Pensions Dashboards (Prohibition of Indemnification) Bill

(Limited Text - Ministerial Extracts only)

2nd reading
Friday 3rd March 2023 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)]

My Lords, I congratulate my noble friend Lord Young on his excellent introduction to the Bill. My noble friend has made it clear to the House that the Bill will increase protection for pension savers. It has the full backing of His Majesty’s Government, and it gives me great pleasure to speak in support of it today.

The introduction of automatic enrolment has been a resounding success in helping people save for retirement, on a scale which was hard to imagine just 10 years ago. It has normalised workplace pension saving, with more than 10.8 million workers being enrolled into a workplace pension to date, and £33 billion more saved in real terms in 2021 than in 2012.

This success has, at the same time, resulted in challenges for the Government, consumers and the pensions industry more broadly. Research by Aegon found that 73% of people have multiple retirement or pension plans. While it is usual for people to move around the labour market throughout their working lives, this can make it difficult for people to keep track of what they have saved. Indeed, research by Scottish Widows in October 2022 has shown that nearly half of workplace pension holders do not know how many pension pots they hold with previous employers.

Pensions dashboards will help to address these issues—and I will come back to the point raised on dashboards. They will put the saver in control and allow them to view information about their pensions, including the state pension, in one place online. By doing so, dashboards will enable savers to be reunited with pension pots they may have lost or forgotten about over many years. To highlight how significant the total value of lost pots may be, the Pensions Policy Institute suggested in its paper last year that it could be as high as £26.6 billion.

The Pensions Dashboards Programme is supervised by the Money and Pensions Service to deliver the technology underpinning dashboards. This is far from a straightforward task. It involves connecting thousands of pension schemes so that millions of consumers are able to search for their pensions.

Yesterday, as has been mentioned in the House this morning, the Government published a Written Ministerial Statement which explained that additional time is needed to deliver the complex and technical solutions to enable the connection of pension providers and schemes, in accordance with the connection deadlines set out in the Pensions Dashboards Regulations 2022 and the Financial Conduct Authority’s corresponding rules for pension providers. Given these delays, my honourable friend in the other place, the Minister for Pensions, has initiated a reset of the Pensions Dashboards Programme, in which the DWP will play a full role. This will include a new chair of the programme board and the development of a new plan for delivery.

The noble Baroness, Lady Sherlock, spoke about the importance of ensuring 100% quality and security for these dashboards. I cannot give her more detail on precisely what the reset will mean, which was the gist of her question, but the DWP will play more of a part in terms of those who are managing the dashboard, including MaPS—she will know more about that. But I will endeavour to update her and the House as soon as I can on progress. Obviously, the WMS has just come out, but she rightly asked these questions and that is as much as I can tell her.

The Government will also amend the Pensions Dashboards Regulations 2022 at the earliest opportunity to provide the pensions industry with clarity about the timings of its legal obligations. The Government will ensure that the pensions industry has adequate time and the necessary technical information to prepare for any revised connection deadlines. The Minister for Pensions will provide a further update to Parliament before the Summer Recess, as the noble Baroness, Lady Sherlock, mentioned.

However, none of this detracts from the importance of this Bill, which is needed irrespective of the timeline for delivery. The Pensions Dashboards Regulations 2022 set out detailed requirements for occupational pension schemes to be connected to a digital ecosystem, which will enable the provision of pensions information at the request of a pension scheme member. As set out in the Written Ministerial Statement, this framework for dashboards set out in the regulations remains fit for purpose. The Pensions Regulator may take enforcement action for non-compliance with any of the requirements in part 3 of the Pensions Dashboards Regulations. Once connected to the dashboards ecosystem, occupational pension schemes may be in breach of the regulations—for instance, if they fail to maintain connection to the digital architecture or fail to provide information within the timeframe set out in the regulations. In the event of non-compliance, the Pensions Regulator may issue penalty notices of up to £5,000 for individuals or up to £50,000 in other cases, such as those involving corporate trustees. Several questions were raised in this respect, notably by my noble friend Lady Altmann and the noble Lord, Lord Sharkey.

Having covered the basic penalties, I add that the Pensions Regulator is required by the Regulators’ Code to take a proportionate, consistent and targeted approach to enforcement. However, in the event of multiple compliance breaches, the regulations allow TPR to issue multiple penalty notices within the same document. The Pensions Regulator’s consultation on its compliance and enforcement policy closed on 24 February 2023. In that consultation, TPR set out its intention to consider the total amount of any penalties issued in the light of the circumstances of the breaches and the impact they have had. TPR expects to publish its consultation response and final compliance by the summer. Hopefully, this helps to answer the questions raised by the noble Lord, Lord Sharkey. We feel that the levels are consistent with other areas of pensions legislation. He may know more about that than me, but that is what we believe. Regarding the question raised by the noble Baroness, Lady Sherlock, there is nothing novel in the approach we are taking in this respect.

My noble friends Lord Holmes and Lady Altmann raised the important issue of data accuracy checks. It is critical that savers be able to trust the information in front of them. Trustees and managers have existing legal obligations in respect of data quality, including the accuracy principle under UK GDPR, which requires organisations to ensure that data remains accurate and up to date. The Pensions Regulator has set out its expectations on data quality in its record-keeping guidance. This includes that data be measured at least once a year. The regulator’s guidance on dashboards is also clear that trustees and managers must ensure that the values provided are accurate, and it urges them to work with administrators to improve data if required.

