Taxation of Pensions Bill

Public Bill Committee, 11 November 2014.

Nadine Dorries (Conservative, Mid Bedfordshire)

Before we begin, I have a few preliminary announcements. Please could all electronic devices be switched to silent. Tea and coffee are not allowed in the room during the Committee’s sittings. The notice period for amendments is three working days; amendments tabled with inadequate notice will not be formally selected.

As the Committee knows, there will be two minutes’ silence at 11 am to mark Armistice day. I intend to suspend the proceedings to allow the silence to be observed. Division bells will be rung to indicate the beginning and the end of the silence.

The Committee will now consider the programme motion on the amendment paper. We will then consider a motion to report written evidence, followed by a motion to permit the Committee to deliberate in private. Assuming that the last of those motions is agreed to, the Committee will move into private session. Once the Committee has deliberated, the witnesses and members of the public will be invited back into the room and our oral evidence session will begin.

Examination of Witnesses

Nadine Dorries (Conservative, Mid Bedfordshire)

Our first witnesses are from the Financial Conduct Authority and the Financial Services Consumer Panel. We have until 9.30 am for this panel. Could you please introduce yourselves for the record?

Nadine Dorries (Conservative, Mid Bedfordshire)

Welcome.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Thank you for coming along to give evidence this morning. We have a fairly short period of time and I know that colleagues wish to pursue some lines of questioning, so I will try to keep my questions brief. First, will you set out your views on what the main focus of regulation should be from April 2015? Do you have any work ongoing, in preparation for the passing of the Bill?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

We will pursue the question of annuities and the advice and guidance, but first I have a couple of specific points to put to David regarding the FCA. First of all, will the results of the retirement income market study be published in time to inform debate on the Bill? Also, on product innovation, I understand that the FCA has said that it is worried about some of the smaller, more esoteric investments—I think that is how they were described—rather than about larger firms. Could you say a bit more about that?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

The guidance is extremely important, and it is being dealt with through another piece of legislation. Both of your organisations produced reports last year highlighting the challenges that consumers face when trying to shop around for an annuity, for example. Do you believe—given your comments, you may have some views on the matter—that guidance will be enough to help people to navigate the wider range of options that the Bill will bring in? Are there particular areas where you want to see the proposals for guidance strengthened as they are being developed? Is there anything you want added to the process?

Nicholas Dakin (Labour, Scunthorpe)

Are the indemnity arrangements of financial advisers sufficient to take into account the fact that problems with retirement income products may not arise for many years?

Nicholas Dakin (Labour, Scunthorpe)

Okay. Can you foresee any need in the future to compensate people who are sold unsuitable products who have not taken financial advice?

Nicholas Dakin (Labour, Scunthorpe)

It is all very well and good for people like you, who understand this business inside out, but most people have a fairly low understanding of this and do not necessarily see the distinction between advice and regulated advice. It may be obvious to us, but it may not be obvious to the man or woman in the street taking out a product at a particular point. Is there anything that could be done, in either our purview or your purview, to make that stronger? In a sense, this is going back to what Teresa was saying earlier about the crucial importance of the quality of guidance given.

Pat Glass (Labour, North West Durham)

The ABI has said that we need a second line of defence in addition to the guidance guarantee and that customers should be asked about their personal circumstances to ensure that what they are sold is the right product for them. Do you agree with the ABI?

Pat Glass (Labour, North West Durham)

Given your response to my colleague’s question about whether compensation should be available to those people, could we not build that into the system? So not only what you said—somebody goes directly to the provider, who says, “Do you realise that this advice is free? Do you realise that you will lose protection if you don’t go down this route?”—but should people who are not asked those questions be suitable candidates for compensation?

Pat Glass (Labour, North West Durham)

We have been here before, have we not? I can envisage a court case 10 years down the line where that sort of compensation is granted. Would it not be better to build it in at the beginning?

Pat Glass (Labour, North West Durham)

I can just see the court case now. Is there a level of pension savings below which flexi-access drawdown products are unsuitable because of the increased charges and the investment risks? Will that change over time?

Pat Glass (Labour, North West Durham)

So the answer is yes?

Nadine Dorries (Conservative, Mid Bedfordshire)

Order. I am sorry Ms Fritz. Do you mind if we call it an end there? We have three more Members who wish to ask questions.

