State Pensions: UK Expatriates

Alex Cunningham Excerpts

Thursday 20th April 2017 Commons Chamber

[Alex Cunningham (Stockton North) (Lab)]

I thank the Backbench Business Committee for granting the debate and congratulate the hon. Members for North Thanet (Sir Roger Gale) and for Ross, Skye and Lochaber (Ian Blackford) on securing it, and I thank all Members who have contributed.

I have spoken many times in this Chamber and in Committee about the injustice within our pensions system. On numerous occasions, I have highlighted how the Government have let down the WASPI women and vulnerable pensioners more widely in society. Today it is overseas pensioners. The upcoming general election gives us an opportunity further to highlight such issues and the need for greater transparency in the pensions industry. I hope that those issues, and the issue of pensions uprating for overseas pensioners, get plenty of attention over the next seven weeks.

Today, all pensioners, at home and abroad, want to know whether the Government will ditch the triple lock on 3 May, in line with the Secretary of State’s answer to me on 9 January, when I confirmed that Labour’s commitment was for the longer term. Will the Minister confirm that the Tory triple lock is at an end, or is the commitment to 2020, as declared by the Secretary of State in November on “Peston on Sunday”, and as was suggested to be the case by the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier)?

The pensions of those living overseas are a hot topic for hundreds of thousands of people, many of whom have seen their British state pension frozen—in some cases, for decades. Like the hon. Member for Leeds North West (Greg Mulholland), I will not be writing a manifesto, but while he cannot guarantee that partial uplifting will be in the Lib Dem manifesto, it will certainly be in the Labour party’s.

As the law stands, there are 551,000 UK pensioners living abroad, in countries such as Australia and Canada, who have had their pensions frozen at well below the level paid to pensioners still living in the UK, according to the International Consortium of British Pensioners. While UK pensioners receive up to £155.65 a week, a person who retired in 2000 and moved to either Canada, India, Australia or one of hundreds of other countries receives just £67.50.That does not grow with inflation; in fact, it does not grow at all, leading to a continuous reduction in real-terms income, a loss of independence and, eventually, poverty for hundreds of thousands of pensioners across the globe. As we have heard from their champion, the hon. Member for North Thanet, all these people contributed tax and national insurance to the UK throughout their working life, and they are now penalised because they choose to live in a different country, perhaps to spend their retirement closer to their families.

Without uprating, recipients reliant on their state pension income could find themselves increasingly impoverished, leaving them unable to afford a basic standard of living and increasingly dependent on relatives, and they may be forced to return to the UK—we have heard many examples of that during the debate. Surely it is time that this country established a fair system to support our pensioners regardless of where they choose to live. Those who have spent their life working to contribute to the national economy should be supported in the manner they deserve.

Over recent decades, it has become increasingly clear that we live in a globalised world—a world that sometimes requires people of all ages to move across borders to Europe, the US or Canada, or sometimes further afield. As we look to our new future out of the European Community, but working in a more comprehensive partnership with the wider world, I ask the Pensions Minister to do what other Ministers, Labour and Tory alike, have failed to do, and start increasing overseas pensions now.

Why, in this globalised world, should the country in which a person retires—by choice or for other reasons—affect the pension they have worked hard to earn for 45 years or more? Why should the country a person collects their pension in affect their standard of living? Why should it affect their ability to enjoy their retirement and buy the essentials in life? That does not sound like a fair system; it sounds like a system that leaves hundreds of thousands of pensioners uncertain about their future, their financial position and, ultimately, their wellbeing.

There are those who argue that overseas pensioners spend their cash in economies other than ours, that they no longer pay tax here—if they have the income to do it—and that they make no contribution to our society. However, some may remind us that our overseas pensioners do not access our national health service, and nor do they require support from social care and other services. As has been said, for the relatively small cost of £30 million this year, the UK could begin a system of partial uprating for pensioners living overseas. For 2018, that would cost £30.75 million, and the figure would continue to increase at roughly the level of inflation.

This is about not a costly backdating of pensions uprating, but a way to begin to rectify the injustice of the overseas pensions system. We should prove that we care about the wellbeing of UK pensioners abroad and care about the vulnerable in society. Our message to the Government should be that that should translate into a fair pensions system.

As others have said, the issue of overseas pensions is of even more pressing concern due to the recent invoking of article 50, with a lack of clear Government policy around much of the Brexit process. Many expats who have retired within the EU face an uncertain future, and I have heard nothing about the protection of British people’s pensions in EU countries once we have left.

In addition to people being left uncertain about their immigration status, health benefits and many other issues, the Government’s inability to commit to policy in Brexit negotiations has left 472,000 retired UK nationals living in the EU uncertain of what the future holds for them. We do not know whether a deal will be made to ensure that UK pensioners living in the EU receive the full pension they are entitled to. The Government will not tell us whether that is even on the cards. Perhaps the Minister can update the House today. Will British pensioners living in EU countries have their pensions protected after we leave? The right decision—to uprate overseas pensions now—would send the right signal to pensioners in the EU that the Government have a plan and that they will be protected.

The ambitions of the nearly 700 overseas pensioners who have emailed me directly go well beyond the proposal to start uprating pensions now. I recognise that restoring pensions to the levels of today would be a huge stretch for any Government, never mind one that has such a recent record of slashing everything from bereavement income to in-work benefits and of denying mentally ill people, among others, the personal independence payments they need, but we need to start somewhere.

We have always prided ourselves on being a caring country. We are one of the largest net providers of foreign aid in the world, and rightly so. We must, however, ask why we do not feel the need adequately support our pensioners who have retired abroad. An increasing number of modern countries uprate pensions to those living overseas in line with inflation, regardless of where those pensioners reside. Today, we must consider why the UK is not doing the same.

As a modern, compassionate nation, we must look to provide all our pensioners with enough financial support to allow them to enjoy their retirement, as they deserve. Labour has laid out its pledges to pensioners in the last few weeks—maintain the triple lock, compensate the WASPI women and preserve the universal winter fuel allowance and free bus passes. Will the Minster join us in our other pledge—to protect the pensions of people living overseas? It is just the right thing to do.

--- Later in debate ---

[Alex Cunningham]

Spend the money!

[Richard Harrington]

The hon. Gentleman rarely makes me speechless, but his plea from a sedentary position to spend the money has done so. Perhaps he thinks that I am already Chancellor of the Exchequer; it is nice of him to imply that.

--- Later in debate ---

[Sir Roger Gale]

I am grateful to all hon. Members on both sides of the House who have contributed to this debate, which will have been watched by many people around the world. We are proud to live in a country that has a reputation for fairness and non-discrimination. There is an injustice, and my hon. Friend the Minister knows that. To say that the situation has been widely publicised and that it has been the same for many years does not make it right. It has been wrong for many years, under successive Administrations. It will go on being wrong, and people like me and my colleagues will carry on until we get a resolution.

I understand that the Minister is not in a position to make a concession this afternoon, and I did not expect him to do so. I will ask him just one thing. When this debate was called, none of us had any idea that there was going to be a general election. To some extent, inevitably that has coloured some of the remarks made this afternoon. I have deliberately not pulled my punches, because that is not what I do. I just say this, in friendship, to the Minister. Will he please have a serious discussion with the Secretary of State for Work and Pensions—one of my Kent colleagues—about how we can put the matter into the Conservative party manifesto as an election pledge, so that we can resolve this issue on the very modest terms that we have proposed, into which great thought has been put? That would enable us, when we come back in June—I hope that we, at least, will be coming back—to put this issue to bed and allow half a million people living in retirement around the world to sleep more soundly.

Question put and agreed to.

Resolved,

That this House notes the detrimental effect that the Social Security Benefits Up-rating Regulations 2017 will have on the lives of many expatriate UK citizens living overseas with frozen pensions; and insists that the Government take the necessary steps to withdraw those Regulations.

[Alex Cunningham (Stockton North) (Lab)]

On a point of order, Madam Deputy Speaker. It would be helpful if the Pensions Minister remained in the Chamber. I am grateful to him for his kind words about our working relationship, and I agree that it has been constructive, even when we have disagreed. I hope that you or he can assist with the news given to my office today that the Department for Work and Pensions MP hotline is closing down at midnight tomorrow; staff claim that that is because of purdah coming into effect. That would have a hugely detrimental effect on MPs’ ability to do their job effectively. I am sure that the wheels have moved since I raised the matter with a Government Whip earlier this afternoon, but can you or the Minister confirm the date for purdah and whether hotlines for MPs should close tomorrow evening?

Oral Answers to Questions

Alex Cunningham Excerpts

Monday 27th March 2017 Commons Chamber

[Richard Harrington]

My hon. Friend and I have discussed the matter, and I am pleased that he has highlighted it. There has been consultation on the subject, and the Government will make an announcement ourselves and through the regulator very soon.

[Alex Cunningham (Stockton North) (Lab)]

The Government missed an opportunity this year to tackle a wide range of issues in the pensions industry, but they chose to ignore most of them, instead bringing forward the narrow Pension Schemes Bill. The Secretary of State then failed to further his own agenda by instructing his Ministers to resist any attempt to introduce transparency, member engagement and greater clarity on costs. Why does he choose to protect the industry instead of savers? What will the Government do to correct this failure and help us all to build trust in our pensions industry?

[Richard Harrington]

I thank the shadow Minister for voting for the Bill on Second Reading, and for his generally constructive approach to it. As the hon. Gentleman well knows, the transparency agenda is part of a much broader agenda, and the Government will make a proposal very soon.

--- Later in debate ---

[Richard Harrington]

There is a lot happening in pensions at the moment. The point the hon. Gentleman mentions in relation to the Chancellor of the Exchequer is something completely different, but there will be no change to the transitional arrangements at £1.1 billion.

[Alex Cunningham (Stockton North) (Lab)]

Labour will oppose the earlier increase in the state pension age and the end of the triple lock, recommended in last week’s Cridland report, but we welcome the statement from John Cridland that at least 10 years’ notice should be given of any age increase, so there is yet another chance for the Minister. Do the Government agree with Cridland? If they do, will the Minister now admit that they got it badly wrong with the WASPI women and at least back Labour’s proposals to extend pension tax credit?

[Richard Harrington]

As I said before, the Government will respond to the Cridland review by the end of May.

--- Later in debate ---

[Damian Green]

I have two points for the hon. Lady. First, the National Federation of ALMOs—social housing providers—calculates that some 75% of tenants are in arrears under the legacy benefits, so she is not right in her suggestion.

[Alex Cunningham (Stockton North) (Lab)]

Just 75%!

[Damian Green]

Yes, quite; this has been happening for a long time. The idea that universal credit causes housing arrears is just nonsense.

Secondly, the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) will know that my Department is working on a pathfinder arrangement with Newcastle City Council precisely to address the problems that may be there now and have been there for many, many years.

Pension Schemes Bill [Lords]

Alex Cunningham Excerpts

Wednesday 22nd March 2017 Commons Chamber

[Alex Cunningham (Stockton North) (Lab)]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to discuss the following:

New clause 2—Member trustees—

“(1) By a date to be set by the Secretary of State in regulations, approved Master Trust Schemes must ensure that at least a third of the trustees of the scheme are Member Trustees.

(2) Member Trustees must be individuals who are—

(a) members of the Master Trust scheme; and

(b) not members of senior management of a company that is enrolled in the Master Trust scheme.

(3) Member Trustees must be appointed by a process in which—

(a) any member of the scheme who meets the condition in subsection (2) is to apply to be a Member Trustee,

(b) all the active members of the scheme, or an organisation which adequately represents the active members, are eligible to participate in the selection of the Member Trustees, and

(c) all the deferred members of the scheme, or an organisation which adequately represents the deferred members, are eligible to participate in the selection of the Member Trustees.

(4) Member Trustees should be given sufficient time off by their employer to fulfil their duties.

(5) For the purpose of this clause “senior management”, in relation to an organisation, means the persons who play significant roles in—

(a) the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or

(b) the actual managing or organising of the whole or a substantial part of those activities.”

This new clause requires Master Trusts to make provision for some form of member representation within Master Trusts.

New clause 3—Member representation and engagement—

“One year on from the registration of Master Trusts by the Pensions Regulator, the Government will fully review member trustee representation, member engagement and annual member meetings.”

This new clause requires the Government to set up a review into member representation and engagement within Master Trusts.

New clause 4—Requirement to hold an Annual Member Meeting—

“(1) The trustees of an authorised Master Trust scheme must hold an annual meeting open to all members of the scheme.

(2) The Master Trust must take all reasonable steps to make the meeting accessible to all members, this includes making arrangements for—

(a) scheme members to observe the meeting remotely, and

(b) scheme members to submit questions to trust members remotely.”

This new clause requires Master Trusts to hold an Annual Member Meeting, and sets out ways to ensure members are properly given the opportunity to be involved.

New clause 5—Excluded groups—

“(1) The Secretary of State must, before the end of the period of 12 months from the day on which this Act receives Royal Assent, establish a review of participation in Master Trust schemes.

(2) The review must consider what steps can be taken to increase the participation in Master Trust schemes by the following groups—

(a) carers,

(b) self-employed,

(c) workers with multiple employees, and

(d) workers with annual earnings below £10,000.

(3) One of the options considered by the review to improve participation must be changes to the terms of auto-enrolment.”

This new clause enshrines the requirement on the Government to do something specific for currently excluded groups.

New clause 6—Exit fees—

“(1) The Secretary of State may by regulations restrict or set limits to exit fees paid by members of a Master Trust scheme.

(2) For the purposes of section (1) “members” includes past and current, active and deferred members.”

This new clause makes provision for the Secretary of State to restrict exit fees paid by Master Trust schemes’ members.

New clause 7—Asset protection for unincorporated businesses—

“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses who are at risk of losing their personal assets including their homes.”

New clause 8—Review of actuarial mechanisms for valuing pension scheme liabilities—

“Within six calendar months from the day on which this Act comes into force, the Secretary of State must conduct a review of the actuarial mechanisms used to value pension scheme liabilities under section 75 of the Pensions Act 1995.”

New clause 9—Non-associated multi-employer schemes: orphan debt—

“The Secretary of State must, by regulations, exclude from the calculation in section 75 of the Pensions Act 1995 the orphan debt in any non-associated multi-employer scheme.”

Amendment 5, in clause 8, page 5, line 41, after “scheme” insert “or scheme funder”.

The financial sustainability of the scheme funder must be taken into account when assessing a Master Trust scheme’s financial sustainability.

Amendment 6, in clause 11, page 8, line 1, leave out subsection (b) and insert—

“(b) either the only activities carried out by the body corporate or partnership are activities that relate directly to the Master Trust scheme, or if the body corporate or partnership carries out activities other than those defined as “restricted activities.””

This amendment allows for exceptions to the requirement that a scheme funder must only carry out activities directly relating to the Master Trust scheme for which it is a scheme funder.

Amendment 1, page 8, line 13, at end insert—

“( ) A minimum requirement of annual reporting of administration, fund management costs and transaction costs for each asset class, drawdown product and for active and passive asset management strategies.”

This amendment would introduce annual reporting and inclusion of transaction costs requirements for Master Trusts.

Amendment 7, in clause 10, page 7, line 23, at end insert—

“(6A) The Secretary of State may by regulations define “restricted activities” and these regulations must set out activities that a scheme funder cannot engage in to minimise risk of losses or liabilities which might deplete or divert its financial resources.”

This amendment makes provision for the Secretary of State to define “restricted activities” by regulation, including a list of specific activities restricted in order to minimise risk of loss by Master Trust scheme funders.

Amendment 2, in clause 22, page 16, line 28, after “employers” insert “and scheme members”.

This amendment ensures that scheme members are told of triggering events as well as employers.

Amendment 4, in clause 31, page 23, line 16, leave out paragraph (d).

This amendment removes the part that allows Master Trusts to halt making payments to pensioners in the event of a pause order.

Amendment 3, page 23, line 27, at end insert—

“(f) directive that employers will retain both their own and employee contributions pending resolution of the pause order.”

This amendment requires employers to hold onto employee and employer contributions during a pause order.

Amendment 8, page 23, line 27, at end insert—

“(f) a direction that further contributions or payments to be paid towards the scheme by or on behalf of any employers or members (or any specified employers or members) are collected and held in a separate fund until the conclusion of the pause order;”

This amendment provides the Pensions Regulator with an alternative to stopping payments to the schemes under subsection 5(b) of a pause order.

Amendment 9, page 23, line 39, at end insert—

“(7A) The Secretary of State may by regulations set conditions on the terms of a separate fund used for purposes under section 5(f).”

This amendment is consequential to amendment 8.

[Alex Cunningham]

Generally speaking, this is a good Bill, and it goes a long way to properly regulating master trusts and looking after the interests of the pension scheme members. Sadly, it does not address the WASPI issue, which we raised on Second Reading and in Committee, as it has been ruled out of scope of the Bill. However, I am pleased to report that Stockton Borough Council backed the WASPI women. Tory councillors abstained on the vote, so clearly they are not very happy with the Government either.

There are a number of aspects of the Bill that could still be improved and that could better protect and inform scheme members. Sadly, after the Commons Committee stage, it was clear that we had failed to convince the Government of that, but having reviewed the Minister’s arguments we still believe that a number of issues need to be covered on Report this afternoon.

New clause 1 returns to the issue of a funder of last resort for master trusts. Contrary to the written statement from the Under-Secretary of State for Pensions, which we received on Monday, the removal of this clause is significant, and I was surprised that he felt that it was not. This new clause looks to ensure that, in the event of a master trust failing, there is a funder of last resort— somebody in place who guarantees that scheme members are not left out of pocket through no fault of their own. This would, in effect, act as a final underpinning of the promises that have been made to scheme members, giving them recourse to a legally established funding organisation committed to making good on scheme member dues. When this was debated in Committee, the Minister refused to back this most sensible of additions to the regulations of the Bill, arguing that it would place an unnecessary additional burden, that the new regulatory regime was sufficient to make the risk of collapse absolutely minimal, that existing master trusts would pick up any scheme members affected by their master trust failing, and that the Government were consulting the industry on the creation of a panel of white knights, who would commit to stepping in to ensure that all scheme members are protected.

I am glad that we have the Minister on record saying that there is no chance of a master trust going bust under the regulatory regime that this Bill creates. It is clearly a gamble that he is willing to take. Opposition Members are not prepared to gamble with people’s pension savings. In order to best protect scheme members, we need the strongest possible regulatory environment in place. Unlike the Minister, we are not content to leave things to chance.

We have support from the industry itself for these proposals. For example, the chair of the Standard Life master trust has called on the Government to be the funder of last resort, because

“their policy foul-ups have allowed the proliferation of unsustainable Master Trusts.”

It is interesting that the Minister plans for a panel of white knights. Does that suggest that he does accept that there is a chance that a master trust might slip through his regulatory regime and leave scheme members unprotected? If he does, why not go the whole way and put the proper guarantees in the Bill? There is simply no guarantee that another trust will choose to pick up one that is failing. Why would it? What obligation does it have and why would it be in its interests to do so? Yes, there have been a few pragmatic actions in this area, but nothing is guaranteed.

We all know that the pensions industry and the financial services industry have seen plenty of failures. Perhaps the Minister can tell us what happens if a large master trust fails and the data are in a mess and take months to cleanse before getting members transferred to a new scheme. We cannot simply hope that another trust will just pick that up. Instead, we must intervene now to ensure a proper back-up plan. The Government must prepare for the worst-case scenario, and nothing I have seen so far convinces me that Ministers are doing so.

We need a funder of last resort because we must be able to predict what could happen, even if there is only the slightest chance of it happening, and ensure that we have a plan of protection in place. I ask again: why will the Minister not provide people all over this country with a 100% assurance that the Bill without this provision is enough to protect members. If he is to ignore our sensible new clause, he must guarantee that no master trust will be in a situation in which it has failed and has insufficient resources to meet costs. In the absence of greater clarity, it is essential that this new clause is in the Bill.

I now turn to new clause 2 and the issue of member-nominated trustees for master trusts. I remind the House that all the investment risk lies with the member and not the sponsor or the provider of the scheme, and they should therefore have representation at decision-making levels of the scheme. The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees. If the scheme’s sole trustee is a company, including the employer rather than individuals, scheme members will have the right to nominate directors of that company—member-nominated directors. The Pensions Act 2004 enshrined the right to have at least one third scheme member trustees of a trust-based scheme. The Pensions Regulator is clear that master trusts are covered by this legislation, which is why some already have member-nominated trustees. What the regulator offers in explanation is that there are exemptions that can be taken by master trust, giving the reasoning that having a pool of members greater than a single employer-based scheme poses problems of choice. We find that an inadequate reason for exemption. The greater the number of members, surely the bigger the pool of choice.

We do not agree that independent trustees can adequately represent the fiduciary interests of members if they have no stake in the investment process. What is more, they are paid and chosen by the master trust. This exemption seems like a convenient way of denying the right to representation by those who do have a material interest in the performance of the master trust. We have returned today with an amendment that seeks to give scheme members the law to which they should be automatically entitled. In these circumstances, my references to MNTs apply equally to MNDs.

The Association of Member Nominated Trustees is adamant that master trusts must be obliged to have member representation on their boards. However, it is no surprise that a master trust is lobbying against that. Such companies are mostly profit-making entities. However, it is in their own best interests that they have scheme member representation to win the confidence of the scheme members. The role of the MNT and the trustee boards is sometimes underplayed or undervalued. The Association of Member Nominated Trustees said:

“Members are particularly comforted by having an MNT presence for their scheme. It helps them to feel reassured their retirement interests are truly being met and understood most importantly, but also that they aren’t being ripped off in excessive costs and charges.”

They are the only ones who have no personal interest or gain; their only interests are those of the member. ShareAction also agrees that savers should be able to subject decisions made on their behalf to a healthy degree of scrutiny and challenge.

Ensuring effective governance for pension schemes remains a challenge. Although trust-based schemes benefit from a clear governing body in the form of the trustees, there is a clear absence of member-nominated trustees in the majority of master trusts. However, although some companies choose to operate a trust-based defined contribution scheme, most new auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. In those schemes, member representation on governance boards is far more rare. At this point, I wish to refer back to the concerns that the Pensions Regulator made about master trust governance. In January 2013, said:

“We have identified a number of characteristics that, if present, may prevent these schemes from delivering good outcomes. These are: conflicts of interest as a result of the relationship between the provider and trustees; decision-making powers vested with the provider rather than trustees; a lack of independent oversight in some master trusts – unlike traditional occupational DC schemes, member and employer representatives are unlikely to be involved in important decision-making processes”.

Yes, the Bill may go some way to addressing these concerns, but it does not go far enough. We can build greater trust in the system; increase diversity and bring a range of different perspectives and experiences; and highlight areas that are of interest to members. Once again, we find no real impediment to this amendment. The law requiring master trusts to have scheme member trustees applies and exemption does exist, but that need not be required and should, in our view, be overridden.

Continuing with the theme of engaging with members, I will now address new clause 3. It requires that, one year on from the incorporation and registration of master trusts by the Pensions Regulator, the Government will fully review member-trustee representation, member engagement and annual general meetings for members.

The purpose of the new clause is to ensure that there is a review of the new master trust governance and member engagement processes. Pensions Regulator guidance stressed the importance of understanding and engaging with members to define objectives for the scheme and setting an appropriate strategy—for example, the TPR code of practice 13 on governance and administration of occupational trust-based schemes providing money purchase benefits.

TPR has stacks of advice on these issues for master trusts to follow, but we want a commitment from the Government that they will ensure that master trusts are operating in the interests of members and that the potential of a conflict of interest—in other words, the profit motive—does not get in the way. We need to make sure that there is an opportunity for experienced eyes to take a good look at the system a year after its creation. If there are risks, they must be accounted for. One way to do that is to form a Government inspection of the system.

I turn to new clause 4, which requires master trusts to hold an annual member meeting and sets out ways to ensure that members are properly given the opportunity to be involved. It is now common practice for pension funds to hold a meeting with members on an annual basis. Good member communications, provided at the right time and in an accessible format, are vital if members are to engage and make decisions that lead to good outcomes in retirement. In the Committee debate, the Minister suggested:

“Documents relating to the governance of a scheme, such as the trustees’ annual report, the chair’s statement and the statement of investment principles, have to be provided on request.”––[Official Report,Pension Schemes Public Bill Committee; 9 February 2017 c. 118.]

Having to request information about what one is paying for is the wrong way round. Let us not forget that many master trusts are profit making, so members should be given information as a matter of routine and not by request.

An annual meeting for members ensures that trustees and administrators can be made human and accountable rather than being at some distant, bureaucratic and faceless place. Trustee boards should regularly review member communications and, when deciding on the format of communications, take account of innovations and technology that may be available to them and appropriate to their members. That would allow the more engaged members to hear a presentation from trustees and senior executives about how the scheme has managed their retirement assets over the previous year and what plans the scheme has to deliver strategy and manage risk into the future on behalf of members.

Pensions Regulator guidance accompanying its new DC code highlights AMMs as one way in which multi-employer schemes can stay close to members. Through the new clause, master trusts would be brought into line with normal practice in the corporate sector and among the growing number of pension schemes.

I want to return at new clause 5 to the issue of groups currently excluded from master trust saving—specifically carers, the self-employed, those working multiple jobs and people on low incomes. As it stands, the Bill does not expand the successful auto-enrolment policy: that could have made a real difference to a number of groups who, the evidence suggests, are not saving adequately for their retirement. The Minister and I debated this issue in Committee, so I shall return to the issue only briefly.

As I recognised then, the Government have announced a review relating to the operation of auto-enrolment into master trust savings. Currently, however, the scope of that review is too broad, with few specifics set out to keep the Government to their word. The evidence speaks for itself: too many people are not putting enough away to guarantee the secure and dignified retirement that the Labour party has always worked to provide and continues to strive towards today.

Some 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust savings through auto-enrolment, according to the latest DWP statistics. In Committee, the Minister suggested that gender equality was not an issue under auto-enrolment savings; I suspect that he may have been referring to the participation rate among eligible employees, which is fairly equal between genders. The statistics that I have cited, however, relate to those not eligible, and I believe women are over-represented. Perhaps the Minister can look again at the issue and write if he has evidence to the contrary.

On the specific groups, I would like to press the Minister on the issue of carers, who, as we know, make such a vital contribution to our society, public services and economy. In Committee, the Minister suggested that he would like carers to be included under the Government’s review of auto-enrolment, but accepted that they are not currently specified. May I push him to commit explicitly to including carers under the terms of the review now? I am sure that it would be of great comfort to our carers if they knew that their situation was being looked at specifically by the Government.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

I thank the hon. Member for Stockton North (Alex Cunningham), from Her Majesty’s loyal Opposition, and the SNP spokesman, the hon. Member for Ross, Skye and Lochaber (Ian Blackford), for their amendments. I hope that everyone who has followed the debate in this House and in Committee will agree that the Government’s attitude has not simply been to oppose all amendments for the sake of it. I give hon. Members my word that everything has been considered. It is the Government’s job to consider the lobbying from the sorts of organisations that the hon. Member for Stockton North mentioned. I have met representatives of most of them, as I am sure the hon. Member for Ross, Skye and Lochaber has done. It is the Government’s job to weigh up everything and make a decision.

I am really quite disappointed by the fact that today, we are almost exclusively revisiting the amendments we debated in Committee. My arguments remain unchanged, although that does not mean that I am going to sit down and ignore the contributions of the previous speakers.

[Alex Cunningham]

Feel free to do so.

[Richard Harrington]

I do not think that that would be the correct thing to do. I intend to go through the amendments in detail and answer some of the questions that have been asked in good faith; I will try to answer them in the same spirit.

New clause 1, tabled by the hon. Member for Stockton North, is about the scheme funder of last resort. It has been discussed in the other place and extensively in Committee, and my officials and I have given it a lot of consideration. It would principally require the Secretary of State to establish a funder of last resort to meet the costs associated with the transfer of members out of a master trust should a triggering event occur. On the surface, the argument seems compelling. I met Baroness Drake and others in the other House before the Bill came to this House. I considered the proposal with a very open mind, and I thought that it was the most significant of all the points that were made. I want to place on record the fact that the contributions from noble Lords, across parties, have been very useful. I pay tribute to Baroness Drake, with whom I have discussed this several times. There are honourable disagreements, however, in which neither position is ridiculous. In the end, Government have to decide. That is why I cannot give the Opposition the comfort for which they ask.

