Pension Schemes Bill [ Lords ] (First sitting)

Angela Eagle Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 3rd November 2020 Public Bill Committees

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

It is a great pleasure to serve under your chairmanship, Mr Stringer. I thank colleagues for attending today’s debate. I hope to proceed with cross-party agreement on those matters that are relatively uncontested, so that we can make progress and then focus on and debate properly those matters that are genuinely contested.

I stand to introduce clause 1 and the associated clauses up to clause 25 and to speak in support of the new form of occupational pension that we are introducing, commonly called collective defined contributions. In CDC schemes, members and employers make fixed-rate contributions to the pension fund. At retirement, members receive their regular pension income paid out of the fund each year until death. The rate or amount of the pension is not guaranteed and will be adjusted annually depending on how much money is in the fund and the projected cost of providing benefits under the scheme. CDC schemes offer the security of an income in retirement, which we know many people value, without individuals having to purchase an annuity on retirement. However, CDC schemes do not require the employer to make additional financial contributions to the scheme if the scheme’s financial position weakens. CDCs have been introduced under a cross-party approach, with great support from all parts of the House. The pioneers of the scheme are the Communication Workers Union and the Royal Mail, which have proposed a way forward.

The Bill allows us to extend CDC provision to master trusts or non-connected multiple employers through further secondary legislation when appropriate, and we look forward to working with such employers in the industry on how such provision should operate and be regulated. It is a brave man who cites Tony Blair in aid of his proposals, but I genuinely believe that this is a third way in terms of pensions, as an alternative to defined-benefit and defined-contribution schemes. It is unquestionably something that huge numbers of people have sought to bring forward, so that we can address things in the main.

[Ms Angela Eagle (Wallasey) (Lab)]

The Minister talks about the third way. Will he also take a little time in his opening remarks to recognise that pensions policy is best if it is done cross-party? We are dealing with changes to the Pensions Act 2004, which was cross-party legislation that introduced opting in. Changes and tweaks to the system are far more likely to last across different Governments and across time if we have some form of cross-party consensus. It is not only a third way. The only way we will end up with a workable pensions scheme is by building in sustainability across Governments and across time. As a former Pensions Minister who put the auto-enrolment regulations on to the statute book prior to our loss of office in 2010, I am committed to cross-party working and I hope that the Minister is, too.

[The Chair]

This is an ideal opportunity to say that I do not think that members of the Committee will have any difficulty in catching my eye, but interventions should be brief and to the point.

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[Guy Opperman]

I echo the support for the Clerks from this side of the Committee. We had a very helpful session yesterday, and they have been very helpful throughout. I will address the four or five points that have been raised.

On communications, I utterly endorse the point made by the Chair of the Select Committee. He will, I hope, appreciate that over the last three years, one of the major things that I have tried to drive forward in the Department is communications across the level. We are using simpler statements, by taking the 10 to 43-page pension statements that very few people read—putting them in a kitchen drawer and not necessarily taking them on board—and providing a simpler two-page statement and a written version. Our pensions dashboards create an amenable version of the online version, with great, ongoing communication.

On CDCs, I totally endorse the points that the right hon. Gentleman made: it is vital that we learn the lessons from the Netherlands, and that we ensure good communication. The possibility of fluctuations in benefits will be made clear and transparent in key member communications at points throughout their pension journey, including by providing details of fluctuation risks at the point of joining, by emphasising benefit changes in both active and deferred members’ annual benefit statements, and by making clear in retirement information packs that benefits can change during retirement.

Quite simply, that point was not made clear to members in the Dutch example. Some may not have taken it on board at the start, while others perhaps did not quite understand the situation as well as they would have had it been explained to them. We hope that we have learned that particular lesson and have very much taken that on board. I know that the two organisations that are looking at CDCs are very conscious of that and, to their great credit, have held multiple roadshows around the country, talking about this and engaging with people long before the legislation was introduced.

The reality of the situation for the CWU and Royal Mail was that their endorsement of the approach would not have been possible without member engagement from the very start. They have probably engaged more with a pension scheme than anyone has ever done before, prior even to the drafting of the legislation. They very much wanted that engagement to take place.

[Ms Eagle]

Clearly, the changes that the Bill would make allow for pioneering in the CDCs that Royal Mail and the CWU have introduced to be put into effect. Will the Minister say a little about how other organisations —smaller employers, perhaps—might try to get into the CDC space? Clearly, Royal Mail and the CWU are an unusual combination, both in the size of the industry and their buy-ins—very few employers are of the same size as the CWU, which represents its members, and Royal Mail, which wishes to offer this particular CDC.

