Taxation of Pensions Bill

Public Bill Committee, 18 November 2014.

Gavin Barwell (Conservative, Croydon Central)

On a point of order, Ms Dorries. As you know, the Minister was at ECOFIN until the early hours of this morning and is currently returning to Westminster. Following consultation with Opposition Front-Benchers, I therefore ask that the Committee be suspended until 10 am.

Nadine Dorries (Conservative, Mid Bedfordshire)

We now begin line-by-line consideration of the Bill. Before we begin, I repeat that Members may, if they wish, remove their jackets during Committee sittings, but would everyone please ensure that all electronic devices—mobile phones and so on—are switched to silent? Today’s selection list is available in the room. It shows how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. A Member who has put their name to the leading amendment in a group is called first. Other Members are then free to catch my eye to speak on all of the amendments in the group. A Member may speak more than once in a single debate.

I will work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments. Please note that decisions on amendments do not take place in the order in which they are debated, but in the order in which they appear on the amendment paper. In other words, debate occurs according to the groupings on the selection list and decisions are taken when we come to the relevant clause. I hope that that explanation is helpful. I will use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on the related amendments.

Clause 1 - Provision for pension flexibility etc

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure to serve under your chairmanship, Ms Dorries. I begin by thanking you and the Committee for showing some flexibility over the timing this morning. We have a Bill about pension flexibility, but I am grateful that the Committee showed some timing flexibility because I attended a meeting in Brussels late last night. Although I left Brussels at the earliest opportunity, I was not able to be here in time for the 9.25 am start.

I am grateful to have the opportunity to speak first about clause 1, which introduces the schedule that makes many of the tax changes necessary to deliver increased flexibility over how people can take their defined contribution pension. We will have a separate debate on the schedule in a moment, so I will keep my remarks on clause 1 relatively brief.

Let me remind the Committee why we propose these changes. Currently, the majority of individuals are severely constrained by the tax rules at the point of retirement. Those with the largest and smallest amounts of pension savings are entitled to full flexibility over how they access those savings, but those in the middle have very limited choices over their retirement income. The changes in the Bill will address that by increasing flexibility for those retiring with a defined contribution pension. They will allow people more choice about how they use their pension savings to fund their retirement. The schedule introduced by clause 1 makes changes to create flexi-access drawdown, which has no caps or income requirements. It makes annuities more flexible, creates a new way to take money directly from a pension, prevents those reforms from being exploited for unintended tax purposes, and ensures that the new UK pension system is reflected in the treatment of relevant overseas schemes. More than 300,000 individuals retire each year with defined contribution pension wealth. They will have increased choice and flexibility about how to access their savings as a result of the clause. The details are set out in the schedule, which we will debate later. After that introduction, I hope the Committee will support the clause.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It is a pleasure to serve under your chairmanship this morning, Ms Dorries. I welcome the Minister to his place. It is impressive not only that he left Brussels at such an early hour of the morning, but that he managed to get here before the rest of the Committee, including myself, and was ready and waiting to make his opening remarks.

Clause 1 gives us an opportunity to set out some of our concerns, and we will obviously have further debate on the schedule and the Government amendments and new clauses. The pension reforms in the Bill will dramatically change the pension landscape both in how people take their income in retirement and how the pensions industry is structured. We debated that on Second Reading and it was explored during the evidence session, but, understandably, it has perhaps not been given the same amount of scrutiny, because we are still at the early stages, and we will obviously want to look to the future in that context. I will say more about that when we come to the debate on the new clauses.

As the Minister has indicated, and as we debated on Second Reading, from 6 April 2015, individuals aged 55 and over will be granted far greater freedom to access their pension savings as much and as often as they wish. As I have consistently said, the Opposition’s main concern about the Bill is not so much about those overarching principles, but about the way in which the process came into being and the announcement in the 2014 Budget statement. It is fair to say that the announcement caused some shock. Someone described being perplexed by the way in which that was done. The Minister has explained why that information had to be kept tight and why the announcement was made in that way, but it gives an impression of lack of engagement and consultation prior to the announcement of the reforms.

There is concern about the very short time scale to get everything right before the beginning of April 2015. There seems to have been a push to get things done and get everything through by 6 April 2015, and there is concern about whether, in doing so—everyone wants to get this right and to make it work—we may end up somewhere along the line with unintended consequences or with the necessary resources not in place.

Ian Swales (Liberal Democrat, Redcar)

Events clearly prove that the information was stock exchange-sensitive. Does the hon. Lady recognise that everyone who knew about it before became an insider, with all that implies about declarations and so on?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the hon. Gentleman for that information—it is exactly what the Minister said in response to questions at the evidence session. I understand the sensitivities, but it is fair to say that the announcement required many organisations in the industry—the providers and some of the organisations that will represent the interests of consumers—to react quickly, get to grips with what was intended and what they would have to do, and ensure that they were able to feed in quickly. I hope the hon. Gentleman accepts that that put pressure on them to respond.

The introduction of the single-tier pension and auto-enrolment built positively on progress by the Labour Government. Crucially, those reforms were based on evidence, consultation and consensus, and the Government were always clear about what they were trying to achieve.

My hon. Friend the Member for Coventry North West coined a new phrase when he described the reforms as constituting “devolution of responsibility”. As a Scottish MP, I am always careful about using the word “devolution” in case it sparks off another debate and takes us in a different direction. I am sure, Ms Dorries, that you would not allow that to happen in this Committee, but it is a good way of describing the situation. My hon. Friend was right when he said that the measure devolves responsibility to the individual. Is it devolution in inverse correlation to the approach adopted for the accumulation stage, when the Government sought to harness inertia by automatically placing individuals in workplace pension schemes? If we are relying on inertia at that end of the scale, why are we relying on the fact that people will make conscious decisions at the other end? We debated that, and there is a tension between both the Pension Schemes Bill and this Bill. We can decide either that it is a problem or that it is a kind of creative tension and try to make use of it—I am not necessarily saying that it is a bad thing in itself. It means that we need to ensure people have the guidance and support they need to deal with those new responsibilities, which effectively places the budget for their retirement in their own hands.

The watchwords for the Bill have been “freedom” and “choice”. In principle, everyone welcomes the idea of greater freedom and choice, but the question for the Opposition in considering the detail of the Bill is the extent to which freedom and choice is an end in itself. What do the Government hope ultimately to achieve through the Bill and the associated reforms in the Pension Schemes Bill? Do they believe it will provide people with greater security in retirement, or that the reforms are going to lead to greater product innovation and better outcomes for customers? At the outset, one answer seemed to be that the industry would respond by making different products available, but we have heard some concerns about who those products will be aimed at and what impact they will have on those with smaller pension pots and lower incomes.

We all want better outcomes. We have always been clear in our support for those principles of greater freedom and choice, but the effectiveness of a Bill can only ever be judged by what it does in practice and what the outcomes are. To go back to that analogy with devolution, there is no point in devolving power to countries or regions unless we know why we are doing it and what we hope to achieve. In terms of the Bill devolving that responsibility or power to the individual, we have been clear that we want the reforms to meet three key tests: first, the advice test and the guidance guarantee, to ensure that savers get the right guidance; secondly, the fairness test, to ensure that there are decent products for low and middle-income savers, which is vital; and finally, the cost test, to ensure that the reforms do not place any extra pressures on the state.

In addition to those three tests, we have commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We want that to consider how we can enhance retirement income and ensure that savers have access to good value products along with the support they need to access them.

We will debate the Opposition new clauses later, but I want to put the marker down that they are a logical and reasonable plea for more information, and a reasonable request to review the impact of the reforms at the earliest opportunity. The Minister might well feel that I am on my usual hobby horse of monitoring, reviewing and coming back to Parliament—he has heard me make that particular plea on a number of occasions in respect of both financial services Bills and Finance Bills. I will speak about those proposals in more detail in due course.

I want to make a few remarks about the evidence session last week, because it was interesting. It was an opportunity for us to hear from the industry about things that perhaps we already knew, but it was important that people had the opportunity to speak directly to us and to put information on the record. We did not get a huge amount of new information—perhaps we did not expect to—but that is certainly not the fault of those giving evidence. They give evidence to us on the basis of the challenges and issues that they are facing, or will face in implementing the Bill. I felt that at times there was a sense of inevitability—despite the initial shock, with people being perplexed and wondering how the new system was going to work, they seem to have reached the point of saying, “Well, this is going to happen so we are going to make the best of it and work with the Government to take things forward.”

Regarding the principle of flexibility, it is interesting to compare what is in the Bill with one of the Government’s first documents on pension reform, “Removing the requirement to annuitise by age 75”, which was published in July 2010. It set out five key principles for a new tax framework for retirement. First, it stated:

“The purpose of tax-relieved pension saving is to provide an income in retirement”.

That is an important statement. Secondly:

“Any changes to the pensions tax rules should not incur Exchequer cost and should not create any opportunities for tax avoidance.”

That too is important. Thirdly:

“Individuals should have the flexibility to decide when and how best to turn their pension savings into a retirement income, provided that they have sufficient income to avoid exhausting savings prematurely and fall back on the state.”

The intention there is clear. Fourthly:

“In line with the EET model, pension benefits taken during an individual’s lifetime should be taxed at income tax rates. The tax-free pension commencement lump sum will continue to be available.”

Fifthly, the document stated:

“On death, pension savings that have been accumulated with tax relief should be taxed at an appropriate rate to recover past relief given, unless they are used to provide a pension for a dependant.”

Nicholas Dakin (Labour, Scunthorpe)

My hon. Friend is laying the case out very clearly. We heard many witnesses express concerns about how the Bill has been received in the press. In its written evidence, the Association of British Insurers lists one key issue as

“Pension flexibility, not early access”,

and continues:

“We are therefore very concerned that the focus of recent discussion on the Budget reforms has been about early access to cash at age 55 rather than on giving people more choice about how to use their pension savings to generate retirement income.”

Is that not the nub of this debate?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Similar points were made on Second Reading and in last week’s evidence session. One concern expressed by both the industry and those who will be giving guidance under the guarantee is that the intention behind this Bill, and perhaps the Pension Schemes Bill as well, has been caught up in the spin and hype about people being able to access massive pension pots to buy a Lamborghini, take a holiday and pay off the mortgage, while the same emphasis has not been put on the fact that the purpose of a pension is to provide for people’s lifetime in retirement. We have heard that people often do not think about the length of time over which their pension will have to provide for them, or about the standard of living that they want to have during that period. Some of those concerns expressed by the industry and echoed by my hon. Friend are very important.

To return to my point: yes of course people should have the flexibility to decide when and how best to turn their pension savings into retirement income, but they should also avoid exhausting their savings prematurely so that they have to fall back on the state. One aspect of this Bill and the Pension Schemes Bill that has perhaps had less coverage than it ought to have had is the potential impact on some people’s social care eligibility; specifically, we have heard little about how the Bill will affect the notional income rules. I raised this issue during the evidence session because we need clarity. There is a group of people for whom there might be unintended consequences if they make the wrong decision. That is why the guidance guarantee is so important, even though many of those who could be affected might not take the guidance guarantee or would feel unable to move forward and take regulated advice.

There are rules that allow for people to be treated as having income that they do not actually get. The stated aim is to ensure that everyone pays a fair share towards supporting themselves and paying for social care, but presumably it is also to ensure that where people are entitled to annuities or drawdown income, they can take it. Perhaps some of those rules were easier to apply when the vast majority took an annuity, but new behaviours and the creation of new products that the Bill will set in train may well add additional layers of complexity, and I do not think that we have bottomed that out yet.

Nicholas Dakin (Labour, Scunthorpe)

The guidance guarantee is crucial, not only to protect the individual so that they make the right decisions, but to protect the state from the consequences of poor decisions. My hon. Friend is making a crucial point.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend is right. To be fair to the Minister, I do not think it was in his mind to set off a chain of events whereby people would take all their money at an early stage and then find themselves falling back on the state. I do not believe that that is the Government’s intention. I want to make sure that we dot every i and cross every t in the Bill—that is the point of detailed scrutiny in Committee—while leaving ourselves the opportunity to come back and fix things if we discover that there are unintended consequences. Very few pieces of legislation do not throw up a need for guidance or further regulation at some stage. My aim is to pin down some areas where the impact of the changes will be felt that we have not yet explored fully.

As I was saying, the notional income rules apply to people who have reached the qualifying age for pension credit, currently linked to the state pension age for women, which started to rise from 60 in April 2010 and will reach 65 in November 2018. The rules do not apply to people of working age. They allow a person to be treated as having taken income available to them under a personal pension plan, even though they have not applied for it. Those rules are outlined in the State Pension Credit Regulations 2002—S.I. 2002 No. 1792, if anyone wants to look at the detail. Given that someone with flexible drawdown is unlikely to qualify for pension credit, it might be argued that that is not an issue, but it appears that it may mean that a person with an occupational pension is treated as having the amount they could withdraw under capped drawdown, even if they have not accessed that income.

Following the changes announced in the Budget and included in the Finance Act 2014, the maximum amount that can be drawn down under capped drawdown is now 150% of an equivalent annual annuity, so it is fair to assume—unless the Government tell us otherwise, and I am sure the Minister will want to comment—that this may be the benchmark amount for measuring an individual’s notional income. However, after the reforms in this Bill, many of those who were in capped drawdown will no longer be so and will no longer be covered by the capped drawdown rules, so an alternative benchmark for assessing an individual’s notional income may be required. If the Minister is able to clarify, I would welcome it.

Similar rules exist for the assessment of housing benefit for people who have attained pension qualifying age. The advice for decision makers on universal credit, which is quite difficult to find—we had to trawl to a considerable depth to do so—says that:

“Pension fund holders must provide the”

decision maker

“with information about

1. the maximum amount of income available from the pension fund and

2. the amount of income that would be available if the funds were held in a scheme that produces an income.”

It goes on to say:

“DMs should consider evidence from pension fund holders when deciding the amount of notional income. Do not make a decision until the pension fund holder has been given sufficient time to provide evidence.”

In their response to the consultation on “Freedom and choice in pensions” in July 2014, the Government said they would look further at the notional income rules for pension drawdown products for benefits and social care to ensure that those were consistent between drawdown products and annuities. The intention was that capital held in a drawdown product should be treated as generating

“an appropriate notional income for the purposes of income means tests”.

The response goes on to indicate that the Government expect a new range of products to emerge as a result of these reforms:

“Where possible, these products will be treated similarly to current drawdown products, which see any capital held in a drawdown product excluded from the respective capital means tests. Instead, that capital is treated as generating an appropriate notional income for the purposes of income means tests. This will preserve the important principle that everyone pays their fair share towards supporting themselves and paying for social care, with government support targeted where it is needed most.”

It continues:

“In light of these reforms, the government will look at the notional income rules for pension drawdown products (for both benefits and social care) to ensure these are consistent between drawdown products and annuities.”

I emphasise those points because I am not entirely clear what work has been done on that. Individuals who choose to draw down their full pension pot quickly and manage it directly

“will need to consider how this could affect their current and future entitlement to welfare and social care support—in the same way as those who choose to save for retirement outside of a pension do now”.

We welcome the Government’s commitment to ensuring that

“individuals are able to make an informed decision that best suits their personal circumstances and risk appetite for the duration of their retirement”,

but I want to emphasise that we may be entering uncharted territory. We do not know exactly what the impact of the changes will be.

A representative of Citizens Advice said in evidence last Tuesday,

“The notional income and deprivation of assets rules in means-tested benefits might not need to change, but there might need to be additional clarification or, if not, case law to explain what this means and to communicate more clearly to consumers in the context of the reforms in the Bill. It is hard to predict how many people will be affected until we know what starts to happen over the next few years.”–[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 26, Q45.]

A Treasury official commented,

“We have said that the principle is that the decision that you make on how you access your pension should not significantly affect how you are judged or measured for social care or welfare. We will make sure that, whatever the product choice you make, you are treated in a consistent way, whether that is in flexi-access or through an annuity, so that the treatment across the board is fair and consistent.”

