Pension Schemes Bill — Committee (2nd Day) (Continued)

– in the House of Lords at 4:50 pm on 12th January 2015.

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Schedule 3: Pensions guidance

Amendments 31 to 33

Moved by Lord Bourne of Aberystwyth

31: Schedule 3, page 65, line 2, after “scheme” insert “, or a survivor of a member of a pension scheme,”

32: Schedule 3, page 65, line 3, at end insert “or survivor”

33: Schedule 3, page 65, line 9, at end insert—

““survivor” has the meaning given by section 74 of the Pension Schemes Act 2014.”

Amendments 31 to 33 agreed.

Amendment 34

Moved by Baroness Greengross

34: Schedule 3, page 65, line 17, at end insert—

“( ) The Treasury must publish an annual report on outcomes being experienced by people with flexible benefits.”

Photo of Baroness Greengross Baroness Greengross Crossbench 4:55 pm, 12th January 2015

My Lords, I will take all the amendments in my name together. At Second Reading, I welcomed the overall intention of the Bill, which includes the creation of a new type of pension scheme—a collective benefits scheme. Potentially, such schemes could provide individuals with a greater degree of certainty over the level of pension benefit they might receive. As they enter retirement, it could help them make better choices and informed decisions, but the accompanying new freedoms and choices for people also hold many greater risks. To understand these risks, people have to be very much better informed. If they are unable to manage their money effectively over what in this day and age can be a 40-year retirement, and if they are poorly advised or sold poor-value products, the impact on pensioner poverty more widely could be significant.

We have a narrow window of opportunity to ensure that these reforms work as intended because currently many people at the point of retirement still have the security of defined benefit pensions. Even so, the Pensions Policy Institute, of which I am privileged to be the president, has highlighted that 41% of people who are now aged between 50 and the state pension age—2.3 million people—have no DB savings and so are heavily reliant on DC savings to support their retirement.

On day one of Committee, the noble Lord, Lord Bradley, proposed a new clause on decumulation aimed at protecting savers who default into an annuity with the same savings provider. This was by providing safeguards for people who do not take advantage of the new flexibilities because, for them, an annuity remains the best product. It guarantees them a set income for the rest of their life. In his response to the noble Lord, Lord Bradley, the Minister reminded us that the recent FCA thematic review of annuities and the findings from its market study concluded that competition in the annuity market does not work effectively and consumers are not getting the most out of their hard-earned savings. These reports provided further evidence for the need for a route map through the annuity process for consumers, and the amendment moved by the noble Lord, Lord Bradley, would have established an independent annuity brokerage service to resolve this by providing scheme members with an assisted pathway through the annuity process, ensuring access to most annuity providers and minimising the cost. His amendment was withdrawn but perhaps we need to discuss this further because some sort of alternative navigation support across this fault line between guidance and advice must be necessary. Plainly, this is in the remit of the FCA, but the FCA itself has made it very clear that the supervision of guidance does not lie with it but with the Treasury, so there is something of a stalemate there.

Last week’s debate also touched on the proposed role of the Pensions Regulator, as many of the annuities offered are bought by members of occupational pension schemes, using their defined contribution savings. These are provided by the FCA-regulated contract-based pension schemes. The Government, however, will define the exact role they see the Pensions Regulator playing in this busy landscape. I shall later come to how we might mitigate savers’ risks by having a second line of defence across all retirement income products.

In their earlier Amendment 30 to Clause 47, the noble Lords, Lord Bradley and Lord McAvoy, sought to mandate the Secretary of State each year to produce a report on the effectiveness of the guidance under Schedule 3, which would include the number of people who have taken up the guidance, the number of those eligible to take up the guidance who did not do so, and the effectiveness of the guidance in preventing instances of consumer detriment through the purchase of inappropriate products. My Amendment 34 similarly seeks to ensure regular monitoring and reporting on the outcomes of these reforms for everyone affected, whether or not they access the guidance. In particular, this reporting should include outcomes such as the number of people cashing in their pension pots in their entirety and the number taking out draw-down or purchasing an annuity, all broken down by pension pot size. The guidance guarantee should be regularly reviewed to ensure that suitable information is there to make sure that people can make the important decisions that really suit their own needs.

On Amendment 35, as I mentioned earlier, another pressing challenge that will have an impact from next April on those approaching retirement is the advice and information envelope, which will underpin the decision-making process here. This and my remaining amendments relate to the proposals for and the regulation of official guidance for people approaching retirement.

Schedule 3 to the Bill places a duty on the FCA to create and regulate the advice and information part of the “freedom and choice” pension reforms in the shape of the guidance guarantee, which is a crucial part of these reforms. The noble Lord, Lord Newby, alluded to this in his response to the previous amendment, but my worry is that individuals are not aware of the existence of this guidance, and not obliged to seek it or to follow it if they find it. Many people will remain seriously ill informed, and, as we heard on day one, they may make the wrong decisions. We mentioned the Sunday Times article on this.

In particular, Amendment 35 seeks to ensure that the guidance service provided under the new rules takes into account all potential sources of income in retirement, especially given that defined contribution pension savings make up a significantly smaller amount of an average saver’s total retirement income than housing wealth. Indeed, some estimates put the housing wealth of older people in the UK at £1.4 trillion.

On Report in the other place, the Minister gave assurances that the FCA’s principle-based standards will require delivery partners to take into account various sources of income, including housing wealth, in the provision of guidance. I have reviewed, however, the near-final rules and standards recently published by the FCA in the annexe to its policy statement on retirement reforms and the guidance guarantee. I thank the Minister for very kindly making those available to us. I believe that these rules will need to be stronger if they really to better reflect the Government’s avowed intentions.

I welcome the fact that Part 1 of the standards—Standard 20—stipulates explicitly what the guidance must contain, including requesting information about the consumer’s financial situation—for example, whether the person is a home owner or renter—and personal circumstances that are relevant to their retirement options. However, there is no explicit reference to levels of housing wealth. While we can all sympathise with the Government’s reluctance to overpromise on what these relatively limited guidance conversations can be stretched to achieve, the guidance session should act as a prompt for people to consider their options for retirement funding. It would be remiss if this did not include a full picture of people’s financial health.

This amendment would ensure that the individuals providing the guidance service under the new rules were required to ask questions about other assets, including housing wealth specifically. I recognise that the guidance guarantee cannot and should not seek to replace regulated advice, but, as I have said, it should act as a prompt for consumers to consider their full range of options.

Guidance also needs to cover interactions with lending. Research from Prudential found that one in six people planning to retire in 2014 will have debts. The main sources of debts are credit cards followed by overdrafts and bank loans, but they might also include mortgages. Age UK has found that while the proportion of older people with debt had fallen between 2002 and 2010, the average size of the debt had increased. Currently, lenders are unwilling to lend to older people and, in particular, to extend mortgage terms so that they are repayable after retirement. This could mean that more consumers have to repay debts when they reach state pension age. Many of those with a need to repay a mortgage post-retirement will have an interest-only mortgage. I received this information from Age UK and a lot of what I am reading now came from its very full briefings to me.

FCA modelling predicts that just under half of interest-only mortgage holders whose loans mature before 2020 will have a shortfall between their mortgage and their expected repayment vehicle. In the near term, there is a peak of mortgages maturing in 2017 or 2018, many of which were sold as endowment mortgages in the early 1990s. Some of these shortfalls could be significant. The FCA estimates that a third of those with a shortfall will have a shortfall greater than £50,000. It would be a missed opportunity if people were not encouraged to consider those wider assets.

In response to my question at Second Reading regarding the impact of any drawn down money on any subsequent means test for local authority care fees funding eligibility, the Government have said that money held in draw-down funds will be treated as providing notional income and will be treated consistently with annuity income; that is, it will be included in any such means test. I hope that more detail will be available shortly when the Department of Health publishes the draft regulations for care charging under the Care Act 2014, particularly if any such draw-down, despite having been spent, is retrospectively included under the intentional deprivation of assets rules. It is vital that the guidance guarantee makes the full implications here crystal clear.

On Amendment 37, consumers, and therefore guidance, should also take account of the position regarding state pensions. Using your private pension to take up options such as deferring state pension or buying extra state pension could provide much more income than buying an annuity, unless it would affect means-tested benefits. For example, deferring a pension may provide a higher income when it is finally vested, so the individual’s current and future income, assets and liabilities need to be taken into account. Lenders will have to be much clearer on how they will treat small pension pots, and this clarity should be a key part of best-practice guidelines that balance the interests of borrowers and of lenders.

Amendment 37 seeks to ensure that the guidance guarantee and financial advisers take state pensions and benefits into account when offering advice and support to people. For an individual retiring, using their private pension to take up options such as deferring a state pension or buying extra pension could provide much more income than buying an annuity, unless it would affect means-tested benefits.

I turn to Amendments 39 and 40 together. Shopping around for income draw-down is likely to prove complex for many consumers. The Government really should consider introducing a cap on the level of charges for some products. However, it is not just about charges. Investment strategies will need to reflect the new flexibilities and cash held within a pension fund may actually lose money. For example, a money market fund held in a stakeholder pension has actually declined by 2% over the past five years. Both Government and regulators should ensure that scheme governance is strong and effective for the accumulation, saving and de-accumulation or income phases. These amendments seek to do that.

The range and impact of poor value products could increase with the increasing complexity of products on offer after the reforms come into effect. As we heard on day one, further examples can be seen in the recent findings from the FCA following its review of the retirement income market which showed that many consumers in the past have missed out on a higher level of payments from their annuity. In some cases this was because consumers had not been told about better value policies they could have taken out. In addition, a report from Which? and the Pensions Policy Institute believes that income draw-down will become the norm, rather than the exception. However, the research found that none of the alternative products to conventional annuities is currently suitable for the mass market, due to the costs and investment risks involved. It is crucial that this type of situation does not continue when consumers are presented with a far wider array of products when these reforms come into effect next April.

Building on the quality-standard idea, I believe that guidance alone will not be enough to ensure that everyone gets a good deal. The market has not served people with small to average-sized pension pots well in the past. Guidance should help many retirees make better decisions. I feel that the FCA needs to secure greater protection for individuals during the decision-making process, by including devices such as cooling-off periods and defaults. The problem is that, while the latter lie in the province of the FCA’s supervision, the guidance does not, so coherent co-ordination may prove difficult, especially as the FCA avows that it is not part of its consumer protection remit to do this.

The Pension Schemes Bill Committee in the other place heard evidence from a range of expert witnesses, including Dr Ros Altmann, the Government’s business champion for older workers, and representatives from the Financial Services Consumer Panel. They all called for the requirement of a second line of defence to underpin the guidance guarantee to be imposed on pension providers by the FCA. A second line of defence regulation would require pension providers to check crucial factors at the point when consumers accessed their DC pension savings. Specifically, they would have to draw the customer’s attention to a range of known risks which could have a negative impact on people’s finances on retirement, including outliving assets, running out of money, not providing benefits for a spouse on death or missing out on additional income resulting from a medical condition or lifestyle factors. It would also require pension providers to offer a cooling-off period for people who ask to take out all their money in one go.

As the consumer moves post-guidance into what the noble Baroness, Lady Drake, in last week’s debate called,

“the purchase or decision activity which flows from that guidance”,—[ Official Report , 7/1/15; col. 366.]

it is a pity that the FCA seems to have ignored these calls for a second line of defence requirement and has decided that it will simply rely on its supervisory role, which merely ensures that pension providers are required to signpost customers to the guidance service and to encourage them to use that service. That is not the complete solution, in my view. At a meeting on 17 December, the Work and Pensions Select Committee pressed the FCA forcefully on the absence of a regulatory backstop or a second line of defence for consumers, who will first come into contact with the reforms in April. However, no clear answers were forthcoming on this point, which is very concerning, given the growing calls from Age UK, the ABI and others for the FCA to include such a regulation. While I understand that the guidance is not intended to address the specific situation of every consumer—that is the purpose of advice—no one wants the costs of shopping around to mean the imposition of unnecessary additional costs on either some schemes or members. I still think that I am on the side of the Select Committee, which at this point of the proceedings wondered why, rather than emphasising the demarcation issues here, the FCA,

“would not introduce a conduct rule around the second line of defence. Why not?”.

Instead of providers,

“asking customers whether they have taken the guidance and then asking them again, require them to ask those specific few questions about tax, about health—those questions that are needed to make sure the person has made an informed decision”.

This is such a high-stakes decision, with lasting consequences for individuals and their families, that I think some additional measures are necessary. Indeed, similar measures already apply in the case of many routine and far less significant purchases that people make. Will the Minister assure us that both the Treasury and the FCA will be made to work more closely together to ensure that a seamless information and guidance process comes into existence, for the benefit of all consumers? I beg to move.

Photo of Lord Best Lord Best Chair, Communications Committee 5:15 pm, 12th January 2015

My Lords, my name is down in support of these amendments from the noble Baroness, Lady Greengross. I declare an unremunerated role as a member of the Equity Release Council’s advisory board, and I speak particularly as chair of the All-Party Parliamentary Group on Housing and Care for Older People. I shall concentrate on the interrelationship of advice about pensions and advice about the use of capital assets to fund one’s retirement.

I strongly support the case made by the noble Baroness that the advice provided by Citizens Advice and the Pensions Advisory Service, under the guidance guarantee introduced by the Bill, should ensure that an individual’s assets, particularly their housing wealth, are taken into account properly. The resources in an individual’s pension pot—their defined contribution pension savings—account on average for around £20,000, which represents only some 4% of their total wealth, compared with over £270,000, 55% of their wealth, which is held in the equity of their home after deducting any outstanding mortgages. Four per cent of wealth in their pension savings and 55% in their property—talk about the elephant in the room. It seems essential that that in these important advice sessions attention is drawn, where relevant, to the individual’s wealth bound up in their property, which of course can be turned into cash, either by downsizing to a cheaper home or through an equity release product.

When thinking about buying annuities or choosing other investments, it is extremely important to consider holistically one’s wealth as a whole. The DWP Minister in the other place Steve Webb has agreed that advisers, under the proposed arrangements as spelt out in the near-final version of his department’s rules for giving guidance, should ask whether the consumer is an owner-occupier or a tenant and should ask, perhaps a bit vaguely, about personal circumstances. However, the rules for this interview do not include any explicit reference to housing wealth.

Amendment 35 would make clear that the guaranteed guidance from Citizens Advice and the Pensions Advisory Service should include prompting individuals to look carefully at their housing assets. Without the guidance pre-empting the professional advice of an independent financial adviser, this should be the moment when the interplay of housing and pensions gets aired. Those fulfilling the guidance guarantee should help consumers ask the right questions of an independent financial adviser.

