I am sure that we all wish him a very happy and well earned retirement, and look forward to hearing his speech today.
I turn to the Bills before us today. Together, these Bills introduce the latest radical reform of pensions. These ground-breaking pension changes were the centrepiece of the Queen’s Speech, and are about encouraging new forms of pension saving, such as shared-risk schemes and the provision of collective benefits to give greater security in retirement, and giving people freedom and choice in how and when they access their pension savings. The time is right to make these changes to private pensions legislation. The new state pension will provide a simplified foundation for those in retirement, making it easier for people to know what pension they will receive from the state. It will provide a platform on which individuals can build their own private pension savings according to their wants and needs in retirement.
The excellent early results of automatic enrolment mean that millions more savers have joined workplace pension schemes. This Government have also taken forward other changes so that the future private pension landscape delivers high-quality, value-for-money pensions for members. For example, regulations are being brought forward so that, subject to parliamentary approval, from April 2015 there will be a charge cap in the default funds of qualifying schemes—schemes used for automatic enrolment—and new requirements for independent governance committees and trustees to report on costs and charges.
The market is therefore growing, and employers and the pension industry are already thinking about future pension provision. These Bills further encourage a flourishing private pensions market that provides greater choice for business on the pensions offered and for individuals on how they access their pension savings. Taking no further action is simply not an option. Despite government action, the Department for Work and Pensions estimates that there are 11.9 million people below state pension age who are not saving enough to provide adequately for their retirement.
I turn to the Taxation of Pensions Bill. My noble friend Lord Newby is the pilot of this legislative craft, but let me say a few words by way of introduction. The Taxation of Pensions Bill contains measures to make the tax system fairer by ensuring people have more choice about how they access their savings, to prevent this new flexibility being exploited by individuals to gain unintended tax advantages and to ensure the taxation of pension savings on death remains fair and appropriate under the new system. The Bill will mean
that, from April 2015, individuals from the age of 55 will be able to access their money purchase pension savings flexibly if they wish, subject to their marginal rate of income tax, rather than the current 55% tax charge. In addition to the Government’s consultation after the Budget, we also published draft legislation for technical consultation in August.
I will talk about these changes in a little more detail, starting with measures to ensure people have more choice about how to access their savings. This Bill is about ensuring that people have greater choice at the point of retirement. The current system restricts choice at the point of retirement. Those with the smallest and largest amounts of pension savings have flexibility, but those with a moderate amount of savings have very limited options. The measures in this Bill will change that by extending this flexibility, such that it applies regardless of the size of the pension pot, thereby ending the effective compulsion to annuitise.
The Bill also introduces a new method to allow people to access their pension flexibly. The “uncrystallised funds pension lump sum”, or UFPLS—the clumsiest acronym I have ever seen in my life—is a new option. This will give individuals the flexibility to take one or more lump sums from their pension fund, with 25% of each payment tax free and 75% taxed at their marginal rate, without having to enter into drawdown or take all of their tax-free lump sum in one go. The Bill also increases choice by introducing changes to encourage innovation in the retirement income market, allowing providers scope to make annuities much more flexible products in line with consumer needs.