Pension Schemes Bill

Stephen Timms Excerpts

Tuesday 25th November 2014 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

Given the current cost of living crisis, it is certainly the case that people struggling to set aside money for the future need access to pension schemes that they can trust to give good value for money and to provide them with a decent income in retirement. We welcome the improved opportunities that we hope the Bill will provide, as we have throughout the debates on the Bill.

A lot of important detail is still to come; this is an enabling Bill. However, as interventions from my hon. Friends the Members for Edmonton (Mr. Love) and for Central Ayrshire (Mr Donohoe) and from the right hon. Member for East Yorkshire (Sir Greg Knight) have pointed out, it is pretty extraordinary and very unsatisfactory that in an important Bill, which has in total 55 clauses, we should at this very late stage be debating 33 Government new clauses and 72 new Government amendments.

The Minister knows very well that this is not a field in which haste is fruitful. He attempted in his response to one intervention to make a virtue of the fact that he was “picking these things up in real time.” What he actually means is “making it up on the hoof.” I do not think that is a good way to legislate on pensions. The scope for mistakes in drafting very technical measures such as these is too great.

The point of having proper parliamentary scrutiny is to spot problems early and to allow for them to be corrected. As it is, there will, of course, be many mistakes in the 70 pages, or whatever, of new material in front of the House for our brief debate this afternoon. We can only hope that Members in the other place will spot them and be able to put them right, but things are bound to go wrong. Having said that, I think that the risks are significantly less in this group of amendments than they are in the next, on which I will have more to say. However, it is troubling that there is so much new and technical material here.

I wanted to ask about one particular point. As the Minister has said, the new clauses are imposing new obligations on scheme trustees. As I understand it—I may be mistaken; if I am, I know that the Minister will correct me—the Government have not provided an estimate of the cost of meeting those obligations for scheme trustees. I wonder why not; normally, I would have expected there to be an impact assessment with an estimate. Will the Minister comment, first, on whether I am right—that there is no estimate or at least none has been published so far—and, if so, the reason for that?

Will the Minister set out his intentions over the numerous sets of regulations that are envisaged? Is he able to tell us at this stage which of those sets of regulations are going to be subject to the affirmative as opposed to the negative procedure, so that we can be assured of future debate about those more detailed provisions when they become available?

[Crispin Blunt (Reigate) (Con)]

I have listened to the right hon. Gentleman’s critique of all the new clauses coming forward at this time, but he will have had them at least for some time and the resources of the Opposition have been available to him. I have tabled the only non-Government amendment this afternoon. The right hon. Gentleman is a replacement—a senior one—for the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont). Is he able to say whether the Opposition are going to table further amendments in the other place?

[Stephen Timms]

As the hon. Gentleman is well aware, we have not tabled amendments on Report. Of course, we debated in Committee three Opposition amendments, but we were sadly unsuccessful. I am delighted that the hon. Gentleman has tabled an amendment, which will provide us with a little relief when we get to the second group; at least it will not be entirely Government material on the amendment paper. I commend the hon. Gentleman for his amendment, and he is right that the Opposition have not tabled amendments today.

[Steve Webb]

I shall not detain the House for long, but the right hon. Member for East Ham (Stephen Timms) asked a couple of specific questions. The impact of regulations brought in under the primary Bill in front of us would depend on what they can contain. We cannot do an impact assessment because we have not yet written the regulations. Generally when we produce regulations and they have a cost on business, there is an impact assessment to go with them. I hope that explains why we have not published an assessment at this stage.

On the timing, our broad goal is to have all this in place by April 2016. The right hon. Gentleman will know that a very significant change in April 2016 will be the end of contracting out, so defined benefit pension schemes will be considering what they do in response to that. In particular, if a shared risk scheme or something of that sort is envisaged, there clearly needs to be a legislative framework by around that time—not right on the day, but about that time. That is our goal and the rough timetable that applies.

The right hon. Gentleman asked about the negative and affirmative resolutions. The collective and shared risk regulations are generally subject to the negative procedure. He will see that clause 41 deals more generally with regulation-making powers and considers when they should be negative and when affirmative. In general, as I say, most of these are relatively technical regulations, so the negative procedure applies. I hope that is helpful. I commend the new clause to the House.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

New Clause 2

Power to impose requirements about factors used to determine each benefit

Regulations may make provision as to the factors to be used to determine what proportion of the amount available for the provision of any collective benefits by a pension scheme is to be available for the provision of a particular collective benefit.—(Steve Webb.)

This amendment allows regulations to set out the factors that must be used to calculate members’ benefits.

Brought up, read the First and Second time, and added to the Bill.

New Clause 3

Power to impose requirements about dealing with a deficit or surplus

(1) Regulations may specify circumstances in which a deficit or surplus in respect of any collective benefits that may be provided by a pension scheme must be dealt with in a particular way.

