PensionsNov 26 2014

Labour warns of pensions mis-selling scandal

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Rushed scrutiny of the Pensions Bill will accelerate future problems and will cause a pensions mis-selling scandal, the Labour party warned yesterday (25 November) during the third reading of the Bill in the House of Commons.

Pensions minister Steve Webb raced through a series of technical amendments - all from his side of the house and many from suggestions by industry stakeholders - which first brought criticism from Andrew Love, Labour MP for Edmonton, who expressed concern for the level of complexity being added.

Mr Webb responded that ambiguous legislation would cost money and it was better to take the industry’s views while the Bill is still going through the house, rather than stubbornly insisting that first draft is correct.

He also noted that the first draft of the Bill was far shorter, but a significant amount of amendments and extra clauses had to be added post-Budget, plus this being the final session of parliament before the election which meant an accelerated timetable.

Shadow minister for employment Stephen Timms, standing in for shadow pensions minister Gregg McClymont, also bemoaned the fact that 33 new clauses and 72 new amendments were being added to the 55 original clauses in the Bill.

He declared that proper parliamentary scrutiny was being rushed and there will be mistakes that he only hopes the upper house will spot.

“We are dealing here with an area full of technicalities and fraught with difficulty, the real danger in proving so little opportunity for scrutiny is that it will accelerate future serious problems and a mis-selling scandal,” stated Mr Timms.

He offered Labour’s three tests of the Bill: whether it will give reliable advice for pension savers, whether it is fair to those on low and middle incomes, and whether the government is confident the change will not increase costs for the state.

Mr Webb reacted by stating that all three tests were being met and accused the opposition’s stance of being “a little bit ambivalent” in on the one hand trying to be paternalistic, but on the other hand not actually opposing the “popular” changes.

At a pension panel debate earlier this month, pension experts warned that rushed introduction of far-reaching radical retirement reforms will inevitably mean consumers are not adequately protected or informed, leading to “bad outcomes” in the short term.

Mr Webb also addressed concerns raised by both Mr Love and Mr Timms around the ‘guidance guarantee’ and a second line of defence against people not taking up the free session, with the latter accusing the government of treating those first retirees next April like “guinea pigs”.

Mr Webb stated that the Financial Conduct Authority is committed to the issue of a second line of defence and will have an update on the subject “very shortly”.

From his own side of the house, Conservative MP for Reigate Crispin Blunt tabled his own amendment which called for more clarity on the guidance and assurances that things like equity release would be included in the session.

Mr Webb heard the plea, but pointed out that it is more important that the guidance works in practice, and therefore further testing and refinement is crucial.

“We don’t want to overpromise what the relatively limited conversation can achieve... we can’t stretch this to achieve what it’s not set up to do. Shoehorning equity release into the guidance inappropriately will risk undermining it, if we bombard people then one of the worries is we just go back to where we started and they go back to buying an annuity.”

He promised more detail before the end of the year via a progress update from the Treasury, and assured another MP that the department was also working hard on how to hand people off to the right organisations in terms of social care needs in retirement.

While Mr Timms also argued that there were still questions to be answered on trustee duties around defined benefit to defined contribution transfer advice, along with the difficulty of proving the £30,000 triviality limit, he did not urge his side of the house to vote against the Bill.

“I do want to say that this is a pretty unsatisfactory position the house has been put in... it’s impossible for members to scrutinise properly without indication of costs or actual draft regulations.”

Before taking the Bill to a third and final reading, Mr Webb concluded that there has to be a balance struck between primary powers, noting that it is perfectly normal for legislation to go through both houses without “every last thing” being nailed down before Royal Ascent.

“This is not unusual or unsatisfactory, our lawyers will not taking Christmas holidays, but there’s nothing unprecedented going on here.”

peter.walker@ft.com