The whole purpose of the regime introduced by the Bill is to mitigate the very risk about which the hon. Member for Stockton North is concerned. He is right to be concerned about it. Various clichés have been used at various points in proceedings on the Bill, usually involving nuts, sledgehammers and other such things. I would prefer to say that it is a question of being proportionate, or not being disproportionate. I think that that sums it up.

Before a master trust is authorised, the Pensions Regulator has to be convinced it has sufficient funds to meet the cost of a triggering event. Remember, Mr Deputy Speaker—I am sure you do, as you remember everything—that this does not involve pensioners’ money, but the scheme or organisation running the fund. The Pensions Regulator must ensure that the organisers of the trust have sufficient funds to meet the cost of a triggering event. Should it fail, it will have the money to transfer out to another scheme. The regulator will monitor the situation on an ongoing basis to ensure the funds remain available.

Currently, the market is responding well to deal with existing master trusts that wish to exit before authorisation. The threat of the regulation in the Bill is making smaller master trusts consider whether they wish to part of this new regulated world. Several master trusts have already left the market in an orderly fashion. The regulator is confident that currently there are none that could not afford to transfer out members. That is very important and I hope the hon. Member for Stockton North will take that into consideration when deciding whether to press the new clause to a Division.

We are working with the regulator on non-legislative measures to address concerns about potential liabilities of trustees and receiving schemes that might arise if the record of a master trust in wind-up is poor. Hon. Members should be aware that we have a system of regulation precisely to ensure this does not happen. I view in a different way a survey I believe the hon. Gentleman mentioned in Committee from Pension Professional, which found that 50% of those surveyed did not want a scheme of last resort, as opposed to 31% who said they did. He mentioned Standard Life’s view. I accept that it is the view of industry players that they would much rather the Government step in and deal with it—that is natural; if I were in their position I would too—but we have spoken to institutions and people involved in auto-enrolment, master trusts and so on, and my clear impression is that plenty of players would bite their hand off for any schemes they could get hold of. From their point of view, taking on members involves very little cost because they are already set up and running the schemes. They seem desperate to take on these schemes.

[Alex Cunningham]

The Minister is taking great comfort from existing measures, but there is still no 100% guarantee that there will be somebody to pick up the costs in the event of a trust failure. We could see a new trust go through the authorisation process but still fail through bad management, mismanagement, fraud or whatever. Who will pick up the pieces in that situation?

[Richard Harrington]

We have to deal with the reality of the situation; that is not happening. Yes, anything could happen. We all know in life that things happen. Parliament deals with things that happen that no one expects. As the Minister with responsibility for pensions, I am convinced that in the view of the industry, the regulator and the types of institutions that would willingly take on failing master trusts, there is no need for the Secretary of State to have in his desk-drawer armoury the money or the weapons to deal with it. This is a problem that really does not exist.

The hon. Gentleman says it is all left to chance. Well, it is not left to chance. We have a finite number of master trusts that exist now thanks to the support of the Government and the Opposition for the Bill, which I hope will be enacted as quickly as possible— I think everybody wants that—so it is a finite problem. I am not an accountant, but it is not a contingent liability that could happen in years to come. Hopefully, within two years a clear regulatory system will be in place and the regulator has made very clear what trusts exist. We have taken quite a lot of care to ensure that this will not happen. I feel that the measures suggested in the new clause are totally disproportionate to the problem. For those reasons, I urge the hon. Gentleman to withdraw it, although I do not believe he will. [Interruption.] I am pleased to see that at least I have served to amuse Opposition Front Benchers.

New clauses 2, 3 and 4 stand in the name of the hon. Member for Stockton North and relate to member engagement. In Committee, in earlier debates and in conversations both on and off the record and in general to everyone who is concerned, I have made it clear, as hon. Members would expect me to do, that member engagement is important and that members should be encouraged to develop a strong sense of ownership in their pension savings. However, I remain of the view that the new clauses are unnecessary. I know that the hon. Gentleman is expecting me to say that, because we have discussed these points before.

My main rebuttal would be to remind the hon. Gentleman that the majority of master trusts are subject to the rules on trustees and the regulations of governance. Those regulations require that the schemes must have at least three trustees, and the majority have to be independent to provide services to the scheme. I agree that there must be an open and transparent appointment process for recruiting independent trustees, but current arrangements ensure that members have access to appropriate information to make decisions about their pension scheme. Those include a mandatory annual benefit statement; for most members, a statutory money purchase illustration, which gives them a projection of their pension in retirement. The hon. Gentleman says it should not be done on request, but it is available—that includes the trustees’ annual report, the chair’s statement and the statement of investment principles. The Pensions Regulator publishes guidance for trustees on communicating effectively and transparently with members.

I remind Members that all trustees have fiduciary duties and other legal requirements. Some master trusts are developing innovative ways of engaging with their members without the need for over-prescriptive statutory requirements, many of which—I say this respectfully—are of a different era, including holding general meetings that mean that people are expected to travel all over the country and everything like that.

I wish to discuss quickly the points made about the auto-enrolment review. In summary, the purpose of the review is precisely to discuss the points raised by the hon. Member for Stockton North. We are looking extensively at including self-employed people and people on lower incomes. He mentioned carers, so I should point out that all carers who are employed are now treated exactly the same as other people who are employed. If they fit the criteria, they will not be. I would not exclude looking at everything else, but the review is far broader than is required under the law.

The hon. Member for Ross, Skye and Lochaber tabled new clause 6, and wants to introduce a power to regulate so that exit charges can be capped. As I have said, the power already exists, because we intend to use schedule 18 to the Pensions Act 2014, as amended by clause 41 of the Bill, alongside existing powers, to make regulations to cap or ban early exit charges in occupational schemes, including master trusts. Existing members of occupational schemes who are eligible for pension freedoms will have charges capped at a maximum of 1%. It is not fair to exclude all charges, because there are costs involved in exit.

New clauses 7, 8 and 9, which were introduced as eloquently as ever by the hon. Member for Ross, Skye and Lochaber, are designed to make changes to the provisions in the Pension Act 2014 that address the issue of employer debt in defined-benefit schemes. As he said, I have met representatives of the plumbers UK scheme, stakeholders generally, employers and employees. Let me make it clear that the issues are raised in the Green Paper on security and sustainability in our defined benefit pension schemes, and there is a roundtable of representatives from the relevant schemes precisely to look at what changes to legislation might be needed.

It is a complex and technical problem, but there is no perfect solution, because each involves one of three parties taking responsibility for the debt: working members, retired ones and the PPS. Each has its own problems, but I give the hon. Member for Ross, Skye and Lochaber my word on this, and I congratulate him and his party colleagues on the work they have done on this issue. There is no need for fears; we will make progress. I trust that the hon. Gentleman will therefore not press the new clauses.

We dealt in Committee with the minimum requirement for annual reporting on administration and so forth, but we shall have to agree to disagree on this. We are committed to making regulations requiring information on charges and transactions costs to be provided to Members and to be published in the course of this Parliament. We will consult this year on the publication and disclosure of such information to members. We are consulting only on how rather than if we will require disclosure. I read the Financial Conduct Authority’s asset management markets study, and I sometimes think that the hon. Member for Stockton North and I are probably the only people who have read it in full detail. I fully commend it, as I have told the FCA, and we fully intend to take action on this matter. In short, the Government already possess the necessary primary powers and are well on the way to achieving the hon. Gentleman’s stated purpose, so I urge him to withdraw the amendment.

Amendments tabled by the hon. Member for Ross, Skye and Lochaber deal with scheme funder requirements. I listened carefully to what he said. He adds to the requirement in clause 8 for the master trust scheme to have sufficient financial resources for the scheme funder, but that is not required because the regulator’s assessment already has to take into account matters to be specified in regulations, which will include insolvency risk, the enforceability of any funding commitment and whether the scheme funder is subject to any prudential capital requirements. I do not believe that we need to expand the range of activities beyond that. Amendments 6 and 7 would expand the range of activities that a scheme funder can undertake by allowing it to carry out any activities apart from those that are restricted. The Government amendments tabled in Committee mean that the scheme funder is no longer restricted solely to activities relating to the master trust. I remind the hon. Gentleman—he has mentioned the Association of British Insurers—that the ABI

“welcome the cross-party consensus of the need to address the issue and the common-sense approach the Government has taken to reflect its concerns”.

In short, these amendments are not needed, so I very much urge the hon. Gentleman not to press them.

Amendment 2 would require the trustees to notify scheme members that a triggering event has occurred and of other information to be set out in regulations. I am sure you are aware, Mr Deputy Speaker, that a triggering event is a change in circumstances that poses a risk to the scheme. I accept the importance of informing members well ahead of anything that directly impacts on them. Trustees can inform members at the point of the triggering event, if they judge that this is appropriate. The Bill already requires that if the scheme does proceed to wind up, it must inform members. I feel that the amendment is well-meaning but inappropriate. It could be costly and it could frighten members for no reason, because the system of requiring them to be informed later in the process is already in place. Once again, I ask the hon. Member for Stockton North not to the amendment.

I do the same with respect to pause orders, which were mentioned by both the hon. Member press, for Stockton North and for Ross, Skye and Lochaber—it seems that I have mastered the name of that constituency by Report, which goes beyond the call of duty. The amendments would require the contributions that cannot be paid into a master trust in the interim period to be held by the employer in some sort of special account. Here I am talking about the amendments tabled by the hon. Member for Ross, Skye and Lochaber—and I said that in one sentence.

Amendment 4 tabled by the hon. Member for Stockton North removes the provision to halt payments to members from a scheme during a pause order. Let me make it clear that the Government’s position is that employees should retain the contributions made during a period, and receive a refund from their employer if those contributions have already been deducted but cannot be paid over to the scheme. We have been clear and everyone agrees that this is a rare and time-limited situation, which has a low risk of occurring, yet quite a big burden would go with it.

[Alex Cunningham]

On payments made during a pause order, I was referring to payments from the pension. I was talking about the payment of pensions, not the refund of contributions to the employee.

[Richard Harrington]

I thank you for that clarification. No, I do not thank you, Mr Deputy Speaker; I thank the hon. Member for Stockton North. The trustees can decide—they have to decide—when they wish to notify members of the pause order; it is not like it does not exist. I remind the hon. Gentleman that the Pensions Regulator can direct the trustees to notify the members at any time if they deem it necessary. That is a really important point. The power is already there; it is not as if it is going away.

With all that said, I hope that I have considered the amendments carefully. I hope that I have made effective arguments and that the hon. Member for Stockton North will not press his amendments.

I am satisfied that the Bill has been improved by amendments made in Committee—largely, I would like to say, in response to Opposition arguments. Once the Bill becomes an Act, I believe it will provide effective protection for the millions now saving in master trusts, largely as a result of the success of automatic enrolment. I hope that this House will be content to leave it unamended today.

Question put, That the clause be read a Second time.

The House proceeded to a Division.

Draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2017

Alex Cunningham Excerpts

Wednesday 8th March 2017 General Committees

[Alex Cunningham (Stockton North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hanson—for the second time in nine days, I believe. I begin by wishing everybody and all the women in the room a happy International Women’s Day. Let us hope that when the Chancellor rises to his feet this afternoon, he delivers a Budget that delivers a little more equality in our society for the women.

I am proud that it was a previous Labour Government who introduced auto-enrolment for pensions. Although we feel that the current Government are building on that work, we certainly feel that much more needs to be done now to bring other groups into the world of auto-enrolment. That said, we very much welcome the Government’s freeze on the £10,000 earnings trigger, which will bring some new people into the system.

[Rob Marris]

On my hon. Friend’s opening theme, he will no doubt be pleased to see in paragraph 25 of the impact assessment that an estimated 75% of the newly included group are women.

[Alex Cunningham]

I am grateful for that intervention, even though it takes away the question I was about to ask the Minister, who has already confirmed that 70,000 extra people will be auto-enrolled. I was going to pose the question: what is the breakdown between men and women? My hon. Friend is ahead of me and the Minister.

I would also like to know the Minister’s intentions for future years. Can we look forward to a long-term freeze, thus tipping even more people into the system, or is this simply a one-off proposal? The freeze, of course, does not recognise our argument that more low earners should be enfranchised into pension savings through the auto-enrolment scheme.

The original policy, developed by the last Labour Government, was to align the trigger to the lower earnings limit of national insurance. We maintain that the Government should lower the trigger to that level to widen the number of low earners who are saving. However, this statutory instrument is a small step in the right direction and we will not stand in the way of its implementation.

During the Committee stage of the Pension Schemes Bill, the Government rejected our amendment requiring them to consider how excluded groups could be brought into auto-enrolment, including the self-employed, lower earners and those working in multiple jobs. We know that the review of auto-enrolment is ongoing, but the Government need to be clear about their intentions on how to broaden access. One group that could have been covered by this SI are people working in multiple jobs, earning a combined income above the threshold, but who do not benefit from having a workplace pension. How is the Minister planning to address that issue? Assuming that he is, can he also confirm that he has the necessary powers to create regulations without having to resort to primary legislation? Lowering the trigger even further would also help to enfranchise some of those working in multiple jobs, as well as those with single roles.

We have also raised concerns about those who are self-employed. We supposedly encourage and support entrepreneurs in the UK, but their lack of access to building up a workplace pension is detrimental to innovation and to their future retirement. Will the Minister say how he plans to ensure that all workers have access to workplace pensions, even if they are self-employed? There are a number of other areas where we think auto-enrolment could go further. I know that the Minister will be looking forward to the debate around those issues, which we will continue to raise over the coming months.

It has been argued that lower earners are already earning such a small amount that auto-enrolling them would be to their detriment. I disagree with that analysis. No matter how little someone earns, they need to be secure and settled in retirement. A workplace pension goes some way to securing that, even for the lowest earners. If there is a problem with lower earners not having enough money to put into workplace pensions, perhaps the Government should look at how to ensure that people have adequate wages to be able to live, provide for their dependants and save for their retirement.

It is particularly important that we ensure that women are better protected in future retirement through auto-enrolment and their workplace pension, as I fear that this Government have severely let women down, given that they are the hardest hit by their austerity measures and cuts—but as we all know, the Chancellor is going to put that right today. The Minister would be surprised if I did not include among those let down the thousands of ‘50s-born women affected by the acceleration of the state pension age. I know that many of them will be outside today protesting about that on various parts of the estate.

The Minister is fond of saying that there is probably more that unites us than divides us on pensions, but I believe that the recent Bill might contradict that somewhat. The Government are taking the smallest of baby steps to increase participation in auto-enrolment, but they are nevertheless welcome. We look forward to them taking big, adult steps in future, so that we can all ensure that when it comes to pension provision, nobody—

[Charlie Elphicke (Dover) (Con)]

I take issue with the tenor of the hon. Gentleman’s speech. Auto-enrolment and the need for reforms of pensions would not have been necessary if a previous Labour Government had not entirely and systematically destroyed the brilliant pension system that we used to have.

[Alex Cunningham]

I do not accept the second part of the hon. Gentleman’s intervention, and as for taking issue with the general tone of my speech, I thought I was being quite conciliatory and kind to the Government on this occasion, and the Minister seems to agree, even if the hon. Gentleman does not.

[The Chair]

Order. I have been very conciliatory, given that the hon. Gentleman has gone very wide of the order. I would be grateful if he and all hon. Members focused on the order.

[Alex Cunningham]

I will certainly do that in the last sentence of my speech, Mr Hanson. As I said, we look forward to the Minister taking big, adult steps in future, when we can ensure that, when it comes to pension provision, nobody is left behind, no matter whether they are a low earner, self-employed or a carer, or have multiple jobs.

Draft Bereavement Support Payment Regulations 2017

Alex Cunningham Excerpts

Monday 27th February 2017 General Committees

[Alex Cunningham (Stockton North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hanson. As the Minister said, the draft regulations will enact provisions in the Pensions Act 2014 introducing a new single payment to replace bereavement payment, bereavement allowance and widowed parent’s allowance for those whose spouse or civil partner dies on or after 6 April this year. There is tremendous merit in simplifying the approach. The Government argue that they are acting with the benevolent intention of modernising the provisions and increasing simplicity for those who are bereaved and seeking support. It must therefore be merely a matter of chance that the measures proposed in the regulations make a significant saving for the Government of approximately £100 million a year. I hope that the Minister and the Chancellor have recovered from their shock at that substantial bonus for the Exchequer.

Despite the Government’s warm words, this is a further austerity measure that is to the detriment of grieving families. We have serious concerns about the proposals. Although we recognise the need for simplicity and change, we do not support these reforms, and we have committed to reversing them under the next Government as the first step towards a wider review of support for the bereaved. Our direct concerns include questions about the shortened timetable; the impact of universal credit conditionality after the initial six-month grace period; the bizarre decision not to uprate support in line with inflation; and, finally, cohabiting couples. Let me deal with each concern in turn, beginning with the shortened timetable.

Under the current system, widowed parent’s allowance is paid to a bereaved parent until their youngest child leaves full-time education. The thorough and helpful analysis provided to hon. Members by the Childhood Bereavement Network has found that the median claim made was for between five and six years’ support. There is clear logic and an evidential basis for providing social security support to bereaved families while children are growing up: given the emotional distress that they will have to process, the child should be protected as well as possible from the financial implications of the tragic event of a parent’s death. Evidence suggests that there is a late effect of bereavement, with some children showing new and greater difficulties two or three years after the death of a parent. Indeed, the same study, which analyses the most robust longitudinal survey available, found that the availability of the consistent, nurturing presence of the surviving parent was one of the strongest predictors of bereaved children’s emotional health and behaviour.

The regulations have the potential to compound the grief that children go through, as well as that of the surviving parent. Let us face it: parenting is hard enough at the best of times. I can only imagine what it is like for people who are left behind, particularly with children, never mind putting financial pressure on top of all that. In 2015, the current support helped 40,000 children who had lost a parent; it is estimated that the regulations reduce the average award by £17,000. Is that really what the Government and the Prime Minister mean when they talk about helping hard-pressed families?

The Government originally planned to provide only 12 months’ support, but increased that to 18 months’ eligibility at the behest of the Work and Pensions Committee. That is welcome, but we question the basis for drawing the line at 18 months—a much shorter time than is currently provided for. Would it not be better for the length of support to remain the same, to ensure the best possible outcome for the child in this tragic and distressing situation? That would seem a sensible way of using the savings that the Government are making, given that they argue that this is not an austerity measure.

The Government have so far ignored our calls to scrap these cuts, preferring to pocket the £100 million that they happen to be saving from this measure. Perhaps the Minister would at least consider adjusting the Government’s actuarial assumptions and extending the period of eligibility for support, but paying it at a slightly lower amount.

On the interaction with universal credit, the Government have argued, and the Minister has said, that bereavement support is not an income replacement but a lump sum, followed by monthly instalments, to address the additional costs of bereavement. This appears to be a very murky distinction. I would like to see the Minister try to draw us a diagram—a Venn, perhaps. Nevertheless, this justification allows the Government to point to universal credit as a mechanism that kicks in to support bereaved families following the now much shorter period of social security provision. The Government have agreed to exempt the bereaved from work search requirements for six months in the light of their circumstances, and to take what they regard as a “flexible” approach to conditionality thereafter. In practice, as I understand it, this flexibility means that claimants can request an additional month every six months for the two following years.

We do not believe that obliging parents to return to work six months after a bereavement is in the best interests of the parent or the bereaved child. If the Government accept that the risk of serious distress remains high for up to two years more, why place bereaved families under the pressure of continuously having to prove themselves? This is a further example of the original policy taking a more compassionate approach. Most bereaved partners retain work, or return to or enter it after 18 months. If the Government press ahead, surely a more pragmatic compromise would be to exempt bereaved families from conditionality for that period, and not just for six months as is proposed. Given the evidence, will the Minister not just scrap this policy now, or at the very least commit to looking again at the period of initial exemption from universal credit, and consider an extended exemption?

On uprating, it was confirmed in the other place by my noble Friend Baroness Sherlock that the Government do not believe that the bereavement support payment should be uprated in line with inflation. The Minister in the other place suggested that as, in the Government’s view, this is a grant payment rather than a social security entitlement, there was no precedent for uprating the amount paid in line with inflation. At first glance, this seems odd from the Government. Usually, social security rises in line with inflation to ensure that vulnerable groups and those on the lowest incomes do not find themselves ever worse off as time goes by. Surely no one in this House wishes to see support for those suffering grief become insufficient, so why will the Minister not agree to meet the relatively small additional cost of uprating?

Finally, I turn to the point regarding cohabiting couples—another unfairness that bereaved partners have raised with MPs—which was also debated in the other place. Under these regulations, the children of couples who are married will be eligible for support, whereas those whose parents cohabit will not. Estimates by the Childhood Bereavement Network suggest that this could leave as many as 2,000 families ineligible for support. That seems a very archaic distinction and grossly unfair. It penalises bereaved families for their decision not to get married. For decades, the principle that children should not be disadvantaged by the choices of their parents has played a central role in Government policy making, and contributed to our society’s sense of fairness and social justice.

Here, yet again, we see the Government cast that principle aside in favour of an arbitrary value judgment. I cannot see any justification for why a bereaved parent who lived with a now-deceased parent should not receive the same entitlement as he or she would have had the two been married. Indeed, the Department for Work and Pensions family test includes cohabiting couples within its definition, which has prompted the Social Security Advisory Combmittee to call BSP “incompatible” with the Department’s own framework. Perhaps the Minister will respond to that point.

The armed forces pension scheme successfully uses a definition of “eligible partner” for entitlement to pensions, while tax credits and means-testing can account for cohabiting couple claims. It does not, therefore, seem beyond the administrative capability of the Government to include families with cohabiting parents within eligibility for bereavement support. Doing so under the BSP system being introduced in April would cost about £21.6 million a year—a fraction of the saving being delivered to the Treasury. Labour has committed to reviewing how cohabiting couples can be included in support for the bereaved. Will the Government start by ensuring that they are included here?

In conclusion, Labour Members believe that the reforms only serve to worsen the position of those suffering bereavement, for the many reasons I have outlined. If the Government do not want to accept what I say, perhaps they will accept the words of eight-year-old Sam, who wrote to his MP:

“I am writing to inform you that reducing the money of the widowed will cause panic and worry. The Widowed Persons Allowance is paid for by the person who has died.”

Sam goes on to say that he still feels flooded with sadness, four years after his father’s death, and describes how the WPA enabled his mother to get back to working as a teacher after two and a half years—something that would not have happened under the proposed new scheme. He says:

“WPA means that mum can still do my drop offs and pick ups at school. She can talk to my teacher if I am feeling sad or poorly.”

Out of the mouths of babes, Mr Hanson.

Those failures must be resolved by the Government if we are to provide a strong social security system for those suffering the intense financial and emotional distress of bereavement. If there is no action now, Labour will commit to scrapping the measures as a first step towards a review providing justice for the bereaved. I ask the Minister to consider again the issues I have raised, in the best interests of the bereaved families who need our support in facing the future.

--- Later in debate ---

[Caroline Nokes]

I thank hon. Members for their contributions. As I have already stated, the Government are absolutely committed to supporting those who have lost a spouse or civil partner; financially in the shorter term by way of these payments, and then practically, if and when it is appropriate, to return to employment.

I express my appreciation for the consideration that hon. Members have given to these regulations, in what I see as the first step to ensuring that we align bereavement support with other welfare policies. I want to respond to comments made by hon. Members and the shadow spokesman. We do not believe—nor could we—that the period of payment should be equivalent to the period of grief following spousal bereavement. We heard from several hon. Members that grief is not linear; it impacts different people in different ways and at different times.

We learned through the consultation process carried out with SSAC and the Work and Pensions Committee, as well as the wider public consultation, that grief will impact at different times in different ways. It will particularly impact on anniversaries. That is one reason we listened to the comments of the Work and Pensions Committee and chose to extend this provision from 12 months to 18 months, so that there would be no coinciding with the anniversary of the death.

It is right to put on the record that we considered providing a simple, lump sum payment at the moment of bereavement, which could be described as a death grant. However, the consultations said that was not wanted and that there should be some level of ongoing support during those critical first few months.

Bereavement support is designed to support people with the additional costs associated with bereavement, rather than to provide an income replacement. That is a really important distinction to make. Income-based benefits are more suited to provide the longer-term assistance with everyday living costs. By investing an additional £45 million, the Government are seeking to provide financial support for the acute period to facilitate the process of readjustment.

[Alex Cunningham]

The Minister heard the quotes I used from young Sam, who tells us that he is still hurting after four years. People can hurt with bereavement after almost a generation has passed. Surely there is some concession to be made by the Government for the likes of Sam, whose mother took two and a half years to get back to work and still needs some support to drop him off and pick him up from school.

[Caroline Nokes]

I thank the hon. Gentleman for that. I was going to move on to refer to Sam’s comments. Like the hon. Gentleman, I have seen a copy of the letter that he sent to his MP, and there are some important reflections on that. On universal credit, it is important to note that the conditionality can be lifted or someone can be completely exempted. It is important to recognise in the arena of universal credit that we want a much more tailored relationship between individuals and their work coaches.

[Alex Cunningham]

Will the Minister explain how somebody can be exempted unconditionally into the future?

[Caroline Nokes]

By discussion with their work coach. That is simply the way we expect that to happen. People will be able to develop that relationship and ask for that exemption. That is really important, reflecting what the hon. Gentleman, the hon. Member for Islwyn and Sam have told us: grief can strike at any time. It is not linear or necessarily over in the first 18 months, and we are not suggesting that it is.

[Alex Cunningham]

I have not seen anything offering guidance to work coaches. Will the Minister publish guidance to work coaches in the Library so that we can understand the advice that people are getting and how they can ensure that they get the support they require?

[Caroline Nokes]

We will be happy to publish that guidance when the legislation has been debated and completed.

Extending the provision of bereavement support payment to cohabitees was discussed during the passage of the Pensions Act 2014. Indeed, the eligibility criteria of a legal marriage or civil partnership with the deceased form part of that Act. The eligibility of cohabitees was therefore fixed in the primary legislation and is not a matter for these regulations, but I am happy to explain the decisions that Parliament took on eligibility in the Act. Marriage and civil partnership are legal contracts that are associated with certain rights, including inheritance and recognition in the tax system. Extending eligibility to cohabitees would not only increase spend but be complex to administer. Having to prove cohabitation at a time of bereavement could be a lengthy and complex process and might cause additional distress, which we seek to avoid.

Critics have suggested that those who choose not to formalise their relationship might be treated unfairly, since they can be treated as a couple for income-related benefits but not for contributory benefits. However, income-related benefits serve a very different purpose: the ongoing day-to-day needs of a household, irrespective of whether the relationship is formal. When assessing entitlement to income-related benefit payments, the state rightly assumes that couples have joint outgoings and share resources such as earnings or other income, whatever the legal status of their relationship. The position is different for bereavement benefits because they are contributory benefits; the founding principle of the contributory benefit system is that all rights to inheritable benefits derived from another person’s contribution are based on the concept of legal marriage or civil partnership.

[Alex Cunningham]

Surely if a man and a woman live together, have children together and are on the electoral register together, they are a couple for all intents and purposes. Why on earth are we penalising the child? I cannot understand why we can make the exception in some areas of benefits but not in this one.

[Caroline Nokes]

As I have explained to the hon. Gentleman, that question was discussed and debated during the passage of the Pensions Act 2014, in which the eligibility criteria for contributory benefits are clearly set out.

[Alex Cunningham]

I am sorry to be such a pain to the Minister, but if the person who has died has been a contributor throughout their working time, surely his or her children are entitled to something from that contribution.

--- Later in debate ---

[Caroline Nokes]

I thank the right hon. Lady for that suggestion. I also thank my hon. Friends the Members for Lewes, and for Thornbury and Yate, who wrote to me on behalf of their constituents Heather Smith and Sarah Metcalfe to make exactly that point. I am conscious that the suggestion comes from the Childhood Bereavement Network, which has been in touch with me personally over the last few weeks.

When we considered the proposals, as I said originally, we considered making a one-off grant at the outset, but that was rejected by both the Social Security Advisory Committee and the Work and Pensions Committee. They suggested a period of 18 months, on which we consulted the Childhood Bereavement Network. I can see the merit in considering changing it to three years, but that would halve the monthly payments in the first 18 months. We did not think that gave families the best chance of lessening the fiscal impact of losing a spouse’s income. We considered it, but we came to the view that we should adopt the Work and Pensions Committee’s suggestion of 18 months.

