Pension Schemes Bill

John Bercow Excerpts

Tuesday 24th February 2015 Commons Chamber

[The Minister for Pensions (Steve Webb)]

I beg to move, That this House agrees with Lords amendment 1.

[Mr Speaker]

With this is will be convenient to take Lords amendments 2 to 9, 44, 49, 56 to 65, and 117.

[Steve Webb]

I believe that the Bill is in a better state as a result of the two groups of Lords amendments that we shall discuss today. Many of them are Government amendments, designed to tidy things up or deal with errors, and some reflect their lordships’ desire for the affirmative procedure to be used in the case of certain statutory instruments. The amendments are largely technical, but I shall of course be happy to deal with them in more detail if the House wishes me to do so.

Lords amendments 1 to 9, 49, and 59 to 65 deal with defined ambition and collectives. The Bill contains key reforms to private pensions; encouraging and enabling “defined ambition” or “shared risk” pension schemes and “collective benefits”. In the following amendments, their lordships sought to refine or build on the legislation since it had left the Commons.

Lords amendments 1, 2, 3 and 6 introduce minor changes to ensure drafting consistency. Clause 27 provides for regulations to require a scheme providing collective benefits to wind up the whole or part of the scheme, while clause 37 provides for regulations to impose a duty on managers of non-trust-based schemes to act in the best interests of the members when making certain decisions. Both clauses refer to different types of obligation that may apply in relation to the scheme, including those that are part of the scheme—that is, provisions of the scheme—and those contained in legislation that applies to the scheme. The amendments provide for descriptive consistency in the clauses in relation to those different types of obligation.

Lords amendments 4 and 5 clarify “publication of documents” provisions. Powers in part 2 of the Bill may require trustees or managers of schemes providing collective benefits to have policies in relation to a number of matters, including the factors used to calculate member benefits, the calculation of transfer values, and steps to deal with a deficit or surplus in relation to the target. Clause 32 allows regulations made under part 2, which require trustees or managers to prepare or obtain any document, to include requirements relating to the publication of those documents and the sending of copies to a specified person. Specified persons could include members and regulators.

The publication of various policies is a key feature of the regime that we are seeking to introduce in order to ensure that it is clear how members’ assets and benefits will be managed or calculated by the scheme. It ensures that there will be transparency in regard to the way in which collective benefit assets are treated in certain circumstances, because there is a less direct relationship than there is in a money purchase benefit when it comes to a member’s entitlement in relation to contributions. We also have regulation-making powers to make certain requirements in relation to the policy. An amendment was required to put it beyond doubt that the provisions of clause 32 also apply to the policies specifically. The amendment ensures there is no possibility of a scheme’s “having” a policy that we cannot require to be published or sent to a specified person.

Lords amendment 7 puts the meaning of the amendment made by clause 45 beyond doubt. The change to section 67A of the Pensions Act in the clause makes any modification to an occupational pension scheme that would replace a member’s accrued rights with a right to a collective benefit a “protected modification”. Protected modifications can be made only if the member consents. Lords amendment 7 makes it clear that the provision applies only when the existing accrued right is not a right to a collective benefit.

Lords amendments 8, 9, 59 and 60 address an omission in the current legislation. While the changes made by the Bill were being checked, omissions in the Pensions Act 2014 came to light. The amendments that were needed all relate to overriding legislation. When legislation overrides conflicting provision in the scheme rules, there are circumstances in which that legislation needs to be treated as if it were part of the scheme rules. The amendments ensure that overriding requirements made under regulations provided for by schedules 17 and 18 to the Pensions Act will be treated as part of the scheme rules for the purposes of the Pensions Act 2004, in the case of Lords amendments 64 and 65, and subsisting rights provisions in the 1995 Act, in the case of Lords amendments 8 and 9. The amendments provide for consistency and clarity in the way in which the overriding provisions are dealt with.

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[Steve Webb]

I beg to move, That this House agrees with Lords amendment 10.

[Mr Speaker]

With this it will be convenient to consider Lords amendments 11 to 43, 45 to 48, 50 to 55 and 66 to 116.

[Steve Webb]

This group of amendments relates primarily to the new pensions freedoms announced by the Chancellor in the Budget last year, which will generally come into effect on 6 April this year. I shall begin with the pension guidance and guarantee, now known as Pension Wise, covered by amendment 10 and amendments 66 to72. The Government intend that all those who stand to benefit directly from the new pensions flexibilities provided by the Taxation of Pensions Act 2014 should have access to guidance. The amendments to clause 47 and schedule 3 are technical amendments to ensure that that is the case.

The amendments adjust the definition of pensions guidance in new sections 333A and 137FB of the Financial Services and Markets Act 2000 to extend pensions guidance to survivors of members who have flexible benefits, rather than just the members of pension schemes. This is needed because in some circumstances pension schemes may provide benefits to survivors of members of the scheme other than insurance-based products or cash lump sums—that is, flexible benefits—without their becoming members of the scheme.