[Guy Opperman]

I agree that large employers, such as Royal Mail, which employ nearly one out of every 200 full-time working employees in this country, will look at that and say it is a potential way forward.

Before I come to the hon. Lady’s point, I want to address DB briefly and make it clear that CDC is intended to offer a further pension-saving option for employers and their workers, should they wish to make use of it: it is for the employers and the workers to decide the type of benefit they wish to have via their occupational pension scheme. That has always been the right of the employer fundamentally, but also engaging with the employee. We specifically amended the subsisting rights provisions via clause 24 to prevent existing DB benefits in the scheme from being converted into CDC benefits. I hope that I have addressed in full the DB issue, which was also raised separately by the right hon. Member for East Ham.

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[Guy Opperman]

I am now straying into industrial relations and how best to manage a company to take someone’s employees with them in a complex negotiation about future pension rights. All I can say is that I have worked and sat down regularly with the leading individuals in the Communication Workers Union and the individuals who have been running Royal Mail—that has changed slightly as it has gone along. I have seen the way in which they have engaged with their workforce and had a proper conversation up and down the country in a series of roadshows. With a large unionised workforce in the modern era, that is the right way in any event. I would certainly endorse that approach. It is clear that the company and the employees have been able to work together—working with the union, working with representatives—and it seems to me that, while I would not say the phrase is “gold standard”, it is an advisable way to proceed and it is good company relations to have a proper dialogue and engagement with individual employees.

The short answer I gave to the Chair of the Select Committee was yes, but the longer answer is that there is a whole supervisory regime, which we will discuss later, under clause 27 and thereafter, which must be submitted to the regulator in order to qualify to be accepted as a CDC. The practical reality of that is that I cannot see a way in which the regulator endorses and allows a company to go down the route of a CDC without all aspects of that communication being considered. Clearly, there are secondary regulations that follow. It is not in the specifics of the Bill, as I understand it. I make the point, when I am answering questions, that I am doing this utterly blind, so it has to be from my memory because I cannot take any notes from anybody. That is the fun of a covid Committee, as the right hon. Member for East Ham will know from chairing a Select Committee.

[Ms Eagle]

Semaphore? [Laughter.]

[Guy Opperman]

The practical reality is that there is a supervisory regime that must be embraced as part of the application to the regulator to become a CDC. I believe that that will be comprehensively addressed and it is my intention that that should be so in the relationships that we have.

The right hon. Member for East Ham asked about clause 47 in ballpark terms and the speed and expedition. I take the point that we are not debating those matters but yes, I accept that we need to press ahead with that. I wish to do so. I have been working on the Bill for the best part of two and a half years. It has not been for lack of trying. We started it prior to the general election and had to pause and start again afterwards, so it is not for the lack of trying to progress it. Both Royal Mail and the CWU are very keen to expedite it.

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[Guy Opperman]

If clause 27(3) provides specifically for fairness, it may be open to interpretation and mean different things to different people. The legal advice we have received is that it would be inappropriate to include that in the Bill, and that it is far better to address the matter in detailed regulation rather than through a single word in the confines of the Bill.

[Ms Eagle]

The Minister is trying to achieve fairness across cohorts, and different people will have different interpretations of that. Such schemes are reliant on the general performance of the stock market, investment and what is going on in the world economy. Does he agree that fairness is subject to all those swings and roundabouts?

Will the Minister give the Committee some idea of what he would regard as fair, given that annuities were grossly unfair for those who happened to retire at a time when the market was taking a dip? What would he regard as “fairness” in the requirement that he will put in regulations?

[Guy Opperman]

Having been a 20-year lawyer, whose last client was a very famous Mr Ed Balls—I had to represent him when he was Secretary of State for Children, Schools and Families, five weeks before the 2010 general election—I am loth to start defining fairness, as a Government Minister, specifically because of the problem that has been identified.

I can say that we are attempting to ensure that members are treated fairly, and that has been part of the central thrust of our work on CDCs from the outset. We have learned from the problems experienced by the Dutch model, which allows schemes to make different benefit adjustments to different groups of members. That transferred contributions from savers to pensioners. The UK system will not work in that way. We intend that regulations under clause 18 will require CDC schemes rules to contain provisions so that there is no difference in treatment between different cohorts or age groups of scheme members when calculating and adjusting benefits. If the scheme design does not do that, it will not be authorised. That goes to the whole proposal under the supervisory regime and the submission.