The All-Party Parliamentary Group on Housing and Care for Older People, supported by the think tank Demos, published a report at the end of last year on affordable downsizing. It called for new measures to assist those in their extended middle age who want to move from family housing to a tailor-made apartment or bungalow. Such moves, as well as preventing and pre-empting problems in later life, have very positive financial effects with savings in fuel bills, maintenance costs, garden upkeep and the rest. We also noted the complexities involved in the financial aspects of trading down or equity release. We called for a “help to move” package comprising access to equity loans for movers, as for young people through the Help to Buy scheme, plus concessions on stamp duty, which were partly answered by the Government’s reforms of that tax, and, very importantly, guaranteed guidance on the financial arrangements, piggybacking on the pensions guidance featured in this Bill. These amendments would use the guidance guarantee that covers people’s defined pension contributions to draw attention to bigger questions relating to other assets, particularly housing wealth. They would make the guidance sessions much more meaningful in a country where 14 times more of our wealth in older age is tied up in our properties than in our pension savings. I support the amendments.

Photo of Lord German Lord German Liberal Democrat

My Lords, I rise to support the remarks of the noble Lord, Lord Best. In doing so, I declare my interest as an unremunerated member of the advisory committee for the Equity Release Council. I am, I hope, still in extended middle age, which is a new term that I fully endorse.

Housing wealth, along with other assets, means that the guidance is crucial given the disparity between the amount that people tend to have in a DC pot and their housing wealth, which on average is more than 10 times as much. That is a considerable amount of money or resource which people will need to take into account. The FCA standards, which were helpfully published this morning by the Treasury, state that:

“In terms of content, the standards require that the guidance session must … request information about the consumer’s financial and personal circumstances that is relevant to their retirement options”.

That requires the adviser who is going to take people through the guidance session to ask them for information about their housing wealth, but it is not explicit in the standards, and while we know that they are nearly finalised, there is time for the Treasury to make them more transparent about what is required. Because of the relationship between the two amounts of money, the instruction ought to be clarified, perhaps not in the document but in the training so that it is always an issue which people take on board. Will the Minister indicate whether the sentence in the FCA standards set out in the document produced this morning by the Treasury implies that housing wealth, savings and investments will be taken into account? Will he consider making it more explicit in the information that is provided to the consumer and to those providing the guidance?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour

My Lords, I would like to ask the Minister a question which is triggered by the important issues raised by the noble Baroness, Lady Greengross, and the noble Lord, Lord Best. However, I want to look at it from the other way round, which is the situation of someone who is 55, is on housing benefit, and has £20,000 locked away in a small pension pot. At the moment, if you have capital of more than £16,000 and you are pre-retirement, that is an absolute block to any further income-related benefits. Different rules apply when you come to retirement. The assumption throughout is that you can access your pension only at the point of retirement, when different rules apply. What will happen now? Can the Minister help us on this? The rules are that if you have capital that you could get at if you applied for it, you are treated as having that capital. While it was tucked away in a pension and not accessible until you reached 60 or 65, you could not have access to it and so it did not affect your entitlement. But in future you will be able to access your capital in such a way that, under the Housing Benefit Regulations 2006, Regulation 49(2), because you can access your capital, you are treated as though you have that capital, which would therefore automatically cut you off at £16,000—you have £20,000 in your pot —from any access to housing benefit. Can the Minister clarify how this will work in the future?

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am grateful to the noble Baroness, Lady Greengross, for giving me the chance via the debate on these amendments to address a number of important issues in respect of the guidance service. I turn first to Amendment 34. This seeks to require an annual report on consumer outcomes. As I said in the earlier debate, in terms of the overall policy of greater flexibility, the Government are committed to keeping the policy under continual review, including through the monitoring of information collected on tax returns and tax records. This was confirmed in the debates in the other place late last year on the Taxation of Pensions Bill, which it then was.

How the market evolves to respond to consumer needs is where the regulators come in, in particular the Financial Conduct Authority. As I mentioned earlier in addressing the amendments tabled by the noble Lords, Lord Bradley and Lord McAvoy, the FCA has a strategic objective to ensure that the markets function well and a specific operational objective to ensure that consumers of financial services are appropriately protected. The FCA has recently published the provisional findings of its Retirement Income Market Study. In this report, the FCA committed to monitor the retirement income market, and if consumers appear not to be getting the support or products they need or if competition is failing to drive good value, it will make whatever intervention is appropriate. The noble Baroness will, I hope, be reassured by the specific commitment of the FCA to monitor consumer outcomes,

“we will monitor the market to track developments to assess whether these risks arise and if so, the impact on consumer outcomes”.

I am also grateful for the related amendment from the noble Baroness which seeks to expand the new duty of the FCA to protect consumers using guidance through its role in setting and monitoring standards for the provision of pensions guidance by designated guidance providers. The noble Baroness raised again the question asked earlier about the supervision of guidance and the respective roles of the FCA and the Treasury. To be clear, the FCA has the responsibility for supervising designated guidance providers’ compliance with the standards which it has set. While the Treasury itself is not a designated guidance provider, it has committed in the update published today that it will fully comply with the FCA standards as far as that is appropriate, because the Treasury is responsible for the online channel.

More generally in respect of the FCA and its powers, the noble Baroness will know, I am sure, that the Financial Services Act 2012 gave the FCA wide-ranging product intervention powers. For the first time it is equipped to ensure that new retirement income products are designed and sold in a way that does not cause detriment to consumers. As for assessing the consumer outcomes resulting from the guidance service specifically, with which Clause 3 is concerned, I can assure the noble Baroness, as I have already the noble Lords, Lord McAvoy and Lord Bradley, that the Government are committed to a full programme of monitoring and evaluation of the guidance service, which will encompass the delivery partners’ provision to ensure that the service is operating effectively and successfully in supporting people in their retirement decision-making.

I turn now to other aspects of the noble Baroness’s amendments. I can reassure her that the guidance service will ensure that consumers consider relevant issues related to pension decisions such as state pensions, debts and other assets, wealth and income. The Government are committed to ensuring that individuals are equipped and empowered to make informed decisions about how to use their pension savings which take account of their wider circumstances. But the Government believe that it is right that the content of the guidance session is set out in FCA standards rather than in legislation. This will enable the content of the session to be more freely adapted to consumer needs in response to the ongoing consumer research that we are undertaking as we prepare to launch the service.

The FCA standards make certain specific requirements on the guidance content with regard to collecting relevant information. They were consulted on last year and the near-final version of the guidance standards was published in November. The standards include a number of requirements on the content of the session itself, which I hope will allay the noble Baroness’s fears. Perhaps I may set them out. They state that the guidance must request all relevant information from the consumer about their pension entitlement; request relevant information about the consumer’s financial and personal circumstances that would inform the discussion; discuss the relevant options and the key facts and consequences for each option and, based on the information provided by the consumer, set out other issues for the consumer to consider. Ahead of the guidance session, consumers will be encouraged to gather such information as would be useful for the session. The FCA has been clear as to what information it would consider to be relevant under these standards and which it would expect the guidance service to ask for. In terms of financial information, this would include information about pension pots and benefits, or those of their spouse. By any view, that would include any potential state pension that the individual was going to get, although I am willing to go back to the FCA to make it absolutely clear that that is its understanding. I am sure that it is, and it may be that the wording could be tweaked.

Other things that fall under this heading are current and future sources of income; entitlement to state benefits, current and future; and whether they are a homeowner or renting. This gets to the point that a number of noble Lords have made about the importance of housing wealth, with which the Government obviously completely agree, and whether this statement on whether someone is a homeowner or renting should be expanded to include a reference to housing wealth as opposed to simply referring to housing status. One cannot imagine in the guidance session the discussion going, “Do you own a house or are you renting?” and someone saying, “I own a house”, with the response being, “Well, that’s jolly nice—now, next question”. The purpose of knowing what the housing status is to get some sense of housing wealth, but perhaps we should be more explicit, and I shall take it back. I agree completely with what the noble Lord, Lord Best, and my noble friend Lord

German said about the relevance of housing wealth, because it overshadows all the other assets that most people have. As the noble Lord, Lord Best, knows, I am very supportive of many of the recommendations in his report on affordable downsizing. Having answered a Question on the subject in your Lordships’ House, I know that this issue raises many and various passions on both sides of the debate.

I should add that the standards already refer explicitly to debt provision. The noble Baroness said that it was important to take account of debts as well as assets. The standard already has that phrase in it, so I think that it covers the matter. The personal circumstances that would also have to be taken into account get us back to the question of the broader context of the guidance session. Those would include a discussion of dependants, state of health, and potential long-term needs. So I hope that I have been able to reassure the noble Baroness on these points.

The guidance aims to help people to prepare ahead of their session and identify the relevant information that they will need. The FCA has clarified in its rules for pension providers what information should be provided to consumers approaching retirement, and the Government are working with the FCA, the Pensions Regulator, industry and other stakeholders to consider how individuals can quickly and simply access information on their pension pots in an easily useable format. The guidance will also inform people that they can request a state pension statement from DWP to get an estimate of their state pension position. The FCA standards are designed with the aim of ensuring that the service delivers helpful guidance for consumers in considering their retirement options. Ensuring that consumers consider factors which are pertinent to their retirement decision, as relevant to them, is an important part of what the standards capture.

I hope that I have been able to reassure the noble Baroness, Lady Hollis, on most of her amendments. We are coming on to the second line of defence before long, so I shall deal with that once rather than twice. On the specific question raised by the noble Baroness about whether the £20,000 pension pot would be taken into account, as I said in response to an earlier amendment, the broad principle is that eligibility for benefits should not be significantly altered by this change. However, I will write to her to clarify that.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Labour 5:30 pm, 12th January 2015

The point is that housing benefit is the one benefit that continues in its current form both before and after retirement. Nearly all other benefits change at the point of retirement. Therefore, the issue does not arise. For example, there is no assumption that there is a capital cut-off if you are on pension credit, merely an assumed tariff income. What you are doing now is introducing some of the potential privileges associated with protecting pensions to a pre-pension age. If you do that, that is fine, but if you do not, it means that housing benefit will be wiped out for someone who has capital that they can access, even if they choose not to do so. As the current rules stand, they would have to be treated as if they had accessed that capital, and then housing benefit would be wiped out for someone at the age of 55 in the way it would not be wiped out if that person was 65.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My understanding is that that is not the intention, but I shall write to the noble Baroness to clarify that point.

Photo of Baroness Greengross Baroness Greengross Crossbench

My Lords, I thank the Minister for his very comprehensive reply. I also thank the noble Lords, Lord Best and Lord German, and the noble Baroness, Lady Hollis, who joined in the discussion.

I thought that the Minister’s response was very helpful and inclusive of most of the issues I have raised. He took on board the idea of a prompt, or several prompts, and I think that the wider issues of including other sources of wealth and income were taken. There may be other issues that I have forgotten, but there is time to look at those. I thank the Minister very sincerely for trying to meet all the requirements that I mentioned and for clarifying the role of the FCA and the Treasury, talking about a full programme of monitoring, and looking at the relevant issues that need to be considered in more depth and the rules about guidance that are going to go back to the FCA. The Minister has addressed most of the issues that I raised and I will look between now and the next stage to see whether there are any others that he forgot. In the mean time, I beg leave to withdraw the amendment.

Amendment 34 withdrawn.

Amendment 35 not moved.

Amendment 36

Moved by Lord Bradley

36: Schedule 3, page 66, line 10, at end insert—

“( ) must be sufficient to ensure that the body is capable of carrying out its functions under section 333C(1).”

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

My Lords, I will be brief because we covered a significant amount of the areas to which this amendment relates earlier in our deliberations. I would like to probe the Government just a little further on the arrangements with the citizens advice bureaux. Specifically, I am seeking assurance that the CABs are capable of delivering the guidance, that they have sufficient start-up costs and that they will be properly funded to deliver face-to-face guidance through the proposed levy. I do not make any apology for repeating arguments that we have already made earlier in our deliberations, because, again, all we are trying to do with this amendment is to give a belt-and-braces assurance to the public that the guidance guarantee for face-to-face interviews will be delivered.

Let me say at the outset that I am not questioning the CABs and the wonderful work that they do, but pensions advice and guidance is not currently one of the services that they routinely provide. CABs work with 2.1 million people a year and they offer advice in England through 338 independent centres. Impressive though that number is, next year we know that around 600,000 additional people will reach retirement age and may seek—and under this Bill be entitled to— guidance. This high number carries on for a number of years because of the post-war baby boom. This is some scaling-up for the CABs and they will need to achieve this in order to deliver the high-quality guidance.

Relevant to this guidance, CABs offer financial and debt advice; over the past 10 years or so, they have been developing interesting financial capability programmes. It is good work and this experience might be particularly relevant to people who are being encouraged to draw down their pension pots at 55—for example, to settle debt. Pension advice to people retiring with pots of £20,000 to £30,000 probably takes the CABs into new areas and a largely new client base. We should remember that the enactment date is less than three months away and we have not had any sight of the regulations, while the FCA is developing a standard framework within which guidance will be offered—some of which we have had further information about today. There is still more information to come: information that, again, the CABs will rely on. Clearly, it is not the intention to set up CABs or any other provider to fail. If CABs are to deliver a service from April 2015, they perhaps should have had their guidance and information framework well in place before now. CABs produce high-quality information that underpins their advice work, and they know how long it takes to develop such information. Although the issue is not caught by my amendment, the Minister could perhaps assure the House that high-quality guidance will be delivered to 300,000 people whom we anticipate will retire and need guidance before September 2015.

The CABs’ excellent work is a lifeline for some of the poorest people in our society, often the most vulnerable people at vulnerable times in their lives, such as during divorce or separation. This is why—and despite often swingeing cuts—local authorities continue to fund local bureaux, albeit now often at a lower level of service. I am worried that the time of local bureaux will be diverted from their core work, and their service users will have nowhere else to go, particularly—to compound the problem—because legal aid is now hardly available for this group of people. Frankly, local authorities should not, in future, find themselves in a position where they will be picking up the tab for a poorly funded pensions advice service delivered through the citizens advice bureaux. The Minister has given us some assurances on this point, but I seek that further assurance again today. Can we also be assured that the core grant that citizens advice bureaux currently have for their services will not be deflected at all by the money available for this specific service—that there is no overlap between the services in terms of funding streams?

Finally, we know that CABs will be funded by the Treasury for the first two years, and after that through a levy on the industry. Again, I seek an assurance that, with this levy, it will not be necessary for CABs to move money between their funding streams to support their current wide range of services in order to deliver the essential pensions guidance that is coming forward. We know that these are complex matters for people who will be seeking CABs’ advice. We want to ensure the highest quality of that service, but we also want to make sure that the other range of activities that are essential in local communities are not undermined by the emphasis on the new service. I beg to move.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 5:45 pm, 12th January 2015

My Lords, the noble Lord, Lord Bradley, sought a number of assurances about the funding of the guidance and the knock-on effects that this will have on CABs. The Treasury is committed to the provision of high-quality guidance from the start. It has the power in line 12 of page 65, in proposed new Section 333B:

“The Treasury must take such steps as they consider appropriate to ensure that people have access to pensions guidance”.