She later said,

“We do not envisage a change to the existing rules. We are just making sure that whatever choice you make, you are treated in a fair way across the board.”––[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 30, Q51-52.]

It did not seem to me at the time that those two statements were entirely in agreement. I do not think there is any ill intent, but it shows a lack of clarity and that the issue has not been probed as far as it might have been. We need clarity on the notional income rules. From the evidence available under the existing rules the Government intend to ensure that people are treated as having an appropriate level of notional income and are treated consistently regardless of the option that the scheme offers. Can the Minister provide clarity on the work done by himself and the Department for Work and Pensions to ensure that there are no hidden or unintended consequences of the rules? What assessment has been made of the number of people who could inadvertently be affected? If the work has been done, have any conclusions been reached? If so will they be made public? Very specifically, will the measure used for notional income under these reforms will be the same as the one applied now?

I now turn to the impact of the reforms on an individual’s future entitlement to social care support. Again according to the Government’s response to the “Freedom and choice in pensions” consultation:

“The consultation sought views on how the reforms might impact on charging for care and support for both the person and the local authority. The responses did not show a significant level of concern for either, but asked that the approach be clearly set out in the guidance.”

Again, I refer to the Committee’s evidence-taking session last week, at which the Citizens Advice representative said that people,

“will have to understand that the choice they make at retirement might have a significant impact on their entitlement to means-tested benefits. There is a really important information and communication piece there.”––[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 24, Q41.]

In written evidence to the Committee, the Association of British Insurers also expressed concern

“that a continued focus on early access at the age of 55 means that there may be barely enough in the pension pots of some savers to cover their near-term retirement income needs, let alone enough left to stretch to care costs in older age.”

My hon. Friend the Member for Scunthorpe highlighted that earlier.

Those two comments raise specific issues. The first is the impact that drawing money under flexi-access may have on an individual’s entitlement to means-tested benefits and, indeed, eligibility for social care. The second, crucial issue is the danger of the emphasis having been placed on early access to funds, which may result in people taking too much too quickly and being left with insufficient funds to cover the cost of care later down the line. The Bill and the accompanying literature make many references to age 55 as a point of access. That may be unavoidable, because it is what the Bill is intended to provide for, but people will see a contradiction in that emphasis on early access to pensions at the same time as the state pension age is rising and people are being encouraged to think more about their longer-term future. What is the Minister’s opinion?

On the the impact on eligibility for means-tested benefits, the Government’s own consultation, “Freedom and choice in pensions”, states that:

“The guidance … confirms that resources should be treated according to where they are invested at the time of assessment and where someone has not accessed their pension or is drawing a notional amount; that a local authority can apply notional income to the equivalent of the maximum available under an annuity.”

What work has been done on the impact of what local authorities might be expected to do and the knock-on effects on whether those local authorities will be assumed to be applying rules in a particular way, which may, of course, affect their financial health? The guidance that is referred to is in the care and support statutory guidance issued by the Department of Health; it consists of only a few paragraphs in 800 or so pages. I am sure that the Minister is very familiar with it, or will soon become so, but to make things slightly easier, let me quote from it. It states that:

“If a person is only drawing a minimal income, then a local authority can apply notional income choosing not to draw income, or according to the maximum income that could be drawn under an annuity product. If applying maximum notional income, the actual income should be disregarded to avoid double counting.”

It also says:

“If a person is drawing down an income that is higher than the maximum available under an annuity product, the actual income that is being drawn down should be taken into account.”

Again, without drifting into the realms of the hypothetical, it is difficult to know now whether that guidance will be adequate, because, critically, we do not know what the impact of these reforms will be on consumer behaviour. That is something that has been highlighted time and again. If we look at international examples, I think that some concerns have been raised about that.

The Government have highlighted the issue in a way, by saying that those who choose to draw down all their pension income will need to consider how this could affect their current and future entitlement to welfare and social care support. Again, that seems to leave the responsibility to individuals to analyse that, perhaps without the work being done looking at the crossover into Department of Health benefits and without further work by the DWP. What does the Minister believe the impact will be? What do the Government need to do? For example, does he think it is worth stating in very clear terms that for those who draw down their pensions in full, the income they receive will be counted against their entitlement to welfare and social care support? If that is the case, does he think that that has to be spelt out much more clearly at an early stage, before people make decisions?

On the second issue—the risk of an individual taking too much, too quickly—will the Minister comment on the ABI’s written submission in which it regrets what it calls the narrowing of the debate to a focus on the ability to access cash quickly when people turn 55? In the view of the ABI, this may:

“deal a fatal blow to the Government’s wider reforms of encouraging people to work for longer, and making society more financially resilient”.

A number of colleagues raised this at last Tuesday’s evidence session, particularly in relation to the publicity and spin that has been put on the reforms. It seems to focus on the message, “Yes, it will be great, because you will be able to access your pension at the age of 55,” and far less on the other side of the coin which is, “But you may have to plan for your retirement until you are 85, 95, or even longer.” The point was summed up in the session by Adrian Boulding of Legal & General who said:

“consumers have been given completely false expectations by the media, and that will eventually come home to roost”.––[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 20, Q28.]

Our concern is that, if that does come home to roost, it will not be just individuals who are affected; as we have heard, people may fall back on state provision, which is entirely at odds with the Government’s stated intention when they outlined the reform. Does the Minister feel that the reforms have been misrepresented in the media, or that certain aspects of the Bill have been emphasised to the detriment of the reforms as a whole and what the Government are trying to achieve? I am thinking particularly about the use of the uncrystallised funds pension lump sum, which headlined the Government’s press release accompanying the publication of the Bill.

Of course, the Government want to ensure that individuals are able to make an informed decision that best suits their personal circumstances and risk appetite. The Government introduced the concept of risk appetite for the duration of retirement. Those of us who are involved in dealing with the Bill perhaps understand what that means, but for many people who, for the first time in their lives, have the opportunity to access significant amounts of money and are not used to dealing in risk appetite, this will be potentially extremely confusing and they will need appropriate support.

Geoffrey Robinson (Labour, Coventry North West)

On the question of the uncrystallised funds pension lump sum, does my hon. Friend agree that the Government must realise that the lack of clarity to which the ABI has drawn attention in its notes to us is one of the outstanding issues which must be tackled urgently by the Government? Given the headlines and the hype about lump sums, the danger is that people will not understand and there will be no clear rules governing this. We fall short of, nanny state-like, telling people what they should do, but if the Government pursued the line that the lump sum was an entitlement to which people have to aspire by having a robust savings position under them, it would be much better.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes an important point. Of course we do not want a scenario where people do not have a choice; people should have a choice, but they must also have the appropriate information to make that choice. My worry is that this policy has become characterised by the message that, “You can get your money early and basically do whatever you like with it,” rather than counterbalancing that with the idea of a pension pot providing for retirement. There has been an emphasis on only one aspect, rather than on the longer-term planning.

As we heard from the witnesses last week, not everyone will jump in and deal with this at 55. When the measures in the Bill come into force, not everyone will act straight away, and nor do they need to. That is why it is so important that we do not send out mixed messages about what we are trying to achieve. For people thinking about whether they would be better taking their pension in a particular way or holding some back to plan for the future, these are hugely significant decisions. The majority of people are not taxation experts; they will need the correct guidance and reference points for regulated financial advice. Many people will find themselves in that scenario when they perhaps never envisaged that they would.

Thank you, Ms Dorries, for allowing me to lay out those key concerns. It seemed important to do that right at the outset, as this clause introduces the technical detail of the schedule. I know that the Minister takes these matters seriously and I am sure that he will give assurances and respond to the specific points I have raised. It is important to scrutinise those points in detail at this stage of the process, so that if any changes or amendments are required or any further work needs to be commissioned, he will have the opportunity to do so before Report.

David Gauke (Conservative, South West Hertfordshire)

I thank the hon. Member for Kilmarnock and Loudoun for her questions and speech, which covered many if not all of the issues that we are likely to discuss in Committee. I appreciate that we will turn to the schedule in a moment, which will give us an opportunity to debate some of those matters. However, I will try to address the questions that she raised.

The hon. Lady began by asking whether pension schemes and providers will be ready for an April 2015 launch and about the nature of the announcement, which was not consulted upon before the March Budget. She will appreciate that the announcement at the Budget was market sensitive, which restricted what we were able to do. Since then, we have consulted extensively with the pensions industry and individual pension providers. They overwhelmingly support the proposals, as we heard at the oral evidence stage, and are keen to introduce these innovations for their customers. Products for April 2015 have already been announced, and we believe that the industry will be ready.

The hon. Lady also raised the issue of the compatibility between the Government’s approach to auto-enrolment, which she described, not unfairly, as relying upon a degree of inertia, and the choice and flexibility available in the Bill. Saving into a pension and accessing a pension are two different things. It was therefore appropriate to have different policy responses for each. The Government expect that auto-enrolment will lead to 6 million to 9 million people newly saving or saving more into their pension, generating £11 billion a year more in steady-state pension saving. It is important to ensure that people saving into pensions have confidence that they will be able to use their savings to secure a retirement income that is right for them. That is why we believe that the Government’s reforms are vital. People have a right to opt out of savings under auto-enrolment and the Government have no plans to remove that opt-out. We believe that auto-enrolment is working well in getting people to save more, but it is right that people have the flexibility to determine how they access those savings.

The hon. Lady mentioned the Opposition’s three tests, and I will say a word or two about each. First, there is the advice test. Guidance will be provided by trusted independent third parties to avoid any perceived or actual conflicts of interest. It will be free at the point of use and funded by a levy on the population of regulated financial services firms. The guidance is important and she will be aware that the issue has been debated at some length in Committee on the Pensions Schemes Bill.

Nicholas Dakin (Labour, Scunthorpe)

What does the Minister envisage for the quality of the guidance? It seems that the key will be evaluating to check it is doing the job that everybody hopes it will, which is necessary to achieve the outcomes that we want to see.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman makes an important point; we need to ensure that the guidance is of sufficient quality. Citizens Advice and the Pensions Advisory Service are working with us to deliver the guidance. It is very much a priority of the Government to ensure that that guidance is of the quality that we need, and all the parties involved are putting in a huge amount of effort to ensure that the guidance is available in time for April and is as effective as possible. The objective of the guidance is to empower consumers to make informed and confident decisions on how they use their pensions savings in retirement, and the standards are designed to ensure maximum consumer engagement with the guidance, to ensure that people are confident of the options open to them and have a hand-off document that is of practical use.

Geoffrey Robinson (Labour, Coventry North West)

Does the Minister agree that it is not just—to correct my hon. Friend the Member for Scunthorpe—a question of the quality of the guidance? The guidance has to be consistent and clear. It not just the Treasury and HMRC that are going to be involved, but the DWP, the FCA, the Pensions Regulator, the private sector, CABs, and the pension funds. Given that, the guidance should be of great clarity, quality and consistency, and needs to be understandable. If those criteria are met, we will be some further way on.

David Gauke (Conservative, South West Hertfordshire)

I do not disagree with the hon. Gentleman. In fact, he is elaborating and clarifying what “quality” means. I suspect that there is no difference in the views of the hon. Members for Scunthorpe and for Coventry North West on that point. All the delivery partners, including the Treasury, will work out the operational detail while ensuring adherence to the FCA’s standards. It is right that the guidance is available in a variety of different forms—online, over the phone, or face to face—and that it is tailored for individuals’ personal circumstances. The guidance will have to meet FCA standards, which it has recently consulted on. The FCA has an important role to ensure that the points the hon. Gentleman raised about the guidance being clear, consistent and understandable are met.

Ian Swales (Liberal Democrat, Redcar)

Both my hon. Friend and the shadow Minister have mentioned the guidance being ready for April. My birthday is on 5 April, and next April happens to be the retirement date for one of my previous occupations. I think the Minister would agree that I should not be getting advice on 2, 3 or 4 April if I am retiring on 5 April. When does he think the guidance will be ready and put in place?

David Gauke (Conservative, South West Hertfordshire)

We have said that it will be in good time for April. I do not want to announce the date here, but I take the point that people will want the guidance to be available more than a day or two before the new financial year.

The second test that the hon. Member for Kilmarnock and Loudoun mentioned is fairness. The Government will ensure that the generous tax reliefs available on pension savings will not be used solely for tax planning, given the significant flexibility the new rules offer. I dare say that we will return to the issue later. The Government are making changes to the tax system to allow innovation, and they expect that products suitable for a wide range of savers will be developed.

Nicholas Dakin (Labour, Scunthorpe)

Adrian Boulding said in his evidence to us:

“I do not think we should be setting rules in place that say the new flexibilities are only for some consumers—who I think would be wealthy consumers—and not for other consumers who are perhaps on a lower income.” ––[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 21.]

To some extent the Minister has covered that, but clearly there is more to do.

David Gauke (Conservative, South West Hertfordshire)

The nature of the pension system up to now has meant far more flexibility for wealthy people with large pension pots, and quite a lot of flexibility for those with small ones, but for those in the middle the regime was very restrictive, which we do not think is fair. The Opposition’s fairness test is perfectly fair in a way, but I do not think that the present system is entirely fair. Adrian Boulding’s point was a good one, in that it is right to make sure that the flexibility currently available to the wealthiest is available to those with pension pots in the middle range.

The hon. Member for Kilmarnock and Loudoun spent some time dealing with the Opposition’s third test—the cost test. Increased flexibility may have an impact on welfare and social care spending in the longer term, although it is difficult to predict. It will depend on how people choose to use their pension savings. The Government do not expect the impact to be significant in the context of the steps that they have taken to improve the sustainability of pensions spending, such as changes to the state pension age and reforms to public service pensions. The estimated net impact of the Government’s key pension policies is a saving of about £17 billion in 2030, in today’s terms. We have to put it in that context. The Government are also taking action to ensure that the generous tax reliefs available on pension savings are not used for tax planning purposes.

Although there may be a longer-term impact on welfare and social care spending, as I said, it is very difficult to predict and will depend on how people choose to use their pension savings. We do not expect it to be significant. The Office for Budget Responsibility’s latest projections, published in the 2014 fiscal sustainability report, assume no increase in income-related pensioner benefits as a result of people misjudging what to do with their pension savings. As for the related issue about capital held in drawdown products and so on, the Government want to ensure that the choices people make between taking their pension as income—that is, purchasing an annuity—and keeping more of their pension as capital and drawing it down periodically, for example, through a drawdown product, do not significantly impact on how they are assessed for means-tested welfare and social care support. New statutory guidance and regulations under the Care Act 2014 were published on 23 October. They include details on the charging rules for social care and support. The rules about notional income charges to be applied to pension products covered by the welfare means test are under consideration and will be confirmed in due course.

The hon. Lady referred to the evidence provided by officials at our hearing last week. Essentially, there is no change to the principle behind the rules. Notional income will be assigned to a drawdown product, so there is no change there. On the point about the first test, which is relevant to the third test, guidance will be tailored to individual circumstances and will consider issues such as welfare, social care and levels of savings and debt. Where it is clear that consumers need specialist help they will be directed to appropriate specialist guidance and information as appropriate.

Geoffrey Robinson (Labour, Coventry North West)

Before the Minister moves away from the guidance, may I ask him a question? I do not want to repeat the points that we laboured over at our previous sitting, but it was not just about the quality of the guidance; it was the whole issue. It may be that there is no answer to this question, but is the FCA to be given any guidance about the attitude it should take when guidance is put out that is clear, consistent and of good quality, but there is fairly widespread evidence that it is not being taken? What guidance will the FCA give to the providers in that sort of situation? It could be that a scandal is brewing.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman raises an interesting point, although he is perhaps taking me a little bit beyond the scope of the Bill. The FCA clearly has an important role in ensuring that the quality of the guidance is sufficient, and understandability is an important aspect of that, but there is only so much that the FCA can do to force people to take up the guidance. That is a choice that ultimately lies with individuals. I also think that we should look at the second line of defence, which is the information that is provided by product providers to consumers who may or may not have taken up the offer of guidance. The FCA is looking at a requirement that providers give their customers a description of the possible tax implications when they require access to their pension fund. Those who do not take the guidance will receive the information about their options as they currently do, including about being able to shop around on the open market and so on. I take the hon. Gentleman’s point about the role of the FCA and the take-up of guidance, but there is only so much that it can do about that. However, it can ensure that information is provided even to people who have not taken up the offer of guidance.