[Alex Cunningham]

I do not know whether the Minister has acknowledged the £100 million saving, but surely it would go some way toward providing the extension to which my right hon. Friend the Member for Don Valley referred.

[Caroline Nokes]

The hon. Gentleman will of course be aware that over the first two years of the proposed reform we will spend an additional £45 million. Any savings will be for future Governments to reinvest as they choose.

It is important to emphasise that nobody in receipt of the current bereavement benefit stands to lose out as a result of the reforms. Recipients of the current benefit will continue to receive it for the natural lifetime of their award. Furthermore, households with dependent children will receive higher payments in recognition of that fact. Analysis shows that more people stand to gain than lose from the changes, particularly the least well off, because bereavement support will be paid on top of any income-related benefits that the household receives.

As I said, we are disregarding bereavement support payment in the calculation of other benefits, which will ensure that the immediate additional costs of bereavement are met while those requiring further support will be able to obtain it from other parts of the welfare system that are better placed to provide longer-term, means-tested financial assistance. As various Members have mentioned and I have confirmed, conditionality can be tailored through the ongoing relationship with Jobcentre Plus according to a claimant’s personal circumstances.

I meant to mention Sam—apologies for not having done so. I was particularly moved by his letter and thought that he conveyed his situation both movingly and incredibly intelligently. One can only feel for a child who has lost their parent. I must emphasise that families such as his, which are currently in receipt of the benefits as they stand, will not lose. Nothing will change for them. That is an important distinction to make. As I said, it was a benefit system meant to recognise widows—women, not men—way back in the 1920s. It is important that we heed the words of the Select Committee, which said that this reform and modernisation was well overdue.

In conclusion, I reassure hon. Members that this Government have the welfare of the bereaved and their families at heart. There can be absolutely no question but that the loss of a spouse is tragic, and it is doubly so for families with children. There can be no time limit on grief for such a loss, and nor is there a pre-defined way in which grief will manifest itself, but where we can help, we will do so. We remain committed to supporting widows and widowers to adjust to their new circumstances and to providing financial help in the difficult months following their loss. On that basis, I commend the regulations to the Committee.

Question put.

Oral Answers to Questions

Alex Cunningham Excerpts

Monday 20th February 2017 Commons Chamber

[Damian Green]

I can supply the hon. Gentleman with evidence that we have transformed saving over the past few years. People have often said that young people in particular do not want to save, but the facts I have just put before the House suggest that that is no longer the case. If the hon. Gentleman is advocating taking away all tax relief for pensions, I would be interested in his ideas—as, I am sure, would his own Front Benchers.

[Alex Cunningham (Stockton North) (Lab)]

Ministers have been clear on the need for transparency in the pensions industry, including in master trusts dealing with auto-enrolment. In his Second Reading speech on the Pension Schemes Bill, the Secretary of State spoke of it. In a speech to the TUC, the Pensions Minister said:

“We have to get transparency. It’s not an option to do nothing.”

On Report in the Lords, Lord Freud said:

“We want pension scheme members to have sight of all costs and charges”.—[Official Report, House of Lords, 19 December 2016; Vol. 777, c. 1528.]

Despite those fine words, all the attempts to deliver on transparency in the Bill Committee were dismissed by the Government, so can the Minister tell the House what they mean by transparency in the pensions industry?

[Damian Green]

The Bill—I note the Labour party did not vote against it on Second or Third Reading, so the hon. Gentleman cannot have objected to it that strongly—actually set up a new system of regulation, particularly of master trusts, that deals with not just transparency but a whole range of aspects, so this relatively new form of financial body is now much better regulated than it was before. I would have thought that the hon. Gentleman welcomed it—actually, he did welcome it.

Pension Schemes Bill [ Lords ] (Fourth sitting)

Alex Cunningham Excerpts

Committee Debate: 4th Sitting: House of Commons
Thursday 9th February 2017 Public Bill Committees

[Ian Blackford]

On the basis of the Minister’s response, I will certainly not push the new clause to a vote. We have received assurances that the Government will look at these issues; I hope they will not only be addressed in the Green Paper, but that there is the possibility of legislation as a result of that. I think we all recognise—there is a consensus on this—that we have to make sure we can resolve this problem for the benefit or incorporated and unincorporated businesses. On that basis, I will happily leave things as they are for now. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 2

Investment Strategy

“(1) A Master Trust, after taking proper advice, formulate an investment strategy which must be in accordance with guidance issued from time to time by the Secretary of State,

(2) The Trust must consult scheme members on—

(a) the Trust’s assessment of the suitability of particular investment and types of investment;

(b) the Trust’s approach to risk, including the ways in which risks are to be assessed and managed;

(c) the Trust’s policy on how social, environmental, and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments;

(d) the Trust’s policy on the exercise of the rights (including voting rights) attaching to investments; and

(e) the right of scheme members to consider non-financial issues relating to their investments and be consulted on these issues.

(3) The Trust must review the strategy at least once a year, and revise if appropriate

(4) The Trust must revise the strategy at any time if there is any significant change to the information included in it.

(5) In the event of (4) above, the Trust must consult with scheme members, and the revise the strategy in the light of comments made.

(6) The Secretary of State may make regulations with a view to ensuring that the information disclosed under subsection (1) is provided in a timely and comprehensible manner.”.—(Alex Cunningham.)

A Master Trust must include an investment strategy which outlines what the Master Trust should consult scheme members on in areas of investment.

Brought up, and read the First time.

[Alex Cunningham (Stockton North) (Lab)]

I beg to move, That the clause be read a Second time.

Welcome to our walk-in fridge, Ms Buck. I had a discussion with the Government Whip, the hon. Member for Winchester.

[Richard Harrington]

On a point of order, Ms Buck. Actually, I do not know whether it is a point of order or a point of clarification. Before we come to the hon. Gentleman’s new clause, am I correct in saying that new clauses 11, 12 and 13 were all withdrawn?

[The Chair]

New clauses 12 and 13 were not called.

[Alex Cunningham]

I was talking about the conversation that I had with the Government Whip about whether we should invoke the Factories Act. He reminded me that, unhelpfully, said law does not apply to the Palace of Westminster. The Minister mentioned kicking a can, and I remember playing kick the can in the street as a young boy. Perhaps you can provide us with a can, Ms Buck, and we can have a game after we debate the next new clause to warm ourselves up.

New clause 2 continues our theme of transparency and member engagement. It is designed to improve the way that master trusts consult their members about their investment strategies and ensure that members are aware of the guidelines that trustees establish for the management of members’ assets. The new clause would modernise the approach to fiduciary—I find that word even more difficult to say than “Lochaber”—management of savers’ assets and update the statement of investment principles approach currently required of master trusts. A master trust would have to have an investment strategy and consult scheme members about that strategy and about socially responsible investment—commonly known as environmental, social and governance issues.

Until now, every occupational pension scheme has been legally required to prepare and maintain a statement of investment principles, which is expected to cover the trustees’ plans for securing compliance with their statutory duties, their policies on investments, risks and returns, and how they will exercise their voting rights. In short, it allows trustees to consider factors that they believe will influence the financial performance of their investments and consult members about those issues. As long as pension funds can show that any investment or policy decision was made on a fiduciary basis and members were consulted, they can avoid the charge that they have not considered members’ best interests.

Public opinion tends to position the average citizen as a helpless bystander in this drama, but in fact it is their money that underpins the entire system. Anyone with a pension is, indirectly, an owner of Britain’s biggest companies. The new clause seeks to create a world in which people feel that their savings give them a positive stake in the economy and a voice in how the companies in which they invest are run. Although we may hope or even expect that scheme members have a say, the reverse is true: power has become increasingly concentrated in the hands of a relatively small number of opaque and unaccountable financial institutions. As the Kay report showed, those institutions often face systematic pressures to act in ways that may not serve savers’ interests. Direct accountability to savers is a vital component of a healthy economic and financial system. As millions more savers are about to enter the capital markets through pensions auto-enrolment, now is the right time to build a more accountable system.

In June 2011, the Government invited Professor John Kay to conduct a review of UK equity markets and long-term decision making. The Kay review considered how well equity markets were achieving their core purposes—to enhance the performance of UK companies and enable savers to benefit from the activity of those businesses through returns to direct and indirect ownership of shares in UK companies. The review identified that short-termism is a problem in UK equity markets. Professor Kay recommended that company directors, asset managers and asset holders should adopt measures to promote both stewardship and long-term decision making. He stressed in particular:

“Asset managers can contribute more to the performance of British business (and in consequence to overall returns to their savers) through greater involvement with the companies in which they invest.”

He concluded that adopting such responsible investment practices would prove beneficial for investors and markets alike. In practice, responsible investment could involve making long-term investment decisions, as well as playing an active role in corporate governance by exercising shareholder voting rights.

I hope that master trusts will want to consider the Kay review’s findings when developing their proposals, including what governance procedures and mechanisms are needed to facilitate long-term responsible investing and stewardship through the funds that they choose for members to save into. The UK stewardship code published by the Financial Reporting Council also provides master trusts with guidance on good practice in monitoring and engaging with the companies in which they invest. The new clause would ensure sure that trustees are guided by the members of the scheme whose money they invest.

In recent decades, efforts to improve the way companies are run have focused heavily on making directors more accountable to their shareholders—for example, the recent introduction of a binding “say on pay”—but the job is only half done. Ownership rights are exercised largely by institutions that are themselves intermediaries. Accountability to the underlying savers who provide the capital remains weak. The logical next step must be for institutional investors to extend the same accountability they expect from companies to the savers they represent.

The UK stewardship code was introduced in the aftermath of the financial crisis to address concerns that shareholders were behaving as absentee landlords. Rather than being enforced by regulators, it is a voluntary code that relies on scrutiny from below to promote compliance, mirroring the corporate governance code for companies. The investment regulations currently require master trusts to set out within the statement of investment principles the extent to which social, environmental or corporate governance considerations are taken into account in the selection, retention and realisation of investments, but savers are left out of the loop. Just as I have argued for greater engagement with members on other issues, I believe it is needed here too.

In addition, accountability should build trust in the system even among those who do not choose to engage, thus encouraging people to keep saving. That is an important consideration in a market where just 7% of retail investors trust investment firms to do the right thing and consumers cite lack of trust as the No. 1 reason for opting out of private pension saving. Practical objections on the grounds that savers are not interested or not capable of engaging with their money simply perpetuate a vicious circle of disengagement. Savers may be put off by the language of investment, but that does not mean they are not interested in where their money goes. The onus must be on the master trusts and the wider investment sector to communicate with savers in a way they find meaningful. Likewise, savers may lack understanding of the technicalities of investment, but there are many matters on which they are qualified to comment, including the way their scheme behaves as an owner of major companies or its policy on social, environment and governance issues.

Transparency is necessary, but not sufficient for a more accountable investment system. Savers must also have the right to engage directly with decisions about their money, in the same way that shareholders engage with companies. Of course, we are not suggesting that all savers should be consulted on every decision. In our view, engagement with savers has three key elements. Savers should have the right to be consulted about investment policies, particularly those that should be firmly grounded in the views of savers, such as socially responsible investment policies. It is sometimes argued that since savers will inevitably disagree, acting on their views can prove difficult, but that objection can be refuted by example: schemes such as the National Employment Savings Trust demonstrate the possibilities of using face-to-face engagement with savers to inform the development of policy. Savers should be able to subject decisions made on their behalf to healthy scrutiny and challenge. While companies are obliged to hold annual meetings at which the board accounts to their shareholders, no such requirement extends to pension schemes.

Making capital markets more answerable to the individuals whose money they invest offers a potential lever for rebuilding trust in the City and for promoting more responsible and long-termist corporate behaviour. Such accountability must be nurtured over time by institutional investors such as master trusts, other pension savers and civil society in general. As Mark Carney said back in 2013, if it is

“finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.”

We have an opportunity here to change the landscape that sees pension savers as passive uninterested participants by engaging with them on decisions that affect their lives. When I started this speech, I said I was continuing the theme of member engagement. The new clause would extend what currently happens in relation to investment decisions, and I commend it to the Committee.

[Ian Blackford]

Before the hon. Gentleman concludes his speech, I wanted to ask about subsections (3) and (4) of the new clause, which state:

“The Trust must review the strategy at least once a year…The Trust must revise the strategy at any time if there is any significant change to the information”.

Can he explain what form that review would take and what role investment advisers would have, if any, in that review?

[Alex Cunningham]

That is an extremely difficult question to answer. [Interruption.] Everyone can laugh, but the Government talk about regulations and laying down guidance, and I hope that they would be able to provide the necessary guidance.

[Ian Blackford]

This is actually a very serious point. The hon. Gentleman’s new clause would require an annual review, so it is pertinent to ask how that would be conducted and what role, if any, investment advisers would have.

[Alex Cunningham]

There has to be a role for investment advisers, but the crux of my point is that members should have some say in the investment decisions that affect them.

[Ian Blackford]

Can I deduce from that that the hon. Gentleman actually has no idea how such reviews should be conducted?

[Alex Cunningham]

That is not exactly the case. It is clear that we need a set of circumstances in which members are properly engaged, equipped and informed. If they are, they will be able to contribute.

[Craig Mackinlay]

I oppose new clause 2 just as I opposed new clause 1, not least because of practicality. Let us go back to the example of NEST, which could have millions and millions of members—and I envisage that it probably will. How on earth could an investment strategy be decided by 3 million members? That would probably lead to three million and one different investment strategies.

I do not see anything in the Bill that would prevent a scheme such as the one the hon. Gentleman proposes from coming to the market if there was demand for it from several employers and members in those employers. The market could then decide, “I like the look of that scheme, with its huge member involvement.” I see no reason why such a scheme could not evolve if one was called for.

The hon. Gentleman speaks about an ethical investment policy. That is all very well, but I remind him that the Co-op bank took a similar route, and it is not exactly in great shape. I put it to him that when I go to a doctor, I like to see the doctor; I do not particularly want to see the lay members of the NHS trust as well. I feel comfortable leaving this with investment professionals, because they will be judged on their performance. If they do not achieve, employers may look at an alternative master trust.

--- Later in debate ---

[Richard Harrington]

As usual, the hon. Gentleman makes a very sensible suggestion, which should be considered. However, I believe that everything in the new clause is already included in legislation and that it is therefore unnecessary, so I urge the hon. Member for Stockton North to withdraw it.

[Alex Cunningham]

Let me first address the point about size and the ability to organise communications in this sort of situation. If Legal & General can do it, so can others.

The Minister described lots of ideas raised today as laudable. Sadly, all the ideas he supports exclude members. He rejects the idea of members being represented among trustees and the idea of member-nominated directors. His position is that everything should be left to professionals and to the marketplace, and that members may not be able to take part in or understand investment decisions. He admitted that he might not understand those decisions, but there are members out there who do, and it would be helpful if at least some of them could represent their fellow members and challenge some of the things that their trustees are doing.

One further point concerns me. An employer may opt for a particular trust but become dissatisfied with it and move. There are a very large number of employers, and I fear that a large number of them are disengaged. I wonder whether they are acting in the best interests of their employees. I will come to that during the debate on a later amendment. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 3

Annual Member Meeting

“(1) The trustees of an authorised Master Trust Scheme must hold an annual meeting open to all members of the scheme.

(2) The Master Trust must take all reasonable steps to make the meeting accessible to all members, this includes making arrangements for—

(a) scheme members to observe the meeting remotely, and

(b) scheme members to submit questions to trust members remotely.”.—(Alex Cunningham.)

This new clause requires Master Trusts to hold an Annual Member Meeting, and sets out ways to ensure members are properly given the opportunity to be involved.

Brought up, and read the First time.

[Alex Cunningham]

I beg to move, That the clause be read a Second time.

This new clause takes us back to our member engagement theme. It would require master trusts to hold an annual member meeting, and it sets out ways to ensure that members are properly given the opportunity to be involved in that. It is now common practice for pension funds to hold an annual member meeting. Good member communications, provided at the right time and in an accessible format, are vital if members are to engage and make decisions that lead to good outcomes during their retirements. An annual member meeting ensures that trustees and administrators can be made human and accountable.

A Legal & General master trust annual report states:

“In September last year we hosted a Members’ Forum at Legal & General’s office in London. It wasn’t just a first for us, it was the first ever for any scheme like ours. We got a lot out of that meeting, and we hope that those members who attended did so too. Our aim was to get a better understanding of the things that matter most to members, to help inform our plans for the future. We believe we achieved our aim, and the feedback we got from those members was encouraging.”

I am not here to promote Legal & General, but I commend its attitude and its work in this arena.

Trustee boards should regularly review member communications, and when deciding on the format of those communications, should take account of innovations of technology that may be available to them and appropriate for their members. That would allow the more engaged members to hear a presentation from trustees and senior executives about how the scheme has managed their retirement assets over the previous year and what plans the scheme has to deliver a strategy and manage risk into the future on their behalf. If Legal & General can organise such an event, I think others can too—even if they have vast numbers of members.

If others do not do what Legal & General did, how could they have an annual forum? We must not forget that there is no necessity to fill a hall with thousands of people in this technological age. It is possible to reach more people perhaps by combining a live meeting with an online platform, or indeed to hold the whole meeting online. A recording of the meeting could then be made available on the trust’s website, with an opportunity to give feedback.

The Pensions Regulator’s guidance accompanying its new defined-contribution schemes code of practice highlights AMMs as one way that multi-employer schemes can stay close to members. The new clause would bring master trusts into line with the normal practice in the corporate sector and among the growing number of pension schemes.

--- Later in debate ---

I want to avoid the situation that the hon. Gentleman wants in which a scheme is obliged to hold an AGM, because the cost will be passed on to the membership and I cannot see that it will achieve the noble objective that the hon. Gentleman wants. I hope the points I have made sufficiently explain why the Government are of the view that the new clause is not appropriate, and I sincerely urge the hon. Gentleman to withdraw it.

[Alex Cunningham]

I do not have the app jargon either, as the Minister will probably realise. We have talked much about engagement and communication over the past two or three sittings. I remain concerned that there is still no real requirement on the trustees of any of the master trusts to communicate with the people whose money they are responsible for managing. We need to make communications much more practical, and I believe that if member meetings work well for some organisations, they could also work well for master trusts.

I hope that master trusts out there will learn from NEST and from Legal & General, and will understand that member meetings can happen and that they can derive tremendous benefits from their members being much more engaged. I would prefer to see a situation in which it is enshrined in the law and there is a compulsion for people to build on what is already happening out there, to repeat some of it and to see a level of engagement that we have so far not seen, but I do not intend to press the clause to vote at this stage. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 4

Master Trust Schemes: Review of Participation

‘(1) The Secretary of State must, before the end of the period of 12 months from the day on which this Act receives Royal Assent, establish a review of participation in Master Trust Schemes.

(2) The review must consider what steps can be taken to increase the participation in Master Trusts Schemes by the following groups—

(a) carers;

(b) self-employed;

(c) workers with multiple employees; and

(d) workers with annual earnings below £10,000.”

(3) One of the options considered by the review to improve participation must be changes to the terms of auto-enrolment.’. —(Alex Cunningham.)

This new clause reviews options for widening participation in Master Trust Schemes for groups currently facing barriers, in particular groups not currently covered by auto-enrolment.

Brought up, and read the First time.

[Alex Cunningham]

I beg to move, That the clause be read a Second time.

I was pleased to table this vital new clause, which attempts to widen access to master trust saving for those whom this Government have left excluded for too long. As it stands, the Bill does little to build on the success of Labour’s auto-enrolment policy and ensure that saving into master trusts is accessible and encouraged for the number of groups that evidence suggests are not saving adequately for their retirement.

I recognise that the Government have announced a review of the operation of auto-enrolment into master trust saving, but its scope is broad, with few specifics in the terms of reference published yesterday. It is vital that the review specifically addresses the question of how we can improve master trust saving among the groups specified in the new clause. That will ensure that the Bill delivers plans that strengthen security and dignity in retirement. The Minister may already be wondering why I am pursuing the new clause when it appears he has the matter in hand. He may have it in hand, but there is merit in naming some of the very specific groups who most need change and in implementing the recommended changes.

It is a testament to the last Labour Government that 10 million additional workers are estimated to be newly saving or saving more as a result of auto-enrolment into master trusts. It has led to an additional £17 billion of pension saving being put away, mostly by low-income workers. Nevertheless, many excluded groups remain, in part due to the actions of this Government, who increased the triggering threshold at which workers were automatically enrolled into a master trust saving scheme. According to the latest Department for Work and Pensions statistics, 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust saving through auto-enrolment. Critically, those groups are over-represented among low earners, the self-employed, those with multiple jobs and carers—the areas we believe that the Government should focus on in their review, as set out in the new clause. I hope they will.

At the end of last year, the Pensions Policy Institute published a report assessing future trends in defined-contribution pension saving. It is worth quoting the following section of the report in full, as it clarifies the current situation. It states that

“the evidence so far suggests that many households will be unable to maintain their current standard of living when they reach retirement. The advent of auto-enrolment has increased the number of workers saving for retirement, with more active savers now in defined contribution (DC) pension schemes rather than defined benefit (DB). This rise in the number of pension savers is a step in the right direction, but DC plans must continue to evolve in order for them to provide savers with an adequate pension.”

The report goes on to find that the median saving of DC scheme members could yield £3,000 a year as an annuity, which is not a lot of money.

More work needs to be done to improve the adequacy of returns on DC savings, including by looking in more depth at costs and charges, as we have tried to do throughout our consideration of the Bill. Nevertheless, the top-up provided from access to master trust saving through the auto-enrolment scheme is a valuable addition to state pension provision, so it is worth while to ensure that as many low-income groups as possible have access to master trust saving.

I will start with how master trust saving for low-income groups could be improved through the Bill. Taking carers first, while those who leave or reduce their hours of employment to care for loved ones are rightly supported through the social security system, it seems unjust that they will probably miss out on the fuller benefits enjoyed by those who are able to save more into occupational pensions as a result of being able to remain in employment, in spite of the fact that carers engage in valuable labour—work that would otherwise have to be picked up by the state. It is my strong belief that the Government should try to improve the retirement prospects of carers, and master trusts, which have been set up to service large numbers of low-income savers, may be an avenue worth exploring. We would include carers as part of a wider review of groups that are excluded from pension saving.

The same is true of the self-employed. I was personally heartened by the amendment tabled by the hon. Member for Amber Valley. After more than a decade of expansion in that part of the labour market, self-employed people now make up 15% of the workforce. Vast numbers of them are at the very bottom end of the income scale, and there is much evidence to suggest that they are not saving as much as those in other sections of the workforce. Research by the Association of Independent Professionals and the Self-Employed found that four in 10 self-employed people do not have a pension. The New Policy Institute found that the self-employed are not only less likely to participate in pension saving but tend to save less as a whole when they do.

Despite that worrying evidence, there are few obvious means by which the self-employed can begin to build up a savings pot in a master trust. That is just one way in which Britain’s entrepreneurs have been let down and ignored. There is no mechanism to manage the enrolment of self-employed people in master trust schemes. Of course, the fact that there is no employer means that, like informal carers, self-employed people’s contributions cannot currently be topped up. I do not believe that it is beyond the bounds of possibility for an expert review to look into that conundrum. The Labour party remains the party of working people, including the self-employed, and we are keen to explore how they might be encouraged to save into defined-contribution master trust schemes to ensure that they have the dignified and secure retirement that we believe everyone has the right to.

Perhaps moving closer to the existing system of saving into master trust schemes, there is also the urgent question of people with multiple jobs. Under the current system, those whose earnings exceed the earnings threshold but result from multiple jobs are unable to access auto-enrolment into a master trust scheme. It seems that the only logic preventing that group from accessing savings is the administrative barrier posed by their having more than one employer. In other words, there is no mechanism either to establish total earnings to trigger access to auto-enrolment, or to determine the sponsoring employer of a person working multiple jobs. Although that issue may seem overwhelming to the Government, we believe that it warrants further attention—especially given the way the labour market is changing, with as many as 3 million people estimated to be working multiple jobs just to make ends meet.

I turn finally to access to master trust savings for low-income savers. Under the auto-enrolment policy developed by the Labour party, working people would have been automatically enrolled into a master trust scheme once their earnings had crossed the trigger level of just over £5,000, the logic being that people would begin to save towards an occupational pension at the same earnings level at which they began to pay national insurance contributions. However, the coalition Government increased the earnings threshold to £10,000, denying millions of low earners the automatic right to save towards a relatively low-cost occupational pension through a master trust.

The last annual review of auto-enrolment into master trust savings concluded that the lower earnings threshold will be £5,876 and the trigger threshold will be frozen at £10,000. Although that freeze will bring a few more workers into the scheme through inflation, we do not believe that that is happening quickly enough. Given the generational crisis that is developing in our pensions system, more needs to be done to include low earners in savings provision and encourage retirement planning.

In conclusion, we recognise that the upcoming 2017 review of auto-enrolment presents the Government with an opportunity to take seriously the problem that certain groups are excluded from master trust savings. The new clause would guarantee that the Government engaged with these vital issues and those groups in the full and proper way. To be clear, we are not trying to force the Government to implement specific policy proposals after the Bill’s passage, although in the view of our colleagues on the Constitution Committee, that would not be out of step with much of the rest of the Bill. We merely wish to place a statutory requirement on the Government fully and properly to consider as part of their planned review what steps could be taken to widen participation for some of the most vulnerable groups.

I have one very specific question about the implementation of the review’s recommendations once it is completed. We talked about this earlier in relation to another matter. Will the Minister have powers under regulations to implement those recommendations, or will we have to wait for another pensions Bill, which is unlikely during this Parliament? The new clause would help to increase the security and dignity of retirement for groups on the lowest incomes. How can the Minister possibly refuse to guarantee that the review will address these important issues and groups?

[Richard Harrington]

I compliment the hon. Member for Stockton North on his speech. He has quite clearly listened to all the speeches I have made since being appointed to this job. I will point out one or two facts to respectfully disagree with him—and, for once, his style, which I have not done up to now. To make this into a political matter by saying that auto-enrolment was Labour’s idea is not really fair. I may be correct in saying that Lord Turner, who chaired the Pensions Commission, was offered a peerage by three political parties and took one from the Liberal Democrats. The other commissioners were Labour and Conservative. I am not being flippant, but the spirit of our debate has generally not been party political at all.

[Alex Cunningham]

I accept that—okay, we are making a few political points. It was a Labour Government who brought in auto-enrolment, but this Government have successfully encouraged more and more people to invest more and more, which is a very positive thing. I place that on the record.

[Richard Harrington]

That is very reasonable. The hon. Gentleman’s general approach—and mine, I hope—has been not to bring party politics into the debate, because we all have exactly the same objectives.

I have one or two further points to make. The hon. Gentleman mentioned women being excluded from auto-enrolment—not by law but in practice—for different reasons. Actually, the number of women being enrolled is very impressive, although I do not have it to hand. I am pleased to say that I do not think that this is a gender equality issue.

The fundamental point is that the issues that the hon. Gentleman mentioned and that his new clause would address were mostly covered by the Secretary of State in yesterday’s announcement about the extent of the auto-enrolment review. That was not timed to happen just before this Committee sitting; it is just how things worked out. The review will look at the self-employed, who are excluded from the current system, which has gone from nought to a lot very quickly, after all. It will also look at people with multiple earnings under the £10,000 mark from different sources. Incidentally, people paid less than that—I cannot remember the exact figure, but it is just under £6,000—are allowed to enrol, and they get help from their employer and the tax system, although at that level they would not necessarily pay tax. All these things are being looked at. The review will be very comprehensive and will go far beyond what the statute calls for. I will be very pleased to look at its results.

The hon. Gentleman asked whether implementing the review’s recommendations would involve another pensions Bill, which he and Her Majesty have decided we will not be having in this Session. I cannot say, because I do not know what the recommendations are, but some things will need primary legislation and others will not.

Unless the hon. Gentleman has an urgent intervention to make, I will conclude. I have listened carefully to what he said and am glad to have included it all in my speeches, and I am glad that it will all be included in the review.

[Alex Cunningham]

My final intervention is to raise the very specific issue of carers. Will carers be included in the review?