Given that when we say “pensions guidance” we mean high-quality pensions guidance, that means that there is a legal requirement on the Treasury to will the means as well as the ends.

In terms of the scale of the challenge ahead, we estimate that approximately 300 guidance providers are going to be required, including the CABs, the telephone appointments and the website, and we are actively recruiting them. The funding that the CABs are getting is the subject of continuous discussions between the Treasury and the CABs. I gather that, for the moment at least, the CABs feel that that they are getting the resources they need to do the job that they have been asked to do without any deflection of their core grant and without there being any requirement to fund this from other sources of income that they receive. That is very much the Treasury’s intention behind the whole approach to the scheme.

There has been start-up funding, which the CABs and the other guidance providers have been receiving. The £20 million development fund was announced in the Budget, of which a £10 million advance was approved by Parliament last July to cover preparatory work, most of which is taking the form of grants to the delivery partners. As I said earlier this afternoon, we estimate that there will be a cost of £35 million in the next financial year, and the Treasury is committed to increasing the amount that is made available if the demand for the service warrants it. I hope that, with those assurances, the noble Lord will feel able to withdraw his amendment.

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

I am grateful to the Minister for his response. I certainly would have liked to be a fly on the wall in the negotiations between the CABs and the Treasury to see where they were both coming from as their starting point, let alone where they ended up. I am grateful for the assurances that the Minister has given regarding other funding streams for the CABs and the funding for this service. Clearly, none of us wants to get into a situation where the CABs have to prop up the service by use of their invaluable volunteers, who do excellent work within citizens advice bureaux but obviously would not have the expertise, knowledge or training to undertake this work. It is therefore crucial that the activities are separated in that way. However, with those assurances from the Minister, I beg leave to withdraw the amendment.

Amendment 36 withdrawn.

Amendment 37 not moved.

Amendment 38 had been withdrawn from the Marshalled List.

Amendments 39 and 40 not moved.

Amendment 40A

Moved by Lord Bradley

40A: Schedule 3, page 71, line 40, at end insert—

“( ) The FCA must secure an appropriate degree of protection for consumers whether they have used pensions guidance or otherwise throughout the decision-making and purchasing process, including safeguards to actively inform consumers of key risks and benefits.”

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

My Lords, this amendment is on the specific issue of second line of defence. We have had some debate on this matter, including the excellent contribution from the noble Baroness, Lady Greengross, on her amendments. However, this amendment places a specific requirement on pension providers to make an active intervention to ensure that they help savers when accessing their DC pension pots to ensure that they get the advice or guidance they need, check that the products are appropriate for them, and have taken into account the tax implications, their partners, lifespan and other matters relevant to planning for their retirement. As we have heard, this has been called the second line of defence.

The need for it has been identified by the Financial Conduct Authority, which released two long-awaited reports—its thematic review of annuity sales practices and Retirement Income Market Study: Interim Report. The reports show continued failure in defined contribution pension providers’ treatment of existing customers, even after three separate investigations between 2006 and 2014. It is time for the FCA to take action before the “freedom and choice” reforms go live in April this year. The findings of the reports make unhappy reading. Perhaps my noble friends will not be surprised by this because we have been there before. It is worth summarising the key findings, which make the case for our amendment.

The thematic review updates the analysis in the FCA’s February 2014 report. Its key findings are, first, that, 60% of retirees,

“were not switching providers when they bought an annuity, despite the fact that around 80% of these consumers could get a higher income on the open market”.

Secondly, an estimated 91% of people with medical conditions could get a higher income on the open market through an enhanced annuity. Thirdly,

“firms’ sales practices are contributing to consumers not shopping around and switching … and missing out on a potentially higher income in retirement as a result”.

Lastly, the study found non-adherence by pension providers to the ABI code of practice. The FCA concludes that its findings clearly highlight that firms need to make improvements in relation to how consumers are informed about shopping around for enhanced annuities.

The key findings of the interim Retirement Income Market Study are that,

“competition in the retirement income market is not working well for consumers … many consumers are missing out on a higher income by not shopping around for an annuity, and some do not purchase the best annuity for their circumstances”.

The FCA economic analysis shows that,

“for people with average-sized pension pots, the right annuity purchased on the open market offers good value for money relative to alternative drawdown strategies”.

It also found that:

“Consumers’ tendency to buy from their existing pension provider weakens”, competition. The FCA’s consumer research confirms that,

“pension savers display well-known biases, such as a tendency to under-estimate longevity, inflation and investment risk”, which make them vulnerable to being sold products that do not best meet their best interests. This research also finds that the choices that savers make are highly sensitive to “framing”, and how options are presented will affect decisions they make. The introduction of greater choice and potentially more complex products will,

“reduce consumers’ confidence and appetite to shop around”, and thus weaken the competitive pressure on providers to offer good value in this market.

What should be the remedies and next steps? The FCA is continuing to monitor the market and is expected to publish a final market study report in the first quarter of this year. It is also seeking views on five proposals it hopes to take forward in 2015. These are to: first, require providers to show how their quotes compare relative to other providers on the open market, including quote comparison; secondly, develop plain-English pensions guidance services and tools to support consumers’ decision-making; and thirdly, develop an alternative to the current pre-retirement “wake-up” packs sent by pension providers to their customers in the run-up to their stated retirement date. They are,

“too long, difficult to navigate and full of jargon”.

Next, the FCA proposes in the longer term, to develop a “Pensions Dashboard” to,

“enable consumers to view all of their lifetime … savings … (including the state pension entitlement) in one place”.

Finally, the FCA proposes to,

“continue to monitor the market as it evolves using a combination of consumer research, market data and”, ongoing regulatory supervision. This will need to monitor for the likelihood of “pensions liberation” and other scams targeting consumers at retirement.

We have in this Chamber on too many occasions examined how the FCA and other bodies are attempting to drag this financial sector kicking and screaming to act in the best interests of its savers rather than those of their shareholders. The two FCA reports are a further damning indictment of the industry. The FCA proposals, in my view and that of my noble friend Lord McAvoy, help to support the amendment but in themselves are not enough.

In Committee in the Commons, expert witnesses including Dr Ros Altmann, consumer advocates from Age UK and the Financial Services Consumer Panel, and ABI representatives all called for the FCA to introduce a second line of defence, as did other reputable bodies such as Just Retirement. We are persuaded that this is the right course of action. Our amendment will require pension providers to actively ask savers seeking to access their pension savings whether they have considered the most important risks. This could typically include whether their decisions will mean they increase their income tax, outlive assets or run out of money, miss out on guaranteed annuity rates from the existing company, provide benefits for a spouse or other persons on death, miss out on additional income resulting from medical conditions or lifestyle factors, protect savings and income from inflation, purchase an uncompetitive product, or pay an exit charge that could be avoided. All these are crucial matters that need to be properly regulated, and they are part of the amendment for our second line of defence. The FCA could incorporate this through the introduction of a conduct regulation or by issuing FCA conduct guidance for providers to specify their responsibility for actively raising the risks that I have just outlined.

If we do not take this opportunity to act on the evidence contained in these two FCA reports and require changes to be made, we will further undermine consumer confidence in the pensions financial sector and the principles upon which this series of pension reforms are based will be undermined. We will not encourage people to save for their old age; we will not achieve fairness across generations; and it will lead to increased cost to the taxpayer. For all these reasons I commend this amendment to the House.

Photo of Baroness Drake Baroness Drake Labour 6:00 pm, 12th January 2015

My Lords, this amendment sets out a duty on the Financial Conduct Authority to protect savers accessing their pension savings during the actual decision-making and purchasing process, as distinct from a duty to protect savers receiving guidance from designated guidance providers. In particular, the amendment sets out that the FCA should require pension providers to take active, not just passive, steps to check that people are made aware of the factors that will impact their decision.

I will begin by highlighting the problem that drives this amendment. Steve Webb, the Pensions Minister, commented at the end of the Public Bill Committee sessions:

“To be clear, if we thought everything was fine in the world of retirement income choices the FCA would not be doing a thematic review of annuity sales practices or a retirement income market study … those studies are being undertaken because we are aware that there have been problems in this market. We are prepared to introduce further measures, if that is what the studies suggest”.—[Official Report, Commons, Pensions Schemes Bill Committee, 4/11/14; col. 309.]

I believe that that is exactly what those two studies suggest. Since the Bill arrived in this House the FCA has in fact delivered its two reports: the thematic review of annuity sales practices and the interim report on the retirement income market study. Perhaps I may capture the essence of what it reported.

The review found that annuity sales practices were contributing to consumers not shopping around, buying the wrong type of annuity or missing out on a potentially higher income. The consumers’ tendency to buy from their existing pension provider weakens competition. The FCA identified the non-adherence by providers to the ABI’s own retirement choices code. In fact, the ABI urged the FCA to replace its code with regulation because it recognises that with the new freedoms more needs to be done.

As to the FCA retirement income market study, that was initially focused on how to get competition working more effectively for consumers; but following the Budget the emphasis was shifted towards looking at how market conditions might evolve from the advent of the reforms in April 2015. Its interim report suggests that consumers will be poorly placed to drive effective competition; that the retirement income market is not working well; and that the introduction of greater choice and potentially more complex products will reduce consumer confidence and weaken the competitive pressures on providers to offer good value.

Even after repeated analysis of these issues by the Treasury, the FSA, the FCA and others over a period of six years, and just three months away from the introduction of major reforms to the UK pensions framework in April 2015, too many consumers are still being failed by their providers. As my noble friend commented, the FCA research confirmed the well known biases that savers reveal that make them so vulnerable to being sold products that do not best meet their needs, and that the choices consumers make are strongly influenced by how options are presented to them. Martin Wheatley, the FCA CEO, said in a recent interview—published just this weekend—that the timescale to deliver the new freedoms and design suitable products was challenging; providers have been struggling to complete proper due diligence testing on their products.

Turning to the savers, the new freedoms bring with them an even greater onus on individuals to make an active decision about what to do with their pension pot. It is very important, therefore, that consumers are well placed to make decisions that are in their interests. We know the challenges to achieving this: provider behaviour; product design and complexity; savers’ behavioural biases; and financial capability. The noble Baroness, Lady Greengross, is president of the International Longevity Centre, whose new report on making the system fit for purpose reveals the extent of the limited knowledge of savers about relevant products and services, despite the new freedoms being just three months away.

The guidance guarantee is a key policy measure for helping people to navigate the complex retirement options arena from April 2015. I know that there are people working very hard to make its delivery a success. I certainly want it to be successful, as it will provide a very important service to savers. In support of that guaranteed guidance the FCA has confirmed that it will expect providers to check whether a customer has used the guidance service and encourage them to do so if not. It has also recommended that the pensions guidance service incorporates tools to support consumer decision-making. This provides a first line of defence against consumer detriment. The provision of guidance is extremely important, but what the customer does with the guidance also matters. The success of guidance can be achieved only by the whole industry working together. Some people will choose not to take the guidance even if encouraged by their provider.

The Government are very dependent on market behaviour to ensure the success of the new freedoms. Beyond guidance, the saver has to move into the process of making a decision and selecting or purchasing a retirement income route. It is what happens at that stage—the exchange between the consumer and the provider—that is causing so much anxiety.

This amendment is directed at that exchange between the provider and the consumer and puts a duty on the FCA to secure an appropriate degree of protection for the consumer at that stage. That is what is popularly referred to as the second line of defence, to mitigate the risk that savers make detrimental and irreversible choices. After the pension provider has asked the customer whether they have accessed guidance, it should be required to make active interventions, not just the current passive and paper-based disclosures. The FCA reports show that these are clearly failing savers, particularly where they buy a product from their existing provider through inertia, rather than making an active choice. The FCA should require pension providers to take active steps to make people aware of factors passively referred to in the literature and key facts documentation, by asking key questions of the consumer to highlight such matters as the potential impact of health, income tax, dependants, longevity, investment risk and income needs though retirement. That will highlight factors whose impact can lead to poor choices if overlooked.

The FCA analysis, as my noble friend said, revealed that the take-up of enhanced annuities because of health factors by those who remained with their existing pension provider was just 5%, while for those who shopped around the take-up was 50%. That is strong evidence that consumers need an active prompt to consider factors that have a bearing on their incomes in retirement. It is all the more important because decisions on pension savings can be irreversible. This Bill and the Taxation of Pensions Act create unprecedented options for retirees, so the passive approach is no longer sufficient.

The FCA is expected to publish its final market study report in early 2015. It is consulting on certain proposals, as my noble friend detailed, and it will continue to monitor the market. However, this is a reactive approach, waiting to see what problems emerge, and the amendment is underpinned by the belief that prevention is preferable to later cure. With around 400,000 consumers expected to access the new pension freedoms in 2015, yet another review may be required without the additional protections proposed in the amendment, to discover why thousands of pension savers did not make good decisions or get good value for money.

The amendment would introduce a general duty on the FCA and allow protections in time for April 2015, but it would not prevent the Government setting such other further requirements as they considered appropriate in the light of how the retirement market evolved. As the noble Baroness, Lady Greengross, stated when moving her amendment, consumer advocates, industry groups, providers and members of the Work and Pensions Committee have all expressed concerns that, without a second line of defence, mis-selling and poor decisions remain a key risk.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Communities and Local Government)

My Lords, I support the amendment and have added my name to it. As we have heard, it is about placing a duty on the FCA to set regulations for pension providers to deliver adequate protection for consumers—the second line of defence. However, having heard the contributions of my noble friends Lord Bradley and Lady Drake, I find myself with nothing further to say. I could go through some partial repetition but I think that, in the circumstances, I will desist.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I thank all noble Lords who have spoken on this amendment, and perhaps particularly the noble Lord, Lord McKenzie of Luton.

The amendment relates to the FCA’s duty to secure an appropriate degree of protection for consumers making a decision about their retirement income, with or without guidance. It is important to recognise that, as noble Lords have said and as was mentioned in a previous debate today, not all individuals will seek to take up the guidance offer, and that is their choice. I agree with noble Lords that, whether a consumer has taken guidance or not, they should be assured of their protection in the financial services market and be furnished with the right information to make an informed choice. I completely accept the point made by noble Lords —and as demonstrated in the FCA’s market studies—that in the past this has often not been the case.

First, the FCA is a relatively new body with new powers. I assure noble Lords that it has a duty to ensure that the retirement income market is working for consumers. That is captured under its statutory objectives, including its objective to secure an appropriate degree of protection for consumers in this market, which already extends across retail financial services markets. The FCA has specifically committed to closely monitor how the retirement income market develops and to take action where appropriate. It has broad powers to take action if there is evidence of mis-selling of products that are clearly inappropriate for consumers. It also has product intervention powers, which allow it to ban features of products or require products to be sold with certain protections or restrictions in place.

