Steve Webb.)

This ensures that occupational pension schemes may only pay drawdown pensions out of assets held for the purpose of providing money purchase benefits. The requirement applies to assets designated on or after 6 April 2015 as available for payment of drawdown, and overrides any conflicting provision in scheme rules.

Brought up, read the First and Second time, and added to the Bill.

New Clause 15

Provision about conversion of certain benefits for drawdown: Great Britain

‘(1) The Secretary of State may by regulations make provision about the conversion of benefits under an occupational pension scheme in circumstances where—

(a) a member of the scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and

(b) the member or survivor exercises an option to convert any of the benefits into money purchase benefits for the purposes of enabling sums or assets to be designated as available for the payment of drawdown pension or dependants’ drawdown pension.

(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any benefits not converted are to be calculated in future.

(3) In relation to a conversion that takes place before the member or survivor reaches normal pension age, regulations under subsection (1) may in particular make provision about—

(a) the manner in which benefits are to be calculated for the purpose of converting them into money purchase benefits;

(b) the use of any power to reduce benefits.

(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)

This provides a power to make regulations in relation to the conversion of flexible benefits into money purchase benefits for the purpose of paying a drawdown pension, where an occupational scheme offers that option to members or their survivors. The clause outlines particular areas which such regulations may cover.

Brought up, read the First and Second time, and added to the Bill.

New Clause 16

Provision about calculation of lump sums: Great Britain

‘(1) The Secretary of State may by regulations make provision about the calculation of lump sums in circumstances where—

(a) a member of an occupational pension scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and

(b) the member or survivor exercises an option to be paid a lump sum in respect of any of those benefits.

(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any remaining benefits are to be calculated in future.

(3) In a case where a member or survivor exercises an option to be paid a lump sum before reaching normal pension age, regulations under subsection (1) may in particular make provision about—

(a) the manner in which benefits are to be calculated for the purpose of determining the amount available for the payment of the lump sum;

(a) the use of any power to reduce the amount of the lump sum.

(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)

This provides a power to make regulations in relation to the payment of lump sums by occupational pension schemes in respect of flexible benefits. The clause outlines particular areas which such regulations may cover.

Brought up, read the First and Second time, and added to the Bill.

New Clause 17

Restrictions on conversion of benefits during winding up etc: Great Britain

‘(1) In section 73A of the Pensions Act 1995 (operation of scheme during winding up period), after subsection (6) insert—

“(6A) During the winding up period no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules.”

(2) In section 73B of that Act (sections 73 and 73A: supplementary), in subsections (1) and (3), after “section 73A(3)” insert “or (6A)”.

(3) In section 135 of the Pensions Act 2004 (restrictions on winding up, discharge of liabilities etc during assessment period), in subsection (4), before paragraph (a) insert—

“(za) no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules,”.” .—(Steve Webb.)

Where an occupational pension scheme is winding up or being assessed for transfer into the Pension Protection Fund, this amendment prevents any right under the scheme to a benefit which is not a money purchase benefit being converted into a money purchase benefit.

Brought up, read the First and Second time, and added to the Bill.

New Clause 18

Restriction on payment of lump sums during PPF assessment period: Great Britain

‘(1) Section 138 of the Pensions Act 2004 (payment of scheme benefits during assessment period) is amended as follows.

(2) In subsection (1), after “Subsections (2)” insert “, (2A)”.

(3) After subsection (2) insert—

“(2A) Benefits in the form of a lump sum may be paid to or in respect of a member under the scheme rules during the assessment period only in the circumstances in which, and to the extent to which, lump sum compensation would be payable to or in respect of the member in accordance with this Chapter if—

(a) the Board assumed responsibility for the scheme in accordance with this Chapter, and

(b) the assessment date referred to in Schedule 7 were the date on which the assessment period began.”

(4) In subsection (3), omit “But”.

(5) In subsection (5), for “subsection (2)” substitute “subsections (2) and (2A)”.

(6) In subsection (6), for “subsection (3)” substitute “subsections (2A) and (3)”.

(7) In subsection (7), after “Subsections (2),” insert “(2A),”.

(8) In subsection (8), after “subsections (2)” insert “, (2A)”.

(9) In subsection (9), for “subsections (2) and (3)” substitute “subsections (2) to (3)”.

