Pensions Bill

moved Amendment No. 134ZB: 134ZB: Before Clause 107, insert the following new Clause— ““Trivial commutation limit (1) The trivial commutation limit shall be raised as prescribed and shall not fall below a minimum level of £25,000. (2) All pension sums trivially commuted shall not be included in the assessment of capital, income or notional income for income related benefits.”” The noble Baroness said: I declare an interest as a trustee of TPAS, The Pensions Advisory Service, which tells me that this is a regular problem on its helpline and one that it is concerned about. The amendment is obviously a probing one, unworkable and unaffordable as it stands. I had intended, but time does not permit it, to raise other interconnected issues such as risk, means-tested benefits and trivial commutation and, in particular, to press my noble friend on the issue of stranded pots. In brief, the risk is that older, poorer women may not have a big enough pot to float them off means-tested benefits. For them, as the PPI has identified, it may not pay to save. The best way to overcome that risk is to help her to increase the size of her pot, ideally to cover her earnings below £5,000, but also to consider increasing the annual or lifetime sum so that it can go into personal accounts. One other option, the purpose of today’s amendment, is to allow the transfer of small pots into personal accounts or, if the personal account is the small pot because there are only a few years of savings in it, to allow a transfer out into a larger alternative existing pot. I know that the industry is concerned about destabilising the existing annuity market, but the effect on it would be trivial and would overcome the very real injustice—I might go so far as to say ““theft””—of small stranded pots. Take the hairdresser who has been self-employed and more recently employed, perhaps over the past decade, in a larger salon, who, along with her employer, is now paying into a personal account. She ends up with a personal account pot of, let us say, £18,000. That is too large to trivially commute because it is above the £16,500 limit, so she must annuitise. However, that hairdresser also has three small personal pensions of £2,000 each, with different providers from different times in her life when she was self-employed and thought that she had enough resources to build up some modest savings for retirement. If she acquired those three small pots as an employee working in a salon for another employer, and therefore with an employer’s contribution so that she had paid in only half, she would be able to cash them in; since last year’s Budget, such pots are going to be ignored by HMRC, which is a sensible and generous provision. If, instead, those three little £2,000 pots are personal pensions, then although she has paid for every penny in those pots without an employer contribution, she cannot trivially commute them because her personal account is above the trivial commutation limit. They are too small to be annuitised, as pots below £5,000 are too small for the industry to bother with. I am told that the industry will not normally bundle them up if they are from different providers. She is not allowed, for at least five years and maybe not even then, to transfer them into her personal account and build her pot. So what happens? She cannot access those three £2,000 pots at all. They are stranded. They are in limbo. One-quarter of her lifetime savings is completely lost to her. Why are those pots not ignored, like small occupational pots with an employer contribution? Because of HMRC’s fear that large personal pots could then be fragmented and the system manipulated. We could avoid that by capping the total sums. I get fed up sometimes with our apparent willingness to accept that in order to avoid one rich person’s theoretical manipulation of the system, 100 people will lose their savings, like our hairdresser. That money is lost: £6,000 of £24,000 is gone; it is inaccessible. That is shocking and unacceptable. Incidentally, that £6,000 in the little stranded pots might have been the extra personal savings that sprang her clear of means-testing. Instead, the money that she has saved goes not to her but to other members in her scheme and she might perhaps fall back on the taxpayer instead. So it is not only shocking but stupid. I hope that my noble friend will get agreement from the industry that in this situation, where the industry does not want to annuitise, it will raise no objections to the transfer in of those small pots to personal accounts and that, likewise, if the personal account is the smaller pot, it could be transferred out so that the PA pot is not lost. That might take place at retirement only, although it would be more attractive if it could be done earlier when the pot might seem more worth while. I hope that my noble friend can come back, either today or on Report if we need amendments—perhaps he could tell me if that is the case—with a way forward on this. If he does not, I shall—with your Lordships’ support, I hope—return to the matter. I had been proposing on this amendment to raise the issue of trivial commutation. If the cap were raised from £16,000 to £25,000, that would also help the problem of stranded pots by providing more headspace for trivial commutation. All such proposals have implications for pension credit, however, and, given the pressures of time, I do not propose to explore those issues today. If, instead, we could move forward to resolve the issue of the hairdresser’s stranded pots, I would be content and I suspect that your Lordships would be as well. I beg to move.