[Richard Harrington]

The review is generally worded. It could include carers—they are not specifically mentioned, but I believe that it will include them, and I would encourage it to include them. However, to include them as a category would be a little unfair on others who may be in a similar financial position.

The hon. Gentleman’s sentiments are absolutely right, as were most things he said in his speech, but I do not think it is appropriate for the new clause to go into the Bill. It is far too early; we have been doing auto-enrolment for only a short time, and we are doing a comprehensive review. Despite his sentiments, I ask him to withdraw the motion.

[Alex Cunningham]

I am pleased to have those commitments on the record, particularly those relating to some of the more vulnerable groups. I appreciate that there are other groups apart from carers, as the Minister said, but carers provide a tremendous service that is probably worth billions of pounds to our country every year, so it is important that we have some form of provision for them. The new clause was always going to be a probing clause. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 7

Enrolment in Master Trust scheme: duty on employers

“Before an employer enrols in a Master Trust scheme they must—

(a) take reasonable steps to ensure themselves that the scheme is financially viable;

(b) ensure the scheme is on the list of authorised Master Trust schemes maintained by the Pensions Regulator (section 14); and

(c) take reasonable steps to ensure themselves that the scheme will meet the needs of their employees.”.—(Alex Cunningham.)

This new clause would require employers to conduct basic checks before signing up to the Master Trust scheme.

Brought up, and read the First time.

[Alex Cunningham]

I beg to move, That the clause be read a Second time.

It is almost as if I am doing an aerobics class; I have already warmed up, even in this cold Committee Room.

New clause 7 would provide employers with a fiduciary duty and a duty of care to members to ensure that the master trust of their choice meets the needs of their staff. The auto-enrolment process in the UK rests on the employer making the choice of scheme for those purposes. The new clause would ensure that, before authorisation, the employer is duty-bound to ensure that the master trust is fit for purpose and has all the necessary information for that choice to have a sound footing.

We need to ensure that the employer has a defined duty to carry out due diligence when choosing a workplace pension. Otherwise, many employers—through expediency or otherwise—will continue to make choices that may not be in the best interests of the scheme’s beneficiaries.

The past 20 years has seen us lurch from one mis-selling scandal to another. Pension transfers, endowments, payment protection insurance and interest rate swaps have all been subject to class actions, and to massive retrospective penalties being imposed on those found wanting in due diligence.

In the US, the employer has a fiduciary responsibility to their staff and chooses their scheme in their best interests. That means that if employers do not take due care in the choice and governance of the plan that they set up for their staff, they are liable to civil prosecution. Employers in the US take fiduciary obligations seriously, not least because scheme members are now taking and winning class actions if they do not.

A class action can focus on the choice of scheme provider, failure to establish suitable investment options and failure to monitor how funds perform as the scheme progresses. Some advisers in the UK, such as Pension PlayPen, think that the information given to employers to choose a workplace pension is insufficient, and that there is little supervision of the due diligence process by regulators, which is in sharp contrast to what happens in America.

The other day, Pension PlayPen stated on its blog:

“The common law includes the concept of an employer’s duty of care to staff, not just for their health and safety but for their financial welfare. This duty of care forms part of a social contract, the implicit responsibilities held by individuals towards others within society. It is not a requirement that a duty of care be defined by law.

An additional worry is that employers do not see this as their choice. Too often we get answers from employers ‘we did what our accountants told us to’. It is as much in the interests of accountants to ensure the employer states why they have chosen their pension as it is the employer’s.”

So what happens when the duty of care and fiduciary obligations go wrong? The only option is the courts. According to a Financial Times article last November, there has been an “explosion” of class actions in the USA on the issue of financial detriment to scheme members. These suits have not yet gained much public attention, due to the reputation of the US legal system, but it is also partly because the legal action is fragmented and spread between different courts, and cases are often settled in private with binding confidentiality clauses. What is more, pensions have the unfortunate reputation of being rather dull, even though the sums involved dwarf those of the multibillion dollar settlements seen in banking since 2008.

However, the basis of the complaints are sound and echo a warning that we have been making about the lack of transparency and engagement for members of schemes. Members may have been charged excessively high fees, the most noticeable or important point being that the investment process may be used to extract wealth.

As in other financial suits, such as PPI suits, the cases claim that financial organisations have used opaque structures, so that transactions extract money that ought to go to members of schemes. In one case, JP Morgan has been sued by a participant for allegedly causing employees to pay millions of dollars in excessive fees, through a scheme motivated by “self-interest”. The plaintiff claims that JP Morgan, as well as various board and committee members, breached its fiduciary duties by, among other things, retaining proprietary mutual funds from the bank and affiliated companies for several years, despite the availability of nearly identical, lower-cost and better performing funds.

Not all of these cases are just related to charges in the investment chain; some are also about administrative processes. A website—401khelpcenter.com—highlights that members of Essentia Health in Minnesota filed a class action lawsuit against the sponsor, claiming that the organisation paid excessive fees to their record keepers.

[Craig Mackinlay]

The hon. Gentleman has mentioned many times the potential for class action, particularly in the US, on various issues. Does he not believe that having the word “reasonable” twice in the new clause that he has tabled actually becomes a licence for class action, rather than closing it down?

[Alex Cunningham]

I certainly do not. I am not a lawyer, but I believe that the new clause is sufficient and does not open the way for such action. What I am trying to do is provide a protection for employers within the scheme, and therefore also for members.

The latest complaint was filed in January against Aon Hewitt Financial Advisors, accusing the company of breaching the Employee Retirement Income Security Act 1974, or ERISA. That is the fourth lawsuit to target the fee arrangement for services provided by a computer-based investment advice programme.

[The Chair]

Order. May I ask the hon. Gentleman to move away from discussing court cases in his comments?

[Alex Cunningham]

I am doing that now. We have a clear warning that if a company fails in its fiduciary obligation, litigation may be an option. We know from the FCA report that implicit costs are opaque and likely to be much higher than those that have been explicitly presented. We believe that it will not be long before legal teams from the US alert their operations in the UK of potential opportunities for litigation. I can see the adverts on TV now: “Problems with your pension fund? Have you been subject to high fees and transaction costs that you never knew were there?”

The most important “don’t” must be, “don’t assign a low priority to your employees’ auto-enrolment choices.” The big lesson of the litigation—albeit US litigation—is that employers must assume that they have that fiduciary duty, as do trustees, and that they always need to have auto-enrolment choices on their radar screens. It is a lesson once again that the lack of transparency in the governance process, the administration process, the investment process and the advice process will lead to the detriment of the member.

To ensure that we can help build citizens’ trust in the system, we must have transparency for employers and members. We must have the information in front of the employer choosing the scheme to protect them and their employees. I commend new clause 7 to the Committee.

[Richard Harrington]

I thank the hon. Gentleman for his contribution with the new clause, but I respectfully give him my opinion that he seems to be fundamentally misunderstanding the whole regulatory system of automatic enrolment. So long as an employer chooses a scheme that meets the criteria—we have been through all the criteria and the whole regulatory and legislative system is behind that—the scheme qualifies for AE. The employer —which may be a he, she or it, if it is incorporated—cannot just decide on any old scheme. There is a significant regulatory hurdle in the Bill.

The employers’ duty is met by scheme choice, because that is what auto-enrolment is. It is not like a defined-benefit type of scheme, where the employer has to ensure that the contributions are enough to be able to pay out what they are contracted to pay out in the scheme documentation. They have to make a reasonable decision based on the whole authorisation regime. I argue that asking for more would be inappropriate and burdensome for employers.

It may help the hon. Gentleman to see my point if he looked at the regulator’s website—he might have done so already—which has comprehensive guidance for employers. Under the new clause, a typical employer would be doing exactly what the hon. Gentleman says is inappropriate: they would basically be doing what their accountant or adviser tells them, because most employers, particularly the small ones, by definition do not have this kind of knowledge. They are not professionals in this area; there are there to run their own business.

I do not understand, whether from a personal or a Government perspective, how asking them to do meaningful checks after they have gone with an approved and regulated scheme would add anything to the process. It is well-meaning, but it is unnecessary and should not be part of the Bill. I sympathise with the intent. The hon. Gentleman is trying to protect members from people acting in a fraudulent way.

[Alex Cunningham]

Perhaps the Minister can address this very simple question: is he satisfied that employers could not be subject to legal action against them if they end up making a bad choice on behalf of their employees?

[Richard Harrington]

As I have explained, their choice on auto-enrolment is restricted to choosing a regulated, authorised scheme. I am not a Government lawyer, or any other type of lawyer, although perhaps I should disclose to my chagrin that I did a law degree 40 years ago.

--- Later in debate ---

[Richard Harrington]

I absolutely agree. In fact, such schemes are often criticised for precisely that reason. They are criticised for being too conservative—in the investment sense, not the political sense—and for missing out a lot of good possible investment decisions, and the thought of that being reviewed by every single employer. I mentioned NEST and its 230,000 employers. I cannot believe that it would be fair to place such a regulatory burden on them when they are choosing from an approved list. The whole purpose of the regulation is that the schemes are approved, proper and regulated.

I am trying to see where the hon. Gentleman is coming from. I hope that he can see where the Government and I are coming from, and why I am not of the view that the new clause would be appropriate. I respectfully invite him to withdraw it.

[Alex Cunningham]

I accept the explanation that the Minister has provided about the employer making a choice from a regulated scheme and the protections included within that. If he is satisfied that employers will not face legal challenge as a result of the choices that they make within a regime where they must choose a scheme on behalf of their employees, and has placed that on record, I am content. I beg to ask leave to withdraw the new clause.

Clause, by leave, withdrawn.

Bill, as amended, to be reported.

Pension Schemes Bill [ Lords ] (Third sitting)

Alex Cunningham Excerpts

Thursday 9th February 2017 Public Bill Committees

Content of implementation strategy

[Alex Cunningham (Stockton North) (Lab)]

I beg to move amendment 30, in clause 28, page 20, line 14, after “charges” insert

“, including any caps on these charges,”.

This requires members to be informed about caps on charges.

Good morning, Mr Rosindell. The amendment is straightforward: it would ensure that members are given accurate information, particularly where caps have been placed on the charges alluded to in the clause. As the Secretary of State has yet to determine costs and charges throughout a pension scheme—not just administration but investment and transaction costs—we have yet another delay in ensuring that scheme members are delivered the efficiencies that they deserve. We are also dependent on the Secretary of State bringing forward secondary legislation on the continuity strategy, which means yet more delay.

I am in danger of repeating myself, but scheme members really ought to get more information about the issues that affect their pensions. We have to start somewhere, and I maintain that the Bill remains a good place to do that. As I have said elsewhere, the Government support a cost-collection template in the local government pension scheme, which prompts the question: why do they not use that for master trusts instead of going down the road of yet more consultation?

I know from experience this week that the Minister is unlikely to be sympathetic to the amendment. Assuming that we are in that place again, what consultation is he planning with scheme members on the need for greater transparency and how they think they ought to be informed and given the opportunity to be active rather than passive scheme members?

The Secretary of State said last week:

“We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]

I had hoped that we could go some way to implementing at least some measures to help to fill the communication deficit, but now we will have to wait even longer. Trust members would have a little more confidence in this Government if they took this opportunity to take action on costs and charges and the need to share information about issues such as caps.

I conclude with a final question for the Minister. The review is under way. Is he satisfied that he will have the powers under the Bill or any other piece of legislation to accelerate the drive for greater transparency, or will we have to wait for another pensions Bill, which I understand is unlikely during this Parliament?

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

I can do no better than to echo the sentiments of the Opposition spokesman in welcoming you back to the Chair, Mr Rosindell, which is a pleasure indeed. I wish that I could accept the amendment with such enthusiasm—

[Alex Cunningham]

Go on. Give us one!

[Richard Harrington]

—but we support the sentiments behind it. As with many things in the Bill, both sides want the same thing; the question is how things are achieved. The explanatory note to the amendment says that it

“requires members to be informed about caps on charges”,

which I understand, but the Government argue that that would duplicate provision elsewhere, so it is unnecessary.

I have said before that the Government agree with the principle that members should be able to see the costs and charges that affect their pension pot. Since April 2015, regulations have required trustees to report information about costs and charges in a chair’s statement, which must be shared with members, so that provision is there. Those regulations impose a charge cap where a scheme is used for automatic enrolment and contributions are invested in a default arrangement, as defined in the charges and governance regulations. To be clear, the cap is an annual one of 0.75%, or an equivalent combination charge, of the value of the member’s rights. That applies to master trusts in exactly the same way as it applies to other pension schemes.

The Government recognise that more needs to be done to increase transparency. We will be making regulations requiring charges and transaction costs for money purchase benefits in occupational pension schemes to be given to members and to be published. We have to get it right, and we are consulting. The hon. Member for Stockton North said that he thinks it is just another consultation, but it will happen this calendar year.

The purpose of the implementation strategy is for the Pensions Regulator to have scrutiny as part of the approval process.

[Alex Cunningham]

Before the Minister draws to a conclusion, I would be interested to know whether the regulations will outline exactly what chairs will be required to do to report on issues such as the cap.

[Richard Harrington]

Sorry—I was distracted when the hon. Gentleman asked his question.

[Alex Cunningham]

I will repeat it; we all get distracted at times. Will regulations outline what will be required within a chair’s statement to ensure that such things as caps are properly reported on?

[Richard Harrington]

I will answer that question in the same way as I have up to now: the consultation is looking at the way to disclose. I cannot give the hon. Gentleman the undertaking he seeks, but I fully expect that to be the case.

In answer to the other question, about whether the results of the consultation will require primary legislation, I can clearly say that they will not require another Bill. As to whether there will be another pensions Bill, the hon. Gentleman obviously has access to information on the Queen’s Speech that I do not have. I certainly do not think it is the position—it may be, but I do not think anyone knows at this stage.

I ask the hon. Gentleman to withdraw his amendment. That is not because I believe it is silly or anything, but because it is not needed. The charges in the scheme will be tethered to any cap that applied, and that information is already available to members.

[Alex Cunningham]

The Minister teases me a little with the idea that we might have a second pensions Bill this Parliament. I do not think he really believes that will be the case.

I recognise what the Minister has said. The very fact that he believes that the information will be included in regulations is a positive response, and for that I am grateful, but again we are back to the issue raised originally by the Constitution Committee. It said that there was a tremendous reliance by the Government on secondary legislation in the entire Bill.

[Richard Harrington]

I remind the hon. Gentleman of the affirmative nature of the regulations. That will allow scrutiny and discussion.

[Alex Cunningham]

Indeed. That is exactly why I am confident that what the Minister is saying will come to pass. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 ordered to stand part of the Bill.

Clauses 29 to 31 ordered to stand part of the Bill.

Clause 32

Pause orders

[Alex Cunningham]

I beg to move amendment 31, in clause 32, page 22, line 33, leave out paragraph (d).

This removes the provision that gives the Master Trust the ability to stop making payments to members of the scheme.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 36, in clause 32, page 22, line 44, at end insert—

“(f) a direction that further contributions or payments to be paid towards the scheme by or on behalf of any employers or members (or any specified employers or members) are collected and held in a separate fund, until the conclusion of the pause order;”.

The amendment provides the Pensions Regulation with an alternative to stopping payments to the schemes under subsection 5(b) of a pause order.

Amendment 37, in clause 32, page 23, line 11, at end insert—

“(7A) The Secretary of State may by regulations set conditions on the terms of a separate fund, used for purposes under section 5(f).”.

This amendment is consequential to Amendment 36.

--- Later in debate ---

[Alex Cunningham]

Our amendment 31 would remove the provision that gives the master trust the ability to stop making payments to scheme members in the event of a pause order following a triggering event. Our biggest concern with the clause is that, while the pause order is in place, there is a significant impact on the members of the scheme through no fault of their own. We understand that there may be circumstances in which a master trust should no longer collect contributions from an employer, but it is unacceptable that elderly, vulnerable people who are dependent on their pension do not receive it. It is our duty to ensure that pensioners do not pay the price for a problematic situation arising in a master trust, and that their quality of life is not adversely affected.

I think of the 80-year-old lady who trusted that her workplace pension would be safe and would look after her in retirement, but whose payments do not arrive when she expects. She is concerned, but decides that it must be an administrative error and that the payment will probably arrive the next day—but it does not. She does not have a computer to check the company website, and she may have spent hours on the phone waiting in a queue to inquire as to why she has not received her pension.

Amendment 28 called for not just employers but members to be told of triggering events. When we debated that amendment, the Minister said we could create unnecessary anxiety for scheme members before their lives were impacted. I accepted that point, and listened carefully to what he said about communication with a member when they were affected. A pause order resulting in the halting of payments is extremely significant. That woman may no longer have a workplace to go to; maybe the employer has ceased to exist and bears no responsibility to communicate with previous employees. She has not been informed about the triggering event that caused the pause order that has led to her not receiving the money she relies on to get by. The Minister knows the financial impact on such a person; I wonder what he would say to her.

The primary function of a master trust is to facilitate the collection of contributions and the payment of pensions. If a pause order has been issued, why can the master trust not still pay out? It may well be that the pause order lasts for only 48 hours, or even a week. Perhaps it is not unreasonable to expect people to be able to get by for a short amount of time, but pensioners could have no warning that they may not receive payments for an unspecified period. As it is, the Bill allows a pause order period of up to six months, and includes powers to extend that period.

What will happen to people and their livelihoods if they cannot access their pension? What provisions do the Government plan to put in place to ensure that those affected by a pause order will not face difficult and testing financial circumstances? We could have a widespread crisis on our hands—especially if it is a large master trust—that could impact on countless people and their families. I do not believe the Government have properly considered what would happen in those particular circumstances. I appreciate that requiring a master trust to pay out when there may be concerns about accuracy and record keeping could be problematic, but if the pensioners’ pot is protected, surely the income stream can continue?

That was also debated in the other place, without resolution. There was mention of exceptions, such as for ill health, but I am interested to hear the Minister’s view on continuing payments. If there has to be exceptions for some groups, who would be protected in those circumstances? I understand that a pause order allows the regulator to go in and make sure that the situation is sorted, but that is a difficult situation, and there will remain much uncertainty among members who see their incomes dry up.

We are back to communications again. Will the Minister advise the Committee on what information he believes should be shared with members, and when? Is it at the point of impact—when payments stop? Members must be at the heart of auto-enrolment, and they must trust that the system actually delivers for them. Stopping their payments will discredit the entire process. Opt-out rates could soar and trusts could be undermined.

Turning to the amendments tabled by the Scottish National party, we firmly believe that the Government need a plan to ensure that pensioners do not miss out on receiving their pension for an unspecified period, but we also believe that payments into schemes should not simply be halted. As a result, we welcome the SNP amendments that make way for a separate fund for contributions to be paid into during the period of a pause order, thus protecting the long-term interests of the member who had contributed.

[Richard Harrington]

I wish to make it clear, without punning too many times on the word “pause”, that we did pause after the intelligent discussion in the other place, so I will go into some detail on why we will not be accepting the amendments, two of which were tabled by the hon. Member for Stockton North and the third by the SNP.

First, amendment 31 would remove an important provision that allows the regulator to issue a pause order, which temporarily prevents benefits from being paid out from a master trust scheme to scheme members. Such an order can be made only in very limited and specific circumstances. I will briefly set out what those are.

[Alex Cunningham]

I appreciate the Minister allowing me to intervene so quickly. He says that pause orders can be made only in very specific circumstances, which he is about to outline. Will he acknowledge that they could last for up to six months, and perhaps be extended even beyond that?

[Richard Harrington]

The hon. Gentleman is correct, but of course it is at the discretion of the regulator, which will be dealing with all the circumstances. It could also be a very short period—that is the intention. I hope he agrees that the regulator has to have flexibility to deal with the specific circumstances of a particular case.

The scheme would have to be in a triggering event period, which means that one of the key risk events, which I explained previously, has occurred in relation to the scheme, the obvious one being that the scheme funder has become insolvent. Alternatively, the order could be made in relation to an existing scheme if it has submitted its application for authorisation and the decision on that application is not yet final. To satisfy the criteria, further conditions must be met. The regulator has to be satisfied that if a pause order is not made, there is or is likely to be an immediate risk to the interests of members in the scheme or the assets of the scheme.

--- Later in debate ---

[Richard Harrington]

It has been mentioned that, for example, suspicions of fraudulent activity might, in extremis, be such an event. Alternatively, the regulator might not yet be satisfied with respect to the administration of the scheme. The pause order clause is intended to apply in extremis. I am certain that most things will be taken care of in the normal course of things, but we felt that the regulator needed that power in extremis. That does not necessarily mean that the sky has to be falling in. A pause order might be used to concentrate people’s minds on resolving the situation quickly. Nevertheless, the power is there. It can be used

“during a triggering event period…if…the Pensions Regulator is satisfied that making a pause order will help the trustees to carry out the implementation strategy.”

The order is designed for quite particular and limited circumstances. I know that we keep using sledgehammer and nut analogies—on Tuesday I mentioned kernels— but I really believe that if it did trigger the kind of communication that the Opposition referred to, it might cause a major panic, which is something that we have to avoid and that the system exists to resolve.

[Alex Cunningham]

To extend the nut analogy, for a pensioner who may be losing £40 a week from their pension for up to six months, a pause order is not a tiny nut; it is a large coconut. It has a major impact on their lives.

[Richard Harrington]

I quite agree, and of course there are checks and balances within the system: the pause order can be exercised only on a determination by the determinations panel, and then there is a higher level of scrutiny. In a small administrative matter, it would be totally irresponsible for the regulator to suddenly decide on a pause order with the exact effect that the hon. Gentleman alludes to, either on pensioners receiving benefits or on people working as normal and paying contributions that come out of their weekly or monthly statements.

I totally agree with the hon. Gentleman’s intent, but I think it is important to look beyond the general definition of a pause order and into the specifics, which I hope I have explained, albeit briefly. I ask him to withdraw the amendment; he makes an important point, but I think we have attended to the detail necessary to ensure that what he fears, and we all fear, does not take place.

As we have heard, amendment 37 is consequential on amendment 36, so I will discuss both SNP amendments together. The hon. Gentleman has stated that he supports them, so at least it will be on the record that the Opposition and the SNP actually agree on this subject. [Interruption.] That was teasing, to use this Committee’s terminology. I withdraw any teasability if I have caused offence.

Critically, amendment 36 would allow the Pensions Regulator to issue a pause order containing a direction that any paused payments into the scheme are to be

“collected and held in a separate fund, until the conclusion of the pause order”,

and amendment 37 would allow the Secretary of State to make regulations about the fund. On the face of it, it seems sensible to have a separate fund set up, but it would be extremely difficult in practice. Employers would have to negotiate with their employees to obtain their permission to take deductions from their pay and pay them into a different entity. That money would not actually be being paid towards a pension scheme; it would have to go to a solicitor’s client account, for example, or to another account that had been set up, instead of to the pension itself. There are tax implications and many other implications. That would cause fear, because people would think, “What is happening to my existing pension money? I am having to pay it into an emergency account.”

[Richard Harrington]

My hon. Friend raises a very good point that we have considered. Having been an employer for many years and supervised payroll systems, I understand that that would be the obvious thing to do: simply hold on to the money. Provided it was kept within a business but earmarked for that, I do not think anyone could say that the employer would be in breach of their legal duties for auto-enrolment.

Of course, then a problem arises. It sounds appallingly administrative and technical, but it is the sort of thing that lawyers make a lot of money out of. If it were paid into a non-pension fund emergency account, which I believe could be an unintended consequence of the honourable amendment tabled by the hon. Member for Ross, Skye and Lochaber, it could mean that the money is not being paid into a pension fund. What happens to its legal status, the tax and everything else? It is very much in extremis and complicated.

I am not regarded within the pensions trade as a great voice for employers, as I think everybody in the House would agree, but this would represent a significant burden for employers. I ask hon. Members to bear in mind that employers will not typically have been responsible for this problem—they will not typically have been responsible for the events leading to the pause order being made. From their point of view, they have simply been complying with their duties under auto-enrolment, as my hon. Friend the Member for South Thanet said.

I do not believe we can place them in a situation where they risk being unable to comply with their legal duties or where compliance becomes a significant burden. As I have said, this is very complicated and the tax and payroll implications are not certain. I think we would all agree that in these rare and very limited circumstances, the solution presented in the Bill is the most simple for employers to comply with. Given the very limited impact on scheme members and the low likelihood of this situation arising, I believe that is the right solution.

[Alex Cunningham]

The Minister keeps talking about short periods of time when there might be an impact. Has the Department given any consideration to the impact of loss of income on members of the scheme and on the social security system? What would happen to ensure that people affected by the loss of income due to a pause order are compensated by social security in the event of their qualifying for benefits because they no longer have a pension income?

[Richard Harrington]

The hon. Gentleman makes a very good point about social security implications. I cannot answer that question. I will have to give it some thought and I am happy to correspond with him on that subject. I think it is interesting and, although not directly relevant to this point, it is an important implication.

Hon. Members will be delighted to know that I have just remembered that employers are excused from AE duties during the pause order period. From the hundreds of pages of the Bill it had to get to the front of my mind, and it has. I thank the hon. Gentleman for triggering that recollection. I do think that everything has been taken into consideration. I hope that my explanation has been sufficiently comprehensive for the amendment to be withdrawn.

--- Later in debate ---

[Richard Harrington]

Mr Rosindell, before we end our debates on this clause, I would like to make a point of clarification regarding an error on my part. In previous sittings, when I was referring to the regulations generally, I said that they are subject to the affirmative procedure. However, I made a mistake in referring to clause 28 in that context, because the negative procedure applies there. I apologise for that. Obviously, it was not done on purpose. I hope that Members will forgive me.

Regarding the amendment itself, I have adequately covered the points that have been raised, and I reiterate the Government’s position that we reject the amendment.

[Alex Cunningham]

It is quite heartening in some ways that we can all make mistakes.

The Minister has talked several times during his response to the amendment about the short period that the pause order will probably apply. I remind him again that that period could be six months, during which a scheme member may not receive their income.

[Richard Harrington]

I reiterate that that is a maximum period. There will be very few cases of this type and the regulator will be on it every minute of every day; it is not the case that it will be forgotten about for five months and then dealt with in the final month. It is for the Government and the regulator to put in a long stop and to answer the questions, “What if this happens? What if that happens?” and so on. However, I am absolutely certain that if we were to be in front of a Committee such as this one in years to come, I would be amazed if the process took anything like six months.

[Alex Cunningham]

I certainly understand the Minister’s point of view, but in the event of one of the large master trusts failing—perhaps one that has a million members—in 10 years’ time, a considerable amount of could pass before any resolution could be found. For that reason, we must take some action in this area.

The Minister also said that the regulator needs flexibility. Well, that does not offer any financial flexibility to the scheme member. The hon. Member for Ross, Skye and Lochaber—I nearly messed up as well and I should not mess up that constituency name, should I?—repeated the point I made in my original speech. If the pot is protected and is safe, why on earth can the benefits not still be paid out to the member in these circumstances? The Minister spoke about checks and balances, but checks and balances do not deliver income for the person who depends very specifically on what is probably a small amount of income. I have talked about the impact that that could have on the social security system.

Therefore, because resolution could take up to six months and it could be a major master trust that is affected, with the impact felt by many people, I intend to press the amendment.

[Richard Harrington]

It is absolutely true that the pause order can be extended, but the regulator closely supervises the scheme in this period. If the hon. Gentleman accepts that the role of the regulator in this matter is, in effect, to take it over, it is very hard to envisage this taking longer and longer. I certainly cannot see it happening with no one even bothering to communicate with the members, even in the case of a disaster happening, such as the hon. Gentleman mentioned, which I obviously do not think will happen, to the administrators of such a scheme. We have given the matter considerable thought and I ask him to withdraw his amendment.

--- Later in debate ---

[Alex Cunningham]

I am afraid I have to disappoint the Minister. I am not going to withdraw the amendment. The bottom line is that there is always a real possibility—a quite long word with an extremely long meaning—that there could be a failure in the system, and that failure could result in a loss of income to some of the most vulnerable people in our society. For that reason, I intend to press the amendment to a Division.

