Grand Committee
(2 months, 3 weeks ago)
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Arrangement of Business
(2 months, 3 weeks ago)
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The Deputy Chairman of Committees (Lord Ashton of Hyde) (Con)
Good afternoon, my Lords. If there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Occupational Pension Schemes (Collective Money Purchase Schemes) (Amendment) Regulations 2023
(2 months, 3 weeks ago)
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Viscount Younger of Leckie
That the Grand Committee do consider the Occupational Pension Schemes (Collective Money Purchase Schemes) (Amendment) Regulations 2023.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)
My Lords, I am pleased to introduce this instrument. Subject to your Lordships’ approval, these regulations will make two small technical amendments to the landmark Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022 to ensure that they operate in accordance with our published policy. The instrument clarifies requirements on trustees of authorised collective money purchase schemes, more commonly known as collective defined contribution, or CDC, schemes.
I will first set out the context. The Pension Schemes Act 2021 provided the statutory framework for CDC schemes in the UK. The guiding principle of our approach has been to ensure that it protects the interests of members. The Government believe that CDC schemes have an integral role in the future of pensions in this country. CDC schemes offer members a seamless transition from saving to receiving a regular retirement income.
We know that many people do not want, or feel ill equipped, to make complex financial decisions at retirement. The Government want to ensure that as many savers as possible can take advantage of the numerous benefits of CDC. By pooling longevity and investment risk across the membership, CDC schemes can shield savers from much of the uncertainty faced by members of DC schemes. This also allows the scheme actively to target higher investment returns for their members than a DC scheme through increased investment in growth-seeking assets. This in turn can lead directly to greater investment in vital UK infrastructure and the technologies of the future, such as transport and renewable energy. That is why the Government have provided the legislative framework for single or connected employer CDC schemes to be set up in the UK. The CDC regulations came into force on 1 August 2022.
Throughout the development of our policy, the Government have been engaging with stakeholders on how best to deliver CDC schemes in the UK and inviting challenge and scrutiny. In that vein, we have been helpfully advised that two areas of the current framework do not meet our published policy intent. CDC schemes can succeed only if there is confidence in this new type of provision. That is why it is important that we provide immediate clarity. This instrument ensures that, from the start, prospective schemes are set up to work as we intend.
I will now take noble Lords into the detail of this instrument. With regards to the first amendment, the existing regulations make provision in relation to the annual actuarial valuation and benefit adjustment process for CDC schemes. This means that each year benefits are reviewed and adjusted where required so that the value of assets held is in balance with the projected costs of benefits. This protects members from the need to fund a surplus and means that reductions to benefits are not deferred and stored up. Doing so would have a detrimental impact on future years and younger members, which would be unfair. It is important that CDC schemes follow strict rules around benefit adjustment to ensure that all members, without bias or favour, are subject to the same adjustments.
It is important that a balance is maintained between the value of the available assets of the scheme and the amount needed to provide the target benefits to members on an ongoing basis. If, for example, the value of the assets is lower than the amount needed to pay the benefits, the scheme may be required to make a cut to benefits to regain that balance. Conversely, if the value of the assets is more than the amount needed to pay the benefits, the trustees will be required to pay an increase to the members.
The policy intention is to provide that, where a cut to benefits must be made, the trustees of the CDC scheme can smooth the impact of the cut on members over three years. This is called a multiannual reduction. Regulation 17 currently provides that, if a subsequent annual valuation that occurs during a multiannual reduction shows that an increase in benefits is required, the trustees, having taken advice from the scheme actuary, will be required to apply that increase in addition to the planned reduction for that year under the multiannual reduction that is in effect.
I appreciate that this is quite complex, so let me provide an example of how it is intended to work in practice. In a period of extreme economic downturn where equities fall significantly in value, it is possible that a CDC scheme would have to make a cut to members’ benefits. Regulation 17 enables the trustees of the scheme to mitigate the impact of this market volatility on member benefits by spreading the overall cut over three years. To use an easy example, if the overall cut necessary were 6%—my maths is not too good, but here we go—the members’ benefits could be cut by 2% a year over the three-year period.
This mechanism helps to reduce volatility and ensures that current and future benefits remain relatively stable. It contrasts with individual DC schemes, where there is no pension-smoothing mechanism. Members of these schemes would have experienced a significant reduction in the value of their retirement savings immediately, which for savers closer to retirement may be unrecoverable. The intention of Regulation 17 was that, where a market recovered during the period of such a reduction, increases in benefits resulting from subsequent annual valuation would offset, in whole or in part, planned cuts under a multiyear adjustment before being applied as an increase to future benefits in the normal way. This would have the benefit that any bounce-back immediately after a period of very poor performance could help to smooth outcomes and avoid cuts, which would then be unnecessary, while maintaining the principle that the costs of current and future benefits remain in balance with the value of scheme assets.
If we did not do this, the benefit of the recovery would instead be likely to go to future pensioners. This would run against our principle that, as far as possible, all members—current pensioners, those who are currently accruing benefits and those who are not contributing but have rights to a future pension from the scheme—should all share in upsides and downsides at the same time.
The instrument also makes a consequential change to Regulation 19. Any variation to a multiannual reduction as a result of offsetting an increase against must be reported to the Pensions Regulator, ensuring proper oversight.
I turn to the second of these amendments, which addresses an issue that may arise where a scheme winds up and the value of members’ accrued rights are transferred to suitable pension schemes or alternative payment arrangements. A key element of the wind-up process is calculating the share of the fund for each person who is a beneficiary at that time. The scheme rules may provide that the person may be a member or a successor of that member. Potential successors will be determined by the scheme rules, but could include a spouse, a child, a cohabitant or a person financially dependent on the deceased beneficiary. That share of the fund is applied to the scheme’s assets at the end of the winding-up to produce the beneficiary’s pot, which is then used to discharge the scheme’s obligations to the member by transfer to another scheme offering flexi-access income drawdown.
I ask noble Lords to imagine a scheme that has provided for these categories of people to be a beneficiary under its rules. If a member of that scheme dies during the winding-up process, their benefits are reallocated to the deceased’s stipulated beneficiary. They are not reallocated among the collective. The policy intention has always been that, if the beneficiary dies during the winding-up period, the pot allocated to them would not be extinguished but would instead be reallocated among their successors, where a scheme’s rules provide for that. This instrument therefore amends Schedule 6 to the regulations to ensure that the deceased member’s accrued rights in wind-up may be discharged in this way.
In conclusion, CDC schemes are an important addition to the UK pensions landscape and, when well designed and run, have the potential to provide a good retirement outcome for members. The effect of this instrument will be to provide clarity for schemes moving forward by more accurately reflecting the intent of the regulations that it is amending. I commend it to the Committee and beg to move.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the noble Viscount for his clarification of the papers, which is very welcome—as usual. This is a statutory instrument with a more than usually snappy title, which will probably be more noted than some of the things in the instrument.
This statutory instrument is good news. It helps pave the way, as I understand it, for the introduction of the UK’s first collective defined contribution pension scheme, which I believe is by the Royal Mail. Collective defined contribution schemes in various forms are common in Scandinavia, the Netherlands and Canada. Work on these risk-pooling arrangements started during the coalition years when we, the Liberal Democrats, worked collaboratively with the Labour Front Bench and the Communication Workers Union to get the Royal Mail to implement the first scheme of this sort. I believe that it has not yet gone live, although perhaps the noble Viscount can tell me more about that.
The next developments of CDC, in my view, are, first, the extension of multi-employer or industry-wide CDC—when does the Minister expect to publish the next consultation on this?—and, secondly, the development of retirement-only or decumulation-only CDC schemes, so that a person could take his or her own pot and pool it with other people’s. Any comments on that would be gratefully received.
