Queen’s Speech

Lord Holmes of Richmond Excerpts

Tuesday 10th June 2014 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords:

“And this our life, exempt from public haunt,

Finds tongues in trees, books in the running brooks,

Sermons in stones, and good in every thing”.

That perhaps gives a somewhat overstated sense of the pastoral idyll, but may give some glimpse of what retirement can be. And yet, how little and how often do any of us think about our pensions—how much, when and in what product to save—in our 50s, never mind in our teens and 20s?

I must confess at this stage that before joining your Lordships’ House not only was I a lawyer, I was a pensions lawyer. I understand people’s problems with pensions: they are complicated, they make your head hurt a lot. Generally, there is a cycle of disinterest, boredom, trying to grapple with it, confusion, disappointment and panic—and then you go round the track again. But it matters. It matters now and it has always mattered—particularly, as has been mentioned, as we enter what could certainly be seen as a post-defined benefits world.

Before turning to the measures in the gracious Speech, I should like to say how much I am looking forward to the maiden speech of my noble friend Lord Bamford. As a six year-old, coming from the Midlands, I was lucky enough to drive one of those iconic diggers and not crash it. The memory will certainly stay with me for the rest of my life. What a fantastic brand that is: what a fantastic British success story built by my noble friend and his father before him.

The gracious Speech contained two Bills concerning pensions: two opportunities to create increased focus, involvement and potential engagement with the whole issue of pensions. To take the pensions tax Bill first, it is about liberation, not Lamborghinis—other makes of sports car are also available on the market. I do not believe that it is about whether somebody takes all of their pension in one slug; it is more about whether people will understand the tax implications of their actions, because this is not a free hit. If someone goes above the 25% tax-free lump sum, the additional income will be taxed at the marginal rate. For many people, that may well not be in any sense the most efficient way to access their pension pot. A year by year, drip-drip release may well be better. Some form of annuity product may well be the best bet for an individual. I certainly think that the much talked of death of the annuity has been dramatically overstated to date.

Now to the advice. It is likely to be generic, with 300,000 people a year potentially requiring it. I believe we will need to do more than that. Pre-2014, the majority of people indulging in significant drawdown at retirement would have had more significant pension pots and taken bespoke, paid-for advice. Alongside that generic advice, no matter how good it will be, we should consider an obligation on providers to at least try to gain some assurance from the member that they understand the tax implications of the decision that they may be proposing to take. What plans do the Government have to consider such an obligation on the provider in that respect?

I turn to the second Bill, the private pensions Bill. Much has already been said on CDCs. I will not go into that issue in detail, as others will no doubt unpack it later in the debate. The key there will really be about scale and levels of interest, both of which are largely unknown at the moment. However, it is the beginning of the process and is a useful vehicle to provoke and further open the debate about kinds of provision and types of scheme, and about whether there is the potential to drive efficiencies and secure better returns for scheme members. On that point, all we can say at the moment is that collective DC schemes may do that.

All the issues within the Queen’s Speech are to be analysed in incredible amounts of detail—which is why pensions hurt our heads so much. There is a lot more to be laid out but it is opening up the debate. That has to be a good thing for such an important aspect of what it is to live in a western liberal democracy and have a level of retirement that enables people to live for years with some sense of comfort and dignity, once their working life has come to an end.

This is a post-defined benefit era, but I would like to look at the provisions in the private pensions Bill concerning defined benefits and the proposal to ban transfers out of private-funded and unfunded public sector defined-benefit schemes. On the face of it, this seems a sound move, but is it coherent or consistent to have a ban on DB transfers out at the same time as we are liberalising the market for DCs? Nobody wants to see a mis-selling scandal or anything of that nature and people may well determine, in conclusion, that their DB benefits are better. They may decide to stay with the DB pension promise. But should we ban those transfers as a matter of law? Consider, for example, someone who may have built up a tiny DB provision and a number of DC schemes but who wants to consolidate all their pension provision into one block. That surely makes sense, so what plans do the Government have to consider how that will be taken account of in their current plans?

In short, anything which provokes more discussion in the pensions arena has to be a good thing. In the words of Robert Frost:

“The afternoon knows what the morning never suspected”.

In terms of pensions, perhaps some pre-lunch if not breakfast conversations around the whole issue would be gratefully received across the country from the earliest possible age at which someone enters the labour market—because pensions matter, and grey matters.