I will not follow the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East with a general canter around the changes and why we need guidance. I want to focus on how we ensure that the Government’s proposed guidance is the right product and service, because people who reach retirement age will desperately need such guidance.
There are various things that we need the guidance to be. It must be of the right quality; it must be tailored to individual circumstances and needs; it must be provided at the right time; it must be impartial; and, perhaps most critically, it must be taken up. The guidance must make a difference to an individual’s decision, and it must be followed up to ensure that people understand the information and change their behaviour. We need a back-stop protection to prevent those who have not taken guidance or who have not understood the guidance they are given from being ripped off by an unscrupulous seller. Those are the criteria by which I try to judge the Government’s proposals.
I do not agree that the changes are being rushed. The Government took the right decision to end compulsory annuitisation, because it was wrong to force people into something that was not right for many and was not working for even more. After we announced that, we could not have said, “In three years’ time we are going to take away that compulsion.” In those three years, some people would have tried to self-draw down, or to defer or avoid making a decision. Those who had been badly advised might have tried to do strange things. Others might have been forced into doing something that they knew they did not want to do, in the knowledge that if they had reached retirement age three years later, they would have been all right. That would have been wrong, so the changes had to be made quite quickly.
The guidance must be available to help people who now have a choice to make, which they did not have to make in the past. It must help them to understand that choice and how to get the best outcome. I agree that it must be guidance rather than actual advice, because the cost of providing advice would be incredibly high and would fall on savers, members of pension schemes and people who buy such products. If someone has a £10,000 pension pot, making them pay several hundred pounds for advice that they do not really need and that does not tell them much would be incredibly unfair. Those who want to spend hundreds or thousands of pounds on advice can and should still go and do that. We need to find something that stops people with small pots doing the wrong thing but does not wipe out a large chunk of their pot.
It is right that the guidance is impartial. It could never have been delivered by people in the industry. We could not have even the most innocent and well intentioned pension schemes trying to give their customers general guidance. Who would have had faith that the guidance was impartial and was giving people the right answers? It is right that it comes from outside the industry. Clearly, finding not-for-profit people to give it was the right answer. Every Member here would recognise that the CAB is an incredible organisation that gives quality advice on many complex issues and has a national presence in many communities. It looks to be the ideal partner. It needs to get up to speed with the pensions industry and the various ramifications of the changes, but if it can understand and advise people on the welfare system I am sure it can deal with pensions as well.
My only reason for tabling amendments (d) to (g) was that the new schedule specifies the CAB and the Pensions Advisory Service as guidance providers but allows them to delegate to anybody. It also allows the Government to appoint new providers at some point in the future. I thought it would be better to say in the legislation that we do not want people in the industry being allowed to give the guidance. We do not want the CAB to get into the middle of next year and think, “God, this is really quite hard. We can’t train the people. Let’s find somebody else to do it for us. Oh look, here is Legal & General;”—as an example—“perhaps it might take this over.” That would be a terrible situation. I am sure the CAB does not intend to do that—I suspect no one would want that to happen—but we ought to say somewhere in the rules that nobody with an interest in selling pension schemes or retirement products can be involved in the guidance process. That was what I was trying to achieve with amendments (d) to (g).
I accept that the way in which I drafted the amendments may have included the whole world, so that perhaps no one could give guidance, so I may have gone a little too far. However, I urge the Government to think before Report about how we get into the Bill the idea that we want the guidance to be impartial by law, so that we do not accidentally end up with people giving it who should not be doing so, or with a situation in which a future Government establish a new provider that is not impartial. If we wrote into the Bill that a guidance provider has to be somebody who does not make a profit from selling pensions, that would be the right position.
I have always said that the time when people get the advice will be key. People will have to think about the sort of pension scheme they want to join right at the start. They will have to understand what the investment decisions are, and other issues of that kind, quite early on—when they get their letter asking, “What target retirement date do you want? Will you want a lump sum? How risky do you want to be and for how long?”— to get a pension scheme that does what they want.
