I am grateful to my hon. Friend. That is an issue that the Work and Pensions Committee, of which he is a member, has raised in relation to the appropriate regulatory regime. It is fair to say that in drawing up the regulations and guidance for the Bill, the number of times we have had to ask ourselves which regulator it is that does which bit and to ensure that what the FCA does mirrors what the Pensions Regulator does has added to the complexity of the process. When I gave evidence to the Select Committee a little while ago, I said that this was not the time to start reforming the regulators. That remains my view. My hon. Friend will be aware that the FCA has only just been created out of the ashes of the Financial Services Authority. This precise point is not the right time for yet another regulatory reform. However, the experience of the last 12 months has made me more sympathetic to the view that the eventual destination might well be a single regulator.
My hon. Friend also raises the regulation of DA and collective DC schemes. It is clear that what we need is good governance. Arguably, one of the problems of the Dutch experience, as it has been described to us, is that the schemes were described as DB to the members and DC to the employers. One of those two descriptions was not true. We have to ensure that we have good governance and transparent communication. Because of issues of intergenerational fairness and so on, the rules of the scheme—who gets what when things go wrong and who benefits when things go well—have to be transparent. We therefore need a clear, although not excessive, regulatory framework.
What I have described so far is the Pension Schemes Bill as we originally envisaged it, which deals with risk sharing. Obviously, that is the fruit of several years’ worth of consultation papers and extensive engagement with stakeholders in the pensions industry. I would like to place on the record my appreciation to the many working groups that the Department has run, including the defined ambition working groups of Andrew Vaughn of the Association of Consulting Actuaries, and to all the experts who have given their time to help us draw up the various models. We are very grateful to them.
The second half of the Bill relates to the Chancellor’s freedom and choice in pensions agenda. It may be that other right hon. and hon. Members regularly have people walk up to them in the street, shake their hand and thank them for Government policy. It has been a relatively novel experience for me, but I have genuinely had people walk up to me, shake my hand and thank me for this policy because it gives them back control over their own money. It says not that the Government know best but that the individual, with the right support and guidance, should be in the best place to make their own choices about their own money. The Government are committed to giving people freedom and choice in how they use their pension savings.
Budget 2014 announced radical new flexibilities in how and when people may access their pension arrangements. We undertook a 13-week consultation, and the response to it was published in July. Draft tax clauses for technical comment were published in August. The momentum is gathering. This Bill, along with the taxation of pensions Bill, will mean that from April 2015, individuals from the age of 55 will be able to access pensions flexibility if they wish to, subject to their marginal rate of income tax, rather than the current 55% tax charge.
This Bill will make the required changes to pensions legislation, including a guidance guarantee. That means that everyone with a defined-contribution pension arrangement will be offered free, impartial guidance so that they are clear about the range of options available to them on retirement. There will also be a duty on providers and schemes to ensure that they make people aware of their right to guidance and signpost them to this service.
The taxation of pensions Bill will legislate for the required tax regime changes. The Government will continue to allow members of private sector DB schemes the freedom to transfer to other types of scheme. In the majority of cases, it will continue to be in the best interests of the individual to remain in their DB scheme.
That is why two additional safeguards will be introduced to protect individuals and schemes. First, there will be a new requirement for individuals transferring out of a DB scheme to take advice—with a capital A—from a financial adviser before a transfer can be accepted. Secondly, there will be new guidance for trustees of defined-benefit schemes on using their existing powers to delay transfer payments and taking account of scheme funding levels when deciding transfer values. To protect the Exchequer and taxpayers, however, transfers will not, other than in very limited circumstances, be allowed from unfunded public service DB schemes to schemes with DC arrangements.
I want to pick up on two final issues that relate to how the freedom will work in practice. The first was raised in oral questions yesterday and relates to the position of schemes with exit fees. The uncharitable side of me would say that one or two of my answers yesterday were misrepresented in the Twittersphere, as I think it is called. The charitable side of me would say that my comments were misunderstood. Let me be absolutely clear about where we stand on schemes with exit fees.
First, despite Opposition attempts to hype this up and overstate the case, the number of schemes with exit fees is very much in the minority. In other words, our 2013 pensions and charges landscape survey found that more than five in six trust-based schemes, and nine out of 10 employers with contract-based schemes, had no exit fees. We must therefore be clear that exit fees are exceptional.
Secondly—I am generally talking about legacy schemes here—we are already considering charges, and a legacy audit is being undertaken of old and high-charging schemes. That is due to report by December and will provide additional information about existing fees. At the moment, we do not have full information with which to form policy, but the Government are working with the pensions industry to understand how common exit fees are, how large they are, and the terms under which they operate. Crucially, once the evidence is clearer, the Government will be able to decide whether additional measures are required to protect savers. At the moment we are gathering information, but we are determined to ensure that savers are protected. I hope that is helpful.
The compatibility of the two halves of the Bill has been mentioned. On the one hand we are giving people freedom and flexibility, and on the other we are bringing forward a framework within which people might be members of a pension scheme all their life, through working age and well into retirement. We must obviously ensure that those two things gel, and I assure the House that they do.
All our reforms are about putting the saver first and addressing people’s desire for greater certainty about income in both the savings and the pay-out phase—the accumulation and decumulation phase. In a defined ambition scheme, more than one type of benefit arrangement is likely to make up the overall pension pot or income stream. We expect people with defined contribution arrangements within a defined ambition scheme to be able to access those arrangements in line with new budget flexibilities. Members of DC schemes that offer collective benefits will be able to cash out their collective benefits if they so choose. If they remain within the scheme, it is likely that they will receive a
pension income for life, since that is how we envisage collective benefits being set up. People will not have to make decisions on how to access their savings; decisions on how to pay out scheme benefits will be made by scheme fiduciaries.
These schemes will offer an option—that is the crucial point: the freedom and choice agenda—for those who wish the scheme to pay them a pension income for life. Either way, the individual will have choice over what to do with their savings. Together with the amendments that will follow shortly, the Bill will set out a legislative framework that will mean greater choice and flexibility for future private pensions, tailored to the needs of employers and individual savers.
This Parliament has seen little short of a pensions revolution: radical state pension reform providing a firm foundation; mass membership of workplace pensions through the effective implementation of automatic enrolment; quality standard charge caps; and a war on rip-off pension charges. Now in this Bill there are two new strands to our reforms: enabling and facilitating risk-sharing pension models rather than the extremes of risk that would otherwise be the case, and new freedoms for individuals to know best what to do with their money. At the end of this Parliament, we will truly have transformed the pensions landscape. That is a record of which this coalition Government can be proud, and I commend the Bill to the House.
2.43 pm