Taxation of Pensions Bill

Debate between Crispin Blunt and Chris Evans

Wednesday 29th October 2014 Commons Chamber

[Chris Evans (Islwyn) (Lab/Co-op)]

Having worked in the industry myself, I share many of the hon. Gentleman’s frustrations. Does he believe that half an hour of independent guidance is enough for people on the journey of managing a pension pot that has to last them 30 years? How does he see that relationship developing so that they make the right decisions along that 30-year journey?

[Crispin Blunt]

Obviously, the precise mechanism that ends up being set up by the FCA is immensely important. If it is as the hon. Gentleman characterises, and it does not lead people to come to a proper assessment of their situation, we will be left where we are now. Companies such as Partnership and Just Retirement, operating in the annuities industry, have been brilliantly successful because when people examine their situation it usually makes sense for them to move to such companies when they annuitise, rather than stay with their existing provider. The only problem is that people have been subject to consumer inertia and have not been aware that at that point they should be making the decision in the current market. The great thing about this liberalising reform, and the anxiety shared across the House to make sure that the guidance works, is that we will now be waking people up to the opportunities presented to them. If we have many tens of thousands of pounds in our retirement fund, a half-hour chat is probably insufficient. Many people will have hundreds of thousands of pounds available to them after a lifetime of saving into a pension fund, and it will pay them to take serious, proper, independent advice. They will need to pay for that, but it will represent serious value for money if they get proper advice. If the guidance can push people in that direction, to properly regulated and properly informed independent financial advisers, we will have properly informed consumers making proper choices.

The Financial Secretary and the Treasury will need to assure themselves that the FCA is alert to the needs of all consumers with direct-contribution pension benefits ahead of April 2015, and ensure that their delivery is closely monitored as these important reforms are made. As I said, we will not get this right first time, and whatever system is set up will need the capacity to improve as we learn how to improve the capacity of consumers to take informed decisions.

Additionally, the companies in my constituency continue to be concerned that the regulatory rules affecting a number of key changes in the Bill are still not clear. The Association of British Insurers is discussing these points with the Government and the FCA, but without clarity soon there is a risk of some customers not being able to access flexibility and there could be an uncertain environment and an uneven playing field between different types of product and providers. This is not solely the role of the FCA. It requires coherent and achievable measures from the Treasury, Her Majesty’s Revenue and Customs, the Department for Work and Pensions, the FCA and the Pensions Regulator.

For instance, the regulatory position on accessing a pension pot in one lump sum, whether through flexi-access drawdown, or an uncrystallised funds pension lump sum—I am grateful to the Financial Secretary for UFPLS. I had a go at “golden annuity uncrystallised kapital enhancement” fund, a GAUKE, which would rely on “capital” being spelled as in “Das Kapital”, which may mean it loses some of its attraction, but I guess we will have to settle for UFPLS. I am sorry that the imagination of Her Majesty’s Treasury officials was not able to produce a real GAUKE for him, to leave his impact on these highly important, liberalising measures for all time.

To return to the substantive point, the regulatory position around those two funds remains unclear, making it very difficult for providers to plan and develop requisite systems. This is despite taking a pension pot in this way being a key expectation raised as a result of the Budget reforms. Indeed, the whole regulatory regime around the uncrystallised funds pension lump sum route, which forms the basis of the Government’s pension bank account analogy, has yet to be resolved. In addition, there could be gaps in regulation between contract-based and trust-based schemes in two areas: how drawdown in trust-based schemes will be regulated, as well as protection for customers and expectations of providers if a customer wants to transfer out of a defined-benefit scheme after receiving advice not to do so.

My constituents welcomed the sensible reduction of the 55% tax charge on death, which the ABI had previously asked the Government to consider, which overtly conflicted with the wider Government policy of making pension saving more popular by giving people more options on how to use their retirement savings. However, without further clarification it creates an advantage for drawdown customers over annuity customers, which will change behaviour. To ensure that the policy is not skewed against income, tax on pension payments to a beneficiary after the customer’s death must be treated equally, whether paid through an annuity or drawdown, as income or as a lump sum.

I want to use the occasion of the Second Reading of this rather technical Bill, which in concert with the Pension Schemes Bill is a profoundly liberalising measure, to draw attention to other associated reforms that are interdependent. Our country has an obsession with investing in property, and there are vast reserves of wealth tied up in household equity. We face a growing crisis in our ability to provide decently for a rapidly growing older population. Failure to enable the equity release industry to grow in a competitive way to produce value-for-money products that look after the interests of the elderly and their families, rather than those of the estate agency industry, when we force people to realise their assets by expensively selling their homes when they do not need to do so and when they deserve stability in their lives with regard to their homes, will be critical to the well-being of every family in this country.

Last year, I led a delegation from the European equity release industry to lobby the European Parliament, the European Commission and the Council of Ministers, to seek changes in the trialogue stage of Solvency II to protect this industry. Under the leadership of my right hon. Friend the Member for Tunbridge Wells (Greg Clark), then the Paymaster General, the British team in Brussels helped to secure some useful space in the interpreting recitals to Solvency II that would help to ensure that the capitalisation demands placed on the equity release industry are significantly in the hands of national regulators. That is immensely important to this Bill, because the successful advance of the equity release industry and the successful development of freedom around pension provision go hand in hand. That relies on a sensible interpretation of the European Union’s Solvency II regime.

I am profoundly concerned that the hard-won space to enable the British equity release industry to advance, achieved by Ministers and their officials, alongside work done by the Equity Release Council, under the chairmanship of our former colleague Nigel Waterson, will, in the classic tradition of British gold-plating of European regulations and directives, be entirely undone by the implementation and regulation imposed by the FCA.

The Economic Secretary has assured me that the FCA is under thoroughly sensible and business-like leadership, and I believe that is the case, not least because last night I met the splendid Robert Taylor, who earlier this year became an excellent addition to the FCA’s senior leadership team. However, I have to say to the Financial Secretary that there are regrettable early signs, as the policy is being developed, that the overriding need to advance the equity release industry to support the reforms being implemented in the Bill, and unrealistic proposals around the matching adjustment that would apply to property as an asset, could seriously hamper the necessary growth of that industry.

If the FCA persists in its unnecessary programme of gold-plating, it will be all of us who have to pick up the bill, and it will be a profound missed opportunity for the United Kingdom, and not only for our citizens; it will be a missed opportunity for the industry to advance around the world, as many of our financial services industries have done, to the immense benefit of the people of the United Kingdom.

I joined the overwhelming tide of opinion that identified that measure as one of the most profound and welcome changes being made by this Administration. The Chancellor of the Exchequer is rightly winning the admiration of his fellow Finance Ministers for the remarkable transformation of the British economy under his leadership. That measure will be a profound part of his and his Treasury colleagues’ legacy. It remains up to them to ensure that it is delivered effectively in detail so that it can be an unalloyed adornment to their golden record.