Pension Schemes Bill — House of Lords, 2015-01-27
Topic: Labor
Keith Bradley (Labour, Centre-left): My Lords, the purpose of this amendment is to give the Government the ability to cap the charges on flexi-access draw-down pension products. It is important because it gives the Secretary of State the power to take action if it is clear that unfair charges are being levied. When the freedoms and flexibilities commence in April, there will likely be a large increase in the number of people using these products, and it is right that the Government are able to protect these savers In Committee, I laid out why this measure is necessary. A possible 320,000 savers will be looking to turn their pension pots into retirement income in April, and the charges that can be levied can be high. As Which?, the consumer body, has pointed out: "Even for a simple fund structure from a low-cost provider, the annual management charge might be 1% plus an administration fee of £250 per annum, which would cover the cost of income payments and income level reviews, for example. A more common total cost is about 2% p.a. which is similar to that for an investment-backed annuity. Worryingly, we came across cases where the charges for a SIPP package and advice were 4%-4.5%" We remain concerned about ensuring that good products are available for low and middle-income savers, as well as for those who have large pension pots. As I have said, we should remember that the median pension pot is around £30,000. The cap on charges for these products on decumulation, alongside those in place during accumulation, could be a very important stage. As NEST pointed out in its recent consultation on the subject: "The solutions we as an industry develop over the next few years could affect the lives of millions of people in old age. We absolutely cannot afford to fail consumers. Leaving their retirements to chance is not an option" As I said in Committee: "A good first step would be to remove the possibility of savers being open to what may be termed rip-off charges. This should apply in the decumulation stage as well as the accumulation stage, because a rip-off charge is a rip-off charge, wherever a consumer finds themselves at the end of it".—[Official Report, 12/1/15; col. 614.] I accept that I have fallen into the jargon that we promised we would not pursue during our deliberations. Decumulation is when you are turning your pension pot into a decision on retirement income The Minister replied that this amendment was not required, because: "There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers".—[Official Report, 12/1/15; col. 617.] This is obviously potentially very welcome, but I want take the opportunity provided by this amendment to probe a little further. Can the Minister advise the House today precisely which part of the existing legislation the Government would use were they to take action? Further, can he say whether the Government have any plans to take such action and when that would arise? I am trying to establish not just whether the Government believe that it is possible to do that but whether they would use the powers that the Minister says they now have. Even if the powers already exist—I look forward to the Minister’s response to my question—accepting this amendment would send a powerful signal that the Government intended to protect savers in this market from April. I hope therefore that the Minister will indicate that the Government are ready and willing, as well as able, to do so. I beg to move.