(10) After subsection (9) insert—

“(9A) Regulations may make provision as to circumstances in which benefits in the form of a lump sum are to be treated for the purposes of subsection (2A) as being paid in the circumstances in which lump sum compensation would be payable in accordance with this Chapter.

(9B) Regulations may create exceptions to subsection (2A).”

(11) In subsection (12), for “subsection (2)” substitute “subsections (2) and (2A)”.

(12) In subsection (13), after “subsection (2)” insert “, (2A)”.” .—(Steve Webb.)

This clarifies restrictions on the payment of benefits by an occupational pension scheme which is being assessed for transfer into the Pension Protection Fund. It specifies the types of lump sums that can be paid, and includes a power to make further provision in relation to particular circumstances.

Brought up, read the First and Second time, and added to the Bill.

New Clause 19

Sums or assets that may be designated as available for drawdown: Northern Ireland

‘(1) In the case of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of drawdown pension for the member under the scheme are sums or assets held for the purposes of providing money purchase benefits to or in respect of the member.

(2) In the case of a survivor of a member of an occupational pension scheme the only sums or assets that may be designated as available for the payment of dependants’ drawdown pension for the survivor under the scheme are sums or assets held for the purposes of providing money purchase benefits to the survivor.

(3) This section overrides any provision of an occupational pension scheme to the extent that there is a conflict.

(4) This section does not apply in relation to sums or assets designated before 6 April 2015.” .—(Steve Webb.)

This ensures that occupational pension schemes may only pay drawdown pensions out of assets held for the purpose of providing money purchase benefits. The requirement applies to assets designated on or after 6 April 2015 as available for payment of drawdown, and overrides any conflicting provision in scheme rules.

Brought up, read the First and Second time, and added to the Bill.

New Clause 20

Provision about conversion of certain benefits for drawdown: Northern Ireland

‘(1) The Department for Social Development in Northern Ireland may by regulations make provision about the conversion of benefits under an occupational pension scheme in circumstances where—

(a) a member of the scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and

(b) the member or survivor exercises an option to convert any of the benefits into money purchase benefits for the purposes of enabling sums or assets to be designated as available for the payment of drawdown pension or dependants’ drawdown pension.

(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any benefits not converted are to be calculated in future.

(3) In relation to a conversion that takes place before the member or survivor reaches normal pension age, regulations under subsection (1) may in particular make provision about—

(a) the manner in which benefits are to be calculated for the purpose of converting them into money purchase benefits;

(b) the use of any power to reduce benefits.

(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)

This provides a power to make regulations in relation to the conversion of flexible benefits into money purchase benefits for the purpose of paying a drawdown pension, where an occupational scheme offers that option to members or their survivors. The clause outlines particular areas which such regulations may cover.

Brought up, read the First and Second time, and added to the Bill.

New Clause 21

Provision about calculation of lump sums: Northern Ireland

‘(1) The Department for Social Development in Northern Ireland may by regulations make provision about the calculation of lump sums in circumstances where—

(a) a member of an occupational pension scheme, or a survivor of a member of the scheme, has subsisting rights in respect of any flexible benefits other than money purchase benefits under the scheme, and

(b) the member or survivor exercises an option to be paid a lump sum in respect of any of those benefits.

(2) Regulations under subsection (1) may, in particular, make provision about how the rate or amount of any remaining benefits are to be calculated in future.

(3) In a case where a member or survivor exercises an option to be paid a lump sum before reaching normal pension age, regulations under subsection (1) may in particular make provision about—

(a) the manner in which benefits are to be calculated for the purpose of determining the amount available for the payment of the lump sum;

(a) the use of any power to reduce the amount of the lump sum.

(4) Regulations made under this section may include provision for them to override the provisions of a pension scheme to the extent that there is a conflict.” .—(Steve Webb.)

This provides a power to make regulations in relation to the payment of lump sums by occupational pension schemes in respect of flexible benefits. The clause outlines particular areas which such regulations may cover.

Brought up, read the First and Second time, and added to the Bill.

New Clause 22

Restrictions on conversion of benefits during winding up etc: Northern Ireland

‘(1) In Article 73A of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (operation of scheme during winding up period), after paragraph (6) insert—

“(6A) During the winding up period no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules.”

(2) In Article 73B of that Order (Articles 73 and 73A: supplementary), in paragraphs (1) and (3), after “Article 73A(3)” insert “or (6A)”.