Further—we will come to the word “bespoke” later in our consideration of the Bill—this is an opportunity for individual schemes. The examples have been given of a small care home scheme coming together, and of the vast might of Royal Mail. Clearly, those are very different organisations. I hope that the regulator will look at them in slightly different ways with an overarching code of principles that allows it to permit such a scheme to go ahead. I will resist the hon. Lady’s kind invitation to provide the exact definition that, we submit, would be one of the problems with clause 27(3).

[Ms Eagle]

We are here to tease out what the Government mean in the Bill, ahead of the unamendable regulations that have not yet been written. I hope that the Minister will indulge our temerity in using the Bill Committee to ask some relevant questions.

What the Minister said earlier about the Dutch schemes is correct. By reducing the available pensions, some choices were made between existing pensioners and those who were saving. His tone suggested that he judged that to be unfair. He states that he wants to achieve fairness between cohorts in CDCs, but how will that be done in reality?

[Guy Opperman]

I am invited to give a view on the future consultations on the points that the hon. Lady raises. The term “fairness” can be open to interpretation and can mean different things to different people. We envisage that regulations will clearly set out the principles and processes that schemes should follow to ensure that all types of members in CDC schemes are treated the same, where appropriate. Setting the requirement in regulations will give us the opportunity to consult on the approach that is to be taken. I respectfully suggest that rather than defining that in the Bill, the appropriate way forward is to consult, and to use all the opportunities that consultation entails for submissions on what that should look like, so that detailed regulations can then be taken forward.

[Ms Eagle]

rose—

[Guy Opperman]

I will give way once more, but I am not sure I can improve on the answer I have already given.

[Ms Eagle]

I thank the Minister for the further explanation, but is he saying that he does not yet know how this will work, because the regulations have not been written? Is he stating that he wants to achieve a certain principle without yet knowing how it will be achieved?

[Guy Opperman]

No; I can merely repeat the answer I have just given, which is that the regulations under clause 18 will require schemes to contain provisions so that there is no difference in treatment between different cohorts or age groups of scheme members when calculating and adjusting benefits. If the scheme design does not do that, it will not be authorised.

I will try to expand on that and give a better answer. There is a two-phase process. In the first phase, a company must come forward to the regulator and seek permission to go down the CDC route; that goes back to the way in which the company and the employees work. A separate set of regulations will then be the framework on which that is judged. I suggest that this is specific to individual companies, because fairness will be different for different organisations and they will be treated in different ways. There is a supervisory regime that must be gone through, and there will be a consultation on regulations regarding how it will be administered. For the present purposes, that is the best I can give to the hon. Lady.

I will now address amendment 25, which is about the actions of the regulator in relation to diversity considerations, taking into account the recruitment of the trustee board. This issue was raised in the other place as a point of debate. The Pensions Regulator is part of an ongoing discussion, and in February this year it launched an assessment of the appropriate way forward, looking at trustee board diversity across all schemes. It plans to set up an industry working group to bring together the wealth of available material and experience to help pension schemes to improve the diversity of scheme boards. I suggest it would be premature to pre-empt the outcome of the regulator’s work in this area. It has indicated to me, unofficially, that it will respond by Christmas. It is certainly the case that this Government has brought forward, on a cross-party supported basis, environmental, social and governance regulations in respect of investment. We would certainly hope that organisations that treat their investments with due account to social and governance matters would also take an appropriate way forward in that respect.

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[Stephen Timms]

My hon. Friend is absolutely right. She and I took part in a debate on a similar issue around 10 years ago, on the Welfare Reform Bill. She is right on this point, and that is an argument that I want to come to in a moment.

I hope the approach that I am advocating will be applied to other pension trustee boards in the UK in due course, because according to a report on diversity published in March by the Pensions and Lifetime Savings Association, which we used to call the National Association of Pension Funds, 83% of pension scheme trustees are male; 50% of chairs of trustee boards are over 60; a third of all trustees are over 60, while only 2.5% are under 30; 25% of pension schemes have trustee boards that are entirely male; and only 5% of schemes have a majority of female trustees. This is a particularly stark picture if we look at the make-up of pension scheme trustee boards at the moment.

As the Pensions and Lifetime Savings Association comments:

“It seems clear that occupational pension scheme trustee boards have generally not implemented robust diversity policies as effectively as FTSE 100 boards”.

[Ms Eagle]

I thank my right hon. Friend for making points that are difficult to argue against. What effect does he believe the age of pension fund trustees is likely to have on the intergenerational fairness points that I pressed the Minister on in our previous discussion?

[Stephen Timms]

My hon. Friend makes an important and interesting point. If we are to be confident that these new scheme trustees will make decisions that are fair to both the working members of the schemes and to pensioners, it is important that the voices of working age members should be taken fully into account in the trustee board’s decisions. She makes a good argument about why diversity, specifically in respect of age, is important in this context.