Guy Opperman (Conservative, Hexham)

As this is my first time in Committee, I should declare that I am the chairman of the all-party Arch Cru Investment Scheme group and I have constituents who support both the Bill and that association. I also used to be a lawyer doing financial services, although all matters are now resolved, as they say.

In relation to the guidance and the liability for that, anyone who has been involved in the Arch Cru and other scandals that we have dealt with is keen to know where the buck stops. The FCA, as I understand what the Minister is saying, sets out the providers and the guidance itself. Does the FCA then take civil liability for that? Is the individual responsible for their own action, or is it the provider of the guidance?

David Gauke (Conservative, South West Hertfordshire)

First, I congratulate my hon. Friend for making it well into his fifth year as a Member of Parliament and this is his first Committee. I find that difficult to believe.

Guy Opperman (Conservative, Hexham)

No, I meant that it is my first intervention in this Committee.

David Gauke (Conservative, South West Hertfordshire)

Then I withdraw that remark.

On the liability for the guidance, financial penalties are unlikely to be an effective or proportionate deterrent. The entities that will provide the guidance are the likes of the citizens advice bureaux and the Pensions Advisory Service, so I do not think that is the right route for controlling them. Ultimately, we are talking about guidance, not advice or specific recommendations. It will not tell people, “You should invest in this particular product,” but it will point them in the right direction and ensure that they have the right information.

Of course product providers have responsibilities. They are regulated and they must treat customers fairly, so that is where the liability is likely to lie if the advice and information provided to consumers is wrong. The guidance will ensure that consumers are able to make an informed decision based on the options available to them. However, I am conscious that the guidance is not part of the Bill, and I am keen to return to issues that are.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I appreciate that the guidance is not part of the Bill—indeed, that is one of the difficulties. We are dealing with two complementary Bills. Many of the issues that have been raised are summed up in the question asked by the hon. Member for Hexham: where does the buck stop? Does the Minister agree that the ordinary person will not understand and will not have scrutinised the difference between a guidance guarantee and advice? If they make a decision on the basis of something they have been told, they will want to know who is responsible if it goes wrong.

David Gauke (Conservative, South West Hertfordshire)

Of course, it will depend on the particular circumstances. We ought to be clear about what the guidance is and is not. It is not a specific recommendation about a particular product.

Geoffrey Robinson (Labour, Coventry North West)

Will the Minister give way?

David Gauke (Conservative, South West Hertfordshire)

No, I want to move on to the issues that were raised about the 2010 reforms that changed how the annuities system works.

The hon. Member for Kilmarnock and Loudoun asked why we are returning to that policy area and making changes. The new state pension and automatic enrolment provide a basis for change. In the Government’s response to the consultation, we stated that our guiding principles are choice, fairness and proportionality. We believe that the time is right for us to make wider reforms.

The hon. Members for Scunthorpe and for Kilmarnock and Loudoun said they are concerned that there is too much emphasis on early access to pension pots. The Government have always been clear that under the tax rules individuals may be able to access their savings from the age of 55, subject to their pension scheme’s rules. The Government have been clear that we will raise the minimum pension age in the tax rules from 55 to 57 in 2028, mirroring changes to the state pension age. We have been clear that accessing pension pots will involve paying tax at the marginal rate. That is part of the system, and the guidance will reflect that.

It is very important to be clear that this is about choice. This set of reforms gives people greater choice and flexibility. It is about giving people the power to make decisions about their own savings—savings favoured by tax relief, but that are the property of the individual none the less. If there are restrictions to be placed on access to that pension pot, we should start from the view that they should be minimised. We should give people choice and flexibility to as great an extent as possible.

Geoffrey Robinson (Labour, Coventry North West)

Hear, hear!

David Gauke (Conservative, South West Hertfordshire)

That is why we have undertaken these reforms. I hope that they have the support of the Opposition, and I am grateful for the assent of the hon. Gentleman, who brings considerable experience to these matters as a former Treasury Minister.

Nicholas Dakin (Labour, Scunthorpe)

Although I accept the positive element of giving greater flexibility, does the Minister agree that part of what needs to be done is to focus on managing resources for longer living? That part of the equation has been lost in the way in which this information has been received. Part of our job as leaders of communities is to rebalance that debate.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman raises an important wider point. First, let me accept the premise of his question, which is that we are moving into a world where people are living longer and have to manage their assets over a longer period of time. That may involve working for longer, working part time, coming out of and going back into the labour market, or all of those elements. It is a very interesting time. We need to ensure that people have greater responsibility, choice and ability to determine their own future. The reforms that we are making here make it more attractive to people to save for their pension, because they know that when they reach retirement age—or one of their retirement ages—they have greater flexibility on what they do with their pension pot. They increase the incentives to save and to put aside money for the pension pot. That is working. That is why this Government have brought forward these reforms, and that is why I hope this Committee will support clause 1.

Schedule - Pension flexibility etc

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 1, in Schedule, page 11, line 3, at end insert—

(2A) A lump sum death benefit is also a flexi-access drawdown fund lump sum death benefit if—

(a) it is paid on the death of a nominee of the member,

(b) it is paid in respect of nominees’ income withdrawal to which the nominee was at the date of the nominee’s death entitled to be paid from the nominee’s flexi- access drawdown fund in respect of an arrangement relating to the member, and

(c) it is not a charity lump sum death benefit.

(2B) A lump sum death benefit is also a flexi-access drawdown fund lump sum death benefit if—

(a) it is paid on the death of a successor of the member,

(b) it is paid in respect of successors’ income withdrawal to which the successor was at the date of the successor’s death entitled to be paid from the successor’s flexi-access drawdown fund in respect of an arrangement relating to the member, and

(c) it is not a charity lump sum death benefit.”

Nadine Dorries (Conservative, Mid Bedfordshire)

With this it will be convenient to discuss the following:

Government amendments 2 to 12.

Government new clause 1—Death of pension scheme member.

Government new schedule 1—Death of pension scheme member.

David Gauke (Conservative, South West Hertfordshire)

The schedule is introduced by clause 1, which sets out the tax changes necessary to give individuals more flexibility in how they access their defined-contribution pension savings. The schedule gives me the opportunity to discuss these changes in greater detail.

First, the schedule creates the concept of flexi-access drawdown, which unlike current forms of drawdown has no caps or income requirements. This means that everyone retiring with defined-contribution savings will now be able to set up a drawdown fund and withdraw as much or as little as they like. Secondly, it makes annuities more flexible by, for example, allowing them to decrease. That will enable providers to innovate. Thirdly, it creates a new way to take money from your pension via an uncrystallised funds pension lump sum. Fourthly, it prevents the reforms from being exploited for unintended tax purposes by introducing a new £10,000 annual allowance for those who have accessed their pension flexibly, together with a requirement to report when that access has happened. Finally, it ensures that the new UK pensions system is reflected in the treatment of overseas schemes that consist of or contain UK tax-relieved pension funds.

Taken together, the changes will create much more flexibility for individuals in how they access their pension savings. Through a new flexi-access drawdown, which has no cap on the amount which can be withdrawn and no income requirement, individuals will be able to access their savings as they wish. The changes to the tax rules governing annuities will allow providers to create new flexible products that reflect consumers’ changing retirement income needs. The UFPLS—“uff-plus” as it has become known—will be payable directly from pension savings, allowing individuals a further option for flexible income withdrawal. These changes will allow future retirees much greater choice.

While making these important changes to extend flexibility, it is important also to ensure that we protect the Exchequer from the risk of individuals exploiting the new tax system to gain unintended tax advantages. For this reason the schedule sets out the details of the reduced money purchase annual allowance, which will apply to individuals who access the defined-contribution pension flexibly. It contains details of the requirements that will be placed on schemes and individuals regarding the provision of information. Essentially, those requirements will ensure that when individuals accesses their pension flexibly, schemes of which they are members know that they are subject to the new reduced annual allowance.

The schedule makes various other amendments to tax and pensions legislation, including amending the tax-free lump sum recycling rules to ensure that they remain effective, and introducing a permissive statutory override which will allow scheme trustees to offer the new flexibilities to individuals without the need to change their scheme rules. There are also provisions which are intended to ensure that the new UK pensions system is reflected in the treatment of relevant overseas schemes.

Hon. Members raised a number of important points on Second Reading. Let me take this opportunity to explain in more detail the Government’s position on a couple of those issues. I suspect I will anticipate points that may be raised by the hon. Member for Kilmarnock and Loudoun, but let us see. First, there was a concern that the reduced £10,000 annual allowance could create a risk to the Exchequer. Let me explain the Government’s thinking on this point, although it was set out in my recent letter to the Pension Schemes Bill Committee, a copy of which members of this Committee should have received.

The Government consulted extensively on how best to ensure that the new system cannot be exploited by individuals to achieve unintended tax advantages. If the Government were to put in place no protections, an individual over the age of 55 could divert their salary each year into their pension, take it out immediately and receive 25% of it tax-free, thus avoiding income tax and national insurance contributions on their employment income. This is not the intention of the reforms. However, in the context of automatic enrolment, it is important that any solution preserves the incentive for those over 55 to save after accessing their pension flexibly. This is not unrelated to the discussion just now with the hon. Member for Scunthorpe about changing working patterns.

As a result of extensive consultation, the Government decided that the £10,000 money purchase annual allowance strikes the right balance. On the one hand, it allows people the flexibility to withdraw or contribute to their pension as they choose from the age of 55. On the other hand, it ensures that individuals do not use the new flexibilities—which are intended to provide people with greater access to their retirement savings—to avoid paying tax on their current earnings. It will also avoid unnecessary complexity for both consumers and pension providers when the new system comes into place in April 2015. As stated in the Government’s response to the consultation, we will closely monitor behaviour under the new system, and will work closely with industry to ensure that the system remains fair and proportionate.

It was also suggested on Second Reading that the changes the Government are making to allow innovation might lead to the creation of inappropriate products. I reassure hon. Members that the FCA, under its consumer protection remit, has responsibility for ensuring that regulated firms treat their customers fairly and communicate in a way that is clear, fair and not misleading. The FCA also has powers to take action against firms that engage in unauthorised business.

The Government have consulted extensively on the tax changes to allow innovation and believe it is important to allow providers to create products that fit the changing retirement income needs of consumers. The guidance guarantee, which is being legislated for through the Pension Schemes Bill, is designed to empower consumers to make informed decisions on how to make the best use of their pension savings. As part of that, it will aim to promote consumer awareness of scams and help to ensure consumers are less vulnerable to mis-selling.

The Government amendments, new clause 1 and new schedule 1 make several changes to the tax changes that apply to pension savings upon an individual’s death. That is a complicated area, so it might be helpful if I set out how the current system works and explain how the amendments change it. Under the current system, the tax treatment of an individual’s pension at death varies depending on a number of factors, including the type of pension the individual has, whether it is paid out as a lump sum or as a regular stream of income, and the age at which the individual dies. If an individual dies before the age of 75 with an uncrystallised pension fund, that means they have not yet taken a pension. That fund can be paid out to any beneficiary tax-free as a lump sum up to the lifetime allowance, which is £1.25 million.

Similarly, if an individual who is a member of a defined-benefit scheme dies before the age 75, a lump sum can be paid to any beneficiary tax-free. However, if an individual dies with money in a drawdown fund that is paid out to a beneficiary as a lump sum, a tax charge of 55% currently applies, regardless of the age of the individual when they die. If a pension death benefit is paid out as a stream of income instead of as a lump sum, it will be taxed at the dependant’s marginal rate. However, it can be paid out only to a dependant defined as a spouse, a child under the age of 23, or someone who is financially dependent on the deceased.

As set out in the original consultation document, which the Government published alongside the Budget, it is likely that the 55% tax charges that currently apply to pensions on death would apply to more people under the new system. If they were retained, it is likely that they would provide an incentive for individuals to remove their savings from their pension to avoid paying the 55% tax charge.

To deliver those changes, the Government have tabled amendments 1 to 12 to the existing schedule. Those changes are linked to the new clause and new schedule, which I will turn to shortly. Amendments 1 to 3 allow for the new type of death benefit lump sum introduced by the schedule—the flexi-access drawdown fund lump-sum death benefit—which allows unused funds in the member’s drawdown account to be paid out as a lump sum to a beneficiary, and to be payable from unused drawdown funds on the death of the beneficiary.

Amendment 4 extends the permissive statutory override in part 5 of the schedule to include drawdown pension payments to non-dependant beneficiaries. That will allow schemes to offer that option to their members, even if it is not currently permitted by their scheme rules. Amendments 5 to 8 amend paragraphs 81 and 82 of the schedule, and ensure that income withdrawals from a non-dependant beneficiary’s drawdown fund that was registered under a pension scheme when the beneficiary was temporarily non-resident are treated as accruing when the person returns to the UK.

Amendments 9 to 12 ensure that any payments by a non-UK pension scheme during a temporary period of non-residence that would have been income withdrawals from a drawdown fund if the scheme were a registered pension scheme are treated as arising when the person returns to the UK. These consequential amendments ensure that the legislation contained in the existing schedule is compatible with the Government new clause and new schedule.

The new clause and new schedule make several changes to the current system and will preserve the incentive to save. New clause 1 introduces new schedule 1, which allows an individual—not only a dependant—to inherit unused drawdown funds or uncrystallised funds on the death of a member where those funds are then used to provide a drawdown pension or to pay a lump sum death benefit. The changes ensure that, when the death of the member or beneficiary occurs before age 75, any payments of income withdrawal to a beneficiary will be made tax-free if they are designated within a two-year period. They also ensure that any uncrystallised funds are tested against the deceased’s lifetime allowance.

Members may also wish to note that the new clause and new schedule, and amendments 1 and 2, link to clause 2, which reduces the tax charges that apply to certain lump sums paid by pension schemes on an individual’s death, and removes the tax charge altogether when an individual dies before age 75. We will be debating clause 2 shortly.

The aim of the changes is to ensure that individuals who die with funds remaining in their pension pots can pass them on to anyone they choose. The funds can then be paid tax-free if the original pension member dies before age 75, or taxed at the beneficiary’s marginal rate if a person dies having reached age 75. The changes will ensure that individuals who have made sacrifices to save over the course of their lives can pass on their pension savings without worrying about those funds being hit by excessive tax charges when they die. They will also preserve the incentive for individuals to keep money in their pension, without fear of their beneficiaries being hit by a 55% tax charge.

I hope the amendments will be accepted by the Committee. More than 300,000 individuals retire each year with defined contribution pension wealth. Many of those people are currently severely restricted in their choices at the point of retirement, and the schedule will deliver the radical changes announced by the Chancellor at the March Budget. They will revolutionise the pension savings landscape, leading to more choice and greater freedom for people in retirement. I hope the new clause, new schedule and Government amendments will stand part of the Bill.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for laying out the amendments clearly. The schedule is the meat of the Bill and is divided into seven parts. It amends the Finance Act 2004 and the Income Tax (Earnings and Pensions) Act 2003, and relates to the authorised pension benefits that can be provided to members of registered defined-contribution pension schemes and their dependents. It allows for the introduction of the new flexi-access drawdown funds and distinguishes between payments made under them, and those made under existing flexible access drawdown.

The schedule provides that existing flexible access drawdown funds will automatically be converted into flexi-access drawdown funds. It sets out the circumstances in which capped drawdown funds would be converted into flexi-access drawdown funds. That can either be done at the request of the scheme member or occur automatically if the member does not make use of the new flexibilities. As the Minister has said, the scheme also introduces the new money purchase annual allowance rules, which set an annual limit of £10,000 on the amount of money that can be saved tax-free in money purchase arrangements, and which will be triggered when an arrangement is flexibly accessed.

