The hon. Gentleman makes a good point, which takes us on to the regulator. The Financial Services Authority and, so far, the FCA, do not have a wonderful track record on pensions, and we can see why: they have so many other things to regulate. The FSA was simply not equipped, in my opinion, to deal with pensions. The obvious rejoinder is to say that that has been going on a long time and is not just a product of the current Government. That is absolutely true. In my judgment, the FSA was not equipped to do the job on contract pensions and the jury is still out on the FCA’s ability to regulate contract pensions and the guidance therein. So the hon. Gentleman makes a good point—that has to be the answer—but there are still questions about the FCA’s ability to do that effectively. It has beefed up its pensions team somewhat, but I think it is fair to say that their track record is not great.
The hon. Member for Amber Valley asks how confident the Minister is that the collection of the costs of the guidance guarantee through the levy and then via the guidance providers paying the regulator will proceed smoothly and on time. The Minister said that we will collect in the new financial year, but we simply do not know how much the guidance will cost. The Government have allocated £20 million per year to fund the launch of the guidance guarantee and the rest will be raised by an industry levy, but, unless I am wrong, the Government have not set the level—I think the Minister confirmed that because he has handed it over to the FCA—or stated how much they expect to raise. That remains unclear in the Bill.
More precisely, to be effective, the guidance presumably needs to include a discussion of draw-down and an individual’s tax situation. That point goes to the substance of the guidance. I am loth to say, “holistic”, which is a word that has emerged out of cultural studies. However, in the round, will the guidance cover an individual’s financial situation? I have noted already the issue of the assets and liabilities held by an individual; more widely, there is the draw-down issue. It seems clear that we are moving to a draw-down world. It is worth remembering that the average pension pot in the UK is not at all large. The median is somewhere between £10,000 and £20,000. Savers in that situation will probably take cash, but who can predict that? Above that median, draw-down will become crucial, especially in the long term.
One answer that the Minister might give is, “Well, one step at a time. We will consider draw-down and the regulation behind that as we go forward.” However, there is a further issue with the guidance. Will it include the pros and cons of drawing down, relative to an individual’s tax situation, when the possibility of a saver making a bad decision might be increased? This goes back to my earlier point that the Government are doing this very quickly and are not providing as much detail as one would expect. The training of the guidance givers will be a significant task in itself and gives rise to questions. We often talk about how complex pensions are; turning a pension into a retirement income is equally complex.
The document “Freedom and choice in pensions: government response to the consultation” indicates that draw-down is likely to be treated similarly to annuities—that is, income is assessed, not capital. In a 30-minute conversation, one can see the tension. How can the Government insist that an individual’s assets and liabilities, both of wealth and income, are included in that 30-minute conversation? So far, it is difficult to have overwhelming confidence that that will happen.
At the moment, the landscape appears to be that the Government have proceeded rapidly to abolish the necessity of taking an annuity. One can see absolutely why that decision has been taken. It would be difficult for me to complain about that, given that I spent so long arguing against the inefficiencies of the annuities market. However, in introducing this reform so rapidly and putting so much weight on the guidance guarantee to deal with the complexities and difficulties of assessing one’s financial situation at the point of retirement, there are significant questions to which we seek answers.
I will lay down some questions to which I hope the Minister can provide answers. First, in response to the hon. Member for Amber Valley, the Minister said that the Government are very focused on getting things in place. The hon. Gentleman did not ask precisely the question that I am about to ask but was concerned about ensuring that the money was in the pot. Can the Minister turn the expression “very focused” into a guarantee that the guidance will be available across the country by April 2015? Is he comfortable that the timetable will be met?
Secondly, to make a familiar request, will the Treasury publish its risk assessment of the delivery of the project, which so far it has refused to do? Thirdly, what are the uncertainties about the amount of tax that will be received by the Exchequer following these changes? Will the Treasury publish its assessment?
I note in the penultimate paragraph of the Treasury memorandum, which was provided under your auspices, Mr Bone, that the Government believe that Mr Greenwood’s figures are a significant overestimation of the risk to the Exchequer. That confirms that there is a risk, but we have no way to judge either it in the narrow sense of the loophole that Mr Greenwood raised or the wider risks of this project. Will the Treasury publish its assessment of this project’s value and the taxation that it expects to receive? Related to that and fourthly, will the Treasury publish any analysis that it has prepared of the distributional and behavioural impact of the Bill?
It might seem odd to ask the Treasury for those things for this Committee, but I operate on the principle of joined-up government that is effective and cross-departmental. It would seem odd if the Minister was unable to insist that the Treasury publish these papers in the interests of transparency.
Fifthly, on a different point not yet covered, will the Minister tell the Committee what safeguards are in place to prevent pension providers from enrolling savers who fail to shop around into poor-value products? Those who do not exercise a choice might be just defaulted into their current pension provider’s product, whether an annuity or otherwise. We have not discussed that.
The reason why the annuities market did not work was largely that savers did not shop around. Savers tended to accept a default option of their pension provider, so there was no competitive pressure on annuities providers to offer best value for money. If a provider had someone saving in its pension scheme, it could be pretty sure they would default into whatever the provider offered.
Not exercising a choice has obvious implications for the Government’s reforms. If the problem with the previous market was that individuals did not exercise a choice, how can the Government be confident that they will exercise a choice in the new environment? That is a wider question, but specifically what safeguards are in place to ensure that those who do not take guidance and do not exercise a choice are not defaulted into poor-value products by their current provider?
Sixthly, will the Minister provide more information about the Government’s expectation, as stated in the tax impact and information note accompanying the Bill, that around 130,000 people a year will expect to access their pensions flexibly? Bluntly, how did the Government arrive at that estimate? That point also came up in the evidence sessions.
Seventhly, does the Minister think that one-off guidance will be enough to prepare someone for more than 20 years of retirement? I have already made that point. Eighthly, to elaborate on something I raised earlier, will there be a second line of defence for the 75% of individuals some people estimate say will not take up guidance? That is a huge question.
Ninthly, and I hope lastly, what will be the qualifying requirements for Citizens Advice staff in order to dispense the guidance? That goes to the point about training, which is so important to making the reforms work.
In summary, the Government have placed huge weight on the guidance guarantee meeting the challenges that will arise from the complex decisions that they are encouraging individuals to make on retirement, or even before retirement at the age of 55. Given that, it is incumbent on them to provide clarity about the risks as well as the potential rewards—the downsides as well as the upsides—including the expected behavioural impact from April onwards and the effect that the Treasury believe it will have on tax take. The Government must clarify the substance of the guidance guarantee and the extent to which it will be an in-the-round conversation about an individual’s assets and income rather than simply about their pension pot, and the content of the training regime that will be undertaken by the guidance-guarantee givers.
I hope that the Minister will be able to provide some clarity on those questions. If he cannot do so, I think that that suggests, at the very least, that the rapidity with which the reforms have been undertaken presents a series of challenges. We have to get the reforms right. The annuities market did not work as previously constituted, although some specialist annuity providers did very well because they met an unmet need in the market. The Government have decided that the annuities market did not work, so they have ended the compulsory annuitisation of pension pots and placed huge weight on individuals making the right decision about their retirement. As the Government’s emphasis on it suggests, the guidance guarantee is absolutely critical to that, and we must hope that the Government get it right.