(2) The regulations may, in particular, specify steps that must be taken by the trustees or managers and the period or periods within which any steps must be taken.—(Steve Webb.)

The amendment allows regulations to set out how a deficit or surplus must be dealt with in specific circumstances, the steps trustees or managers may be required to take and the time period within which those steps must be taken.

Brought up, read the First and Second time, and added to the Bill.

New Clause 4

Requirement to wind up scheme in specified circumstances

(1) Regulations may require the trustees or managers of a pension scheme under which collective benefits may be provided to wind up the whole or part of the scheme in specified circumstances.

(2) The regulations may, in particular—

(a) provide for the winding up of the scheme or part to be as effective in law as if it had been made under powers conferred by or under the scheme;

(b) require the scheme or part to be wound up in spite of any legislative provision or rule of law, or any scheme rule, which would otherwise operate to prevent the winding up;

(c) require the scheme or part to be wound up without regard to any legislative provision, rule of law or scheme rule that would otherwise require, or might otherwise be taken to require, the implementation of any procedure or the obtaining of any consent with a view to the winding up.”—(Steve Webb.)

This allows regulations to require the trustees or managers of a pension scheme under which collective benefits may be provided to wind up the scheme or part of it in circumstances specified in the regulations.

Brought up, read the First and Second time, and added to the Bill.

New Clause 5

Policies about winding up

(1) Regulations may require the trustees or managers of a pension scheme under which collective benefits may be provided—

(a) to have a policy about the winding up of the scheme or part of it;

(b) to follow that policy.

(2) The regulations may, in particular—

(a) require the trustees or managers to consult about the policy;

(b) make provision about the content of the policy;

(c) set out matters that the trustees or managers must take into account, or principles they must follow, in formulating the policy;

(d) make provision about reviewing and revising the policy.

(3) The regulations may, in particular, require the policy—

(a) to contain an explanation of the circumstances in which the trustees or managers are permitted or required to wind up the scheme or part and any requirements about the distribution of assets (including any order of priority);

(b) to contain an explanation of how the trustees or managers intend to use any powers to wind up the scheme or part and how they intend to use any powers in relation to the distribution of assets (including any order of priority);

(c) to contain an explanation of how the costs of winding up are required to be met or how the trustees or managers will use any powers to decide how those costs are to be met.—(Steve Webb.)

This allows regulations to be made requiring the trustees or managers of a pension scheme under which collective benefits may be provided to have a policy about winding up.

Brought up, read the First and Second time, and added to the Bill.

New Clause 6

Working out which assets are available for the provision of which benefits

Regulations may make provision, in relation to a scheme under which any of the benefits that may be provided are collective benefits, about how to work out—

(a) which assets held by the scheme are held for the purposes of providing collective benefits;

(b) which assets held by the scheme are held for the purposes of providing which collective benefits;

(c) which assets held by the scheme are held for the purposes of providing any benefits other than collective benefits.—(Steve Webb.)

This regulation making power will allow provision to be made about how to work out which assets are held for the purposes of providing which benefits.

Brought up, read the First and Second time, and added to the Bill.

New Clause 7

Independent advice in respect of conversions and transfers: Great Britain

(1) Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before—

(a) converting any of the benefits into different benefits that are flexible benefits under the scheme;

(b) making a transfer payment in respect of any of the benefits with a view to acquiring

flexible benefits for the member or survivor under another pension scheme.

(2) The Secretary of State may by regulations make provision about—

(a) what the trustees or managers must do to check that a member or survivor has received

appropriate independent advice for the purposes of subsection (1), and

(b) when the check must be carried out for the purposes of that subsection.

(3) The Secretary of State may by regulations create exceptions to subsection (1).

(4) In subsection (1)(b) the reference to another pension scheme includes a scheme established in a country or territory outside Great Britain.

(5) Where the trustees or managers fail to carry out a check required by this section, section 10 of the Pensions Act 1995 (civil penalties) applies to any trustee or manager who failed to take reasonable steps to ensure that the check was carried out.

(6) Failure to carry out a check required by this section does not affect the validity of any transaction.

(7) In this section—

“appropriate independent advice” has the meaning given by regulations made by the Secretary of State;

“safeguarded benefits” means any benefits other than—

(a) money purchase benefits, and

(b) cash balance benefits.”—(Steve Webb.)

This provides that before trustees or managers of a pension scheme (in Great Britain) in which a person has safeguarded benefits convert them into flexible benefits, or make a transfer to another scheme to acquire flexible benefits, they must check that the person has received appropriate independent advice.

Brought up, and read the First time.

--- Later in debate ---

[Steve Webb]

Obviously, that issue is not spelled out in the Bill, but it is important none the less. What we envisage is that people will contact the guidance service, which by then will have a brand, an identity, a phone number and all the rest of it, and will make an appointment if they want face-to-face or telephone-based guidance. Obviously, they can access the website as many times as they like, but if they wish to have face-to-face or telephone-based guidance, it will be at a set time on a set date. There will be a period between the initial contact and the guidance appointment for the gathering of information to make the session more useful. Coming out of that session will be documentation and signposting for further sources of information, guidance and, if they wish, regulated financial advice.

