Pension Schemes Bill — Committee (2nd Day)

Part of the debate – in the House of Lords at 3:15 pm on 12 January 2015.

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Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health) 3:15, 12 January 2015

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 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 one 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 work 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 that a cost of the service at £35 million for the year 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.

I turn to the specifics of our amendment on an annual review of the guidance guarantee. In spite of what has been provided today and throughout the deliberations at all the stages of the Bill, we are being asked to pass legislation here when we still have little real information on which to base full support for it. I hope the Minister can provide a great deal more detail to the Committee today, based on the information that has been provided. If necessary, as I said earlier, we can come back at a later stage for further deliberation.

I conclude with some points that I have gleaned from scrutinising the debates and evidence given in both Houses. First, the guidance is intended to be comprehensive and we welcome that. But we note the views of Rachael Badger of Citizens Advice, who told the Committee on the Taxation of Pensions Bill last year:

“Guidance sessions will be tailored to people’s circumstances. They will cover things such as tax benefits, possible social care needs, savings and debt; there will also be signposting to regulated advice if that is appropriate”.—[Official Report, Commons, Taxation of Pensions Bill Committee, 11/11/14; col. 23.]

Will the Government confirm in their response today that all those matters will be properly covered?

Secondly, I recognise that guidance will also be available online and by telephone through the Pensions Advisory Service, but will the Minister give details of the proposed 45 minute sessions that we received details of in the information today and of how the cost of the £35 million that I have already alluded to has been calculated for 2015-16? Thirdly, will the Minister allay the fears identified by, among others, the Financial Services Consumer Panel? In the evidence session to the Taxation of Pensions Bill, it said:

“We are very worried about the face-to-face guidance delivery. It is a huge challenge for CAB to get ready for April”.—[Official Report, Commons, Taxation of Pensions Bill Committee, 11/11/14; col. 12.]

The training and capacity of Citizens Advice and, of course, the Pensions Advisory Service must be in place. Can the Minister confirm that it will be—for the number of people who will be seeking that advice—perhaps before, but immediately after, the April implementation date? Fourthly, I repeat our concern that the delivery partners will not be regulated but merely monitored.

The central argument, as we know, is that we are being asked to have faith that the Government have fully appreciated all the implications of the legislation, in spite of the speed of implementation and the fact that so much relies on regulation and not primary legislation. We are being asked to take too much on trust. Not unreasonably, this amendment seeks to reassure us that the legislation will work in the way intended. It is right to ensure the quality of the guidance and that adequate funding will be available so that people can have access to the guidance that they need. Specifically, we are asking for a review to include, first, how many people are accessing the guidance that they need. Given that the estimates vary between 2.5% and 90%, this is crucial. Given that many people have limited knowledge about pensions, we need to monitor this to ensure that people know of the guidance that is available to them and where to get it, and that the service is promoted. Secondly, the review should look at why people do not take up guidance. Given that we all agree that it is necessary to offer guidance to help people make informed choices about pension pots and financial planning for their retirement, we need to be sure that they have considered guidance, and if they have elected not to take it up, it would be useful to know why. Thirdly, we need to assess the quality of that guidance and whether it is preventing people from purchasing the most appropriate products. We need to be assured that as the guidance rolls out, the first users of the service are not seen just as guinea pigs but are used to inform and change guidance that is then appropriate because of the consequences of the information provided by those first people using it.

I am sure that we all recognise the need to provide people with guidance to make our pensions products safe for future pensioners. Given the lack of detail in the Bill, I am sure the Minister will want to support this amendment so that we can have a regular review of the workings of the Bill, and in particular how the pension guidance guarantee works in practice for the benefit of the people who use it. I beg to move.