(3) In Article 119 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)) (restrictions on winding up, discharge of liabilities etc during assessment period), in paragraph (4), before sub-paragraph (a) insert—

“(za) no right or entitlement of any member, or of any other person in respect of a member, to a benefit that is not a money purchase benefit is to be converted into, or replaced with, a right or entitlement to a money purchase benefit under the scheme rules,”.” .—(Steve Webb.)

Where an occupational pension scheme is winding up or being assessed for transfer into the Pension Protection Fund, this amendment prevents any right under the scheme to a benefit which is not a money purchase benefit being converted into a money purchase benefit.

Brought up, read the First and Second time, and added to the Bill.

New Clause 24

Rights to transfer benefits

Schedule (Rights to transfer benefits) contains amendments that confer new statutory rights to transfer benefits.” .—(Steve Webb.)

This introduces a new Schedule which makes changes to the right a member has to transfer their pension savings prior to accessing those savings.

Brought up, read the First and Second time, and added to the Bill.

New Clause 25

Restriction on transfers out of public service defined benefits schemes: Great Britain

‘(1) The Pension Schemes Act 1993 is amended as follows.

(2) In section 95 (ways of taking right to cash equivalent), in subsection (2), after “occupational pension scheme” insert “that is not an unfunded public service defined benefits scheme”.

(3) In section 95, after subsection (2) insert—

“(2A) In the case of a member of an occupational pension scheme that is an unfunded public service defined benefits scheme, the ways referred to in subsection (1) are—

(a) for acquiring transfer credits allowed under the rules of another occupational pension scheme if—

(i) the benefits that may be provided under the other scheme by virtue of the transfer credits are not flexible benefits,

(ii) the trustees or managers of the other scheme are able and willing to accept payment in respect of the member’s transferrable rights, and

(iii) the other scheme satisfies requirements prescribed in regulations made by the Secretary of State or the Treasury;

(b) for acquiring rights allowed under the rules of a personal pension scheme if—

(i) the benefits that may be provided under the personal pension scheme by virtue of the acquired rights are not flexible benefits,

(ii) the trustees or managers of the personal pension scheme are able and willing to accept payment in respect of the member’s transferrable rights, and

(iii) the personal pension scheme satisfies requirements prescribed in regulations made by the Secretary of State or the Treasury;

(c) for purchasing from one or more insurers such as are mentioned in section 19(4)(a), chosen by the member and willing to accept payment on account of the member from the trustees or managers, one or more annuities which satisfy requirements prescribed in regulations made by the Secretary of State or the Treasury;

(d) for subscribing to other pension arrangements which satisfy requirements prescribed in regulations made by the Secretary of State or the Treasury.

(2B) The Treasury may by regulations provide for sub-paragraph (i) of subsection (2A)(a) or (b) not to apply in prescribed circumstances or in relation to prescribed schemes or schemes of a prescribed description.

(2C) In subsection (2A) “unfunded public service defined benefits scheme” means a public service pension scheme that—

(a) is a defined benefits scheme within the meaning given by section 37 of the Public Service Pensions Act 2013, and

(b) meets some or all of its liabilities otherwise than out of a fund accumulated for the purpose during the life of the scheme.”

(4) In section 95(5)(a), for “subsection (2) is” substitute “subsections (2) and (2A) are”.

(5) In section 95(6)—

(a) after “subsections (2)” insert “, (2A)”;

(b) after “subsection (2)” insert “or (2A)”.

(6) In section 96 (further provisions concerning exercise of option under section 95), in subsection (2)(b), after “subsection (2)” insert “, subsection (2A)”.

(7) In section 100 (withdrawal of applications), in subsection (2), after “subsection (2)” insert “, subsection (2A)”.

(8) The amendments made by this section have no effect in relation to an application made under section 95(1) of the Pension Schemes Act 1993 before 6 April 2015.

(9) Until the coming into force of the first regulations made under a provision of section 95(2A) of the Pension Schemes Act 1993 specified in the first column of the table, regulations made under the provision of section 95(2) of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—

Pension Schemes Bill

Crispin Blunt Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Steve Webb]

But the idea that if the economy does very badly tax-funded pensions are secure is implausible. If the economy does badly, public expenditure on benefits must rise, tax receipts will fall, the deficit will rise and the ability of the public purse to pay the generous state pensions wanted by the hon. Gentleman will fall. We need a strong economy come what may, and a strong economy will generate the money for state pensions and for private pensions.