Clearly, we want everybody to be able to access the guidance, so the core model is that a person does that once. But the Pensions Advisory Service has a business as usual role anyway and it is inconceivable that, even if a person has had their formal guidance session with the service and then rang it up the next day with a question, it would put the phone down on them; of course it would not, so there would be flexibility. Clearly, we need to think further on that. We need to reflect on the fact that if someone has a guidance session and then has additional needs, is a formal second guidance session appropriate or necessary or are there other ways of dealing with those needs? The core model is one session, but other resources, such as signposting, are available on tap. We are considering whether further flexibility could be introduced.

I hope that I am near to conclusion. I ran through the relatively minor and consequential amendments that come towards the back of the Bill and that are relatively uncontentious. On the title of the Bill, amendment 1 amends the title of the Bill to include

“provision designed to give people greater flexibility in accessing benefits and to help them make informed decisions about what to do with benefits.”

That change is to reflect more accurately the content of the Bill in the light of the new amendments on the pension flexibilities.

In sum, these new provisions are designed to ensure that the guidance guarantee works as effectively as possible; that the various rules on transfers do not act to the detriment of people who are left behind in the schemes; and that the process is properly overseen with the provision of independent financial advice. They also spell out who pays for the help, and whether or not it is taxed. The provisions help to flesh out some of the detail of this important policy, and I commend new clause 7 to the House.

[Stephen Timms]

We are now embarking on a debate on 27 Government new clauses, 40 new Government amendments and—providing welcome relief—an amendment from the hon. Member for Reigate (Crispin Blunt) and the right hon. Member for Sutton and Cheam (Paul Burstow).

The changes the Government have announced will introduce much-increased flexibility for savers, which is welcome. They will also make the pensions market more diverse and complicated and lead to a whole new range of products about which consumers have not had to make decisions in the past. Of course it is right that safeguards need to be in place to protect savers adequately from the danger of being taken advantage of, as we have seen happen in this market in the past.

We are dealing with an area full of technicalities, some of which we have just been hearing about, and fraught with difficulty. I appreciate that the Minister had no choice but to introduce these measures at the same time as the implementation of the Budget changes, but he will recognise, as the House certainly will, that there is a danger, in providing so little opportunity for the House to conduct proper scrutiny, of creating serious problems and a future mis-selling scandal.

We have set out three tests for the new flexibility. First, is there reliable advice for people saving for their retirement? Secondly, is the system fair to those on middle and lower incomes who want to secure retirement income? Thirdly, are the Government confident that the changes will not result in extra costs to the state, either through social care costs or by increasing the cost of housing benefit? I would welcome the Minister’s comments on the extent to which he believes the changes before the House will meet those tests.

The annual workplace pension survey carried out by the National Association of Pension Funds this year showed that only 19% of savers feel very capable of knowing what to do with their savings. That is ahead of the very major changes about to take effect, and we can be certain that consumer bewilderment will rocket from next April. The new arrangements are supposed to be in place from that date—in less than six months—but we do not yet know how they will work.

In previous discussion about the form that the guidance will take, the Minister said that

“it is not formal, detailed or product-specific”.

That is rather different from what was said by the Financial Conduct Authority when it launched its consultation on guidance. It seemed to envisage something rather more substantial than the Minister suggested in his remarks, but the FCA will produce only the standards; Her Majesty’s Treasury will oversee the drafting of the guidance. Nobody can yet feel confident about what will emerge from that process. A number of questions must be asked, such as the one posed by my hon. Friend the Member for Edmonton (Mr Love) earlier. It is not clear even who exactly will pay for the advice or through what mechanism it will be paid for. I would welcome the Minister’s comments on how he envisages that process working.

The challenges were helpfully illuminated by the article on the front page of The Daily Telegraph on Saturday which said, “Pension mis-selling: scandal hits 100,000 retired savers a year”. The article explained that

“one in four pensioners who retired with a private pension in the past seven years is entitled to a larger annual pension income.

Savers with medical conditions including diabetes, high blood pressure and even smokers should have been offered an increased annuity based on their lower life expectancy.”

It went on to say that

“just seven per cent of those who are entitled to the increased pay outs have automatically received them. Studies indicate the true figure should be closer to 60 per cent.

Now Aviva, Britain’s largest insurer, is paying compensation and increasing the annual payouts of hundreds of customers after discovering staff sold inappropriate deals.”