[Ian Blackford]

I will support the amendment. We have to feel satisfied that there are reasoned arguments why a pause order should be made and why payments should not be paid to pensioners. I am certainly willing to listen to further arguments, but I do not think a clear case has been put for why it should be made, except in very extreme cases of fraud and so on, and that case has not been made. Equally, in terms of retaining confidence, I wish to press our own amendment on the basis that it is important that plan holders continue to make payments, even in a triggering event. I want to test the will of the Committee and press our amendment to a Division as well.

Question put, That the amendment be made.

--- Later in debate ---

[Richard Harrington]

Clause 34 provides for a prohibition relating to member charges during a triggering event period. Trustees must not increase charges above the level set out in the implementation strategy, introduce new charges on members or impose charges as a consequence of a member leaving or deciding to leave the scheme during a triggering period.

Regulations under clause 34 will set out how the charge levels in the implementation strategy are to be calculated. The Government intend that those levels will reflect what members paid towards the normal running of the scheme before the event happened. The charge levels will be calculated by looking back at previous charges in the scheme, and controls will be built in to protect against cases in which schemes increase charges shortly before a triggering event, so a scheme would not be able to get away with that one before the extra scrutiny.

The effect of these measures is that members will not pay any more during a triggering event period than when the scheme was operating normally. That will protect the members; even though a scheme itself is likely to incur additional costs, the money to pay them will not come from members’ pension pots. I hope that everyone will agree that that is most important. It will preserve the value of members’ rights during a triggering event.

The clause also restricts the charges that can be imposed by a master trust, proposed by trustees or employers, to receive members under the continuity option 1. Such a receiving scheme—a new scheme—will be prevented from increasing charges above the levels set out in a statement that it will give the regulator before the transfer happens, or from imposing new charges to meet the costs incurred by the transferring scheme. That means that members can join another scheme and continue to save in another pension without their pot being depleted to pay for costs incurred as a result of that happening. The clause keeps normality of charges and prevents schemes from taking advantage of a triggering event, and protect members’ pots and maintains their value.

[Alex Cunningham]

I wish to ask a couple of question on clause 34 as I again return to the theme of transparency. The Minister outlined the purpose of the clause, and we welcome the protection of members from administration charges beyond those set out in the implementation strategy during a triggering event period. The clause makes clear the responsibilities of both trusts transferring members out and those receiving them.

The Minister listened carefully to my previous contributions on costs. With regard to this clause, I would like a better understanding of what those administration costs actually cover. Do they cover investment transactions, for example? Assuming that they do, will the Minister confirm that subsections (1)(c) and (2)(a) afford members protection from additional transaction costs as a result of the transfer of their funds out of a master trust and into a new one?

--- Later in debate ---

[Richard Harrington]

I thank the hon. Gentleman for his constructive comments. I can do no better than remind him of what I have already said: our whole purpose is to ensure that everything remains the same so far as all charges are concerned. He is right about the regulations and the devil being in the detail. That is precisely because we do not want the kinds of loopholes that could exist. If I may mix metaphors briefly, we do not want a chink of light that people can drive a coach and horses through. It is clear that—to be a bit pompous and draw on my O-level Latin from 1973—ceteris paribus, they have to remain as they were.

Question put and agreed to.

Clause 34, as amended, accordingly ordered to stand part of the Bill.

Clauses 35 to 38 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 39 ordered to stand part of the Bill.

Schedule 3 agreed to.

Clause 40

Interpretation of Part 1

Amendments made: 19, in clause 40, page 28, line 15, at end insert—

“‘pension scheme’ has the meaning given by section 1(5) of the Pension Schemes Act 1993;”.

This amendment defines “pension scheme” where it is used in Part 1 without further qualification. The definition in section 1(5) of the Pension Schemes Act 1993 catches both personal and occupational pension schemes.

Amendment 20, in clause 40, page 28, line 35, at end insert “, and—

‘(2A) The reference in section 11(3) to activities that relate directly to Master Trust schemes is, in its application to a Master Trust scheme which provides money purchase benefits in conjunction with other benefits, to be read as a reference to activities that relate directly to the scheme as a whole.’”.—(Richard Harrington.)

Where a Master Trust scheme is a “mixed benefits” scheme (providing money purchase benefits and other benefits), clause 1(2) provides for Part 1 to apply only to the “money purchase benefits” aspect of the scheme. This produces an unintended effect for clause 11(3), as it would require the scheme funder’s activities to relate only to the money purchase benefits aspect of each of the Master Trust schemes referred to which is a mixed benefit scheme. This amendment prevents that effect from arising, by saying that even for mixed benefit schemes, a “scheme” in clause 11(3) means the scheme as a whole.

Clause 40, as amended, ordered to stand part of the Bill.

Clause 41

Regulations modifying application of Part 1

Question proposed, That the clause stand part of the Bill.

[Alex Cunningham]

The clause allows the Secretary of State to adjust the range of pension schemes to which part 1 of the Bill applies, either to extend the regime or to disapply it in whole or in part. As it stands, the clause is an extraordinarily wide provision. This almost turns on its head the normal approach, which is to determine policy first and then to legislate. We accept the importance of having flexibility to deal with the changing models that an agile sector might bring forward, but in scrutinising this legislation we need to have the opportunity to test the boundaries of that flexibility.

It appears that we will not now get further details of the regulations before the Bill leaves the House, despite what the Constitution Committee has said to the Government. As I mentioned earlier, that is a real shame. I therefore have a few questions for the Minister. The Minister in the other place suggested that the clause would be used to disapply some or all of the provisions for a mixed-benefit master scheme. Given the amendments tabled in this place in relation to mixed-benefit schemes, can the Government outline how exactly this clause will be used? Which schemes will be carved out of the regulation, to borrow a phrase from the Minister?

I know that additional voluntary contributions and non-associated multi-employer schemes were raised in the other place, but can the Government also confirm whether they plan to carve out schemes on an individual scheme basis or exclude them on a broad scheme basis through the application of more general principles?

[Richard Harrington]

I thank the hon. Gentleman for his comments, which I will answer. The overall principle is to allow the flexibility that accepts that master trusts, which have grown tremendously over the past couple of years, do not fit into a one-size-fits-all formula. It is certainly not a case of saying this is the scheme’s rule; it is basically optional whether someone is in it or not, because it can be carved out. I know that the hon. Gentleman understands that and respects the principle. Again, it comes down to how it will be applied. We want to make it specific. We have had some useful consultations with master trusts and others on this subject. The regulations will give us the flexibility to ensure that we can deal with the existing situation and see what examples have been thrown up. More importantly, there will be the flexibility to change. The clause makes provisions to modify part 1 where it applies.

We have tried hard in a complex area to ensure that all relevant master trusts are in the scope of the authorisation regime. That is the point of the part of the Bill that we have been discussing up to now. As I have said, things change and the industry moves quickly. That is why we are calling for a type of flexibility that would not on the face of it seem necessary because the Bill regulates master trusts, which we all agree is the right thing to do—there is no question about that. The industry has shown that it is very flexible and can change. The provisions will be designed so that the regulations can be disapplied if they are not relevant. We intend to ensure that the whole system for authorisation, which we have discussed at length, applies in a proportionate way.

The scope of the power was discussed extensively in the other place. We have made it clear—this is the critical point, if the hon. Gentleman will bear with me—that we intend to continue discussions with the industry and also with the regulator to develop secondary legislation. It is not as though civil servants, however good they are, have sat in a room and just designed regulations. We have asked for time after the Bill to make sure they reflect the way in which the industry has developed. The passage of the Bill, from concept to now, could be near equivalent to the time that master trusts have grown in the first place. I hope that the hon. Gentleman will bear with me. We have indicated that we intend to consult on regulations under clause 41(1)(b) in relation to mixed master trust schemes, where the only money purchase benefits are those related to the additional voluntary contributions. It is technical and much of it is common sense, but it has to be done right, otherwise there will be unintended consequences of institutions and members of schemes being caught when it is perfectly well dealt with elsewhere. I know that the hon. Gentleman would not want that to happen.

Another example would be the provisions in clause 41 for regulations

“which provide for two or more pension schemes to be treated as a single Master Trust”.

Again, that is in certain circumstances. Those circumstances would be common control, common rules or schemes provided by the same service provider. It is easy to say that common sense will prevail, but we need the flexibility to ensure that the framework is there for those specific, albeit exceptional, cases.

I believe strongly in the clause and think it necessary that the significant regulatory powers included in it have the potential to alter the scope of the regime. Members will want to debate and approve the making of such regulations. That is why, as I have mentioned several times—albeit once incorrectly—that these are subject to the affirmative procedure; they will not be done on new year’s eve at five minutes to twelve without anybody noticing. The purpose is not to hide this from Parliament or anybody else, but to ensure that we get this important provision in the Bill absolutely right.

Question put and agreed to.

Clause 41 accordingly ordered to stand part of the Bill.

Clause 42

Power to override contract terms

Question proposed, That the clause stand part of the Bill.

[Alex Cunningham]

On Second Reading, the Secretary of State, in answer to the hon. Member for Tonbridge and Malling (Tom Tugendhat), nailed his colours to the mast on transparency and pension freedoms, not that we have seen much of the former displayed in recent days. He said:

“Transparency is a key area. Hidden costs and charges often erode savers’ pensions. We are committed to giving members sight of all the costs that affect their pension savings. He asks for more detail. We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system. Greater transparency is clearly one of the steps forward. I completely agree with him on that.”

I agree completely with the Secretary of State on that. He also said that he was determined

“to remove some of the barriers that might prevent people from accessing pension freedoms”.

He said:

“The Financial Conduct Authority and the Pensions Regulator indicate that significant numbers of people have pensions to which an early exit charge is applicable. The Bill amends the Pensions Act 2014 to allow us to make regulations to restrict charges or impose governance requirements on pension schemes. We intend to use that power alongside existing powers to make regulations to introduce a cap that will prevent early exit charges from creating a barrier for members of occupational pension schemes who are eligible to access their pension savings.”

We remain disappointed that this grand commitment to transparency has not yet found its way into the Bill, but we are reassured that the Government seek to protect scheme members from prohibitive costs and exit charges.

The Secretary of State said that he had consulted the industry on the issue.

“The measures proposed in the Bill have been developed in constructive consultation with the industry and other stakeholders, so we have confidence that they are proportionate to the specific risks in master trusts and will provide that necessary protection.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]

In the light of that statement, we seek assurance from the Minister that legislation proposed in subsection (2) allowing breach of contract in that way will not leave the Government open to challenge from the industry, something that would cause unnecessary upheaval for both schemes and members. With that in mind, will the Government tell us what consultation took place with providers and advisers and confirm that they are content that this part of the Bill is not open to challenge? If a legal case is brought against a master trust for breach of contract, is the Minister satisfied that it will have a defence under the clause?

Finally, what consideration have the Government given to the interests of members who, in the event of a legal challenge, will be unable to draw down money from their pots?

--- Later in debate ---

[Alex Cunningham]

I appreciate the Minister’s answer to my question. I also asked for the Government to confirm that the people they have consulted are content that this part of the Bill is not open to legal challenge.

[Richard Harrington]

It is very hard to talk about legal challenge because the legal profession in the United Kingdom has provided that itself in many cases where legal challenge was not intended by the Government. All that I can say is that we do not expect legal challenge on this issue.

Legislation introduced to challenge capping contract schemes has already been passed, so it is creating parity. I hope that I am not misleading anyone by saying that we do not expect that. We have done our due diligence and no one thinks that there will be a legal challenge, but I am afraid that I cannot give the hon. Gentleman a categorical assurance, because that is what the legal system exists for. I am sure that very clever counsel might read this one day and think, “Ah, ha! I’ve thought of something.” There is nothing that we know of.

[Alex Cunningham]

With those considerable caveats, I assume the same applies to any legal case brought against a master trust for breach of contract and that they would have a defence under this clause.

[Richard Harrington]

If I may, I will answer the question from the hon. Member for Ross, Skye and Lochaber concerning new clause 8 and the point about no exit charges from a master trust. I confirm that when a master trust is closing the scheme cannot levy a charge for leaving. I believe that responds to his question, unless I misunderstood it.

[Richard Harrington]

When the master trust is closing it cannot levy a charge. That is as clear as I can be. Perhaps we can discuss the point in more detail. I am not trying to mislead the hon. Gentleman and he knows that, I hope.

The pensions market is continuously evolving and modernising and that extends to charging practices. It may be necessary to alter the charges requirements at pace to reflect any changes in the pensions market that may disadvantage members. I revert to the point I made to the hon. Member for Stockton North: that is the purpose of the whole exercise; we are doing it for that reason. That is why we intend to consult on the draft regulations later this year. I am aware that people outside the House, and sometimes hon. Members, groan when a further consultation is announced, as though the Government are doing it to kick the can down the road. I can assure them that that is not the case. We intend to get it right and public consultation is very important.

The regulations would also be subject to parliamentary scrutiny, as I have explained, through the negative procedure. The Delegated Powers and Regulatory Reform Committee was content with that approach because it would allow future legislation to be amended quickly to provide the member protection that the hon. Gentleman and I both want.

Before I conclude on this clause, I will address the point made by the hon. Member for Ross, Skye and Lochaber. I have learned the name of his constituency now and look forward to visiting. He was satisfied by my answer to his earlier question but he wants to know what happens if the master trust is not closing. In that case, the normal exit charge protections apply; there is no difference. I believe that is a clear answer to his question.

[Alex Cunningham]

There is one area that the Minister has not addressed. As he said, we are all here to champion the member, but Opposition Members might just go a bit further in some of those protections. I did pose the question about elected members and what consideration the Government had given to the interests of members in the event of a legal challenge who would not be able to draw down their benefits.

[Richard Harrington]

I have already made it clear that the Government do not expect legal challenges. It is a bit of a circular argument but in the legislation the regulator exists to protect members, so I cannot accept his point on this matter.

Question put and agreed to.

Clause 42 accordingly ordered to stand part of the Bill.

Clauses 43 to 45 ordered to stand part of the Bill.

Clause 46

Short title

Amendment made: 21, in clause 46, page 31, line 3, leave out subsection (2)

This amendment removes the privilege amendment inserted by the Lords.—(Richard Harrington.)

Clause 46, as amended, ordered to stand part of the Bill.

New Clause 1

Membership of Master Trust Schemes: Member Trustees

‘(1) By a date to be set by the Secretary of State in regulations, approved Master Trust Schemes must ensure that at least half of the trustees of the scheme are Member Trustees.

(2) Member Trustees must be individuals who are—

(a) members of the Master trust scheme; and

(b) not members of senior management of a company that is enrolled in the Master Trust scheme.

(3) Member Trustees must be appointed by a process in which—

(a) any member of the scheme who meets the condition in subsection is to apply to be a Member Trustee;

(b) all the active members of the scheme, or an organisation which adequately represents the active members, are eligible to participate in the selection of the Member Trustees, and

(c) all the deferred members of the scheme, or an organisation which adequately represents the deferred members, are eligible to participate in the selection of the Member Trustees.

(4) Member Trustees should be given sufficient time off by their employer to fulfil their duties.

(5) For the purpose of this clause “senior management”, in relation to an organisation, means the persons who play significant roles in—

(a) the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or

(b) the actual managing or organising of the whole or a substantial part of those activities.’—(Alex Cunningham.)

This new clause ensures that where named individuals hold the position of Trustee in a Master Trust, at least half of those Trustees must be Member Trustees. “Member Trustees” are members of the trust themselves and must not hold a senior management position in an organisation which participates in the Trust.

Brought up, and read the First time.

[Alex Cunningham]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss:

New clause 6—Member-nominated directors—

‘(1) By a date to be set by the Secretary of State in regulations, all companies that are trustees of a Master Trust Scheme where all the trustees are companies must ensure that at least half their directors are Member-nominated directors.

(2) “Member-nominated directors” are directors of the company in question who—

(a) are nominated as the result of a process in which at least the following are eligible to participate—

(i) all the active members of the occupational trust scheme or an organisation which adequately represents the active members, and

(ii) all the deferred members of the occupational trust scheme or an organisation which adequately represents the deferred members, and

(b) are selected as a result of a process which involves some or all of the members of that scheme.’

This new clause will ensure that where companies hold the position of Trustee in a Master Trust, at least half of their directors are Member-nominated directors. “Member-nominated directors” are active or deferred trust members who have been selected by other members of the scheme.

[Alex Cunningham]

New clauses 1 and 6 take me back to my central theme for the Bill, which is putting members first by introducing member-nominated trustees and directors for master trusts, or member governance of their money. I remind the Committee that all the investment risk lies with the members and not with the sponsor or the provider; they should therefore have representation at the decision-making level.

The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees, or MNTs. If the scheme’s sole trustee is a company including the employer, rather than individuals, scheme members will have the right to nominate directors of that company, who will be member-nominated directors, or MNDs. In those circumstances, my references to MNTs apply equally to MNDs. Member-nominated trustees of pension schemes have been a part of UK pensions since the emergence of occupational pension plans in the middle of the last century.

Under the Pensions Act 1995, following the Goode report, a rule was introduced that a third of trustees had to be nominated, although companies could opt out of that rule. The Goode report came out of a series of scandals and corporate collapses in the late 1980s and early 1990s that led to losses to occupational pension funds. In particular, Robert Maxwell, the proprietor of the Mirror Group Newspapers, was subsequently exposed as having stolen millions of pounds from his employees’ pension schemes. In the Pensions Act 2004, the rule was made compulsory. The Secretary of State has the power to raise the threshold from one third to one half, and Labour is committed to implementing that. Many pension funds already have one half of trustees nominated, even though the law requires less.

Given the steady growth in numbers and the formalisation and establishment of member trustees in our pension system, the Association of Member Nominated Trustees emerged in September 2010 to provide support for member trustees. It is adamant that master trusts must be obliged to have member representation on their boards. It is no surprise that master trusts are lobbying against that, but they are mostly profit-making entities, so it is in their own best interest that they have member representation in order to win the confidence of scheme members.

After the Robert Maxwell scandal, the Government legislated to ensure member representation on pension scheme trust boards because they recognised that that would be a powerful way to prevent unscrupulous scheme sponsors from repeating Maxwell’s behaviour. That argument is no less relevant to master trusts. Defined-contribution schemes managed by master trusts owe fiduciary and other duties to their beneficiaries, and trustees are required to act in the best interests of their members. Trust-based schemes are subject to trust law and regulated largely by the Pensions Regulator. If the scheme’s sole trustee is a company rather than individuals, scheme members would have the right to nominate directors of that company.

Ensuring effective governance for pension schemes remains a challenge. While trust-based schemes benefit from a clear governing body in the form of the trustees, there is a clear absence of member-nominated trustees in the majority of master trusts. Improved governance must include MNTs, packaged with improved training and facility time to dedicate time to the job. Master trusts and independent governance committees lack scheme member input into the investment process, and they need an overhaul. Since the pot belongs to the member and the scheme-sponsoring employers bear no investment risk, there is an argument to be made that governance by scheme members should prevail in number terms over employers.

While some companies choose to operate a trust-based defined-contribution scheme, most new auto-enrolled members will not be saving into one; instead, the vast majority will be saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare. With one or two exceptions, we are not aware of any master trust or independent governance committee that has taken the step of putting in a member or finding a mechanism for electing members or appointing members to governance boards.

The benefits of member representation in the trust-based world have been examined. One benefit is the increased diversity that MNTs can bring. Having a member perspective adds diversity, and diversity prevents the risk of group-think within boards. That is because of a range of different member perspectives, experiences and areas of interest. It is also comforting for members to feel that they have some stake in the management and stewardship of a pension scheme. Ian Pittaway, chair of the Association of Professional Pension Trustees, said:

“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits or a death-in-service case or something like that. Every board I chair is enriched by having members on it and it would be a very sad day if we sat there with just professionals running the scheme in a very arm’s-length way.”

The AMNT’s 700 members are trustees of about 500 pension schemes with collective assets worth approximately £700 billion. It stated:

“We believe that member representation is crucial in the governance of Master Trusts. It will give greater assurance that these trusts operate, and are seen to operate, in the members’ interests and that the scheme members can have confidence in them. The importance of giving members representation on the trustee board has been borne out by research by The Pensions Regulator and Share Action, which demonstrate that diversity is a key benefit of the trustee model. This view is widely supported in the pensions industry.”

In the DB world, as long as a scheme was well governed and well administered, the member would end up with a reasonable replacement ratio. In the DC world, however, a member’s outcome depends on a host of factors that are beyond members’ control. Most members do not have a say in which scheme they are enrolled into, and even if they believe a scheme is not the best possible fit for them, they are unlikely to be able to transfer without losing their employer contributions. A worrying feature of the UK is that people who bear the risk are not freely able to exercise choice.

Better member representation could help to reassure members that they are enrolled in schemes that are well governed by boards that have their best interests at heart. That would also help solve the thorny issue of getting people to save more. The figures for auto-enrolment show low levels of contributions, and we need members to feel willing to increase their contributions.

Member representation may face some resistance. For a master trust with 20,000 clients and 900,000 members, running an election could be challenging. Some master trusts, however, have had success with elections. The Pensions Trust, which started life as a DB master trust but has now expanded into DC, has a board made up of 50% member-nominated trustees and 50% employer-nominated trustees. Those representatives are elected from the pool of companies that use the trust. The AMNT believes that employer support is necessary to enable member trustees to fulfil their roles with appropriate time off. There are clear issues with governance in both trust-based and contract-based DC workplace pensions. In the past the Office of Fair Trading has highlighted a lack of member engagement, along with higher charges and a lack of review, as the main challenges for the DC schemes. As auto-enrolment is extended to smaller employers, the need to address those challenges is becoming more pressing.

We need a clear route into better member representation. Most in the sector agree in principle that it can only be beneficial to the DC landscape. The Bill has nothing on a mandatory requirement for MNTs, but seems like a logical place in which to include them. To place an emphasis on member representation and perhaps change some of the barriers to an effective system, therefore, the Government should act now.

Some say that as larger master trusts cater for thousands of employees, the vast majority of them would not be represented on the trustee board. Others say that democracy is too expensive, but the scale of the master trusts should not be a barrier. USS, the universities superannuation scheme, has more than 250,000 members and nearly 400 employers. The plumbers and mechanical services (UK) industry pension scheme has more than 36,000 members and more than 400 employers. RPMI has more than 500,000 members and more than 100 employers. All those have member-nominated directors nominated by representatives of the members and pensioners of the schemes. If schemes on that scale can do it, so can master trusts.

[Richard Harrington]

I would like to make the point that, in the trustee system that has evolved, trustees have a duty to act in the best interests of all members, as the hon. Gentleman stated. I certainly agree that one of the strengths of the trust-based system for occupational pensions is that there are different sorts of trustees. I have been a trustee of a pension scheme myself, so I accept that argument.

The hon. Gentleman’s mention of Robert Maxwell and that scheme is very relevant to my life now, because many of my constituents in Watford call themselves the Maxwell pensioners. Most of the system of regulation, including this Bill, came about because of that and other examples.

I respectfully remind the hon. Gentleman that in many of the cases that the Pensions Regulator has dealt with, there have been plenty of member trustees, and they have been ignored, not listened to, not felt to be relevant or just bamboozled, so it is not a perfect system anyway. As he knows, the whole reason for the Bill is that master trusts, which are hugely complex, have evolved over a very short period in a very sophisticated way. They are not the same as individual trust-based pension schemes, which is why we need this extra legislation.

[Alex Cunningham]

I accept the Minister’s explanation that member trustees are being ignored, or that their views are simply being set aside, but I would suggest that is why we need proper procedures in place, whether for master trusts or other pension schemes, to ensure that member trustees are given the proper training and understanding and the time to do their job to the best of their ability, so that they are not ignored.

[Richard Harrington]

I agree. That relates to a general regulatory issue, as well as the specific ones we are talking about today. I remind the hon. Gentleman that master trusts are subject to scheme administration regulations, which require that schemes used by multiple employers must have three trustees. The majority of those trustees have to be independent of anyone who provides services to the scheme. We are not just saying, “Forget member trustees; they should all be representatives of the scheme.” All trustees, whoever they are, have got the same fiduciary duty to all members. I am sure that the hon. Gentleman is aware of that, but I think that is very relevant in resisting his new clauses. It is very important that all trustees know that, and I believe they do.

Although master trusts are exempt from the existing requirements for member-nominated trustees, they are subject to all other regulatory obligations. As I said, the scheme administration regulations ensure that the majority of trustees are non-affiliated trustees. The authorisation criteria in the Bill subject all trustees to a fit and proper person tests assessed by the regulator. Facts to be considered in that test include how the people running the scheme are connected with other companies or people.

The new clause appears very attractive on the surface, because it appears that it is just saying, “Members are great and can stop all bad things from happening. They need to be represented, and the way to do that is by making sure they are directors or trustees.” I would not want the hon. Gentleman to think that we are against member-nominated trustees, because we are not, or that we think that member-nominated directors are inappropriate in master trust schemes. He mentioned the universities superannuation scheme, which is very complex and sophisticated, and certain things work for it. I have met staff of that scheme. I believe that the Bill will address the points he made.

I hope that hon. Members are sufficiently reassured that we are ensuring that trustees act in the best interests of members. I have explained why the Government are of the view that the new clause is unnecessary, and I respectfully urge the hon. Gentleman to withdraw it.

[Alex Cunningham]

The Minister appeared to agree in part of his speech that member-nominated trustees are a good idea, even if he feels that in many cases their views have been ignored in the past. He has left me a little confused as to whether he supports member trustees, though certainly not in the context of master trusts. Well, I do, and I referred in my speech to organisations that also support the idea of empowering members and ensuring that they have the time and training to fulfil that role. Therefore, I will not withdraw the new clause and will press it to a vote.

[Ian Blackford]

The proposed new clause contains a principle that I think we would all like to encourage concerning member engagement. There is the issue of democracy and the fact that these are members’ funds, and I think that we all get that point. The salient point for me is that addressed by other hon. Members: trustees are to act in the best interests of their members. We all recognise the duty and obligations that trustees must have. It is important, whether they are independent or member trustees, that they are aware of their responsibilities.

The key matter, in what is becoming a very complex world, rightly with increasing regulation, for which we understand the reasons, is that trustees can discharge their obligations and duties. Although I would encourage member trustees to be involved, and it is important that they are given adequate training, I would find it difficult to support the compulsion in the proposed new clause that member trustees must make up 50% of the board. That would be the case in an ideal world.

[Alex Cunningham]

I did not say 50%. That was an example. We would need a situation in which we can have some member trustees.

--- Later in debate ---

[Craig Mackinlay]

I can understand the laudable aims of the hon. Member for Stockton North, but where such boards have had member participation, the reality has not always been a fantastic success. I had an oblique interest in the Maxwell pensions fiasco because I belonged to a firm of chartered accountants appointed to look into that big mess, so I have some experience of that. I was also a member of the Joint Committee that looked into the BHS pension schemes, which also had member participation. That really did not come out as a great success. There was no issue of fraud, but were those employee members really tough enough to stand up to an overpowering sponsoring employer?

What we have is different from the occupational pension scheme arrangement, for which I think it is good, right and proper for its members to participate. We are considering master trusts, in which thousands of employers may be involved. I am sure that there may be only a few hundred master trusts that would bother to adhere to the new clause’s regulations after they come into place. The National Employment Savings Trust is probably going to be the biggest master trust for some time to come, with possibly millions of employees involved, and I cannot understand how on earth we could have an election process involving millions of people and different employers.

[Alex Cunningham]

Legal & General, one of the largest insurance companies, manages to do that in order to communicate properly with its members. While I am on my feet, I also make the point that the hon. Gentleman says that having member trustees has not been a fantastic success. Does he therefore believe that the views of members should be excluded? I remind him that in master trusts it is the members who bear all the financial risk—no one else—so why should they not have some control or some say over their funds?

[Craig Mackinlay]

I do not disagree with what the hon. Gentleman says; ultimately, it is the employees’ funds, and it is important that they should take the greatest interest in them. I think that employee involvement in occupational schemes has generally been worthy and a great success, but I am more concerned about the practicalities of how the form of democracy he advocates could possibly work when there will be millions of employees in a single master trust.