These regulations tidy up some issues that are causing practical problems. The main part is to do with what happens each year, as the noble Viscount said, when a scheme reviews whether it has enough money to meet its target pension payouts. As things stand, if the scheme is short, it can reduce planned pensions. But what happens if, a year later, it thinks that things are better? What these regulations appear to make clear is that the first thing you do is reduce or eliminate the planned pensions cuts. I think this was covered by the Minister’s comment about “a smoothing mechanism”.
One thing that comes out of this SI is that, as so often, there seems to be a lot more valuation work for actuaries. I am sure they will be very grateful. I am very grateful for the guidance in the papers and the elucidation from the Minister. I think the principles are right and we on these Benches agree with the instrument.
Baroness Drake (Lab)
I thank the Minister for setting out the intent of these regulations so clearly and for arranging a briefing session with DWP officials engaged with CDC, who also provided a very helpful briefing document. It probably has reduced the number of questions that my noble friend and I have—although I suspect the Minister will take very little comfort from that observation.
The regulations amend the Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022, in two key ways. In the first instance, they amend how reductions to members’ benefits in a CDC scheme can be smoothed following a fall in the value of assets held. Given the Government’s opposition to any buffer fund in a collective DC scheme to manage volatility and assets, intergenerational fairness or cuts in benefits, clarity on how the legally permitted smoothing mechanisms operate is indeed important.
Baroness Sherlock (Lab)
I thank the Minister for introducing these regulations so clearly; I also thank all noble Lords who have spoken. I agree with my noble friend Lady Drake; she need never worry about her questions being dry. When it comes to pensions, dry is good. Dry is where the detail is and, with pensions, detail is everything. I am grateful to the officials for providing some excellent briefing and for answering questions from us. It may not reduce the number of our questions but I hope that it makes them better questions, so that we are at least debating the right things here in Grand Committee.
As we have heard, the purpose of this instrument is to make technical amendments to the 2022 regulations and do, in essence, two things: clarify the provisions governing how reductions to member benefits in CDC schemes can be managed; and specify the categories of flex-access draw-down to which accrued rights can be transferred when the scheme has been wound up.
I will make one quick point before I get stuck into the dry detail. This instrument amends the 2022 regulations, which allow CDC schemes for single and connected employers to apply for authorisation from the regulator. It does not change the intention of those regulations, as the Minister has explained, and it is obviously not adapting to experience because no CDC schemes are in operation. For the record, can the Minister tell the Committee why the Government concluded that the amendments were needed? Were these issues that could have been picked up in the original drafting?
I am needling not just for the sake of it but because I have covered the DWP brief for quite a long time. In the past couple of years, we have debated quite a few instruments in this Room that have been necessary either to correct drafting problems in previous sets of legislation or to clarify things that were deemed not clear enough in previous drafts. Is there any broader systemic issue here that the Minister wants to pick up on? Does he want to give us some assurance on that front?
Turning to the dry detail, I want to look first at the change to the means of smoothing reductions to benefits in CDC schemes in order to reduce the immediate impact on members. The efficacy of that smoothing mechanism is really important—particularly given that, as my noble friend Lady Drake pointed out, the Government set their face against having a buffer fund in CDC schemes. We raised this during the passage of the original Bill but the Government were reluctant to engage with Members at that point either on the full implications of not having a buffer in a CDC scheme or on the detail of how proposed annual adjustments and smoothing would work.
The 2022 regulations require existing benefits in a CDC scheme to be adjusted annually—including being cut if necessary, as we have heard—to make sure that we keep the value of assets held and the projected costs of benefits in balance. Clearly, the intention was that, where a market recovered during a period of benefit reduction, increases in benefits resulting from a late evaluation could help offset those cuts. As my noble friend Lady Drake explained very clearly, any quick bounceback of asset values could help avoid unnecessary cuts, provided that assets and costs are always held in balance. However, the 2022 regulations seemingly do not allow that, hence the need for today’s instrument.
The consequential changes to Regulation 19 also address the information that actuarial valuations must contain and must be shared with the regulator, including details of any variation to a multiannual reduction as a result of the offsetting; the effect that the offsetting has on the remaining years of the multiannual reduction; and, where the offsetting has eliminated the planned reductions, when the reductions ceased to have effect and whether any remaining increase has been applied. Are the trustees of a CDC scheme required to get the approval of the regulator before implementing any offset? Are there any penalties for failing to provide all that information to the regulator? When applying the offset after a bounceback, can there be any retrospective calculation of when the reductions in benefits ceased to take effect—that is, pensioners getting retrospective increased payments?
I turn to Regulation 5, which amends Schedule 6 to the 2022 regulations; that is intended to protect members of a CDC scheme when it decides to wind up by ensuring that the process is agreed and monitored by the regulator. Among other things, the regulations make it clear that, during the winding up of a CDC scheme, the accrued rights of nominees, dependants and survivors of members or dependents can be transferred to authorised flexi-access draw-down arrangements, as we have heard. My noble friend Lady Drake asked an important question about the position of successors in that situation, especially in the period between notification and winding up. I will ask a more basic question: can the Minister clarify comprehensively who qualifies as a successor who has accrued rights to benefits that can be transferred to a flexi-access draw-down? If I was listening correctly, he gave some examples of who might fall into that category, but were they comprehensive?
The Minister may reply by saying that the regulations make this clear. In a way, they do. Regulation 5 amends Schedule 6 to the 2022 regulations in order to introduce a series of definitions. For example, Regulation 5(1) says:
“Schedule 6 (continuity option 1: transfer out and winding up) is amended as follows”.
Regulation 5(2) says:
“In paragraph 1(1) … (c) after the definition of ‘quantification’ insert … ‘successor’ has the meaning given in paragraph 27F of Schedule 28 to the Finance Act 2004 … ‘successors’ income withdrawal’ has the meaning given in paragraph 27J of Schedule 28 to the Finance Act 2004 … ‘successor’s flexi-access drawdown fund’ has the meaning given in paragraph 27K of Schedule 28 to the Finance Act 2004”.
My heart leapt when I saw a little hyperlink next to each of these insertions, which I clicked on. Alas, they took me a footnote telling me, for example:
“Paragraph 27K was inserted by the Taxation of Pensions Act 2014, section 3, Schedule 2, Part 1, paragraph 3(1), and amended by the Finance Act 2015, section 34, Schedule 4, Part 1, paragraphs 13(6)(a) and (b)”.
I understand that there may be a good policy reason to point to a definition in tax law, rather than make your own up here; otherwise, every time that changes, so does yours. However, as I have said before, when the DWP is bringing forward secondary legislation that is this layered, it would be nice to have a Keeling schedule. In the end, I dug down and found it, but it is quite a long way down. The Finance Act 2004 is many hundreds of pages long and it took me a while to get down to the right place. It would be helpful if the Minister could do that in future. I am also conscious that, given that we have had problems with drafting legislation, if this House is going to do a good scrutiny job, it would be nice to make it as easy as possible.
Viscount Younger of Leckie (Con)
My Lords, I thank all noble Lords for their helpful contributions to this short debate. Furthermore, I thank some noble Lords for the advance notice of their questions, particularly because this is quite a technical set of regulations, as I think we all understand. Given the incessant rain that we have been suffering over the past weeks, frankly, the drier the better—and that goes for this subject, too.
For an individual member of a CDC scheme, this instrument’s key effect will be to help to ensure that in a period of extreme economic downturn the principles of CDC continue to operate correctly. When, as expected, Royal Mail launches its CDC scheme later this year—I hope that this answers the questions from the noble Baroness, Lady Sherlock and the noble Lord, Lord Palmer—that member and their approximately 115,000 colleagues will be able to have more confidence that their new scheme will provide them with a regular income in retirement, with less exposure to the unexpected market shocks than might otherwise be the case. The noble Baroness, Lady Sherlock, raised a number of questions about the future of CDC schemes and Royal Mail, and I shall attempt to answer them in more detail later in my speech.
