Budget Statement

Lord Freeman Excerpts

Wednesday 25th March 2015 Lords Chamber

[Lord Freeman (Con)]

My Lords, I want to concentrate on the impact of the Budget and the Autumn Statement on pensions and savings. I very much welcome the initiatives that have been taken, not only by the Chancellor but by the excellent Pensions Minister in the other place, Mr Steve Webb. The noble Lord, Lord Deighton, is going to sit through some three and a half to four hours of debate, so I am not expecting a response, but I would be grateful if he would draw my brief remarks to the attention of the Minister, for whom I have a high regard.

The first point that I want to cover is the taxation of savings interest. This may not sound a very dramatic change, but for a large portion of the population it will have a significant effect because what is proposed, which I welcome, is a tax-free allowance on interest from 2016. Although it is limited to the first £1,000 of savings, it will benefit 95% of savers—that is, 17 million people in this country taken out of tax. The tax-free interest will affect the basic rate of taxation. We have very low interest rates. Those who have looked at their bank statements recently will realise that one is earning something like 1% on bank savings so this elimination of tax, although it may not amount to very much, will be welcomed by many. In due course, I hope that there will be a further extension of this concession in taking savers out of tax.

My second point concerns the cashing-in of savings, typically from defined contribution schemes where people have been saving, perhaps with the assistance of their employers or themselves, into pension schemes. These are typically defined contribution schemes, as opposed to the defined benefit schemes run by the large companies in this country. The Chancellor announced a relaxation in the Autumn Statement, and now again the Budget Statement, which will be subject to legislation, on the rules governing the drawing-down of moneys in savings in these pension pots, although the drawings-down will of course be subject to tax. There is also the trading of annuities, which I very much welcome, although clearly there are issues here which require careful advice to those who are either considering selling their pension or wishing to trade the stream of annuity payments. It is very important that there should be proper care and advice given to those who take advantage of this welcome relaxation.

I start from the principle of trusting the people—those who will receive this benefit—but there has been a lot of cautionary press. Indeed the Opposition, in a recent debate, cautioned about exploitation by those who might offer erroneous advice to pensioners who wish to cash in their pension pots. We need Pension Wise, the new organisation which in literally a few days’ time is to take responsibility for advising pensioners on the use of their funds, to be properly staffed. I suggest that your Lordships’ House have the chance to debate after 12 months the record of the advice given, and any instances of exploitation or bad advice given to people who might not be financially expert in looking after their savings. I hope very much that there will be a report back to Parliament within the first year, or at least after the end of the first year.

Perhaps I may deal briefly with the lifetime allowance for maximum savings with tax relief. It is to be reduced from a pension pot which can be built up, with certain tax reliefs, to £1.25 million—it sounds an awful lot—to a pot of £1 million in 2016-17 and indexed thereafter. However, there is a warning here. If a husband has a spouse and the inflation arising is eating into any payments that come from drawing down those savings, then one journalist estimated quite recently in the press that drawing down £1 million, subject to tax but with a spouse and with necessary inflation-proofing built in, would amount to something like only £30,000 per annum in a pension from the age of 65.

Finally, I want to deal with defined benefit schemes, which are run by the large companies and corporations in this country. A particular problem at the moment is that the very low rates of interest used to discount the liabilities, both gilt rates and corporate bond rates, are such that there are rising deficits in these big pension funds. This is not only in former nationalised industries and large corporations; they cover perhaps well over 50% of those employed in industry and commerce. The impact of these bigger deficits means that companies have to transfer cash into the pension funds to make sure that they have sufficient funds to pay out the pensions. This is causing great concern and I hope that, in due course, the Chancellor can make a Statement on this.

That is all I wish to say, except to repeat the one key point which I hope that the Minister will convey to Steve Webb, the Pensions Minister. I hope that your Lordships will have an opportunity, at least after the first 12 months, to look at the record of these greater freedoms on the population and whether they have been abused by improper advice.