Amendments 11 to 18 and amendment 50 provide advice safeguards. Clauses 48 and 51 were amended in the Lords via Government amendment. These contain the provisions creating the advice safeguard, which requires schemes to check that financial advice has been received before an individual exchanges their safeguarded rights for those that can be taken flexibly. Clause 48 makes provision for Great Britain, while clause 51 makes corresponding provision for Northern Ireland. Amendments 11 and 15 improve the drafting of clauses 48 and 51, while amendments 12 and 16 ensure that the requirement to take advice also applies when a member takes an uncrystallised funds pension lump sum from benefits that are safeguarded.

On Report in the other place, a second group of amendments to those clauses were made in response to the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendments 13 and 17 specifically provide for the only exception to the advice requirement that is intended to be in effect by 6 April—namely, an exemption from checking that advice has been received in the case of those with safeguarded wealth of £30,000 and below. Amendment 50 provides that regulations creating this exception are subject to the negative procedure, while regulations creating any other type of exception are subject to the affirmative procedure.

Amendment 14 provides more detail on the nature of the “appropriate independent advice” that is to be required under the safeguard. It provides that “appropriate independent advice” must be given by an “authorised independent adviser”, who has permission under the Financial Services and Markets Act 2000 to carry out a regulated activity specified in regulations. The Financial Conduct Authority sets out the standards for regulated activities in its rules, and that will allow it to set the standards for advice provided under the advice safeguard. Amendment 18 makes corresponding provision for Northern Ireland.

Let me now deal with amendments 19 to 21, 23 to 25, and 38 to 43, which are amendments to clauses 55 and 56, consequential on the Taxation of Pensions Act 2014. They allow a person to leave any remaining money purchase funds to a nominee or a successor. Schemes will be able to offer both nominees and successors a drawdown fund, so they need to be included in the clauses which deal with such arrangements. Amendments to clauses 60 and 61 do the same thing for legislation covering Northern Ireland, while amendments to clauses 72 to 74 make small changes to the definitions of terms used in part 4 of the Bill.

Let me now deal with amendments 22, 26 and 73 to 116, which are technical amendments to reflect the extension of the statutory right to transfer benefits and to ensure that the transfer process continues to operate smoothly after the requirement to take “appropriate independent advice” comes into force in April. Without these amendments there is a risk that the new transfer rights would not operate as intended after the new flexibilities come into force. Schedule 4 of the Bill amends the existing transfer rights provisions contained in part 4 of the Pension Schemes Act 1993 to give scheme members a statutory right to transfer a particular category of benefits, and gives scheme members with flexible benefits a statutory right to transfer these rights up to and beyond their scheme’s normal retirement age. Amendments 73, 92, 94, 96 and 115 would make consequential amendments to reflect numbering changes made elsewhere in schedule 4.

Amendments 22, 82 and 83 ensure that clause 55 and regulations under clauses 56 and 57 override any pension scheme rules which conflict with the statutory right to transfer overriding provisions for the purposes of the definition of “scheme rules”. These provisions amend the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004, while amendments 26, 105 and 106 make corresponding provision for Northern Ireland. Amendment 75 replicates existing powers in the 1993 Act and will be used to preserve the effect of existing regulations under those powers, while amendment 98 makes identical provisions for Northern Ireland legislation.

Amendments 76 and 78 provide powers to extend the period within which a member who has received a statement of entitlement must take the cash equivalent of their accrued rights, and for the right to take the cash equivalent to lapse. Amendment 80 provides a power to extend the time in which the trustees of a scheme must do what the member requires. Amendments 88 and 89 make similar provision to extend time for pension credit members, and for trustees to act on members’ instructions. Amendments 99, 101, 103, 111 and 112 make similar amendments to the corresponding Northern Ireland legislation.

Amendments 79 and 102 make changes to section 98(1) of the 1993 Act and clarify that a member’s right to take a cash equivalent falls away where the trustees’ duty to carry out the member’s wishes is extinguished because they have been unable to confirm that the member has taken appropriate independent advice. Amendments 81, 86, 93 and 95 ensure that the definitions of scheme rules in the 1993 Act and the 2004 Act work for personal pension schemes. Amendments 82, 83 and 105 ensure that the definitions of “scheme rules” in the 1993 and 2004 Acts also apply for personal pensions, while taking account of any provisions that override these rules. Amendments 104, 109 and 116 do the same for Northern Ireland. Amendment 87 inserts a power to disapply the right of a pension credit member to transfer their pension credit rights in relation to prescribed descriptions of persons. Amendment 110 makes a similar amendment to Northern Ireland legislation. The remaining amendments in this group make a number of drafting, technical and consequential amendments to schedule 4 of the Bill.

Amendments 27 to 37 relate to public service scheme transfers. These are technical changes to improve drafting and ensure that the new safeguard applies where it should. The remaining amendments 45 to 48 and 51 to 55 are general amendments to part 6 of the Bill and are what are often known as the “back of the Bill” provisions. Amendments to clauses 80 and 81 would extend provisions to Northern Ireland, while the amendment to clause 84 would ensure that pension flexibilities provisions come into force at Royal Assent. I hope that what I have said has been helpful, and I commend the amendments to the House.