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Amendment 34 withdrawn.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.

Lord Bradley: 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

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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.

5.45 pm

Lord Newby: 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

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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.

Lord Bradley: 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.

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otherwise throughout the decision-making and purchasing process, including safeguards to actively inform consumers of key risks and benefits.”

Lord Bradley: 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”,

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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

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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.

6 pm

Baroness Drake (Lab): 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

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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

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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 through 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.

Lord McKenzie of Luton (Lab): 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.

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

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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.

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6.15 pm

Lord Bradley: 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 agreed.

Schedule 3, as amended, agreed.

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

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

The Deputy Chairman of Committees (Baroness Fookes) (Con): 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.

Lord Bradley: 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

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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.

Baroness Drake: 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.

Lord Newby: 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

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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.

6.30 pm

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

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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.

Lord Bradley: 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.

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Lord Newby: 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.

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Lord McAvoy (Lab): 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.

Lord Newby: 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 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

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“( ) 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.

6.45 pm

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

Lord Bourne of Aberystwyth (Con): 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.

Lord McAvoy: 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 agreed.

Clause 56, as amended, agreed.

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Clauses 57 to 59 agreed.

Lord Bourne of Aberystwyth: 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

12 Jan 2015 : Column 613

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.

Lord McAvoy: 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.

Lord Bradley: 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

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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.

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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.

Baroness Drake: 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.

7 pm

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

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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

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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.

Lord Bourne of Aberystwyth: 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.

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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.

Lord Bradley: 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 agreed.

Clause 60, as amended, agreed.

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

Amendments 56 and 57 agreed.

Clause 61, as amended, agreed.

Clauses 62 to 64 agreed.

Amendment 58 agreed.

Clause 65 agreed.

Schedule 4: Rights to transfer benefits

12 Jan 2015 : Column 620

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”.”

12 Jan 2015 : Column 621

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”.”

Amendments 59 to 86 agreed.

Schedule 4, as amended, agreed.

7.15 pm

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

12 Jan 2015 : Column 622

Lord Newby: 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.

Lord McAvoy: 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.

12 Jan 2015 : Column 623

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—

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 agreed.

Clause 67, as amended, agreed.

Clause 68 agreed.

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

12 Jan 2015 : Column 624

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 agreed.

Clause 70, as amended, agreed.

Clause 71 agreed.

Clause 72: Meaning of “flexible benefit”

Amendment 98 agreed.

Clause 72, as amended, agreed.

Clause 73: Meaning of “cash balance benefit”

Amendment 99 agreed.

Clause 73, as amended, agreed.

Clause 74: Interpretation of Part 4

12 Jan 2015 : Column 625

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.

Lord Balfe (Con): 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

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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.

7.30 pm

Lord Monks (Lab): 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.

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Lord Balfe: Did the noble Lord not hear my other speech?

Lord Monks: 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.

Baroness Warwick of Undercliffe: 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

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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.

Lord Balfe: 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?

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

Lord McKenzie of Luton: 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.

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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

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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.

Lord Bourne of Aberystwyth: 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.

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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.

7.45 pm

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,

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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.

Lord Balfe: 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

Lord Bourne of Aberystwyth: 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.

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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.

Lord McAvoy: 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 agreed.

Clause 80, as amended, agreed.

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Clause 81: Regulations

Amendments 109 to 111 agreed.

Clause 81, as amended, agreed.

Amendments 112 and 113 agreed.

Clauses 82 and 83 agreed.

Clause 84: Commencement

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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.”

Amendments 114 to 116 agreed.

Clause 84, as amended, agreed.

Clause 85 agreed.

House resumed.

Bill reported with amendments.

Elderly People: Powers of Attorney and Living Wills

Question for Short Debate

7.56 pm

Asked by Baroness Bakewell

To ask Her Majesty’s Government what steps they are taking to encourage elderly people, including those with early-stage dementia, to prepare living wills and powers of attorney in anticipation of serious illness or degenerative disease.

Baroness Bakewell (Lab):My Lords, I am particularly grateful for the chance to debate dementia at this time both because it is timely—the national dementia strategy came to an end last year—and because there seems to be considerable movement on both the medical and the social care fronts in the approach to dementia sufferers and their carers. I know this because last December I wrote and presented a documentary for BBC Radio 4 about the subject called, “Suppose I Lose It”, and I learnt a great deal in preparing that programme.

The dilemma at the heart of the debate as I proposed it is exemplified by the response it got. It was first referred to the Ministry of Justice as being a legal matter —just so; the lasting power of attorney is a legal document—but at my request it was rerouted to the Department of Health as primarily a medical matter. I am grateful for this, and I am particularly delighted that the noble Earl, Lord Howe, will be replying for the Government. However, in the wider world there is a risk that the matter of advanced directives and LPAs might fall between the two stools: the legal and the medical.

Let me address the medical dimension first. There is a brief and to the point leaflet available at my local surgery, entitled Worried About Your Memory? The Alzheimer’s Society report tells us that dementia is the most feared condition among the over-50s. They are both fearful of knowing and ignorant of what might happen. This leaflet refers them to the Alzheimer’s Society, Britain’s leading dementia charity. It goes on:

“The earlier you seek help, the sooner you can get information, advice and support”.

There is a desperate need to know more and do more. Earlier diagnosis is the key that unlocks a whole raft of advice and behaviours that can help delay the progress of dementia and assist people to live well with it.

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In my Radio 4 programme, the actress Prunella Scales and her husband, the actor Timothy West, spoke frankly of their 15-year journey with her dementia and how they cope with it. After 15 years, she still beats him at chess. Judging by the public response to the programme, their openness did much to promote a willingness in others to speak out and to talk openly about what dementia means in people’s lives.