Pension Schemes Bill [ Lords ] (Second sitting)

Alex Cunningham Excerpts

Tuesday 7th February 2017 Public Bill Committees

[Richard Harrington]

The hon. Member for Stockton North made various points, and I would like to briefly rebut them. I have already made my first point, in response to the hon. Member for Ross, Skye and Lochaber. The Bill adds to the protections by prohibiting increased or additional charges that could be levied on members for the cost of winding up or transfer during a triggering event period, so members’ savings are safe. As was discussed extensively in the other place, the clause addresses the situation where the scheme does not have sufficient funds to pay for the transfer of accrued rights or the wind-up of the scheme during a triggering event period. The Bill provides that a master trust scheme must have resources available to pay for those costs.

The hon. Member for Stockton North asked me a clear question: how frequently will the Pensions Regulator monitor this? To be clear, the supervisory measures allowed for in clauses 14 to 20 state clearly that the regulator is under a duty to authorise these schemes. That is a new approach for the regulator, which will be working with all the master trusts, both before and after authorisation. The regulatory regime is therefore an active process, which rightly focuses the most attention on the highest risk schemes, while maintaining regular contact with all master trusts in the market. It is based on a case management approach, which is not random or ad hoc because it is underpinned by the existing reporting and regulatory framework and activities. Those in turn are strengthened by the new supervisory return and significant events negotiation requirements, which the hon. Gentleman will be familiar with.

The hon. Gentleman seemed to imply that the Government have not made any provision to pick up the pieces if a scheme fails. I maintain that that is not the case. The triggering event regime outlined in the Bill means that the regulator will be closely involved with how the scheme proceeds to resolve its difficulty or close—it has to do one of the two. The regulator already has powers that can be used to support a failing scheme. A good example is the power to appoint a trustee to get into a scheme and act as a trustee—so it can impose a trustee on a scheme and help to sort it out.

The hon. Gentleman also suggested that if the risk is so minimal, the clause does no harm as a back-up measure. He used the sledgehammer and nut analogy, which I think Lord Freud used in the House of Lords, so it is a cross-party analogy. If it is a nut, it might be a small nut, but what is going to happen to the nut? That is not said in a very Hansard-like way, but I think we know what it means. I would say that that underestimates the impact of having an unspecified government intervention of this nature.

[Alex Cunningham (Stockton North) (Lab)]

I accept the point the Minister is outlining, but the possibility remains. We know what our financial industries are like. We have seen failure after failure in pension schemes, in the markets and the banks. What happens in the event of a major fraud in a master trust and there is nobody left to pick up the pieces?

[Richard Harrington]

I will deal with that point a little later. First, let me explain why having unspecified Government intervention is not good.

First, such intervention gives rise to moral hazard. Elsewhere in pensions and regulatory regimes where lifeboats exist, there are measures against moral hazard. We do not want a situation where people can be reckless because they know they can rely on the Government, and setting up ways to get out of their obligations because they know that the Government will pick up the pieces.

[Alex Cunningham]

The Minister has used the word “unspecified” several times, but he has the opportunity in regulations to consult the industry on how it would set up a funder of last resort. That is what we want. We do not expect him to say, “Right, the Government will underwrite this.” We are saying that there should be a consultation exercise to ensure that a funder of last resort can be put in place so that this very small nut that needs to be cracked can be dealt with.

[Richard Harrington]

I apologise if I put words into the hon. Gentleman’s mouth. It is currently unspecified; I agree it could be specified with compensation. The core point and, excuse the pun, the kernel of the nut is that it would still be a Government scheme, with moral hazard.

Secondly, the hon. Gentleman has probably heard significant players in the master trust industry voice serious concerns to us about clause 9. They believe that it could give rise to a rush to exit the market by otherwise successful schemes thinking, for example, that, not unusually in this field, they would have to pay a significant levy over not very much. The hon. Gentleman’s points are all valid in their way but Government have to make a judgment. That is why there is a respectable disagreement over clause 9. We have all thought about it carefully.

I believe the Bill strikes a delicate balance between prevention and self-regulation and Government intervention —something that is very hard to do. The clause would disrupt that balance and confuse the regulatory approach. I do not believe that it is a harmless catch-all. I accept the point, as shown by the banking crisis, Equitable Life and other incidents, that such things happen—I would not say it was because it was a Labour Government during the banking crisis or another Government with Equitable Life that those issues arose. It is not possible to give absolute guarantees, but we can reduce risk to the lowest possible level and that is what the Bill aims to do.

In our view, the risk level is already very low for this type of master trust scheme. That is backed up by the Pensions Regulator’s current information about the very small number of schemes that are in trouble. That will be published but is not quite ready. To create a Government-backed scheme would perversely create a moral hazard, as I have explained.

--- Later in debate ---

[Alex Cunningham]

I am delighted to serve under your chairmanship, Ms Buck, albeit with a frog in my throat. Our concern with this clause regards the strict nature of requiring a master trust to be a separate legal entity, which could have numerous consequences across the board. Since the contents of the Bill have become known, I have tried to meet as many parties and groups as possible that have an interest in the Bill, to hear their perspectives, thoughts and concerns. This clause came up often. I note that the Minister has tabled amendments to it, which I welcome as a first step towards recognising that the original clause was not fit for purpose.

Amendment 3 widens the definition of the two legal characteristics that a scheme funder must meet in order for a master trust to be authorised by the Pensions Regulator. It gives the Secretary of State greater discretion in exempting a scheme from the second requirement. However, the amendment does not make clear what policy considerations will apply to how that discretion is applied. Will the Minister confirm that insurance companies regulated by the Financial Conduct Authority with master trusts will be exempt from the second requirement, giving members access to the full resources of the insurance company, which will carry full liability for costs in the event of a master trust scheme failure? Our amendment 26 seeks to clarify just that—namely, that if an organisation is already regulated by the Financial Conduct Authority, which is incredibly thorough with its regulation, it does not need to register as a separate legal entity as well.

As the Minister said, my colleagues in the Lords raised concerns about the clause, proposing instead that the scheme funder be approved by the Pensions Regulator, but that was rejected with the argument that it would be more difficult for the regulator to obtain transparency on the financial position of the funder and its financial arrangements with the master trust. Instead, colleagues tabled a motion requiring the scheme funder to be constituted and to carry out its activities in a manner that enables its financial position, and the financial arrangements between it and the master trust, to be transparent to the regulator. However, that was withdrawn on the assurance that the Government would be considering that later in the legislative stages.

So here we are, with an amendment from both the Opposition and the Government on how to ensure that we are not unnecessarily enforcing regulation on companies that are already bound by strict regulation elsewhere. The difference here is that the Government’s amendment is on the vague side. The second requirement for the scheme funder that the Government have proposed is that it carries out only activities that relate directly to master trust schemes of which it is a scheme funder or prospective scheme funder. The line in amendment 3 following on from the second requirement gives the Secretary of State the power to

“make regulations providing for exceptions from the second requirement.”

That needs more detail and clarity. What possible exceptions do the Government have in mind? Has the Minister yet considered what these exceptions may be?

We need stability, and to provide stability for the numerous businesses and companies that rely on us to provide effective laws governing their livelihoods and, particularly in relation to master trusts, the livelihoods of millions of people in this country. This is not largely a matter that we disagree on—I think we share the same aims—but I want to be able to provide more assurance to the companies watching today that we will not seek to bear down on them with extra costs and paperwork when they are already abiding by regulation from the Financial Conduct Authority.

Although the Government’s amendment does not give me enough specifics about the type of exceptions that they would give the Secretary of State the power to decide, I welcome their approach and their acknowledgement that it is counterproductive to place extra requirements on companies that already follow the rules diligently. We had a particular concern that forcing a restructuring on master trust schemes could weaken the position of the funder, which is especially important when one considers the debate on the issue of the funder of last resort. We need larger companies to be in a position to pick up failing master trusts, and should ensure that they are well equipped to do that.

I welcome the amendment from the Scottish National party Members, which would also allow exceptions to the requirement that a scheme funder carries out only activities directly relating to the scheme for which it is a funder. I am optimistic that we will leave here today having made positive progress on this matter, as we largely seem to agree on the principle of exceptions.

Amendment 26 would except insurers that operate under stringent Financial Conduct Authority regulation. Where insurers with master trusts operate under both sets of regulation, it must be ensured that unnecessary duplication or overlapping of the requirements is avoided. In particular, insurers should not have to reserve even more additional funds to meet the requirements set out for master trusts, as they already hold the resources needed for this purpose under other regulatory regimes. Members of master trust schemes used for automatic enrolment should meet high solvency and reporting standards, but these organisations have already met standards set under other frameworks, such as that of the FCA. We believe that it is not necessary to expect large companies with significant capital to be required to hold additional capital on top of that in order to meet the new obligations in the Bill.

Can the Minister provide assurance right now that insurance companies that are already under strict regulation by the Financial Conduct Authority will be exempt from the separate legal entity clause, and will he provide clarity on when we can expect to see the Secretary of State’s regulations? The scheme funder requirements in the Bill will bring no additional benefit to the many people in master trust schemes operated by insurers, which are already well protected. Additional requirements on FCA-regulated insurance companies will lead to significant additional costs. I hope that the Government can address my concerns, and that they will outline exactly what regulations the Secretary of State will look to implement.

[Ian Blackford]

The Minister’s amendment of 31 January —Government amendment 3—gives the Secretary of State power to make regulations providing for exceptions to the requirement that a scheme funder must carry out only activities directly relating to the master trust. We do not know what conditions will attach to the exceptions, or even if the Secretary of State will exercise that power. An indication of the Government’s intentions would be helpful. However, the indication that there will be some discretion is positive. I would welcome clarification from the Government on how and when the regulatory powers outlined in the amendment will apply, and in what circumstances they might be used.

Will the Government confirm whether they plan to consult with the insurance industry before defining “information” and “additional requirements”? Zurich has said that the approach taken by the shadow Pensions Minister in amendment 26 and the SNP’s amendment give greater certainty, which would be preferable. As far as Labour’s amendment 26 is concerned, we share the concerns about the unnecessary duplication of requirements for insurers, which already operate under stringent regulatory standards. Our amendments 34 and 35 would have a similar effect to amendment 26, as they state that the requirement need not apply to firms whose activities are already restricted by virtue of existing regulation.

The Prudential Regulation Authority’s rules mean that insurers’ activities are restricted. This will mean that the activities of the scheme funder not directly related to the master trust are transparent and do not threaten the solvency and sustainability of the master trust. Amendment 35 makes provision for the Secretary of State to define “restricted activities” in regulations, including through a list of specific activities restricted in order to minimise risk of loss by master trust scheme funders.

--- Later in debate ---

[The Chair]

Will the Opposition confirm whether they wish to press their amendments to a vote?

[Alex Cunningham]

I do not intend to.

[The Chair]

Thank you.

[Alex Cunningham]

It is amazing the amount of consensus that we are managing to achieve today, but I still return to duplication. The Minister is saying that measures will be in place through regulation to ensure that we do not have the duplication I am concerned about. It all boils down to these invisible regulations.

I am grateful to the Minister for providing clarity on the areas that will be covered by the consultation on the future regulations. The industry is concerned that they are a considerable time off. He said it is not long until 2018, but the cliché is that a week is a long time in politics. It is important to send clear signals to the industry, particularly to those who are likely to be or could have been compelled to have the additional administrative burden on them, to make it clear to them that this will not be required because they should be able to read much of that in the document that goes out for consultation.

Amendment 3 agreed to.

Amendment made: 4, in clause 11, page 7, line 20, leave out subsection (6) and insert—

‘( ) The first regulations that are made under subsection (3A) are subject to affirmative resolution procedure.

( ) Any subsequent regulations under subsection (3A), and regulations under subsection (4), are subject to negative resolution procedure.”.—(Richard Harrington.)

This amendment makes provision about the Parliamentary procedure for the new regulation-making power provided for in amendment 3. The power will be subject to the affirmative procedure when first exercised, and to the negative procedure on any subsequent exercise.

Clause 11, as amended, ordered to stand part of the Bill.

Clause 12

Systems and processes requirements

[Alex Cunningham]

I beg to move amendment 27, in clause 12, page 7, line 43, at end insert—

“() A minimum requirement of annual reporting of administration, fund management costs and transaction costs for each asset class, drawdown product and for active and passive asset management strategies.”.

This amendment would introduce annual reporting requirements for Master Trusts.

In his speech to the TUC last week, the Minister spoke about the consensus there may be in Parliament about pensions policy. In some areas, he is right, but he and I know that we are in very different positions on matters such as the future of the state pension and how it can be applied to different people in different circumstances—the Women Against State Pension Inequality Campaign has been mentioned in that context. One area where the Minister and I agree and which affects the Bill and clause 12 is the need for maximum transparency in the pensions market, revealing to members of pension schemes, including master trusts, exactly what fees they are being charged and for what. In his speech to the TUC, the Minister said:

“We have to get transparency. It’s not an option to do nothing. I’d like to thank the many people in this room that have worked for it.”

The amendment would give the Minister and his Government the opportunity to demonstrate that consensus does exist, to prove their credentials on transparency and to ensure that members of master trusts have access to an annual report of administration, fund management costs and transaction costs, so that they can see exactly how the fees are broken down and what they are actually paying for. It would also help to satisfy the Financial Conduct Authority’s desire to reveal all costs, which it believes will result in competition and potentially better performance for members.

No Member of this House would go into a marketplace to buy anything without seeing the cost clearly displayed, whether that be a large white goods item or just a new shirt or blouse. Similarly, we must ensure that each member who is auto-enrolled into a master trust can establish what each investment choice and drawdown product costs. Anything short of that betrays millions of citizens. We have a duty to ensure that a reporting line is opened between the master trust and its members if we are to achieve what Opposition Members and, I believe, the Minister want to achieve.

I know there may be some resistance from those in the industry to some of those ideas, even though most have tried to convince me over the past few months that I have been shadow Pensions Minister that they are open to greater transparency, are trying to deliver on it and will do so much better in the coming months. However, I think we need to help them by laying down a marker in the Bill that will set a standard of the Government’s expectation.

In the upper Chamber debate, Lord Freud said

“We clearly need to ensure that trustees of occupational schemes and the independent governance committees of workplace personal pension providers have complete, consistent and standardised cost and charges information before they can report it to members; at this point, they do not… We want pension scheme members to have sight of all ?costs and charges, regardless of how they are incurred, and to give members the confidence that there are no other hidden costs and charges.”—[Official Report, House of Lords, 19 December 2016; Vol. 777, c. 1527.]

There is that consensus again. I could not have put it better myself, although the noble Lord could have done more to make it a reality in the Bill.

Rather than wait for the final outcome of the consultation exercise on pension fund cost collection promised by the Secretary of State, the amendment would being master trusts into line with those in the Netherlands, where there is a statutory requirement for trustees to report to their members on three cost headings: administration, investment management and transactions. We need data that enable clear analysis of costs incurred and can be applied ex post to the gross returns delivered by workplace pensions. Then we can get to the real gross return that has been generated on the assets and assess how much of that real gross return has slipped from the saver to the financial services sector. By understanding that slippage in its entirety, we can begin to understand what money has been paid for whatever value has been generated.

Some good things are already happening in the pensions world, but much more needs to be done to progress the transparency agenda. The only area of asset management that is ready to be analysed is the funds used by the local government pension scheme. They are about to be analysed by the scheme advisory board, to ensure they are delivering best value for sponsors and members alike. The architecture to get the data, analyse it and present it is being discussed with a view to being built, and will form a platform from which other projects, including the value-for-money analysis needed for all workplace pensions, can be delivered.

I believe the Minister is a fan of this work too, so I hope that he and his Government recognise that the easiest and most efficient way to ensure that data for master trusts are collected is to adopt the LGPS cost template. After all, it has been sanctioned by the Department for Communities and Local Government and the data points agreed with Investment Association members, who in the main will be the same suppliers of asset management to the LGPS.

What an opportunity we have before us to herald the day that every person auto-enrolled into a master trust is given the opportunity to understand what pension system they are going into, how much it costs and how much they will get—even if in a defined-contribution scheme that is more estimation than fact. To do otherwise than give them that advantage is a clear breach of fiduciary duty owed to scheme members. We are all aware that the average size of a pot for a person in a master trust is very small, but the principle of driving best value is probably all the more important.

I asked for a simple example of what changes in costs could mean for a member of a pension scheme, and the Unison guide—perhaps I should declare that I am a member of Unison—to defined-contribution costs provided the following example. A total annual contribution of £10,000 might be made up of £4,000 of personal contribution, £4,000 of matched contribution by the corporate sponsor and £2,000 of tax top-up. If we make that level of contribution constant over 40 years, use a 5% gross performance figure, which is the market rate of return over the longer term, and vary the costs of the industry from 0% to 2%, then at nil percentage cost the final size of the pension pot is £1,268,000. At 0.75% costs, the final size of the pension pot is £1,051,000. At 2% costs, the final size of the pension pot is £777,000. That is a huge difference.

The FCA’s “Asset Management Market Study Interim Report” said:

“The evidence suggests there is weak price competition in a number of areas of the asset management industry. This has a material impact on the investment returns of investors through their payments for asset management services.”

The example I just gave probably demonstrates that. One of the FCA’s conclusions was that there should be a requirement for increased transparency and standardisation of costs and charges information for institutional investors. The Minister’s affirmative one-word answer to my question on the Floor of the House about whether the Government had agreed to implement the FCA’s recommendations in full was very welcome. Today, we have the opportunity to deliver in part some of what is desired through the Bill.

It is a fundamental market failure that no pension fund can currently understand its cost basis. It follows that if there is no understanding of costs, the investment strategy cannot be fully evaluated. Members cannot make the accurate choices needed to improve their investment performance without that knowledge. If a member is incurring costs above 0.75%, we know that will have a considerable impact on the value of pension pots both in accumulation and in decumulation. That is why we must ensure that reporting to members includes the accumulation and drawdown phases.

Since the Government introduced the drawdown option in their new pension freedoms, all the attention has been on whether members will be wise with their money. No real attention has been paid to the costs associated with the option, and probably even less attention to the potential long-term effects of a decision to access a lump sum at a much earlier stage in a person’s life. The aim is to keep options open and increase income through investment growth, but if investments do not go the way the member would hope, or if their pension pot is depleted by opaque charges, the income will be reduced all the more in the longer term. The risk and the responsibility rest with the member. Charges for ongoing administration and investment management will be deducted from their account, which is all the more reason transparency and low charges are important. Members of this House should therefore see that the efficient management of members’ funds is critical in ensuring that we do not create a pension crisis that our citizens are forced to endure in their retirement.

I will turn to the FCA’s excellent interim report in a bit more detail. The UK’s asset management industry is massive: it manages £6.9 trillion of assets. I am not sure whether a trillion is a billion billions? I think it is a billion billions.

[Richard Harrington]

I am not an expert, but I think it is different in the United States from here—like most things.

[Alex Cunningham]

The Minister tempts me, but I will move on. The UK’s asset management industry manages more than £1 trillion for individual investors in the UK and £3 trillion on behalf of UK pension funds and other institutional investors that is invested by that management industry. The service offered to investors comprises a search for return, risk management and administration, although it is the investor who bears virtually all the risk.

More than three quarters of UK households with occupational or personal pensions use such services, including the more than 10.2 million people saving for their retirement through pension schemes. Very few of us are not touched by this sector, although most people have probably never heard of it; more important, they will have little idea how much of their hard-earned cash goes into the industry. The FCA’s report confirms that asset management firms

“have consistently earned substantial profits…with an average profit of 36%. These margins are even higher if the profit sharing element of staff remuneration is included.”

--- Later in debate ---

[The Chair]

That is a matter for the Opposition spokesman.

[Alex Cunningham]

I am disappointed that the hon. Gentleman is not following my argument, but perhaps he will as I move to my conclusion.

As I was saying, charges for active investments have remained stable, unlike charges for passive investments, which have been falling. The FCA suggests that that reflects competitive pressures and the unwillingness of funds in the active fund market to undercut each other, and it says that weak pressure on prices can lead to weak cost control. The FCA report is particularly scathing about the role of investment consultants: with 60% of that market controlled by three firms, the FCA is considering a market investigation reference to the Competition and Markets Authority. The report concludes with a number of very welcome interim proposals on remedies, not least on transparency and all-in fees, but this is a hugely powerful and profitable sector and it will be lobbying hard to water down any action.

The Secretary of State confirmed that the Government will consult on hidden costs and charges later this year. On Second Reading, he said:

“Transparency is a key area. Hidden costs and charges often erode savers’ pensions. We are committed to giving members sight of all the costs that affect their pension savings… We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]

I asked in that same debate why it is necessary to start consulting people when we should simply be saying that we want to know what all the costs are in the entire investment chain. I said that, yes, I agree with consultation—but surely we are getting to the end of the tunnel on that.

The FCA is currently holding two separate consultations on cost transparency. The first is in response to the watchdog’s interim report on its asset management market study and calls for an all-in fee approach to quoting charges. The second, which closed to responses on 4 January, could require asset managers to disclose aggregate costs and then provide a further breakdown on request. That is good news and surely statutory bodies such as independent governance committees, the Local Government Pension Scheme advisory board and the Pensions Regulator are quite capable of making sure that whatever comes out of the FCA’s consultations is enforced. The only beneficiaries of further consultations are the asset managers, who will have won yet more years of grace in which they can operate under the radar.

The Investment Association has questioned the data and metrics the FCA used to come to its conclusions that active funds do not on average provide better value than passive funds. I am concerned that, despite making all the right noises and promising full transparency, the Investment Association has set out to kick the consultation process down the long road by persuading the Department for Work and Pensions that it needs to discover exactly what the FCA has spent the past two years discovering.

If we are to have another consultation, it will be in the teeth of all the evidence gathered so far, at enormous expense to Government and to the private sector, and will serve employers and workers very badly. Perhaps it is time for the DWP to stop consulting and start turning the current consultations into enforceable legislation. It should learn from its colleagues at DCLG, who, as I said earlier, have endorsed the work of the LGPS advisory board. DCLG’s own programme of fund consolidation included advice that the newly forming asset pools should prove to them that active fund management should be no more expensive than passive.

[Craig Mackinlay (South Thanet) (Con)]

I do not want to stop the hon. Gentleman when he is in full flow—we are very much enjoying his oration about the effects of compounding and charges. Surely, as we have more master trusts and the auto-enrolment market gets bigger and bigger, it will be a natural feature of that market that people will be more interested and aware of the charging structure. My personal view is that the concerns that the hon. Gentleman raises will come out as the market expands and evolves, and more and more of these trusts come forward. Much as I have enjoyed what he has to say, I have a feeling that that will be the natural progression of things in the market.

[Alex Cunningham]

Although I am grateful to the hon. Gentleman for his intervention, it is perhaps a typical response from a Conservative politician: just leave everything to the market. In my opinion, we should not leave everything to the market.

When offering investment funds to employers and members, master trusts need to prove the value of the investment post-charges and that active strategies are no more costly than passive. They should remember that the transaction cost issue, badly delivered in 2013, is up for review in 2017 and forms part of the auto-enrolment review.

The People’s Pension, the not-for-profit master trust launched by construction sector financial provider, B&CE, with 1.7 million members, is NEST’s closest private sector rival.

[Ian Blackford]

Could the hon. Gentleman recap and clarify what he just said—that active fund management is no more expensive than passive fund management?

--- Later in debate ---

[Alex Cunningham]

That is exactly what I said earlier in my speech. Some of the people who have briefed me have said that that is very much the case.

NOW: Pensions, the master trust backed by Denmark’s ATP, also introduced employer charges at the beginning of 2016, alongside a 0.3% management fee and a £1.50 administration fee. Morten Nilsson, the scheme’s chief executive, argued that the cost was a necessity if NOW: wished to continue serving as a scheme of last resort for any employer.

We all agree about the issues. Everyone now acknowledges that something must be done, and done with urgency, and the Secretary of State appears to be on board. The auto-enrolment process must not be jeopardised by hidden cost scandals that emerge down the line, when it is revealed that valuable small pots could have been so much more valuable. Our aim is to ensure that master trusts are obliged to report to members. We should set that out for employers that are considering using a master trust. That is the underlying reason for the amendment, which I commend to the Committee.

[The Chair]

Before I call any other Members or the Minister, let me say that I am minded not to have a broad debate on stand part, because we have already covered a lot of the ground. Perhaps the Minister in particular will reflect on that before he speaks.

--- Later in debate ---

In the light of that, I believe the amendment is not necessary. The Government already possess the necessary primary powers and are well on the way to achieving the hon. Gentleman’s stated purpose, which I laud. I urge him to withdraw the amendment.

[Alex Cunningham]

The challenge from the hon. Member for Ross, Skye and Lochaber is one I need to take back to those who advise me, to get an even greater understanding. I thought we would hear a few words of support from him on transparency, on which the Minister and I certainly agree.

I appreciate the Minister’s response. As he says, this is quite complex. I do not believe for one minute that the Government do not want to carry out the consultation exercise, but people out there in the industry are very keen that the Government get on with this, as are members. Members are keen to understand the costs and what they will be told about what their investments are costing them. I will reflect on the Minister’s answers in full, but in the light of what he said, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 12 ordered to stand part of the Bill.

Clause 13

Continuity strategy requirement

Question proposed, That the clause stand part of the Bill.

[Richard Harrington]

As I explained, there are criteria that a master trust must meet to be authorised by the regulator, one of which is that the scheme has an adequate continuity strategy. The clause sets out the requirements for that continuity strategy. It must set out how the interests of scheme members will be protected if the scheme experiences a triggering event—that is, an event that could put the scheme’s future at risk.

The aim behind the clause and the related measures is to ensure continuity of pension saving for the members of the scheme when that scheme experiences an event that could put its future at risk. That also benefits employers using the scheme, particularly those using it to meet their automatic enrolment legal obligations. An adequate continuity strategy would demonstrate that careful consideration had been given to what the scheme would do if it were at risk of failing. That should make the closure of master trusts more orderly and managed, which is good for members and employers. We all agree that chaotic and unplanned closures would likely be detrimental to them.

The reasons for and circumstances that could lead to a master trust failing may be different from more traditional occupational schemes. The risks for members and employers are different. That is of particular significance because master trusts tend to have a relatively high number of employers and members, and therefore tend to be less engaged than when an employer has a single scheme for their own employees.

That means that winding up a master trust may involve a lot of work and take a lot of time, and be complicated, difficult and expensive. Regulations under the clause will set out what the strategy should include and what actions the scheme will take to manage and protect the assets. The Government believe it essential that master trusts have adequate continuity strategies.

--- Later in debate ---

[Richard Harrington]

I will get back to my hon. Friend on that very technical point, but I do not believe that there is any intention for the definition to be different.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22 ordered to stand part of the Bill.

Clause 23

Notification requirements

[Alex Cunningham]

I beg to move amendment 28, in clause 23, page 16, line 19, after “employers” insert “and members”.

This amendment would mean that members must be told of any triggering events, not just the employers.

[The Chair]

With this it will be convenient to discuss amendment 29, in clause 26, page 19, line 10, at end insert

“and Trustees should then notify members to this effect”.

This requires Trustees of the Master Trust to notify members once TPR is satisfied that the triggering event has been resolved.

[Alex Cunningham]

I will continue to champion the members of master trusts this afternoon. The amendment would simply ensure that when triggering events happen, and if and when they are resolved, information on them flows right through the communication chain. As I said when I spoke on member engagement, it is important to understand that we need to put the member at the heart of the process. If members find out only at second hand about such events, which affect their hard-earned cash, it is bound to result in lower levels of trust—never mind all the anxiety and everything that goes with it. I pose the question: how would hon. Members feel if no one told them that there was an issue with their pension pot? I know that is rare for Members of Parliament, but if they had a separate pension pot and were not given that information, would they not be concerned? They would not be best chuffed, and they would want to know why they were not being informed.

Trust is vital, and it is at very low levels both in financial services and, more importantly, in us who make the law. How can we look our constituents in the eye if they ask us, “Why did you not put me first? It’s my money. It’s my retirement at risk”? There are those who claim that there are problems with reaching vast numbers of people, but this is the 21st century and it is not necessary to fell trees to make paper to send out hundreds of thousands of letters. It is a simple of chain of events, and if it can go to employers I believe it should also go to members.

[Richard Harrington]

Amendment 28 would require the trustees of a master trust that experiences a triggering event to notify all the members that the event has occurred and of other matters to be set out in regulations. The explanatory note to amendment 29 says that the intent is to require trustees to notify members once the regulator is satisfied that the triggering event has been resolved, but the effect of the amendment is a bit wider. It would require the trustees to inform members of the regulator’s decision—in other words, whether it is satisfied that the event had been resolved or not.