It is not as though there is no evidence that diverse trustee boards do a better job. My hon. Friend the Member for Westminster North has just reminded the Committee that there is a substantial, growing body of evidence that diverse company boards make more effective decisions than homogeneous boards. We have talked about age, but we should not forget that the gender pensions gap, which is nearly 40%, is almost twice the size of the gender pay gap. The issues here are stark.

The Pensions Regulator commented on diversity in trustee boards for the first time last year:

“Our view is that pension boards benefit from having access to a range of diverse skills, points of view and expertise as it helps to mitigate against the risk of significant knowledge gaps or the board becoming over-reliant on a particular trustee or adviser. It also supports robust discussion and effective decision making.”

Amendment 25 would require those who put boards together to report to the Pensions Regulator on steps to ensure diversity considerations are taken into account in the recruitment of the trustee board, with regard to age, gender and ethnicity. I know that the Pensions Regulator has set up an industry working group to consider this issue, as part of the consultation that the Minister referred to, and to raise the profile of it. However, to be effective, that group needs data, and this amendment would help to provide it. I think the result of the amendment would be not only greater fairness but better trustee decisions. I commend the amendment to the Committee.

[Richard Thomson (Gordon) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Stringer.

I will confine my brief remarks to amendments 6 and 25. I listened carefully and with interest to what the Minister said about the rationale for trying to withdraw clause 27 from the Bill. I agree that with him that in trying to come up with a legal definition of fairness, it will always be nebulous. There are clear difficulties around that, which is why I do not think the initial intention behind the clause was to provide absolute legal clarity.

I was reassured to a large extent by what the Minister said about the steps that would be taken to set up CDC schemes—by definition, schemes that are obviously unfair will not pass approval. The difficulty I have with that argument is that all that is being asked in clause 27 is that there is a requirement for trustees to make an assessment and nothing further. It is useful to have a process of self-challenge and continuous improvement, looking at aspects of the schemes that are directly under their control and that they can directly influence and alter. It is good to always have that consideration of whether the scheme is operating as fairly as possible for all present and future members and those taking benefits from it. My question to the Minister is, very simply, where is the harm? Even after taking on board all that he says, I still do not see the harm that lies in the Bill as it stands.

Moving on to amendment 25, I hear exactly what the Minister says about the requirement that already exists on trustees to be fit and proper people. My observation is that there are many potentially very fit and proper people who do not currently find themselves on boards, advisory committees or any of the governance structures around pensions, and who could nevertheless make a very good contribution to the running of those schemes.

Speaking from personal experience, prior to being elected as the Member for Gordon, I was a councillor in Aberdeenshire. Through that role, I was one of the Convention of Scottish Local Authorities nominees to the Scottish local government pension scheme advisory board, whose representation was equally split between employers’ representatives, of which I was one, and trade union representatives. The trade union representatives were all extraordinarily capable and represented quite accurately the diversity of the scheme members whose interests they were there to represent. In all honesty, the employers’ representatives perhaps did not represent that quite so well. I played my own part in skewing that representation.

The requirement to report back on the membership characteristics is a very useful tool in trying to understand whether all that is reasonable is being done to ensure that trustees and those in positions of governance on pension schemes are as representative as possible not just of the membership, but of the interests of the membership, and that we are giving as many people as possible the opportunity to fully skill up, participate and play the role that they can do. As things stand, we are missing out on the talents of many fit and proper people. Again, I do not see the difficulty in simply recording and reporting that information as part of the cycle of continuous improvement and self-reflection on whether we are achieving all that we seek to do.

[Ms Eagle]

I want to support, or enhance, the comments that have just been made by Opposition Members about the two issues that we are discussing in this group of amendments: amendment 25 on diversity, which was tabled my right hon. Friend the Member for East Ham, and the issue of intergenerational fairness and how it can be properly guaranteed in CDC schemes.

I hope the Minister will reaffirm on the record, in no uncertain terms, his agreement with the principles behind the amendment on intergenerational fairness that was made in the other place, even if he has issues with how one defines fairness in law. I have to say that, in social justice terms, we would have made very little progress in the whole of our society if we quibbled about the meaning of fairness in law. Just because it is difficult to define, it does not mean that we should not assert it or seek to bring it about.