In addition, the schedule amends the requirements for lifetime and short-term annuities to provide greater flexibility for both members and dependants. That means that, when the individual becomes entitled to the annuity on or after 6 April 2015, some of the conditions are removed that would have applied had the individual become entitled to the annuity before that date.

Michael Weir (Scottish National Party, Angus)

I remind the Committee that with this we are discussing the following:

Government amendments 2 to 12.

Government new clause 1—Death of pension scheme member.

Government new schedule 1—Death of pension scheme member.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

It is good to see you in your place this afternoon, Mr Weir. I know that you will keep us all in order.

Returning to the theme that I was developing in our discussions on this part of the Bill, I refer again to the Government consultation “Freedom and choice in pensions”, already a much-quoted document today. I remind the Committee that it stated that the Government wanted to allow for the development of “new, more flexible, annuities”, enabling

“providers to create new types of annuities that more closely meet consumer needs, as well as creating products through the drawdown rules.”

Potentially, that includes allowing annuities to decrease as well as to increase, raising the possibility that individuals could be sold annuities that offer attractive initial rates that decline in subsequent years, possibly at the point at which the state pension kicks in. I do not want to repeat my earlier comments about people’s ability to plan for the long term, but obviously such potential could be a good thing, so that people may access funds at a time when they most need them and have the taper over the years. Again, however, people have to make those decisions consciously, rather than finding that there are unintended consequences.

The schedule makes provision for a new type of authorised payment. We have already heard about the uncrystallised funds pension lump sum, or UFPLS—the Minister coined the phrase and, try as I might, I could not come up with a better acronym. I was trying everything to avoid anything sounding like “flumps”, so the Minister has done well with his UFPLS.

As we have heard, those payments enable members to take lump sums directly from their pensions without first designating them for draw-down. Members will be able to take 25% of each payment tax free, with the rest taxed at the marginal rate. Payment of an uncrystallised funds pension lump sum will trigger the new annual allowance rules. The schedule also makes changes to the provision of information regulations to provide for the passing on of information to scheme administrators and members when individuals have flexible access to pension savings to enable the correct operation of the money purchase annual allowance rules.

One of the issues that I wanted to raise with the Minister was to do with the reporting requirements. The guidance to the Bill indicates that those who fail to contact all the providers within a month risk a penalty of up to £300 initially and then up to £60 a day until that information is passed on. Some concerns have been expressed by the pensions industry about the reporting requirements in the Bill.

To be clear about what the legislation sets out, scheme members who flexibly access their pensions after 6 April 2015 will within 31 days receive a statement from the scheme administrator confirming that they have done so. They will then, as I understand it, be required to inform the administrators of all other schemes of which they are a member, as their annual allowance for money purchase arrangements will be reduced to £10,000. That has to be done within 31 days.

The guidance sets out the possible penalties. We have had some comment in the written evidence to the Committee, in particular the Talbot and Muir evidence. Its head of technical support described the new rules as harsh and unworkable. Elsewhere, the technical resources manager of A J Bell went into more detail, analysing the reasons behind the impact of the new reporting requirements:

“The reason for all this is so that, if an individual pays more than £10,000 to any money purchase scheme in a tax year at a later date, that money purchase scheme knows that it will have to issue a statement to that member about the level of their savings”.

He continued:

“The issue with this is that the Government’s own analysis shows that only 2 per cent of over 55s pay in more than £10,000 a year. So all of the information is being shared just in case the individual is one of the 2 per cent of over 55s who might benefit from a greater than £10,000 savings statement at a later date.”

There seems to be a bit of irony in that. Although some are reporting the requirements as too onerous, perhaps some others would be generally playing down the risk of tax avoidance. We are trying to ensure that the Bill gets the right balance in that process.

In Ros Altmann’s written evidence to the Committee, she went into further detail as to why she believes that the new reporting requirements are unfair and unworkable. She said:

“This new aspect of the Taxation of Pensions Bill is impractical and will disadvantage many customers. To insist on people notifying all past pension schemes that they have taken some money under flexible access would place an impossible or unreasonable burden on too many people. The fines they would face are also draconian. Many may have only a small sum in an old pension scheme they have lost track of.”

Leaving aside the bureaucracy of the new arrangements and the extent to which that is or is not justified, her final point is of particular interest; she appears to believe that the reporting requirements will apply to all pension schemes, whether they are being paid into or not. It is difficult for some to keep track of personal finance and correspondence. We all probably know exactly which pension schemes we are paying into, but people who have moved employment or changed their circumstances may overlook something or find that there is a particular problem.

Ros Altmann states that the new reporting requirements will disproportionately penalise those on more modest incomes. That is a cause for concern. She said that

“those who are better off (and most likely to be able to afford £10,000 a year extra contributions) are likely to have a financial adviser who helps them with this task, whereas in practice most people with moderate savings do not. These are the people most likely to have untraced pension accounts, or to struggle to find details of how to inform their other pension providers.”

All in all, it sounds as if the reporting requirements and the fines accompanying them are further elements of the Bill that may have to be covered in more detail and guidance. I am sure that the Minister wants to respond to those points and to give clarification on the point of detail that has been raised by some in the industry: do the requirements apply to dormant pension schemes—those that are no longer being paid into? Ros Altmann seemed to imply in her contribution that the provisions may need to be amended, as she argued that

“people should only be required to notify new schemes which they establish, or other pension schemes into which they are currently actively contributing (contributions made within the past 24 months perhaps).”

It would be helpful if the Minister could clarify that.

I will briefly turn to the Government amendments to the schedule, which the Minister introduced. New schedule 1 deals with the issue of persons other than dependants being able to inherit unused drawdown funds in cases of deaths before the age of 75. Lump sum death benefits and flexi-access drawdown pensions from those funds can be paid tax free, subject, for example, to the member having sufficient lifetime allowance. That is broadly in line with what the Government proposed when they introduced the Bill. A concern I had at that time—I did, in fact, write to the Minister and received a reply this morning—was the number of pension funds that would be covered by the removal of the 55% rate of tax on pension funds at death. I asked for some more detail of the changes. The Minister has of course tabled some relevant amendments, but I would like clarity on why an article on the Government’s website about the uncrystallised pension funds drawdown arrangements states quite clearly:

“This does not apply to annuities”.

Some people have suggested that that is not strictly accurate and that the new system will apply to certain forms of annuity; indeed, I raised that point on Second Reading. It would be helpful if the Minister could give us some information, given that the website remains unchanged since that article went live a couple of months ago.

Another issue that I referred to on Second Reading is the fact that a number of people have expressed concerns about the tax avoidance reforms in the schedule. This morning, I referred to the Government’s document, “Removing the requirement to annuitise by age 75”, which outlined the five key principles of pension tax reform, one of which is:

“Any changes to the pensions tax rules should not incur Exchequer cost and should not create any opportunities for tax avoidance.”

I would like to hear some assurance on that.

On reducing the withdrawal tax rate, the Government’s policy costings document states:

“By allowing individuals to flexibly withdraw from their pension pot, this measure results in increased income tax receipts in each year until 2030. After that, a small reduction in tax receipts of around £300 million a year is expected in steady state. This is small in comparison to the impact of all the government changes on pensions, designed to ensure pensions provision is sustainable with an aging population…which means by 2030 the government is saving around £17 billion a year in 2013-14 terms compared to previous policy.”

The Minister has referred to those figures, but they have been disputed, so it is important that he provides some clarity for the record. It has been suggested that the figures seem to be predicated on the assumption that the tax take in the earlier years will be higher because consumer awareness of the tax implications will be low. If that is the case, that is worrying in terms of what has been said about guidance.

Tom McPhail, head of pensions research at Hargreaves Lansdown, said:

“While we support the basic principles behind the government’s reforms, the speed and complexity of these changes mean that a lot of investors are going to be paying unnecessarily large amounts of tax to the government. The Chancellor has effectively engineered a tax windfall for the government from unsuspecting pension investors.”

I am sure that the Minister will want to clarify that point, because when he was asked about the impact earlier, it certainly did not appear to be his intention to create a windfall for the Exchequer. I look forward to hearing what he has to say about that.

Another issue is where potential leakage through tax avoidance fits into things. Concerns have been expressed that the increase in flexibility will enable higher earners to make greater use of the tax advantage status of pensions by giving people the opportunity to pay their salary into a pension rather than taking it directly, meaning that the element of earnings income is tax free when paid in and that 25% of the amount can also be taken as a tax-free lump sum. Again, the Minister did seek to deal with some of those issues when he spoke, but given the number of people who have expressed such concerns, it is important to have them clarified for the record. Increased flexibility may make such options more attractive for those who can afford to receive less of a salary as they approach retirement. It is important to ensure that what the Government intend the tax rules to do actually happens in practice.

The Government said that the new rules would

“ensure that individuals do not use the new flexibilities, which are intended to provide people with greater access to their retirement savings, to avoid tax on their current earnings by diverting their salary into their pension with tax relief, and then immediately withdrawing 25% tax-free.”

That is what the Government are trying to do.

“Those who choose to draw down more than their tax-free lump sum from a defined contribution pension will be able to benefit from further tax-relieved pension saving, and make further tax-free contributions to a defined contribution pension of up to £10,000 per year. This covers 98% of pension savers over the age of 55.”

Ian Swales (Liberal Democrat, Redcar)

I understand the shadow Minister’s concerns, but she must at least put it on the record that she welcomes the Government’s reduction in the lifetime allowance for pensions, and the reduction of the amount that people can put into their pension and obtain tax relief on from an amazing £255,000 to £40,000.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am glad that the hon. Gentleman understands why I am putting those points on the record and why I seek the Minister’s response. It is not simply my opinion; I am pulling together concerns that other hon. Members and people in the industry have raised.

Mr John Greenwood noted in his written submission, which took up some time during our evidence session and was debated during the passage of the Pension Schemes Bill, that the Government do not appear to have taken account of the potential loss of national insurance, which, in his view, is

“a far greater risk to the Treasury”

than the potential loss of income. He also argued that the Government did not spot the potential loophole when they introduced the changes.

He went on to say that “the £10,000 annual allowance” is

“only a deterrent to 2% of the population.”

He was pretty trenchant in his view, notwithstanding the comments from Ministers that the potential for tax avoidance could entirely wipe out the projected increase to Exchequer revenues arising from the Bill.

Nicholas Dakin (Labour, Scunthorpe)

I pressed the Minister on that point when he gave evidence, and he was concerned that the figure that Mr Greenwood suggested was too large. The measures he is introducing today will hopefully address that issue. Does my hon. Friend believe that the measures are sufficient to close the loophole, or do we need more information?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend made a powerful point when he pressed the Minister in the previous sitting. I do not doubt that the Minister genuinely wants to assure us that he will do everything he can to avoid leakage or tax avoidance. I am quoting in some detail the figures and arguments submitted by Mr Greenwood to ensure that the Minister has the opportunity, after having reflected on what was said previously in Committee, to give us those assurances and outline what can be done if there are unintended consequences. Without straying into the arguments about the new clause that we will discuss later, which will ask Treasury Ministers to publish more financial information, I want to ensure that we get as much information as possible now.

Mr Greenwood argued that

“even if the risk to the Treasury is half my figure, and I am yet to hear anyone suggest this to be the case, then a 10 per cent take-up would still amount to £1bn loss in 2015/16, more than wiping out the £320 gain predicted by the Budget.”

On the subject of national insurance, he claimed:

“The freedom to access pots entirely once an individual reaches age 55, creates an opportunity for anyone over that age to avoid liability for both employer and employee National Insurance, as well as income tax.”

He expressed surprise that nobody has

“published figures attempting to quantify the loss of NI and tax through this policy.”

I am sure that the Minister has done that work. I am sure that the Treasury has done that analysis and that all the loopholes and issues have been considered, brought together and presented to Ministers before the policy is taken forward. However, we have not seen that and we do not know the finer detail. It would be helpful to know it.

I also understand that Mr Greenwood’s written submission highlights the fact that he made a freedom of information request so that he could consider the costings and assumptions used in the formulation of the policy. However, he was not able to receive that information under FOI because the Treasury cited public interest in declining to release further details. I am sure that the Minister will want to explain why that decision was taken.

I will understand if the Minister says that he does not want to publish anything that would suggest how people could avoid tax. That would be an understandable argument. None the less, there is still enough concern about this issue to require more information from the Government.

I will again quote Ros Altmann who has largely been a champion of the reforms. It is fair to say that she has no axe to grind. She has considered and weighed up the proposals. She is similarly sceptical about the efficacy of that £10,000 money-purchase allowance. She says in her written evidence:

“If the Government is concerned about tax leakage, it should consider tightening the rules around pension recycling, so that those contributing to pension funds after taking any money from their pensions, whether tax free lump sum or flexible access, should have genuine pension-related, rather than tax-related, reasons for further pension contributions.”

That is an interesting concept in relation to the purpose of the measures. The purpose of saving into a pension scheme is to provide for retirement and the longer term, not to access tax-free money at various stages to do whatever one wants. It is about getting a balance and I am interested to hear the Minister’s view on that.

The Minister said in his written correspondence to the Committee and in evidence last week that he does not recognise Mr Greenwood’s figures. If he does not recognise them, I assume there are others that he does. I understand why he might find it difficult to share some of them, but it would help us to understand the basis of his assumptions.

The Minister will be relieved to know that I will not spend all afternoon highlighting concerns raised by others. However, I want to return to the document I mentioned earlier, which covers the Government’s consultation in July 2010 on the removal of the requirement to annuitise. In the section entitled “Principles for a new tax framework for retirement”, the document states:

“On death, pension savings that have been accumulated with tax relief should be taxed at an appropriate rate to recover past relief given, unless they are used to provide a pension for a dependant.”

I wonder how the measures in the schedule fit with that principle. According to the explanatory memorandum, for deaths before the age of 75, lump sum death benefits and flexi-access drawdown pensions from these funds can be paid tax-free, subject, for example, to the member having a sufficient lifetime allowance.

It has been suggested that those two issues do not entirely fit together. We are looking for absolute assurances from the Minister that at no point would anyone be able to benefit twice from tax relief. That is what the principles outlined in July 2010 sought to prevent.

I do not have much more to say on the specifics of the amendments. As we heard from the Minister, amendments 1 to 8 provide for the treatment of unused funds in the drawdown fund of a deceased beneficiary who is not a dependant of the member. In other words, they deal with the situation where a non-dependant who has inherited unused pension funds dies. The Minister has given us an indication of why he has tabled those particular amendments.

Amendments 9 to 12 deal with payments by a non-UK pension scheme during a person’s period of temporary non-residence. In particular, part 7 of the schedule includes provisions relating to overseas pensions and, again, my understanding is that that is simply to ensure that compatibility is maintained with the UK registered pensions tax regime.

Essentially, amendments 9 to 12

“ensure that payments by a non-UK pension scheme during a person’s period of temporary non-residence that correspond to income withdrawals from a drawdown fund under a registered pension scheme are treated as arising when the person returns to the UK.”

It would be helpful if the Minister gave us some assurances about the scope of that particular amendment, and I look forward to his response.

David Gauke (Conservative, South West Hertfordshire)

It is a great pleasure, Mr Weir, to serve under your chairmanship this afternoon. Let me see if I can address the hon. Lady’s questions. First, she raised the reporting requirements that will apply and the concerns that they might be unworkable and lead to fines. There is a new requirement on individuals to tell their pension provider if they have accessed a pension flexibly, which is to ensure that individuals do not use the new system to gain a tax advantage that is not intended. Indeed, as a general point, it strikes me that we are seeking to find the right balance between allowing a system that works and ensuring that the tax advantages that exist with pensions tax relief are not misused. Sometimes judgments can be quite finely balanced in that area, but this example of a requirement for people to report is an attempt to address a potential unintended tax advantage.

