Draft Occupational Pension Schemes (Scheme Administration) (Amendment) Regulations 2016
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State for Work and Pensions (Mr Shailesh Vara)
I beg to move,
That the Committee has considered the draft Occupational Pension Schemes (Scheme Administration) (Amendment) Regulations 2016.
As always, it is a great pleasure to serve under your chairmanship, Mr Bone. The draft regulations, which were laid before the House on 1 February, respond to stakeholders and interested parties and clarify the Government’s requirements to ensure that regulations work as intended. From April 2015, new governance requirements were introduced in the Occupational Pension Schemes (Charges and Governance) Regulations 2015 for occupational pension schemes providing money purchase benefits. They include: annual statements regarding governance; certain requirements for processing financial transactions; appointing a chair of trustees responsible for signing the annual statement; and further requirements relating to the default arrangement. Additional requirements were imposed on relevant multi-employer schemes to strengthen the independent oversight of schemes used by multiple employers.
Relevant multi-employer schemes must have at least three trustees and a majority of all trustees, including the chair, must be independent of providers of services to the scheme. Trustees must be appointed for limited terms through open and transparent recruitment processes. Those requirements do not apply when the employers are part of the same corporate group, as we consider such schemes to be closer in nature to single employer schemes and thus less likely to require such additional member protections.
We also made a temporary exemption from the additional requirements, until April this year, for schemes set up by statute. That was to enable us to carry out further work on their existing governance requirements before deciding whether the exemption should continue. The National Employment Savings Trust, known as NEST, is also exempt from the additional requirements as it already has rigorous governance requirements set by law.
The governance measures cover occupational schemes offering money purchase benefits regardless of whether they are used for automatic enrolment or not. They also exclude schemes where the only money purchase benefits offered are additional voluntary contributions.
Since those regulations came into force last April, we have received representations that the definition of “relevant multi-employer scheme” had unintended consequences by bringing some corporate group schemes within the scope of the additional governance requirements. The draft regulations will amend the definition of a multi-employer scheme to ensure that normal corporate activity does not bring a corporate group scheme within the additional requirements unless it promotes itself as open to unconnected employers.
The draft regulations will not extend the temporary exemption for multi-employer schemes set up by statute. On balance, we considered that there was no significant reason to provide a further exemption from good governance standards. However, we will give such schemes up to six months to comply with the requirements for the appointment of independent trustees.
The draft regulations will make other minor changes to ease the practical application of the governance standards. They will remove the requirement for the chair of NEST to be appointed within a three-month timeframe, as that appointment is already covered by other statutory requirements. NEST has to comply with the public appointments process. The draft regulations also allow a person or deputy chair appointed by the trustees to sign the annual statement if there is no chair in place—for example, if the chair resigns or is removed.
For some schemes, certain provisions governing the appointment of trustees are set out in their trust deeds and rules, which may conflict with the governance requirements regarding the appointment of independent trustees. To make it easier for those schemes to comply, the draft regulations will apply a statutory override where provisions in trust deeds and rules conflict with the requirements for the appointment of independent trustees in multi-employment schemes. The draft regulations also correct a typographical error in the definition of “default arrangement” in the 2015 regulations, which were inserted into the Occupational Pension Schemes (Investment) Regulations 2005.
Consideration has also been given to the Small Business, Enterprise and Employment Act 2015, so the regulations include a review clause. The review’s conclusions will be set out in a report, to be published within five years after the regulations come into force. Subsequent reports will be published at intervals not exceeding five years. The review will cover both the original governance requirements and the amendments in this instrument. The draft regulations will make important changes to clarify the scope of the governance requirements and will ensure that they are practicable for occupational pension schemes.
Angela Rayner (Ashton-under-Lyne) (Lab)
It is a pleasure to face the Minister again under your chairmanship, Mr Bone. It is rather unfortunate that, as I think one of the Guardian columnists has said, as soon as people see “pensions” in the title of anything in the media today, they glaze over. However, I hope that the Minister will not glaze over during my contribution today, because although the Opposition will not oppose these measures, we want to touch on several important concerns that are related to these regulations.