Noble Lords raised a number of questions about the multiannual reduction provisions, which I shall attempt to answer. First, the noble Baroness, Lady Sherlock, asked why the weakness in the current drafting was not identified before. It is important that all new legislation is monitored carefully to ensure that it works as we intended it to. It is through this monitoring process that we identified that the current drafting did not meet all of our published policy intention. If CDC schemes are to succeed, it is essential that prospective schemes are clear about those requirements. I hope that answers one of the questions from the noble Baroness.
The noble Baroness, Lady Sherlock, also asked whether approval from the Pensions Regulator was required or needed before any offsetting could be implemented. The decision to implement a multiannual reduction, including any offsetting, rests with the trustees of the scheme. It is based on the most recent actuarial valuation prepared by the scheme actuary and is subject to the scheme rules. Pre-approval is not required, but the Pensions Regulator will have ongoing scrutiny over such decisions in the normal way and the trustees are required to share the actuarial valuation with the regulator, again in the normal way.
The noble Baroness, Lady Sherlock, queried whether the trustees could be penalised if they failed to provide relevant information to the Pensions Regulator. As she may know, the standard civil penalties provided for in legislation, for example up to £5,000 in the case of an individual and up to £50,000 in any other case, can be imposed by the Pensions Regulator if the requirements are not met.
Both the noble Baroness, Lady Sherlock, and the noble Baroness, Lady Drake, asked whether offsetting following a bounce-back in investment performance could be applied retrospectively. Perhaps I can reassure them that it cannot be applied retrospectively because a key principle of this provision is that any bounce-back should smooth outcomes going forward and avoid the need for cuts, where possible, while ensuring that the costs of current and future benefits remain in balance with the value of the scheme’s assets. I think that chimes with some of my opening remarks, and I hope that it answers the question.
The noble Baroness, Lady Drake, asked whether an actuarial threshold was required before the full three years of a multiannual reduction could be deployed. I will answer that. There is no threshold, as it is for the trustees, who are independent and acting in the interests of the members, to decide whether to apply a multiannual reduction based on the information contained in the most recent annual valuation, which is prepared by the scheme actuary. A significant cut to benefits would likely be required only in extreme circumstances, but we would expect the trustees to utilise the multiannual reduction mechanism in this scenario, if it is provided for in the scheme rules. If they did not do this, they would need to explain their reasoning to the Pensions Regulator.
The noble Baronesses, Lady Sherlock and Lady Drake, and the noble Lord, Lord Palmer, all queried the policy intention of Regulation 3(5) and what implications it had for the front-ending or back-ending of the offsetting of the remaining planned reductions of the multiannual reduction. I would argue that this gets to the meat and granularity of the policy. The aim is to ensure that, while a degree of smoothing is allowed over a multiannual reduction, as we know, over three years, cuts are not stored up and deferred by backloading the cuts. That is why the legislation ensures that the reduction applied during each year of a multiannual reduction must not be greater than that applied in the previous year: that is very clear.
The noble Baroness, Lady Drake, asked how a transfer value would incorporate a scenario where the member transferred out before the multiannual reduction was completed or any potential offsetting was applied. Transfer values will be based on the conditions applicable at the time the member requested the transfer and when they actually transferred out of the scheme. Their transfer value will reflect any cuts planned for future years under a multiannual reduction. This means that nobody choosing to leave a CDC scheme will get more or less than the value of their benefits at that particular point.
I move on to the theme of wind-ups, which was raised by the noble Baronesses, Lady Drake and Lady Sherlock, who asked who qualifies as a successor and how you define one. I hope that I helped to answer that in my opening remarks, but perhaps I can go a bit further. Subject to scheme rules, this is an individual nominated by a dependant nominee or another successor to receive benefits following their death. Also, the scheme administrator can nominate a successor when, after that beneficiary’s death, there is no individual or charity nominated by that beneficiary.
I shall go a bit further on the question of transfers, which was raised by the noble Baroness, Lady Drake. The beneficiary has a number of discharge options they can choose from that are set out in the regulations. They include a flexi-access drawdown, which is where, subject to what the pension scheme rules allow, in any year the beneficiary can choose to take no payment of drawdown pension, a regular series of payments, an irregular payment stream or their whole flexi-access drawdown fund as a single payment. So there are a number of options there. Trustees must have completed the transfer process before the wind-up of the scheme can be completed. The value of the accrued rights to benefits transferred would be calculated based on the circumstances at the point of the transfer request.
The noble Baroness, Lady Drake, asked a number of questions about how the Royal Mail CDC scheme will operate. Royal Mail has informed us that it and its unions have agreed that the vast majority of existing employees with more than 12 months’ service will be enrolled into its collective plan at the so-called go live. It has also informed us that eligible new employees who join after go live will not be required to make an active decision unless they decide to opt out of contractual enrolment to the collective plan once they reach at least 12 months’ service with the employer. Which scheme Royal Mail chooses to use as a nursery scheme for its employees’ first 12 months of service is a decision for it and its union, as long as it meets the requirements of automatic enrolment.
The noble Baronesses, Lady Drake and Lady Sherlock, asked about the take-up of CDC in the UK. The Government are proud of the progress that we have made so far. During this Parliament, my officials worked closely with industry stakeholders to develop and bring into force legislation in 2021 to facilitate the introduction of single or connected employer CDC schemes. Over the past 12 months, the Government have announced a comprehensive package of pension reforms to provide better outcomes for savers and better support the UK economy. As part of that, we have been exploring the role that CDC can play in these reforms.
In answer to questions from the noble Lord, Lord Palmer, and the noble Baroness, Lady Drake, I am pleased to say that our consultation on CDC provision for unconnected multi-employer schemes and master trusts demonstrated significant appetite for it. A number of noble Lords mentioned timing; we intend to consult on regulations this spring.
The noble Lord, Lord Palmer, asked when we will extend the CDC provision to unconnected multi-employer schemes, including master trusts. We are committed to facilitating further CDC provision as quickly as possible, but we want to make sure that we get the legislation right to help ensure that the interests of members in these new schemes are generally protected. We engaged extensively with industry during the drafting process to ensure that this will be the case. As was mentioned earlier, we will consult on draft regulations to facilitate whole-life, multi-employer CDC schemes later this year. Subject to parliamentary approval, we intend for them to come into force in 2025.
The noble Lord asked what work is being done to legislate for decumulation-only CDC. The answer is the same: we are keen to facilitate access to CDC schemes where this would provide better outcomes for members, as long as we can ensure the necessary member protections. I come back to that important word, “protections”. Building on our work to develop a whole-life, multi-employer legislative framework, we are working closely with the pensions industry and regulators to explore what will be needed.
I thank all noble Lords for this fairly short but valuable and constructive debate. I also thank noble Lords for giving me their questions in advance. I see that the noble Baroness, Lady Drake, is itching to get up so I will give way.
Baroness Drake (Lab)
I did not want to get up too quickly. I do not want to hold up the closure of the debate on these regulations, but I was disconcerted by the Minister’s response on successors. Could he write to formally record what he said about that? For a trustee, a set of tax rules apply when the pension savings go into the estate and inheritance tax and a further set apply when the pension pot is handed over to a nominated beneficiary. Here we are talking about a second tier—a nominated successor to a nominated beneficiary. Trustees have to be very careful under which tax regime and to whom pension pots are being allocated. I struggled to follow what he said on that—because it is complicated, not because he did not explain it. I was thrown by the word “successor” when I read the regulations. It would be helpful if what he said could be written down, if we need to interrogate it further, rather than deal with it now.
Viscount Younger of Leckie (Con)
I quite accept what the noble Baroness has raised. She acknowledged that I gave out a lot of detail in defining what we think is right in terms of who would be a successor, cascading along the process if the successor had died and so on. However, if there is more to say—I hope that there might be—I shall write to the noble Baroness and copy in all noble Lords who have taken part in this debate. I thank her for her question.
Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) Regulations 2024
(2 months, 3 weeks ago)
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Lord Douglas-Miller
That the Grand Committee do consider the Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Douglas-Miller) (Con)
My Lords, these regulations were laid in draft before this House on 12 December 2023.
The purpose of this instrument is to make provision to ensure that the United Kingdom, as a member of the International Commission for the Conservation of Atlantic Tunas, henceforth referred to as ICCAT, can continue to meet the full range of its international obligations in relation to the convention which governs ICCAT. The UK has an obligation under the United Nations Convention on the Law of the Sea to co-operate on the management of shared fish stocks, including through appropriate regional or sub-regional organisations. ICCAT is one such example. It is responsible for ensuring that fisheries for tunas and tuna-like species, such as swordfish, in the Atlantic Ocean are managed sustainably. The UK became an independent contracting party to the convention—in other words, a member of ICCAT—on 1 January 2021, after depositing an instrument of accession following EU exit.
As a member of ICCAT, the UK must ensure that we are able to implement and enforce binding measures, known as recommendations, which are agreed by contracting parties under the convention. The UK must ensure that our domestic laws fulfil these international obligations. This instrument updates and amends various regulations of retained EU law to implement recommendations adopted by the commission immediately prior to and since the withdrawal of the UK from the EU. Where appropriate, this instrument also makes amendments to reflect the UK’s status as an independent coastal state.
I will now go through each element of the regulation in turn to briefly explain the amendments being made to retained EU law. Regulation 2 of the instrument removes provisions from Council Regulation 1936/2001, which laid down control measures applicable to fishing for certain stocks of highly migratory fish. It also included provisions that regulated the farming of bluefin tuna. The UK, however, does not farm bluefin tuna. These provisions have therefore been removed as they are not relevant to the UK.
Regulation 3 amends Council Regulation 1984/2003. It now correctly reflects the convention’s requirement for a statistical document to accompany imports of swordfish and bigeye tuna into the UK. Other amendments are made for clarity and to ensure that the amended provisions are enforceable. For example, amendments to the description of fish captured no longer reference the 1984 version of the EU’s combined nomenclature. They are instead replaced with references to the UK commodity codes used in the UK’s customs tariff.
Regulation 4 of this instrument updates Regulation EU 640/2010 to mandate the use of an electronic catch documentation system for bluefin tuna, replacing the use of clerical documents. Further amendments are made to ensure that the new requirements are clear and enforceable, as well as outlining the limited circumstances in which a paper catch document may be used instead of the electronic system.
Regulation 4 also amends the descriptions of fish captured within Regulation EU 640/2010. These descriptions have been updated with references to the commodity codes found in the UK’s customs tariff. This amendment makes the description of fish clear and ensures that the regulation is enforceable.
Regulation 5 removes provisions in Commission Delegated Regulation EU 2015/98, which established derogations from landing obligations in order to fulfil ICCAT requirements. Instead, these provisions are covered in Regulation EU 2016/162. Removing these provisions from Commission Delegated Regulation EU 2015/98 avoids duplication and provides clarity.
Regulation 6 of this instrument amends Regulation EU 2016/1627, which implemented ICCAT’s multiannual recovery plan for bluefin tuna in the eastern Atlantic and the Mediterranean. Since the recovery plan was introduced, I am pleased to say that stocks of bluefin tuna have improved significantly. The recovery plan has now been replaced with a multiannual management plan. Regulation 6 therefore comprehensively amends Regulation EU 2016/1627 to ensure that it correctly reflects the UK’s obligations under ICCAT in relation to the management plan and the UK’s catch quota.
A multiannual recovery plan was also developed for the management of swordfish in the Mediterranean. The EU gave effect to the recovery plan under Regulation EU 2019/1154, which was retained in our domestic legislation at the point of EU exit. However, as these provisions relate to swordfish in the Mediterranean, Regulation 7 of this instrument revokes the substantive provisions of Regulation EU 2019/1154 as they are not relevant to the UK.
Regulation EU 2019/1241 sets technical measures for the conservation of fisheries resources and the protection of marine ecosystems. Regulation 8 of this instrument amends Regulation EU 2019/1241 to insert minimum conservation reference sizes for bluefin tuna specified under the convention. By making this amendment, all minimum conservation reference sizes will be specified within one regulation rather than contained in different pieces of retained EU law, ensuring clarity within our domestic legislation.
In addition to amending retained EU law, Regulation 9 of this instrument amends the Common Fisheries Policy and Aquaculture Regulations 2019 to remove references to obsolete legislation. Specifically, amendments have been made to remove provisions relating to retained EU law; they have been removed and replaced with Regulation EU 2017/2107, which lays down management conservation and control measures within the conservation area of ICCAT.
The devolved Administrations are supportive of the amendments made in this instrument, ensuring that the UK can continue to meet in full its obligations as an independent contracting party to the ICCAT convention. If this instrument is not passed, the UK will not only fail to meet its international obligations under the convention; by not implementing enforceable management and traceability systems, we risk undermining efforts made over the past 17 years to ensure the sustainable management of Atlantic bluefin tuna stocks.
I hope that I have reassured all noble Lords on the purposes and aims of this statutory instrument, ensuring the continued sustainable management of this important fishery. For the reasons I have set out, I commend the regulations to the Committee. I thank noble Lords for their attention and remain at their disposal for any questions or discussion on this matter.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, I am grateful to the Minister for his introduction to this statutory instrument, which covers the International Convention for the Conservation of Atlantic Tunas, known as the convention.
While a member of the EU, the UK had no quota for tuna and tuna-like species. However, following Brexit, we are entitled to a quota as tuna stocks have apparently improved. The SI makes changes to retained EU law in eight previous sets of regulations, including the Common Fisheries Policy and Aquaculture (Amendment etc.) (EU Exit) Regulations 2019. That is quite a lot of change and I am grateful to the Minister for going through each of the eight sets of regulations.
Paragraph 7.2 of this instrument’s Explanatory Memorandum explains how the UK has acquired a quota for bluefin tuna
“as an independent contracting party … in line with the UK-EU Trade and Cooperation Agreement”.
From hereon in I shall refer to “BFT” because, as noble Lords can hear, I am getting tongue-tied in saying “bluefin tuna”. Despite not stating what the quota is, the EM indicates how the requirements will apply to UK fishing vessels catching BFT in the convention area; this includes the
“offence, penalty, and enforcement provisions”,
which
“have been added directly to relevant retained EU law to avoid … ambiguity as to whether existing enforcement provisions would apply to the newly amended provisions”.
A read through the government website’s guidance gives information about the size and length of the vessels, as well as the bait, to be used for catching BFT. It also gives detailed information about how such catch can and cannot be landed, including returning undersized live tuna to the sea, recording all catch and keeping on board dead catch for which there is no authorisation for landing.
However, it is not exactly crystal-clear. According to the government website, but not the EM, the BFT quota allocated in 2023 was 65 tonnes—an increase on the quotas for 2021 and 2022. The UK is to use 39 tonnes of that quota to trial a new, small-scale commercial fishery to see whether it will benefit UK fishers. Assuming that the 2024 quota remains the same as the 2023 one—65 tonnes—this leaves 26 tonnes of BFT to be distributed between a possible 10 available licensed authorisations. I am neither a commercial fisher nor a recreational one, but it seems to me that potentially receiving only just over 2 tonnes of the BFT quota will not be sufficient for many, especially in the commercial sector. I note that the regulations prohibit farming and the use of traps in UK waters or by UK vessels in the convention area for BFT. This is a good thing if enforced.
Baroness Hayman of Ullock (Lab)
My Lords, I thank the noble Lord for his comprehensive and detailed introduction. The noble Baroness, Lady Bakewell of Hardington Mandeville, went into some detail about what is in the SI, so I do not need to go over it all again.
