Taxation of Pensions Bill

Debate between Ian Swales and Barbara Keeley

Wednesday 29th October 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I should start by declaring an interest: I am well over 55 and have a pension pot that is subject to these provisions. I very much welcome the Bill because its measures are undoubtedly needed. I praise my right hon. Friend the Member for Thornbury and Yate (Steve Webb), who has been campaigning on these issues since 1999 and has done a terrific job in reforming pensions in his years as Pensions Minister.

The Bill is a revolution in terms of freedom. I am glad that defined-benefit schemes are excluded, because they were the source of much of the mis-selling that took place during the scandals that occurred, with people who had very secure local authority or teachers’ pensions, for example, being encouraged by unscrupulous advisers to cash them in and take out risky products. We have to try to avoid that.

People arrive at the time when they want to take their pension in many different circumstances. They may want to spend their money at different rates depending on their view of how they want to spend their retirement. They may have health issues that determine how they spend their money. They may make various different choices. Even though I was brought up as a Presbyterian by my Scottish parents, I have nothing against holidays, which are a perfectly good choice when one initially retires.

I know from talking to constituents that one of the main things people do these days is make a capital transfer to their children, particularly to buy a property. I can well understand why people whose income is okay might want to do so, and given that the new rules on inheritance are much less penal in cases of early death, funds that they have saved up will still be available to their family.

However—there are quite a few howevers about this Bill—annuities have a deservedly bad name in terms of value, mainly because low gilt rates mean that annuity providers can only offer low rates. Annuities do have a purpose. They are a pool, which is one of the things that I find constituents have difficulty in understanding. Perhaps even the hon. Member for Amber Valley (Nigel Mills) has difficulty in understanding that, given what he said; I know he does not, because he is an expert in this area. When people die soon after taking out an annuity, the insurance company does not get the money; the person who gets the money is someone who is lucky enough to live to be 100. That is what pooled annuities are all about.

By demonising annuities, we have caused people to forget that they do not know how long they are going to live. On average these days, somebody aged 65 will live until they are 83, but a lot live longer and quite a lot live less than that. The whole point about annuities is that they are a pool, and people bet against how long they are going to live. I think that the industry will come up with annuity-type products to meet the desire of many people for a secure income for as long as they live.

In financial services, it is always worth asking what is the worst that could happen, because it usually does happen. That is why we need to think about some of the unintended consequences, difficulties or gaps. Several speakers have mentioned the world of guidance. I was disturbed to hear the hon. Member for Reigate (Crispin Blunt), who is not in his place, say:

“We will not get it right first time.”

Let us remember that guidance in this area will be given only once for each individual. They cannot keep going back for more guidance: it happens once. If we do not get it right first time and the cohort of people in the first year do not get good advice, they will suffer for the rest of their lives. From our point of view, it might take a while to get the guidance right, but for the people getting the advice it must be right when they get it. The whole area of standards and regulation in relation to the Bill would bear more examination.

Advice needs to be impartial and transparent, and it should be based on straightforward products, but I worry about the level of knowledge of the people receiving advice. A few weeks ago, a constituent came to see me who had taken out a finance deal for some solar panels. It turned out that the combination of the savings on the solar panels and the finance deal meant that she had an overall penalty in her budget. The savings on the panels in no way paid for the cost of the finance, although she had been told that it would.

[Barbara Keeley]

The hon. Member for Amber Valley (Nigel Mills) spoke about someone who left work and needed their care costs to be covered at a certain point. In my view, that is another thing for which constituents do not plan. I have lost count of the number of my constituents who did not even know that they had to pay for social care and did not understand the thresholds. I am concerned that a lot of people will be tripped up if they draw down money and increase their savings, because they will suddenly find that they fall within the threshold at which they have to pay for social care. People commonly do not understand that, and it will not be covered by the guidance.

[Ian Swales]

That is a very good point. The guidance needs to be much more in the round on what may happen to people after retirement, but I suspect that that will not be mentioned in the guidance unless we can do something about it.

To go back to my example about the lady with the solar panels, I went through the documents with her, and they very clearly showed the numbers. There was no doubt: she had not been scammed. What she had signed up to was absolutely clear, and her signature was on all the documents. She said, “Oh, I just didn’t realise. I’ve an A-level in maths, so I should have realised.” What worries me is that we do not have to speak to many constituents before we realise that levels of knowledge about pensions are extremely low. As the hon. Member for Worsley and Eccles South (Barbara Keeley) has said, other consequential issues of getting older are sometimes even less clearly understood.

I am worried about the guidance, and I think that there will be concerns about whether it is appropriate and whether people have the financial awareness necessary to understand it. That goes back to the need to make people more financially literate from school onwards, but we will not solve that problem overnight. The industry is talking about having a second line of defence, and it needs to be listened to. It is a clear case of “They would say that, wouldn’t they?”—it is designed to get people to move towards the type of products that the industry is offering—but such a second line of defence might serve to protect people from themselves, as it were.

We need to watch out for scams. I listened carefully when the hon. Member for North Down (Lady Hermon) mentioned criminality in relation to people losing their pension savings. Pension release companies already impose extremely high charges for unlocking pension schemes and doing very little work. I am prepared to take an intervention from her if she so wishes, but I am a bit concerned about how to define criminality. People may make a bad decision, but that is not necessarily criminal. I agree with her, but I wonder what kind of products or service she means when she talks about criminalising those who end up losing their pension pots.