Taxation of Pensions Bill

Priti Patel Excerpts

Wednesday 29th October 2014 Commons Chamber

[The Exchequer Secretary to the Treasury (Priti Patel)]

This has been a wide-ranging and constructive debate; it has been engaged and informed, and I thank everybody who has participated. Before I address some of the specific points raised, I wish to reiterate the main purpose of the Bill.

The Bill is intended to put in place the most radical reform to the way people take their pensions for nearly a century. It is a fundamental principle for this Government that those who have worked hard and saved all their lives should be free when they reach retirement to choose how they spend those savings. That is because we believe in personal responsibility, and that the money someone has earned is their money.

The Bill will remove the limits on withdrawals from drawdown and the restrictions on the shape of annuities, and it will create new and more flexible ways for someone to put the money in their pension pot to good use and provide for their future as they wish. As a result of the reforms, people will rightly have the freedom to choose how to spend their savings. That, in turn, will incentivise the pension industry to provide real choice through a range of innovative new products.

I would like to address points raised by the Opposition; first, the myth that the Government have not consulted. The Government have consulted extensively on implementation and legislation, and we have received wide support from consumer groups and the industry. I note that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) quoted the chief executive of the ABI. He has also said that the ABI

“welcomed the reforms as good for those who were faced with the double challenges of increased longevity and very low interest rates when they came to make retirement decisions. The industry is behind these reforms. We want them to be a success and our members are working flat out to get everything ready for April 2015.”

The Government are putting in place comprehensive guidance. There has been discussion on guidance—I will come on to it in more detail—and I want to make it abundantly clear that we have brought forward an amendment to the Pension Scheme Bill to achieve just that.

On fairness, the old system was unfair and it disadvantaged those with a moderate amount of savings. Our Government reforms will make the system more flexible and fairer for all. On cost, as the Financial Secretary has clearly stated, we set out the costings at the Budget. Since the Budget, and as a result of consultation, we have introduced further changes and the OBR-certified update will be provided at the autumn statement.

There have been a number of positive views from the industry. It is wrong and misleading to imply that there is no support from the industry. The consultation has been extensive. There has been a 12-week consultation on the best way to implement the changes, followed by consultation on the Bill itself. It is important to move quickly, because people are making binding decisions every day with what are, frankly, limited choices in the current marketplace.

[Cathy Jamieson]

I am sure the Minister did not intend to suggest that I, or any other Opposition Member, said there was no support from industry. For the record, that is not what we said. We recognised that concerns had been expressed. That is different from saying there was no support.

[Priti Patel]

I am grateful for that clarification. There is extensive support from the industry. I pay tribute to the industry for the way it has worked with us through the consultation to bring the changes together in such a constructive and supportive way.

[Crispin Blunt]

On that point, two companies in my constituency, Partnership and Just Retirement, are specialist annuity providers and will be significantly affected. They contributed to the consultation and I know that the Government moved in response to that. I am grateful to the Minister and her officials for the attention they paid in the consultation process.

[Priti Patel]

I thank my hon. Friend for acknowledging that work and for his thoughtful contribution. He has many pension providers in his constituency. Those insights have helped to inform the debate and shape the Bill.

The aim of guidance is to empower consumers to make informed and confident decisions on how to use their pension savings in retirement. Information alone is not enough to change consumer behaviour. The Government are committed to maximising awareness of the guidance service. Key to that will be the regulatory requirements on providers and schemes to signpost to guidance at key points when individuals are trying to access their pension pot. In its recent consultation on the changes surrounding new pension flexibilities, the FCA has been clear about requiring genuine signposting, including rules that ensure firms cannot circumvent consumers’ right to guidance. An essential part of the development of the guidance will be determining what engages consumers effectively. The Government are assessing engagement and take-up rates, and testing different engagement strategies informed by behavioural insight teams as part of piloting work beginning this autumn. Again, this is about getting it right. My hon. Friend the Member for Redcar (Ian Swales) made an important point about that. We are getting one bite of the cherry and we need to make sure we get it right.

[Ian Swales]

Can the Minister say a little more about the timing? She said that a consultation is under way; presumably its outcome will affect what the Government do. People who are due to take pensions in April will be considering their options from January and February onwards, so when will we be clearer about the nature of the guidance and the universality of provision, and when will people be told about that?

[Priti Patel]

Let me assure my hon. Friend that guidance will be available in good time. It is also imperative that we get the guidance right, so we are working assiduously to do exactly that.

The scope of the high-level content of the guidance was set out in the FCA consultation that it ran in anticipation of its standard-setting role. The Treasury and its delivery partners, the Pensions Advisory Service and Citizens Advice, are working up the operational details and the context of the guidance while adhering to the FCA standards.