It is also important that consumers have the right fundamental information that they need to inform their choices, whether they take guidance or not. For those who choose not to take up the offer of guidance—the amendment is about people who choose not to take up the guidance; the issues raised here will be covered in the guidance sessions—the FCA’s rules, which it recently consulted on, in respect of these pension changes will require firms to provide a description of the possible tax implications when people apply to access their pension fund. The FCA has also made it clear that firms can question a customer’s decision where they feel it is inconsistent with their circumstances without fear of overstepping the boundary into regulated advice.

As noble Lords have pointed out, the FCA has committed to reviewing all its rules in the first half of this year. I assure noble Lords that it is considering what additional consumer protections should be put in place to support people making choices about their pension savings and the implications of those different choices. This is not simply a reactive approach; the FCA is doing this in the light of the work that it has already done and in the light of its extensive understanding of the market.

This debate highlighted an important issue of FCA protection. I hope that I have been able to assure noble Lords that not only does the FCA already have a duty to secure an appropriate degree of protection for consumers, regardless of whether they have used the Pension Wise service, but it has the appropriate powers to fulfil this duty without this amendment. Its attention is suitably focused on the development and treatment of consumers in the retirement income market. I hope that the noble Lord will therefore see fit to withdraw his amendment.

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health) 6:15 pm, 12th January 2015

First, I thank my noble friends Lady Drake and Lord McKenzie for their excellent contributions, which are welcomed on both sides of the Committee. There is a strong feeling that it is very important that the second line of defence, as put forward in our amendment, is part of the Bill.

While I am grateful to the Minister for his comments, I feel that there is a degree of complacency in his response. We obviously recognise that the FCA is a new body and that its work is unfolding. However, there is a rather greater degree of urgency about the matters that we have placed before the Committee in the light of the fact that these new provisions for freedom and flexibility come into force in just a few weeks’ time. We do not want to be in the position where there is not complete confidence in the market and where all the relevant matters have not been taken into account with guidance and, through our amendment, a second line of defence to give absolute certainty to the public that the market which they will be moving into is operating in their best interests.

We need to reflect very carefully on what the Minister has said and on the fact that the public seek those assurances and want that second line of defence in legislation to underpin that confidence. For now, I beg leave to withdraw the amendment, although we may well return to this matter at a later stage.

Amendment 40A withdrawn.

Amendments 41 to 44

Moved by Lord Bourne of Aberystwyth

41: Schedule 3, page 74, leave out line 35 and insert “, and survivors of members of the scheme, with subsisting rights in respect of any flexible benefits.”

42: Schedule 3, page 74, line 44, leave out “with a right or entitlement to flexible benefits” and insert “, and survivors of members of pension schemes, with subsisting rights in respect of any flexible benefits.”

43: Schedule 3, page 75, line 10, at end insert—

““subsisting rights” has the meaning given by section 74 of the Pension Schemes Act 2014;

“survivor” has the meaning given by section 74 of the Pension Schemes Act 2014.”

44: Schedule 3, page 78, line 1, leave out “with a right or entitlement to flexible benefits” and insert “, and survivors of members of the scheme, with subsisting rights in respect of any flexible benefits”

Amendments 41 to 44 agreed.

Schedule 3, as amended, agreed.

Clause 48: Independent advice in respect of conversions and transfers: Great Britain

Amendment 44A

Moved by Lord Bradley

44A: Clause 48, page 20, line 16, leave out “appropriate independent advice” and insert “independent advice from an appropriate person”.

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

In moving this amendment to Clause 48, I will soon be moving back to government Amendments 45 and—

Photo of Baroness Fookes Baroness Fookes Deputy Chairman of Committees, Deputy Speaker (Lords)

Perhaps I may interpolate. The groupings list is slightly in the wrong order. I have been following the correct order as it appears in the Marshalled List.

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

I am grateful for that clarification as, I am sure, is the whole Committee. In moving Amendment 44A I shall speak also to Amendments 47 and 48.

At this Committee stage, we have tabled amendments on all the recommendations of the Delegated Powers Committee. The Government will either accept the recommendations of that committee or put on record why they do not believe that the delegated power in question requires the affirmative procedure. That is what our amendments in this group do. The Delegated Powers Committee recommended that the power in Clause 48(3) be subject to the affirmative procedure as the power contained in it is, to quote from the report, “very significant”, not only in the context of Clause 48 but for the purpose of Chapter 2 of Part 4 as a whole. That is a very fair summary. The power enables the Secretary of State to provide for exceptions from the need to seek independent advice, which is central to ensuring that someone in a defined benefits scheme, for instance, is adequately informed of the risks and rewards of transferring out in order to access their pensions.

The power in Clause 48(7) is equally fundamental, giving as it does the Secretary of State the power to define what counts as “appropriate independent advice”. Our amendment is designed to probe exactly what would be meant by “appropriate independent advice”. Will the scheme trustees or managers be required to assess the appropriateness of the advice received—that in the circumstances of the particular scheme member the recommendation is the right one and transferring out will not harm their chances of having a good requirement income? The alternative is that the scheme trustees or managers will have to check that the advice received by the scheme member comes from someone appropriate who is regulated by the FCA. Our amendment gives the Government the chance to clarify that point. The difference in responsibility and cost is obviously significant.

I acknowledge that the Minister has already been kind enough to write to me, for which I am grateful, and the Government’s response to the Delegated Powers Committee has made it clear that the definition of “appropriate independent advice” will be through a regulation that is subject to the affirmative procedure, although as a consequence not directly part of the primary legislation in this Bill. None the less, it would be very helpful if the Minister could put on record the likely content of the regulation and give as many details as he is able to about it so that it addresses the issues I have raised in the amendments.

Can the Minister also give the Committee an update on the likely timing of that regulation? The response to the Delegated Powers Committee on 6 January says that it is likely to be “in the new year”. Given that it also says that it has to be in place by April, we are safe to assume that the new year does not mean January 2016. However, it would be helpful if the Minister could say when that regulation is likely to be laid so that there can be proper scrutiny of it. I beg to move.

Photo of Baroness Drake Baroness Drake Labour

My Lords, I had not intended to speak on this amendment but I should like to support my noble friend in his probing. As a pension trustee, I deal with these requests for transfers for a cash equivalent value from DB to DC schemes. I think I dealt with two this morning. As someone with a fiduciary duty—when I see the scale of what can be transferred—they keep me awake at night. What I had to sign off this morning made me think that I should take the opportunity to reinforce my noble friend’s concern.

I am sure that demand for these transfers is already rising in anticipation of the new freedoms that will flow from April 2015. I am concerned. We have already seen problems such as pensions liberation. We can talk about the FCA and the regulated industry, but what unregulated charlatans and scoundrels are waiting in the wings to encourage people to transfer their funds and access their freedoms? As someone who has been a trustee for about 27 years—dreadful I know—I have seen the personal pensions problem, the cash accounts transfer values and the pension liberation scams. I have watched these things from the perspective of a trustee. I have a real fear that this is a car crash waiting to happen unless it is properly regulated.

Two adjectives go with advice: “independent” and “appropriate”. Independence is easy to define, in a way, because it has a regulatory definition. What is really important is what is appropriate. As a trustee I would want to know what the Government think is the appropriateness of the advice people have received when they make applications to the schemes of which I am a trustee for such a transfer.

I read the response to my noble friend Lord Bradley on the Delegated Powers and Regulatory Reform Committee’s report and my reading of that letter is that the Government are on the case. That would be great, and if they are I want to say positive things and encourage the Minister to deal with this robustly, because it is a car crash waiting to happen. It is not just a matter of the big defined benefit pots. If you are on quite a modest income and are lucky enough to have a DB scheme, then even if your pension is going to be about £4,000 a year that will translate into a really big pot of cash—a pot of cash such as you may not have seen before—leaving you quite vulnerable. I can see from the letter to my noble friend Lord Bradley that the Government are on the case. I urge them to stay on the case.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, these amendments give expression to the recommendations of the Delegated Powers and Regulatory Reform Committee concerning Clause 48. Amendments 47 and 48 make the regulations under subsections (3) and (7) subject to the affirmative procedure. Amendment 44A narrows the power taken in Clause 48(7) in such a way that regulations could not be made setting out the nature of appropriate advice but would instead focus on the characteristics of an appropriate person. As the noble Baroness has just pointed out, my colleague Steve Webb, the Minister for Pensions, wrote to the noble Baroness, Lady Thomas, chair of the Delegated Powers and Regulatory Reform Committee, acknowledging the committee’s concerns, providing a commitment to address them as far as we can and explaining why we were unable to accept the committee’s exact recommendations. The letter details alternative ways in which we will be able to address the concerns of the committee and the House. As Amendments 47 and 48 implement the committee’s recommendations, the government response is along similar lines to the letter, which can be found in the Library.

Regulations under subsection (7) of Clause 48 of the Pension Schemes Bill will set out the definition of “appropriate independent advice” that underpins the advice safeguard. We recognise the concerns about the lack of the definition of appropriate independent advice in the Bill. In the response document to the consultation on freedom and choice in pensions, we set out that appropriate independent advice would be delivered by an adviser who is authorised by the FCA. In response to the concerns expressed by the Delegated Powers and Regulatory Reform Committee and in Amendment 48, we are now looking into bringing forward an amendment to Clause 48 on Report to provide more detail about the meaning of appropriate independent advice in the Bill.

Our intention is to define appropriate independent advice in regulations by reference to activity regulated by the Financial Conduct Authority. To facilitate this, the Treasury intends to legislate to add a new activity to the FCA’s regulated activity order. This will be done by means of a statutory instrument amending the Financial Services and Markets Act (Regulated Activities) Order 2000. We do not think it is appropriate to refer to subordinate legislation which has yet to be made in the Pension Schemes Bill but this statutory instrument, which we intend to lay later this month, will be subject to the affirmative procedure.

In order to ensure that the definition in the Bill fits with any definition in the regulated activity order, we will still need to leave at least some of the detail of the definition in Clause 48 to regulations. We think it is appropriate that such regulations be subject to negative procedure, especially if the parameters of the definition can be expanded upon in the Bill. We do not think, however, that it would be appropriate for these amendments to require the regulations to become subject to the affirmative procedure as this would mean they would not be in place by April this year, when the flexibilities come into force. Schemes would then find themselves subject to a requirement that was legally uncertain and there would be no effective advice safeguard in place to protect members or survivors.

Subsection (3) of Clause 48 provides for regulations to be made which set out exceptions to the appropriate independent advice safeguard. We set out in the consultation response document on freedom and choice in pensions, published in July last year, that we intended to exempt those with pensions wealth below £30,000 from having to obtain advice if they wished to transfer safeguarded benefits. This remains our only intended use of the exemption. However, once the new flexibilities come into force, it may prove necessary to create an exemption for other special circumstances.

The exemption threshold of £30,000 and below will need to be adjusted and up-rated over time and therefore we feel the affirmative procedure would not be suitable. However, in response to the concerns raised by the Delegated Powers and Regulatory Reform Committee report, we are looking into bringing forward an amendment on Report to subsection (3) to ensure that exemptions to the advice safeguard, other than for members with small amounts of safeguarded benefits, would be subject to the affirmative procedure. This would ensure that the House had the opportunity to scrutinise any other exemptions that are required to the appropriate advice safeguard.

We understand that Amendment 44A proceeds from nervousness in the industry that under this new safeguard trustees or managers might have to examine the advice that has been provided to their members, as opposed to simply checking that the advice has been received. I can assure the House that it is not our intention that trustees or managers should have to evaluate the content of the advice or check its quality.

We recognise the concerns about the lack of detail in the Bill with regard to the definition of appropriate independent advice. I have already mentioned that we are now looking into bringing forward an amendment to Clause 48 on Report to provide more detail about the meaning of appropriate independent advice in the Bill. The approach suggested in Amendment 44A is useful to us in our considerations about the amendments we are considering to clarify the nature of the advice. We will therefore consider Amendment 44A but regret that we are not in a position to accept it at this stage of the Bill in its current form.

The concerns expressed by Amendments 44A, 47 and 48 and by the Delegated Powers and Regulatory Reform Committee are understandable. However, I hope noble Lords are reassured that I have been able to offer enough to address them and that Members appreciate that it is not in the interests of the consumer or the industry for the tax flexibilities to come into force without a meaningful, clear and effective advice safeguard coming into force alongside them. We will therefore be considering this further and, as such, I ask the noble Lord not to press the amendments given the planned forthcoming government amendments.

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health) 6:30 pm, 12th January 2015

I am grateful to the Minister for that detailed and rapid response to the amendments. It will require careful reading to ensure that we fully appreciate all the issues that he has laid out to the Committee. The key element I should be pleased about is that Amendment 44A will be reflected upon by the Government as they devise their own amendments to be brought back on Report, which I understand is currently scheduled to be within a couple of weeks or so. There is some urgency that there is that clarification. However, with that assurance and in the light of being able to look at that within the context of the other matters raised in the amendments, I beg leave to withdraw the amendment.

Amendment 44A withdrawn.

Amendment 45

Moved by Lord Newby

45: Clause 48, page 20, line 20, after “acquiring” insert “a right or entitlement to”

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, at Second Reading my noble friend Lord Bourne explained that there was a need to define flexible benefits due to differences between pensions and tax legislation regarding money purchase benefits. The definition of flexible benefits contains three elements. These are: money purchase benefits; cash balance benefits; and a third category of benefit which is not money purchase or cash balance but is calculated by reference to an amount available for the provision of benefits. The most common form of benefit offered in this category relates to a pension with the option of a guaranteed annuity rate. It is to this third category that the amendments are primarily aimed.

Amendments 46 and 50 ensure that a scheme must check that a member has received appropriate independent advice before paying an uncrystallised funds pension lump sum from arrangements in the third category of flexible benefit, which includes guaranteed annuity rate pensions. Benefits within this third category offer a level of security of income akin to defined benefit arrangements. Guaranteed annuity rates were typically issued in the late 1980s and 1990s, their distinguishing feature being an enticement to customers promising that when they came to take these pensions, if they bought their annuity with the provider with which they had accumulated the pension, they would get an annuity rate specified at the point of purchase.

Due to the decline in annuity rates, the pensions these guaranteed annuity rate arrangements provide by means of annuities are especially generous. Therefore in the Bill they are given the same safeguarded treatment as a defined benefit pension. An individual should, in each case, understand what it is they are giving up before taking advantage of the new flexibilities. The Bill already requires a scheme to check that advice has been received before an individual transfers their rights from such an arrangement, or where a member converts their benefit into a draw-down arrangement.

Amendment 46 extends this protection to the circumstance where a member or survivor takes an uncrystallised funds pension lump sum. Clause 48 does not currently require this because taking such a lump sum does not constitute a transfer or a conversion. I must emphasise that these amendments only require that advice be taken before taking an uncrystallised lump sum in return for safeguarded benefits. It does not require that advice be taken on uncrystallised lump sums in any other circumstances.