The Minister’s response is a rather a technical answer to the principle that has been asserted by the change that their lordships made to this part of the Bill. His responses to my questions earlier did not fill me with confidence that he knew how the principle would be brought about if the amendment that their lordships put in the Bill was taken out. He simply seemed to say that it was a good thing to assert, and that it would be brought about by regulations that have not yet been written. He could not really give us any thoughts about how it might be guaranteed in the future, although he is asking us to take out an amendment that has actually been made to the Bill. He is asking us to exchange something that is really quite good and not damaging for something that is very nebulous and does not exist yet—it might do at some point in the future—in regulations that will be unamendable. We will have to take them or leave them when they come to the House, so I am slightly worried about that.

As is his wont, my right hon. Friend the Member for East Ham has zeroed in on the issue of diversity on boards and given us some shocking figures about what is happening on pension trustee boards. That ought to raise many alarm bells about potential group-think and about how the decisions made by trustee boards are not representing the interests of the many people who have pension savings in a way that we would find modern or appropriate.

Amendment 25 is a modest amendment. My right hon. Friend is asking only for the publication of information. He is not doing what I might do, which would be much more radical and would probably include all sorts of things, such as quotas and positive action, in order to make a real difference quite quickly. It is a modest amendment. If the Minister cannot accept that it is and does not have the good grace to support it, I will be rather disappointed.

[Guy Opperman]

I will try to address some of the issues raised. In respect of the approach of the regulator, the regulations for CDC schemes will require schemes to provide information to enable members to understand the unique risk-sharing features of CDC schemes. That will be underpinned by clause 15, which we have already debated. It requires the regulator to be satisfied that a CDC scheme has adequate systems and processes for communicating with members and others. Regulations will also require that scheme information is made available more widely to other interested parties, including employers, on a publicly available website. The practical reality is that we have learned from the Dutch model, which some argue had intergenerational fairness issues, and are producing a considerably fairer approach.

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When the Government respond to the report, I hope that the Pensions Regulator will accept that recommendation, and we must all hope that the entirely sensible changes being made by the Bill do the important job that history makes clear is needed.

[Ms Eagle]

I support my right hon. Friend the Member for East Ham, who has crystallised some of the dangers in private sector schemes. I do not want to add to the excoriating verdict of his predecessor Committee in the two cases mentioned, except to say that this does have an effect on the willingness of individuals to save into pension schemes. Although people might not know the detail of this behaviour and the losses it has caused to retirement income, some out there in the ether will use the lack of effective protection that has resulted from the failure both of regulation and in pursuing effectively those who engage in this kind of larceny. Individuals who may otherwise be pension savers choose not to save into a pension and regard it as a bit of a mug’s game because their money is not properly protected. They know that there are scams and that a range of people out there—from the great killer sharks who loot pension schemes, to those who do dodgy things at the margins—are causing people who were saving into pension schemes, in good faith, to lose benefits in retirement.

How will the Minister drive the Pensions Regulator to be far more proactive and effective? Later, we will come to the Bill’s measures on scamming and the even worse end of bad behaviour, but that is for a future part of the Bill. I hope the Minister can reassure us that he will insist that the regulator transforms its passive attitude into a much more aggressive one that not only actively deters but drives this appalling behaviour out of the whole of the pension scene.

[Guy Opperman]

I utterly endorse the speech of the right hon. Member for East Ham. I did not disagree with a single word of it. I could wax lyrical about why the Government, with the support of the Work and Pensions Committee and the special joint inquiry it set up with the Business, Innovation and Skills Committee to address BHS, have introduced this overdue legislation, which is linked to a much-enhanced regulator with a strong direction from Select Committees and the Government that there should be a much more robust approach. The new chief executive of the Pensions Regulator was appointed by the Secretary of State and me with a specific exhortation that they take a different approach.

The actions of Philip Green at BHS and the Carillion case, with which the right hon. Gentleman is extraordinarily familiar, scarred all Members of Parliament. No matter what our political party, we have all seen the impact that those cases have had on individual members of our communities. I take the point that the hon. Member for Wallasey made: these scandals involving organisations and companies that have not been sufficiently regulated, and for which the regulator has not, to be blunt, had the power, to intervene and take a different approach, have affected people’s perceptions of the sanctity and safety of their pension.

We have gone to great effort to ensure, on a cross-party basis and taking on board the various Select Committee recommendations, that we give the regulator enhanced powers. We will come to the significant reality of the criminal sanctions that clause 107 outlines. Without a shadow of a doubt, we are in the business of ensuring that callous crooks who put a pension scheme at risk are not able to function as they did in the past. I most definitely endorse every comment that was made.

Question put and agreed to.

Clause 103 accordingly ordered to stand part of the Bill.

Clauses 104 to 106 ordered to stand part of the Bill.

Clause 107

Sanctions for avoidance of employer debt etc