Pension Schemes Bill — House of Lords, 2015-01-12
Topic: Labor
Keith Bradley (Labour, Centre-left): My Lords, I beg to move Amendment 30. At the start of our deliberations, it is worth reminding the Committee that at Second Reading we took two pension Bills together: the Pension Schemes Bill and the then Taxation of Pensions Bill. We did so because it was recognised that the two Bills were interrelated and that the issues to be scrutinised and debated were inextricably linked between them. While there was no debate in this House on the Taxation of Pensions Bill, as it was a money Bill, it would be impossible not to refer to these interrelationships in our deliberations today on such matters as pension guarantee, guidance guarantee, product development and the financial and economic consequences of the Bills Furthermore, we will continue the theme that we developed on day 1 in Committee: since so much of the Pension Schemes Bill relies on regulation—to date such regulations have not seen the light of day—we will continue to press the Government for far more information on the regulations, to try to make as much sense as possible of how the proposals in the Bill, and the Bills, will be implemented Similarly, we have highlighted the speed at which this legislation is being brought to the statute book, which further hinders scrutiny not only inside Parliament but by key stakeholders. These include those who will be responsible for delivering the crucial guidance guarantee—particularly Citizens Advice and the Pensions Advisory Service—and the pensions industry and its representative bodies, who will need to respond to the effects of the policy changes, some of which come into force in barely three months’ time. As we have made clear throughout our deliberations, the overriding objective is broadly to support the freedoms and flexibilities in the Bill and to ensure that the public have all the information they need and the guidance they seek to ensure their interests are protected, and that they receive the best outcomes for their retirement without the fear of the scandal, for example, of mis-selling, which the public encountered some years ago One example of what I am alluding to emerged only today with the revelation from the Government that only 45% of new pensioners will be entitled to the full new flat-rate state pension in the first five years of the system. That is 2 million people who will not get the full amount. Certainty of the amount of the new pension will be critical in the decisions people may make about how they plan their retirement income or draw down cash immediately after April. I know that the Minister will want to clarify the situation when he responds It is in that spirit that I move Amendment 30. At the heart of the amendment is our wish to ensure that the Bill works in the way that it is intended, and that the guidance will be both taken up and prove effective in helping people to choose the right products to fund their retirement or to make the right decisions about lump sums or other retirement income. We believe that guidance is needed but we are concerned that this House has, to date, been provided with too little information about what guidance will be offered. Additionally, will the quality of this guidance ensure that people make the right decisions for themselves and their families, now and in their later years I welcome the fact that more information about the guidance has been produced today and I thank the Minister for providing the Committee with it. In particular, we now have the title of the service, ‘Pension Wise’, and the branding, "Your Money. Your Choice". However, I stress that at this point we are talking about guidance and not advice. We have made this point on a number of occasions during our deliberations and it is important to keep in mind the distinction between guidance and advice on which people rely I know it is intended that the guidance should be comprehensive—that has been elaborated on today in the announcement from the Treasury—which, to some extent, is reassuring. The assumption is part-based on the discussions in the Public Bill Committee in the House of Commons, especially the interchange between the Minister for Pensions, Steve Webb, and the shadow Minister, Gregg McClymont. The Minister said in the other place: "Guidance will discuss the pros and cons of different financial products and services".—[Official Report, Commons, Pension Schemes Bill Committee, 4/11/14; col. 283.] He quoted the Financial Conduct Authority, saying that, "guidance will need to be tailored, providing consumers with sufficient personalised information, so that they can understand their options and make confident, informed decisions about their retirement options" The FCA also thinks guidance should include information on tax matters. This is clearly an important consideration. The Minister responsible in the other place went on to say that a guidance session has to be person-specific and that he was consulting for opinions, attitudes and expectations on what is needed in good guidance I realise that the Treasury is taking this matter forward and leads on this. Again, I further welcome the information that has been provided in the guidance guarantee today. We have to ensure that we can digest the contents of that information that I received at lunchtime today, so that we can further consider the matters within it. That may lead to further consideration of the detail on Report It is reassuring to know that the Minister envisages guidance sessions to be comprehensive, but it raises the question of how much it will cost and how those costs will be met. The National Association of Pension Funds estimates the cost of advice for people seeking an annuity under the current system to be £681 million—I mean £681 per session. It does not go quite as far as millions; we might get to that at some later stage. That is hardly a simple assessment but it is not such a comprehensive session, in many ways, as the far-reaching guidance envisaged by Steve Webb, the Minister, and the Financial Conduct Authority At £681 per session, it will cost £480 million to provide those 600,000 people retiring in 2015-16 with guidance. But how many people will, in practice, seek guidance? It is safe to assume that some will not choose to take it up, perhaps because their pension pot is too small—maybe less than £10,000, although it could be argued that this group is the very one that will need the best advice. Others will pay an independent financial adviser. The Legal & General group helpfully undertook a trial of free advice to some 9,000 people. It reports that only 2.5% took up the offer. This would cost £154,000 at £681 per session. The Chartered Insurance Institute estimates a 90% take-up. This would cost £368 million. Which do the Government think most likely to be correct? Have the Government risk-assessed this? If so, can this information be available to the Committee? I note that the Treasury has today estimated a cost of the service at £35 million for 2015-16. I would therefore be grateful if the Minister would tell the Committee how this amount has been calculated The Minister also told the Public Bill Committee, on 4 November in the other place, that guidance providers will not be subject to FCA regulation. Instead, the FCA must put in place standards that designated providers must work within. Designated providers must be chosen and approved by the Treasury and the list will be available to the public. The FCA will have a duty to monitor compliance and the Treasury will take responsibility for ensuring that the FCA framework is sound enough. Is that sufficient? Monitoring may be comprehensive but fall short of regulation. Perhaps the Minister can assure us on how this compliance will work. As the Minister may imagine, at the heart of my concern is a strong desire to avoid another mis-selling scandal, which would put the guarantee for savers at risk, with savers therefore failing to get the retirement income they need and deserve The current designated partners, the Pensions Advisory Service and Citizens Advice, are very credible providers of advice and guidance generally. I am sure that Citizens Advice will ensure that all 380 independent bureaux, which will deliver that advice, have all the necessary public liability insurance in place to protect them from claims arising from the guidance tipping into advice and then being acted on. But is it right not to regulate this market? Will others seek to enter the market with far less credible track records than these two esteemed bodies? For example, will people selling products be able to offer guidance via the designated lists in the future? Furthermore, could the Minister explain what redress people will have in practice? With 600,000 people entitled to free advice, it is inconceivable that something will not go wrong. The fact that it is guidance, not advice, could prove to be an inadequate veil to hide behind. The Minister in the other place seemed to think that few people would seek redress. However, I remain concerned, and the implications could be huge.