Amendment 46 amends Clause 48, providing that this has effect for Great Britain. Amendment 50 amends Clause 51, making parallel provision for Northern Ireland. Amendment 103 defines uncrystallised funds pension lump sum by reference to the Finance Act 2004.

I recognise that these amendments are challenging to explain and understand but the effect is to make a small change that ensures that those with valuable benefits such as guaranteed annuity rates will be properly informed before deciding to give up those benefits. I therefore beg to move.

Photo of Lord McAvoy Lord McAvoy Opposition Whip (Lords), Shadow Spokesperson (Northern Ireland), Shadow Spokesperson (Scotland)

My Lords, I thank the Minister for his explanation of the amendments. “Challenging”is is one of the words that he used. I would like to challenge the thrust of what the Government are saying about these amendments. Although, strictly speaking, he has not used the words “technical amendments”, nevertheless they are in that category. I would like to probe a wee bit further and ask how the amendments came about. What advice was taken, what discussions took place and what organisations were in touch with Ministers to press this change? It could be argued—slightly tendentiously, but it could be argued—that this changes the Bill quite a bit. When did the Government decide to bring out this amendment whereby people with a guaranteed annuity rate pension would have to take advice? It has been a constant theme—not only previously but today in particular—that a number of amendments seem to be afterthoughts or a result of lobbying. It is a good thing in that these are very important issues and people are entitled to try to influence government. However, I would like to probe a wee bit further and ask what process was entered into that ended up with this amendment.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I agree with the noble Lord that the amendments are very technical at one level. However, they are not technical amendments; they are proper substantive amendments. They broaden the scope of the type of pension where people will be required to take advice. I will happily write to him if I can provide him with more details. I think that it simply became apparent to officials during the Bill’s passage that this was a potential—relatively small—market involving a type of pension lump sum that had not been covered in the way that had always been intended for this sort of thing. As we find with most Bills as they go through the House, the Government introduce amendments because they become apparent to officials as they do more work and to parliamentary counsel as it does more work. If there was anything more specific that led to these amendments, I will definitely write to him.

Amendment 45 agreed.

Amendment 46

Moved by Lord Bourne of Aberystwyth

46: Clause 48, page 20, line 21, at end insert—

“( ) paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.”

Amendment 46 agreed.

Amendments 47 and 48 not moved.

Clause 48, as amended, agreed.

Clauses 49 and 50 agreed.

Clause 51: Independent advice in respect of conversions and transfers: Northern Ireland

Amendments 49 and 50

Moved by Lord Bourne of Aberystwyth

49: Clause 51, page 22, line 10, after “acquiring” insert “a right or entitlement to”

50: Clause 51, page 22, line 11, at end insert—

“( ) paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.”

Amendments 49 and 50 agreed.

Clause 51, as amended, agreed.

Clauses 52 to 54 agreed.

Clause 55: Sums or assets that may be designated as available for drawdown: Great Britain

Amendment 51

Moved by Lord Bourne of Aberystwyth

51: Clause 55, page 25, line 1, after “pension” insert “, nominees’ drawdown pension or successors’ drawdown pension”

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth Lord in Waiting (HM Household) (Whip) 6:45 pm, 12th January 2015

My Lords, I now turn to a further group of amendments which make minor changes to the clauses dealing with draw-down of pension benefits.

The first set of amendments follows amendments made in Committee in the other place to what is now the Taxation of Pensions Act. The Taxation of Pensions Act will allow for payment of death benefits to nominees and successors of members in relation to money purchase arrangements. The Act makes provision for a nominees’ draw-down pension and a successors’ draw-down pension. These amendments make the changes to this Bill to reflect the introduction of these new types of draw-down pension. They amend Clauses 55 and 56 so that these types of pension are treated in the same way as a dependants’ draw-down pension. They also insert definitions of a nominees’ draw-down pension and a successors’ draw-down pension into Clause 74. Amendments to Clauses 60 and 61 do the same for Northern Ireland. The second set of amendments makes small changes to Clauses 72 to 74, which deal with the definition of terms used in Part 4 of the Bill. As I said, these amendments make minor changes. I hope that noble Lords will agree, and I commend these amendments to the House. I beg to move.

Photo of Lord McAvoy Lord McAvoy Opposition Whip (Lords), Shadow Spokesperson (Northern Ireland), Shadow Spokesperson (Scotland)

My Lords, I thank the noble Lord for his succinct exposition of the amendments. These are more in line with the phrase “minor and technical”. Nevertheless, I still make the point that there has been a barrage of amendments. We will study these carefully and, if necessary, do something on Report. I just make the point that we will be scrutinising them carefully.

Amendment 51 agreed.

Clause 55, as amended, agreed.

Clause 56: Provision about conversion of certain benefits for drawdown: Great Britain

Amendments 52 and 53

Moved by Lord Bourne of Aberystwyth

52: Clause 56, page 25, line 17, leave out “or”

53: Clause 56, page 25, line 17, at end insert “, nominees’ drawdown pension or successors’ drawdown pension”

Amendments 52 and 53 agreed.

Clause 56, as amended, agreed.

Clauses 57 to 59 agreed.

Amendment 54

Moved by Lord Bourne of Aberystwyth

54: After Clause 59, insert the following new Clause—

“Sections 55 to 57: consequential amendments

“(1) In section 101AI of the Pension Schemes Act 1993 (early leavers: cash transfer sums and contribution refunds - further provisions), in subsection (8)—

(a) in paragraph (a), after sub-paragraph (ix) insert—

“(x) section 55 of the Pension Schemes Act 2014;

“(xi) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;

(b) in paragraph (b), after sub-paragraph (vii) insert—

“(viii) section 55(3) of the Pension Schemes Act 2014;

“(ix) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”

(2) In section 67A of the Pensions Act 1995 (the subsisting rights provisions: interpretation), in subsection (9)—

(a) in paragraph (a), after sub-paragraph (viii) (inserted by section 45of this Act) insert—

“(ix) section 55 of the Pension Schemes Act 2014;

(x) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;

(b) in paragraph (b), after sub-paragraph (vi) (inserted by section 45 of this Act) insert—

“(vii) section 55(3) of the Pension Schemes Act 2014;

(viii) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”

(3) In section 318 of the Pensions Act 2004 (interpretation), in subsection (3)—

(a) in paragraph (a), after sub-paragraph (viii) (inserted by Schedule 2to this Act) insert—

“(ix) section 55 of the Pension Schemes Act 2014;

(x) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;

(b) in paragraph (b), after sub-paragraph (vi) (inserted by Schedule 2 to this Act) insert—

“(vii) section 55(3) of the Pension Schemes Act 2014;

(viii) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.””

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth Lord in Waiting (HM Household) (Whip)

My Lords, this group of amendments makes a number of small consequential amendments, all designed to ensure that the transfer provisions work as intended. The amendments are somewhat technical and I hope your Lordships will bear with me while I set out in a little more detail what they do.

Amendments 54, 63 and 64 are consequential on Clauses 55 to 57, which make provision in relation to drawdown. Clause 55 contains a provision that overrides scheme rules to the extent that there is any conflict. Clauses 56 and 57 also contain provisions allowing regulations made under them to override scheme rules to the extent that there is a conflict. The amendments make provision to insert a reference to Clauses 55 to 57 into the list of relevant legislative provisions for the purposes of the scheme rules definition in Sections 100B and 101AI of the Pension Schemes Act 1993—in relation to transfer—Section 67A of the Pensions Act 1995—in relation to members’ subsisting rights—and for the purposes of the Pensions Act 2004. Amendments 62, 67, 71 and 73 further ensure that the definitions of scheme rules in the 1993 and 2004 Acts also apply for personal pension schemes, taking account of any provisions that override these rules. These provisions are needed to ensure that the new overrides are taken into account in the existing legislation and so that it is clear what is meant by scheme rules where a provision has been overridden. Amendments 58, 63, 64, 77, 82 and 86 make provision for corresponding changes to Northern Ireland legislation.

I now turn to Amendments 59, 70 and 72. These make amendments to Schedule 4 to update existing cross-references to the transfer rights contained in the Judicial Pensions Act 1981, the Judicial Pensions and Retirement Act 1993, the Pensions Act 1995 and the Scottish Parliamentary Pensions Act 2009, so that they point to Chapters 1 and 2 of new Part 4ZA of the Pensions Schemes Act 1993. This will ensure that transfer provisions continue to operate as intended in conjunction with this Bill in relation to these pension schemes. This schedule also introduces identical provisions for Northern Ireland legislation in Amendments 76 and 87.

Amendments 60, 61, 68, 69, 75, 76, 78, 79, 83 and 84 amend Schedule 4 to make a number of minor and consequential changes to various sections of the Pensions Schemes Act 1993 and its Northern Ireland equivalent to ensure that the precise wording of the these sections operates as intended, now that a member’s statutory right to transfer will apply at benefit category level.

Finally in this group, Amendments 65 and 66 make small drafting amendments to new Section 100C of the Pension Schemes Act 1993 to put the meaning of “normal pension age” beyond doubt, with corresponding amendments for the Northern Ireland equivalent through Amendments 80 and 81. The amendments make minor and technical changes to the Bill which are important to ensuring that the legislation operates correctly. I beg to move.

Photo of Lord McAvoy Lord McAvoy Opposition Whip (Lords), Shadow Spokesperson (Northern Ireland), Shadow Spokesperson (Scotland)

My Lords, I make the point about minor and technical amendments again. We will study them carefully, although with less suspicion than those in other categories. However, I will just say that Amendment 54 takes up a full page on the Marshalled List of amendments. Again, it reinforces the image of things being hurried or missed out when an amendment of that length has to be moved. Having said that, we accept it as a minor and technical amendment.

Amendment 54 agreed.

Amendment 54A

Moved by Lord Bradley

54A: After Clause 59, insert the following new Clause—

“Drawdown funds: cap on charges

The Secretary of State may make regulations imposing a cap on the charges that may be imposed on members of flexi-access drawdown funds.”

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

My Lords, having listened to the Government’s amendments, I am tempted to say that this one is minor and technical and hope it will slip through on the back of that. However, it is not. On the first day in Committee, our first amendment on decumulation was an attempt to ensure that the Government did not lose focus on ensuring that all pension savers obtain a good deal when they look to turn their pension pot into a retirement income. In that instance, we wanted to protect savers from being defaulted into an annuity without a recommendation from an independent broker.

This amendment asks the Government not to lose sight of progress that has been made in getting a better deal for pension savers, despite the sweeping changes enabling freedom of flexibility in accessing pensions that will come into force this April. The cap that has been introduced on charges for work-based pension schemes of 0.75% a year has no equivalent in draw-down products, but from April a great many more savers—perhaps an estimated 320,000—will be using these products to get a retirement income. They should be protected from unfair charges. I repeat: they should be protected from unfair charges. It is welcome that NEST, the National Employment Savings Trust, has launched a consultation on draw-down products and how to ensure that middle and low-income earners have suitable and good-value products available to them. As the consultation rightly says:

“The solutions we as an industry develop over the next few years could determine 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”.

We have been clear throughout that welcoming the Budget freedoms is predicated on good solutions being available for savers in those income brackets, which we hope will happen. 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.

What is the evidence that this may happen in the decumulation stage for draw-down products? We already know that charges can be varied and opaque. The report from Which?, The Future of Retirement Income, points 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%”.

Our amendment would give the Secretary of State the power to address this. The report goes on to point out that the costs are not always clear to the consumer:

“There are also hidden costs, including bid-offer spreads, the cost of sub-funds within the main fund, platform charges etc. Where an actively managed fund is selected, there is a risk that high turnover (churning) would add significantly to the total cost due to the transaction costs involved”.

Remember, this is about a product that is likely to become a great deal more widespread from April. The report therefore recommends that the Government should consider the introduction of a charge cap on the DC decumulation market at the same time as this is made a requirement for auto-enrolment DC schemes.

No one can be quite sure how the market will develop after April, but if the Government do not want to put this in place now, accepting our amendment would give them the power to take action to prevent consumer detriment in a new market in an area that has not always served savers as well as it should. This seems to me to be a sensible step that will protect consumers and ensure that they are not subject to rip-off charges. In that spirit, I hope that the Government will accept this amendment.

Photo of Baroness Drake Baroness Drake Labour

My Lords, from April 2015, when people reach the age of 55, they will be able to access their defined contribution pension savings as they wish. That will essentially leave them with four choices: full withdrawal of cash, taxed at their marginal rate, less a 25% tax-free lump sum; some kind of income draw-down product, drawing down cash while leaving the remainder invested; taking uncrystallised funds pension lump sums; an annuity purchase; or any combination of the four.

We do not know how the market will evolve in light of the new unprecedented options for pension savers in terms of the retirement products that will be available and what their charges will be. However, we do know that the FCA thinks, first, that the new freedoms could weaken the competitive pressure on providers to offer good value, because people display even more inertia in the face of complexity; and, secondly, that providers have been struggling to complete proper due diligence testing on new products because of the tight timetable. We do not have clarity as to the Government’s thinking on the charges, quality standards and transparency requirements for retirement income products going forward.

There is a significant risk that some individuals will be overtaxed because, in the face of complexity, people will get security from putting their savings in the bank. As the Strategic Society Centre suggests, instead of trying to understand the complexities of various retirement income products, people may choose to put their money into easy-access savings accounts which do not commit them to any course of action. Individuals can take 20% of their DC pot as tax-free cash and the rest at the marginal rate of tax, but an International Longevity Centre survey suggests that people do not understand the term “marginal tax rate”, and that this could result in them facing a significant tax bill, generating less income for their retirement. This may boost government tax revenues but it will also result in individuals having less to live on in their retirement. I fear that those with modest savings pots will be more vulnerable to being overtaxed than the confident, wealthier saver who can afford ongoing advice—a fear shared in a recent report by the Pensions Policy Institute and, indeed, by the FCA.

An article in today’s FT refers to Channel 4’s “Dispatches” programme and to research by industry analysts that estimates that about £6 billion of cash—three times the government estimate of £2 billion—will be taken out of pension pots following the introduction of the new freedoms. The CEO of the FCA, Martin Wheatley, said in an article last weekend:

“The beauty of an annuity is at least you make a decision. Faced with complexity … we prevaricate or put it off. And then we rely on very simple stimulus, so if someone says you can have £1,000 in the bank tomorrow if you make a decision, people are going to make snap judgements”.

He added:

“The worry is not those with the largest pots, but those with a £20,000 pot when the cost of providing advice may be excessive relative to the pot size”.

In the face of that risk, the availability of well regulated, low-cost, low-risk ways of accessing pension savings efficiently on an income draw-down basis or through uncrystallised funds pension lump sums and reforms to the annuity market become even more important, particularly for lower and moderate earners.

