Pension Schemes Bill

Lord Holmes of Richmond Excerpts

Tuesday 16th December 2014 Lords Chamber

[Lord Holmes of Richmond (Con)]

My Lords, it must surely be Christmas soon, with not one but two pension Bills in the same afternoon. What treats to pop under the tree.

I give my respect and honour to my noble friend Lord Jenkin for his 50 years in Parliament. My sadness is that I got to know him only about a year ago, but I appreciated the wisdom that he shared with me when I joined your Lordships’ House and his witty comments, sometimes sotto voce when he was sitting next to me, at which I found it very difficult to suppress at least a snigger.

Where are we with pensions? It has been a tumultuous 20 years. We have heard the words “security”, “freedom”, “flexibility” and even “simplification”, until we all finally concluded that pension simplification is probably one of our greatest oxymorons. Defined benefit schemes, once the gold standard, with the ability to deliver two-thirds of someone’s income in retirement, were a solid proposition but have been undermined and eroded over the years by a whole series of factors, not least the tax raise by the previous Government, which put the final nail in their coffin. However, these current changes offer a lot; there is flexibility, but that must be balanced with the ability to have assured choices. I will not dwell too much on the Taxation of Pensions Bill, which is a money Bill and not our responsibility, but I ask the Minister what assessments HM Treasury has made as to the likely impact on tax take—not least as regards NICs—of these changes proposed in the Bill.

Much has, rightly, been said about the guidance guarantee. I will not add to those comments, but it is at the core of so much of this. If guidance is to be given, it must be guidance that can be relied upon. For many individuals, pensions are not only dull, boring and uninteresting, but that person will potentially hit a point where a decision could dramatically and irreversibly give them a retirement which they did not deserve, expect or need to have if they do not get that decision right.

The idea that a pensions board clearly sets out all of somebody’s benefits in one place—they have a dashboard picture—makes such sense. As regards wake-up notices, because of the profound nature of these changes I ask the Minister to consider whether such notices need to occur at five or maybe even 10 years before retirement, to get people thinking about what potential exists and how they may choose to act. We will almost certainly have guidance on it, but that is no bad thing. Much has been said on the guidance guarantee from a member’s perspective, but for a moment let us consider this from a trustee’s point of view, when somebody may want to transfer defined benefits into a defined contribution provision. Currently it is required that trustees consider the “appropriateness of the advice” that that member would have taken. I ask the Minister to consider sharpening this as we go through the legislative process. As it stands, it could be interpreted that there is a responsibility on trustees to look into that advice to consider its appropriateness. What is meant by that and what should be clear is that trustees need to convince themselves of the appropriateness of the independent financial advice and that it has come from an FCA-authorised provider rather than a responsibility on trustees which would be almost impossible for them to exercise to go into the details of that advice, and which would also go far too deep into the private matters of that particular member.

To turn to what is best seen as the £30,000 rule—the trivial commutation—again, potentially £30,000 of benefits can be moved without the need for advice. However, as the Bill stands, how can that happen if a member does not have nor should need the knowledge to understand how to assess the value of their benefits? It will not be measured on the cash equivalent transfer value measure but on the lifetime allowance measure. Not only does a member not need to know this, but even if they do know it, it will be impossible for them to gain all that information if they had existing crystallised provisions in a whole series of schemes. I ask the Minister to consider whether in these circumstances a way around this would be to enable that measure to be made on the CETV measure, which would cut through a whole heap of headaches and certainly allow everybody who currently understands that measure to go forward.

As regards the new types of schemes, again, I commend putting risk in there—the new defined ambition. However, there is a new issue here with regard to cost, complication and potential confusion. There is potentially a cost for trustees who seek to have to go through a process to come to the conclusion that their defined contribution scheme is a defined contribution scheme, as they always suspected. There is potential confusion for members to have their scheme potentially fall into a different name, despite the fact that the benefits structure is exactly the same.

There are a number of smaller provisions on which I will go into more detail when we get into Committee. However, what I would like to draw out is that, despite people’s lacklustre and disinterested approach to pensions, they impact our lives way before we come to draw the pension. For example, recent pensions case law demon-strates that, potentially, a part of a pensions trust can fall within a bankruptcy order. How will these new changes affect that? Similarly, how will the legislation impact on pension-sharing on divorce ear-marking orders, already issued and those yet to come? Pensions matter from the moment when a person begins with an employer, when they change employer and when, perhaps, they become bankrupt or get divorced. So many life elements impact on pensions provision.

I support the intent but, as always with pensions, the devil is very much in the detail. It is complex and it makes your head hurt, but it matters—and time is incredibly short.