Clause 23 requires key people associated with the master trust to notify the Pensions Regulator if the scheme experiences a triggering event. Clause 26 sets out the framework for a scheme pursuing continuity option 2—in other words, the trustees aim to resolve the triggering event. The resolution is the important part of it. Once the trustees believe they have resolved the event, they submit evidence to that effect to the regulator. Having considered the evidence, the regulator notifies the trustees of whether it is satisfied that the event has been resolved. Our aim is for events to be resolved where possible. The scheme can then continue and members can keep saving in it. We have not required the trustees to notify members.

As the hon. Gentleman said, at the point that the triggering event happens, the trustees may be in discussions with the regulator and may not have reached a conclusion about whether the scheme will continue to operate or whether it will be wound up.

[Alex Cunningham]

I accept that the triggering is the actual start of the process, and that there may well be discussions. At what point does the Minister think the members ought to be told that a triggering event has in fact taken place and that their scheme is in some doubt?

[Richard Harrington]

To rebut that point—I emphasised the words “resolve” and “resolution”—we believe that the majority of triggering events will end up with a very satisfactory resolution. Remember, many members do not take an active decision to join; they join through their employer. They are not actively engaged in the scheme; their employer is the conduit, so providing incomplete information to members would cause undue distress and risk unintended consequences, such as members opting out of the scheme and stopping saving in a pension, when a resolution to the triggering event could very easily be agreed with the trustees or, indeed, opposed by the regulator.

If a scheme resolves its triggering event and continues to operate, I do not see why members should see any change. It is exactly the same for them: their pension saving will not be disrupted. I would not want them to be unduly alarmed or confused. The intervention of the regulator during the triggering event period, and the additional controls that are put in place during that period, will help to ensure the scheme gets back on track.

If the scheme is going to wind up—I believe this is the relevant point—members will be informed well ahead of anything directly impacting on them, and will be given the information and options.

[Alex Cunningham]

If the members are going to be told about the wind-up, where in the regulations is the requirement for the master trust to inform them?

[Richard Harrington]

The regulations have not yet been published, but the hon. Gentleman makes a valid point.

The aim behind these clauses is to ensure that members continue to save into a pension because they do not believe that the sky is falling in—the entire system is intended to ensure that that is not the case. To that end, members are not informed at such an early stage as is proposed in amendment 28, because of the adverse implications that could have and the absence of any practical advantage for members. What advantage would that provide to members, given that the matter will be resolved? There does not appear to be an obvious benefit.

However, I recognise how important it is that members are informed well ahead of something happening that might have a direct impact on them and—I think this is the core of the hon. Gentleman’s point—disrupt their pension saving. I am confident that the measures included in the Bill, and those proposed for inclusion in regulations, will achieve that outcome. I therefore ask the hon. Gentleman to withdraw his amendment.

[Alex Cunningham]

I am particularly interested to know what proposals there might be in regulations to ensure that the member is told, whether at the winding-up stage or when it first has an impact on them, and how that will be defined. I hope that the Minister will respond to that point before I sit down. I accept that it is particularly important that members are engaged throughout the process. Unfortunately, the Minister does not agree with me on that point. I believe that there is no more key a person in this chain than the member, but I accept that they should be informed when it is a significant thing affecting their lives. The Minister might like to intervene to explain what proposal there will be in regulations to ensure that members are informed when there is a material impact on their pension pot. Otherwise, at this stage I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23 ordered to stand part of the Bill.

Clause 24

Continuity options

Question proposed, That the clause stand part of the Bill.

[Richard Harrington]

The clause sets out the two continuity options that must be pursued by the trustees when there has been a triggering event. Option 1 requires the scheme to transfer out all members’ accrued rights and benefits and then wind up. Option 2 is for the scheme to resolve the triggering event to the satisfaction of the Pensions Regulator. Trustees will have a choice under the regulator’s authority, and once the regulator has decided to withdraw authorisation, that is final, or there is a notification that the scheme is not authorised and then they have to pursue continuity option 1.

Our aim is that members should continue to save despite the master trust of which they are a member experiencing a triggering event. Therefore, where the scheme is able to resolve its issues, it should do so. However, where the issue could lead to the failure and closure of the scheme, the members should be transferred out, under the auspices of the regulator, hopefully to continue to save with as little disruption as possible.

If authorisation is withdrawn or refused by the regulator, or there is a notification that the scheme is not authorised, members will have to be transferred out and the scheme wound up. Irrespective of the option, we want the process to be as smooth and as managed as possible. The mismanagement of an issue or an unmanaged closure of a scheme would be bad for members and could be detrimental to confidence and lead to members opting out of pension saving, which is the last thing we all want.

Where a master trust experiences an event that could lead to its failure, there needs to be greater planning and control and more safeguards for members and employers. It is important that the scheme has done detailed planning so that what happens following a triggering event is thought through and organised and the process is orderly and managed. That should help to ensure ongoing automatic enrolment without disruption.

--- Later in debate ---

[Richard Harrington]

The amendments, which apply to clauses 25 and 34, continue with the continuity options. These apply when the trustees of a master trust are pursuing option 1. Clause 25 sets out the framework for continuity option 1. This is where the scheme transfers out all the members’ accrued rights and benefits, and winds up. The amendments would allow regulations to be made in future that would let the trustees in this situation choose a scheme that is not a master trust to receive their members’ rights and benefits.

The receiving scheme would have to have characteristics set out in the regulations. The non-master trust receiving scheme would be made subject to exactly the same restrictions on increasing or introducing the new charges as those to which master trust receiving schemes are subject. The amendments would enable the type of schemes that can be receiving schemes to be widened where a master trust is going to wind up and has to transfer all its members out.

In that situation, although members have the opportunity to make their own choice about where their accrued rights and benefits go, where they do not make a choice there needs to be provision for their rights and benefits to be transferred into a suitable pension scheme. At present that is restricted to another master trust. These measures permit this to be opened up by providing a regulation-making power to include other pension schemes, should that be appropriate. It may well not be appropriate, but in some cases it will be. Such schemes could include personal pensions and pension schemes that provide decumulation options, such as drawdown. This means we will be able to react appropriately to future innovations and developments in the pensions market. Indeed, the rise of master trusts shows how quickly markets change. This may be of particular use where members were using a decumulation option, as it leaves open the possibility that members could make use of new decumulation products in future.

Allowing other types of pension schemes to receive transferred members, as long as they meet specified requirements, could increase the options available to trustees, introduce extra flexibility and widen the market for potential schemes. This might be useful if trustees found that they were struggling to find somewhere appropriate for their members’ rights, which might particularly benefit members using decumulation options. Being able to increase the options in future might help reduce the risk that trustees of failing master trusts might not be able to find another master trust to take their members on.

As these amendments will mean that it is possible to widen the options available to the trustees of a master trust that was closing, and as that would be for the benefit of members, I commend them to the Committee.

[Alex Cunningham]

We give a general welcome to the amendments, some of which have been tabled in response to issues raised by my colleagues in the other place. The amendments are intended principally to ensure that scheme members are protected in the event of a winding up, and we certainly welcome that. We also wish to ensure that a master trust winding up does not disincentivise savers or negatively affect their rights and benefits.

Government amendment 5 means that if there is a triggering event and a master trust has to wind up and transfer members and their benefits, this can now be to a scheme other than another master trust scheme. This change, which has been made since the Bill left the House of Lords, invites three questions to which the answers are not clear. First, in the event of a failing master trust winding up, what conditions and regulatory standards must a receiving scheme that is not a master trust meet before the Pensions Regulator will authorise the transfer of members and their assets to it? Secondly, how will the concept of scheme funder in the Bill be applied to a receiving scheme that is not a master trust?

Thirdly, an essential provision in the Bill to protect master trust scheme members from bearing the costs of sorting out a scheme failure is in clause 34, which places a prohibition on increasing members’ charges during a triggering event, including wind-up and transfer. The prohibition is binding on both the transferring and receiving master trust scheme. Can the Minister give a categorical assurance that the prohibition on increasing member charges will, in the light of the amendment, apply to any receiving scheme in a triggering event? If the receiving scheme is not a trust-based scheme, which regulator will police adherence to that prohibition? Where is the line of vision in the Bill to show that all receiving schemes, master trusts or otherwise will be bound by the prohibition on increasing members’ charges?

We remain somewhat concerned that the Government have chosen to pursue their aim by introducing broad powers for the Secretary of State to make regulations in amendments 8, 10 and 12. We do not believe that approach provides a strong enough guarantee to scheme members that their benefits will not be eroded through the course of the transfer. Can the Minister guarantee to scheme members that that will never be the case? If he can, why not place such a guarantee in primary legislation? If he cannot, why not?

[Richard Harrington]

I have listened carefully to the hon. Gentleman’s points. This goes back to the core question of whether things should be in primary or secondary legislation and why. I repeat the argument, which I think is very reasonable, that part of the Bill is providing flexibility for the way things will change in the future. Whichever party happens to be in power, primary legislation is very difficult and takes a long period. The industry moves far more quickly. I know I keep repeating the same answer, but that flexibility is very much the principle of the whole Bill.

There is a difference in principle between us, but I hope the hon. Gentleman will agree that I have tried to be pragmatic with the arrangements, which provide the necessary practicality. I cannot therefore give him the undertakings that I would like to, because of the flexibility within the Bill, but I am convinced that this system will provide the most protection for members. As he knows, a lot of thought has gone into this. It is not a question of dispute based on an irresistible force and an immovable object; we have come up with a suitable compromise.

[Alex Cunningham]

I recognise the constraints and difficulties of trying to develop regulations on the hoof, as I was perhaps requesting of the Minister. If members started to understand this area, they would be really worried about it and want to understand it more, but I accept the Minister’s explanation.

Amendment 5 agreed to.

Amendments made: 6, in clause 25, page 17, line 23, leave out “subsection” and insert “subsections (1A)(b) and”.

This amendment is consequential on amendments 5 and 8.

Amendment 7, in clause 25, page 17, line 24, after “the” insert “Master Trust”.

This amendment is consequential on amendments 5 and 8.

Amendment 8, in clause 25, page 17, line 27, at end insert—

‘(1A) Each pension scheme proposed under subsection (1)(a) must be—

(a) a Master Trust scheme, or

(b) in such circumstances as may be specified in regulations made by the Secretary of State, a pension scheme that has characteristics specified in regulations made by the Secretary of State (“an alternative scheme”).”.

See Member’s explanatory statement for amendment 5.

Amendment 9, in clause 25, page 17, line 28, leave out “The notification” insert “Notification under subsection (1)(b)”.

This amendment is consequential on amendments 5 and 8.

Amendment 10, in clause 25, page 17, line 33, leave out subsection (3) and insert—

“(3) The Secretary of State—

(a) must make regulations about how continuity option 1 is to be pursued, in a case where a proposed transfer is to a Master Trust scheme;

(b) may make regulations about how continuity option 1 is to be pursued, in a case where a proposed transfer is to an alternative scheme;

(c) may make regulations for the purpose of otherwise giving effect to continuity option 1, in either case.”.

This amendment confers power on the Secretary of State to make regulations about how continuity option 1 is to be pursued, where a proposed transfer of members’ rights and benefits is to a pension scheme that is not a Master Trust scheme.

Amendment 11, in clause 25, page 18, line 29, leave out “receiving”.

This technical amendment removes an unnecessary word from clause 25(4)(l).

Amendment 12, in clause 25, page 18, line 37, at end insert—

“(4A) Regulations under subsection (3)(b) may include—

(a) any provision mentioned in subsection (4);

(b) provision deeming any member whose accrued rights or benefits are to be transferred to an alternative scheme to have entered into an agreement with a person of a description specified in the regulations.”.

This amendment makes it clear that regulations about how continuity option 1 is to be pursued in a case where a proposed transfer is to pension scheme that is not a Master Trust scheme may include any of the provision mentioned in clause 25(4) and also provision deeming a member to have entered into an agreement with a person (such as the provider under the new scheme).

Amendment 13, in clause 25, page 18, line 46, leave out “subsection” and insert “subsections (1A)(b) and”.—(Richard Harrington.)

This amendment makes regulations under the new subsection (1A)(b) (specifying alternative types of pension schemes to which transfers can be proposed) subject to the affirmative resolution procedure. (Regulations under the new paragraph (b) of subsection (3) (about bulk transfers to schemes other than Master Trust schemes) will also be subject to the affirmative procedure.)

Clause 25, as amended, ordered to stand part of the Bill.

Clause 26

Continuity option 2: resolving triggering event

Question proposed, That the clause stand part of the Bill.

[Richard Harrington]

The clause sets out the framework where a scheme pursues continuity option 2, which we have not mentioned in detail. The clause places a series of requirements on schemes and the regulator to ensure that a triggering event is resolved to the regulator’s satisfaction. Subsections (2) and (3) set out that once the trustees consider that they have resolved a triggering event, they must notify the Pensions Regulator, setting out how they consider that has been achieved. Subsection (4) provides for the time period for the notification to be prescribed in regulations. Subsection (5) requires the regulator, having considered a notification, to notify the trustees of whether it is satisfied that the event has been resolved.

Our aim is to ensure that where trustees decide to try to resolve a triggering event, they have the opportunity to do so, so that the scheme can continue and its members can continue to save in the scheme with as little disruption as possible. However, following a triggering event, the trustees must set out a comprehensive and detailed implementation strategy containing the steps that they plan to take. We consider a scheme that has had a triggering event to have increased risk—that really is part of the definition of a triggering event—so such schemes need greater and more in-depth planning, safeguards for members and employers, and greater protection for members. However, we want members to continue to save and employers to continue to comply with their legal automatic enrolment minimum obligations, and for there to be general confidence in the master trust market.

We do not want to restrict how trustees resolve a triggering event, but we want to encourage and facilitate the continuity of pension saving by members. The best way to achieve that is for schemes to have the freedom to resolve their specific issues in the most appropriate way, but under the supervision of the regulator. There has to be an external check that triggering events have been properly resolved, because otherwise we could not assure the protection of members’ savings, and the regulator provides that. We consider that to be the best way of ensuring the continuity and security that we want. We believe that the clause provides the framework for doing that, so I ask the Committee to support it.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Steve Brine.)

Pension Schemes Bill [ Lords ] (First sitting)

Alex Cunningham Excerpts

Tuesday 7th February 2017 Public Bill Committees

[The Chair]

We now begin line-by-line consideration of the Bill. The selection list for today’s sitting is available in the room and on the website, showing how the selected amendments have been grouped together for debate. Amendments grouped together are generally on the same or a similar issue. A Member who has put their name to the leading amendment in the group is called first; other Members are then free to catch my eye to speak on all or any of the amendments within that group. A Member may speak more than once in a single debate.

At the end of a debate on a group of amendments I shall call the Member who moved the leading amendment once again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or to seek a decision. If any Member wishes to press any other amendments or a new clause in a group to a vote, they need to let me know. I shall work on the assumption that the Minister wishes the Committee to reach a decision on all Government amendments if they are tabled.

Please note that decisions on amendments do not take place in the order they are debated, but in the order they appear on the amendment paper. In other words, debate occurs according to the selection and grouping lists; decisions are taken when we come to the clause that the amendment affects. I shall use my discretion to decide whether to allow a separate stand part debate on individual clauses and schedules following the debates on the relevant amendments. I hope that explanation is helpful.

Clause 1

Master Trust schemes: definition

[Alex Cunningham (Stockton North) (Lab)]

I beg to move amendment 22, in clause 1, page 1, line 9, leave out paragraphs (b) and (c).

To include in the scope of schemes included under the definition of Master Trust single employer trusts and those with connected employers.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 32, in clause 1, page 1, line 12, at end insert—

‘(1A) The definition of a Master Trust Scheme shall include such schemes that provide benefits to members who are self-employed in addition to those who are employed by others.”

This amendment will ensure that master trust schemes that also allow self-employed members to join are within cover by the regulation introduced by this Bill.

Amendment 23, in clause 1, page 1, line 13, leave out subsection (2).

To clarify the protection provided under this Bill for non-money purchase benefits.

[Alex Cunningham]

It is a pleasure to serve under your chairmanship, Mr Rosindell, and I am sure it will continue to be so throughout this Committee stage.

Before I get into detail of Labour’s first tabled amendments, 22 and 23, it might be helpful if I set out how we plan to approach Committee stage. As I said on Second Reading, we broadly support what the Bill seeks to do, but we have serious concerns about what the Bill does not seek to do, the issues in the pensions landscape that it fails to address, and the significant sections of policy detail pushed into secondary legislation.

I note that my new clause 5, which is designed to introduce pension credit for women born in the 1950s and whose retirement age has been accelerated, has not been selected. I say only that it is lamentable that the Bill is not broader. I am also concerned about the dependency on secondary legislation because the Government are not yet in a position to share the detail of their intentions. I know that not everything can be in the Bill, but the Constitution Committee wrote to the Government expressing strong concern about the lack of information provided in primary legislation. I hope that the Government will take the Select Committee’s caution seriously and that we can ensure that in this case the primary legislation properly sets out the Government’s intentions.

Amendment 22 raises the question why single-employer occupational schemes are excluded from the scope of the Bill and why connected employers are therefore effectively treated as a separate entity. As it stands, the Bill’s provisions regulate neither single nor connected employer arrangements. We appreciate that a line must be drawn somewhere in attempting to develop a suitable regulatory framework in the face of a wide array of occupational pension arrangements. The amendment offers the Government the opportunity to clarify the bounds of their new regulatory environment and to justify their decision to draw the boundaries where they lie in the Bill. We want the parameters of the regulatory framework to be clear.

We accept that the master trust regime is focused on schemes with particular risks, but does there not have to be consistency across the piece? The definition of a master trust covers an array of different arrangements and there is nothing simple about it—getting my head around it has taken me some time. It can cover schemes set up by unregulated businesses as well as those set up by regulated businesses, such as insurance companies or investment managers. It can also cover what are described as “white label” master trusts, which are set up by a pension providers, with commercial or non-commercial partners being allowed to brand their sections of the trust. Others may have partnering arrangements with large employers whereby each employer gets its own section of the master trust but does not make any profit from it. Schemes that are included can be industrywide, can include two or more unassociated companies, and can be in the university, charitable and religious sectors. Given the broad range of different situations, on what basis do the Government believe that it is appropriate to draw the line to exclude single unconnected employer arrangements?

The probing amendment would also delete from the definition of a master trust the exclusion of those schemes that are to be used only by connected employers. In the debate in the other place, I believe the Minister clarified that when a single group employer takes on a non-associated one and it is intended that all will participate in the scheme, the scheme will then fall under the regime. Will the Government confirm that that remains the case?

It would also be good to have further clarification of what the position would be when a joint venture has run its course and the scheme reverts to being used only by connected employers. In that instance, how do the Government justify the juxtaposition of a connected group of employers being outside the scope of the Bill whereas another connected group of similar size but with just one small associated employer would presumably be inside it? The distinguishing line is very thin.

Do the Government envisage circumstances in which clause 41 would be used to bring within the scope of the Bill a single employer occupational pension scheme? Clearly, the Bill provides that power to the Secretary of State. In fact, the power set out in the Bill is very broad, so I look forward to the Minister’s response on those issues.

I note that in amendment 32, the hon. Member for Amber Valley has sought to address the lack of access for self-employed people. I picked up that theme in new clause 4, which addresses both that and other groups currently excluded from master trust scheme membership. I look forward to the hon. Gentleman’s speech.

Amendment 23 is a probing amendment to elicit clarification regarding what happens to non-money purchase benefits in master trusts. Clause 1(1)(a), taken together with other clauses, means that the Bill applies only to money purchase benefits provided through a master trust and excludes non-money purchase benefits. As I am sure the Minister is aware, the exclusion of non-money purchase benefits would mean that members’ benefits provided by those schemes, including retirement products, are excluded from key protections in the Bill. That does not seem fair or sensible, given the Bill’s intention to provide stronger protection for scheme members.

Master trusts currently provide a range of services both to employers under auto-enrolment and to individuals exercising pension freedoms. Those can include annuities, guaranteed drawdown and investment products, which include some form of guaranteed rate of return. One example could be when annuity payments are paid to the member while the annuity supporting those payments may be held as an asset of the scheme, rather than in the name of the member. Pension freedoms are beginning to transform the market radically for guaranteed income products, but pension savers will still have an appetite for some form of guaranteed product. The Bill will not apply to non-money purchase benefits, so it is unclear what happens to those benefits and, importantly, the assets backing them when a master trust fails.

In the other place, my noble Friend Baroness Drake raised an example of a trust that allows members to add in other savings and assets such as ISAs and property used for funding retirement. Everybody I meet acknowledges Baroness Drake to be a pensions expert in every sense. She believes that of the approximately 100 master trusts, only 59 are being used for auto-enrolment, with others having developed out of the pension freedom reforms.

Regulation should anticipate that master trusts will expand further into the decumulation market of retirement products. With that in mind, the exclusion of non-money purchase benefits from the primary legislation raises a number of questions. It is not clear what happens to the treatment of all non-money purchase benefits and the assets backing them in the event of a wind-up or other triggering event occurring. Will those members’ benefits be protected against funding the costs of a triggering event? How and where will they be transferred on exit?

In the other place, the Minister suggested that there is already extensive regulation to ensure that members’ non-money purchase benefits are protected. He called further regulation in this regard “unnecessary and disproportionate”. It seems odd that in this instance the Minister seems intent on minimising duplication, yet the Government continue to require duplication of regulation in some cases around the separate legal entity. The boundary line of the legislation appears a little murkier.

We note that in Government amendment 20, Ministers have acknowledged the lack of clarity around money purchase benefits and non-money purchase benefits raised by my noble Friend Baroness Drake, but we are a little disappointed that the amendment does not seek to provide greater protection to non-money purchase benefits under mixed schemes. Instead, it merely clarifies that the Bill protects only money purchase benefits within a mixed scheme. That is deeply disappointing for us for the reasons I have just outlined. I therefore request that the Government confirm absolutely that members of master trusts providing them with non-money purchase benefits face no additional risk as a result of that gap.

Will all retirement products with an element of guarantee be covered by the Pension Protection Fund regime? Master trusts are not regulated by the Financial Conduct Authority, so where does the saver look for protection? Secondly, the continuity strategy required under clause 13 in the event of a wind-up will have to set out how the interests of members of a scheme in receipt of money purchase benefits are to be protected in a triggering event. Currently, it will not have to set out how members in receipt of non-money purchase benefits will be protected. Such a requirement would at least clarify what range of member benefits were in the master trust.

Will the master trust be required to set out how members with non-money purchase benefits will also be protected if a triggering event occurs? I am sure that the Minister will recognise these very genuine concerns and I look forward to his response.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to serve under your chairmanship, Mr Rosindell, and to follow the shadow Minister. My remarks will be in a similar spirit to his, trying to probe the Government on how exactly they see master trusts being used, how they see the pensions landscape and how the two will mesh.

Amendment 32, which stands in my name, relates to how we deal with self-employed people who may end up in a master trust. That starts out as a technical question—as the Minister may know, I like to ask technical questions of legislation to see whether he has read it all and can trace it all through, because these things can be chased around. Under the definition in the Bill, a master trust must be an occupational pension scheme, which takes us back to the Pension Schemes Act 1993. An occupational pension scheme has to provide benefits in respect of earners with a qualifying service in an employment—such schemes do not provide benefits to earners who are self-employed in that situation. Therefore, on a high-level reading, if a scheme is providing benefits for people who are self-employed, technically it should not be an occupational pension scheme.

I assume that the answer to that particularly technical point will be that if in a master trust there are 5 million people who are employed and there are 10,000 who are self-employed, it does not get suddenly blasted out of being an occupational pension scheme and out of the regulations and drop back into the personal pension scheme regulations. I assume that the National Employment Savings Trust, which I think already markets itself to the self-employed, will not somehow have a change in its regulatory position by serving a few self-employed people.

It is not hard to foresee that the landscape might change, and it is pretty clear that we would quite like the landscape to change quite dramatically. We have a big problem with the lack of pension provision among people who are self-employed and, sadly, that problem is going the wrong way. Auto-enrolment has enrolled millions more employed people than ever before in a pension, but over the course of this century the number of people who are self-employed and actively in a pension scheme has decreased from about 1.2 million in 2002-03 to 380,000—and that is as the number of people who are self-employed has risen to more than 3.5 million. That is going completely the wrong way. Far more people are self-employed, yet far fewer of them are saving in a pension. That is not a healthy situation for them and their prospects in retirement, and it is not a particularly healthy position for us, considering how people will be able to look after themselves when they reach that age.

It is pretty clear that we need to find solutions that encourage more self-employed people to save into a pension and to take the various tax advantages that that provides. Hopefully, when the Government conduct their auto-enrolment review later in the year, one issue they will look at is whether we can extend, tweak or amend auto-enrolment to get to those many millions of people who are self-employed. Let us be honest: probably quite a large number of them would like to be employed or think they are employed—or perhaps we think they are legally, in substance, employed, yet their non-employer is somehow tweaking the rules to treat them as self-employed. How do we get those people to realise that pension savings is important to them? How do we get them into a simple scheme that is easy to administer?

It looks like auto-enrolment master trusts are the obvious vehicle that could cope with the scale of several million more people, who are probably generally on relatively low earnings, joining a pension scheme. They have the infrastructure and it is not hard to see how self-employed people could self-manage such schemes via online portals. It looks like, as a matter of policy, we would quite like to encourage all the big master trusts out there to start taking people who are self-employed. I suspect we would like to find a way.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

It is a pleasure to serve under your chairmanship, Mr Rosindell. I thank you for the clarification of the rules concerning hot beverages, with which I am happy to comply.

The attitude that the Opposition, the Scottish National party and all of us have taken towards the Bill is to discuss it widely among ourselves and to agree as much as we can, which is positive. Our disagreements are honourable, and no one is playing politics or at opposition for the sake of it. I wanted to make that clear, Mr Rosindell, because I have served on Bill Committees, as I am sure you have, where that has not been the case.

The Opposition amendments and those of my hon. Friend the Member for Amber Valley were tabled in the correct spirit. We had considered all the points in advance of the Bill being introduced and therefore in advance of the House of Lords proceedings and Second Reading in the Commons. Master trusts have been around for a long time, but they have grown exponentially in number over the past two years. The legislation is therefore a response not to a fundamental problem with master trusts, but to their exponential growth, pushed by auto-enrolment, and the industry seeing them as an area with a less stringent regulatory regime than other parts of the pension system. For example, insurance companies and personal pensions are regulated by the FCA under long-standing rules, and the non-master trust system is very different, because those trusts have one clear sponsoring employer and there are lots of rules and regulations under the Pensions Regulator.

The legislation is therefore meant to fill a gap. We are not filling the gap because of a disaster or problems that have arisen; we are trying to see what problems might arise. That has been the scope of discussions between the Government, Opposition and individuals, which has included some positive opposition in the other place. I hope that that will be true for most of our proceedings.

Opposition amendments 22 and 23 and the amendment of my hon. Friend the Member for Amber Valley seek to change the Bill’s definition of a master trust. Amendment 22 would extend the definition to all schemes that offer money purchase benefits, which would include schemes used only by a single employer or by employers connected to each other. The proposal would extend the scope of the definition significantly and, therefore, of the authorisation regime disproportionately.

As the debate in the other place indicated, there is general acknowledgment that further regulation of master trusts is desirable and necessary. As I explained in my opening remarks, master trusts have developed into structures that are often very different from traditional occupational pension schemes offered by single employers or the more traditional group of connected corporate employers. They offer compelling benefits to employers and members. They spur competition in the market and allow for economies of scale, providing value for money. They are also an efficient solution for smaller employers for whom setting up an individual pension scheme for employees would be difficult, onerous, impractical and expensive.

We accept, however, that those qualities also bring about new risks. As I explained, those risks are less likely to be present in single employer or connected corporate defined contribution schemes. The authorisation regime is intended to address those risks. For example, in a single employer scheme—a traditional trust scheme—the employer is usually closely involved in the running of the scheme and has an active relationship with the trustees. In a master trust, the employer’s participation is often largely limited to paying the employer contribution, which is probably the most important part. I do not take that lightly, but the responsibility for the running and administration of the trust is clearly different from a single trust for a single employer. Additionally, in a single employer scheme, the employers determine the terms of the scheme, whereas in a master trust it is done for them, with the person or organisation setting up the scheme doing it.