[Crispin Blunt (Reigate) (Con)]

I represent a significant number of providers in my constituency, including Legal and General, Partnership and Just Retirement, while Fidelity is also in this market to a degree. I am very concerned about the levy that is coming in to pay for the guidance, and about the difference between the £20 million that the Government have set aside to begin funding the guidance and the reality of what realistic guidance actually requires. If the Minister or I wanted an evaluation of our pensions for the purposes of a court—for divorce, for example—the amount of work required would cost about £2,000. There are 500,000 people waiting for and needing guidance. It will be £1 billion—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. The hon. Gentleman might be better off making his point in two interventions, because otherwise he will have made his speech, and I am sure that the Minister will not remember it all.

[Steve Webb]

Let me make a start, and I will then be happy to give way again. To be clear, 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. For example, if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so. That may involve organisations such as the Pensions Advisory Service and the Money Advice Service, and it may involve Government spending. The first point is that it is about getting things going; it is not our estimate of the recurring cost of guidance.

The second point is that there is clearly a world of difference between a guidance conversion to get people to base camp—enabling them to understand concepts and helping them to know where to go for further information and advice—and a sophisticated, individualised, tailored piece of independent financial advice recommending products. There is a whole spectrum, and the guidance is very much at not the “cheap”, which is the wrong word, but the budget end of that scale.

I assure my hon. Friend that we do not envisage a levy on the financial services industry to pay for full-blown, regulated, independent, tailored financial advice. The guidance will not be like that, but it will certainly be cost-efficient. Although we will honour the Chancellor’s pledge for face-to-face guidance when people want it, we anticipate that many people will want telephone conversations, websites and all the rest of it, much of which is substantially cheaper than the very expensive sort of advice he mentioned.

[Crispin Blunt]

I will take advantage of your invitation, Mr Deputy Speaker. I am not suggesting anything other than that the guidance is incredibly important—frankly, it needs to be closer to advice than guidance in its scale if it is to ensure that people are properly equipped to make such very difficult and complex choices—but I am concerned by the suggestion that the levy will be directed at firms that will benefit, whereas we want a competitive market which highly entrepreneurial firms that can put together new products will enter to win business from people who have left their money sitting or have not moved it, and who take annuities from existing providers and the rest. There is a dichotomy there.

[Mark Field (Cities of London and Westminster) (Con)]

Will my hon. Friend give way? [Laughter.]

amendment of the law

Crispin Blunt Excerpts

Tuesday 25th March 2014 Commons Chamber

[Crispin Blunt (Reigate) (Con)]

It is a pleasure to follow the hon. Member for Telford (David Wright), but judging from what he said about small businesses, he does not appear to have noticed that in previous Budgets under this Chancellor there have been changes to the tax and investment regimes that have been enormously beneficial to them. It is right that in this Budget the Chancellor should turn his attention to savings and pensions.

This was a great and profound Budget. Its consequences will live with us, to the substantial overall benefit of the United Kingdom, for decades to come. I share the huge enthusiasm for treating savers like adults and creating a vastly improved environment to encourage saving. However, changes on this scale will have unforeseen difficult consequences, as well as some that are already being identified by expert commentators.

I represent four major providers of savings products in the Reigate constituency: blue-chip market leaders in Legal and General with 2,500 jobs and Fidelity with nearly 2,000 jobs; and two newer market entrants, Partnership and Just Retirement. The latter two have provided astonishing case studies of what can be achieved by well-led and innovative companies. They have become market leaders in specialist annuity products and have led the growth of the equity release market, which is such an important product in the suite of products available to give people a sustainable and comfortable retirement. Between them they have added many hundreds of jobs in my constituency in the last few years alone. I am astonished by the market reaction to the Budget, which saw their share prices halve under the assumption that the annuity business was now effectively over.

The Chancellor’s proposals are just ushering in an era where innovation in savings products and market fleet-footedness will play straight to the competitive advantages of the people employed by those two companies. The behemoths of Legal and General and Fidelity are also rightly highly bullish about the much-improved climate for savings that the Chancellor now proposes. The short-term analysis of some market-makers has left me bemused. They plainly do not know enough about the companies or their excellent people and products and their ability to innovate in this great new market.