[Crispin Blunt]

I am interested in the issue because two highly innovative companies in my constituency, Partnership and Just Retirement, sold these products to people approaching the point where they had to make a decision about an annuity. Of course, they are anxious about guidance because if people are given guidance about the nature of the market, they can then go to the right place to make those decisions. Is the right hon. Gentleman saying that existing providers should have provided such guidance? He used the words “should have”. These products were available in the market. There was a failure in the previous annuity market which I hope this guidance will address, pointing people to the right kinds of provider.

[Stephen Timms]

We welcomed the new flexibility that is being provided. I hope the guidance that we are legislating for will deliver the improvement that the hon. Gentleman describes, but we cannot yet be confident that that will be the case. This brief debate gives us an opportunity to press the Minister to give us rather more reassurance about that. I shall refer to some of the comments of JustRetirement, one of the companies that the hon. Member for Reigate (Crispin Blunt) mentioned.

The most recent Association of British Insurers data show that overall annuity sales are down 14% from the second quarter of this year, and by 56% compared with the third quarter of last year. Consumers are presumably waiting until the reforms go live in April next year before deciding how to use their defined contribution pension savings. The same ABI data show external annuity sales—that is, annuities bought on the open market—down from 49% to 35% in the third quarter of this year. Internal annuity sales, where an annuity is bought from the incumbent pension provider, have increased from 51% to 65% in the same period. The overall share of enhanced annuity sales has fallen from 28% to 22%.

The ABI data highlight the risk of the kind of consumer detriment described in the article in The Daily Telegraph on Saturday. Together, they suggest that problems will continue unless the Financial Conduct Authority intervenes actively. Just Retirement makes the point particularly strongly and effectively that there is an urgent need for a second line of defence requirement for providers. What happens if the guidance on offer is not taken up? That is not provided for in the amendments.

Legal and General has highlighted the lesson from the pilot that it undertook with public support—that in practice the guidance on offer will very likely not be taken up. As the Minister knows, the take-up was very small—2.5%—in the pilot that it set up and supported. If that happens on a significant scale when these arrangements come into force next year, it opens up the possibility of very large-scale new consumer detriment. JustRetirement, along with others, is right to argue that by introducing a second line of defence requirement, the FCA can apply a crucial brake against this potential future consumer detriment by requiring providers to check consumers’ circumstances when they come to access their DC pension savings.

The hon. Member for Gloucester (Richard Graham) asked whether the guidance would take account of other financial assets beyond DC pension savings. That is a good question.

[Mr Love]

The Minister alluded to discussions taking place between the Department and the FCA, but the formal FCA position given earlier in the consideration of the Bill was that consumer take-up would be a matter of public choice, leaving it to the person concerned. With all the emerging evidence, surely we cannot be confident that that will answer the question.

[Stephen Timms]

I fear my hon. Friend is right. If in practice only a tiny proportion of people, or even a modest proportion, take up the guidance being offered, there is every chance of very serious problems in this market in the future. The House cannot be satisfied with that likelihood.

A number of organisations have pressed vigorously for a second line of defence requirement and they make a telling case. Proceeding without that safeguard will leave many consumers exposed—we should bear in mind that this is all supposed to happen from next April—making people guinea pigs and opening up the real possibility of another mis-selling scandal in the coming months.

[Richard Graham]

The right hon. Gentleman raises an issue that may not technically arise from the amendments that we are debating, but in which all hon. Members have some interest. What could a possible second line of defence look like?

[Stephen Timms]

That is a good question. I do not have a proposition to make. I would hope that those who are reflecting on these matters, particularly in the FCA, will be giving that some thought. There is time for it to incorporate something else and to put that second line of defence in its conduct rules. What it would look like, I am not in a position to propose this afternoon, but the need for it is clear. If the hon. Gentleman is about to propose something, I would welcome that.

[Richard Graham]

The right hon. Gentleman is being very generous and Madam Deputy Speaker is indulging us gently so I will be brief. I guess—perhaps the Minister might nod sagely at this stage—that this is an issue primarily for the FCA, but I hope that the message has gone out from us today that we are interested in it.

[Stephen Timms]

I am grateful to the hon. Gentleman. I hope that those who follow these debates will take that as an endorsement of the need for that second line of defence to be devised and put in place. If it was not there, there is a real risk of exposing consumers to risk of a kind that we have all seen before, and which would undermine these important reforms from the outset.

As the Minister explained, independent financial advice amendments are set out in new clauses 7 to 13. New clause 7 requires that when a member requests a transfer of safeguarded benefits, which are anything other than the cash balance or other money purchase benefits, with a view to acquiring flexible benefits, which are anything that is not safeguarded, the trustees

“must check that the member or survivor has received appropriate independent advice”.

I want to pick up a number of issues. What exactly are the trustees being required to do? Are they being asked to evaluate the appropriateness of the advice that was given to the scheme member? It does not seem right that they should be called upon to do that. It is quite a big undertaking for them and they are probably not in a position to do it. That wording could be understood to mean that that is what they are being asked to do. I would be grateful if the Minister commented on that.

