Bank of England and Financial Services Bill [HL]

Lord McKenzie of Luton Excerpts

Monday 26th October 2015 Lords Chamber

[Lord McKenzie of Luton (Lab)]

Despite the hour, I have enjoyed listening to the deliberations thus far and the many knowledgeable banking contributions. In fact, I signed up to speak on just one clause—Clause 24, concerning pensions guidance. As we have heard, this clause is an enabling provision which expands the scope of the guidance service, Pension Wise, to those considering selling their income from their annuities to a third party. It leads to regulations, what type of annuities might be covered and the interest therein. Doubtless, all this will be aligned with the legislation that ensues from announcements already made, and the Treasury consultation on the creation of a secondary annuity market.

The extension of Pension Wise to cover these situations is, in principle, unobjectionable, but it gives the opportunity to reflect on how the service is working so far and how the implementation of the reforms commencing in April this year are working out. It will be a pointer to whether Pension Wise is actually fit for purpose. The Budget 2014 announced that individuals aged 55 and over would be able to access their DC pensions savings as they wish, subject to their marginal rate of income tax. That was, for good or ill, a profound change to the tax landscape. It was recognised by most that for change to work, individuals would need help to review and explore the options available to them. So the Government determined that individuals should have a guarantee that at the point of retirement they would be offered guidance that was free, impartial and of a consistently good quality and that covered a range of options to help them make decisions, including taking further advice.

These arrangements were, of course, legislated for in the Pension Schemes Act 2015 and were debated at length in your Lordships’ House and the other place. A particular bone of contention was whether there should be a second line of defence in encouraging referrals to the service, which has certainly proved to be necessary. The upshot of all this is a service that consists of a face-to-face component to be provided by CABs, branded Pension Wise, a telephone service to be provided by TPAS and an online service organised by a Treasury team drawn from the Government Digital Service and the Money Advice Service. New duties have been placed on the FCA to have responsibility for the setting of standards and monitoring compliance. It seemed to be the Government’s original intent that the Treasury would retain responsibility for service design and implementation until it was,

“very satisfied that it is working well and is seen to be in a stable and successful state”.—[Official Report, 12/1/15; col. 568.]

Can the Minister therefore tell me how it considers this requirement has been met, given the announcement in September that, because of a strong strategic fit, Pension Wise should move to the DWP by April 2016, and the announcement in October that there is a need to identify a long-term home for the service? What on earth is going on? How does this uncertainty help the service, particularly in its early period, and especially if it is to take on the wider requirements for guidance which the creation of a secondary annuity market will entail?

Of course, we now have the benefit of the report from the House of Commons Work and Pensions Select Committee, hot off the press. The committee had a number of significant concerns about the current situation. One of these was the dearth of information on the use being made of the new pension freedoms, and in particular a near complete lack of data about Pension Wise itself. It pointed to there being no research programme tracking consumer outcomes. The committee noted that the take up of face-to-face and telephone guidance appeared to be lower than many had expected. Expectations when the Pensions Bill Committee was under way were that the take-up rate for guidance would be over 75%, and some 25% initially. The FCA found that, in the three months to June 2015, more than 200,000 individuals accessed their pension pots but fewer than 20,000 completed face-to-face and telephone Pension Wise appointments. This would seem to be consistent with suggestions that the CAB is running at 10% to 15% of its capacity and is redeploying staff to other duties. Would the Minister care to comment on this?

A number of reasons have been advanced for this slow take-up: limited early publicity because of parliamentary purdah, the propensity of individuals to take the path of least resistance and to look to existing established providers, and that the requirement on pension providers to give risk warnings and signpost consumers to Pension Wise is being followed more in the letter than in the spirit.

This is all deeply worrying. Pension Wise was designed to fill a gap in support for consumers, and the Government should see these concerns addressed before loading the service with further obligations arising from the secondary market. Of course, the service currently is predicated on the flow of those reaching retirement; causing the stock of those with existing annuities to be covered raises different issues of capacity. It is estimated there are some 5 million individuals with 6 million annuities.

The Select Committee report makes a number of recommendations, some of which the Government appear to be taking forward, although we would wish to probe these further in Committee. These recommendations include the Government publishing or causing to be published regularly a range of data on such matters as consumer characteristics, take-up of guidance and advice, and the decisions individuals make. Given that the pension freedoms have increased the prospect of people being conned out of their life savings, the recommendations urge a redoubling of publicity around pension scams, advise that the FCA strengthen its rules on guidance for pension providers regarding Pension Wise signposting and risk warnings, and state that there should be a research programme to track consumer outcomes.

It is acknowledged that the Government have launched a nationwide marketing campaign to raise awareness of the guidance service, and that two related consultations are under way. A consultation on public finance guidance has just been launched, and a financial advice market review consultation commenced in August. I presume we are unlikely to see these reports by the time the Bill leaves your Lordships’ House; nevertheless, we will use this legislative opportunity to take stock of how the pensions relaxations are progressing and to consider the protections that need to be in place for the secondary annuity market, which is a very significant development.