As the noble Lord mentioned, it is important that tuna catches are managed sustainably—so it is important that we have this SI—and that must be done while we fulfil our international obligations. We have heard that bluefin tuna stocks in our seas have increased recently. That is incredibly important, but it is also important, as the noble Baroness said, that that recovery is properly protected. It is good that we are debating those aspects.
I will raise two brief points. The noble Baroness talked about quotas. Paragraph 7.7 of the Explanatory Memorandum refers to the tuna catch quota. As she said, we did not previously have a separate quota because we came under EU rules. It would be good to understand what our quota is now and how it is operating now we have left the EU, because it is not clear what kind of catches will be allowed. If we are to manage the increase in stocks, it is important that this is clear to everybody.
Paragraph 10.1 of the Explanatory Memorandum refers to the targeted consultation. I thank the noble Baroness for going into such detail about this, because when I clicked on the website link it would not work.
Baroness Bakewell of Hardington Mandeville (LD)
It did not work for me the first time either.
Baroness Hayman of Ullock (Lab)
Perhaps the noble Lord can take that away and make sure the link works properly in the future. It was a bit frustrating that I could not get any detail on it. Having said that, we completely support this legislation and we need to move on with it.
Lord Douglas-Miller (Con)
I thank both noble Baronesses for their interest in tuna fishery. I was led to believe that the record for an SI is seven minutes; I was hoping that we might have beaten it, but BFT is obviously a long phrase and takes a bit of time to get through.
A few questions were raised. First, I will look at the consultation link and make sure that it works. Secondly, the management of our quota and the sustainability of the fishery are interlinked. We are governed by ICCAT, so it is not a European or a British thing. We do not say, “We’re going to take 50, 100 or 200 tonnes”; we have joined this organisation, which has an overarching responsibility across the whole of the bluefin tuna fishery and that of related species. As such, it does a lot of the research work that gives us some indication of how the bluefin tuna fishery is developing. It has been intricately involved in the management plan over the last 10 or 15 years.
We look to ICCAT for the quota, which it allocates across all other European countries, as well as ours. We get what we get, and then it is up to us to decide how we allocate that between the commercial and recreational fishery. This is all a bit new, not just to me but to most fishermen, I think. Not many people out there fish for bluefin tuna. The current plan is that all the recreational fishery will be catch and release. We will catch the fish, tag it and take information to feed back to ICCAT, which will help inform its decision-making. That may change over time if the fishery grows and we feel that there is a market.
The noble Baroness, Lady Bakewell, asked about objections. I am not aware that we have had any objections at all on this issue. If we bump into lots, we can feed that into our thought process and see where it takes us. I take her point about giving people clear instructions on catch and release. Tuna is a very big fish. I am a fisherman and I have some experience of catch and release; it is absolutely not as easy as it sounds. If we are doing catch and release, there is a real need to ensure that there is clear guidance on how it is executed and that we do not damage fish in the process of releasing them. That guidance and those details need to be fleshed out a bit.
Finally, I am afraid that I am unclear on the parity of permit charges, so I will write to the noble Baroness on that point.
I think that covers all the questions, so I will wrap up. I hope noble Lords share my conviction about the need for this instrument to make the necessary provisions outlined in the Sea Fisheries (International Commission for the Conservation of Atlantic Tunas) (Amendment) Regulations 2024. The regulations ensure that the UK can continue to meet its full international obligations under the convention which governs ICCAT, supporting the sustainable management of Atlantic bluefin tuna. With that, I commend the instrument to the Committee.
Nuclear Decommissioning Authority (Pension Scheme Amendment) Regulations 2024
(2 months, 3 weeks ago)
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Lord Callanan
That the Grand Committee do consider the Nuclear Decommissioning Authority (Pension Scheme Amendment) Regulations 2024.
The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)
My Lords, these regulations were laid before the House on 19 December last year.
The 2011 report by the noble Lord, Lord Hutton of Furness, started the Government on the road to the reform of public sector pensions. Although the Public Service Pensions Act 2013 made a large number of reforms, it did not cover all public bodies, including those within the Nuclear Decommissioning Authority group.
The Nuclear Decommissioning Authority, or NDA, is the statutory body responsible for the decommissioning and safe handling of the UK’s nuclear legacy. It has 17 sites across the United Kingdom, including Sellafield. The NDA was created in 2005 via the Energy Act 2004. However, many of its sites have been operating since the middle of the 20th century. This lengthy history has therefore led to a complicated set of pension arrangements. This includes two pension schemes that, although closed to new entrants since 2008, provide for final salary pensions and are in scope of the reforms. These are the combined nuclear pension plan and the site licence company section of the Magnox Electric Group of the electricity supply pension scheme.
In 2017, the then Department for Business, Energy and Industrial Strategy and the NDA engaged with the trade unions to agree a reformed pension scheme tailored to the characteristics of the affected NDA employees. This resulted in a proposed bespoke career average revalued earnings—also known as CARE—scheme, which, following statutory consultation with affected NDA employees and a ballot of union members, was formally accepted by the trade unions. The bespoke scheme is in line with the move to CARE made by the rest of the public sector.
Subsequently, a formal government consultation was launched in May 2018 and the Government published a response in December 2018 confirming the proposed changes. The reformed scheme still offers excellent benefits to its members. Notably—indeed, unusually for other reformed schemes—it still includes provision for members to retire at their current retirement age. For nearly all of them, this will be 60.
A statutory framework which applied to pension benefits across the NDA estate meant that specific legislation was needed to implement the new reformed scheme. The Energy Act 2023 provided the Secretary of State with the powers to make secondary legislation designating a person who will be required to amend the provisions of a nuclear pension scheme. This secondary legislation is being made to require the NDA and Magnox Ltd to amend relevant NDA pension schemes and implement CARE-based pension reform in accordance with the broader public sector pay policy. The instrument will also modify the statutory pension protections contained in the Energy Act 2004 and the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990 in support of the reforms.
In conclusion, these measures will bring the Nuclear Decommissioning Authority group’s final salary pensions into line with wider public sector pensions. It will also deliver savings to the NDA budget, which will be recycled to support its mission of decommissioning the UK’s nuclear legacy. On that basis, I commend these regulations to the Committee.
Lord Young of Cookham (Con)
My Lords, I am grateful to my noble friend for that explanation, particularly as he does not seem in the best of health. I do not want to add to his distress, but I want to raise three issues.
Earl Russell (LD)
I thank the Minister for introducing these regulations. There is little information available other than the statutory instrument and the accompanying Explanatory Memorandum. I also note that this has not been picked up in any way by the Secondary Legislation Scrutiny Committee. I do not have many overriding concerns or objections, and I understand that it is likely to be the same for others speaking today. I will pick up the points that the noble Lord made, particularly in relation to the small numbers who have been excluded under paragraph 7.3.
These measures will bring NDA pensions into line with wider public sector pensions in a move from a final salary scheme to a career average scheme. The proposals have been agreed with the unions and include provisions for retirement on full pension before the state pension age. I welcome that.
As is customary, I will ask the Minister a few questions. Most of them relate to the same issue, namely that of timing—the cause of the timing and whether that delay has had any impact on the proposals being put forward today. I am just not certain, so I will ask questions around those issues.
As the noble Lord said, this was originally completed way back in 2017 and the consultation was published in May 2018. The Explanatory Memorandum blames a lack of parliamentary time for this almost seven-year delay in bringing this into law. Can it really be correct that it has taken a full six or seven years to find a few minutes of parliamentary time to carry these small changes forward? Maybe it is, but I seek clarification on that point.
Considering these proposals are now late, is there any impact as a result? The report says that the unions supported the proposals. Has their position changed since they were originally consulted? Has the Minister or his officials gone back to the unions to ask for an update on their position? Was the last time they were consulted back in 2017? I seek clarification on that, because it was not clear from the information provided.
The Explanatory Memorandum states that the proposals will save an estimated £200 million over the term of the scheme. Is that figure still correct following the delay? Is it the same amount? Has there been any loss of public funding from the delay in bringing these proposals forward? Are there any changes to the long-term savings?