We are seeing the creation of two new categories of benefits—safeguarded benefits and flexible benefits. I gather that the use of these terms is completely new; they are not used elsewhere in the statute. We have three new categories of scheme set out in the Bill, but this is the first time that we have had reference to safeguarded and flexible benefits. The use of those terms seems unfortunate, because safeguarded rights has a particular meaning, which was familiar when, admittedly now rather a long time ago, I was in the office that the Minister now holds. In the context of contracting out, safeguarded rights had a particular meaning. That term is now being introduced in the amendments before us to mean something completely different. The term “flexible” also has a specific meaning in pensions tax terms. Again, there is a real risk of confusion in reusing that particular term to mean something very different from the one people familiar with pensions tax arrangements understand it to mean.

The National Association of Pension Funds has argued that the statute should state that where the member has requested a transfer of his or her benefits, other than cash balance or other money purchase benefits to a scheme in which they will be paid a cash balance or money purchase benefits, the trustees should require appropriate proof from the member that he or she has received independent financial advice from a person authorised by the Financial Conduct Authority to give such advice. The regulations could define “appropriate financial advice” in that way. The NAPF makes the point that the language in front of us is rather ambiguous about what exactly is envisaged. Perhaps the Minister could comment on the alternative wording proposed by the NAPF, which it thinks would make it clearer and would not give the impression that trustees were being called upon to do something that is actually very difficult for them.

New schedule 1, as the Minister has told us, deals with the detail of the calculation of the cash equivalent transfer valuation, replacing the current CETV provisions under the 1993 Act. I fear that the tangle gets worse here. The distinction is between money purchase benefits, flexible benefits that are not money purchase benefits—in other words, cash balance benefits—and benefits that are not flexible benefits, previously defined as safeguarded benefits. There are also transferable benefits, which are benefits

“by virtue of which this Chapter applies to the member.”

This is all quite complicated stuff. One of the fears is that the changes in terminology, and the reuse of previously familiar terms to mean completely different things, significantly increase the amount of confusion being created. Instead of just removing the current statutory requirement that all benefits be transferred if a member wants to transfer any benefits, the effect here is to prohibit schemes from having rules that require transfer of other categories of benefits if the member wants to transfer only one category, or that

“prevent a member who exercises a right under this Chapter in relation to a category of benefits from accruing rights to benefits in another category.”

Again, the NAPF makes the point that that last provision is “incredibly wide”. It points out that schemes do not let members participate in various sections willy-nilly; there are all sorts of rules about who can accrue what sorts of benefits and under what circumstances. The fact that somebody has asked for a CETV in one section of the scheme should not entitle them to benefits in other sections, but that is the way that this provision has been written. Perhaps the Minister could comment on whether that is what he really intends.

New clauses 14 to 16 seem to allow the Secretary of State to forbid draw-down from schemes that give members a guaranteed return, because draw-down can only be from money purchase benefits. That seems odd as well. Perhaps the Minister could tell us whether he or his officials discussed that with anybody before producing these new clauses. Certainly, the NAPF tells me that it is not aware of any discussions about that with it, or with anybody else. It well understands that schemes with guarantees must comply with the funding regime, but it does not understand why they should not be allowed to do draw-down or UFPLS—uncrystallised funds pension lump sum. Perhaps the Minister could comment on that.

The Bill requires members of defined benefit schemes to have received independent financial advice before being permitted to transfer into a defined contribution arrangement, unless they have pension wealth amounting to less than £30,000. The NAPF is concerned that that will impose a requirement that it would be very difficult, if not impossible, to meet. People will be required to prove that they do not have pension wealth in excess of £30,000, which will be very difficult for the average saver. There is the potential for a lot of confusion for savers attempting to assess their level of pension wealth. They might not realise that previously crystallised pension assets will be counted towards that threshold. They might find it difficult to assess the current value of such assets.

The average person may well not understand—nor should they be expected to understand—that the £30,000 will be measured not by the current CETV system but using the methodology created to measure benefits against the lifetime allowance, information that members are not currently entitled to get from other schemes. As a result, many defined benefit members will not be able to exercise their rights in the way that the Bill intends. The NAPF urges that savers should be able to access a total of £30,000 of defined benefit benefits calculated on a CETV basis, regardless of any additional defined contributions savings that they may have. Will the Minister respond to that point?

As with the previous group of amendments, I ask the Minister to set out his intentions on the regulations that are envisaged. He gave a clear and helpful response to my earlier question, but as he is well aware, it is good practice where regulations are referred to in primary legislation for Members who are scrutinising that legislation at least to have a draft in front of them when determining whether they support the provisions. The Minister said that it was not possible to give the costs for trustees because there was not yet a draft of the regulations. I think he will accept that it is very difficult for Members to decide whether to support these provisions if the House has not been told the cost for those who have to operate the regulations. Telling Members that the Government have no idea, at this stage, of what the cost of all this will be for everybody makes it impossible for us to do the job that we are required to do in properly scrutinising the costs and benefits that the legislation provides.