The Government have set a 0.75% charge cap for auto-enrolment default investment funds but there is no cap for retirement income products. The cost of income draw-down and the charges will come under intense scrutiny and fierce debate. The FCA market review has revealed that charges in these products can be high. Yet retail income draw-down products will not be scrutinised by the independent governance committees that have been put in place within the pensions industry. These products are not risk-free; savings remain invested. As these products become more of a mass market, I expect future savers to react to investment falls, charges and spending cash far too quickly.

The FCA’s head of investment, David Geale, speaking to the Public Bill Committee, has already highlighted the risk of draw-down under the present range of products for those with pension pots worth less than £50,000. He added that,

“there is no reason why over time flexible access products need to be poor value for money or to represent a high element of risk”.

But he acknowledged that,

“we will see how the market develops”.—[ Official Report , Commons, Taxation of Pensions Bill Committee, 11/11/14; col. 10.]

If the evolving market starts to offer non-advised income draw-down products, particularly for those with smaller pots, the need for controls over charges becomes even greater. A key emerging issue is whether after April 2015 there will be income draw-down products suitable for modest-income pension savers. Because of the potential risks and costs to the consumer, the Government should take the initiative by embracing a power within the Bill to impose a cap on the fees and charges in a core of flexi-access draw-down products that could be readily available to ordinary pension savers.

Uncrystallised funds pension lump sums—a catchy little title for a measure that will allow people to keep drawing lump sums from uncrystallised pension funds, with 25% of each sum tax-free and the remainder being taxed at their marginal rate, without having to crystallise the whole pension pot—are intended to form the basis of the Government’s pension bank account concept. It is a good concept but who will provide them? Employers may be reluctant to provide the facility through their company schemes. On the contrary, they seem increasingly inclined to ask ex-employees and pensioners to move their savings out of the company scheme. Therefore, it is likely to be industry providers that provide such a product. But what will their fees be for looking after people’s money and what will they charge every time someone takes money out of their pot? The amendment allows the Government to take the initiative to set a cap on the fees and charges that can be imposed by those providing access to uncrystallised funds pension lump sums—it is quite hard to say—so preventing poor value.

The pension freedoms in the 2014 Budget still require a properly functioning annuities market and we will inevitably return, I believe, to a political recognition that it is in the national interest to have one. The ILC report has a section headed:

“The catastrophic costs of taking money out of the pension and putting it into a savings account”, which concludes that if individuals tried to use their ISA to give them a comparable retirement income to an annuity, many would run out of money long before they died. Will the market promote a more flexible portfolio of annuities, such as deferred or fixed-term annuities? A lack of annuity contract standardisation has rendered price comparison websites ineffective and unfair sales practices have deprived pensioners of significant income. The open market option has not worked—perhaps it is time to look at more radical options.

There is not time to meet all the challenges associated with the new freedoms in pensions before April 2015—this is work in progress for some time to come. But it is the right time to recognise that the Government should be given the powers to regulate and control the charges and the quality standards of these products. The pension freedoms announced in the Budget trust savers to make the right choices, but those right choices will not occur solely as a function of trust in the consumer; they require good behaviour by the providers. The Government have enshrined in statute the power to set quality standards and control charges in the market during the accumulation stage. This amendment would give the Government the ability to exercise such controls also on retirement products during the decumulation phase.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth Lord in Waiting (HM Household) (Whip) 7:00 pm, 12th January 2015

My Lords, I thank the noble Lord, Lord Bradley, for moving the amendment and the noble Baroness, Lady Drake, for her contribution.

The Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. The Government’s announcement of a charge cap on default funds in pension schemes used for automatic enrolment—which, subject to the approval of noble Lords, will come into effect in April—amply demonstrates that commitment to act. However, I am pleased to be able to reassure noble Lords that this amendment is not necessary. 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.

Similarly, the Financial Services and Markets Act 2012 gave the Financial Conduct Authority wide-ranging product intervention powers. Under these powers, the Financial Conduct Authority also has the ability to cap charges on draw-down products, including flexi-access draw-down funds where these are offered by insurance companies. These existing powers cover all the institutions which could offer such draw-down arrangements.

I also reassure noble Lords that the Government and regulators are, as has been indicated, monitoring the development of new retirement income products, including the next generation of draw-down products, very closely indeed. In the publication of provisional findings from its retirement income market study, the Financial Conduct Authority has specifically committed to monitor how the retirement income market develops and to take action where appropriate if it sees sources of consumer detriment arising or if competition is not working properly in the market. In addition, again as mentioned earlier, the Financial Conduct Authority has also committed to undertake a full review of its rules in relation to the retirement income market which will commence in the first half of this year.

Therefore, while the Government share the concerns that have been expressed about member-borne charges, we believe that this amendment is not required. I therefore hope that the noble Lord will withdraw this amendment.

Photo of Lord Bradley Lord Bradley Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Health)

I thank the Minister for his response and the noble Baroness, Lady Drake, for her very important contribution to this debate. I am pleased that the Government recognise that this is an issue and that the purpose of this amendment is entirely to protect the consumer in this matter. I hear the Government’s assurance that the powers to act already exist. What we all want to ensure is that the Government do actually act if it does turn out to be the case that excessive charges above what would be a reasonable capped level of such charges actually come into existence as new products come on to the market.

If the Government are right that this amendment is not necessary, the test will be that they actually act in the interests of consumers in a timely way to ensure that they do not suffer the rip-offs that they have in the past in other circumstances. With those assurances, I beg leave to withdraw the amendment.

Amendment 54A withdrawn.

Clause 60: Sums or assets that may be designated as available for drawdown: Northern Ireland

Amendment 55

Moved by Lord Bourne of Aberystwyth

55: Clause 60, page 27, line 18, after “pension” insert “, nominees’ drawdown pension or successors’ drawdown pension”

Amendment 55 agreed.

Clause 60, as amended, agreed.

Clause 61: Provision about conversion of certain benefits for drawdown: Northern Ireland

Amendment 56 and 57

Moved by Lord Bourne of Aberystwyth

56: Clause 61, page 27, line 36, leave out “or”

57: Clause 61, page 27, line 36, at end insert “, nominees’ drawdown pension or successors’ drawdown pension”

Amendments 56 and 57 agreed.

Clause 61, as amended, agreed.

Clauses 62 to 64 agreed.

Amendment 58

Moved by Lord Bourne of Aberystwyth

58: After Clause 64, insert the following new Clause—

“Sections 60 to 62: consequential amendments

“(1) In section 97AI of the Pension Schemes (Northern Ireland) Act 1993 (early leavers: cash transfer sums and contribution refunds - further provisions), in subsection (7)—

(a) in paragraph (a), after sub-paragraph (vii) insert—

“(viii) section 60 of the Pension Schemes Act 2014;

(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;

(b) in paragraph (b), after sub-paragraph (v) insert—

“(vi) section 60(3) of the Pension Schemes Act 2014;

(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”

(2) In Article 67A of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (the subsisting rights provisions: interpretation), in paragraph (9)—

(a) in sub-paragraph (a), after head (vii) insert—

“(viii) section 60 of the Pension Schemes Act 2014;

(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;

(b) in sub-paragraph (b), after head (v) insert—

“(vi) section 60(3) of the Pension Schemes Act 2014;

(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”

(3) In Article 2 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)) (interpretation), in paragraph (4)—

(a) in sub-paragraph (a), after head (vii) insert—

“(viii) section 60 of the Pension Schemes Act 2014;

(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;

(b) in sub-paragraph (b), after head (v) insert—

“(vi) section 60(3) of the Pension Schemes Act 2014;

(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.””

Amendment 58 agreed.

Clause 65 agreed.

Schedule 4: Rights to transfer benefits

Amendments 59 to 86

Moved by Lord Bourne of Aberystwyth

59: Schedule 4, page 78, line 17, at end insert—

“Judicial Pensions Act 1981 (c. 20)

A1 In Schedule 1A to the Judicial Pensions Act 1981 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes Act 1993”.

Judicial Pensions and Retirement Act 1993 (c. 8)

B1 In Schedule 2 to the Judicial Pensions and Retirement Act 1993 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes Act 1993”.”

60: Schedule 4, page 78, line 31, at end insert—

“2A In section 24F (transfers out of GMP-converted schemes), in subsection (3), omit “guaranteed”.”

61: Schedule 4, page 81, line 30, at end insert—

“( ) In subsection (2), in paragraphs (a) and (b), for each “accrued rights” substitute “transferrable rights”.”

62: Schedule 4, page 83, line 14, leave out “an occupational” and insert “a”

63: Schedule 4, page 83, line 45, at end insert—

“(xi) section 55 of the Pension Schemes Act 2014;

(xii) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”

64: Schedule 4, page 84, line 13, at end insert—

“(ix) section 55(3) of the Pension Schemes Act 2014;

(x) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”

65: Schedule 4, page 84, line 23, leave out “a case” and insert “any other case”

66: Schedule 4, page 84, line 29, leave out “any other case” and insert “a case not falling within paragraph (a) or (b)”

67: Schedule 4, page 85, line 10, leave out “an occupational” and insert “a”

68: Schedule 4, page 87, line 25, at end insert—

“15A In section 101M (effect of transfer on trustees’ duties), for the words from “pension credit benefit” to the end of the section substitute “benefits to which the transfer notice relates”.”

69: Schedule 4, page 87, line 43, at end insert—

“( ) In that subsection, omit the definition of “pension credit benefit”.”

70: Schedule 4, page 88, line 35, at end insert—

“27A In section 124 (interpretation of Part 1), in subsection (1), in paragraph (b) of the definition of “transfer credits”, for “Chapter 5 of Part 4 of the Pension Schemes Act 1993 (early leavers)” substitute “Chapter 2 of Part 4ZA of the Pension Schemes Act 1993 (transfers and contribution refunds)”.”

71: Schedule 4, page 89, line 30, leave out “In section 318 (interpretation),” and insert—

“(1) Section 318 (interpretation) is amended as follows.

“(2) In subsection (2), for “an occupational pension scheme” substitute “a pension scheme”.

(3) ”

72: Schedule 4, page 89, line 42, at end insert—

Scottish Parliamentary Pensions Act 2009 (asp 1)

37A (1) Schedule 1 to the Scottish Parliamentary Pensions Act 2009 (Scottish Parliamentary Pension Scheme) is amended as follows.

(2) In paragraph 75, in Condition 6, for “section 93A(2)” substitute “section 93A(4)”.

(3) In paragraph 91(2)(g), for “Chapter 4 of Part 4” substitute “Chapter 1 of Part 4ZA”.”

73: Schedule 4, page 90, line 11, leave out “, in relation to an occupational pension scheme,”

74: Schedule 4, page 90, line 21, at end insert—

“Judicial Pensions Act 1981 (c. 20)

40A In Schedule 1A to the Judicial Pensions Act 1981 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes (Northern Ireland) Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes (Northern Ireland) Act 1993”.

Judicial Pensions and Retirement Act 1993 (c. 8)

40B In Schedule 2 to the Judicial Pensions and Retirement Act 1993 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes (Northern Ireland) Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes (Northern Ireland) Act 1993”.”

75: Schedule 4, page 90, line 35, at end insert—

“42A In section 20F (transfers out of GMP-converted schemes), in subsection (3), omit “guaranteed”.”

76: Schedule 4, page 93, line 30, at end insert—

“( ) In subsection (2), in paragraphs (a) and (b), for each “accrued rights” substitute “transferrable rights”.”

77: Schedule 4, page 95, line 15, leave out “an occupational” and insert “a”

78: Schedule 4, page 95, line 40, at end insert—

“(viii) section 60 of the Pension Schemes Act 2014;

(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”

79: Schedule 4, page 96, line 4, at end insert—

“(vi) section 60(3) of the Pension Schemes Act 2014;

(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”

80: Schedule 4, page 96, line 14, leave out “a case” and insert “any other case”

81: Schedule 4, page 96, line 20, leave out “any other case” and insert “a case not falling within paragraph (a) or (b)”

82: Schedule 4, page 96, line 48, leave out “an occupational” and insert “a”

83: Schedule 4, page 99, line 12, at end insert—

“55A In section 97M (effect of transfer on trustees’ duties), for the words from “pension credit benefit” to the end of the section substitute “benefits to which the transfer notice relates”.”

84: Schedule 4, page 99, line 30, at end insert—

“( ) In that subsection, omit the definition of “pension credit benefit”.”

85: Schedule 4, page 100, line 22, at end insert—

“67A In Article 121 (interpretation of Part 2), in paragraph (1), in paragraph (b) of the definition of “transfer credits”, for “Chapter 5 of Part IV of the Pension Schemes Act (early leavers)” substitute “Chapter 2 of Part 4ZA of the Pension Schemes Act (transfers and contribution refunds)”.”

86: Schedule 4, page 100, line 25, leave out “In Article 2 (interpretation),” and insert—

“(1) Article 2 (interpretation) is amended as follows.

“(2) In paragraph (3), for “an occupational pension scheme” substitute “a pension scheme”.

(3) ”

Amendments 59 to 86 agreed.

Schedule 4, as amended, agreed.

Clause 66: Restriction on transfers out of public service defined benefits schemes: Great Britain

Amendment 87

Moved by Lord Newby

87: Clause 66, page 30, line 46, leave out “subsection” and insert “subsections (2) and”

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 7:15 pm, 12th January 2015

My Lords, the purpose of Amendments 87, 88 and 89, which amend Clause 66, is to improve the drafting of technical aspects of this clause, which introduces restrictions on transfers out of unfunded defined benefit public service pension schemes to schemes from which it is possible to acquire a rise or entitlement to flexi-benefits. Amendment 87 ensures that the definition of unfunded public service defined benefit schemes applies where it is needed. Amendment 88 enables the Treasury to make regulations relating to public service pension schemes which can currently be made only by the Secretary of State. Amendment 89 ensures that certain regulations already in force will apply until new regulations are made under certain of the new powers provided for in this clause.

Turning to the amendments in respect of Clause 67, as a reminder, I say that the purpose of this clause is to introduce a new safeguard for funded defined benefit public service pension schemes which gives Ministers a power to designate a scheme or part of a scheme, and in that way require the reduction of cash-equivalent transfer values in respect of transfers from that scheme to another scheme in which the member will be acquiring flexible benefits.

Amendments 90, 91 and 92 clarify the schemes covered in Scotland by the new safeguard for funded defined benefit public service pension schemes, which is introduced in Clause 67. They ensure that only schemes which are public service pension schemes within the meaning of Section 1 of the Pension Schemes Act 1993 fall within the power introduced by this clause.

Amendment 93 improves the drafting of Clause 67. Rather than speaking of “acquiring” flexible benefits, the clause will refer to acquiring a “right or entitlement to” flexible benefits, which is more accurate. Amendments 94, 95 and 96 amend Clause 69 to make provision for Northern Ireland parallel to that made for Great Britain by amendments described above. Similarly, Amendment 97 amends Clause 70 to make provision for Northern Ireland parallel to that made for Great Britain by the amendments described above. I beg to move.

