I have every reason to expect that people will be able to see someone individually, face to face. It may be that we can complement that with other patterns of delivery, but I have no reason to think that where we end up will not be someone sitting down face to face with one other person, not a group.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked the cosmic question of whether the guidance is just a portal to advice or whether it covers an individual’s financial circumstances. We are clear that it is more than just a portal. The FCA’s consultation set out that the guidance must cover factors relevant to an individual’s financial situation, including their motivations, and it will certainly include things such as tax, so it will not be simply a route to somewhere else. To come back to the point made by my hon. Friend the Member for Amber Valley, it will not simply say, “You have got this money and there are things you can do with it. There is a website you can look at—hope it goes all right.” It will be much more tailored than that.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked whether people will run out of money. I have a couple of observations on life expectancy. One reason why the guidance service is there is to help people understand how their pension saving can provide an income in retirement, and part of that will be addressing how long their money needs to last.
Longevity can be a sensitive issue. At some point I think I suggested that we give people their estimated dates of death, which was regarded as controversial in some quarters. However, we are trying to test how we can make the guidance effective and engaging and fit longevity into that, using insight from behavioural economics to inform the framing of such issues. For example, we might say to people, “Someone like you might reasonably expect a 20-year retirement, but you need to think that it might be 30 years or 10 years.” One can imagine such a conversation.
It is important not to be black and white about this. We are not moving to a world in which nobody will buy an annuity. Some people will buy annuities exactly as before, but there is a groundswell of opinion that some will lock into them later in life. For example, a good outcome for people would be that, early on in their retirement, their money goes on growing their investment. Perhaps they will have to be willing to take an element of the downside of such risk for the benefit of investment growth, but then, at 75 or a later age, they will lock into an annuity. People recognise and accept the uncertainty of longevity, and products will still be available to deal with that. However, to lock in at 55 to a product that insures against living to 90-odd may not be such a good thing, so there is a balance to be struck.
The hon. Gentleman said that one issue was that people might run out of money and another was that they might blow the lot. I do not know whether he envisages queues of Lamborghinis outside the housing benefit departments of North Lanarkshire—I think that is one of his local authorities—but that seems implausible. The overlap between people who have very large pension pots and those in the scope of means-tested benefits is small. For example, having a big pension pot does not correlate well with being a renter.
There is a potential impact on the Exchequer, but it is worth saying that the Office for Budget Responsibility’s latest projections, published in the 2014 fiscal sustainability report, assume no increase in income-related pensioner benefits as a result of the wider freedoms in the use of pension pots. I suspect that zero is pushing it, but, in the scale of some of the changes we have made to state pensions, we do not believe that the numbers involved in this process will be terribly eye-watering.
The hon. Gentleman referred to a fairness test and asked whether pension providers will start lifestyling at 45. As someone who is 49, I find that quite an alarming thought. He will be aware that the National Employment Savings Trust is rethinking its lifestyling and target date fund approach in light of the new freedoms.
My sense of the mood out there is that people will not start lifestyling earlier. If anything, they will go on investing in risk-seeking assets for longer because, at the point of turning their retirement pot into a retirement income, they will have more choice to go on investing. It would be very odd to lock into low-risk assets before that point and then suddenly say, “I’ve got 30-odd years to live; I am now going into risk-seeking assets”. The idea that we will all have our money in gilts is implausible, but we expect that schemes and providers will adapt their approaches in this more flexible world.
The hon. Gentleman asked an important question about defaults: what happens to people who do nothing? Our impression from looking at providers and so on at the moment is that there are restrictions on simply being defaulted into a product. There are already protections in the system, so schemes cannot default members unless their membership has been deferred for at least a year and they have provided written notice of at least 30 days. Many schemes will have other defaults—for example, cash accounts, bonds or lower risk investments that allow members to exercise all options under the flexibilities, if and when they later engage. The Association of British Insurers advises us that this is common practice when a member does not engage. This issue came up in the oral evidence sessions. Forcing people into a default such as an own-brand annuity would be exceptional and there are already protections in place, but obviously we will continue to monitor that.
Another issue raised by my hon. Friend the Member for Amber Valley and the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East was multiple access. One of the refrains that I have heard is, what happens if people want a second bite? Is one shot of guidance good enough? Compared with a hypothetical world where people are getting free and independent guidance all the way through their adult life and well through retirement, it is not as good. Compared with where we are coming from, it is an awful lot better. So many people, at the moment, are defaulted into poor-value annuities, stay with their provider or do not have an impaired life annuity.
Moving into a world where the concept of free and impartial advice is in place is a big step forward. Do we think that that is the end of the journey? Clearly not. Even if one has—roll of drums—the guidance moment with TPAS face to face, we are not going to ban people from phoning TPAS. They will still be able to ring someone up and chat things through. They will still be able to go to a website.