To put the measure into context, employers have a choice about the kind of pension they make available for their employees, with some choosing to use schemes based on a trust with trustees. Others choose schemes provided by insurance companies, which result in contracts between the providers and the employees. Such schemes include personal pension schemes and stakeholder pension schemes, which employers use for auto-enrolment or otherwise make available to their employees. There is no board of trustees and no fiduciary duty to the scheme member.
The market for multi-employer schemes, known as master trusts, is relatively new and has undergone rapid expansion in the last couple of years. The major players have been open for business only since 2011 and barriers to entry have historically been low. While no official list of providers exists, Professional Pensions sought to compile a definitive list in August 2015 and identified 57, but there could be as many as 70 or even 80 master trust providers in the UK. Employers have to try to distinguish between many offerings of varying quality, and there are concerns across the sector about regulation and governance.
In its evidence to the Select Committee on Work and Pensions’ current enquiry on auto-enrolment, the Association of British Insurers made the point that trust-based schemes, including master trusts, are not
“subject to the same stringent regulatory standards as contract-based schemes, which are regulated by the FCA.”
Instead, master trusts are supervised from a distance by the Pensions Regulator, which does not have the power to check how the pensions are sold or to shut down companies that fall short of basic standards. The Pensions Regulator highlighted the issue to the Work and Pensions Committee:
“94% of employers who chose a trust-based scheme opted for a master trust. Due to their scale, commercial purpose and design for use by multiple employers, master trusts represent different risks to members and consumer protection when compared to other occupational schemes. Unlike pension providers regulated by the FCA, the master trusts themselves are not authorised prior to market entry and the regulatory framework is not designed for similar levels of ongoing supervision. As a way of mitigating this risk, we introduced the master trust assurance (MTA) in May 2014, developed in partnership with the Institute of Chartered Accountants in England and Wales (ICAEW). However, it is a voluntary arrangement”.
Only five master trusts are part of the master trust assurance framework, meaning that they are independently audited.
Andrew Warwick-Thompson, executive director for regulatory policy at the Pensions Regulator, warned that some of the other schemes were too small and had no safeguards protecting their members. Alarmingly, he added:
“There is a risk of these schemes falling over; there is a risk that members might lose their money.”
He went on to warn that the lack of requirements for qualifications or assets meant that some master trusts
“may not be run by competent people”.
The so-called fit and proper person test appears to be even less stringent than that applied by the Football League. HMRC’s guidance suggests that it will automatically assume that anyone who applies is fit and proper. Perhaps the Minister will tell us whether the Government have any plans to change HMRC’s practice or guidance in that regard. Even when directors are qualified, providers do not always make it clear where the savings are invested and who owns the schemes.
The BBC programme, “The World Tonight”, also discovered that at least one master trust seemed to be providing misleading information online. The website, myworkplacepension.com, claims to have £50 million of pensions under management managed by the City firm, Old Mutual. When the BBC scrutinised the whereabouts of that money, myworkplacepension.com admitted it had no such assets. Subsequently, Old Mutual denied handling the company’s account and asked for its name to be removed from its publicity.
According to Companies House records, My WorkPlace Pension Ltd is 50% owned by Gavin McCloskey, who, with an associate, Anthony Okeke, was previously a director of a firm that sold sports fashion clothing. Incredibly, its trading name was Wide-Boys R Us.
Angela Rayner
We may laugh, but it will hardly be amusing to someone who finds their employer has invested their pension with a dubious scheme and without safeguards. Alarmingly, the programme also cited one industry expert who suggested that only around 10 existing master trust schemes could be considered completely safe and reliable. There is a view, therefore, that strengthening the requirements to enter the market, such as with authorisation or licensing, should filter out the least desirable operators. We would like to know more about the regulatory framework within which the Minister envisages today’s regulations will sit.
