My Lords, I am grateful to the noble Lord, Lord Bradley, for the way in which he moved the amendment, and for setting out some of the broader issues that are covered by a number of groups. I hope
the Committee will forgive me if I, too, take my introductory remarks slightly wider than the amendment itself, because I think they are both relevant to this amendment and spill across a number of groups.
First, I draw noble Lords’ attention to the publication today, which the noble Lord, Lord Bradley, referred to, of an update from the Treasury on the implementation of the pensions guidance service. It announced that the brand for the service will be Pension Wise, with the tagline, “Your money, your choice”. This branding will be used by all delivery partners and is designed to be easily recognisable. The HM Government logo will be used to support the Pension Wise brand where appropriate, to underline the credibility of the service. In answer to one of the points made by the noble Lord, Lord Bradley, potential scammers and fraudsters should be aware that the Bill introduces a new criminal offence which means that anyone passing themselves off as Pension Wise could face prosecution. I can reassure the noble Lord at this point about the way in which the guidance providers will themselves be regulated, and on the basis for the compliance.
The standards for designated guidance providers are in fact a Financial Conduct Authority instrument, so it is a legal document which it is exercising, I am sure the noble Lord will be pleased to know, under Section 333H, Standards for Giving of Pensions Guidance by Designated Guidance Providers, of the Financial Services and Markets Act 2000. It is therefore very much a statutory underpinning of all the guidance which guidance providers will have to follow. This is a detailed document to which I will refer later. Also from today, following the publication of the document, individuals have the opportunity to register their interest in early access to the service as part of the piloting activities. The publication also sets out details of how consumers can access and use the guidance, with further information on the progress and costs of implementation. I am sure that noble Lords will find this information useful.
I can assure the House that the Government are committed, in looking at the specific amendment, to a full programme of monitoring and evaluation which will look at the uptake of the guidance as well as how it is achieving its objective of informing consumer decision-making at the point of retirement. I share the noble Lord’s focus on ensuring that we maximise take-up of the guidance, and that is why the Treasury is legislating, through this Bill, to place a duty on the FCA to require pension providers to signpost people to the guidance as they approach retirement.
Last year, the FCA consulted on its proposals for delivering against this duty, and in November published a very detailed policy statement with its near final rules. Following Royal Assent, these rules will require pension providers not only to signpost individuals to the guidance service in wake-up packs issued four to six months ahead of an individual’s nominated retirement date, but to recommend to their customers that they seek guidance or advice whenever a consumer wishes to access their pension fund. That is one of the reasons the Government are announcing the Pension Wise brand now, so that the industry can get ready for these new requirements and start bringing the service to their customers’ attention as soon as possible.
I will clarify a statement I made to the House at Second Reading in response, I think, to the noble Lord, Lord McKenzie, on the issue of requirements in the round and progress towards the standardisation of the pension statements that providers will send to their customers approaching retirement. While it is not yet a formal requirement, the Government are clear that progress must be made by industry more quickly. The FCA has clarified in its near final rules that will underpin the guidance service that information about a customer’s pension pot must include, at a minimum, the current value of the pension pot, along with information on guarantees and other relevant special features. Building on this, the Treasury is working with the industry to standardise how the key information is presented. We have made it absolutely clear that the Government consider this to be a key priority. A wide range of respondents to our consultation last year on the pension freedoms made a convincing case that it is necessary to help consumers understand and engage with decisions on what to do with their pension savings. The Government welcome the recent commitment from industry trade bodies to support the development of standardised materials by the Treasury and to encourage their members to use them in communications with their customers as soon as possible.
The Government welcome the FCA’s commitment to consider making such standardisation a mandatory requirement in the wide review of its rules that will take place in the first half of this year. If the trials show that such standardisation helps consumers, I imagine that will be a very strong case for the regulator to require it. We must recognise, however, that not all individuals will seek to take up the guidance offer. It is their choice to do so. They may have other sources of help and advice, such as an independent financial adviser or advice services provided by their employer. We must ensure that consumers know that the guidance service is available and how it can help them, and encourage consumers to use the guidance as far as possible. We must, however, respect the fact that there will be consumers who will be content and equipped, for a variety of reasons, to make decisions without taking guidance. The FCA has introduced a number of safeguards to ensure that consumers are encouraged to seek guidance or, if they do not, are provided with the necessary information to support decision-making.