I was rather down-hearted by the content of the Minister’s previous answer, but I will ask the question again as regards these measures. Does he anticipate bringing forward the regulations on the same sort of time scale as the one he indicated earlier? Is there any prospect at least that draft regulations might be available to Members in the other place when they scrutinise the Bill? Does he expect that, as he said before, the majority of the regulations will be subject to the negative rather than the affirmative procedure? Will he draw the House’s attention to any exceptions, as he did last time, and point to those that will be subject to the affirmative procedure?

I am not going to urge the House to vote against any of the measures before us. I look forward to hearing the hon. Member for Reigate (Crispin Blunt) speak about his amendment. I have to tell the Minister that the House is being placed in a pretty unsatisfactory situation. I hope that even though we have not been able properly to scrutinise these measures because of the lack of information to support that scrutiny, he might encourage us by saying that those in the other place will have a better chance to do so.

[Crispin Blunt]

I am delighted to follow the right hon. Member for East Ham (Stephen Timms) and to know that I have the opportunity to persuade the massed ranks of the Labour party of the merits of my amendment. I shall do my very best to do so.

Four of the most significant players in the United Kingdom pensions market are based in my constituency of Reigate: Just Retirement, Legal and General, Partnership, and Fidelity. I should declare, if it is an interest, that my son works for one of those companies—Just Retirement. Between them, they employ a pretty significant number of the constituents I am privileged to represent. The past six months since the announcement in the Budget of the measures in this Bill have not been easy for them. The number of annuities purchased has dropped off a cliff, as customers and financial advisers await the implementation of the reforms.

Overall, however, the need for and the rightness of the reforms cannot be doubted. The pensions market has for too long been shackled by the obligation to annuitise; annuity rates have fallen consistently over the past two decades; and strenuous competition and liberalisation is just what the industry needs if each new batch of retirees are not going to find themselves commensurately worse off than their predecessors. The proposals are right not only on a practical level, but ethically as well. It is farcical that we have deemed retirees incapable of managing their own finances and have paternalistically restricted access to the money for which they have worked hard throughout their lives.

--- Later in debate ---

[Steve Webb]

This is in response to a consultation. During the consultation, one of the issues raised was about people who had not accessed the guidance. This is the response to that.

Reference was made to a story in The Daily Telegraph about people buying annuities that were not as good as they should have been, given their health condition. The FCA is undertaking a thematic review of the annuity market and looking at at-retirement choices. A lot of reporting and recommendations from the FCA will come out over the next couple of months. The Government have investigated some of the failures of the annuities market. We are tackling them by giving people new choices and it is about time that that was done.

The right hon. Member for East Ham asked about DB to DC transfers and what trustees have to do. They have to make sure that, before a DB to DC transfer happens, the member has accessed independent financial advice by a regulated IFA or similar. They do not have to look at what the IFA has said and see whether it is any good or appropriate; that is not what we mean. But before they say yes to the transfer, each trustee will have to say to the scheme member, “Have you accessed independent financial advice?” That is only right and proper because, in general, we still think that most DB scheme members should remain in DB. That will be the right thing for most. That is why we think the advice test is the right thing to do.

The right hon. Gentleman asked about forbidding draw-down in schemes that provide cash-balance benefits. To be clear: our intention is to ensure that members are appropriately protected by ring-fencing their pots from those of other members. That means that assets must always meet the liabilities in relation to those benefits. Keeping conversion to money purchase is the simplest way of achieving that. This is about ring-fencing cash-balance benefits.

The right hon. Gentleman asked how people would calculate their overall level of pension wealth from the point of view of the £30,000 threshold. Obviously, the details of that will be set out in regulations. We are consulting the NAPF on that. It is interesting that the NAPF thinks that nobody is talking to it; we talk to the NAPF all the time. We are also consulting the ABI and other interested parties.

The nitty-gritty of how we set the £30,000, what it includes and whether it is all of someone’s assets will be subject to detailed discussions and regulation. But the principle has to be right: if we are to require people to have advice, we do not want people to be forced to pay, say, £1,000 for advice if they only have a pension pot of £5,000 or £12,000. There has to be some sort of cut-off. Clearly, we need a sensible operational definition of what that is, but I do not think the principle is at issue.

[Stephen Timms]

I am grateful to the Minister for giving way and for the thorough way in which he is responding. May I take him back to his response to my question on the duties of trustees in an instance where a member wants to switch from DB to DC? The proposition from the NAPF was that the sole responsibility of trustees should be to require adequate proof from the member that they have received independent financial advice from a person authorised by the FCA to give such advice. It sounds to me that the Minister is saying that that is what he intends. Is he happy with that form of wording proposed by the NAPF?