I accept that we cannot give people pensions guidance every six months throughout their working lives, so I agree with having some kind of web portal or well produced website where people will be able to see most of the guidance content. It will not be tailored to them, but they will at least have somewhere impartial that they can trust and that sets out advice on the various decisions. That will be of some assistance to people. But the question is exactly when they should get the guidance. Ought it to be before they think of taking a lump sum to pay off a mortgage or some other debt, perhaps at the age of 55? Ought it to be when they are just about to retire, at about 65 and a half, or whatever the pension age will be by then? Could people do both, or if they get advice at 55, will that be it—will they not be able to have it when they come to retire? We need to think about what we are offering people. Someone might need advice at the age of 75 if they had chosen to live off savings or do a bit of draw-down, but then decided a year or two later that they would like certainty for the rest of their lives and so needed some advice about what to buy. How many times can people dip in and out of the guidance?
If there is no tailoring of advice, the discussion will be only theoretical. I can picture the phone call: “Hello, I’ve been told to apply for my guidance. Can I have it?” “Yes, you can. Pensions are very complex. Make sure you shop around. You have a choice: annuity draw-down or just take the cash. There are lots of other things out there. Please be careful and take up advice if you want it.” That is largely useless to people. They will forget that within five minutes of putting the phone down or leaving the room.
We need to get people in a position where they have thought about their own financial affairs. They have worked out what assets and income they have. They have thought about what they want to do in their retirement. Have they got any debts to pay off? Are they keen on a Lamborghini, or perhaps a cruise? Have they got grandchildren whose tuition fees they want to pay? Whatever else they have, they can make a choice about how much fixed income they want to take them through to when they die and how much they want as a bit of luxury in the early years. Without that, the conversation will become highly theoretical.
Amendment (h) outlines what people need to produce before they get that guidance. Let us say that people get their instruction about having guidance. They ring up to make the appointment and are told, “Here is a standard spreadsheet you should fill in”, or “Here is some pack you should work through before the appointment”. As set out in the amendment, that appointment would be at least two weeks later, so people would have time to do that. I probably would prefer it if the guidance provider said, “Have you worked through that information?” If the reply was, “Oh, no, I’ve forgotten to do that,” they would say, “Let’s cancel this now and come back another time when we can get this right.” If we do not do that, I sense that this will end up being a largely theoretical exercise that will not help people.
I can accept that there is a good question about how much we should put in law, how much we should leave to the regulator and how much we should leave to the contract between the Treasury, the CAB and TPAS, but there is a role for us here. If we agree to these reforms and think they are the right thing to do as long as we provide the right kind of guidance, we should be able to set out the standards that have to be met for that guidance to be worthwhile. It needs to look at people’s entire financial affairs, and people need to be prepared at least to understand their own situation when they are given guidance rather than it being completely abstract.
Amendment (h) would also require that guidance sessions last about half an hour. I tried to make it an average and aimed at half an hour. Clearly there is not much point in a phone conversation with someone who does not need half an hour being dragged out for an extra 20 minutes just for the sheer hell of it, but I cannot see how it can be done properly in less than half an hour. We probably do not want guidance providers to be so cost-constrained and target-driven that they try to work people through in 15 minutes, as in a call centre system. I accept that that is not what we are aiming it. We should have an expectation that the conversation will be reasonably lengthy, so that people have a chance to talk through their own circumstances, ask follow-up questions and ensure they have understood everything. Perhaps half an hour is woefully short for that, but we need to understand how long we are targeting for the sessions to last.
Talk about the levy, but the cost of providing advice depends broadly on how many people take the guidance and how long it lasts. When we do the models, what is the assumption? Is it half an hour? Is it 15 minutes? Is it an hour? That must have been thought through. We have seen previous Department for Work and Pensions contracts for which people have been able to carry out medical assessments much faster.