Andrew Bridgen (Conservative, North West Leicestershire)

Will the Minister explain to the Committee what sanctions will be taken against people who do not report to their pension provider and/or Her Majesty’s Revenue and Customs?

David Gauke (Conservative, South West Hertfordshire)

The sanction available is fines, but let me say a bit more and put that in some of context. The Government are keen to work with industry and consumer groups, which will ensure that the requirements are proportionate and we will consider that issue further. The reporting requirements are designed to help individuals who have flexibly accessed their pension to understand the tax consequences of future pension savings that they can pay in tax charges due. We expect individuals to take reasonable care to ensure that they comply with the new requirements. Where an individual has, for example, forgotten that many years ago they were a member of a particular scheme, providing they have taken reasonable care, it is unlikely that HMRC would impose any penalties if they did not inform their provider that they have flexibly accessed their savings. Under the new flexibilities, we will not normally seek to impose the maximum penalty of £300 on individuals unless the failure is deliberate.

As with all legislation, we want to ensure that the Bill meets its purpose without imposing unnecessary burdens. Therefore, the Government will continue to talk with the pension industry, but if we believe it is right, we will make appropriate changes. We believe that the measure strikes the right balance at the moment, but we take an entirely practical and pragmatic approach to evidence that might emerge in future.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I have a very minor point. Obviously it is a short time until this process starts and it may be more likely that people at the front end of it will be the ones to perhaps be caught out if information is not made available and publicised widely in the public domain. Does the Minister have any plans to do that? Does he have plans for any other publications about this before the scheme is implemented?

David Gauke (Conservative, South West Hertfordshire)

Let me first make the general point that we believe that this strikes the right balance. However, we are also prepared to listen to the evidence, the industry and consumer groups. As I outlined to the Committee, HMRC will also take a pragmatic approach to enforcement in this area, which is very important. The focus of the fines is very much on dealing with the deliberate defaulter or the person who seeks a tax advantage in a deliberate way in terms of the maximum penalty of £300. It will be necessary to ensure that individuals are properly informed of the new regime. Schemes need to tell their members when they become subject to the £10,000 allowance. Indeed, that is part of the Bill and the schemes will have a responsibility to ensure that people are aware of that.

The question of whether the changes are a ploy to bring forward revenue is familiar. The answer is that these reforms are about giving people more choice when they retire, not about raising revenue. The Government believe that people who have worked hard all their lives should have the freedom to decide how they use their savings. The costing of the reform was certified by the Office for Budget Responsibility and published alongside the Budget. I can run through the numbers for the next few years in terms of revenue raised. Revenue will be raised but it is very much incidental to the wider change to our pensions tax system that we believe is the right way forward.

The Government recognise the long-term fiscal sustainability challenge and we have taken substantial steps since 2010 to improve the long-term sustainability of the public finances, including reform of public sector pensions and increasing the state retirement age. We have done a lot in this area and we do not believe that our reforms will undermine that. Indeed, we think that the revenue effects are unlikely to be particularly significant overall, in the context of everything else that we have done. The overall revenue effects will, of course, depend upon people’s behavioural responses. We will make any updates as and when appropriate.

On the potential recycling of the avoidance issue, I make the same point that I have made before: we will set out details of the policy changes we have announced since the March Budget in the autumn statement, certified by the Office for Budget Responsibility in the normal way. We believe that that is the right way forward. It is best to wait until the OBR has had the opportunity to review those numbers in the context of a fiscal event such as the autumn statement.

There is a balance to get right. We talked this morning about the changing nature of the work force, and we do not want to be in a position—particularly in the context of auto-enrolment—whereby someone who accesses their pension pot flexibly is then locked out from the pension system altogether. That would be undesirable. We believe that the £10,000 annual allowance sets the right balance but, as I made clear, we would need to review that decision if we found evidence to the contrary. However, we think that that is the appropriate approach to allow the majority of people the flexibility to withdraw or contribute to their pension as they choose, while ensuring that individuals do not use the flexibilities to avoid paying tax on their current earnings.

Under the current system, individuals in flexible drawdown have an annual allowance of zero, but that relates to a relatively small number of people. Under the new system, anyone can enter drawdown, so this approach would be disproportionate and disadvantage savers. It is right that we reform this area. We want to encourage pension saving, particularly in the context of automatic enrolment. We will closely monitor behaviour under the new system. If it becomes clear that the new system is being abused, we will not hesitate to take further action.

HMRC takes a great deal of action to address tax avoidance. On 5 November this year, HMRC issued a list of the 10 things that a tax avoidance scheme promoter will not always tell someone. The list sets out the risks that people face when they sign up to a tax avoidance scheme, including possible monetary costs, reputational damage, and, in some cases, a criminal conviction. We will continue to take action in that area.

The hon. Member for Kilmarnock and Loudoun drew attention to the evidence provided by John Greenwood to the Pension Schemes Bill. He identified significant sums. As the hon. Lady made clear, they are not numbers that we recognise, but some of the assumptions that he used in reaching a very large number required everyone between the age of 55 and state pension age—5 million people—to be employed and taking advantage of the option to sacrifice salary into a defined contribution scheme. Each individual would reduce their salary significantly and the employer would pay the rest of their salary into their pension.

Each individual would pay an entire year’s worth of sacrificed salary into their pension. It would be paid monthly, but they would live off their reduced salary for a whole year before accessing their salary as a lump sum after the end of that year. It was also assumed that the individuals would have enough annual allowance left to do that on top of their employer’s current contributions. It is a very unlikely set of assumptions. As the hon. Lady knows, I wrote to the Chairs of the Pension Schemes Bill Committee. Copies have been circulated to members of this Committee explaining why we do not recognise those numbers, but I am grateful to have the chance to put that on the record.

Nicholas Dakin (Labour, Scunthorpe)

Notwithstanding everything the Minister has said, is there a loophole by which people can avoid paying tax? Will tax be avoided through the recycling method, or are the measures he is putting in place enough to prevent that?

David Gauke (Conservative, South West Hertfordshire)

One has to be careful what one means by tax avoidance in this case. We can probably agree that recycling is an artificial, contrived arrangement, as opposed to a situation in which somebody has drawn down flexibly and proceeds to make further contributions. We will keep the matter under review. Our desire is to prevent a significant loss to the Exchequer. We do not want the provisions to be exploited by widely marketed schemes that make use of that particular arrangement, and we believe we have got the balance right. The benefits of engaging in such contrived arrangements are restricted, so the appeal of making use of them in an industrialised, widespread and widely marketed way is severely diminished. I repeat the point that, if we find evidence to the contrary, we would need to come back to the matter.

Ian Swales (Liberal Democrat, Redcar)

Has the Minister considered whether future pension allowances after drawdown should be connected to employment only, or will they be available to anybody who has the cash to put into a scheme?

David Gauke (Conservative, South West Hertfordshire)

We have no further plans to make restrictions in this area. Perhaps outside this meeting, I would happily have a conversation with the hon. Gentleman and hear further the thoughts he has—I do not know whether he has a particular mischief in mind—but we are always seeking ways to address artificial and contrived behaviour in the tax system.

I will just pick up a few other points raised by the hon. Member for Kilmarnock and Loudoun. First, there is the point about the different regime for those aged 75 and over, as opposed to those under 75. The age of 75 is a feature of the existing pensions tax system. It is the age at which individuals stop receiving tax relief on pension contributions, and at which most people will bring their pension into payment. Individuals who die under the age of 75 with untouched pension funds are already able to pass them on to anyone tax-free. The changes simply extend the tax treatment to those under 75 who have money in a drawdown account. The primary purpose of pensions is for people’s retirement, but if someone dies before they get to use their pension for that purpose, beneficiaries should be able to have those funds. However, we do not want pensions to become a vehicle for inheritance tax planning, so once someone is 75 they will be able to pass the funds on to others in a flexi-access drawdown account, but they will need to pay their marginal rate of tax on them. That is the sensible approach.

As for questions about the death charge and its application to annuities, the changes do not apply to annuity income in general. There is a lump-sum death benefit provided in relation to annuities. That will be treated in the same way as other lump-sum death benefits—that is called the annuity protection lump-sum death benefit. I will let the hon. Lady come up with an appropriate acronym for that.

I was asked about the thinking behind the temporary non-resident’s rule and why there is a de minimis of £100,000. We have extended the temporary non-resident’s rule on pension income from April 2015. Previously, it applied only to those in flexible drawdown, who were required to prove that they had secured a minimum income of £20,000 in retirement, and so in most cases had no need to make further provision for their retirement. In the new system, everyone will be able to access their pension flexibly. The Government believe that setting a de minimis of £100,000 is the appropriate level to focus the anti-avoidance rule on those who purposefully move abroad to avoid income tax on large withdrawals from their pension savings. However, the Government will closely monitor behaviour under the new system and will reconsider the level of the de minimis if necessary.

I hope those points of information, clarification and explanation are of assistance to the Committee and that, having made them, the schedule, amendments, new clause and new schedule can stand part of the Bill.

Clause 2 - Restriction and reduction of tax charges on certain lump sums

David Gauke (Conservative, South West Hertfordshire)

I shall be brief. Clause 2 amends chapter 5 of part 4 of the Finance Act 2004 to reduce the special lump-sum death benefits charge from 55% to 45%, which applies to certain lump-sum benefits, and also removes the tax charge altogether on such lump sums when an individual dies under the age of 75. It also reduces the serious ill health lump-sum charge from 55% to 45%. The Committee will note that the Government have tabled amendments building on the changes, which we have just debated, so I will not go over that old and, I hope, familiar ground. I hope clause 2 will stand part of the Bill.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

As the Minister says, clause 2 concerns the payment of lump-sum death benefits. Under the current rules, lump-sum death benefits are taxed at 55% for anyone aged 75 or over. The rate of lump-sum death benefit charge is set at 55% in the Finance Act 2011, which is the same legislation that removed the requirement to buy an annuity at 75. That was intended to reflect the value of tax relief that had already been given. In essence, therefore, clause 2 reduces the charge from 55% to 45%, which is the top marginal rate of taxation.

Clause 2(2) amends section 206(1) of the Finance Act 2004 to provide that, when a lump-sum death benefit is subject to the special lump-sum death benefit charge, it would apply only when the member had reached the age of 75 at their death. Those under 75 are therefore exempt. Subsection (3) reduces the rate of lump-sum death benefit charge from 55% to 45%, and subsection (4) provides that the serious ill health lump-sum charge is likewise reduced from 55% to 45%. Currently, the charge applies when a serious ill health lump sum is paid to a member after they have reached the age of 75. All an individual’s uncrystallised rights can be paid as a serious ill health lump sum when the scheme administrator has received medical evidence that the member has less than 12 months to live.

The broader debate about the changes has mainly centred on whom they would benefit most. The Treasury predicts that savers with smaller pension pots worth between £20,000 and £50,000 would be among the many to benefit. However, according to the National Association of Pension Funds, while the change may encourage some to save more into their pension assured that they will be able to pass on the lion’s share without tax, the reality is that it is likely to affect only those with large pension pots. Once again, while the Government’s intention is moving in one direction, others in the industry differ on the practical implications.

It is worth stating that the amendment of the Finance Act 2004 to reduce the lump-sum charge from 55% to 45% for those in serious ill health and with less than 12 months to live, which would be a critical time for any family, is to be welcomed. However, we are again seeing that difference between what the Government say they want and genuinely intend and what the people on the ground think might happen, in particular for those with smaller pension pots and those on lower incomes. We need to think carefully about what the changes will mean in practice for such pension pots. There is no reason for the clause not to stand part of the Bill, but it would be helpful if the Minister addressed that point.

David Gauke (Conservative, South West Hertfordshire)

I thank the hon. Lady for her support for clause 2. Her concern is essentially that the change is a tax cut for wealthy individuals with big pension pots, but the change means a tax cut for all pension savers and not just the wealthy. Anyone with defined contribution pension savings—12 million people in the UK—will be able to benefit from the changes. Some 320,000 people retire each year with defined-contribution pension savings of all sizes. These people will no longer have to worry about their pension savings being taxed at 55% on death, if they choose to access it flexibly.

I suppose I should also make the point that the well advised were probably always less likely to fall into hitting this particular charge, so probably, all other things being equal, the previous arrangement would have been less likely to affect wealthy individuals having sought advice and so on. The fact is that we have taken this threat away. There was concern that people were inadvertently finding themselves in a position where their estate was being taxed at 55%, whereas if they had acted differently that was less likely to happen. We have removed that threat, as it were.

Potentially many millions of people will benefit from the threat being removed. That is not to say that millions of people paid this tax charge—they did not—but it does mean that the risk of what could be viewed as a punitive charged is removed. Particularly in the context of more people accessing their pension flexibly, it is right that we made that change, because there was a risk that ever more people would find themselves paying the charge. We have anticipated a problem arising with the system down the line if we do not make the change. That is why we made the changes set out in the clause.

Ian Swales (Liberal Democrat, Redcar)

I think I am right in saying that, on death, this becomes part of somebody’s estate and is therefore subject to inheritance tax, so the real winners are lower-paid people, who will be below the inheritance tax threshold, and will therefore have a tax cut from 55% to 0%, whereas those who are above the threshold will be paying tax at 40%.

David Gauke (Conservative, South West Hertfordshire)

In general terms, the measure falls outside the inheritance tax regime, so it is a little bit different, although it is a tax on death so it shares many similarities, and there are some complexities in the system, as I understand it. None the less, it is a necessary change in the context of the new framework and I am pleased that we are able to introduce it.

New Clause 1 - Death of pension scheme member

New Clause 2 - Pension flexibility: Treasury analysis

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move, That the clause be read a Second time.

Subsection (1) of the new clause would require the Chancellor to publish the information set out in subsection (2). Given the number of times that we have talked about to the need to have analysis, figures and more information, I do not want to go over that ground again, but I will briefly revisit it with some examples of why I think that this is necessary.

Geoffrey Robinson (Labour, Coventry North West)

Welcome to the Chair, Mr Weir.

I seek information from the Government. For the financial risk assessment, does my hon. Friend have in mind some of the points we discussed in the previous sitting, which will be specifically covered in new clause 3, notably the impact on the Treasury revenues and the assessment the Government, by definition, have already made? It seems inconceivable that the Government had not assessed the impact on Treasury revenues before introducing the Bill, yet we were assured at the last but one sitting that the Government have made no such assessment. Is she trying to capture that information?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes an important point. Our aim in new clauses 2 and 3 is to capture the information the Government already have. What work has already been done? I heard and understand what the Minister said about it not being possible to lay out some of that information in advance, for various reasons of market sensitivity and because figures have to be dealt with by the OBR. I understand that, but it seems to me that that work must have been done, so at what point can that work come into the public domain? New clause 2 would simply write it into the Bill that the information will be published, so that it is there for the future. That links to new clause 3, which looks to the future—how the legislation and schemes will be implemented in practice and what can be learned from that. It is always good to have a baseline of information to start from.

I am sure that the Minister will understand why we tabled the new clause. He has heard me talk on numerous occasions—perhaps more than he would like to recall—about drafting legislation on the basis of an evidential process. It should be based on consultation, engagement and, crucially, analysis. I do not think it is unfair to say that we want as much information as possible to be put into the public domain. These reforms were introduced with a pretty big fanfare at the time of the Budget announcement. As the Government have made a big deal of this, it seems reasonable to say that we would like to understand fully the underlying assumptions.

Geoffrey Robinson (Labour, Coventry North West)

My hon. Friend said in the previous sitting that the legislation was introduced with some haste and highlighted the rather peremptory nature of its introduction. Perhaps the Government did not carry out any proper assessment beforehand. I think that this is what the new clause is seeking to get behind, is it not?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I hear what my hon. Friend says. I think I said earlier that I was giving the Government and the Minister in particular the benefit of the doubt in assuming that this work had been undertaken, but perhaps I am being too generous. My hon. Friend, who has a great deal of experience in these matters, seems to be suggesting that I am. Perhaps the information that I am seeking to bring into the public domain has not been put together, or is being put together to be finally sent off by the OBR. Who knows? Only the Minister can answer. We have discussed the principles of the Bill and what it tries to achieve; we now need to drill down into the financial underpinnings, both to understand what is likely to happen and to give us a baseline for the future. I want to highlight a couple of issues. The Minister will be relieved to hear that I do not intend to read out all the pages I have here. I simply have a few points marked to raise with him.

