My Lords, Amendment 9, which is tabled in my name and that of my noble friend Lady Altmann, seeks to give protection to beneficiaries of CDCs who want to transfer out. Basically, it extends the protection that already exists in statute for DB beneficiaries to beneficiaries of CDCs, which we are discussing this afternoon.
As the law stands, that protection does not apply to the beneficiaries of the schemes we are talking about, so I have done a cut-and-paste job, lifting a chunk of legislation and applying it to CDCs. I welcome the steps the Government are already taking to stop people being misled into giving up rights under pension
schemes—they have banned cold calling for example—but there are still too many abuses out there and there is a risk of people being approached and encouraged to forgo the benefits they have accrued under a CDC scheme for something that may not be worth quite so much.
I found the meetings that the Minister held with officials and Members of your Lordships’ House enormously helpful. This issue was raised. If I remember correctly, two arguments were given for not doing what I propose now. One was that it will take time to build up a transfer value of £30,000, which is the trigger level at which you have to get independent financial advice. In other words, people who are subscribing to these schemes would not be able to build up £30,000-worth of assets very quickly so there would be time to introduce a scheme. The other argument was that we are talking about a new type of scheme and therefore independent financial advisers may need time to develop the relevant portfolio of skills to give relevant advice to those who are thinking of transferring.
I do not find either of those arguments convincing, particularly as it would be possible for people to transfer into, for example, the Royal Mail scheme. Like other noble Lords, I got a letter from Royal Mail:
“Dear Lord Young … If you have any questions or would like to discuss the issues raised during the debate at Second Reading, please do not hesitate to contact me.”
I contacted Royal Mail and asked whether it is envisaged that those who join Royal Mail after the scheme has started and have a pension pot from their earlier employment will be able to buy into the CDC scheme. The answer—it is now “Dear George” rather than “Dear Lord Young” as the relationship warms—was:
“In answer to your question, yes, the rules of our CDC scheme will allow members to transfer in (“buy in”) and provide themselves with additional benefits under the two parts of the scheme, (a CDC pension and a defined benefit lump sum on retirement).”
So it could be the case that quite soon after the Bill becomes an Act and Royal Mail goes ahead somebody who joins Royal Mail and after a few months or a year decides to transfer out may have a pot worth more than £30,000, but at the moment they will not have to seek any independent financial advice before taking that decision, putting them in a different category from other beneficiaries.
The other argument was that this is a different product and therefore different skills will be needed to give advice to a beneficiary about whether it is worthwhile transferring out. It is a different product, but I wonder whether it is so different that IFAs will not be able to give independent advice to an individual looking on the one hand at the advantages of remaining within a particular CDC scheme and on the other hand at the possible advantages of transferring out. Given that CDC schemes exist in other countries and that there has been a debate about CDCs for some time in this country, I would have thought it perfectly possible to require people to take that advice.
I was reading the briefing from the RSA, which drew my attention to the fact that:
“There is a provision in the Bill to allow the Regulator to temporarily ‘pause’ the transfer option, which mitigates the risk of large-scale transfers out of the system due to misinformation.”
There is indeed a provision in the Bill. It is tucked away in Clause 44 under a pause order. It seems very cumbersome. This clause enables the Pensions Regulator to pause certain activities once a collective money purchase scheme has experienced a triggering event, and one of the things that a pause order can then do is stop a scheme making transfers out of the scheme. I am not sure that is what we want. It involves the Pensions Regulator and is essentially reactive, whereas we need something proactive, which happens automatically and in advance. I did not find that provision in Clause 44 an adequate response to a problem that may affect just one or two individuals in a CDC scheme, and will therefore not engage the attention of the Pensions Regulator, because there is nothing systemically wrong with the way the CDC scheme is being run.
There is an issue here. It may arise slightly more quickly than was originally envisaged. The solution I have may not be perfect, but it is a little better than the pause order, the triggering events and the provision in Clause 44. I beg to move.
5.30 pm