Photo of Lord McAvoy Lord McAvoy Opposition Whip (Lords), Shadow Spokesperson (Northern Ireland), Shadow Spokesperson (Scotland)

My Lords, I thank the Minister for his exposition. He sold me when he mentioned Scotland, so I think we accept that these amendments are genuinely minor and technical, although, to coin a phrase, we will reserve our position in case we discover something. I hope my noble friend Lord McKenzie of Luton can resist the temptation to jump up and shout, “Me too!”.

Amendment 87 agreed.

Amendments 88 and 89

Moved by Lord Bourne of Aberystwyth

88: Clause 66, page 31, line 5, leave out subsection (4) and insert—

“( ) After section 95(5) insert—

“(5A) Except in such circumstances as may be prescribed in regulations made by the Secretary of State or the Treasury, subsection (2A) is to be construed as if paragraph (d) were omitted.””

89: Clause 66, page 31, line 17, leave out subsection (9) and insert—

“( ) Until the coming into force of the first regulations made under a provision of the Pension Schemes Act 1993 specified in the first column of the table, regulations made under the provision of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—

New provision of Act Existing provision of Act
Section 95(2A)(a)(iii) Section 95(2)(a)(ii)
Section 95(2A)(b)(iii) Section 95(2)(b)(ii)
Section 95(2A)(c) Section 95(2)(c)
Section 95(2A)(d) Section 95(2)(d)
Section 95(5A) Section 95(5)(a).”

Amendments 88 and 89 agreed.

Clause 66, as amended, agreed.

Clause 67: Reduction of cash equivalents: funded public service defined benefits schemes: Great Britain

Amendments 90 to 93

Moved by Lord Bourne of Aberystwyth

90: Clause 67, page 34, leave out lines 1 to 12

91: Clause 67, page 34, line 13, leave out “, or paragraph 3(4)(b) of Schedule 2 to,”

92: Clause 67, page 35, line 14, leave out “to (d)”

93: Clause 67, page 35, line 25, after “acquiring” insert “a right or entitlement to”

Amendments 90 to 93 agreed.

Clause 67, as amended, agreed.

Clause 68 agreed.

Clause 69: Restriction on transfers out of public service defined benefits schemes: Northern Ireland

Amendments 94 to 96

Moved by Lord Bourne of Aberystwyth

94: Clause 69, page 37, line 31, leave out “subsection” and insert “subsections (2) and”

95: Clause 69, page 37, line 38, leave out subsection (4) and insert—

“( ) After section 91(5) insert—

“(5A) Except in such circumstances as may be prescribed in regulations made by the Department or the Department of Finance and Personnel, subsection (2A) is to be construed as if paragraph (d) were omitted.””

96: Clause 69, page 38, line 1, leave out subsection (9) and insert—

“( ) Until the coming into force of the first regulations made under a provision of the Pension Schemes (Northern Ireland) Act 1993 specified in the first column of the table, regulations made under the provision of that Act specified in the corresponding entry in the second column apply (with any necessary modifications) for the purposes of the provision specified in the first column—

New provision of Act Existing provision of Act
Section 91(2A)(a)(iii) Section 91(2)(a)(ii)
Section 91(2A)(b)(iii) Section 91(2)(b)(ii)
Section 91(2A)(c) Section 91(2)(c)
Section 91(2A)(d) Section 91(2)(d)
Section 91(5A) Section 91(5)(a).”

Amendments 94 to 96 agreed.

Clause 69, as amended, agreed.

Clause 70: Reduction of cash equivalents: funded public service defined benefits schemes: Northern Ireland

Amendment 97

Moved by Lord Bourne of Aberystwyth

97: Clause 70, page 40, line 1, at end insert “a right or entitlement to”

Amendment 97 agreed.

Clause 70, as amended, agreed.

Clause 71 agreed.

Clause 72: Meaning of “flexible benefit”

Amendment 98

Moved by Lord Bourne of Aberystwyth

98: Clause 72, page 40, line 35, after “scheme” insert “or a survivor of a member”

Amendment 98 agreed.

Clause 72, as amended, agreed.

Clause 73: Meaning of “cash balance benefit”

Amendment 99

Moved by Lord Bourne of Aberystwyth

99: Clause 73, page 41, line 2, after “scheme” insert “or a survivor of a member”

Amendment 99 agreed.

Clause 73, as amended, agreed.

Clause 74: Interpretation of Part 4

Amendments 100 to 103

Moved by Lord Bourne of Aberystwyth

100: Clause 74, page 41, line 34, at end insert—

““nominees’ drawdown pension”, in relation to a survivor, has the meaning given by paragraph 27B of Schedule 28 to the Finance Act 2004;”

101: Clause 74, page 42, line 5, at end insert—

““successors’ drawdown pension”, in relation to a survivor, has the meaning given by paragraph 27G of Schedule 28 to the Finance Act 2004;”

102: Clause 74, page 42, line 6, leave out “an occupational” and insert “a”

103: Clause 74, page 42, line 13, at end insert—

““uncrystallised funds pension lump sum” has the meaning given by paragraph 4A of Schedule 29 to the Finance Act 2004;”

Amendments 100 to 103 agreed.

Clause 74, as amended, agreed.

Clauses 75 and 76 agreed.

Schedule 5 agreed.

Clauses 77 to 79 agreed.

Amendment 104

Moved by Lord Balfe

104: After Clause 79, insert the following new Clause—

Pension Protection Fund: compensation cap underpin (service-related)

(1) Schedule 7 to the Pensions Act 2004 (pension compensation provisions) is amended as follows.

(2) In paragraph 26 (compensation cap), after sub-paragraph (9) insert—

“(9A) This paragraph is subject to paragraph 26B.”

(3) After paragraph 26A insert—

“26B (1) The relevant compensation payable to a person must in every case equal the lower of the amounts specified in sub-paragraphs (2) and (3).

(2) The amount specified in this sub-paragraph is the sum of—

(a) 50% of the annual value of the benefits to which he is entitled under the admissible rules; and

(b) 2% of that amount for each whole year of the person’s pensionable service, subject to a maximum of 40% of that amount.

(3) The amount specified in this sub-paragraph is two times the standard amount.

(4) Expressions used in this paragraph have the same meaning as in paragraphs 26 and 26A.””

Photo of Lord Balfe Lord Balfe Conservative

My Lords, I welcome the opportunity of being able to speak to this proposed extra clause at the end of the Bill. I will say straightaway that it is motivated by friends in BALPA, the union for pilots, but it also affects a number of other higher-paid workers who are caught by what many of us would regard as an anomaly in pensions legislation.

The aim of the amendment is to ask for a review of the part of the Pensions Act that covers the limitation on funds that can be paid out to people whose pensions go into the Pension Protection Fund. In particular, I refer to pilots who used to work for Monarch Airlines—which has gone into the Pension Protection Fund—many of them with many years of service, but because of the cap that was put on payments out, they are limited as to the amount of pension which they can now draw. That cap was put into place for very good reason: to stop moral hazard; to stop directors who were members of their company pension fund abusing the fund knowing that they could basically transfer their liabilities for their own pensions to the Pension Protection Fund. However, the people who I am speaking about, such as the pilots of Monarch Airlines, are inadvertently caught. They had no say whatever in the way in which the company was run. They were workers for the company; they were higher-paid workers and were paid the sort of wages which you only get in the other House down the corridor—of course, if the House of Commons ever went into the Pension Protection Fund, many MPs’ pensions would be limited as well, but no one would say that they are the directors of a company. They are the MPs of the people and look after many things, but they would be caught.

So the amendment is a measure to deal mainly with higher-paid workers, but workers who have none the less put in. We are very fond in this country of bashing anyone who makes anything that exceeds the higher-rate tax threshold, but there are many people who go to university, who work hard in our economy and who exceed the higher-rate tax threshold—they earn more than £40,000 or sometimes even more than that, and they do earn it. I have never been a subscriber to the view that we have to pay megabucks to everybody, but I have always been a subscriber to the view that a decently trained professional worker who is putting their efforts into the benefit of the country deserves a decent wage. These pilots are highly skilled people and deserve a decent wage, as do people at the Atomic Energy Authority and British Midland Airways who are caught. In this particular instance, of some 67 pilots, around 13 will lose more than half the pension that they have paid for. Part of the weakness in the Pension Protection Fund is that your levy is not based on how many workers are covered; it is based on the liabilities of your fund. If someone earns too much to get the full pension, you are still paying, as I understand it, a levy into the pension fund which is commensurate with the liabilities of the fund, not of the individuals.

I am asking the Minister to look at the PPF cap and how it works. We are proposing two ways of dealing with it: either reviewing the cap on the basis of years of service over 20 years, as the current planned change would do little to help many of those in the pension scheme who are affected by the cap; or reducing the service-related or age-related underpin into the PPF. We are basically looking for a way of relieving those workers. It would be a comparatively cheap operation, largely because many people who earn a lot of money are in the PPF. It is estimated that the measure would cost something in the order of £12 million in all over all the years that the extra pensions would have to be paid, so it is not a huge amount of money.

I am therefore asking the Minister to have a look at this matter. Clearly, the categories of people that I am speaking about are not the decision-makers and they should not be caught by moral hazard. They are well worthy of a review of the contributions that they have made and the way in which the PPF works. I have not made enough speeches in this House to know whether it is conventional to thank my colleagues opposite, the noble Lords, Lord Monks and Lord McKenzie, for their help in meeting the union that I have mentioned. I think that we are talking on a cross-party basis in asking for this matter to be seriously looked at by the Government. I beg to move.

Photo of Lord Monks Lord Monks Labour 7:30 pm, 12th January 2015

My Lords, I declare an interest as the president of BALPA. I congratulate the noble Lord, Lord Balfe, on the first pro-trade union speech from that side of the Chamber that I have heard since I came into the House—it was a pleasure to hear.

Photo of Lord Balfe Lord Balfe Conservative

Did the noble Lord not hear my other speech?

Photo of Lord Monks Lord Monks Labour

I am sorry, I did not, but this one made for a nice change and I commend that example to the rest of your Lordships on those Benches and hope to hear more remarks of that kind.

The noble Lord, Lord Balfe, has admirably covered the BALPA case. Monarch Airlines is the current case, and BMI was the previous one. We are beginning to struggle as these airlines in trouble pass their pensions obligations over to the Pension Protection Fund. There are other similarly paid workers in the same category. I hope that the message of this amendment is that though this cap is essential—I understand that very well, as the noble Lord, Lord Balfe, does—in order to stop exploitation of the fund, which after all is contributed to by well run pension schemes around the country, it is very important that we take those obligations seriously.

The cost to the fund is not enormous; it is quite modest. I hope therefore that the Government will consider the idea of a review of the arrangements around the cap and that we can get extra justice for some people who are hard working, who do responsible jobs, who are not fat cats and who deserve rather better than they have had recently from the fund. I am very happy to support the amendment in the name of the noble Lord, Lord Balfe.

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour

My Lords, I want to make a brief comment on this amendment since I am a non-executive director of the Pension Protection Fund. I declare that interest and hope that I can offer some thoughts that may be helpful to the Committee. The PPF was set up by the Pensions Act 2004 to be a lifeboat for members of defined benefit pension schemes whose sponsoring employer has become insolvent, leaving the scheme in deficit. The PPF saves thousands of members from potential penury who otherwise would have received only a small fraction of the pension promised to them in their employer’s scheme. The benefits it pays to insolvent scheme members are paid for, in large part, by a compulsory levy on other DB schemes with solvent employers, which of course is a cost on the employer.

When the PPF was set up, it was always recognised that there was a fine balance between on the one hand protecting those who had saved and who, through no fault of their own, were now the casualties of their employer’s insolvency, and on the other, not unduly penalising schemes which had made prudent assumptions or decisions, or employers whose businesses remain solvent, providing jobs and funding for their pension schemes. One way in which this was reflected was the benefit cap: the maximum benefits normally paid for someone who is not above the normal retirement age and drawing pension, are 90% of what the pension was worth, subject to a cap.

The cap at age 65 is currently £36,401 per year, which equates to just over £32,500 when the 90% level is applied. The earlier a person retired, the lower the annual cap is set, to compensate for the longer time the person will be receiving payments. So the full expectations of high earners who have built up a number of years in their schemes would not be met. The average annual compensation in payment per member in the PPF is just over £3,500 per annum, so the average PPF member has clearly received less than the amounts which would have been earned by high earners such as those who would be affected by this amendment.

The important point to note is that the PPF board has no role or responsibility in setting the financial limits in the fund. That is the responsibility of Governments. However, back in 2004 there was a general political consensus, which I believe still holds, that there was a need to balance the interests of members against the cost to those who fund the PPF—the levy payers, who ultimately are the employers and members of other pension schemes.

There is obviously a debate to be had about appropriate levels of compensation. I have every sympathy with those who have been made a pension promise that their scheme can no longer afford. However, that is a matter for the Government and I do not want to comment on it, except to say that the PPF board has an obligation to keep the fund’s finances on a sure footing in changing economic conditions. It has a particular responsibility to balance its liabilities within a reasonable framework of constraints so that it does not impose an undue burden on the pension schemes and businesses which pay its levy. The PPF also has to be sustainable over the very long term, and the level of protection given to pension scheme members has to be such as to make that possible. The PPF has faced some significant calls on its resources as a result of big household names going bust. At November 2014, the net deficit of the 6,000 PPF eligible schemes is £221 billion. PPF provides a protective wrap for these liabilities in the event of insolvency. The amount of levy that would need to be raised to cover all members’ benefits in these schemes would be much higher.

To add a final note of caution, requiring solvent employers with DB schemes to pay more levy for higher levels of compensation will not come without problems.

Photo of Lord Balfe Lord Balfe Conservative

Is it true that the PPF currently has a surplus of £2.43 billion, out of which we are asking that this modest payment be made?

Photo of Baroness Warwick of Undercliffe Baroness Warwick of Undercliffe Labour

I do not think I should enter into a conversation about that and I do not think it is really relevant to this argument.

Photo of Lord McKenzie of Luton Lord McKenzie of Luton Shadow Spokesperson (Communities and Local Government)

My Lords, I thank the noble Lord, Lord Balfe, for giving us an opportunity to air this issue this evening and for organising a meeting with the Minister. I thank the Minister and his officials for participating in that meeting. No one can be comfortable with the position of employees in this situation, who approach retirement with a likely pension significantly below the expectation which is derived from an employer promise which can no longer be met. This is not diminished by the fact that, while the pension expectations would be well above average levels, they are commensurate with remuneration levels which reflect the skill of pilots and the responsible jobs they undertake. As we have heard, some 67 Monarch pilots will lose, in aggregate, some £900,000 a year in lost pension because of the operation of the PPF cap and other pilots are in a similar position.

