Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2006

rose to move, That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2006. The noble Lord said: I am moving this order on behalf of my noble friend Lord McKenzie of Luton. I am commending to the Grand Committee the change needed to the Financial Services and MarketsAct 2000 (Regulated Activities) Order 2006 to introduce a new FSA-regulated activity related to pensions. This change specifically relates the issue of the regulation of personal pensions by the FSA. Members of the Committee may be interested to hear that this measure was so uncontroversial that when debated in the other House, it lasted barely one-third of its allotted time. That is not intended as a challenge to the noble Baroness, Lady Noakes, and the noble Lord, Lord Oakeshott. It probably reflected the overwhelming support for this measure expressed during consultation last year. Sweeping away the old rules surrounding personal pensions is very much an extension of pension tax simplification and is wholly in line with the deregulation agenda. I should make clear that these changes do not impact on occupational pension schemes, for which there is a separate regulatory framework. Let me start by saying something about the background to the changes. The pensions market has changed over time and will continue to do so in the future, not least for demographic reasons. Around5 million individuals now contribute to personal or stakeholder pensions. At the same time, the legislative changes the Government have made are reshaping the personal pensions landscape. While we have changed the pensions tax framework in the face of a fast-changing pensions market, we recognised that the prescribed rules surrounding who can run personal pension schemes have confined it to a small group that potentially limited competition. In the face of such a changing pensions market, we also recognised that elements of personal pensions are beginning to fall outside Financial Service Authority consumer protection. A formal consultation was held between September and December last year to explore these issues. It sought views on four proposed options for rule changes on who could run a personal pension scheme, including a ““do nothing”” option as well as the Government’s preferred option of proposing to create a new regulated activity, overseen by the Financial Services Authority, related to, "““establishing, operating or winding up a personal pension scheme””" from April 2007. We fully considered all 25 responses in detail and published a formal response on 23 March this year. It set out industry views in detail and announced the proposed policy change; namely, that the Government were proposing to create a new regulated activity related to personal pensions. Financial Services Authority permission would then replace the restricted list of those who could run tax-privileged personal pension schemes. The consultation gave overwhelming support for change with three-quarters of respondents favouring introducing the Government’s preferred option that I am commending. Let me quote some examples from a variety of sources illustrating the extent of that support. The Association of British Insurers, whose members provide most personal pensions in the UK, said that this package, "““offers customers the greatest protection, while maintaining wide choice””." The Association of Investment Trust Companies said that the package, "““will provide maximum flexibility for future development of the sector over the long term. At the same time, it will maintain the FSA’s strong oversight of pension provision””." Barclays plc said: "““Establishing a new regulated activity directly related to personal pension schemes…will ultimately benefit both consumers and the wider financial services industry””." This overwhelming support was not surprising given that we had worked in partnership with the pension industry from the outset to make these proposed changes. As well as a formal consultation in late 2005, there have been informal discussions between the Government and a number of bodies in the financial services industry. Let me turn to exactly what this change will deliver. While the Financial Services Authority already regulates bodies such as insurance companies and banks that provide personal schemes, a very small number of schemes and activities remain outside FSA supervision, and those elements are expected to grow in future as the pension market evolves. For example, personal pension schemes investing in commercial property would currently fall outside FSA regulation. Similarly, some persons administering pension schemes may also fall outside FSA supervision. It is only right that all aspects of personal pensions in future should be regulated by the FSA. Likewise, all elements involved in consumers choosing a personal pension, including administration, should be covered. This change will build on the FSA’s existing role of regulating stakeholder pension schemes. It will also provide transparency and improve consumer confidence. As well as providing benefits and protection for all consumers, the change I am commending today is part of a wider package of related changes that will help new providers enter into the market, as it will become the basis for eligibility to establish tax-privileged personal pension schemes. We are not debating that particular finance measure today, but noble Lords should note that the two are inextricably linked. Overall, this package will increase competition and choice, as well as give added consumer protection. The FSA already regulates many aspects of personal pensions, and it is only right that all aspects should come under FSA regulation as they develop in the future. As pension investments become more diverse, an increasing range of pension activity may fall outside the scope of FSA supervision. Without the changes I am commending there is a risk that consumer protection may fall below the current very high levels. The order will also enable the FSA to open its doors this autumn to applicants seeking permission to carry out the new activity from April 2007. This will give maximum time for firms to prepare to become registered. The FSA and the Government have worked closely together to ensure a smooth transition for firms to the new regime. This has included waiving Financial Services Authority application fees for firms that are existing personal pension providers. Not only do we want consumers to enjoy maximum protection, but we want them to have a choice of pension provider. As I have already explained, eligibility to establish a registered pension scheme that qualifies for tax privileges will from next April be based on having permission from the FSA to carry out this new activity. This element of the package will require a separate legislative change in the Finance Act 2004 and one to the Pension Schemes Act 1993. I can advise noble Lords that this legislative change will be made in the Finance Bill 2007, the next guarantee vehicle available, but it will have effect from 6 April 2007 to coincide with the coming into effect of the new activity. To keep interested parties fully updated, the Economic Secretary to the Treasury in the other House announced details of the legislative timetable for making the necessary amendments. It was published on the websites of the Treasury and Her Majesty’s Revenue and Customs on 12 July. A draft Finance Bill 2007 clause and explanatory note was published on the websites of the Treasury and Her Majesty’s Revenue and Customs at the same time. I commend the order to the House. Moved, That the Grand Committee do report to the House that it has considered the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2006.—(Lord Evans of Temple Guiting.)