Nigel Mills (Conservative, Amber Valley)

What plans should be in place for people who simply will not engage with the choices they now have to make? If someone reaches their chosen retirement date and just does not reply and does not decide what to do with their pot, how should providers handle that situation?

Nigel Mills (Conservative, Amber Valley)

This will not be an issue only when you hit 66, or whatever the retirement age is. Perhaps when you are 10 years from retirement, you will need to be thinking about whether you want to be de-risking your pot to have it there when you are 66 and you can buy an annuity, or you want to take riskier investments to keep growing the pot. How will you ensure that providers make sensible decisions or take a fair approach to people who perhaps at 55 are not thinking or saying what they want to happen in that situation? Presumably we need a default scheme—a standard default—for people who say nothing at that point.

Nadine Dorries (Conservative, Mid Bedfordshire)

Mr Mills, we are going to move on so that everybody has an opportunity to ask a question. We will have a minute each from Mr Evans and Mr Andrew Stephenson. If we can have quick questions and quick answers, that will be great.

Chris Evans (Labour, Islwyn)

Just a quick one. Will the industry be ready by 6 April? This is all very rushed and it will be very complicated. We have talked about annuities and also about people who were convinced to buy annuities with profits and have seen their pension pot now reduced to nothing. I am deeply concerned. Is the industry ready for the 6 April deadline?

Andrew Stephenson (Conservative, Pendle)

My background is in general insurance, not life or pensions. In that sector, when voluntary regulation was replaced by statutory regulation under the FSA, there was a shift in non-advised sales. Many small high street brokers went out of business, because providing advised sales became very risky, whereas providing non-advised sales on websites became much easier and less risky, and they therefore flourished. This sector has been regulated for much longer, but do you fear there will be a shift towards non-advised sales, and what can we do to stop that?

Nadine Dorries (Conservative, Mid Bedfordshire)

That brings us to the end of the time allotted for the Committee to ask questions of this group of witnesses. On behalf of the Committee, may I thank you very much indeed, Mr Geale and Miss Fritz, for your time today?

Nadine Dorries (Conservative, Mid Bedfordshire)

We have until 10.45 am, so a bit longer, for these witnesses. Could you please introduce yourselves for the record?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Thanks to everyone for coming along. We look forward to hearing what you have to say.

My first question is fairly general. Could each of you say briefly what you see as the main risks, but also the potential benefits, of the proposals? In doing that, could you refer to the suggestion that providers should give people some kind of pensions passport flagging up the need to take up the guidance guarantee so that they have some initial information about their pensions arrangements? Could you also talk about the so-called second line of defence?

Nadine Dorries (Conservative, Mid Bedfordshire)

Cathy Jamieson has one more question, but could I politely request, because there are five witnesses, that we try to keep answers tight and although not necessarily short, just concise, so we can get through all five witnesses for each question?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

This is really a follow-up to the point that Jon just made. Do you agree that because of the way some of the reforms have been described in the press, some people’s expectations are going to be dashed if they believe they will have this huge pension pot but then do not have? And, given that we are talking about the pensions taxation Bill here, rather than the broader changes to pension schemes, has there been enough focus on the taxation implications and has that been considered enough in the discussion about putting the guidance guarantee in place?

Chris Evans (Labour, Islwyn)

I must declare an interest. I used to work for “the Widow”, Mr Paton-Evans—Scottish Widows. It is many years ago now; they found me out.

I have a straightforward opening question. Do you believe the annuities market is either broken or not functioning properly at the moment?

Chris Evans (Labour, Islwyn)

I ask the question because, if there are problems in the annuity market, I want to know the “segment” you were talking about there, Dr Braun; you said that annuities did not perform for a certain “segment of customers”. If there were problems in the market, they have been there for a number of years. I am specifically thinking about a group of customers who were convinced to buy annuities with profits, which has now meant that their pension pot is down to zero in some cases, and that is a serious scandal.

The question I want to put to the panel is this: do you think there is an argument in saying that those people who were mis-sold those annuities that were not right for them should be compensated in many respects, and then allowed to use whatever is left in that pension pot to purchase new products? The point that I am getting at is that it seems there is unfairness in the system, even though I support the policy of allowing people to use the pension pots wherever they want to. Those people I mentioned have already bought into annuities that are now going through the floor because of this new policy coming about, and they are losing out. How do we address those people, who are tied into life-long contracts; who have not shopped round, as you said; and who, in many respects, have suffered from illness and been convinced by these annuities? How are we to help those people to enjoy the freedoms that new pensioners will enjoy? So, it is a very long-running question.

