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Pensions Advice

Volume 755: debated on Wednesday 23 July 2014


Asked by

To ask Her Majesty’s Government what safeguards will be in place to ensure that people receive sound advice when seeking to access their pension funds.

My Lords, every individual with defined contributions pension savings will on retirement have a new right to free and impartial guidance to help them make informed decisions about how they use their pension savings in retirement. The Government will legislate to give the Financial Conduct Authority responsibility for setting standards for guidance and monitoring compliance with those standards. The FCA has published a consultation paper alongside the Government’s response on its proposed standards.

My Lords, what has been announced by the Government so far is wholly inadequate. We all remember the pensions mis-selling scandals of the 1980s when people were enticed out of SERPS and then fleeced. What qualifications will individuals need to have in order to be able to give this advice, and what guarantees will be put in place to ensure that people do not see their pension pots go in fees, charges and wholly inappropriate products?

My Lords, the key innovation in the way we are planning to introduce this change is that of giving every individual coming up to retirement an entitlement to free guidance. To ensure that the guidance is impartial, we have decided that it will be provided by independent organisations which have no actual or potential conflicts of interest; it is not going to be the pension companies providing that guidance. A team has been established within the Treasury to lead on service design and implementation, bringing together expertise from across government, the Pensions Advisory Service and the Money Advice Service. The FCA will be the ultimate backstop in terms of the quality of the advice given and the monitoring of it. We will legislate to give the authority that explicit power in the Pension Schemes Bill later in this Session.

My Lords, will the Minister endorse the wisdom of my father who, in giving me an instruction shortly before he died, said that after his death I was to ensure that my mother took no advice whatever from either the vicar or the bank manager?

My Lords, being married to a vicar, I could not possibly say that vicars are not always good sources of advice. The key challenge raised by the Question is that for many people pensions are a subject of complete bemusement. This reform, which I believe is very welcome, will give people much more choice over how they spend their money in retirement. However, they will be able to spend it wisely only if they are given proper guidance, and that is what the Government are committed to ensuring.

My Lords, guidance to help people make choices about how to spend their pension funds is of course to be welcomed, but given that the Government expect the industry to respond to greater choice by providing new retirement income products, how will they ensure that these new products meet the interests of savers in terms of quality standards, transparency and level of charges, so avoiding new manifestations of consumer detriment occurring yet again in the pensions and investment industry?

My Lords, this is why we have set up a new framework for regulation and why we established the Financial Conduct Authority. We have given the authority much greater powers than the FSA had to deal explicitly with these problems. We have to be sure that the new products which are coming forward meet the standards that the noble Baroness wishes to see. The FCA is tasked with that job and is absolutely determined to avoid the problems of mis-selling that we have seen in the past.

My Lords, is it at all possible that any information on pensions that goes to the ordinary man or woman in the street, like me, could be passed by the Plain English Campaign because there is nothing worse than page after page of small print in stupid words?

My Lords, I completely agree. For many years I have been trying to persuade the financial sector to do as the medical sector does and establish a professional body of writers to try to ensure that the material that people get is comprehensible. As far as this particular process is concerned, the FCA is looking to provide a template that pensions providers will complete, which might be on as little as a single sheet of paper, that will provide the basis for the guidance that is subsequently given.

Do the Government recollect that millions of people, even today, are bombarded on a daily basis by different companies, offering help to get payment protection policies returned and so on and so forth? How will they guarantee that this new policy will not mean that we will be bombarded daily by people telling us that we must try to draw down our pensions?

My Lords, the key thing is that people get guidance from a trusted source. There will be a commonality of approach. The FCA is producing very detailed technical guidance, which everybody providing the personalised guidance will provide. I recommend that the noble Lord looks at the FCA consultation document that came out earlier in the week, which explains how it is going to do that. There is a danger that we are so concerned that things might not work that we never innovate.

My Lords, I remind the House of my interest in the Financial Ombudsman Service board. In the Budget, the Chancellor announced that everybody would get,

“free, impartial, face-to-face advice”.—[Official Report, Commons, 19/3/14; col. 793.]

on their retirement options. Now we learn that it will be guidance, not advice, and that face-to-face could mean online or over the phone. Will the Minister please tell the House how many people in 2015-16 will actually get face-to-face guidance? Will he reassure the House that that commitment will not be watered down any more? People coming up to retirement need advice they can trust.

My Lords, the difference between guidance and advice is simply that within the financial services sector advice is a regulated activity which, as the noble Baroness knows, requires those who offer it to have gone through a significant process. This is a different level of advice. As far as face-to-face advice is concerned, the Treasury has undertaken a considerable amount of consultation. Many people have said that they would much prefer, in the first instance at least, to get their advice online or to do it on the phone. We have said, however, that any individual who wishes to have face-to-face advice will have it, and they will. It is simply that not everybody wants it that way.