Obviously, we are dealing with the Nuclear Decommissioning Authority. If any issues of people being exposed to radiation that were not known about came to light after these proposals came forward, would there be any changes in the pensions available to them as a result of the changes to the scheme?
Paragraph 10.3 of the Explanatory Memorandum mentions that most of the responses were against the proposals, but there is very little information. I understand that there were not many objections and that these were small numbers, but there was no information in the pack about the reasons for the objections. Could I ask for a sentence on that?
Paragraph 11.2 says that these proposals will impact 8,000 staff and that consultations will begin on 1 April. Is that still the same number? Has it changed over time?
I note the Government brought forward their civil nuclear road map last month, which involves a big expansion of our civil nuclear programme. Is the reason why this been delayed for seven or eight years and then rushed forward related—
Earl Russell (LD)
No? Okay, that is fine. Finally, how will the Minister monitor the implementation of the changes? Will that be reported anywhere?
Lord Lennie (Lab)
My Lords, this instrument enacts the Nuclear Decommissioning Authority pension scheme, based on the review of public sector pension schemes by my noble friend Lord Hutton in 2011. This resulted in the Public Sector Pensions Act, which enabled the majority of public sector pensions to move from final salary to career average revalued earnings schemes. About 8,000 workers are affected as a result of this instrument. We have nothing to complain about on the scheme, but the process has raised a few questions, as the noble Lord, Lord Young, and the noble Earl, Lord Russell, have pointed out. I would like these to be addressed.
During the consultation, many respondents raised concerns that the proposed definitions and the application of the proposed powers were insufficiently clear or too broad. Many sought assurances that the powers would be restricted to implementing the reform agreed with their national trade unions. Furthermore, respondents requested either member or trade union and/or trustee engagement prior to the use of any of the powers. Could the Minister respond to those concerns?
The trustees of the CNPP and MEG-ESPS asked that they be given sufficient time to review the final rule amendments, indicating that about 12 months would have been appropriate. The response to the consultation says that, in the light of this specific request, as much notice as possible would be given to the trustees and members prior to implementation. We now know that the implementation date will be 1 April 2024. Can the Minister tell us when the Government notified the trustees of the changes? Did they deem this sufficient for their purposes of consultation and informing their members?
The noble Lord, Lord Young, raised a concern regarding the reform of the pensions for NDA employees who are covered by the Electricity (Protected Persons) (Scotland) Pension Regulations, which were not included in the public consultation. There are very few of them, as the noble Lord and the information provided say. How many are there? If a change is to be brought in for the persons in Scotland, presumably another full consultation will take place to precede any further regulations.
Finally, to repeat the question of the noble Lord, Lord Young, and the noble Earl, Lord Russell, the decision to introduce the scheme was taken on 28 December. There has been plenty of parliamentary time for this half-hour debate to take place, so could we have the actual reason why it was delayed so long?
Lord Callanan (Con)
My Lords, I thank all noble Lords for their valuable contributions to this debate.
I will start with the points made by my noble friend Lord Young and the noble Earl, Lord Russell. On the small numbers of people excluded, if an individual is entitled to pension protection under the Electricity (Protected Persons) (Scotland) Pension Regulations, they are not in scope for the changes in the NDA group. Whether an individual has this protection will depend on whom they were employed by and the pension scheme that they were eligible to be a member of in March 1990. The Government have reserved their position to keep this under review.
I think that every noble Lord rightly raised the delay in bringing forward these provisions. It was not that we could not find 20 minutes of parliamentary time over six years—if that were true, my noble friend would have a very valid point—but that we did not get the primary powers we required, as he will recall, until the Energy Bill was enacted late last year. It was entirely a result of needing the primary powers before we could make these changes, not a lack of parliamentary time. A great many other measures were held up due to lack of parliamentary time, but that was not the reason for the delay here. My honourable friend the Minister for Nuclear in the other place met the trade unions last year to discuss the NDA provisions in the then Energy Bill. They noted that they were also concerned about the length of time but, when the delay was explained, they were broadly understanding of the reasons.
On the £200 million of savings, despite the delay in the introduction of this legislation, we estimate that the level of savings remains broadly accurate. The exact level will depend on the change to pension arrangements and will vary depending on when members of staff retire, but we still believe that the savings will be significant, of the order of £200 million.
The number of staff affected—broadly 8,000—remains the same. Employees affected were aware of the changes due to be enacted as of April 2024, and there has been a great deal of communication during the last year, including a website set up for those affected. If changes are required to schemes not covered by these regulations, such as schemes in Scotland, that would require further consultation. The Government remain committed to ensuring that public sector pension reform proceeds in line with the 2011 review of the noble Lord, Lord Hutton. These regulations are essential to the success of the implementation of CARE-based pension reform in the NDA group in accordance with broader public sector pay policy.
Reflecting back, it is evident that the complexities of the NDA group’s pension schemes required tailored reforms. Engagement with the trade unions resulted in a bespoke career average revalued earnings scheme, aligning with the broader public sector framework and maintaining valuable benefits for its members. Furthermore, the reform preserves commitments to those excellent benefits, notably including provisions for members to retire at their current retirement age, as I said in opening, which for the majority will be 60. These measures will align NDA group final salary pensions with wider public sector standards, ensuring fairness and efficiency, yielding substantial financial savings and bolstering the NDA’s mission of responsibly decommissioning the UK’s nuclear legacy. I think I have answered all the points put to me—
Lord Young of Cookham (Con)
I am very grateful for my noble friend’s explanation that it was not a shortage of parliamentary time. As there are four former business managers in the Committee at the moment, will he ensure that in future his department does not blame the absence of parliamentary time when that is not the reason for the delay?
Lord Callanan (Con)
My noble friend makes a very good point. I will communicate that to officials. With that, I commend these reforms to the Committee.
Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024
(2 months, 3 weeks ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2024.
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, this draft statutory instrument makes an update to financial services legislation to make operating a pensions dashboard service a Financial Conduct Authority—FCA—regulated activity. As noble Lords will be aware, the Government have long held the ambition of delivering pensions dashboard services to the public. It is vital that individuals can easily access and view data about their pension savings in one place and at their convenience.
Executed well, pensions dashboards can deliver significant benefits to consumers, providing better access to information about their pensions held in different schemes and putting information about private and state pensions in a single place. This will bring a step change in how people can engage with their pension savings and will finally allow them to have a fuller picture of them. Equipped with this information, individuals will be better able to plan for their retirement, find lost pension pots, seek financial advice and guidance at the right time and, ultimately, feel more in control of their pensions.
As noble Lords will be aware, the Government are supporting the development of the digital architecture needed to make pensions dashboards a reality, as well as facilitating the development of a government-backed pensions dashboard by the Money and Pensions Service. The Government are also supporting the development of private sector pensions dashboards. Different individuals will have different needs, and this will ensure that a range of platforms exist to meet them. However, the Government have been clear that this can take place only with a suitable and robust regulatory framework in place, recognising that consumers using pensions dashboards could be vulnerable to potential harms. It is vital that consumers are adequately protected.
During the passage of the Pension Schemes Act 2021, the Government were clear that the operation of pensions dashboard services should be brought within FCA regulation. This order amends the regulatory perimeter of the FCA to make operating a pensions dashboard service that connects to the Money and Pensions Service dashboard’s digital architecture a regulated activity. Once in force, this will have the effect that anyone choosing to operate a pensions dashboard service will need to be authorised and regulated by the FCA. Firms that are authorised by the FCA and granted permission to undertake the new regulated activity will have to follow the rules and guidance set by the FCA, which has the relevant remit and objectives to establish an appropriate consumer protection framework for pensions dashboards.
As noble Lords will be aware, the FCA consulted on the rules for pensions dashboards. The consultation, which closed towards the end of last year, set out a proposed approach to ensure that the new market for pensions dashboards does not introduce or amplify the potential for consumer harms. We will continue to work with the FCA in the coming months as the regulatory framework is finalised.