Chris Evans (Labour, Islwyn)

I am talking about annuities with profit, whose administration fees have cut into people’s pension pots and left them with nothing.

Chris Evans (Labour, Islwyn)

I am not accusing you of that.

Chris Evans (Labour, Islwyn)

I remember—this was probably before your time, Mr Paton-Evans—that Scottish Widows used to sell extra growth income performance bonds, which were investments in high-risk internet companies that flopped when the internet bubble burst. How do you see the type of products you are developing competing in the annuity market? How do you see the level of risk that you are going to build into your products? Have you any ideas about that yet? That question is for Mr Boulding as well.

Chris Evans (Labour, Islwyn)

I am concerned about the wording of certain bonds and products—I used the example of EGIP bonds because they stick in my mind. They were called extra growth income performance bonds, but they were nothing of the sort. I am concerned about the labelling, because people will look at the products and think they are guaranteed. Mr Boulding, do you want to talk about the type of products you are developing and the guarantees that will prevent people from getting sucked into the idea that they are going to have bumper payouts? How will you inform them that there is a level of risk to the products they buy?

Geoffrey Robinson (Labour, Coventry North West)

There seems to be general agreement among our panel of welcome for this Bill, with certain caveats all round, two of which relate to these questions. Is there a danger that the promises inherent in the Bill will yet again lead to disappointment among consumers and those availing themselves of the products you sell? The industry has gained such a bad reputation over the years. I remember that back in 1997, when we came into office, a terrible case of mis-selling was already being investigated. Is there a danger that it will fall short? In particular, it seems to me that there is a real risk, given the extra flexibility. Will these pension funds be in a position to act as quasi-bankers and will it lead to an increase in charges in particular? What are your views on that?

Geoffrey Robinson (Labour, Coventry North West)

Are you going to be ready?

Geoffrey Robinson (Labour, Coventry North West)

Is it right that only 3% in one case have actually taken up the option of legal advice? Is that correct? Was that you, Mr Boulding?

Geoffrey Robinson (Labour, Coventry North West)

Your powers of persuasion do not seem to be very great, if only 3% engaged with you on it.

Geoffrey Robinson (Labour, Coventry North West)

Decide in haste, repent at leisure.

Geoffrey Robinson (Labour, Coventry North West)

You are a quasi-bank. That is my phrase.

Geoffrey Robinson (Labour, Coventry North West)

Is that appreciated?

Geoffrey Robinson (Labour, Coventry North West)

So perhaps we may say that all is set for another unpleasant set of disillusions among your customers.

Nicholas Dakin (Labour, Scunthorpe)

Perhaps I could draw attention to the section of the Bill that contains a permissive statutory override to enable schemes to make flexible payments or provide a drawdown facility, even where the rules do not allow this. How do you think that might be used?

Pat Glass (Labour, North West Durham)

I was really disappointed when I heard Adrian say that less than 3% of people offered guidance actually took it up. That was below even my expectations. In some respects, that reflects what we have seen in other countries which have gone down this route. There are risks here, both for the individual and for future Governments. We may get a short-term boost to the economy, but a Government at some time in the future may well have to pick up a great deal of the cost of these people falling back on the state. Do you believe that we should now build into the Bill new regulation to protect consumers drawing down money directly from their pension fund? If we do, what would you want to see in that regulation?

Geoffrey Robinson (Labour, Coventry North West)

I will be very brief. Two of the witnesses sound a bit like Pontius Pilate—that is how it comes over. You have tried to use all your encouragement and all your persuasive powers to get people to take legal advice. Only 3% take it, and you say, “Up to you.” It sounds slightly as though we are entering an area where you are saying, “Okay, it’s up to you. We are not responsible. We have told you that you are responsible,” and hang the consequences. I know that you are much more responsible than that, but I do not think that it is quite enough just to say, “It is your responsibility and we have told you that. Now let’s see what happens.” That is not quite good enough given the history of this industry.

Geoffrey Robinson (Labour, Coventry North West)

Perish the thought!

Geoffrey Robinson (Labour, Coventry North West)

That provides a measure of reassurance.

Andrew Stephenson (Conservative, Pendle)

This is a question for all five of you, but particularly for Citizens Advice. Looking at the range of options in the Bill as it stands, but also at the media hype that has surrounded the Bill, what are the key messages that you think consumers should take away?