Those differences highlight why the purpose of the Bill is to require authorisation and provide member protection in respect of master trusts. The risks are specific to this kind of scheme and it is therefore important that the definition reflects such schemes and does not extend beyond them. The clause establishes the proper scope of the Bill and ensures that its regulation is proportionate to the issues arising.

Amendment 23 was clearly explained by the hon. Member for Stockton North. It would amend clause 1(2), which provides that the Bill’s provisions apply to a master trust scheme only in so far as it provides money purchase benefits. That would mean that the provisions of the Bill would apply in relation to the scheme as a whole, and not just in relation to the parts of it that apply to money purchase benefits. Most master trusts will only provide money purchase benefits—that is the purpose of the vast majority of them—but it is fair to say that a number will provide money purchase and non-money purchase benefits. I agree with him that master trusts can do that legally and properly. It is not the norm but some do.

As I have already set out, the authorisation regime is intended specifically to address certain risks that apply to members in master trusts that relate to the structure and funding of such schemes. In particular, the Bill is focused on the risk around money purchase benefits, and we have been open about that. In answer to the hon. Gentleman, the Bill is focused in that way because there is already extensive regulation in relation to occupational pension schemes providing non-money purchase benefits—regulation already exists. Applying the authorisation regime to them would create duplication of regulation. He warned us about duplication, but the amendment would create duplication of regulation and add unnecessary costs and burdens to the running of those schemes, with little purpose in terms of protecting members, so far as we can see.

In addition, authorisation requirements are intentionally targeted at the risks relating to money purchase benefits. Conflict and confusion might arise if those requirements are applied across the board. For example, the provisions requiring the transfer of member benefits and wind-up of a scheme might have a detrimental impact on members if applied in relation to non-money purchase benefits. It is important that the members of schemes with mixed benefits have the same standard of protection as members of schemes that only have money purchase benefits. That is why the authorisation regime applies to the money purchase aspect of such schemes. Extending authorisation to types of benefits for which it is not designed and where the risks do not arise in the same way would not be appropriate.

To answer a question asked by the hon. Member for Stockton North, I can confirm that the Government intend to include decumulation schemes—the decumulation products that he mentioned in his speech—in clause 41.

[Alex Cunningham]

I am particularly keen to understand further what the Minister means by the same protections being in place for non-money purchase benefits as for money purchase benefits.

[Richard Harrington]

As I explained before, the two are covered by separate regulation and separate rules. I do not see how combining the two together under the same regime would help to give protection.

--- Later in debate ---

I can confirm that the definition of a master trust, as set out in the Bill, includes all schemes that have the characteristics set out in clause 1. That includes those with members who are self-employed in addition to members who are employed. My hon. Friend’s amendment is therefore not necessary, although that is not to say that it is spurious or badly intended. I hope that I have clarified that his points are covered in the Bill, and that the amendment is therefore not, I respectfully believe, necessary. With those assurances and clarifications, I ask the hon. Member for Stockton North to withdraw his amendment, and my hon. Friend the Member for Amber Valley not to press his.

[Alex Cunningham]

I share the Minister’s sentiment on our approach to this Bill and welcome the discussions we have had offline. Our main arguments about pensions are on other areas of policy, and certainly not this one.

I will briefly comment on the speech by the hon. Member for Amber Valley. There are ways to address the issues of auto-enrolment for the self-employed. Many people in the industry have shown me models, most of which Her Majesty’s Revenue and Customs would have a role in delivering. The Minister accepted that the hon. Gentleman’s amendment was not spurious; when we get to new clause 4, he and his colleagues might see the need to support it and bring it into the Bill to avoid any further delay in addressing the needs of such groups.

The Minister has addressed the points thoroughly, but anomalies remain. I referred to one group of connected employers outside the scope of the Bill, yet a similar group with just one associated employer would be included. We need more consideration from the Government on that. I am also concerned about the protection for members in single employer schemes. All the responsibility seems to lie with the employer. Where is the protection for the member? I have already alluded to the reliance on secondary legislation. I am concerned that there has to be secondary legislation.

[Richard Harrington]

I forgot to mention the hon. Gentleman’s point about secondary legislation; if I may, I would like to use this opportunity to do so. I apologise for forgetting it; it was in my head, but other things were as well. There is a lot of secondary legislation in the Bill, because we want two things. First, we want to consult extensively with the industry, following publication of the Bill, on certain technical matters to do with how things will work. Secondly—this is very relevant—we have seen how things have changed in the past couple of years; master trusts have basically morphed from one thing to another. I am not saying that there is anything wrong with that; that is how industries develop, particularly in the area of financial services, which is very fast-moving. We want to retain the flexibility to change nuanced things as the industry changes, so that we are not finding further loopholes that we have to wait years for primary legislation to address. As hon. Members will be aware, the protections built into the regulations include the fact that in the first instance they will be affirmative, so there will be plenty of time for them to be discussed properly and correctly.

[Alex Cunningham]

I accept that explanation from the Minister. There are other areas destined for secondary legislation that we will seek to put into primary legislation and that it is probably more important to press him on. He has a tough job—the money purchase benefits and non-money purchase benefits in particular need further consideration—but I accept where he is coming from. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

--- Later in debate ---

[Richard Harrington]

Amendments 1 and 20 will prevent what would have been an unintended effect of the Bill, for which I apologise. I am grateful to the other place for its scrutiny of the Bill, and particularly to Lord McKenzie—I have complimented him so many times in this sitting that I shall take my gratitude to him as read for the rest of our proceedings, but I really must thank him for bringing this matter to our attention. The amendments, which we indicated in the other place that we would table, will fix the issue that he pointed out. Without them, where a scheme has a mix of money purchase benefits and non-money purchase benefits, a funder would not be able to conduct activities in relation to the non-money purchase benefits. That was clearly not our intention, but it was the effect of the interaction of clauses 1(2) and 11. Amendments 1 and 20 will amend clauses 1 and 40 respectively to fix that.

Clause 1(2) provides that where a master trust scheme provides both money purchase benefits and non-money purchase benefits, the Bill’s provisions will apply only to the money purchase benefits. Clause 11 requires the scheme funder to be set up as a separate legal entity that is defined, broadly, as a legal person whose only activities are in relation to the master trust. As a result of clause 1(2), for a scheme with mixed benefits, the reference to the master trust in clause 11 would cover only the money purchase elements, which could mean that schemes or scheme funders would have to be restructured for reasons that we did not intend.

Amendment 20 will therefore add a further exception to the principle that the provisions of the Bill apply only to money purchase benefits, in addition to those already provided by clause 40, which we will consider later. The reference in clause 11(3) to the master trust will relate to the scheme as a whole, not just to the money purchase benefits. That will ensure that the scheme funder can engage in activities in relation to any part of the scheme.

Amendment 1 will make a minor consequential amendment to clause 1(2) to reflect the amendment to clause 40. The combined effect of the amendments will be to ensure that clause 11(3) works as intended for mixed benefits schemes.

[Alex Cunningham]

I inadvertently addressed the amendment in my first speech. We accept and welcome Government amendment 20, but we have not forgotten the issues that I raised earlier.

Amendment 1 agreed to.

Clause 1, as amended, ordered to stand part of the Bill.

Clause 2

Relevant public service pension schemes

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

Application for authorisation

[Alex Cunningham]

I beg to move amendment 24, in clause 4, page 3, line 14, at end insert—

“() the scheme’s policies relating to systems and processes requirements as set out in regulations under section 12”.

The application to the Pensions Regulator must include a member engagement strategy.

[The Chair]

With this it will be convenient to discuss amendment 25, in clause 4, page 3, line 15, at end insert—

“() the scheme’s member engagement strategy.”

The application to the Pensions Regulator must include a member engagement strategy.

[Alex Cunningham]

The mantra for this Bill should be: “Members at the centre of everything we do.” Communication and engagement is vital for trust in the system. It is good for business and good for members. Effective communication and engagement is an essential component in helping to implement improvement. Across all industries, transparency has never been more important to a successful business model, regardless of size. When it comes to employee engagement, this particular business practice is proven to be essential on a global scale, and what is seen as an essential tool for all manner of other business and industry areas, I see as equally essential for the pensions industry.

My noble Friend Lord McKenzie of Luton in the other House put the case very clearly and compellingly for master trusts to be required to have a full and effective member engagement strategy as part of the qualifying requirements for authorisation by the Pensions Regulator to operate as a master trust. In response to my noble Friend on Report, Lord Young of Cookham, replying on behalf of the Government, said:

“I can also confirm that the Government would intend—subject, of course, to consultation—to use the regulations under Clause 11 to ensure that the regulator specifically considers a scheme’s systems and processes in relation to these important communication matters when deciding whether the scheme is run effectively.”—[Official Report, House of Lords, 19 December 2016; Vol. 777, c. 1487.]

He went on to speak of wider communications, including how the review of auto-enrolment would include the engagement of individuals with workplace pension savings.

In an earlier written statement to the Commons, the Minister said that the review would include

“how engagement with individuals can be improved so that savers have a stronger sense of personal ownership and are better enabled to maximise savings.”—[Official Report, 12 December 2016; Vol. 618, c. 38WS.]

That is all very grand, but there were no new clauses or amendments addressing the issue specifically when the Bill left the Lords, nor since. We could save time and add value to the communications process by requiring a member engagement strategy in the Bill.

Some will say that most people have no real interest in pensions, and that we could be placing all manner of costs on the industry for the few who do take pensions seriously. We should never discount the few who may be interested. Recent research by the accounting firm Price Bailey has revealed some interesting statistics in its 2016 report on public interest and awareness of workplace pension scheme arrangements and retirement options. A sample of 2,000 stakeholders were interviewed across the English regions, with a good split between male and female respondents, white-collar and blue-collar occupations and income bands. Nearly 75% of those interviewed had a total household income, before taxes, of £55,000 a year or less. I wish the people in my constituency had an average income of £55,000 a year. It is encouraging to note that only one person in nine—11%—said that they were not interested in pensions. That seems to lay the lie.

It is also encouraging that more than half—55%— of pension scheme members said that they take an active, regular interest in their pension savings and retirement planning, and I do not think we will be very surprised that within the 55 to 65 age bracket the proportion rises to about two thirds, with some 66% of people taking a real interest in their pension—I wonder why. The highest levels of engagement were among males, those with higher incomes—more than £55,000 a year—those in white-collar occupations and active scheme members.

Labour Members believe that the role of trustees is crucial in providing retirement education and helping to raise levels of member engagement. Regular communication, whether written, online or in person, is key to achieving that, with different techniques for different audiences. It is important that employers consider that when communicating with current and potential scheme members. We urge master trust employers and trustees to consider carefully their strategy for scheme member engagement. It should be made a legal requirement for them to produce and execute such a strategy. Putting some thought and effort into that now will undoubtedly prove beneficial to scheme members in the long run, and it need not be a tremendous financial burden on the industry, given that we are in a digital age. Nowadays, there is no excuse for failing to communicate effectively. Using social media to communicate means expanding a multi-channel communication strategy to encompass new channels. It used to be the counter, the telephone and, later, the website, but now we have the Twitter hashtag and the Facebook page—just some of the channels open for communication today.

Real engagement, however, is something else. It is about figuring out where people are already having conversations about which an organisation needs to be aware. It is about bringing information and dialogue to places where people want that dialogue to happen—their Facebook groups, their Twitter streams and the master trust intranet networks. Good communication and engagement over members’ money and pension drawdown are prerequisites for a successful master trust.

Our amendments seek to ensure that as part of the defined-contribution code of practice, there is a requirement for the authorisation process principally to ensure that the application to the Pensions Regulator includes a member engagement strategy and a communication strategy. The Pensions Regulator’s code of practice for DC pension schemes, published in July 2016, sets out the standards that pension trustees need to meet to comply with legislation. The code, which applies to all schemes offering money purchase benefits, is supported by a series of “how to” guides that provide more detail about how trustees can meet the standards in practice.

The Pensions Regulator has also produced a tool to help trustees to assess their scheme against the standards in the code so that they can identify areas requiring improvement. The DC code sets out a number of areas in which an understanding of members is key, particularly those of gauging members’ views to inform the design of investment strategies and the assessment of value for members. The regulator suggests:

“Member nominated trustees in particular may be able to provide feedback, as might union representatives, other employee representatives or existing staff forums.”

It is because of the valuable role that scheme members can play that we have tabled the amendments on scheme member trustees. We need to improve the Bill to make it more scheme member-friendly. The members are, after all, our main concern. I will return to member trustees later. It seems only sensible to require the master trust to demonstrate its engagement and communication strategies to the Pensions Regulator, who has an obligation to ensure that the trust complies with the DC code of conduct.

The Bill sets out a requirement for the latest accounts, business plan and continuity strategy, yet it has nothing on issues that would ensure that the scheme met the required standards on member engagement and communication. There is no point authorising a master trust if it has poor communication and engagement with its members. The chances of members engaging with the issues that affect them can be greatly improved by communicating with them in the most effective way. That is the thrust of our amendments. We need to see members at the very heart of the process.

Master trusts will grow over time to cover millions of members and billions of pounds of assets under management. They will underpin the very success of the auto-enrolment policy and rebuild a long-term pension-saving system. The principle of an obligation on master trusts to have a clear strategy for engaging with scheme members should not be left to ministerial discretion or future consultation. We want to ensure that master trusts are at the leading edge of communication and engagement, and hope that the Minister will not just remain open to the idea, but will do something about it in this Bill. I look forward to his comments.

[Ian Blackford]

It is a pleasure to serve under your chairmanship, Mr Rosindell. I will be brief. Those of us who want to encourage pension saving, as we all do in this room, should encourage as much member engagement as is possible. That is the right thing to do to ensure that we have as much transparency as possible. It is perhaps relevant not just to this amendment, but to others, that the issue of members being trustees is important. We must recognise that we are talking about assets belonging to the plan holders and take into account the fact that a number of master trusts are also profit making. It is important that that process of transparency is open to members of the scheme and that there is full engagement by members, with members being part of the board of trustees and having effective training. We happily support that.

--- Later in debate ---

[Richard Harrington]

My hon. Friend makes a good point and I agree with him. It is important, though, that the regulator has enough information to be able to assess whether schemes have adequate systems and processes. The regulator can require the information; it needs to make the assessment. It is in the interests of any applicant to give the regulator the information it requires to make the assessment. The regulator is very active in this: it is two way, not just one way. The regulator may require different things from very big schemes that are well established than from small, newer schemes. That is what regulators do, and they have to have that discretion.

It should also be noted that clause 4 contains a regulation-making power to allow the Secretary of State—that is, the Government—to set out further information that is to be included in an application. That is why we gave a specific commitment to use the regulations under clause 12 to ensure that those matters are taken into account when considering a system’s application for authorisation. If you will allow, Mr Rosindell, I would like to repeat that commitment. The Bill allows the regulator to take into account the systems and processes relating to communications and engagement when assessing the adequacy of a scheme’s systems and processes more broadly.

[Alex Cunningham]

I am concerned that auto-enrolled into pension schemes are millions of people who have no communications whatever from the organisations handling their money. What is the Minister saying the regulations cover that will ensure those people are communicated with?

[Richard Harrington]

That is up to the regulator. If the hon. Gentleman bears with me, I will get to that particular point. If he is not then satisfied, I will willingly give way.

Member engagement is a challenge in pensions both legally—that is, what should people know?—and in terms of getting them engaged in a general sense. It would be unacceptable to have a hugely expensive exercise writing tens of thousands of letters that may or may not be read, but which would confuse people. However, we accept that it is important that the members get the right communications.

A situation such as the hon. Gentleman mentioned, in which members get absolutely nothing, which the regulator would find unacceptable, would not be at all acceptable for two reasons. The first is the general point that I mentioned about getting people engaged and understanding their pension and everything that goes with it. We have all received these communications. Probably, the hon. Member for Ross, Skye and Lochaber will have always looked at his pension statements, but a lot of us have received them—very comprehensive ones, in many cases—and just put them at the bottom of the desk drawer, in the hope of reading them sometime. I hope that the hon. Gentleman is not offended by that comment; it was meant to be complimentary.

--- Later in debate ---

[Alex Cunningham]

First, I congratulate my hon. Friend the Member for Swansea East on her particular skill in introducing the word “WASPI” to each and every debate that I have ever been involved in. I pay tribute to her for the tremendous work that she does. She chairs the WASPI all-party parliamentary group. I know that it is at the centre of her heart, and the Minister was probably just waiting for the word to come up today. I congratulate her on all the work that she does.

It is the members’ money, and they should be told what is happening with it and how it is being invested. They should also have an opportunity, as the Minister says, for two-way communication, and be able to influence that as well. The hon. Members for South Thanet and for Solihull agree that we should have good communication. They talked about loose wording, but communication is central to everything that we do in society these days. We have seen how failure to communicate has perhaps resulted in some of the things that have happened in recent times, such as the decision for us to leave the EU. Did we actually communicate the real messages, the proper messages? It is important in relation to pensions that we communicate the full message to the people whose money we are dealing with.

We will debate trustees later in our consideration of the Bill, but my attitude is, why should there not be member trustees when it is the members who bear all the risk when it comes to these investments?

The Minister talked of the various regulations that could be put in place and used the phrase, “That is up to the regulator.” It is not good enough to leave those matters to the regulator. We need to provide guidance for the regulator.

The Minister is fond of his secondary legislation. I suggest that within that secondary legislation he could lay down some guidance, which the regulator could then use on the issue. The Opposition feel strongly about communications. For that reason, I will press amendment 24 to a vote.

--- Later in debate ---

[Richard Harrington]

The clause was introduced by the Opposition in the other place. It is intended to require the Government to make provision for a scheme funder of last resort, which would take effect if a master trust had insufficient resources to meet the costs of complying with duties arising from a triggering event and the costs of continuing to run the scheme for a further prescribed period.

Since the clause’s introduction, I have reflected a lot on how it would work. I have had formal and informal discussions with Members of the other place and have met officials, in the presence of the Opposition spokesman, the hon. Member for Stockton North, to discuss this subject. I have concluded that it is unnecessary to place such an additional requirement on the Government, and I will do my best to persuade the Committee of that view.

I think that we all agree that the Bill’s primary purpose is, quite simply, to bring in safeguards and controls for employers and employees who have opted to save through a master trust pension scheme. The Bill includes new powers for the Pensions Regulator, which will be responsible for the effective operation of a new authorisation and monitoring regime for master trusts. Schemes that do not meet or maintain the specified standards simply will not be allowed to operate. We have just discussed two of the authorisation criteria; as I explained, clause 7 sets out the requirements that those involved in a scheme must meet to be considered fit and proper persons, and clause 8 describes the financial sustainability requirements that will apply to master trusts. The remaining criteria—the business plan requirement, the scheme funder requirements, the systems and processes requirements and the continuity strategy requirement—are dealt with by clauses 10 to 13.

The Bill’s later clauses define the events that, when experienced by a scheme, will trigger a series of specified actions and additional requirements that must be undertaken by the scheme and the regulator. The nature of such events may mean that a scheme is operating under increased risk. Those additional requirements will ensure that increased scrutiny and controls are put in place until the new risk has been dealt with and nullified, or the scheme is wound up in an orderly manner and the interests of employers and members are successfully transferred out to a new scheme.

In addition to the new regulatory framework, the regulator is working closely with individual master trust schemes. That work provides us with insight into the scale of current risk, which the clause has been designed to guard against, and may be followed by the publication of new supporting data by the regulator. In addition, the indications are that market forces are operating effectively prior to the new regulatory regime coming into force. For example, some master trusts have left the market and transferred their members without issue.

As I have explained in previous debates, it is very attractive for existing successful master trusts—the vast majority of them—to take on members from smaller master trusts that might appear to be failing in their administration, since that allows them to add members without adding very much to their costs. I realise that is commercial rather than structural, but I believe that will happen, as it has in other regulated areas of financial services. New, larger schemes are also now entering the market. Such schemes are on a sound financial footing and will actively seek to increase their market share. All that further supports our belief that the risk of scheme members being left stranded is absolutely minimal.

Hon. Members might continue to be concerned that, were a master trust to fail, the members of that scheme might be left stranded. I perfectly understand their thinking, but we consider the risk to be negligible. However, we recognise that we cannot completely rule it out, which is also recognised by the pensions industry. We are currently working with the Pensions and Lifetime Savings Association, which is exploring establishing a panel of “white knights.” That panel would aim to guarantee that, if a master trust was required by the regulator to leave the market, the affected master trust scheme members would be transferred to a new scheme. That happens all the time in other regulated fields of the financial services market.

I believe, after consideration, that as drafted clause 9 does not work as intended. If I may expand on that, a couple of illustrations might help. The clause does not contain a power, such as a regulation-making power, enabling the Secretary of State to make further provisions relating to the scheme. That would include provisions relating to the scheme’s procedure and operations. The clause provides that the Secretary of State should consider only the resources held by a master trust and not the scheme funder.

Given the imprecise nature of the clause, I am concerned that it could lead to perverse behaviour, with schemes shifting funds about, knowing that the taxpayer will pick up the bill. We are also concerned that, given the clause’s lack of clarity regarding funding of a Government-backed scheme of last resort, stable master trust schemes might be concerned that they are at risk of paying for failing master trusts and, as a result, opt to leave the market. For the reasons outlined, I call for the clause not to stand part of the Bill.

[Alex Cunningham]

I had hoped that I would not need to prepare a speech on this matter, other than to welcome clause 9, but I am disappointed that we find ourselves defending a new clause added to the Bill by our colleagues in the other place, particularly as the Minister has opted to take it out altogether, with limited alternative provision to protect the members of master trusts who are failed by their trustees.

I am grateful to the Minister for the time he has taken to discuss these matters one to one with me and with colleagues in the other place. There remains tremendous uncertainty about exactly what happens if the worst comes to the worst and there is no organisation to pick up the pieces, whether that be a small trust that fails to make the grade under the legislation, or a large trust that could fail in years to come.

The Minister referred to his panel of “white knights.” I was trying to envisage a group of white knights on large chargers heading through the City to help people out.

[Richard Harrington]

I should reiterate that it is not my panel of white knights; it is that of the Pensions and Lifetime Savings Association, which is a large and well respected trade body, as the hon. Gentleman certainly knows.

[Alex Cunningham]

I accept that correction. I am sure the Minister would look grand dressed as a white knight. The fact is that no white knight actually exists.

The clause has a key purpose to protect the pensions pots of ordinary people from being raided in the event of a master trust failing. That is something that would certainly not be the fault of the workers up and down the country who are faithfully paying into a pot; a pot that, although welcome at retirement, is likely to be relatively small. If the Government succeed in removing the clause from the Bill, they will be responsible for not providing a safety net if a master trust fails and workers end up losing their hard-earned cash.

It is not enough for the Government to argue that a failing scheme will always be successfully transferred. They instead must ensure that a funder of last resort is identified in the Bill. The Government argue that there is no need for a funder of last resort because the procedures laid out in the Bill will prevent it from reaching that far. Industry experts across the board insist that a funder of last resort or equivalent is needed. The chair of the Standard Life master trust has called for the Government to be the funder of last resort

“because it’s their policy foul-ups that have allowed the proliferation of unsustainable master trusts”.

I do not know if there has been a foul-up or not. I believe that the growth in master trusts and in auto-enrolment is actually a very positive thing. The chair also commented that Government funding was unlikely and that a levy on the employers should be imposed instead, as it is the employers who have chosen the master trust and therefore they should bear more risk. That could make them think twice about getting involved with less than honourable trusts.

--- Later in debate ---

[Julian Knight]

The hon. Gentleman is making some interesting points. Surely the point of the legislation is to ensure that, on start-up and on an ongoing basis, the fund and the pension scheme are sustainable. That is the job of the Pensions Regulator. He also mentioned the return of the entire capital. Even in the Pension Protection Fund, it is still only 90% return on capital.

[Alex Cunningham]

Yes, it is the responsibility of the regulator to ensure that whatever trusts are set up are stable and ready to go. My point is that, as we have seen, whether we are talking about defined-benefit schemes just looking at the failure of the banks in recent years, there is always an opportunity for catastrophic failure in our master trusts, with perhaps 1 million or 2 million members. I am not convinced that there is provision to protect their interests. Lord Freud referred to this clause as a sledgehammer to crack a nut, considering all the mitigations against the risk that are already in the Bill, but what if those mitigations are not enough?

Again, will the Minister provide the Committee, and people all over this country, with a 100% assurance that the Bill without this clause is enough to protect members? Will he guarantee that no master trust will be in a situation whereby it has failed and has insufficient resources to meet costs? I believe—he has already said it, and I have said it as well—that he cannot guarantee that 100%, which is why the clause needs to stand part of the Bill. By seeking to remove it, the Government continue to go back to the argument that there are enough conditions in the Bill without the clause, such as the Pensions Regulator needing to be satisfied that the master trust has sufficient financial resources to comply with its continuity strategy. There are too many unknown factors out there in master trust world for us to know that for certain.

How can we encourage ordinary, hard-working people to save for retirement and put their trust in a scheme that their company bosses have picked for them when the Government are consciously acting against the clause that could be the safety net? We have seen all manner of pension schemes get into trouble and pensioners have been the losers, so we need systems to be much more robust. Workers need to be confident and assured that the money they have faithfully put aside is given the greatest possible protection.

Another mitigation in the Bill that the Government use to support their argument that the clause is not needed is the regulation of our record management, which will be regularly monitored.

[Yvonne Fovargue (Makerfield) (Lab)]

If the clause is not needed, why not put it in to give people that extra confidence? People have an historically low opinion of financial institutions, trusts and banks, so surely any extra insurance that will encourage people to have confidence is worth putting in.

[Alex Cunningham]

My hon. Friend is correct. People want to know that everything is 100% safe. I know that the Minister said that we can never guarantee 100% safety, but we are talking about some of our society’s most financially vulnerable people who are investing relatively small amounts of money in their master trust. They are not going to get a tremendous pension—nothing like what a Member of Parliament receives—but they want to know that their small pot will actually mean something for them. That is why we must have those protections.

We were talking about regularly monitored business. How regular—every three months, every two years, every five years?—and what type of monitoring? Can the Government say for certain that, by the time the regulator has identified a problem with record management, it will still be within the timeframe to resolve the issue without a funder of last resort?

The Government argue that the Bill already achieves what clause 9 is trying to achieve, but I must question the real reason why they do not want it in the Bill. If they support the idea of master trusts having regulations in place to avoid a disastrous situation if one failed, why will they not just support the clause? If they are so sure that it would never reach the stage of needing a funder of last resort, what is their opposition to including the clause just to ensure that, in a worst-case scenario when things do not go to plan, there is extra protection in place? Unless, of course, they are ideologically opposed to the concept of a funder of last resort. It would be a safety net; a guarantee from the Government that they will need to do everything in their power to protect workers’ retirement funds. If that is the case, I am disappointed that the Government do not believe that it is their duty to step in when business fails and that they would leave innocent people paying the price.

One argument that the Government Lords kept repeating was that, in the event of regulatory failure and a trust not having the means to finance a wind-up, it will not be members that will have to pay the price, but the Government have yet to tell us who it will be. When a number of master trusts and pension experts are calling for there to be a funder of last resort, why are the Government not listening? We have heard a lot of words in the other place and here today, but we have seen not action. Verbal assurance is not good enough when we are talking about people’s livelihoods in older age. We need action and robust legislation to ensure that we take every precaution. In the absence of greater clarity about the Government’s insistence that the Bill already addresses areas raised in this debate, it is vital that clause 9 is not removed. We should be covering every base in order to say confidently that we have taken every possible measure to protect members’ money 100%.

[Ian Blackford]

I think we all understand that the pension pots themselves are not at risk from the mechanisms we are talking about; it is about the funding of the master trusts. My appeal to the Government is that we have to find a solution to this that will give trust to those who are investing, so that they know that the master trusts themselves will be secure, whether that is from the definition of a funder of last resort, or from particular powers that the regulator has to make sure that, in the event of a trust failure, those assets can be managed in the interests of the fund holder. There is an element of risk—albeit a relatively small one—and we have to try to see whether we can close that down. In the absence of another solution, the Government should think about this clause remaining part of the Bill for now.