Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Wednesday 6th September 2017 Lords Chamber

The need for collaboration has been the basis on which we have made progress in this area, along with the requirement to look carefully at how we operate in Scotland, Wales and Northern Ireland to ensure that we get the best out of the system for the good of the whole. I beg to move.

[Baroness Altmann (Con)]

My Lords, I support the amendments. As a passenger behind my noble pilots, I thank the Minister for the helpful letter she sent to me about the issue of guidance versus advice. As the noble Lord, Lord Stevenson, rightly said, we seem to be back to this old chestnut, and I am very pleased that he has tabled his amendment. Perhaps my noble friend has rather missed the point in so far as there is an important element of confusion among the public, which will extend over into the new body if we choose not to address it in the Bill, over what constitutes guidance and what constitutes advice, particularly in the context of debt. This also goes to the point made by the noble Baroness, Lady Kramer, about gaps as far as FCA coverage is concerned.

This financial guidance body is meant to offer holistic services—the point of Amendment 34 is, rightly, to suggest that if someone needs one element of the financial guidance body, they should be able to be passed straight to another to help them with their particular issues—but the new body sits in the middle of the confusion between the word “advice” and the word “guidance” as they apply elsewhere. In particular, the FCA, the department and the Government have not recognised that the existence of auto-enrolment fundamentally changes the position of individuals when they approach the new body. If someone needs advice on their debt, as defined in the current FCA regulations, it is impossible to take account of whether they should or should not opt out of a workplace pension. That is really important in helping people improve their financial circumstances and deal with their financial position.

I beg my noble friends on the Front Bench to take this opportunity to explore once again the issue of guidance versus advice from the point of view of individuals who need to use the service. It will be important for the new body to help people understand what service they will be getting when they come for help, but it is also important that whoever is helping the public has the best possible chance of ensuring that they will understand what is going on. If someone is trying to reschedule their debts and work out a repayment plan, which would be called debt advice, they may ask what they should do about their pension, but the person they are speaking to cannot tell them. That person can send them back to the pensions section, but they also cannot tell them whether to opt out, they will tell them that they need advice, and the person will say, “I have just had advice on my debts”, but they will say, “No, that is different from advice on your pension”. Over time, this will keep coming back and confuse the public.

I support Amendments 33 and 34, and think that we need to consider the matter in a wider context. I support the idea in Amendment 36 that we need to work collaboratively. The service must work with the financial services industry, charities and the voluntary sector. Perhaps we should also consider asking the new body to work with employers. The more one considers the situation around the country, the more one sees that the workplace could be an ideal conduit to promote the service, not only to deliver financial education and debt management, in some cases, but to signpost people to the new service.

I am struck by some further figures which, if I may, I add to the debate this evening: 17 million working-age Britons have less than £100 in savings; debt has risen by 25% since 2014; 33% of employees say that debt worries impact on their work—so employers clearly have an interest in helping. Those figures come from a company called SalaryFinance, which helps employees consolidate and manage their debt more cheaply and is making strides as a social business working with employers. Finally, the Money and Mental Health Policy Institute states that people with debt problems are twice as likely to suffer from a major depression. Employers could well make good use of this financial guidance body and perhaps incorporate it into workplace intranets. For the self-employed, we could work with other networks and organisations to ensure that this body is promoted. That takes us back to Amendment 27A, tabled by the noble Lord, Lord Sharkey, to encourage people to use the service rather than just to ensure that it is available.

I support the amendments and hope that the Government will consider them carefully.

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[Baroness Buscombe]

I am very grateful to the noble Lord, who has mitigated the situation. Even so, it is very last-minute, and let us put the blame at my door as the Minister responsible. It is important that we try to address this to the best of our ability.

I can assure all noble Lords that we have spent a considerable amount of time this summer, when perhaps I should have been on the beach, discussing this issue with different people in the industry along with MAS and TPAS. What I hear from consumers and those involved on a day-to-day basis is a very different tale from what I hear from noble Lords this evening. The public have the ability to understand the difference between advice and guidance, but we need to convince noble Lords of that—I appreciate that.