The challenge is to ensure the spirit of the reforms develops into a well-governed and safe experience to deliver good customer outcomes. Rightly therefore, much of the attention has been on guidance. The financial services industry has held a protracted debate on the differences between advice and guidance without delivering a solution for the 500,000 people who retire each year with defined contribution pensions or the future wave of retirees who have been auto-enrolled into them. The Financial Conduct Authority reported evidence of major failure in pension provider pre-retirement processes, with eight in 10 consumers who purchased an annuity from their incumbent pension provider able to get a better deal by shopping around. This perhaps explains why a recent Which? survey found that only 42% of consumers coming up to retirement trust their pension provider to act in their best interest. Taking provider interests out of the new guidance framework is necessary to ensure savers are properly equipped to consider their options in the external open market.

The Government have just resisted amendments to the Care Bill about guidance on the cost of care, but I now think we need to nudge people in the direction of properly informed independent advice at retirement to help them make the best plan for their circumstances. I suggest that a small percentage of any tax-exempt saving should be reserved for paying for independent financial advice at retirement. If savers have a proffered pot of funds that has been ring-fenced for advice, they will be in no doubt as to what the state thinks they should do. However, consistent with treating people as adults, if they take a positive decision to opt out of independent advice at retirement, on their own head be it if they decide to put those ring-fenced funds into their wider savings pot and make their own decisions or place themselves in the hands of an existing provider without taking an informed view of the whole market.

The complexity of choice in the use of all one’s assets, pensions, savings and property at the point of retirement to insure against future care costs, provide an annuity, make cash available and decide on protection or use of the family property cries out for independent advice. We should nudge people in that direction. Expecting the provider industry to deliver that is a triumph of hope over experience. This will continue to be a key debate and, given my constituency interest, one of which I would want to be a continuing part. Yes, that is a bid to serve on the Committee of the Pensions Bill. There are, however, now a series of concerns about the consequences of the behaviour of savers faced with these welcome new freedoms and what that will mean for the financial markets.

Much reaction to the Budget has focused on the less competitive, inert parts of the annuity market, but the majority of pension value is placed in the open, transparent, competitive external annuity market, which does deliver good value for consumers. People should continue to value security, especially at a time of life when returning to work may not be an option for providing income. Annuities will remain the only means of providing a guaranteed income for life.

Just Retirement and Partnership are both specialist retirement income providers whose arrival in the past 10 years has driven innovation, value and competition, and has positively disrupted the market. The development of equity release, led by Just Retirement, has opened a vast new opportunity for meeting Europe’s gaping black hole in provision for a comfortable retirement for a growing number of retirees as a proportion of our population, so we ought to raise the warning flags over the potential unintended consequences of this welcome policy change.

In conclusion, this Budget will live in the pantheon of the great Budgets, along with Geoffrey Howe’s lifting of exchange controls and Nigel Lawson’s cutting of the higher rate of income tax. Overall, it is a great measure and I am proud to support the Chancellor.

[Mr George Howarth (Knowsley) (Lab)]

It is a pleasure to follow the hon. Member for Reigate (Crispin Blunt), who stressed the importance of getting independent advice. That advice was well worth giving, but I simply observe that in the past people have had independent advice but it has not always turned out to be to their advantage. There are two kinds of independent advice: good advice and bad advice. How we distinguish between the two will be—

[Crispin Blunt]

The important change is that independent advice is now definitively independent advice—the era of relationships, commission and so on between financial advisers and providers has gone, and that is an important benefit.

[Mr Howarth]

I agree, but my concern is that the people giving the advice need to be competent; it is not necessarily a question of whom they are connected to.

I want to use the time available to me to talk about the Budget and poverty, but first I wish to refer to my experience of volunteering in our local food bank—the Big Help Project—last Saturday at the Tesco supermarket in Prescot, in my constituency. The first point to make is how generous the response of shoppers was to the appeal. It was so overwhelming that at one point the volunteers struggled to keep up with the number of bags of groceries that were being given to us, and that is a great tribute to everybody involved. Secondly, from talking to volunteers and supporters it became clear that they did not take a prescriptive view of people who, unfortunately, have to rely on the services of a food bank to feed their family. The statistics bear out why people are right to be sympathetic. The Big Help Project has had 6,000 referrals over the past 12 months, 73% of which are the result of benefit changes, benefit delays or low income. The project has a vital job to do, but we need to be mindful of the reasons why people find it necessary to go to a food bank.