This issue was raised by my hon. Friend the Member for Wolverhampton South West (Rob Marris), who, as shadow Financial Secretary to the Treasury, represented the Opposition during the Committee stage of the Bank of England and Financial Services Bill. The Economic Secretary to the Treasury responded that the Government would bring forward regulations as soon as practically possible. Can the Minister tell us today what discussions the Department for Work and Pensions has had with the Treasury about that legislation and give us an update? Perhaps he will tell us how such legislation relates to the comments of his colleague, the Minister of State for Pensions, in the press on 1 March. She complained that the Government would not give the Department parliamentary time for pensions legislation specifically in relation to master trusts. She said:
“We need legislation and have been bidding for a bill, a pensions bill but it has been refused. It was refused at the end of last year and it has still not happened…I am hoping we will get one because we can’t do anything properly without it.”
We seem to be in the extraordinary position of the Minister for Pensions admitting that she cannot do anything properly on this issue because she cannot get parliamentary time from her own Government, whose legislative agenda is hardly full. However, this seems to be flatly contradicted by the remarks of the Economic Secretary, so is the Treasury more up to date on pensions policy than the Minister for Pensions, or is that just where the power lies in this Government? Perhaps none of them knows what is going on.
If the Minister knows anything about his own Department’s legislative agenda, perhaps he would clarify whether we can expect a Bill and, if so, when. There are a number of questions about the regulatory framework on which it would also be helpful to hear his views.
Mr Vara
Those who take the trouble to look at the regulations before us will find that they are specific and narrow. I intend to address the issue before us, rather than go into a general debate on pensions.
The revisions proposed today are a specific response to stakeholders and interested parties, and they are intended to improve the system that exists at the moment. I like to think that the public will welcome them, given that we are responding to the points made by them.
Mark Field (Cities of London and Westminster) (Con)
A relevant point was brought up by the Opposition spokesman in relation to a “fit and proper person”. Although I appreciate that the Minister wants to go on to a specific area, it would be useful for the Committee to be aware of some of the potential concerns. I suspect that whatever the Government are doing in this regard will be rather more robust than it is for the Football Association, for whom “fit and proper person” seems an almost meaningless phrase. None the less, given the large sums of money being held on trust for many of our constituents, it is important that at least some thought is put into that, so I look forward to hearing the Minister’s views on the matter.
Mr Vara
My right hon. Friend makes a good point, and I did intend to touch briefly on the governance of master trusts and fit and proper individuals. The hon. Member for Ashton-under-Lyne spoke at length about master trusts and raised several concerns, so I assure her that master trusts already have to meet a number of governance requirements under the current law. A voluntary master trust assurance framework has been developed by the Institute of Chartered Accountants in England and Wales in partnership with the Pensions Regulator. It is designed to help trustees to assess the quality of their scheme against an industry-wide quality benchmark. It also helps employers to find a well run pension scheme that can be used to comply with their automatic enrolment duties. The Department for Work and Pensions and the Pensions Regulator are exploring whether additional protections would be appropriate for the future regulation of this part of the market.
Well run master trusts can and do offer good deals for consumers and employers, and we are keen that the market develops in the right way. We are aware that potential issues have been suggested and we are working with the Pensions Regulator to ensure that the right protection is in place. Once the measures are firmed up, we will inform the public.
Angela Rayner
Does the Minister know how many master trusts have signed up to the voluntary arrangement and how many are yet to do so?
Mr Vara
I do not have a specific figure to hand. The hon. Lady suggested a number of figures, but I want to be careful before I commit myself to any specific number—[Interruption]—although it is my understanding that it may be five. That is my present assumption.
The Government agree that it is important that members’ interests are represented and their views considered. Requirements from April 2015 ensure that independent governance committees and multi-employer scheme boards have arrangements in place to ensure that members’ views are directly represented. Annual chair statements must also include the details of those arrangements. As for contributions paid, the Pensions Regulator works with the industry to monitor the ongoing payment of contributions.
I am grateful for Members’ contributions this morning. The regulations that we have put forward will improve the management of the pensions industry generally. Good governance is fundamental in securing good outcomes for members, and the regulations will help ensure that schemes are well run in members’ interests.
Question put and agreed to.