Pamela Nash (Labour, Airdrie and Shotts)

I would like to explore a bit further with Ms Badger what a guidance session provided by Citizens Advice would look like. What can our constituents expect if they go for a guidance session at a citizens advice bureau?

Pamela Nash (Labour, Airdrie and Shotts)

To be clear, it will not be simply an information session; it will be a discussion of the person’s personal circumstances?

Pamela Nash (Labour, Airdrie and Shotts)

Okay. You mentioned signposting to financial advice. Do you anticipate that that will be required by a lot of the people who are seen by Citizens Advice?

Pamela Nash (Labour, Airdrie and Shotts)

Just to be clear, will those providing the guidance be given, uniformly, contacts and information about financial advice services?

Pamela Nash (Labour, Airdrie and Shotts)

The Pensions Advisory Service will also be providing guidance sessions. How will Citizens Advice’s sessions compare?

Pamela Nash (Labour, Airdrie and Shotts)

My understanding is that the advisers at the Pensions Advisory Service will have at least 10 years’ experience in this area. How does that compare with what Citizens Advice will be able to provide? How will you ensure that Citizens Advice’s workers are trained in time?

Pamela Nash (Labour, Airdrie and Shotts)

Will the guidance sessions be delivered only by employees, or will volunteers also be involved?

Pamela Nash (Labour, Airdrie and Shotts)

It will all be paid staff. Okay. I have a final question about benefits. Do you anticipate the legislation having an impact on people’s entitlement to means-tested benefits? Is Citizens Advice prepared to give advice on that?

Nigel Mills (Conservative, Amber Valley)

I am tempted to try to walk you through a roleplay of what a guidance session might look like, but I suspect we do not have time. Nevertheless, while we are on the topic, have you thought through how you will get people to prepare for the session, so that they come knowing what their financial affairs are, what pension pots they have, their debts and other savings? How do you get them to do that before they turn up?

Nigel Mills (Conservative, Amber Valley)

I want to ask Mr Paton-Evans and Mr Boulding a completely different question that I asked the previous panel of witnesses. What are you doing for people who signed up to a pension scheme 20 years ago, told you that their retirement date was 65, and were probably assuming that they would take an annuity when they hit 65? The landscape has completely changed for them. On your numbers, Mr Boulding, only 15% of them will take an annuity now. What are you doing to their pension scheme? What are you saying to them so that they understand that they might need to give you a completely different set of instructions if they are not going down their original plan?

Nigel Mills (Conservative, Amber Valley)

Do you envisage that you might default people into a different glide path from the one they are one, unless they tell you, “Please don’t de-risk me; I’d like to do some kind of drawdown when I reach retirement age,” and you leave them on their current plan?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I want to come back to a point related to an earlier question to Rachael, which is on unintended consequences. We have heard a lot about the choice people will have to use the drawdown facilities, but my question is about the current security legislation and rules, which a constituent has brought to my attention. Those rules say that a person who is over the qualifying age for pension credit and has a pension fund that they have not accessed can be treated as though they have accessed that pension to buy an annuity. Has Citizens Advice done, or will it do, any assessment of the implications for people once the new rules are in place? Could many more people be brought into the category in which it is assumed that they have bought an annuity when they have not?

Geoffrey Robinson (Labour, Coventry North West)

I was interested to hear Mr Boulding and others on the panel say that one of the problems is the response. It comes back to engagement and the ability to communicate with your customers clearly and in such a way that people feel inclined to respond. I can sense the difficulty you have. You really seem to have given up on it a bit, as though there is nothing more you can do than send round circulars. I have seen them myself and can well understand, given the textual analysis you often have carry out to understand them, that people just do not get to the end of them and unfortunately do not take any notice. Is there no way you can improve on that rather than sitting back and saying, “There is nothing more we can do. They do not fill anything in, and only 3% take legal advice, so what more can we do?”

You said it was half a million people, and I appreciate that it seems a formidable task to find some better way to get through to them, but surely there is some way of provoking more response. I am not suggesting a helpline that nobody gets a reply from, or anything like that, but it is worth giving some thought to it and perhaps engaging with people who know better how to get responses in that way. It is not satisfactory as it is, really.

Geoffrey Robinson (Labour, Coventry North West)

I am very relieved to hear that. The effect of this Bill in general is going to be a much greater devolution of responsibility, decision making and flexibility on the customer, is it not? Unless you take corresponding steps to ensure that engagement actually takes place, we are going to have another big mess on our hands, so I urge you to do exactly what you are saying and perhaps even to increase what you are doing in that respect. Otherwise it is not going to work.

