Pension Schemes Bill

Debate between Crispin Blunt and Steve Webb

Tuesday 25th November 2014 Commons Chamber

[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

Debate between Crispin Blunt and Steve Webb

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.

Pensions Strategy

Debate between Crispin Blunt and Steve Webb

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.