Taxation of Pensions Bill

Debate between Hywel Williams and Toby Perkins

Wednesday 3rd December 2014 Commons Chamber

[Toby Perkins]

I do not intend to detain the House unduly, but I want to speak briefly in support of new clause 1, tabled by my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson). I also do not intend to give too much advance notice of my Adjournment debate, which I will have the pleasure of holding later and to which I know that the House is looking forward with considerable interest.

My hon. Friend made an important point about the haste with which some of the changes have been introduced and the impact that that can have. The Government may be entirely well meaning, but such changes can have unintended consequences, and I shall refer to some of them in more detail later.

If I had been contacted by my constituents and had a response from the Minister a few weeks or months earlier, there might have been an appropriate opportunity to propose that the issue was looked into in relation to the Bill, but perhaps there will be an opportunity to consider such issues in the other place.

It is a great pleasure to follow my hon. Friend the Member for Coventry North West (Mr Robinson), who speaks with tremendous knowledge on these issues. He was absolutely right to focus on the way in which some industries operated in the past, and the extent to which the financial services industry had some very negative selling practices back in the deregulatory period of the 1980s. I am pleased that the industry, with Government assistance, has very much got its house in order.

We would be well advised to think about the impact of the changes on the professionalism of very important industries such as financial services. If decisions are not taken in professional enough a way, they can have massive effects on people at the time in their life when they take their pension. Back in the 1980s, there was a huge explosion of private pensions, with people—mineworkers or teachers—advised to give up their pensions. They were told, “No, if you give up your pension, you can opt in to one of these private schemes, with 15% growth every year.” There was a huge mis-selling scandal.

I previously worked—briefly, and largely unheralded—in the financial services industry. I was not necessarily particularly suited for the job, which highlights a point about people being invited into the industry. They were dragged into it on the basis of knowing friends that they could go and sell pensions to. People with very little knowledge came into the industry. Their business plan was based on phoning all their friends and relatives to encourage them to give up their pensions in reliable public sector or other schemes and to go in to private schemes. There was of course a huge explosion, and many of the people in the schemes were seen to have been given very poor advice.

We recognise what the Government are attempting to achieve, and we support their aims of having greater flexibility for the industry, allowing people to be put back in charge of their investment and ensuring that they have the freedom to decide what to do with the money that they have saved. However, we are also aware of why the annuities method of accessing pensions that people had invested in was introduced. We as a society decided that, in an age when people were living longer and longer, we wanted people to make provision for themselves and, having done so, to buy something that provided a regular income that they could rely on.

If we have a scheme in which people decide what to invest their pension funds in, but, with the best of intentions, those investments go wrong, the people who we thought had provided for themselves in later life will come back to the state and say, “Unfortunately, the investments that I made with my pension pot have gone wrong and I have run out of money.” That will have an impact on the Government. We recognise what the Government are attempting to achieve, but it would be sensible to have a review of how it is working, the impact of the changes on the behaviour of investors, the impact on Government revenues, the impact on the broader economy, and what behaviours are being encouraged and introduced by the changes.

[Hywel Williams]

I am sure that the hon. Gentleman will accept that there is also a reputational danger for the industry in general and for the entire system of retirement pensions if people who make honest and sincere investments find that the returns are non-existent or that the investment itself disappears, and find themselves not being at leisure in their 70s, but working, like people I know.

[Toby Perkins]

Absolutely; the hon. Gentleman is right. There was a huge rush of those issues coming to light at the back end of the last century, when people who believed that they had saved into corporate pensions found that the company had disappeared and so had their pension.

When we are debating these issues and supporting the Government in this important initiative, we must be conscious that it must not end up with people effectively gambling with the income that they will rely on, without being aware of the risks. It is important that protections are in place to ensure that when people make such decisions, they have the information and know what they are letting themselves in for. It must be clear not only what impact it will have on them and their future, but what impact it will have on Government resources and revenues.

The FCA risk outlook of 2014 stated:

“Retirement income products and distribution may deliver poor consumer outcomes”.

That means that the Government recognise the dangers that we are highlighting, which adds more weight to the call of my hon. Friend the Member for Kilmarnock and Loudoun for a review of the impact on Government revenue and a review of who is affected, with a

“distributional impact, by income decile of the population”.

The other thing that we must all be conscious of is that this change must not result in an industry that services only the very rich. Financial advice is important. If it becomes the preserve of the very rich, many people will be left out of the market, especially the self-employed, who often see their business as their pension and so never go down the route of choosing financial services products.

In supporting my hon. Friend’s call for a review of the impact of the changes, I wanted to flag up the debate that we will be having later and to put it in the context of the taxation of pensions. I have secured today’s Adjournment debate on the impact of such measures on public sector workers who transferred to the private sector when their public sector job was transferred. They are protected under transfer of undertakings protocols. However, as many staff at CSC in Chesterfield who previously worked for Royal Mail discovered, when they were made redundant, the changes hastily introduced by the Government in 2012-13 meant that although they left their pension with Royal Mail when they were transferred and opened a new pension with CSC, that new pension was treated as a second pension. As far as they were concerned, they sat in the same desks and did the same job. The name above the door may have changed from Royal Mail to CSC—although in this case it did not in practical terms—but those staff were classed as having two different jobs and therefore two different pensions.