Geoffrey Robinson (Labour, Coventry North West)

Absolutely, but I hope your helpline works better than most helplines do. Frankly, you get shunted from pillar to post on these helplines, particularly Government ones—it is impossible. If you are going to do it, make sure it works—that people get through and you have enough advisers. It is an investment now that will pay back later. Otherwise, as I say, we are heading for great disillusionment with the scheme, at the best; we know where the worst leads.

Nadine Dorries (Conservative, Mid Bedfordshire)

That has brought us to the end of the time for this panel of witnesses. I thank the witnesses on behalf of the members of the Committee for your time today. As the Chair, I have found it fascinating—particularly knowing what age I am going to die at. Thank you very much indeed. We will now change witnesses.

I take this opportunity to remind everyone of the two minutes’ silence. When I interrupt proceedings for the two minutes’ silence, I think it would be appropriate that we stand.

Nadine Dorries (Conservative, Mid Bedfordshire)

We will now hear evidence from Her Majesty’s Treasury, until 11.25. Minister, would you and your officials please introduce yourselves?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It has been suggested to me that at the time when the announcement was first made on pension reforms in the Budget, the industry’s immediate response was one of shock, followed by what was described as aspiration to meet the considerable challenge that was presented to the industry. I am wondering, in the light of everything that has transpired since, whether there now need to be further changes to the Bill, or to some of the approach to guidance, in the light of what has been said. I wonder if the Minister and his colleagues could perhaps say something about that, particularly in relation to more detail on the behavioural assumptions behind the estimates of the Exchequer impact of the Bill in the autumn statement. I think we have heard from witnesses this morning, and from others, that there is still a degree of uncertainty. Also, is there going to be more information, and when can we have that, around the distributional impact of the measures in the Bill?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Could I follow that up by asking another fairly brief question? In retrospect, Minister, do you think it was helpful that the new flexibilities and choice were portrayed as almost being like people having another bank account and being able to withdraw money to buy their Lamborghini or pay for their holiday or whatever else? Some of the key issues around the tax implications have been lost in that process.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

We heard a lot from the witnesses about it not being a one-off decision that people will make. They will now be considering things over a number of years, yet the way the guidance guarantee appears to be set up is that the decision would be at an early stage and people would not have access to come back at a later stage. Is that adequate, given what we have heard this morning from the providers?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I also put to the Minister the question that I put to Citizens Advice in the previous session in relation to the issue of choice. To what extent will there be real choice for some individuals, particularly those who may find themselves in a situation where, because of the social security rules, they are assumed to have taken an annuity or drawn down a pension, when they have not? Are people going to find themselves pressured to do that? What are the impacts on means-tested benefits and the longer-term implications for social care?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Would that necessitate a change to the existing social security rules, which allow a decision to be taken, on the assumption that someone has access to their pension, when they have not?

Nicholas Dakin (Labour, Scunthorpe)

I think it has been recognised that the new flexibilities create a potential tax loophole, with people taking their income and putting it directly into a pension pot; drawing their pension pot immediately and getting tax relief on that. By reducing the amount that can be taken to £10,000, there is obviously a mitigation of that. However, evidence was given by John Greenwood, who estimates that if only 10% of people aged 55 and over take advantage of this loophole, the cost to the Exchequer could be £2 billion. What is your estimate?

Nicholas Dakin (Labour, Scunthorpe)

How often are the current recycling rules applied?

Nicholas Dakin (Labour, Scunthorpe)

You are saying, Minister, that there will be clear monitoring of this, and that action will be taken where necessary. Do you see a point at which there would be some sort of report on this, so that Parliament could be aware of any issues and support you in any action you need to take?

Nicholas Dakin (Labour, Scunthorpe)

I think I am right in understanding that you are essentially saying that you do not recognise Mr Greenwood’s estimate of £2 billion and that we will have to wait for the excitement of the autumn statement to discover the figure you would put on this.

Geoffrey Robinson (Labour, Coventry North West)

From my experience of the Treasury, they must have made some estimate. What is their estimate? If you do not recognise that figure, you might recognise £1.9 billion, which would be the same sort of thing. What is the Treasury estimate for the loss to the Exchequer?

Geoffrey Robinson (Labour, Coventry North West)

You still have not told us what the indicative number might be.

