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Volume 750: debated on Thursday 12 December 2013


Asked by

To ask Her Majesty’s Government what action they propose to take on the report by the Financial Services Consumer Panel concerning the selling of pensions annuities.

My Lords, when people have saved up for retirement, the Government agree that they should get the best from their retirement savings. That is why we are already taking action to combat excessive pension charges. It is also why we set up the Open Market Option Review Group, which introduced measures to prompt consumers to shop around for an annuity and secure a better retirement income. The Financial Conduct Authority is also looking, through its thematic reviews, into the important issues that this report raised. The report is a useful contribution to ongoing work in this area.

My Lords, will the Minister join me in thanking the Daily Telegraph and Daily Mail for exposing this latest example of financial institutions cheating their customers? Will he ensure that the Financial Conduct Authority deals with them firmly, as it did yesterday with RBS and Lloyds? Could he also look at some way of ensuring that the people who are punished are those in the institutions responsible and not the bodies themselves, which pass on the costs to their long-suffering customers?

My Lords, I am not sure that I ever thought I would say this, but I join the noble Lord in thanking those newspapers that have drawn yet another financial problem to more general interest and view. The Financial Conduct Authority has new powers and is already showing that it intends to use them very rigorously. It has powers in respect of individuals as well as institutions, and will use them.

My Lords, will my noble friend, in making his statement that it is important that those who have saved throughout their life get the best return on their savings, bear in mind that the Government’s quantitative easing programme is one of the major reasons that annuities are so poor? Can we have some indication of when the Government might abandon QE?

My Lords, we have discussed many times the fact that low interest rates are a key determinant in supporting growth, and that growth is in the long-term interest of the entire community. The Bank of England has given forward guidance in respect of when interest rates might rise. Monetary policy is firmly in its purview rather than the Government’s.

My Lords, the research in this report indicates that insurers can make £35,500 out of a £100,000, 25-year pension pot. That illustrates that this is a dysfunctional market. The Government have been told this for years. Given that the annuities market will double by 2015, is there not a case for the Government to consider a standing commission on pensions, which can look at the industry and pensions in the long term to ensure that people are not ripped off and that they get the best deal for their retirement?

My Lords, as the noble Lord will be aware, the big new development in pensions is around auto-enrolment. In this area, the Government have set a cap on allowable fees, precisely to deal with the problem of high fees going forward. More generally, the FCA is undertaking a thematic review of annuities, which will look at fees among other things. There is a lot going on and we will see action without needing to set up any further bodies to bring it about.

My Lords, would the Minister not accept that, after the latest in an apparently endless series of disillusioning revelations about the cynicism of too many parts of the financial sector in particular, it is about time that we as a Parliament, and indeed the Government, made clear to the people of this country that there is a limit to what we can do in these issues? They bear on profound moral issues. Perhaps the time is right for us to, in effect, throw the ball back into the court of Mr and Mrs Britain and call upon them to exercise their own, individual moral autonomy and power to effect some sort of reformation of what is becoming a very depressing state of affairs.

There are obvious limits to what government and Parliament can do, but I have always believed that one of the very important things that Parliament can do is to act as the bully pulpit and set out what it thinks is the correct way of behaviour. In terms of the financial institutions we have instituted, as the noble Lord knows, a number of pieces of legislation in this area but, as the Parliamentary Commission on Banking Standards pointed out, culture is very important—that is, the culture of the industry and also of consumers. A big problem around pensions in particular is that virtually no consumer understands the product that they are buying, which makes it very difficult for us to get people to accept responsibility. They find it very difficult to get to grips with a pretty complicated product.

My Lords, unusually, the report of the Financial Services Consumer Panel on annuities is even more alarming than the press reports. Its final paragraph states:

“The chances of mass consumer detriment”—

I emphasise, mass consumer detriment—

“are, in our judgement, too high to trust to current market-driven solutions alone: hence our recommendations for further regulatory and government-led structural reform”.

Will the Minister commit to using the Pensions Bill to require a regulator to set best practice standards for those offering annuities and to require pension schemes to take responsibility for directing savers to brokers who meet those standards?

My Lords, there is already the open-market option review, which brings together the Government, the regulator, providers and consumer groups. It is looking at how we can promote best practice. There is also an ABI code which, for example, requires insurers to no longer send out application forms so that people take out an annuity automatically with the company with which they have their pension pot. We are bearing down on this issue, and what the report that was produced only this week shows, is that there is further to go. However, we have the structures in a new regulatory framework, and we are determined that it will work.