Bringing us back to base, this Bill from my noble friend Lord Young focuses on solving one key issue: that current pensions legislation does not prevent a trustee or manager being reimbursed for these penalties using funds from the pension scheme. The Bill increases protection for pension savers by prohibiting trustees and managers of occupational personal pension schemes from being reimbursed out of scheme asset in respect of penalties imposed on them for non-compliance with the Pensions Dashboards Regulations. The Bill would achieve this by amending Section 256 of the Pensions Act 2004, which already provides similar prohibition in other areas of pensions legislation. I confirm to my noble friend Lord Young—the noble Baroness, Lady Sherlock, mentioned this as well—that that was indeed an oversight. It did indeed escape the eagle-eyed lawyers—including that of the noble Lord, Lord Sharkey, so I am sure that he can be forgiven.

Under the Bill’s proposals, if a trustee or manager were to be reimbursed, and knew or had reasonable grounds to believe that they had been so reimbursed, they would be guilty of a criminal offence unless they had taken all reasonable steps to ensure that they were not so reimbursed. Should a trustee or manager be found guilty, the provisions of the Bill allow a maximum sentence of up to two years in prison, or a fine, or both. Additionally, were any amount to be paid out of the assets of a scheme in such a way, the Pensions Regulator would have the power to issue civil penalties to any trustee or manager which fails to take all reasonable steps to secure compliance.

The Bill has been drafted to make provision across the United Kingdom. As noble Lords will know, pensions policy is transferred to the Northern Ireland Assembly and the usual process would be for the Assembly to provide a legislative consent Motion for any provision relating to a transferred area. However, the Government’s position is that if the Northern Ireland Assembly is unable to consider the matter before the final amending stage of the Bill, it should proceed unamended. Ultimately, the Government are of the view that it would be wrong for these protections not to extend to pension members in Northern Ireland.

A number of questions were raised in relation to and beyond this Bill. My noble friend Lady Altmann asked about NEST and its readiness for connection. The announcement yesterday allows the programme to develop a firmer footing and put it on a path to successful delivery, including ensuring that all data providers can connect safely and securely. The programme and DWP have been in regular contact with NEST and will continue to be over the coming months, to support it in preparing to meet its connection duties when the revised timeline is in place.

My noble friend Lady Altmann also asked about One Login, the successor to Verify. As she may know, there are currently more than 340 services on GOV.UK, with around 190 accounts accessed via 44 different sign-in methods. GOV.UK One Login will replace these with a single ubiquitous way for users to sign in and prove their identity. It will improve inclusion and save millions of pounds through collaboration, efficient service delivery and tackling fraud across departmental boundaries. Development of GOV.UK One Login is progressing at pace, and I can reassure my noble friend Lord Holmes that the core of the system has been launched—its sign-in element, a web-based identity verification journey and a fast-track identity-checking app. There are currently five live services using One Login, with more services expected to onboard in 2023-24. The Cabinet Office and the Government Digital Service are working closely with central government departments to ensure that the programme meets their and their users’ needs.

My noble friend Lady Altmann asked about security and the alternative to Verify. The Pensions Dashboards Programme has procured an interim identity service provider, whose contract runs until January 2024. The service it provides is aligned with the Government Digital Service’s good practice guide. The Money and Pensions Service is engaging with officials in the Cabinet Office and the Government Digital Service, as well as the wider market, building on the engagement work undertaken in 2020, to identify all possible options that may comprise its new identity service delivery model.

Returning to the Bill, the noble Baroness, Lady Sherlock, raised an important point about trustees using schemes to buy indemnity insurance. I can reassure her that the Bill would make it a specific criminal offence for pension scheme trustees or managers to reimburse themselves using the assets of the pension scheme in respect of penalties. It also includes taking out an indemnity policy but having the cost of that reimbursed through the scheme.

The noble Baroness also asked about—I am paraphrasing what she said—a chilling effect, particularly for non-professional trustees; it is a very good point. The Government acknowledge that many trustees do an excellent job, often on a voluntary basis. The vast majority of trustees are in schemes with fewer than 99 members and so would be outside the scope of these regulations unless they connected to pensions dashboards voluntarily. While we accept that the regulatory requirements on trustees have grown a great deal over the years, this is only right given what is at stake, since we are talking about the pensions savings of millions of people. The Pensions Regulator will provide an extensive programme of communications to support trustees to meet the requirements in the pensions dashboards regulations.

The noble Lord, Lord Sharkey, asked about the statutory maximum fine in relation to summary conviction. I may have covered that, but I will write to him if I have not answered the question; I hope that is helpful.

To conclude, I am firm in my view that everyone rightfully deserves protection for their pension savings; we all know that, and that is exactly what the Bill does. It is a simple Bill in that it will extend a prohibition in existing legislation rather than placing new requirements or additional costs on to occupational pension schemes. However, the proposals under the Bill are powerful enough to swiftly deter any rogue actors from reimbursing themselves using pension assets that belong to hard-working people. I hope that the House recognises that and supports its passage today.