Geoffrey Robinson (Labour, Coventry North West)

Very well. From our previous session with the panel of experts, it was clear almost everybody agrees with the principles of flexibility and welcomes the Bill in general and in principle—nobody can really oppose it. But there is a real danger that things can go wrong, with the Exchequer losing far more than it expects, which would be par for the course—I think your experience must have shown that already, Minister. It could also be the other way round, and the provisions might not be used very sensibly by customers, as they are called today—pensioners, to us—who will have this greater flexibility.

Much is made of the advice guarantee, but what came out of the previous session was that the actual take-up has been as low as 3%—3% of people will be taking this advice, if I have not misunderstood what that reference was to, and I do not think I have. Is it not the case with the Government and the industry generally—we all come up against this—that the language is so detailed and the textual analysis required is so complex that people simply do not reply to circular letters? Indeed, that was confirmed in the previous session.

The question really is—this applies to the Treasury, Government in general and the industry, who are all caught up in the same problem—how do you get through to customers in a more engaging way, if this is to be a success, as opposed to just another change that benefits a few tax avoidance experts and others who know how to work the provisions? That is the real danger of this, along with the loss to the Exchequer. How do we engage with the people to whom this could be of great benefit? Is there not something we could learn from social media or even from the National Employment Savings Trust, which I understand has a good access system, rather than a helpline you never get an answer from? We have all been through that frustration—even you, I am sure, Minister. What are you going to do to make this a success, as opposed to another change on this tortuous road—

Nadine Dorries (Conservative, Mid Bedfordshire)

Order. Mr Robinson, could we get to the point of the question, please?

Geoffrey Robinson (Labour, Coventry North West)

I am a bit disappointed that we have not had an answer, Ms Dorries. I am asking the Minister very clearly what he is going to do to make this a success by engaging in a more accessible way with those who are set to benefit from it or who would be affected if it fails yet again. I apologise if that was not clear from my question.

Geoffrey Robinson (Labour, Coventry North West)

I take that point and am reassured, as I was when we got into discussion with the previous panel. The issue seems to be a bit like this: we are all in favour of treating people as adults and engaging them in serious conversation, but the problem is how we get to that point given that, by definition, there is this age gap. By definition, at the moment we are dealing with a particular generation who did not grow up with the internet. They do not have that facility with social media communication that their grandchildren do. There will not be that problem later, although there might be others, but is it not the case that we have a generational problem? If the thing is to be a success, as opposed to being simply another change, and just that, we have to find a way of engaging that particular generation. I am not sure how that is to be done, but I am not yet convinced that we are anywhere near practical implementation in that regard, despite all the words of assurance from Anna and the previous panel of experts.

Nadine Dorries (Conservative, Mid Bedfordshire)

Order. I will move on to Pat Glass. Mr Robinson, you were piggybacking a previous point and have had your go, so over to Pat Glass now, please.

Pat Glass (Labour, North West Durham)

Anna, you talked about a pilot with a 90% response rate. There is a massive gap there with the 3% that the earlier witness told us about. There appears to be a huge gap between hope and reality. Will you tell us a little more about the pilot?

Pat Glass (Labour, North West Durham)

Where did that research come from? Sorry, I did not catch that.

Pat Glass (Labour, North West Durham)

Would take up guidance, not had taken up guidance? The actuality given by the previous witness was 3%. Could we see that research, please?

Pat Glass (Labour, North West Durham)

Minister, do you disagree with the Association of British Insurers and other witnesses we have seen this morning who say that we need a second line of defence?

Pat Glass (Labour, North West Durham)

Is that a no? Yes, you do disagree, or no, you don’t?

Pat Glass (Labour, North West Durham)

We are all, I hope, intelligent and grown-up people. I think we recognise that if we do not introduce a form of compensation, five years from now the courts will. Given the history of pension mis-selling in this country, the courts are likely to be much harsher second time around. Do you intend to introduce some form of compensation for people who have been sold unsuitable products but not taken financial advice, and in particular for those people who had not been advised by the product seller that they needed to seek independent financial advice?

Pat Glass (Labour, North West Durham)

Given the history of pension mis-selling in this country, have you considered that the courts may take the view that the Government should pay compensation if they allow such risks to occur? You would therefore leave the Government, not just the industry, open to future compensation claims.

Pat Glass (Labour, North West Durham)

I suspect that the courts might be quoting this morning’s evidence five years from now.