We should acknowledge that the Pension Protection Fund introduced by the previous Government, but on a cross-party basis, protects millions of people throughout the UK, as we have heard, who belong to defined benefit pension schemes. According to the Purple Book, which monitors the risk of DB schemes, there are some 6,057 mostly private sector DB schemes covering more than 11 million scheme members with more than £1 trillion of assets. In broad terms, as we have heard, the fund takes over the responsibility of pension obligations in the event of employer insolvency, but it does not seek to replicate, in every respect, the employer promise. There is, in particular, a cap on levels of payment for those below normal retirement age when the scheme enters the PPF. This is a source of the problem we are discussing tonight.

We know that the PPF is a highly professional organisation dealing with a complex market situation with great skill. On recent data, some 745 schemes have been transferred, covering 217,000 members. Compensation paid to date amounts to £1.53 billion, but the average yearly payout is, as we have heard, some £3,500 only. Tens of thousands of people now receive compensation from the fund and hundreds of thousands will in the future, potentially making the difference between retirement in poverty and retirement in a degree of comfort. This may not be the occasion to discuss how the PPF will operate in shared risk schemes, but that is doubtless a matter we will return to at some stage.

The thrust of the amendment in the name of the noble Lord, Lord Balfe, is generally to improve the position of those whose compensation is limited by the cap. The position of those with significant pensionable service with one employer has already been improved under the Pensions Act 2014, but this does not cover pilots, who tend not to have pensionable service substantially in excess of 20 years. Of course, the origin of the cap was to address issues of moral hazard, as we have heard, but also to be some restraint on the overall costs of the arrangements—it is not just a moral hazard issue. It is accepted that the moral hazard is not present in the case of pilots and the amendments would not lead to 100% compensation. However, the amendments would not apply just to Monarch; we simply do not know who might be entering the scheme at some future date and therefore the costs associated with that. As an aside, I ask the Minister: if the levels of compensation were raised, what if anything would that mean for the arrangements entered into with Monarch that allow for continued trading? Would that arrangement have to be recast?

The bottom line is that amending the rules in the way suggested would lead to higher payouts from the PPF. That raises the question, as my noble friend Lady Warwick has made clear, of where the funding is going to come from. The answer, of course, is the levy, which ultimately feeds back to individual schemes and sponsoring employers. Although the amounts related to pilots may be relatively small in the context of the overall PPF scheme, we simply do not know how many more might be affected and what the overall costs would be. As I have just said, there was an attempt in the 2014 Act to ameliorate the effects of the cap for individuals whose pension entitlement was derived mainly from one source for at least 20 years, although this does not particularly help the matter in hand unless there were to be some recasting of the spread in coverage to affect it in a different way. However, presumably this would involve losers as well as gainers.

It seems that any improvement in the lot of the pilots who might find themselves in a similar position, now and in the future, would involve more resources for the PPF. So, while having great sympathy for those whose legitimate pension expectations have been significantly impaired, I do not think we have been presented with a compelling argument to make the specific changes that the amendments suggest. However, the Government may take the opportunity to reflect on and review how the cap is generally affecting entitlements, bearing in mind the need to ensure the sustainability of the PPF in the current, and future, DB environment.

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth Lord in Waiting (HM Household) (Whip)

My Lords, I thank my noble friend Lord Balfe for so eloquently moving this amendment, and other noble Lords who have participated in this debate—the noble Lords, Lord Monks and Lord McKenzie, and the noble Baroness, Lady Warwick. I found the meeting very useful, and I assure the noble Lord, Lord Monks, that, as a former trade union member, I was certainly taking everything very seriously when he put forward the points that he made.

The amendment relates to the position of certain members of pension schemes that have entered the Pension Protection Fund. I am sure that we all have a great deal of sympathy with the situation that these people find themselves in. This amendment, which offers two alternative methods of changing the cap, very helpfully allows me to talk to the Committee briefly about the level of the PPF compensation cap. I understand that my noble friend’s principle is that he would like an increase in that cap to provide higher compensation to those who had accrued a relatively large pension, but who, because they had relatively short service in their scheme, will not be affected by the long-service cap amendments. I will therefore deal initially with that principle rather than concentrating on the actual effect of this amendment.

I start by making a small but perhaps important point: the loss of these pensions is not a consequence of the PPF cap. The fact is that the schemes were underfunded and could not meet the costs of the accrued pensions. Those pensions have already been lost. What we are discussing is the level of compensation that should be paid to the affected people.

The Pension Protection Fund does not replace lost benefits in full. That is not an uncommon approach; for example, deposits in banks are covered up to a limit of £85,000. The PPF pays compensation at the full rate of the pension in payment at the insolvency date to anyone over their normal pension age. Pilots as a group, with their relatively low pension age of 55, benefit from this, as more of them are likely to be over that threshold than if the scheme had a more usual pension age of 60 or 65. It is those below their normal pension age who have their compensation set at broadly 90% of the pension accrued at the insolvency date. Further, it is this group—those below their scheme’s normal pension age—who are affected by the compensation cap.

The current cap produces what many would think was rather a generous entitlement of £32,761 per year at the age of 65. The cap is of course reset for anyone who chooses to take their compensation at an age lower than 65, to reflect the longer period of payment. So a person with an unusual pension age of 55, such as pilots, would have a cap of £26,571 precisely. Noble Lords might also wish to be reminded that the Pensions Act 2014 contains provision for a long-service increase to the cap, which has been referred to during the debate, of 3% for each year of service above 20 years, although I accept this may not be relevant for many pilots because of the lower retirement age.

Understandably, those affected by the cap compare the amount of compensation to what they expected to get from their pension scheme. However, that is not a valid comparison, at least in terms of how the scheme operates. As I have said, their pensions have already been lost, and if the scheme could have paid them more than the amount of compensation then it would not have entered the Pension Protection Fund in the first place. In answer to the point made by the noble Lord, Lord McKenzie, we would have to revisit the Monarch situation; although there is no intention of moving this cap, if we did then it would affect the Monarch arrangements.

The question before us is whether compensation of £26,500 a year, or just over, for life from age 55 is acceptable. To put this figure into context, it is almost double the average occupational pension in the UK. In an ideal world, I am sure that we would all like the compensation paid by the PPF to be higher, although, if such an increase were possible, some would probably prefer it to be targeted at lower earners. I certainly do not want to clobber those people with a high salary who earn it, but I wish to act fairly here, as do the Government.

The noble Lord has referred to an additional cost of £12 million. I have to say that I do not recognise that sum; the letter he wrote and the discussion we had refer to a cost of £70 million and the Government thought that that was on the low side, so I am not sure where the £12 million comes from. Regardless of the actual cost, however, any increase to the compensation cost must be paid for, so how could it be funded? To begin with, the compensation paid to others could be reduced, but I am sure that noble Lords are not advocating that approach. Another option is to increase the PPF’s income. Compensation is funded by a combination of the schemes’ remaining assets, investment return and a levy on ongoing schemes. If the money had to be found through an increase in the levy, the costs are borne by those schemes that are still backed by solvent employers. Some 78% of schemes eligible for the PPF were in deficit at the end of November 2014, and their aggregate deficit was £221 billion. Noble Lords may wish to consider whether this is the right time to be increasing their costs.

Lastly, we could expect the PPF to absorb this extra liability. It is true that it currently running a surplus, and this is something the PPF can be proud of. I am very grateful to the noble Baroness, Lady Warwick, for her insights into its remit and work. Given that the number of schemes eligible to pay the PPF levy is declining, the PPF has taken the decision to aim to be self-supporting by 2030 so that it can continue to pay compensation, which could be necessary into the 22nd century. There are significant risks to this goal in terms of future levels of insolvency and scheme deficits. In view of this, the current surplus has, if I may put it in these terms, already been committed to help to safeguard the future.

The Pension Protection Fund currently pays compensation to about 150,000 people and protects around 11 million scheme workers. We should be very cautious before we place any extra burden on the fund. The argument for so doing must be very strong and, respectfully, I do not think that it has been made out in this case. While I sympathise with those who have lost their pensions, as do the Government, they will still get a significant amount of compensation. I do not think that the position of people with capped compensation is so unfair as to justify putting an extra burden on to the PPF. I therefore urge my noble friend Lord Balfe to withdraw the amendment.

Photo of Lord Balfe Lord Balfe Conservative 7:45 pm, 12th January 2015

I thank the Minister for that reply, and I am glad that we have aired this problem. It often seems to me that we as a society are very good at concentrating on fat cats, who are seen as being unworthy, and thin cats, who are seen as being extraordinarily worthy, but we forget all the people in the middle—the people who work extremely hard, often for good salaries, to keep this country going. They do not live in Monaco, and they do not live on benefits either. There is a shortage of support for what I would call “the middle middle class”, which is reflected in both parties. We see here that classic private sector pension schemes are in the PPF and public sector pension schemes are underwritten. No one is going to take my pension away from me. HMG are not going to go bust and go into the PPF. The European Union is not going to go bust and go into the PPF. As Britain will find out if it tries to withdraw, it will get a rather large bill. However, I appreciate what the Minister and my colleagues said, and I beg leave to withdraw the amendment.

Amendment 104 withdrawn.

Amendment 105 not moved.

Clause 80: Power to make consequential amendments

Amendment 106

Moved by Lord Bourne of Aberystwyth

106: Clause 80, page 45, line 4, leave out “The Secretary of State or the Treasury” and insert “The appropriate national authority”

Photo of Lord Bourne of Aberystwyth Lord Bourne of Aberystwyth Lord in Waiting (HM Household) (Whip)

My Lords, Clause 80 provides a power to enable the Secretary of State or the Treasury to make consequential changes needed to any primary or secondary legislation, whenever made. Clause 81 makes provision for the regulation-making powers that have been set out in the Bill and the procedure for exercising those powers.

The amendments to Clauses 80 and 81 are technical and enable the regulation-making powers contained in the two clauses to be extended to the Department for Social Development in Northern Ireland in relation to Northern Ireland legislation. This will allow the Secretary of State for the Department for Social Development in Northern Ireland, who is responsible for social security benefits and pensions in Northern Ireland, to make consequential amendments to provisions in Northern Ireland legislation, where appropriate. In line with the provisions for Great Britain, including Scotland, where the powers are used to amend primary legislation, they are subject to confirmatory procedure, which is equivalent to the affirmative resolution procedure in this House. These changes and other provisions in the Bill allow the Northern Ireland authorities to maintain parity with pensions legislation in Great Britain. Clause 84 sets out when the different parts of the Bill will come into force.

The Government have given a commitment that from April 2015 people will be able to access their pension savings flexibly. These amendments ensure that the regulation-making powers in Part 4 come into force on Royal Assent so that the relevant regulations can come into effect on 6 April 2015 in line with the commitment given. The amendments also ensure that amendments made to include reference to the Bill in the definition of pensions legislation in the Pensions Act 2004 come into force from 6 April 2015. I beg to move.

Photo of Lord McAvoy Lord McAvoy Opposition Whip (Lords), Shadow Spokesperson (Northern Ireland), Shadow Spokesperson (Scotland)

My Lords, I thank the Minister for his exposition. Somebody must have told him about my Irish grandparents. That is the other side of my Celtic tradition. We accept that these are minor and technical amendments and have no objections to them, with the usual proviso.

Amendment 106 agreed.

Amendments 107 and 108

Moved by Lord Bourne of Aberystwyth

107: Clause 80, page 45, line 7, after “any” insert “primary or subordinate”

108: Clause 80, page 45, line 8, leave out subsection (3) and insert—

“(3) In this section—

“appropriate national authority” means—

(a) in relation to provision which could be made by an Act of the Northern Ireland Assembly without the consent of the Secretary of State (see sections 6 to 8 of the Northern Ireland Act 1998), the Department for Social Development in Northern Ireland, and

(b) in relation to any other provision, the Secretary of State or the Treasury;

“primary legislation” means—

(a) an Act;

(b) Northern Ireland legislation;

“subordinate legislation” means—

(a) subordinate legislation as defined by section 21(1) of the Interpretation Act 1978;

(b) an instrument made under Northern Ireland legislation.”

Amendments 107 and 108 agreed.

Clause 80, as amended, agreed.

Clause 81: Regulations

Amendments 109 to 111

Moved by Lord Bourne of Aberystwyth

109: Clause 81, page 45, line 15, leave out subsection (2)

110: Clause 81, page 45, line 20, leave out “an Act” and insert “primary legislation”

111: Clause 81, page 45, line 27, leave out subsections (6) to (8)

Amendments 109 to 111 agreed.

Clause 81, as amended, agreed.

Amendments 112 and 113

Moved by Lord Bourne of Aberystwyth

112: After Clause 81, insert the following new Clause—

“Regulations: Northern Ireland

“(1) A power of the Department for Social Development in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).

(2) Where regulations made by the Department for Social Development in Northern Ireland under section 80 amend, repeal, revoke or otherwise modify a provision of primary legislation (whether alone or with other provision), the regulations—

(a) must be laid before the Northern Ireland Assembly after being made;

(b) take effect on such date as may be specified in the regulations but (without prejudice to the validity of anything done under them or to the making of new regulations) cease to have effect on the expiry of a period of 6 months from that date unless at some time before the expiry of that period the regulations are approved by a resolution of the Northern Ireland Assembly.

“(3) Any other regulations made by the Department for Social Development in Northern Ireland under this Act are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).

(4) Subsection (3) does not apply to regulations containing provision under section 84(6) only.”

113: After Clause 81, insert the following new Clause—

“Regulations: supplementary

(1) A power to make regulations under this Act may be used—

(a) to make different provision for different purposes;

(b) in relation to all or only some of the purposes for which it may be used.

(2) Regulations under this Act may include incidental, supplementary, consequential, transitional, transitory or saving provision.”

Amendments 112 and 113 agreed.

Clauses 82 and 83 agreed.

Clause 84: Commencement

Amendments 114 to 116

Moved by Lord Bourne of Aberystwyth

114: Clause 84, page 46, line 29, leave out paragraphs (b) to (e) and insert—

“( ) any other provision of Part 4 so far as is necessary for enabling the exercise on or after the day on which this Act is passed of any power to make provision by regulations;”

115: Clause 84, page 46, line 38, leave out paragraphs (a) to (c) and insert—

“( ) paragraphs 24, 30, 33 and 36 of Schedule 2 (and section 46 so far as relating to those provisions);

“( ) Part 4, so far as not already in force.”

116: Clause 84, page 47, line 3, at end insert “other than paragraphs 24, 30, 33 and 36 of Schedule 2 (and section 46 so far as relating to those provisions)”

Amendments 114 to 116 agreed.

Clause 84, as amended, agreed.

Clause 85 agreed.

House resumed.

Bill reported with amendments.