There is an issue about what happens on day one and what the steady state will be. On day one, we will have not just the people coming up to pension age in April 2015, but the whole carry-over group of people who have been on hold for a year. There is an issue about being sensible about capacity on day one, but in the steady state we are continuing to think about how best we meet the needs of people who would benefit from repeat visits to the service. I do not think that as someone leaves we will say, “Never darken our doorstep again.”
My hon. Friend the Member for Amber Valley raised the important point about what happens before and afterwards. We certainly envisage that if someone rings up—there will be centralised phone number—and says, “I want to access my guidance,” there will be a period of probably weeks between making the phone call and having the guidance session. At the initial call, that person will be told that the best use of the guidance conversation is to gather relevant information about their state pension and other pension rights, and other assets such as housing equity, in some sort of standardised format. If someone walks through the door and they have not done that, we are not going to send them away, but we will make it clear to people that if they gather the evidence their session with the guidance provider will be much better and more effective.
We also envisage a written output of the session, summarising what has been said and providing pointers to further sources of guidance where people can find independent financial advice and so on. Even within the model of a single guidance conversation, there is a preparatory phase and a follow-up phase, which is a process we can develop over time.
While full-blown, regulated and highly tailored independent financial advice can be relatively expensive, although it can also be very cost-effective, we are continuing to look at more streamlined and simplified advice. The FCA is continuing to encourage the development of affordable models of advice for retail investment products.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East asked about the 130,000 number, though he also says that we have not published any numbers. We have, and that number is in the technical impact assessment. It relates to the number of people projected to draw down pots faster than if they had bought an annuity. If they draw the income earlier, we get the tax earlier. That has to be the basis for the estimate of the fiscal impact of the changes, which is why we have published that number. The data come from the Office for National Statistics and Her Majesty’s Revenue and Customs’ analysis of the wealth and assets survey. It is an estimate and all these things are being refined.
The hon. Gentleman asked whether I can guarantee availability across the country. That is, of course, our plan and it is why we are partnering with citizens advice bureaux, which cover England and Wales, Scotland, and Northern Ireland. TPAS is an existing body and it will be expanded. We will also ensure that the website is in place. We are therefore confident that, wherever people are in the country, they will be able to access the service.
The hon. Gentleman asked about risk assessments, which is exactly what I would do if I were sitting in his place. He knows that Governments do not routinely publish risk assessments. In all these cases, we seek candid advice from officials on a range of scenarios, and that advice will be all the more candid if it is not about to be published on the internet. Obviously, we carefully model all the different assumptions and how things might come out.
The hon. Gentleman says there are uncertainties about the tax impact. Clearly, in this brave new world, every number we produce has to be signed off by the OBR. We are refining our estimates and talking to people about their likely choices.
The hon. Gentleman mentioned the take-up of the guidance guarantee, which, as my hon. Friend the Member for Amber Valley said, will largely determine the cost. Although the hon. Gentleman cited the 2.5% figure from Legal & General, he did not cite the 90% figure from the Chartered Insurance Institute, and I know he has seen its report, because we saw it in his hand the other day. Now, the Chartered Insurance Institute does not say that 90% is its forecast, but it is fair to say that the 2.5% is not a forecast either. Clearly, the more we talk to people and test the market, the more sense we will get of the likely demand. Frankly, however, we will not know for certain until next April; indeed, we will not know steady state until beyond then. However, at the point at which we set the levy, we will clearly have to have an assumption as the basis on which to do so, and we will need to be in that position before next April.
The hon. Gentleman asked about the qualifications of the people providing the guidance. We are not saying, “You have to have a GCSE in pensions guidance.” That is not the way we are going to do it. We will have an arrangement, and we will give grants to TPAS and the Citizens Advice groups. They will have a duty to provide guidance of a specified standard and content. Essentially, we are telling them, “You need to make sure the people providing this guidance are up to the job.”
My hon. Friend the Member for Amber Valley put his finger on the point: clearly, TPAS is very familiar with this territory, and although Citizens Advice is less familiar with it, it has an infrastructure not only of national offices, but of training and updating, and I am always impressed by that. As my hon. Friend rightly said, the social security system is constantly changing, and front-line CAB advisers need to know the latest law and changes. There is an infrastructure and a culture of continuous professional development—one might use that term in another context—and of training and updating, and I am sure it will be put to good use as the CAB network provides face-to-face guidance.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East said the CAB is a bit stretched already. Actually, we are paying it. It will get extra money, which we would probably all agree is good news. I think most of us rate the CAB network highly, and we would probably all welcome the fact that millions of pounds—I do not think that is a state secret—are going into it to give it enhanced capacity. That will help the viability of the CAB network in general terms, and I am sure we would all welcome that.
The hon. Gentleman asked about the so-called second line of defence, and it is worth saying that protections and rules are already in place. If I go to a product provider, there are the Treating Customers Fairly rules, and the FCA has product regulatory powers. However, the FCA continues to look at the issue as part of its ongoing thematic review of annuity sales practices and the retirement income market study, both of which will be completed before we start the new process.