This statutory instrument delivers a key part of the framework that we are establishing to make pensions dashboards available to consumers. It is imperative that pensions dashboards operate within a strong regulatory framework, providing appropriate consumer protection so that the consumer benefits of dashboards can be realised. I beg to move.
Lord Sharkey (LD)
My Lords, we support this pensions dashboard SI, just as we supported the pensions dashboards project during the passage through the House of what became the Pension Schemes Act 2021. We continue to believe that the dashboards should deliver more information to the consumer in a comprehensive and easily understood way, and that this will make it easier to make better choices.
We understand that providing these dashboards, both for MaPS and for commercial suppliers, is a very complex undertaking. We were not terribly surprised by the delays the project has suffered but we would like some reassurance about progress from the Minister. The new connection date is set for 31 October 2026, but some services may be available before then. Could the Minister tell us when we may now expect the MaPS dashboard to be available to consumers, when we may expect commercial variants to be available and what services short of a full dashboard may be available sooner?
It would also be very helpful if the Minister could tell us when she expects the FCA rules that she mentioned, which were previously consulted on, to be published. It is hard to see commercial enterprises being able to finalise their own dashboards without sight of and understanding of the new FCA rules.
During the debates in the House on what is now the Pension Schemes Act 2021, many of us thought that the MaPS version of the dashboard should be allowed at least a year of operation before commercial versions were allowed to enter the market. Can the Minister tell us whether there is likely to be a period when the MaPS version runs alone?
We also debated the issue of allowing consumers to make transactions via commercial dashboards. Can the Minister say what the current position is? Will transactions be allowed?
The mechanics of the SI before us seem entirely straightforward and are clearly vital to consumer protection. We have no issues with either its purpose or its mechanism. We do have a couple of very minor and tangential questions. First, we are curious about the date of the SI coming into force. Why is it 11 March? Does that date have any particular significance?
The second question relates to the final sentence of paragraph 7.4 of the Explanatory Memorandum, which reads:
“Operating a dashboard may include taking regulatory responsibility for any third parties involved in connecting to MaPS digital architecture on their behalf”.
I would be very grateful if the Minister could unpack that a little. Perhaps she could give an example of such an arrangement. What circumstances would trigger the assumption of responsibility?
Lord Livermore (Lab)
My Lords, this SI makes good on a commitment given during the passage of what became the Financial Services Act 2021 to ensure that entities running a pensions dashboard will have to be authorised and regulated by the FCA. This is an important safeguard for pension holders and we welcome the SI, even if it has taken longer than expected to arrive and is not quite the final piece of the pensions dashboard puzzle.
In an age of scams, uncertainty about AI and increasing consumer concern about online safety, perhaps I might ask the Minister about technical safeguards that providers are expected to put in place. I understand that dashboards themselves will not store data, so there is no risk of mass collection. But if an app is not secure and someone is using a device infected with malware, for example, could bad actors still be able to view and therefore exploit data such as account names, numbers and balances? It would be helpful to know what specifications private providers will have to meet—or, indeed, whether the Government or the FCA will be setting any technology specifications at all.
Paragraph 7.1 of the Explanatory Memorandum to this SI states that the regulated entity will be responsible for the actions of third parties connecting to the Money and Pensions Service digital architecture on their behalf. In recent years, there has been a number of examples of websites or apps using plug-ins to process logins which it then turned out had been infiltrated and customer data breached. Are the Government satisfied that the FCA and dashboard providers will be on top of these issues and that they will go to the Information Commissioner if needed?
Although more guidance is being issued about pensions dashboards, it is still not clear when the Government expect the first products to be operational. Does the Minister have a specific target date in mind?
Finally, when this SI was debated in the Commons, the shadow Economic Secretary asked the Minister whether he could confirm whether pensions dashboards would be using the Government’s OneLogin service. The Economic Secretary said he would write on the matter but, as far as I am aware, has not yet done so. Does the noble Baroness have an answer to that point in her brief and, if not, whether she will commit to copying the Economic Secretary’s reply, when it comes, to the participants in this debate today?
Baroness Vere of Norbiton (Con)
My Lords, I am very grateful to both noble Lords for their contributions to this short debate on a topic of great interest to all of us pensioners. I, for one, am looking forward to being able to see whether I have any lost pensions that suddenly pop up on my dashboard and it turns out that I am a multimillionaire. I am not holding my breath.
However, I think all noble Lords recognise that it is an incredibly complex undertaking, and it is right that we take the time to ensure that it is done to the level that consumers will expect—particularly given the amount of data available out there relating to pensions. It must be safe and secure; pensions dashboards will allow users to search their pensions and view their data, and they will be connecting to potentially thousands of schemes offered by technologically advanced organisations in some circumstances, and in others, frankly, organisations that are not quite so advanced. It is those laggards that we need to make sure are up to scratch.
Essentially, we expect the digital architecture to facilitate the search of more than 71 million pensions records held by thousands of pension schemes and providers. Each of those—or many of them—will have different IT systems and ways of calculating values. Pulling all of that together is the complex thing behind this, but, as the noble Lord, Lord Livermore, rightly pointed out, we also have the issue of identity verification to consider, and various other critical elements of the ecosystem. Around that sit things such as standards and guidance to pension schemes, in order for them to be able to connect.
The timelines at the moment are that the DWP’s amending regulations came into force in August 2023. That set out a new connection deadline for schemes of October 2026. At the moment the DWP is engaging extensively with industry and has been since last year. It will issue guidance on a connection timetable in spring 2024.
The reason for the delay is that it is a slightly more complex technical issue and solution than initially anticipated. This became apparent once we were able to speak to industry stakeholders to find out how they store their data and present it to their pension holders. But I am convinced there will be a point when we get to the dashboard available point—DAP—at which stage the dashboard will be made publicly available. However, before the DAP can be reached, the Secretary of State for the Department for Work and Pensions will have to issue a notice. He or she will do so only after having regard to whether there is sufficient coverage on the dashboards, that the service is working effectively and that the overall user journey on the dashboard is positive. This will be informed by extensive user testing to ensure the success of the pensions dashboards services from the outset.
I think that it was the noble Lord, Lord Livermore—forgive me, I cannot remember—who asked whether MaPS would be first and then others would follow. In fact, it was the noble Lord, Lord Sharkey. It is too early to say now. Certainly, MaPS will be first, but we are not yet clear whether there will be other private sector providers ready to go at that time. There will not be a rush to try to get private sector providers there because, of course, the FCA is still working on its rules, and we will allow private sector providers only once the FCA has published its final rules. The applicants would need time to prepare accordingly, the dashboard architecture would need to be complete and the private operators would then have to have applied to the FCA, which would have gone away, checked the business model and looked at its usability—all of those things—before it would also be allowed to sit alongside MaPS. So it is too early to say whether a private sector provider would be launched at the same time.
Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024
(2 months, 3 weeks ago)
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Baroness Vere of Norbiton
That the Grand Committee do consider the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024.
Relevant document: 12th Report from the Secondary Legislation Scrutiny Committee. Special attention drawn to the instrument
The Parliamentary Secretary, HM Treasury (Baroness Vere of Norbiton) (Con)
My Lords, these regulations have been laid to amend the definition of high-risk third countries in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which I will refer to as the money laundering regulations.
The Government recognise the threat that economic crime poses to the UK and are committed to combating money laundering and terrorist financing. Illicit finance causes significant social and economic costs through its links to serious and organised crime. It also undermines the integrity and stability of our financial sector and can reduce opportunities for economic growth and legitimate business in the UK. The Government are bearing down on kleptocrats, criminals and terrorists who abuse the UK’s financial and services sectors. The Economic Crime and Corporate Transparency Act built on the earlier Economic Crime (Transparency and Enforcement) Act to ensure that the UK has robust, effective defences against illicit finance.