The Government clearly recognise the importance of this. However, their plan to reward GP practices with a payment of £55 for each dementia diagnosis was strongly and rightly criticised by both the BMA and patients’ groups. The plan will fade out in March.

The answer must surely lie with patients themselves. A strategy should address all those large numbers of people who have reason to be fearful, to offer them the chance of an assessment at a memory clinic. But—and it is a very important “but”—they will come forward for a diagnosis only if they feel that there is something that can be done; otherwise, they may prefer to live in denial and delay getting help. In response to my programme, many people said, “But I don’t want to know. There’s nothing you can do”. That is not the right message.

What happens when you get a diagnosis of Alzheimer’s? The Alzheimer’s Society quotes a recent poll that found 90% feel unsupported after a diagnosis. The report Living and Dying with Dementia in England also stated that,

“people with dementia are not being appropriately identified for end of life care, and that they have less access to, and receive poorer quality, care than people with other terminal illnesses”.

The Dementia Action Alliance also finds the response far from satisfactory. Its recent Carers’ Call to Action makes constructive suggestions, including pre-diagnosis support from the GP; post-diagnosis education for the patient and their family; a dementia adviser or support worker to provide ongoing face-to-face personalised dementia expertise; a planned map of action for the future; and support to remain active and integrated in the community. Those are just some of the 20 suggestions. In some places, some of this is happening. In Scotland, a named link worker is made available for the first year after diagnosis. In England, the town of Crawley teaches the community’s waiters, teachers, shopkeepers and bus drivers how to recognise and then respond to dementia sufferers amongst them. We need more of these initiatives.

I now turn to the legal aspect of this debate. The encouragement of elderly people, especially those with early dementia, to write an advance directive and sign a lasting power of attorney is most important. The response package to a diagnosis refers obliquely to the need to “plan for the future”. That is left deliberately vague, I think to avoid causing pain, but the pain from not facing up to these legal matters will be the greater the longer they are not addressed. The advice needs to be more clearly and regularly spelt out, and given more emphasis.

The concept of capacity is what matters. The progress of dementia is medically unpredictable both in terms of the symptoms, and the timescale over which those symptoms progress. What matters for capacity is not the length of time since diagnosis, but the insight the

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person with dementia possesses at the time. Barbara Pointon, who wrote to me in response to the programme, said:

“We were only just in time. Four months later and Malcolm”—

her husband—

“could no longer sign his name”.

That was in 1993, before the Mental Health Act. She went on:

“No one told me about Lasting Powers of Attorney”—

as it was then—

“I just picked it up by chance … but it is an essential document and should be tackled early”.

However, the LPA is a long and difficult document to handle; it is also costly to register. The noble Baroness, Lady Afshar, who apologises for not being able to join the debate, teaches law and said of the LPA:

“I have found the form for giving lasting power of attorney exasperating … I had to make the application 3 times, each time needing signatures from witnesses and attorneys and all corrections have to be made in 15 working days”.

She goes on:

“I cannot see how the average little old lady would be willing to go through all these hoops”.

She is not the only Member of this House to have reported the same complaint to me, so improvements need to be made there.

The need for people with early dementia to sign such documents at the earliest moment is evident. In November last year, an International Longevity Centre report urged policymakers to ensure there are no unnecessary barriers to data sharing between health and social care services and the family, and went on to say that there needs to be,

“a major public relations programme to make more in the population at large”,

aware,

“of the ways in which they can make things easier for themselves and their loved ones by planning ahead”.

Last October, Age Scotland launched just such a national campaign, funded by the Scottish Government, urging people to take out a power of attorney. It remains to be clarified whether an LPA in Scotland will be recognised across the UK. Dementia is something we all fear for ourselves and for those we love. I ask the Minister and the Government to take steps to answer the needs expressed here with the utmost urgency and, indeed, sympathy.

8.06 pm

Lord Hodgson of Astley Abbotts (Con): My Lords, I begin by thanking the noble Baroness, Lady Bakewell, not only for giving us the chance to debate this important matter, but for having introduced the whole subject with such a clear and informative exposition which has laid out very clearly the challenges we face.

In my few moments I do not want to merely repeat much of what she has said. I found her arguments persuasive, and I agree with them in large measure. I want to raise an associated issue which concerns wills, powers of attorney, and the flow of funds to voluntary groups, many of which are providing services to dementia sufferers. Like the noble Baroness I fear there is another issue which may be falling between different governmental

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stools. Some noble Lords will be aware that I undertook the review of the Charities Act for the Government. A couple of years ago I produced a report about it entitled

Trusted and Independent: Giving charity

back to charities

. There were a number of proposals to try and improve the position of charities, some of which have formed the basis for legislation now before your Lordships’ House, including the Protection of Charities Bill, which is in pre-legislative scrutiny. One issue that was raised was the number of charities. There are over 160,000 registered charities, and probably as many again unregistered charities, so in all a third of a million charities. There were great concerns about duplication. Many members of the public felt that charities were overlapping and that money was being spent on administration and fundraising which could be better deployed in providing the services for which the charities had been established in the first place.

There is room for a debate on that topic, but not tonight. The freedom for people to decide what they do with their voluntary giving seems a pretty important principle. But there is an issue as to why charities do not merge. In my research, this is for one of two reasons. One is amour propre among the trustees, they cannot bear to collaborate and they would rather work on their own than work together. But there is another important technical reason that concerns bequests and wills. This is where we come to the relevance of our debate tonight. As many Lords will know, bequests and wills are a very important source of fund-raising for charities, but they obviously take time to emerge because unfortunately it requires the person who made the bequest to die before the money changes hands. Importantly, where two charities merge, and as a result one disappears, a bequest to the latter may well be null and void unless the wills are drawn appropriately widely.