Pension Schemes Bill

Lord Davies of Oldham Excerpts

Tuesday 16th December 2014 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I thank the Minister for his extensive coverage of both Bills and reassure the House that my own contribution will be not to follow him down every detail of the legislation but to concentrate on those parts where we have anxieties and worries that we intend to contribute to the debate today and subsequently in Committee on the pension reform Bill. I thank the Minister for his extensive coverage but he will know that the Opposition support the principle of increased flexibility for people in retirement and reform of the pensions market so that people can get a better deal.

The Bill seeks to remove the limits on withdrawals from draw-down to make annuities more flexible and to prevent the Government’s pension reforms being exploited for unintended tax purposes, and we share those objectives. However, it is vital that the Government get the details of those changes right. We have set out three tests for pension reforms: guidance, fairness and cost. We are supporting the reforms to ensure that people have more flexibility in how they access their pension savings, but these are significant changes and we have to ensure that they work for all savers. First, on guidance, we need to ensure that savers get the right guidance, and I will develop that point subsequently. The fairness test needs to ensure that there are decent products for low-income and middle-income earners; it is fairly obvious that those with large pension pots are in a better position to look after their interests. The costs test that we are seeking to apply is to ensure that the reforms do not result in extra pressures on the state, either through social care or through pensioners falling back at a later stage on means-tested benefits such as housing benefit.

We have concerns about the speed with which these reforms have been pushed through. There was no consultation prior to the Chancellor’s Budget Statement, and the Government have refused our calls to publish further details and analysis of the behavioural impacts of these important reforms as well as, I might add, the potential impact on government revenues. I am not sure that the Minister was entirely convincing in his response to the point that my noble friend Lord Beecham made in his intervention; we need to examine carefully the potential impact on public revenues and resources.

We will press the Government to undertake a Treasury review within two years of the reforms coming into force. These are of such significance for such a significant part of our population that we need to know that they are working as intended. That review should detail the impact of the Bill on government revenues, with particular reference to opportunities for tax and national insurance contributions avoidance. The Government make great play of their approach to tax avoidance issues at present, but they must recognise that there are some anxieties about the potential effect in that area of those proposals.

The pension reforms will introduce increased flexibility for savers; however, they will also lead to the creation of a more diverse pensions market, with a range of new products available. Safeguards must be in place to protect customers from being exploited or facing unreasonable fees and charges. People need real support to negotiate this new, more complex landscape. That is why these changes must be accompanied by free guidance that is high-quality and impartial. The Government made a commitment to provide everyone with free impartial face-to-face guidance. They have a responsibility to ensure that that guidance is in place on time and meets customer expectations.

The Government are not always reassuring on that front; sometimes they seem to talk about guidance and sometimes about advice. Advice is something for which you pay in the industry; it is an activity regulated by the Financial Conduct Authority, which authorises individuals and firms acting as advisers. Guidance is different. Guidance in the context of the pension changes that will take effect from April 2015 must be free and impartial information to empower customers to make informed and confident decisions. That activity will not be regulated by anyone; the individual will have to make up their own mind as to the best route post-retirement.

After all, the FCA sums it up distinctly and neatly on its consumer website:

“The main difference between guidance and advice is that you decide which product to buy without having one or more recommended to you”.

That is why guidance will bear a heavy weight. The guidance envisaged in the Bill aims to provide the estimated 300,000 new retirees per year with defined contribution schemes with this service. Even with the distribution channels of the web, face-to-face—for example, Citizens Advice—and via telephone, including the Pensions Advisory Service, there must be grave doubts about the level of take-up that will be achieved. The amount of resources assigned and the task of preparation time leaves the impression that we are being subjected to rushed initiatives in the most crucial area for the citizen. There are no details on how the guidance will be delivered in a consistently high-quality manner, given that no specialist qualification, experience or regulation is required for the agencies to commence this process. The Minister must recognise our very clear anxieties on these points. Safeguards must be in place to protect customers.

The Bills, which share their Second Reading in this rather interesting procedure, allow for the establishment of the collective defined contributions pension schemes, which we promoted some time ago. We were convinced by the value of these potential schemes, and are of course pleased that they are included in the legislation. They have the potential to provide a more reliable retirement income than individual defined contribution schemes. Therefore, we are not opposed to the Bill but welcome it.

I hope that I have expressed the Opposition’s constructive criticism of the Bill, while at the same time indicating that we support its principles and wish it every success. Later in this debate and in Committee, my noble friend Lord Bradley will take up some of the challenges that I put forward. However, I hope that the House will recognise that our broad commitment of support does not involve a superficial approach to the very real challenges that this significant pension reform envisages.

Finally, in a rather more consensual manner than the one I normally adopt when expressing a view on government legislation from this Dispatch Box, I pay tribute to the noble Lord, Lord Jenkin, and his service to both Houses over a very considerable period. I will never forget the time when I had responsibility in this House for an Energy Bill on which we spent 17 days in Committee. The only noble Lord who was unremitting in his work at that stage, when even Ministers were forced to hand some responsibility over to each other, was the noble Lord, Lord Jenkin. It was a tour de force in everything we heard at that time, and of course the whole House will wish him well in his retirement.