Clause 15

Part of Pensions Bill – in a Public Bill Committee at 9:30 am on 1 February 2007.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions) 9:30, 1 February 2007

I think that I am reasonably reassured by what the Minister had to say. We were lobbied by the Association of British Insurers over contracted-out rights—also known as protected rights. The ABI feels strongly that those should be simplified further because, as it put it,

“the current rules add unnecessary complexity and cost for consumers”.

At the moment, the part of a person’s pension fund relating to protected rights has to be used in a   particular way—often differently from the rest of the fund. For example, protected rights money must be used to buy an annuity based on unisex rates. When the policyholder is married or in a civil partnership, a joint life annuity must be bought.

The ABI says that

“individuals should be able to use the whole of their pension pot—non protected rights and protected rights alike—in the same way”.

It says that that will supply simplicity as well as reduce costs for consumers and providers. It would no longer be necessary to track protected and non-protected rights benefits separately. Crucially, it would also allow consumers to decide what sort of annuity is most appropriate for their own personal circumstances. The Minister said that he has been consulting on that matter, which is why he has introduced the amendments before us, rather than incorporating the provisions in the Bill as presented on Second Reading

On Second Reading, the Secretary of State said that he intended

“to take powers to enable us to remove the complex rules governing rights accrued in contracted-out defined contribution schemes, following the outcome of the review of the open market option for annuities that we expect to be completed by the end of the year.”—[Official Report, 16 January 2007; Vol. 455, c. 668.]

I am grateful to the Minister for providing the Committee with further information on that review.

As far as I can determine, the Government amendments would give them powers by regulation to simplify the current position in the way that the ABI is urging. Prior to seeing the Government’s amendments, of course, we tabled amendments Nos. 6 and 7 to schedules 4 and 7 respectively. They would remove the proposed amended requirements relating to protected rights and add to the list of repeals section 28 of the Pension Schemes Act 1993, which provides for the way in which protected rights must be used.

In a sense, our amendments merely force the pace of the Government’s apparent intentions. The Minister has confirmed those intentions, so I shall not press amendments Nos. 6 and 7.