[Steve Webb]

I am aware that our conversations are occasionally listened into by lawyers, so I am reluctant on the hoof to say that the wording from the NAPF is better than the wording that my lawyers have come up with, which is in the Bill. Clearly the point is not that the trustees have to second-guess an independent financial adviser—that is absolutely not what we are saying—but we are concerned to make sure that trustees do not simply nod through DB to DC transfers without ensuring that the scheme member has accessed suitable financial advice.

The right hon. Gentleman asked whether regulations will be under the negative procedure or affirmative procedure. In general they will be under the negative procedure, but the regulations under new section 97A(11) in new clause 26 are affirmative. Given the speed at which we are working and the importance of getting all this in place, it is not realistic to think that we will have draft regulations for their lordships’ consideration in a few weeks’ time. But their lordships obviously will want to probe the likely content of the regulations and we will continue to try to be as helpful as we can in that regard.

[Stephen Timms]

Will the Minister accept that it is pretty unsatisfactory for the Bill to go through both Houses with the Members of neither of them having a draft of the regulations to consider so that they can see what exactly the Government have in mind?

[Steve Webb]

No, I would not accept that. The right hon. Gentleman will know, from having taken quite a few Bills through the House, that there is a balance to be struck among primary powers, giving the House a general sense of direction, our stating on the record what the regulations seek to do and separate scrutiny for the regulations themselves. We will always try to make clear our intentions and what the regulations will try to achieve and we will continue to talk to the experts outside and inside Government about the fine detail. It is perfectly normal to pass primary legislation without every last regulation being produced in draft form. The right hon. Gentleman was responsible for welfare reform legislation in which large swathes of regulations were not produced in draft form when Royal Assent was given.

[Stephen Timms]

The right hon. Gentleman is pressing my memory with that, but my understanding of what has generally been regarded as good practice is that there should at least be draft regulations in front of Members. We do not necessarily need every last detail and he is quite right to make the point that there will be further discussions before things are finalised, but for Members of neither House to be able to see even a draft of the regulations is unusual and pretty unsatisfactory.

[Steve Webb]

I do not agree that it is either unusual or unsatisfactory. It is clearly important that the House accepts and is familiarised with the basic principles of approach and that we set out what will be in the regulations and what we are going to try to achieve through them, but often the regulations will be subject to separate consultation exercises. There is an awful lot of scrutiny; I can assure the right hon. Gentleman that these things are never knowingly unscrutinised.

The right hon. Gentleman asked about the timetable. Let us put it this way: our lawyers are not taking Christmas holidays. We are working as fast as we can.

--- Later in debate ---

[Stephen Timms]

The cost of living crisis underlines the need for people in work who are struggling to set money aside for the future to be able to access pension schemes they can trust to give them good value for money and a decent income in retirement. Therefore, we welcome the proposed establishment of collective defined contribution pension schemes, which my hon. Friends called for earlier this year. Those schemes have the potential to provide a more reliable retirement income than individual defined contribution schemes. For that reason, they are to be welcomed. They operate in other countries: the Netherlands, for example. They are potentially better for individuals than individual defined contribution schemes because they can pool risk across and between generations. Research by the Institute for Public Policy Research at the end of last year concluded that there was “strong public support” for a collective pension, that it was the most popular of the options it tested and that it appealed across different income levels, life stages and ages.

We also support the establishment of shared risk schemes and the rule preventing transfers out of most public service schemes—with some exceptions that the Minister talked about earlier. We support the power to redefine the pension regulator’s powers to appoint or replace trustees and the power that will allow the Secretary of State to make payments into the Remploy pension scheme.

We have not opposed the Bill, and we will not do so this afternoon, although there are parts that, in our view, should have been strengthened. We are also disappointed that the Government have not been willing to make the changes for which we argued in Committee. We welcome the new pension flexibilities that were announced in the Budget, but we are concerned that Ministers are not yet providing adequate safeguards in the Bill to protect the savings of people who have worked hard all their lives from the risk of excessively high charges.

The changes will introduce increased flexibility for savers, and we agree that that is welcome. They will also make the pensions market much more complicated, however, and safeguards need to be put in place to protect savers from being taken advantage of, given the confusion that could arise as the changes bed down. We simply cannot afford to have another pensions mis-selling scandal like the one that was presided over by the last Conservative Government, which did a great deal of damage.

The Bill contains 55 clauses, which were substantially rewritten in Committee, and the fact that the Government have today added 33 new clauses—over half as many as we started out with at the beginning of the afternoon—and made 77 additional new amendments does not inspire confidence that these complex changes in an area of such immense importance have been properly thought through. This looks rather like a case of legislate in haste, repent at leisure. We can only hope that Members in the other place, among whom there is substantial expertise in this area, can make significant improvements. Trying to make these important changes at the same time as enacting the Budget changes is of course making the task more difficult and more risky.