Paragraph 215 of the explanatory notes, under the broad heading of the financial impacts of the Bill, states:

“In view of the subject-matter of the Bill, a full Impact Assessment is not necessary. A summary of the impacts is provided below. Further detail is contained in the summary of impacts in the Tax Information and Impact Note.”

Paragraph 216 gives some fairly specific figures for the period between 2015-16 and 2019-20, both the revenue that is expected to be raised and the costs for implementing the changes that HMRC would need to make in terms of staff resources and IT systems. On the one hand there is no requirement for a full impact assessment, but then there is reference to some figures and we do not have the full information to be able to scrutinise them.

Some of the written evidence that has been provided to us deals with the broad context of financial analysis and the impact on the economy. The written evidence from the Association of British Insurers has a whole section on product innovation. It states:

“Providers will respond positively to the 2014 Budget reforms as the new rules should allow for better product solutions to be offered to cope with historically low levels of interest rates and high levels of longevity in retirement.”

The ABI assesses the current economic circumstances, then goes on to talk about some of the changes the Bill makes where it believes people could make use of the flexibilities. I was drawn to one paragraph, which states:

“However, the regulatory regime and the tax framework will be critical to the degree of innovation possible in the post-April 2015 market. Both conduct and prudential regulators will need to take sensible and proportionate approaches to the sale of new products and the capital required behind them, if the Government’s ambitions for an innovative market are to be fully met.”

We have not taken a huge amount of time to probe into what the impact on the industry will be in terms of the capital requirements.

There are other areas where the ABI has raised concerns. These people are experts in their field. They are not saying, “We are not doing it,” or, “We can’t do it,” but “There are problems and challenges along the way and we have to get it right.” I shall mention two areas in particular. The first relates to social care which I referred to this morning. The ABI’s written evidence states:

“The ABI signed a Statement of Intent with the Department of Health in January 2014 demonstrating the willingness of providers to be part of society’s response to the challenge. Of equal importance is the need to develop the demand for care products through a government led public awareness campaign and we are pleased that the Department of Health is taking this forward.”

Geoffrey Robinson (Labour, Coventry North West)

My hon. Friend touches an important point, directly relevant to the new clause. The Bill has been introduced in haste and was something of a surprise. It has been described in certain parts as a headline-seeking announcement, and although that is not a phrase that I would necessarily use myself, there is a danger of it being rushed through. What would be the dangers, other than inconvenience, if the measure were postponed for a year? Is there not a danger of it being rushed through, ill prepared? A Bill such as this one is always the better for preparation.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Once again, I thank my hon. Friend for his intervention. The Minister will obviously respond on this, but we have two significant pensions Bills running, not quite alongside each other but almost in tandem. Without wishing to go back to the earlier debate about the guidance, it is critical to get both bits correct. The danger is that if we do not probe all the implications thoroughly, we could find that the guidance guarantee does not quite cover all the bases, or indeed that all the financial implications have not been thought through and that there is perhaps a difference of opinion or of intent between what one Bill aims to do and what the other Bill actually will do in practice. It is right and proper that we probe these things here and that is why we have tabled new clause 2.

The ABI talks about investment in infrastructure, highlighting the part that the insurance industry plays in our economic strength,

“managing investments of £1.8 trillion—equivalent to 25% of the UK’s net worth.”

This was drawn out in the evidence session. Crucially, the ABI says in its evidence that:

“If the momentum towards early access continues, the prospect of the pension sector providing long term investment fuel for economic growth is reduced. Pension providers, whether trust based occupational schemes, contract based schemes, or retirement income providers, will face greater requirements to be ‘liquid’”,

to deal with that issue around the age of 55. I do not want to open up the whole debate again, but this morning I picked up on a phrase used by one of my hon. Friends and said that, essentially, the Bill devolves the responsibility for making decisions from the state and the pension providers to the individual. The Bill and the Pension Schemes Bill both have a knock-on impact in terms of economic consequence. It comes back to the broader economy and the ability of pension funds to be part of that growth process.

The ABI goes on to say:

“The long-term nature of annuity books helps the insurers who run them to invest in the UK economy, especially in long-term projects like infrastructure. If pensioners take more of these assets at the point of retirement and keep them in a bank account or invest in other assets (such as buy-to let)”—

this is another area where a number of concerns have been raised.

Geoffrey Robinson (Labour, Coventry North West)

My hon. Friend’s point is well taken, certainly by Labour Members, that this is a huge industry. It controls, or at least holds in one way or another, up to a quarter of the nation’s entire net worth. The United Kingdom’s net worth is roughly a quarter resident in these pension schemes. When we mention the financial risk assessment in new clause 2, surely that is what my hon. Friend has in mind. What assessment have the Government made? The financial risk could be that funds for infrastructure could die off, for example. Is that all covered, in her view?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend has highlighted some of the reasons why it is important to have that analysis and risk assessment done. I am sure that with all the resources available to the Treasury, it will have considered this—again, I am being generous to the Minister and the Government. I am sure that they have done all the work and considered all these issues and that they have answers to the questions about the potential impact if pension funds are not able to invest in infrastructure, but I would like to understand the thinking and find out whether they uncovered any concerns or any changes that might need to be made in the future.

I mentioned buy-to-let. One concern that was raised at the outset is that if people decide, for example, to take their pension pots and invest in property, how might that skew the housing market? What are the wider implications? How does that skew the whole way of procuring and investing in infrastructure for the long term? These are all things that matter to the broader UK economy and although they may not appear to be directly within the wording of the Bill, none the less, there is a potential impact arising from the Bill which has not yet been explored.

I will briefly mention some of the other written evidence contributions. I have spoken about the impact on the broader economy, the insurance industry and so on, but some of the issues relate more to individuals. A number of submissions were made about the need for the new rules to be preceded by education and promotion campaigns. For example, the Association of Taxation Technicians, which is in the business of making these schemes work and providing information on them, talks about the need to provide information, in particular real-time information on the reporting requirements. That is to do not so much with the broader economy, but with the financial impact on individuals. In its submission, the ATT said that it remains

“deeply concerned about the impact on the income tax position of pensioners considering taking benefits under the new regime. A system based on many end-of-year reconciliations being carried out with no legislative framework or structure—such as there is, for example with the self-assessment system where assessments are appealable”—

it makes the point that P800s are currently not appealable—

“will only lead to chaos and misery for very many frustrated pensioners.”

I am in generous mode, so let me say that I am sure that that is not what the Minister or the Government intend. None the less, if the people who will operate the system and provide guidance, information and advice are raising concerns, we must listen to them.

Nicholas Dakin (Labour, Scunthorpe)

As I read the written evidence, I see a favourable attitude to the general direction of the Bill; people are merely raising concerns that they hope have been properly considered. The publication of the analysis, as suggested by my hon. Friend, would give both reassurance and confidence. She is putting the case for that well.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank my hon. Friend for that. Indeed, all the points I am making have been raised time and again since the Bill’s publication. As I have already acknowledged, after the initial shock, with people being perplexed and not sure how they would take things forward—to be fair, this tends to happen in such circumstances—the industry rallied round, looked at what it had to do and began to put in place the required measures. Whatever the Government of the day decide, that is what it does. None the less, there is still a concern that, with the pressure to get this done for April 2015, certain matters still have to be addressed because no one can quite predict what the behaviours of people will be in the future.

As I outlined, the impact on the wider economy has not been looked at as thoroughly as it might. Our new clause, which would simply require the Government to put information into the public domain to allow us to see their thinking and the workings done behind the scenes so that we could understand the situation better, is a mild-mannered request. I do not think that that would be difficult for the Government, given that they have done all of that work, which will have been scrutinised and signed off. We want to see the workings behind the scenes as well, to give us the opportunity to look to the future.

I have had the pleasure on several occasions to move similar amendments to various Bills urging that analysis and information be brought into the public domain, and the Minister has always been pleasant and responsive in saying no and repeating why he cannot do that. I am not holding my breath, but it would be wonderful if, in this Bill, he could change the habit of a lifetime, break out into a different approach and make my day by agreeing to provide the information and accepting the new clause. I look forward to hearing what he has to say.

David Gauke (Conservative, South West Hertfordshire)

Indeed it is a pleasure to respond to the hon. Lady. As she said, there have been many occasions on which she has tabled new clauses seeking a review and there have been many occasions where I have turned down her kind offer. Today is no exception. I hope that in some ways I can sugar the pill by saying that I hope that we have many opportunities to have similar debates, in which she puts forward such proposals and I turn them down, over many years ahead. Nothing would please me more.

New clause 2 would require that the Government should, after six months, publish any analysis prepared prior to the introduction of the Bill, including assessment of distributional impact, behavioural analysis, and the financial risk assessment. I will try to explain why the proposed new clause is unnecessary. First, I will provide a short explanation of the distributional analysis that the Government publish.

Distributional analysis measures the impact of Government changes to tax and spending. Although the measures in the Bill are clearly taxation measures, they do not, in and of themselves, make individuals materially worse off or better off. They increase the choices available to individuals over how they access their savings and allow people to delay or bring forward their income, but do not alter the amount of savings that they have in aggregate. As the Government set out in paragraph 1.9 of the distributional analysis document accompanying this year’s Budget, the distributional analysis

“shows the impact of changes in government fiscal policy with a direct impact on households, but not of all government decisions.”

The tax information and impact notes published at the Budget set out the Government’s analysis of the impact of the measures contained in the Bill, including estimates of the costs to the Exchequer, certified by the independent Office for Budget Responsibility, and equalities impacts.

The new clause would require the Government to publish a full behavioural analysis and a financial risk assessment. As I am sure hon. Members will realise, the costing of tax measures can involve an assessment of the behavioural impact of the measure and, in some cases, the capacity for additional tax planning and avoidance behaviour. Those assumptions are certified by the OBR. However, the Treasury considers that the publication of detailed behavioural assumptions can have the potential to affect that behaviour and, as such, is potentially detrimental to policy-making.

The policy costing note published alongside the Budget explains how the costings have been calculated in line with the principles outlined in the Government document, “Tax policy making: a new approach”, which was published alongside the June Budget in 2010. The costings of the policy will, as I said in the evidence that I gave to the Committee, be updated at autumn statement, when they have been certified by the OBR. The policy costing note will be published, setting out how the costings have been reached.

Geoffrey Robinson (Labour, Coventry North West)

On that specific point, it seems rather implausible that the Government had done all that detailed work before the Bill was announced unexpectedly to the public and were all ready to go, but that no assessment was given. It depends a bit on assumptions about behavioural impact and of the impact on the Government’s revenues. Coming back to that point, is the Minister really sure that no estimate was made of that? I would have thought that was one of the central estimates that the Treasury would have made right from the beginning.

David Gauke (Conservative, South West Hertfordshire)

I am glad that the hon. Gentleman intervened. I would not want him to be confused in any way by anything I said earlier, so let me be completely clear: the Treasury published at the time of the Budget an estimate of the impact on the public finances. Indeed, I have in my hands a piece of paper with the information set out at that time. It involved increased revenue in 2015-16 of £320 million, £600 million the following year, and then £910 million, £1,220 million and £810 million. That was all set out at the time of the Budget. When I say that further information will be published, I am talking about the further analysis undertaken in the light of further policy changes announced since the Budget. I do not want the Committee to be left with the impression that no numbers have been produced. Numbers were produced at the Budget and a further update will be provided at the autumn statement in the normal way. An assessment was made at the time of the Chancellor’s announcement at the Budget.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I hear what the Minister says about the figures that we already have and the other figures that will come in the usual way, as he describes it. Will he confirm that the analysis undertaken has also taken into account the concerns that we and others have raised about the wider economy? Will it simply be an update of the figures that are already in the public domain?

David Gauke (Conservative, South West Hertfordshire)

It is an update of the figures that we have, taking into account the additional policy announcements that have been made. We discussed earlier the development of this policy and the announcement made at the March Budget. There were details that we wanted to consult upon; we had a 12-week consultation and responded to that. As I work through the points raised by the hon. Lady, I will say a little more about the thinking behind this. We will set out details in the autumn statement, which is not very far away, in the normal way that a policy and its costings are set out in the relatively new regime, with an independent Office for Budget Responsibility.

Analysis of the policy to reduce the withdrawal tax rate for income from pensions from 55% to the marginal rate of income tax is detailed in the policy costings document published at the Budget. I referred to those numbers a moment ago. A number of updates have been made to the policy since the announcement at Budget. The Exchequer impact of those will be presented in an updated tax information impact note at autumn statement, in line with the normal policy costings process. The question of why there is no impact assessment was raised. The Government publishes tax information impact notes—TIINs—for tax measures, which are similar to the impact assessments published for regulatory measures.

Geoffrey Robinson (Labour, Coventry North West)

The Minister is anxious that I should not be confused, but I have to confess to being somewhat confused by what he says. Of course, we understand fully that this is not a tax measure directly raising or lowering rates of income tax. However, it has a behavioural consequence that may have a considerable impact on the Government’s revenues. I want to come back to the specific assessment he made of what might happen to existing policies without these changes. That could have a bearing on Government revenues, directly or indirectly—whichever way he wants to describe it. That is all clear. These are very big changes by any standard. We welcome the idea behind them, let us be clear about that; but how could such changes be introduced without the Treasury making an assessment of what might happen in certain circumstances given behavioural changes, or of the indirect effects on Government revenues? It is that assessment that we are really seeking, not the figures that he read out.

David Gauke (Conservative, South West Hertfordshire)

I will continue to endeavour to reduce the confusion that the hon. Gentleman may feel. He can inform me at the end of our proceedings what progress I have made on that front. If he is talking about, for example, issues to do with social care, let me say a word or two about that.

By way of context, this Government are introducing historic reforms to social care funding, including a cap on people’s care costs from April 2016 and a universal offer of deferred payment agreements from April 2015. That means that people will not face unlimited care costs and should not be forced to sell their home in their lifetime to pay for care. The Dilnot commission found that, although the financial services industry already offers some support to people to pay for their social care costs through products such as care annuities, it has the potential to play a larger role and offer people more choice if the conditions are right. A review commissioned by the Department of Health identified that allowing people to have more flexibility over when and how they take income from their retirement products could help them to plan better for their care. The Government expect that the proposed changes to the tax rules from April 2015 will allow the industry much greater flexibility to develop new products that may meet people’s social care needs. The Government are working closely with the Association of British Insurers on how the insurance industry can help people to plan for social care. The new tax framework allows providers to innovate and create new products that meet consumers’ needs, including for social care.

The wider question, which the hon. Member for Coventry North West raised, is what is the impact on the Exchequer—are we going to see greater costs, and so on? We debated that this morning. The point I would make is that it is hard to make an assessment, because it depends on a whole number of factors and how many different people will respond to the new environment. We should not miss from this debate the fact that there is also the opportunity for greater innovation in developing products that may well help people. So there are many factors here. In the great scheme of things, what we have done as a Government in terms of dealing with the long-term sustainable risks that we face, whether that is increasing the state retirement age or reform of public sector pensions, is to put the UK in a much better fiscal position long term. We do not believe that the changes we have made in this area in terms of risk that people will find themselves relying on the state to help them through their last years are as significant as the hon. Gentleman fears. Given that overall context, not to mention of course the reforms to the state pension, which mean that people are less likely to rely on means-tested benefits, we believe that this is a fiscally sustainable and responsible approach.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I rise to probe the Government slightly on provision of social care. It has been a fundamental principle of the Government’s approach to pensions to provide freedom, choice and flexibility. What work has been done to ensure that freedom, choice and flexibility will be available for people planning for their long-term care, and to ensure that the rules do not inadvertently mean that people are incentivised to use only certain services? I asked previously about the buy-to-let property market; has any assessment been made of whether the market in care provision is similarly likely to be skewed?