I want to talk specifically about poverty, and not about welfare. We have sometimes managed to confuse those terms, but they sometimes go together and sometimes do not. According to the Joseph Rowntree Foundation,

“the most distinctive characteristic of poverty today is the very high number of working people who are also poor.”

Again, the food bank experience in Knowsley bears that out, as 22% of those referred are in employment but they are so poorly paid that they are forced to rely on the food bank to make ends meet. The other two main groups relying on the food bank are people who are dependent on the benefits system and who are affected either by benefit changes or by delays in payments. In some cases, these people find themselves with absolutely no income at all, and often that is as a result of sanctions, which in some cases are arbitrarily put on people who are trying to make a claim.

The trouble with the Government’s approach to welfare reform is not just that it is morally flawed, but that it is based on the subjective view that welfare dependency is, in some way, a choice that people can make. If it were as simple as that, it would be a relatively straightforward phenomenon to resolve—but it is not as simple as that. The reality is that people who want to re-enter the labour market are often confronted with a complex web of barriers that can, in some cases, be impossible to negotiate without help that is tailor-made to their particular circumstances.

Research from the Department for Work and Pensions itself has concluded that what matters for poverty reduction is not the aggregate employment rate, but the share of working age adults and children in workless households. In other words, an increase in the number of people in the labour market will not necessarily reduce poverty if it consists of people entering the labour market from households which are not already in poverty. So, even if employment rates are rising—I acknowledge that they are—below the surface there is a highly polarised employment structure, with a high number of double earners and a high level of zero-earner households. The Secretary of State referred to that in his opening speech.

What the Government’s approach fails to take into account are the barriers that those in zero-earner households have to surmount to become earners—certainly at a level that does not lead to their still living in poverty. Time forbids me from going into too much detail, but let me offer two examples of the barriers that people experience. The first is the recruitment practices in many companies. A UK Commission for Employment and Skills report in 2010 concluded that employers increasingly use informal channels of recruitment rather than the jobcentre, which further disadvantages those who are unemployed and, as a result, they do not have the informal contacts needed to be in the know. That approach is probably even more commonplace now in my constituency than it was at that time.

The second barrier is the increasing use of zero-hours contracts by employers. There are varying estimates as to the level of their use, with between 500,000 and 1 million people thought to be affected. I do not intend to get into a discussion about which figure is correct, but that barrier, taken together with the unreliability of agency contract work, makes it difficult for families to abandon the benefit system altogether. That is because the employment available is so insecure and unreliable as to be too risky to contemplate—certainly for families. Indeed, it presents the very real possibility that by finding a job someone will be plunging their family into even greater poverty than they were experiencing already.

Although there are obvious improvements in the economy and in the levels of employment, poverty is stubbornly persistent in this country, to a wholly unacceptable degree. I am afraid that I am bound to conclude that because the Government do not understand the causes of poverty, they have not addressed it at all in this Budget.

Pensions Strategy

Crispin Blunt Excerpts

Thursday 20th March 2014 Commons Chamber

[Steve Webb]

The hon. Gentleman is right to say that we are going to have to think about pensions and retirement saving in a new way. One of the differences between workplace pensions and other forms of saving is the employer contribution. Whereas someone of working age can save through any savings vehicle they like, it is only through workplace pensions that they get not only tax relief but the employer contribution. They will, therefore, remain particularly attractive products, including for people on low wages.

[Mr Crispin Blunt (Reigate) (Con)]

Thousands of people in my constituency work in this industry, from the blue-chip leaders working for Legal & General and for Fidelity to those working for two companies that have led the way in innovative products, namely Partnership and Just Retirement, whose share prices took a hammering yesterday because of the language being used about the future of annuities. Will the Minister make it absolutely clear that the delivery of good guidance is essential—that would reinforce the position of those who are delivering innovative products—and that annuities will be an extremely important part of the industry in future provision?

[Steve Webb]

We know that many people will still choose to have an income for life rather than a capital sum, so we do not think this is the death of the annuity. We think it will give a bit of a jolt to the annuity market and make providers do better. For example, Standard Life, a major annuity provider, said yesterday:

“Today’s wide ranging reforms of the UK savings and pensions regime have the potential to provide the simplicity, choice and flexibility for savers we have been calling for.”

A representative of the Association of British Insurers was on the radio this morning, and the providers are realising that this is an opportunity. They will have to up their game, but this is a chance for them to provide new and innovative products and we are happy to work with them on that.