A few minutes ago, towards the end of the last debate, the Minister gave a full answer to my question about regulations, for which I was grateful. His answer was a full one, but it was not particularly satisfactory. He pressed me about my experience of taking Bills through the House. My recollection is that if such a Bill had referred to regulations that were going to be introduced, I would at least have expected to put a note in front of members of the Committee explaining what those regulations were going to do. Ideally, there would be draft regulations to put in front of the Committee. In this case, as far as I can establish, there is no information at all about any of the regulations referred to in the new clauses and amendments. I was disappointed when the Minister said that no such information would be put in front of Members in the other place either.

[Steve Webb]

I think there is a danger of the right hon. Gentleman overdoing this a bit. A lot of the regulatory framework for the budgetary freedoms involves the Financial Conduct Authority, so we are not talking about statutory instruments or any other stuff that goes through this House. The FCA has consulted and published its principles, and it will be publishing its final statutory guidance. All of that will be entirely available to Members in the other place. So a lot of this stuff is out there already; it has been consulted on and will be published. A lot of the regulations that the right hon. Gentleman is talking about relate to defined ambition and risk-sharing, for which the timetable is much slower.

[Stephen Timms]

That is helpful, and I am grateful to the right hon. Gentleman, but I was making the point that, in my experience as a Minister, I would normally have expected to be able to provide some documentation about each set of regulations referred to in a clause that I was advocating to the House. There is no such information relating to the significant number of the new clauses and amendments that refer to regulations and that now form part of this Bill. The right hon. Gentleman suggested that that was normal, but I do not think it is. I was recalling my experience from the Welfare Reform Bill, on which I led for the Opposition. There was a problem there, because at the outset no information was provided about regulations being referred to in the Bill. However, by the time we got to the end of the Committee we were reliably getting, before we debated each clause, some information about the regulations being referred to in it. So I urge him, if he can take even more holiday time away from the lawyers, to look at whether he might be able at least to give their lordships some information about each set of regulations being referred to.

In the earlier debate, I mentioned the three tests we have set for the new flexibility, and I am grateful to the Minister for his response to each. My party has commissioned Professor David Blake of the pensions institute at Cass business school to lead a review of how to support a pensions market that works for all, retaining flexibility and choice on how savings are accessed and drawn down, while ensuring that all savers, including those on low and modest incomes, are protected and are able to secure a decent and reliable retirement income. One question he will consider is whether income draw-down products should be subject to a new charge cap, which could offer some safeguards that are not envisaged at the moment.

Widespread concern has been expressed about the crucial guidance provisions. We do not know a great deal yet about how this is all going to work, and it is supposed to be up and running by next April. There is serious worry, which we have debated earlier, that the guidance on offer will not be taken up in practice. We will certainly be looking with great interest at what the FCA says—the Minister has assured us that it will be referring to this—about the second line of defence.

The TUC has made the point that

“half an hour of the best possible advice will not equip people for what could be thirty years of managing their pension pot”.

It has argued for the kind of careful consideration of evidence undertaken by the last Government, which has underpinned the success of auto-enrolment—that successful measure was developed over a period, decided on by the previous Government and taken forward by the current Government and, in particular, the Minister on the Bench today. Everybody would agree that the proper deliberation that underpinned it has been an important element in its success, but we are not seeing the same thing with these changes. I fear that nobody can, as yet, feel confident about what is going to emerge.

The Minister also knows that we have concerns about the governance of collective defined contribution schemes and about the so called “independent governance committees” proposed for defined contribution schemes; and about the restrictions on the National Employment Savings Trust—NEST—which my colleague who normally speaks on these matters has long argued should be removed and which the Minister said in July last year would be removed “as soon as possible “. In fact, they remain in place, and the opportunity to remove them in this Bill has not been taken.

The Bill is worth while, but a worryingly large amount more still needs to be done. Working people must not become the victims of yet another mis-selling scandal—that has happened too often already. The dangers of ill-thought-out and rushed legislation are all too clear, and doing all this at the same time as the Treasury changes makes the risks much worse. We can only hope that Members in the other place will have the information they need and will be able to deliver some of the scrutiny which Members in this House have not, sadly, been able to provide.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Self-Build and Custom Housebuilding bill (Money)

Queen’s recommendation signified.

Resolved,

That, for the purposes of any Act resulting from the Self-build and Custom Housebuilding Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Brandon Lewis.)

Self-Build and Custom Housebuilding bill (Ways and Means)

Resolved,

That, for the purposes of any Act resulting from the Self-build and Custom Housebuilding Bill, it is expedient to authorise the charging of fees under the Act.—(Brandon Lewis.)



Local government (Review of Decisions) Bill: Money

Queen’s Recommendation signified.

Resolved,

That, for the purposes of any Act resulting from the Local Government (Review of Decisions) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Kris Hopkins.)