In summary, it is made clear that firms should not do anything to dissuade customers from getting the guidance. It has reaffirmed the expectation that firms will encourage consumers to shop around on the open market. It has introduced a new requirement that when communicating with customers about accessing their pension funds, firms are required to ask whether they have taken guidance or relevant financial advice and, if not, to encourage them to do so. It has introduced a new requirement on firms to recommend that consumers should seek guidance or advice rather than simply signposting to it. It has also confirmed that firms will be required to give a description of the tax implications of the option selected by a consumer.
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Similarly, we must accept that some people may make decisions which may not result in the best outcome for them or may not seem to an outside observer to be
“rational”, even after taking advice. That is their choice and their responsibility, and their decisions will be influenced by a range of factors unique to them, but it is worth noting that the FCA has clarified that where a firm is concerned that an individual is making a decision which does not seem consistent with their circumstances, it can check this with the consumer without it being regarded as regulated financial advice.
For too long, individuals’ ability to make choices about how they use their pension in retirement has been constrained by the majority of people being forced down a single route. It is therefore hardly surprising that this has resulted in a lack of engagement in the decision-making process, consumer inertia and a market that was not working in people’s interests. What the Government are working towards now, as they introduce much welcomed freedom and choice, is genuine consumer engagement with the decision-making process. Guidance will be key to that, and the Government will closely monitor and evaluate the effectiveness of the service in supporting consumer decision-making. However, requiring a box to be ticked to confirm guidance has been received or mandating guidance goes against the grain of consumer choice and consumer responsibility.
I apologise for setting out the background in such detail, but I hope that noble Lords will forgive me. Perhaps I may turn to one or two of the specific questions asked by the noble Lord, Lord Bradley. He asked about estimates for take-up of the guidance and how we had reached the figure of £35 million. As he pointed out, the estimates for the take-up of the guidance have been very wide, ranging from 2.5% to 92%—they could not be wider. In fixing a figure of £35 million, we have made our best estimate of the resources needed to deliver the advice in the first instance. It reflects the fact that demand is necessarily difficult to predict in the first year and we accept that the figure may need to be amended in the light of experience. In the document that we have published today, we have explained that if further funding is necessary to meet the demand, the Treasury will meet that cost in the short term. The guidance is funded on a levy. The levy has been set at £35 million this year. If we find that we have to spend £40 million or whatever, the Government will meet that cost in the short term to ensure that we meet the demand and reclaim it from subsequent years’ levies. There is no great science in getting the right figure at this stage. There is no figure for take-up around which there is consensus, but we think that we have reached a sensible starting figure.
On whether we think that training is in place, obviously a big programme is needed to achieve this, but we are confident that the training we are doing is adequate. Citizens’ Advice has a very good track record of giving advice to people in a whole range of circumstances, and this is just another. All CAB and TPAS staff delivering the guidance will receive training with a view to meeting the rigorous FCA standards. They will be required to demonstrate that they have the necessary pensions knowledge and the ability to deliver a quality guidance service before they talk to the public. There will also be a programme of continuous specialised improvement that maintains and develops their technical and professional skills.
The noble Lord also referred to the story on the BBC this morning about the new state pension. We think that the story gets it completely wrong by seeming to pass off as a new feature of state pensions the need to reflect that millions of people have been contracted out into private pension schemes since SERPS started in 1978. When the new state pension starts on 6 April 2016, we will assess people’s national insurance record, we will value their contribution and record under the new rules and the existing rules, and the higher value will be the starting amount in the new state pension. We will make a deduction if someone has been contracted out of the additional state pension. We do this for people claiming their state pension now.
This is because contributions were made to a private pension and people have either paid national insurance contributions at a lower rate, or some of the national insurance contributions they paid were used to contribute to their private pension. If we were to ignore these contacted-out pensions, whether in the old scheme or the new, people would be paid twice for the same national insurance contributions, and that would be unfair on all of today’s pensioners and on people who have never been contracted out. The fact is that when we value people’s contributions in 2016 they will get at least what they would have got for their national insurance contributions under the current system. Many will get more, with women, carers, low earners and the self-employed set to benefit the most. Under the new state pension, people will need to have only 10 qualifying years to be entitled to a state pension. From 2016, contracting out will be withdrawn and people will all pay the same percentage rate of national insurance for the same state pension.
That is some way from the specific amendment we are discussing. Returning to it, I hope that I was able, in the early part of my remarks, to convince the noble Lord that we are taking the question of monitoring and evaluation seriously and that he will feel able to withdraw the amendment.