The money laundering regulations are at the centre of the UK’s legislative framework for tackling money laundering and terrorist financing. They set out various measures that businesses must take to protect the UK from illicit financial flows, such as conducting enhanced due diligence—EDD—in certain cases. EDD is required to manage and mitigate the risks arising from certain high-risk transactions or business relationships. Businesses must consider a wide range of multiple different factors when deciding whether there is a high risk of money laundering or terrorist financing in a particular situation. They include risk factors associated with the customer, product, service, transaction and delivery channel, as well as any geographical risk factors.
The MLRs set out that firms should consider the risk posed by customers or transactions relating to any countries which have been identified by credible sources, such as the IMF or the World Bank, as lacking effective systems; countries with significant levels of corruption or other criminal activity; or countries subject to sanctions, embargoes or similar measures. As well as these examples, EDD is required in any other case which by its nature can present a higher risk of money laundering or terrorist financing.
The measures being brought forward today relate to another of the specific situations in which regulated businesses must apply EDD, being in relation to any business relationship or transaction with persons established in a high-risk third country—that is, a country identified as such by the Financial Action Task Force, or FATF.
The Economic Crime and Corporate Transparency Act changed how high-risk third countries may be defined under the money laundering regulations, and this statutory instrument simply implements this change. It removes the separate list of countries from Schedule 3ZA and replaces it with an ambulatory reference to those countries listed by FATF, which is the global standard setter for anti-money laundering and counterterrorist financing. This means that countries listed by FATF will automatically be in scope of obligations under the regulations.
By taking this approach, we will ensure that the UK remains at the forefront of global standards on anti-money laundering and counterterrorist financing. This protects the UK financial system from illicit finance linked to the jurisdictions being listed. Where countries have made significant progress to improve their defences, it is equally important that we recognise that and promptly remove them from the scope of high-risk countries in the UK.
Ahead of this update, the UK and the FATF lists were already aligned. Indeed, since the creation of the UK list in 2021, the Government have always updated it to reflect changes to the FATF lists, and that remains our policy. This SI does not, therefore, add or remove any countries from scope, nor change the obligations on regulated businesses. It delivers on government policy in a streamlined way and ensures automatic alignment with the FATF lists without the need for frequent but fairly routine secondary legislation. It also ensures that firms will be notified in a timely manner of updates to the lists and their obligations, staying up to date as the risks change.
This statutory instrument has been reported as an instrument of interest by the Secondary Legislation Scrutiny Committee, which noted that it reduces parliamentary oversight of the process of adding or removing countries, although I note that of course it is government policy and would have continued to be government policy to introduce an SI every time the list changes. Therefore, in a sense this is automating the process. However, the Government are committed to keeping Parliament informed and will submit letters to the Libraries of both Houses at the conclusion of each FATF plenary meeting, when countries made have been added to or, indeed, removed from the FATF’s lists.
I also assure noble Lords that if at any time the Government saw fit to deviate from the FATF lists, they retain the authority and autonomy to do so. In such cases, a statutory instrument would be brought before Parliament for consideration.
I conclude by noting that the measures in respect of high-risk third countries are an important mechanism to mitigate the risks posed by illicit financial flows from overseas. We will continue to use this and, of course, many other tools available to us to respond to wider and emerging threats from other jurisdictions, including by applying financial sanctions as necessary. These amendments will enable the money laundering regulations to continue to work as effectively as possible to protect the integrity of the UK financial system. I beg to move.
Lord Sharkey (LD)
My Lords, we support this very sensible SI and recognise the importance of the work FATF does in the fields of money laundering and terrorist financing. We recognise the importance of its lists of high-risk countries and the importance of the UK aligning itself with these lists, especially as they change from time to time.
Up until today, as the Minister said, we have kept ourselves aligned by using SIs to modify Schedule 3ZA to the MLRs. We have done this eight times; the last occasion was 8 January, a month ago. As the last of these SIs passed through the Commons, the Minister noted:
“I am aware that many noble Lords have expressed frustration at parliamentary time being taken up in the other place by such relatively routine matters to keep our high-risk third countries list aligned to the task force’s”.—[Official Report, Commons, First Delegated Legislation Committee, 8/1/24; col. 4.]
I do not know who those noble Lords were either. The Minister proposed a better way: the removal of the list in Schedule 3ZA and its replacement with, as our Minister said, an ambulatory reference to the FATF list itself.
This SI, which was debated last week in the Commons, does exactly that. It is true that it will undoubtedly save some parliamentary time, but it will remain important to ensure that all interested parties are aware of FATF list changes.
HMT issued updated guidance on high-risk third countries on 22 January. In passing, I should note that I could not find Russia on either list. Is that not a little odd? Coming back to the guidance issued by the Treasury, it would seem perfectly reasonable and not burdensome if HMT were to issue similar updated guidance after each of the three FATF plenary sessions that are held each year. Since Parliament will now lose an automatic mechanism for discussing changes to FATF lists, as the Minister said, I am very grateful for her confirmation of the commitments given to the SLSC to continue the practice of depositing in the Libraries of both Houses a summary of FATF meetings at which list changes are made and publishing an advisory note on the government website.
Lord Livermore (Lab)
My Lords, we support this SI. It is a common-sense approach to ensuring timely updates to the UK list of high-risk countries, and it retains the flexibility needed to ensure that other countries can be added via affirmative SI if that is deemed appropriate. I note that the Minister mentioned that letters will be placed in the Libraries of both Houses, but what mechanisms will exist under this new regime if noble Lords wish to raise questions or concerns about high-risk countries, should they have them?
I note that we debated the latest update to the list only a few weeks ago and that this SI does not make any further updates to the list of countries. I therefore have no additional questions.
Baroness Vere of Norbiton (Con)
My Lords, I am very grateful to both noble Lords for their support for this SI, which I believe is entirely sensible. One of the things that I was unable to bring out in the opening statement as to why I think it is so sensible is that one of the key things about us being aligned to FATF, and the timing of a country being listed by FATF and immediately going on to the list here, is that we can act globally and in a co-ordinated manner so that the international community can ensure that it acts together to magnify the preventive effects.
The noble Lord, Lord Sharkey, mentioned Russia. It is true that Russia is not currently on a FATF list as, of course, a cycle of mutual evaluations needs to be gone through. However, Russia is obviously subject to extensive sanctions by the UK. I think there is sometimes a little confusion about the money laundering regime and the sanctions regime. In the money laundering regime, you are regulated under the money laundering regulations. Therefore, as a regulated person you must do certain things. However, everybody needs to be aware of sanctions, sanctioned individuals and sanctioned organisations. Obviously, for Russia, that is quite significant.
That brings me on to notification. As committed to, we will place a letter in both Houses with a summary of the plenary and whether any countries have gone on or off any list. Perhaps we will provide a reminder to noble Lords as to who is currently on the two lists.
The noble Lord, Lord Livermore, asked how he could raise questions. I suggest that, in the first instance, I would write to the Minister. Obviously, one could use Parliamentary Questions, but a letter would be better and probably elicit a fuller response. If not, there is always the opportunity to request a meeting with the Minister. It is a very important issue and I do not think that there would be any reason at all for us not to agree to do that.
That is about keeping Parliament informed, but then, of course, the regulated organisations need to be kept informed as well. If, as a regulated organisation, you do not have a process for checking who is on or not on a FATF list, I am afraid you are not a particularly well-run regulated organisation. All sorts of different organisations are regulated, but they will have to have controls and processes in place. We would put a notice up, as we always do, in a specific place. Two things would then happen: the regulated organisation itself would see the update—I know that many thousands of them do—but the supervisors, who are the overarching body of the different types of regulated organisations, would also send out reminders to those organisations about any changes. So there are two lines of attack, but, frankly, it should be beholden on the organisation as a regulated body to keep itself in the loop.
With that, I commend the regulations to the Committee.