Andrew Stephenson (Conservative, Pendle)

In the past four years, I have dealt with a variety of quite harrowing cases of constituents who have been subjected to different frauds. Reporting them, whether to the police or Action Fraud, is complex, and some have been passed from pillar to post. The introduction of greater flexibility has led to a concern about the increased potential for fraud and for unscrupulous individuals to encourage people to put their money into ill-advised schemes. Given the greater flexibility, has the Treasury made any estimate of the potential for increased fraud?

Andrew Stephenson (Conservative, Pendle)

Thank you for that. When dealing with constituency cases, there are quite often mixed messages depending on whether people go to the police, ActionFraud or the FCA. People are sometimes unsure where to turn and then things go further down the line and become worse. People could be losing their entire life savings if they are scammed out of their pension pot.

Pamela Nash (Labour, Airdrie and Shotts)

I am sure I am not the only one to have had constituents in their surgery just after this policy was announced complaining that they were locked in as they had already purchased annuities, in some instances on the day before. Is that something that the Government will address? Will there be any action for those people affected in the last days and weeks before the announcement? Will there be any way for them to get that money back?

Pamela Nash (Labour, Airdrie and Shotts)

Absolutely, that was the case, but as you know and have just referred to, that was up to each individual provider, if they wanted to extend that cooling-off period, even though the Government allowed that to happen. Would it not have been better to make it mandatory for the companies providing annuities, in order to ensure that everyone, no matter which company, was given that flexibility?

Pamela Nash (Labour, Airdrie and Shotts)

I have constituents who disagree and feel that they did not have all the information available to them at that time to make an informed decision; that decision will affect them for their whole lives.

Pamela Nash (Labour, Airdrie and Shotts)

I think that they might dispute that. I will not labour the point, but I would highlight that Mr Lidington said that there was a way around this and it was not taken. I would also like to ask about future insolvency proceedings. Do you think that there will be any impact on insolvency proceedings as a result of the option that people now have to withdraw money from their pension funds?

Pamela Nash (Labour, Airdrie and Shotts)

Will there be any special measures for people who end up in that position as a result of making the wrong decision at this stage?

Chris Evans (Labour, Islwyn)

If I was working as a senior executive in the industry, I would be angry with the Government about this. How much consultation was there with the industry and executives before this decision was made? It seems to me, from reading the press, that we have made the changes but many companies will not be ready for 6 April. As was mentioned by my colleague from Airdrie, these people would have already purchased the annuities. The industry would have been selling these annuities as well. They would not have been allowed to create new products in readiness for 6 April. How much consultation was there with the pension industry before this announcement was made at the Budget? What assessment have the Government made of the industry’s readiness to make arrangements for these changes before 6 April?

Chris Evans (Labour, Islwyn)

Can I be a bit mischievous? As you know, the Minister for Pensions has had a lot of publicity in the financial advisory world about unwinding annuities, and has said that the Liberal Democrats could commit in their next manifesto to providing compensation to those who have been mis-sold annuities. His argument is that the annuity market is broke and needs fixing, that it has been that way for many years and that people should be compensated. What is your view? Might that be in the Tory manifesto?

Chris Evans (Labour, Islwyn)

This is the last question, Mr Gauke. You have been very charitable today. How confident are you with the vast majority of advisers? As you know, I have worked in the industry myself and have seen a lot of rum practices. The people doing those things would then move companies, and by the time they were caught they would have been through eight or nine companies and messed up a lot of customers’ investments. How confident are you about the quality of advice and the charging regime for that advice, especially now that many people who would not have used advice before will now need it?

Chris Evans (Labour, Islwyn)

I know it was my last question, but I have two concerns. I cannot be a financial adviser. My qualifications are not worth the paper they are written on any more. There has been so much constant and rapid change in the qualifications to become a financial adviser and I fear that we will see more change and more uncertainty. The other thing that I have noticed since I left the industry is how wildly the charges—

Nadine Dorries (Conservative, Mid Bedfordshire)

Order. Is this a question, Mr Evans?

Chris Evans (Labour, Islwyn)

Yes. In view of how wildly the charges swing between different financial advisers, could you give a guarantee that there would be less change in terms of the quality of financial advice? Will the charges be capped at some point?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

To follow up very briefly on that point, I appreciate what has been said in relation to the role of the FCA but when will we get information from the FCA on the level of charges? How transparent will that be?