David Gauke (Conservative, South West Hertfordshire)

We are working closely on this matter with the ABI and the insurance industry more widely. We believe that the new framework will give greater flexibility to the industry to respond to the needs of consumers, which is helpful in the context of long-term social care. I am not sure that we expect the Bill to have a particularly distorting effect; if anything, the greater ability to innovate will be helpful.

The hon. Member for Kilmarnock and Loudoun also asked about the future of the UK life insurance industry. We recognise that there will be a significant change for the industry, but the new measures will provide a real opportunity for it to innovate and develop new products to meet consumer needs and preferences, and the Government are keen to work with industry on how best to implement them. We remain committed to the UK insurance industry. We recognise that there are challenges, but we are committed to working with the industry to serve the needs of UK customers and to help it to grow internationally.

I was asked about the wider issue of whether, as we debated this morning, the pensions industry will be ready for the April 2015 launch. We have consulted extensively with the industry and with individual pension providers, and they overwhelmingly support the proposals. They are keen to introduce products and innovations for their customers in time for next April. Following the Budget, there were 12 weeks of consultation and more than 300 responses, and an HMRC technical consultation on the legislation was published. I would say that the industry is supportive. Although I will not, I could run through a list of quotations from industry figures in support of the reforms that we have undertaken.

I note the suggestion by the hon. Member for Coventry North West that we should delay introduction for 12 months, but 320,000 or so people with a defined-contribution scheme are likely to retire over that period, and we do not want to deprive them of the opportunity to make use of the flexibility that the Bill will grant. I do not know whether he was merely floating that idea as a suggestion or strongly advocating it as an approach, but if it is the latter then we are probably not inclined to follow his advice.

Geoffrey Robinson (Labour, Coventry North West)

It was merely a suggestion and was not intended to be taken at all seriously, and I did not think that it would be taken up by the Government. On the other hand, I am not sure whether we are going to push new clause 2 to a vote if the Minister does not accept it—as is usually the case. I will of course be guided by my hon. Friend the Member for Kilmarnock and Loudoun on that.

To his immense relief, I am sure, I will not push the Minister on what estimate was made of the impact on Treasury revenues, although I am sure that that must be in there somewhere. Nevertheless, before we move on, I still want to try to get behind what assessment has been made of the financial risk, which is the purpose of the new clause. I have an infrastructure question: can the Minister confirm that the £1.8 trillion figure provided by the ABI is correct and that that represents 25% of the UK’s net worth? It seems to me that the Treasury should be concerned about that, because infrastructure is vital, as the Treasury has said. We have a national infrastructure plan that has not got going, and we all know about the very real difficulties with getting infrastructure going. The issue is not only money—it is also planning and all the rest of it—but it is in part money. What estimate has been made of the possible impact on the liquidity of those funds? There are real implications. What assessment did the Treasury make before the launch of the Bill? We will be asking for a report on it in new clause 3. What is the Treasury’s assessment of the Bill’s impact on the liquidity of the funds available for national infrastructure?

David Gauke (Conservative, South West Hertfordshire)

Before responding to the hon. Gentleman, I am tempted to ask whether in his time as a Treasury Minister he ever accepted an Opposition amendment to have a review of a piece of his legislation.

Nicholas Dakin (Labour, Scunthorpe)

I am sure he gave it full consideration.

David Gauke (Conservative, South West Hertfordshire)

I am sure he did, and I am fairly confident that he then rejected it.

Geoffrey Robinson (Labour, Coventry North West)

In those days, we did not introduce in haste and repent at leisure. We clearly thought things out. The Minister will find an account of the immense detail that went into preparing legislation in books that have been quoted against me—my own book in particular. I do not expect that he will read it, but I do not see why he should not. We could avoid the need for this if he would tell us now the answer to the financial risks involved.

David Gauke (Conservative, South West Hertfordshire)

I will resist the temptation to examine the hon. Gentleman’s claim that all measures during his time as a Minister were well considered and thought through. I have read his book and thoroughly enjoyed it. I shall re-read it to discover the answer to my question.

On the issue of investment in infrastructure, the hon. Gentleman quoted some numbers. Those are the ABI’s figures, not the Treasury’s. The point is that annuities will remain the right product for many people. The regular cash flow profile and potential long duration of infrastructure assets will continue to be attractive for backing long-term liabilities such as annuities. As such, infrastructure is likely to remain an attractive investment for institutional investors, including the insurers. He raises a perfectly reasonable point, but I do not think we should overstate the risks.

I also make the point—although I suspect, Mr Weir, that you would not want me to dwell on this—that the national infrastructure plan is already delivering a large number of projects. I think there are 800. We are making great progress, and we hope that with our long-term economic plan we will be able to further deliver infrastructure projects in the years ahead. However, Mr Weir, do not let me be drawn down that route.

The hon. Member for Kilmarnock and Loudoun asked whether people would know what tax they would be charged before accessing their pension flexibly. When an individual accesses their pension flexibly, it will be taxed under PAYE in the same way as any other pension payment. If they have a tax code from their P45 or they provide the pension scheme with specific information to work out their tax code, they will be taxed as they would for any other pension income. If they do not have that information after the first payment, HMRC will issue a tax code that can be used against any further payments that they receive from that particular pension.

I have tried to address the questions raised by the hon. Member for Kilmarnock and Loudoun. I appreciate the spirit in which she tabled her new clause and I have given it a great deal of thought this afternoon. However, I fear that I will follow the precedent of many distinguished Treasury Ministers before me and tell the Committee that even after long reflection I cannot accept her new clause. Should it be pressed to a Division, I must advise voting against it.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the Minister for the long deliberation that he has given us this afternoon. I think that the Minister and I have faced each other across the Chamber and Committee Room so often now that he has probably guessed that I wish to press the new clause to a vote, but it is important for people to understand why that is the case. Notwithstanding the reasonable and, to be fair, well-argued way that the Minister has put across his views and those of the Government—he has done so in a polite and respectful manner—it is disappointing that we have not been able to get behind that polite manner and the information he has given us to find out a bit more about the debate and discussion behind the scenes in the Treasury on those particular issues.

We have to focus on what the financial implications are for individuals and what work was done in relation to that, and enough concerns have been raised about that from people in the industry and people representing consumer organisations to make it a valid request to have the analysis published. I was disappointed that we did not seem to get more of a sense of the work that had been done in relation to the wider economic impact. My goodness, I thought that the Minister was even going to miss saying a “long-term economic plan” until he managed to slip it in at the last moment. I do not want to be quoted on it, it might be words that do not slip out ever again, but I just wanted to congratulate him on getting his line in, albeit late in the proceedings.

On a serious note, if we are looking to ensure that we have the growth and the economy that we all want, and to value and understand the important part that financial services and the insurance sector play in that process, then we have to listen to the concerns that they have raised. I do not think we got an answer to the question from my hon. Friend the Member for Coventry North West about the capital requirements and the liquidity. Those are exactly the sorts of area that the industry will perhaps be most concerned about. We want not only to know that the Government have done that work but that they have taken account of it. I heard the Minister again saying that they worked closely with the ABI and with the industry, yet concerns are still being raised in the public domain.

On that basis, I feel disappointed that the Minister would not allow the new clause to be part of the Bill. It would have been an assurance that all the information and work can be put into the public domain, not just the revised or updated figures that will come via the OBR in the autumn statement. I know that the autumn statement is not far away, but it always seems odd when we are into December and still talking about autumn. I know that the Treasury has a sort of language of its own, which comprises terms such as “in due course”, “shortly” and “et cetera” without ever giving a time scale. At least we have a time scale for the autumn statement, but I would have liked to have seen one for all of this information coming into the public domain, so that we could probe it further and set the scene for a review in due course of the operation of the Bill.

With those remarks, I would like press new clause 2 to a vote.

New Clause 3 - Pension flexibility: Treasury review

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I beg to move, That the clause be read a Second time.

I hope that my powers of persuasion are slightly more successful for this new clause, although I hae ma doots, as they say in my part of the world, and possibly yours as well, Mr Weir. I will do my best to put forward the case for new clause 3.

The new clause asks for a review. I do not need to go through all the areas that we debated earlier today, but we need a review to look at how the Bill is implemented in practice. As I have said on numerous occasions, I am giving Ministers and the Government the benefit of the doubt, but I am weighing their intent against what the industry and consumer organisations are telling us about the potential problems. I do not want to go over the issues that we have already debated on the guidance, which is not in the Bill but is none the less integral to it. To a large extent, the potential for success or otherwise of the measures in the Bill is linked to the effectiveness and operation of the guidance guarantee. I have expressed concerns on several occasions about the mixed messages we have received about what the guidance will look like in substance.

On Second Reading, I highlighted the apparent dichotomy between the views of the FCA and those of the Minister for Pensions, who seemed to imply that the guidance would not be regulated, personalised or product-specific, but would be substantially cheaper than advice and would be enough

“to get people to base camp”.—[Official Report, 2 September 2014; Vol. 585, c. 199.]

However, that was at odds with the view of the FCA, which said that the guidance should be an interactive exchange setting out

“the relevant options, and key facts and consequences of each, including financial consequences, e.g. tax implications.”

We have all heard about the study conducted by the Chartered Insurance Institute, which suggested that, although take-up of the guidance might be higher than had been suggested elsewhere—for example, the Legal and General pilot suggested that it could be as low as 3% and the Pensions Advisory Service said it could be about 25%—customer expectations would also be high. We are back in the unknown. We do not know how many people will take up the guidance guarantee, how many will use the flexibilities that the Bill will introduce and what the behavioural impact will be.

Ian Swales (Liberal Democrat, Redcar)

First, does the hon. Lady think that the wording of her new clause covers the problems with the guidance guarantee that she is touching on? Above all, does she believe that one year from the passing of the Bill is adequate time to do the work she is asking for?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I appreciate the question. In terms of the wording, as the hon. Gentleman is aware, the guidance is dealt with in the Pension Schemes Bill. I am quoting it to back up why we need this new clause. The new clause aims to cover a range of specific areas on which the review would focus, but would also allow for a review of the operation of the Act in the round. The reason why we have chosen a year is that there has been a considerable amount of pressure to get to the point of implementing this Bill on 1 April. It would seem odd to say, “Yes, we can do this for 1 April and the industry will respond and everything will fall into place on that relatively short time scale, but we are not going to look at the outcomes until a couple of years down the line.” We very deliberately wanted to see what the impact was in the first year, so that any lessons from that year could be learned and changes, tweaks or amendments could be made at that time, on the basis of understanding the behavioural impact in that first year.

Ian Swales (Liberal Democrat, Redcar)

To pursue the point slightly further—this is a drafting point—if the date of Royal Assent is not to be 1 April, when does the hon. Lady believe Royal Assent will be and when is she asking for the review?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I understand the hon. Gentleman’s point. Perhaps the Government can give us more information on the expected date of Royal Assent. We have had the debate about delay and the Minister did not accept that suggestion. I am not advocating a delay in the implementation of the Bill. I am not sure whether the hon. Gentleman is suggesting that there is not going to be enough information within a year, or that we need longer to collect the information and understand the behavioural impacts. I would be grateful if the hon. Gentleman would clarify.

Ian Swales (Liberal Democrat, Redcar)

I think the matters that we are talking about today, particularly on taxation, will make it quite difficult to establish what everybody has done, in the middle of a financial year. Were the Committee to agree to a review, I would have thought that a financial year would be about the minimum time that one could consider, to get sensible information.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

On that basis, I think the hon. Gentleman might find himself arguing against himself with the point about Royal Assent. A year on from April next year would allow us a period of time in which to collect the information.

Geoffrey Robinson (Labour, Coventry North West)

Perhaps the hon. Member for Redcar wanted to take up my suggestion of a delay of one year. I am not clear whether he could put that suggestion before the Committee if he wanted to.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

As I have said, I am not suggesting that the whole Bill be delayed. I hear what my hon. Friend is saying, but I do think that we have an opportunity here to insert a new clause that provides the basis on which to have a review and bring back further information. That is going to be important.

The behavioural impact here is absolutely crucial. To go back to the Legal and General pilot study, one of the comments made was about the importance of personalisation. We just do not know how people will get the advice, guidance and information, how many people will have the regulated advice or take up the guidance guarantee or how many people will rely on having a look at a website and making their own decisions. The study showed that the way the guidance guarantee was delivered was very important; 70% of the people felt it important that the person delivering the guidance guarantee was fully interacting with the consumer, and not simply reading from a script. Some 66% expected that they would be asked detailed questions about their circumstances, for example, other financial holdings, family and health information and attitude to risk. That question of attitude to risk will be for many people, if not a new concept, in their face as never before when they take these decisions. That expectation from people accessing the schemes sounded considerably more detailed and substantive than the form of guidance I understood had been described by the Pensions Minister.

In last week’s evidence session, Rachael Badger of Citizens Advice, one of the bodies responsible for delivering face-to-face guidance, told us:

“Guidance sessions will be tailored to people’s circumstances. They will cover things such as tax benefits, possible social care needs, savings and debt; there will also be signposting to regulated advice if that is appropriate.”––[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 23, Q34.]

That is a fairly substantial piece of work; it is quite a tall order. She appeared relatively confident and happy that CABs had the capacity to deliver that guidance. However, she went on to mention the need for training, delivered by paid staff who would need to be recruited. In raising questions on this, I do not intend to criticise Citizens Advice, an organisation I respect. However, it is another of those challenges. If the guidance guarantee is not absolutely in place, is not clear and is not consistent, it could have an impact on behaviours, which would need to be assessed.

Nigel Mills (Conservative, Amber Valley)

Having served on the Pension Schemes Bill Committee, I have been through these issues once or twice before. It would be useful to understand what modelling the Government, the FCA and now the providers are using to decide how long these sessions are meant to be, how much they will cost, and how much levy there will be on the industry. That information would settle a lot of questions.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I am grateful to the hon. Gentleman for raising those points. I appreciate that he served on the Pension Schemes Bill Committee and a number of other Committees of which I have also been a member. I know that he takes these issues seriously and probes all the details.

I had hoped that, if the Minister did not provide the information, the hon. Gentleman would do so, with the benefit of his experience. However, he does not know the substance of the guidance, notwithstanding all the time he spent on that Bill Committee. That makes me even more concerned not only to press to get this right from the outset but to get it reviewed in due course. It does seem a huge amount of ground to cover in a short time.

Geoffrey Robinson (Labour, Coventry North West)

The reply to the hon. Member for Amber Valley is that we are not seeking to impose more expenditure on the Government. These reviews must in any event be carried out internally in the Treasury and other Government Departments concerned with the implementation and success of this policy. It is a question of transparency. We want to see what is happening so that we can avoid the sudden emergence of a scam, as has so often happened in this industry in the past.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Once again, my hon. Friend makes an important point. Consumers want to be able to trust pension providers and be confident that the information they get is good quality and suited to their circumstances and that they are not going to be ripped off.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

Before we suspended for the Division, I was talking about new clause 3 and the need for a review of the implementation of the Bill. A number of issues have been raised about the timing of the Bill and the scope of the new clause. If hon. Members suggest that something should be added to the proposal even if it is not accepted today, I am sure there will be a further opportunity to consider how we might improve on it. I am always open to suggestions from any hon. Member as to how we might table a new clause that would find favour with the Minister. I can see from the look on his face that I would be unlikely to get that support at the moment.

I was talking about some of the evidence submitted to us, particularly in relation to the guidance guarantee and how critical that is to the effectiveness of the Bill. Various concerns were raised, and the representative of the Financial Services Consumer Panel said:

“We are very worried about the face-to-face guidance delivery. It is a huge challenge for CAB to get ready for April.”––[Official Report, Taxation of Pensions Public Bill Committee, 11 November 2014; c. 12, Q14.]