I will come to some of the other points raised by colleagues, but I would like first to touch on the Ipsos MORI poll that has been referred to. The poll also found that 88% of people would not draw down their entire fund. People said that rather than just spend their funds on a range of things, they would use them for good financial planning. That is exactly what these reforms are all about: trusting people with their money.

[David Mowat (Warrington South) (Con)]

The Minister talked about guidance a few moments ago. In the event that guidance is found to be inadequate or not to have been offered properly, would that potentially void any transaction made subsequently?

[Priti Patel]

The guidance that is provided will not make specific recommendations. Information will be provided to individuals not to make specific decisions, but to signpost and guide them through the areas I have touched on.

[David Mowat]

I thank the Minister for that answer, but if a supplier sold a product without offering any guidance and without checking whether that had happened—notwithstanding the question of its not being specific—would that be a problem and could it void the transaction?

[Priti Patel]

The FCA will be clear in setting out standards. However, I will come to that point shortly, because we have also discussed the consequences of mis-selling and fraud.

I would like to reply to a number of points made in the debate. The hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop) talked about the tax revenue implications of the annual allowance and highlighted the evidence given before the Pension Schemes Bill Committee on 23 October. As my hon. Friend the Financial Secretary outlined earlier, the assumptions made in that evidence generated a huge overestimation of the likely cost of the reforms to the Exchequer. The Government believe that the introduction of a £10,000 annual allowance is the appropriate approach to allow people the flexibility to withdraw or contribute to their pensions as they choose from age 55, while ensuring that individuals do not use the new flexibilities to avoid paying tax on current earnings. It will also avoid unnecessary complexity for both consumers and pension providers when the new system comes into place in April 2015.

I would like briefly to touch on the two other contributions. We heard from my hon. Friend the Member for Amber Valley (Nigel Mills), who I understand celebrated his 40th birthday yesterday. He seems far too young to be contributing to pensions debates, although I know he has specialist knowledge in this area. He made a thoughtful contribution and raised a number of points. He mentioned the open market option. To be clear, the open market option will continue to be highlighted in the information that pension schemes are required to provide to their members at retirement. We have simply removed the requirement under the tax rules for the member to have chosen the annuity provider in order for the annuity to be an authorised payment. It is not appropriate for the member to be charged tax because they have been deprived of the opportunity to select an annuity provider.

Other points were raised about a proposed criminal offence for mis-selling. FCA rules are clear and require the responsible sale of products to consumers in a way that is clear, fair and not misleading. The FCA also has powers to take action against firms engaged in authorised business, and is able to prosecute a number of criminal offences. I hope that clarification reassures the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson), who was very explicit in her points. We are very clear on that. It goes without saying that the FCA and the Pensions Regulator will monitor this whole area to ensure that fraudsters do not use the reforms to take advantage of vulnerable people.

My hon. Friend the Member for Redcar touched on annuities, as did my hon. Friend the Member for Amber Valley. The Government are clear that annuities will remain the right choice for many at some point during their retirement. We believe that many people will still value the security of an annuity, but that is something that individuals—not the state—should decide. As all contributions have made clear, this is about individual choice and opening up the marketplace. As retirement changes, many people may, for example, opt to buy an annuity later in life, allowing them to benefit from higher annuity rates. It is for individuals to buy products that are best suited to their particular circumstances.

In response to my hon. Friend the Member for Redcar—who was firm on the need to get on with this—we understand the scale of the challenge. That is why we have appointed an implementation team in the Treasury for the guidance guarantee, and we are working closely with the industry to ensure that it is ready for April 2015.

Finally, the risk of people spending all their money at once was briefly mentioned. I would like to reiterate that the Government believe that people who have worked hard all their lives should have the freedom to decide how to use their savings and, importantly, should be trusted to do so. The Government do not dictate how people should spend their money generally, so why should it be any different when it comes to their pension savings?

I am grateful to have had the opportunity to explain the issues that have arisen today. We have had a good debate and look forward to more in Committee. A number of important points have been raised. I think all hon. Members have sensed that the main issue is the principle of empowerment and allowing individuals to make choices that are right for them, especially when they come to assess their pensions. The Bill is about choice and it will make that choice possible. I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Taxation of Pensions Bill (programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Taxation of Pensions Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 20 November 2014.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Mr Gauke.)

Taxation of Pensions Bill (Ways and Means)

Resolved,

That, for the purposes of any Act resulting from the Taxation of Pensions Bill, it is expedient to authorise the making of provision in connection with the taxation of pensions.—(Gavin Barwell.)