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Pensions: Draw-down Charges

Volume 762: debated on Tuesday 9 June 2015


Asked by

To ask Her Majesty’s Government what assessment they have made of charges on drawndown pension products; what plans they have to assess such charges on an ongoing basis; and whether they have any plans to impose a cap on those charges.

The new pension flexibilities have given people greater choice to select the retirement product that is right for them. The pensions industry is designing new draw-down products and will actively monitor the market as it develops. We already have the power to limit or ban decumulation charges and if we see that providers are charging excessive fees, we will not hesitate to act.

But does the Minister agree with his new ministerial colleague, the Pensions Minister, the noble Baroness, Lady Altmann, who I am pleased to see on the government Bench, when she said in the Guardian this year that a cap on draw-down charges was important,

“so that customers are not ripped off”?

She further said:

“A 2% a year charge just to keep your pension invested and have access to it would take away much of the investment return and be a terrible deal for customers”.

In the light of these comments, do the Government intend to introduce a cap on such draw-down charges?

We are going to see how the market develops. It has been going for only two months, and if it looks appropriate, as I just said, we will introduce a cap on charges. I know that my new noble friend, the Minister for Pensions, absolutely agrees with that. The Prime Minister has also promised that we will keep a close eye on this.

My Lords, at all stages between the pension saver’s pocket, the investment and back again, there are hidden charges and fees—admin charges, investment charges, platform charges, transaction charges and advice costs, to name just a few. Does the noble Lord agree that there should be transparency for pension savers, and that they should know what hidden fees and charges are attracted to the money that comes from their pocket?

My Lords, I imagine that quite a lot of noble Lords in the House today will remember the amendment we made to ensure that we would get transparency of charging, and we are working on that process. That is for accumulation funds, but there is no reason why we should not introduce the same thing for decumulation funds, if that is appropriate.

My Lords, the last Government introduced some really useful reforms for people saving for their pensions, and I trust the new Government will continue in that vein. I would simply make the point that it would be more useful if the Government were to put pressure on those firms providing products to have a reasonable charging structure, rather than seek to achieve this by legislative means. It seems to me that there is a very strong moral case for the Government so to do.

We are doing that, as exemplified by the new Pensions Minister meeting the industry and working with it to make sure that it produces the right level of charging. The Government and the FCA are able to monitor that to see that we get appropriate and fair charges.

My Lords, I refer to my entry in the register of interests, including my role with the Pensions Advisory Service. Some providers of income draw-down will charge between £150 and £200 each time a customer takes out cash, so a person with a £30,000 pot who takes out £5,000 in cash over six years will lose between £900 and £1,200. Will the Minister challenge the industry on why the charge to access cash now is so ridiculously high?

As I said at the outset, this market is two months old and we are watching very closely to see how the charges develop. There is a range of different charges; some providers charge for drawing down and others do not, but we will be watching it very closely.

My Lords, when this policy was first made, to a great fanfare of trumpets, the Government were warned of the difficulties that would arise unless they took control of the matter. What the Minister is really saying is that no planning was done whatever and no thought whatever was given to how this matter would develop. Is he aware that, the way things are going, this will make the PPI scandal look like a children’s tea party?

My Lords, noble Lords will be pleased to know that a great deal of effort has gone into making sure that this reform works. In particular, we introduced guidance in the shape of Pension Wise. We are working with the industry and monitoring what is happening. As I said, we will be prepared to go in and put caps on charges and address the issue of transparency if that is thought to be necessary.

My Lords, complexity and inertia still define the characteristics of this industry. The Government said that they would not hesitate to intervene if there is a rip-off, but rip-offs take place daily at the moment. In the absence of the Government’s will to go one step further, is there not a compelling case to ensure that the cash element is disclosed in these documents, so that people can see exactly what they are being charged on a monthly or yearly basis?

That is one of the things that we will look at very closely. Clearly, we need to get evidence of how this particular part of the market develops. We already have transparency in the accumulation phase. If that is necessary in the decumulation phase, we will not hesitate to introduce it.

My Lords, you do not need to wait to watch the market to believe that transparency is absolutely essential in any honest financial business. Why cannot the Government decide that there should be complete transparency of charges from the beginning? Should they not have decided that at the outset, when they introduced this new reform?

My Lords, we have a marketplace and it is fair to give it a chance to develop. At the moment, according to the FT and Which?, the annual charges applied to decumulation pots are somewhere between 0.25% and, for high-end performers, 1%. For the set-up, the charge is somewhere between £70 and £300. As we start to gather this evidence and assess it, we will know whether we need to intervene.

Is the noble Lord’s ministerial colleague, sitting at his side, equally in favour of this watching approach?

I think the noble Lord will be able to see a quote saying exactly that: she is monitoring this very closely.