Again, we see that difference of opinion. Citizens Advice is determined. It wants to do its best and ensure it has everything in place—it wants to ensure that it has staff in place, that the training is done and so on. At the same time, people are concerned about those time scales and whether there will be the consistency and quality we want. The Minister said something about that earlier. He seemed to be confident that everything would be in place and it would all come together. Perhaps, on reflection, he wishes to say something that will influence whether I press the new clause to a vote. I am willing to listen.

It is not just about the short time scale to get the guidance in place and get it right. One crucial point that has been raised is the take-up of the guidance. Will the initial take-up of the guidance be low, will people use it, and how useful it will be? The other question posed by Members today was whether the people who will access the guidance guarantee understand that it is not regulated and that, therefore, there is no redress. We need to consider that when information goes out.

It has been suggested—some may think this is unfair—that the first tranche of people who go through the process using the guidance guarantee are effectively the guinea pigs. How much will we be able to learn from that and seek information back from them to find out how useful they found it? How many of them, for example, will be signposted to take regulated advice, and what will they feel about their experiences? Those are the kind of things I hope to capture as part of the process of a review of the legislation.

Henry Smith (Conservative, Crawley)

Does the hon. Lady concede that other countries have gone down the route of allowing greater flexibility when people reach retirement? I am thinking of Denmark and Australia. There is already a lot of evidence that people can be trusted to be responsible with choices about their pension funds.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I thank the hon. Gentleman for that intervention. Throughout the debate I have been at pains to say that, for me, this is not a question of our trusting people to do what they ought to do with their pension funds. We have to trust that people will be able to take decisions, but when we put in place such legislation, we have a responsibility to ensure that people have access to appropriate information that allows them to take the best decision possible.

I do not want to go over all the things I have been saying today. It is the Government’s stated intention that they want pension reforms to give that freedom, choice and flexibility, but also that the reforms ought to allow people to plan for their long-term retirement. I keep stressing the point about the longer term, because the fear is that, if people make the wrong decisions at an early stage, it may seem like a quick fix to deal with things that are going wrong in their lives. They may want to pay off a mortgage or take that holiday that they have never had to the other side of the world to see family. Indeed, they may want to buy a car, although in most circumstances it will probably be more modest than a Lamborghini. None the less, they also need the information, guidance and, in some cases, that regulated advice, to ensure that the decisions they take at that early stage do not have a negative impact further down the line. We could have a series of new products coming on the market and we do not know their shape or scope, or how they will work in practice. This is not about saying to people, “We don’t trust you”; it is about saying, “We actually want to give you the best possible advice to enable you to take that decision in your own way and in your own time.”

People do not have to take the decision right at the beginning, when the new regime comes into place—people need to understand that, too. However, concerns have been raised that, in the early stages at least, some people may be guinea pigs, as it has been put. If we go back to the evidence session, Adrian Boulding of Legal & General used the analogy of the toothpaste being out of the tube. I suspect that anyone who has ever dealt with toothpaste tubes knows that it is probably harder to put the toothpaste back in than it is to put the genie back in the bottle. That shows just how seriously he was taking it. Once the changes are made, we will have to live with the consequences.

We have a responsibility to people between now and then to make the best use of our time to get the guidance guarantee in place. Equally, we have a responsibility to future generations of people to learn from anything that takes place in the first few months or the first year. That is why we also heard the call for further support for a backstop option as a second line of defence, as it has been called—the Minister referred to that in his remarks this morning. As the Financial Services Consumer Panel representative said, there will be people who completely miss the guidance service for various reasons. A lot of consumers do not understand what they are giving up by going straight to the provider. There needs to be a second line of defence, but that cannot be too prescriptive. We need to put all that in place, and we need to understand the behavioural impact as the process goes through. We need to be able to change, amend or adapt as we go through the process.

As an example of support for the concept, we heard the idea of a sanitised pension passport that would be received by all consumers—that was supported by a number of organisations, including the ABI. It would give people information, but would also flag up the guidance. Those are the kind of things that will be discussed and looked at in the next few months.

From everything that has happened since the Government announced the Bill—the oral evidence in Committee, the written evidence, the informal discussions and the comments made—we have seen the series of concerns that people have. People are not saying that they are not going to work with the grain of the Bill. We want it to work in the best interests of consumers. I have no doubt that that is what the Government want, but we have a responsibility to put in place everything possible to make the system work, and to put in place a process by which we can review and learn from it. That is why we tabled new clause 3.

We want information on salary sacrifice because we are not entirely convinced that the Government have fully looked at that and closed all potential loopholes. If we can look at that during the process of the first year of operation, we may well want to make changes if necessary—the Bill allows for further amendments to be made in due course. It is important that we put something in place to look at that. I believe that some of my hon. Friends wish to raise concerns while supporting the new clause, so I shall draw my remarks to a conclusion to allow others to speak.

Nicholas Dakin (Labour, Scunthorpe)

It is a pleasure to speak under your chairmanship, Mr Weir. My hon. Friend has focused on the nub of the question, which is the need for a behavioural analysis. I hope that, when the Minister responds, even though he might disappoint us, he will demonstrate that a proper analysis of behaviours will take place and appropriate action will be taken. In the course of the debate, and in the oral and written evidence, it is clear that there are a number of significant areas of concern. As my hon. Friend says, the toothpaste is out of the tube and we need to live with the consequences. The majority of people from whom we have taken evidence want to embrace the future, but to do so in a way that minimises risks to individuals and to the UK economy.

As a Government member of the Committee indicated, a number of cases of mis-selling of products have had significant consequences for individuals and reputational consequences for financial services. Indeed, there have been consequences for the general public’s confidence in this and other places. Behavioural analysis of what happens as a result of the significant and welcome changes is very important. The guidance guarantee is at the heart of the matter. Getting that right and having an effective impact on the system is crucial to its success for individuals and the state.

One bit of evidence that we had from Adrian Boulding of Legal & General raises concerns. There was a lot of interest and attraction when people were surveyed initially about the pilot guidance offer that Legal & General put in place. Adrian Boulding said that

“90% of consumers said that they would be likely to take up an offer of guidance.”

However, when the pilot went ahead, only 3% of consumers actually took up the offer of guidance. That gap between hope and reality is a concern. If that happens for real—the Bill is far more significant than a pilot—the consequences could be considerable for individuals and the state. That needs to be looked at carefully.

When pressed in further evidence, one witness gave as a possible explanation for the low take-up of 3% that at the point of the money becoming available people just want to get their hands on the money and get going, as it were. We can very much understand that desire. That comes back to the concern that has run as a golden thread throughout our consideration of the Bill: much of the media focus has been on access to finance rather than on someone planning their affairs around pensions, so that they—everyone’s circumstances are different—are better able to make the right decisions to support their longevity into the future. We have heard concerns from the ABI, for example, that if it is handled in an unfortunate way, the Bill might result in additional pressures on care services, which no one would want. I am sure it is not what the Government intend.

There are behavioural analysis issues that need looking at in relation to how the guidance guarantee works and how that impacts on behaviour. That is important. Secondly, there is the problem that has been identified on the future impact. Is there a possibility of creating circumstances that result in another mis-selling episode? That would create all sorts of chaos, which would make the Arch Cru example and others of small importance in the grand scheme of things. That is a genuine worry and concern. Analysis of the Bill’s behavioural impact would be a safeguard against that. If anything inappropriate was happening or the safeguards were not strong enough, that could be addressed, sooner rather than later, which would be to the benefit of everyone.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

I have been listening intently to what my hon. Friend says about the behavioural issues. Does he agree that there needs to be a clear focus on the potential behavioural impacts in relation to tax avoidance? It is the nature of things that as soon as a scheme is put in place, there will be people who will try to find their way around it.

Nicholas Dakin (Labour, Scunthorpe)

I thank my hon. Friend for that. Indeed, the third point of concern I identified was the behavioural impact in tax avoidance. The Minister has rightly recognised that concern and taken action to reduce the possible impact of tax avoidance. As we have gone forward, he has given answers that give greater assurance, but not total assurance, because we do not know what will happen. To be fair, he is frank, open and honest about that. That we do not know what will happen is the very reason why an analysis and review would help. In line with the evidence presented to us by John Greenwood and others, a review would highlight tax avoidance, if it happens—we hope it will not—and allow early action to address it, rather than it becoming a great problem.

Having served on this Bill Committee, those are the three things I am most concerned about. A review of what is happening, in line with what my hon. Friend the Member for Kilmarnock and Loudoun has tabled with new clause 3, would assist with those concerns. My first concern is about how the guidance guarantee is operating and how people are behaving in relation to it. Secondly, are there any behaviours that might create the circumstances of mis-selling, which would create great concern? My third concern is on the recycling around tax loopholes, creating a tax avoidance problem that needs to be addressed immediately.

Teresa Pearce (Labour, Erith and Thamesmead)

It is a pleasure, Mr Weir, to serve under your chairmanship. I want to make a few points in support of the new clause. I support the review because, although most of us would agree that the annuity market has not worked well for annuitants for a long time, we do not know what will happen. The important thing to recognise is that the decision is not like buying a mobile phone, where, if it does not work, it can be traded in for a different one the next year. It is a one-off decision that will affect individuals and their family for the rest of their life. It is therefore really important that we get it right.

We agree that we want pension flexibility, but there are a number of risks, all of which seem to fall on the person who is about to retire. There is a risk that a person might pay too much tax, run out of money, purchase the wrong product or leave their spouse with no money should something happen to them. Those are all important issues. A review will show us whether things have gone as we intended. We all hope that opening up the pensions market will work well for the consumer, but, as is the case whenever anything is opened up to the consumer, we know that, as we sit here, people are working out exciting products to sell to people whose knowledge of the market is relatively unsophisticated. It is important that we have more than a single line of defence. The Minister has mentioned a second line of defence; if we are to have one, I hope that it is in regulation rather than voluntary, because there has been a circular dance of voluntary regulation in the annuities industry that has not worked.

We are discussing taxation—this is the Taxation of Pensions Bill—but a large number of people in this country think that pensioners do not pay tax. That is some people’s level of understanding. Has the Minister considered any options for public information or advertisements?

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes an important point and also raises a question: by the time people get to the stage of thinking about their retirement options, is it not rather late in the day for financial education? Should such education not come much earlier in the process in order to avoid misconceptions?

Teresa Pearce (Labour, Erith and Thamesmead)

I agree that financial education must start an awful lot earlier, although next April might be a bit too soon for some people. We need to ensure that people are saved from making bad decisions that they will live with for the rest of their lives. It is therefore perfectly reasonable to ask for a review.

If the Minister thinks that a review is unnecessary, perhaps he has a better idea about how things are going to play out than we do. Currently, the guidance guarantee is voluntary. We all hope that 100% of people take up that guarantee, but at what take-up percentage would the Minister consider it to be a failure? Should we not have a review so that if, for example, only 10% of people take up the guarantee, we know that we are heading for a storm? Will the Minister explain more about the second line of defence, how he thinks it will be put in place and whether it will be regulated or purely voluntary? Also, what would he deem to be a successful rate of take-up for the guidance guarantee?

Geoffrey Robinson (Labour, Coventry North West)

My hon. Friend has just spoken with immense sense. I think that her contribution will be proved very prescient if the Bill becomes an Act and things progress in that direction. She raised the issue of regulation, which is in part at the core of new clause 3. The whole point is to get an early warning of when things are going wrong or, indeed, to laud the Government and the industry if everything goes right.

As legislators, our job is to foresee the worst—to know that it is going to happen. Although regulation may appear negative and boring, nothing reveals how important it is better than the history of the banks and the banking crisis. The Government and the industry say that we can take matters only so far in terms of spelling out the warnings—that is the point of a health insurer or a lifetime solvency issue. When it comes to those who are reaching pension age over the next few years—the newcomers to the new set of arrangements—we cannot have the industry sounding like Pontius Pilate, saying, “There you are; we have given you all that you need to know in the dense prose of our circular letters,” and then sitting back and saying, “Now it is up to you.” We cannot do that.

Although the Government are not directly responsible and the industry is not directly responsible—it puts out its guidance and we are held to account directly on the question of regulation. What nobody could understand was how the banks were allowed to build up such liabilities and make huge loans. The value of assets under management with the pension companies is 25% of our total national net worth, as we heard earlier. We found that the Royal Bank of Scotland had borrowings nearly as great as the total that the UK had borrowed; it had taken on liabilities to that extent, but how could it, with such a tiny balance sheet, engage in borrowing to such an extent in the name of a bank—

Guy Opperman (Conservative, Hexham)

The point that the hon. Gentleman is making is all well and good, but surely the Government are trusting people. My constituent who said, “I saved this money. This is money that I have actually accrued over a period of time,” was saying that he would do a much better job looking after this money than all the institutions that the hon. Gentleman is talking about, which obviously lost it.

Geoffrey Robinson (Labour, Coventry North West)

I take the hon. Gentleman’s point. He speaks with a great deal of knowledge of this industry and experience in it. Trusting people is all well and good, as is trusting people with their money, but if he wants to go back, that would be, as I have said before, a nanny state approach. Indeed, I think it was an adviser to the ABI, Dr Braun, who said during our first sitting that she wanted people to get into an adult conversation. However, people do hold us to account for regulation, and regulation of the industry is at the centre of what will be necessary if this arrangement is to work in future. For regulation to work there has to be timely, relevant information. A review of the kind proposed in the new clause would surely set out to do nothing more, but nothing less.

It is amazing how people say, when see the evidence of what is taking place, “Oh, gosh! Look, something’s going wrong. I never realised that.” Unless Parliament is confronted with that evidence in the first place—hence the annual report to Parliament, after a year—and that is regarded as necessary, people do not realise what is happening out there in the market. We tend to live in a hermetically sealed, pleasant environment in the House and we see our constituents, but when all the things were happening in the banking world nobody—not even the Treasury—seemed to have any clue at all of the full extent of the liabilities that were being accrued by irresponsible banks.

Returning to what the hon. Member for Hexham said, certainly, nobody wants to try to cater for every need. No doubt some people will make a huge success and will make a lot of money, but I doubt that they will be typical of the people I represent in Coventry North West and many other people throughout the country. I am not sure that those people would break down on any particular ideological or party lines, but they would be a minority, albeit vocal and successful, and long may they do well; but even they could come unstuck and look to us to deal with this issue. Regulation cannot be reduced to the concept that the hon. Gentleman mentioned, although I know that he has great experience in the industry.

Regulation will be essential. So many different public bodies are involved, including the Treasury, HMRC, the Department for Work and Pensions, the Financial Conduct Authority—the regulator—and the Pensions Regulator that the process is almost tailor made to lead to all sorts of different problems falling between the gaps or cracks in between these overlapping organisations.

Cathy Jamieson (Labour, Kilmarnock and Loudoun)

My hon. Friend makes a powerful argument for why there ought to be a review. Does he agree that, given the number of different organisations and bodies involved, there needs to be a focal point to ensure that a review takes place, because otherwise things could fall between those organisations or, indeed, not be addressed?

Geoffrey Robinson (Labour, Coventry North West)

I agree. I was trying to make precisely that point. What sort of focal point she has in mind, I leave her to develop further. I am not quite sure how one would do that, but certainly the Government, in opening up the regulatory arrangements—[Interruption.] What did my hon. Friend the Member for Scunthorpe say? I am sure that I have the rapt attention of all my hon. Friends and that I am gripping Government Committee members, Mr Weir. However, I shall be brief and will not delay the Committee. I think we have another session on Thursday, which we all await with great anticipation; particularly the prospect of the Minister’s returning in a less gainsaying mood than he has been in so far and agreeing with us.

Incidentally, on the point raised by the hon. Member for Redcar about when we would start, we have not tabled a wrecking amendment; this is a constructive amendment and a technicality of that kind really should not bother us. Whether it is six or nine months or a year and three months is not the issue. Precisely when we start has not got much to do with it. It is not the date that matters, but the principle of regular review. Perhaps, when we resume on Thursday, I shall mention a couple of other important points. However, there is a general indication that the Committee wishes to adjourn, so I terminate my remarks at this stage. Thank you.