I thank noble Lords for the opportunity to clarify the important issues raised by these amendments. I begin by discussing Amendments 33 and 34, which concern guidance and advice; I will then move on to Amendments 36 and 37, which concern collaboration with the financial services industry and the devolved Administrations. Amendment 33 would add an objective for the body to ensure that at every stage of communicating with members of the public about its services, people are clear whether they are receiving guidance or advice. It will, of course, be important that members of the public are aware whether they are receiving financial guidance or financial advice. We discussed the distinction between guidance and advice in some depth in July, and I believe our conversation has highlighted the importance of clarity in this issue. Indeed, we have taken on board the points made by noble Lords, and I have had a number of meetings with officials, who have worked on a detailed information paper, which I hoped would be helpful.

In the meantime, I do not think that the amendment as drafted is appropriate or necessary. We fully appreciate the risk that members of the public may receive guidance, take it as advice and then go on to make financial decisions when they ought to seek further assistance. However, I can reassure noble Lords that there are already appropriate measures in place to mitigate that type of risk. In fact, I can quote the exact wording currently given to customers by the Pensions Advisory Service and Pension Wise on this matter. In the case of TPAS, clients who ring the helpline will hear a message telling them that it does not provide regulated financial advice and that its service provides generic information and personalised guidance on occupational and private pension-related matters.

As Michelle Cracknell, the chief executive of TPAS, said to me:

“We give a simple disclosure: ‘We cannot tell you what to do’”.


She also said that, as debt advice is defined as a regulated activity, it would be confusing to describe it as anything else in the Bill. She has made that point very strongly, as have others in the industry. When I was sitting with an incredibly experienced, thoughtful and helpful group of people working at TPAS, giving advice to people and working through their systems on the web and on the telephone, I was hugely impressed. They have not had one problem in 34 years with people being confused or complaining about thinking that they were receiving guidance when they were actually receiving advice. It has never been a problem. So we are getting a different story outside, with the user, and we must not underestimate the public, who have the ability to understand the difference between advice and guidance. The whole purpose of this body is to provide a more seamless customer journey so that people can obtain guidance and advice without there being a problem.

[Baroness Altmann]

I apologise to my noble friend for intervening, but this is a really important issue. The points she makes are absolutely correct and I do not disagree with them—and nor, I think, would noble Lords around the House—but they are beside the point. When we have a new body it is designed to be holistic. At the moment, Pension Wise deals with pensions, so people will not be confused, and the Money Advice Service, or debt advice, deals with debt. We are trying in this Bill, apparently, to bring everything under one roof. The big change that will not have been relevant over the past 30 years or so, is with auto-enrolment, when people come to the new, holistic single body with a debt problem and need someone to help them with their pension, but the person trying to rescale their debts cannot take that into account. It may well be that we have alighted on a problem that extends to the FCA and the regulatory system—that perhaps the FCA is not concerned enough, in the new environment whereby next year or the year after any worker earning more than £10,000 a year will be in a workplace pension, and debt advice needs to be able to consider the question of whether that person should opt out of the workplace pension. Currently, it cannot do so. It could do, but at the moment there is this regulatory hole.

[Baroness Buscombe]

I thank my noble friend for her intervention. Perhaps I am not making it clear that it is not necessarily one person who will be able to give guidance and advice in one session. The point, notwithstanding that it is becoming one body, is that we do not expect a situation in which someone receives all that information from one individual. When someone is in problem debt, for example, and worried about bailiffs, the initial outcome of the debt advice session has to be on stabilising the situation. That may be followed with more in-depth support to understand the root causes of the debt problem and how to address them. It may involve bringing in people who have different types of expertise, depending on the person’s needs. We do not expect that because it is one body—bringing three bodies together—it will necessarily be the same person in one session who gives advice and guidance. As I have learned this summer through visiting these bodies, different people have different kinds of expertise. We want it to be as seamless as possible and provide a more seamless customer journey, but it will not be perfect, given that advice is regulated and guidance is not. However, as there is time pressure on your Lordships’ House, I shall take this issue away and talk again with my noble friend, and the noble Lord, Lord Stevenson, and others to see if we can find a solution to it.

As I was saying, in my experience of talking to those dealing with this matter on a day-to-day basis, they have every expectation that the new body will be able to cope perfectly well with the definitions as they are. As noble Lords will see from the note that we sent out this morning, there could be some serious confusion and regulatory issues if we changed definitions, so we have to take that into account as well. So it is a tough one.

These processes are robust, and we will ensure to the best of our ability that they are carried forward to the equivalent services offered by the new body. In fact, as I said, the Pensions Advisory Service has not received a complaint from a customer that he or she has received regulated advice. We have to make sure that processes are in place to protect consumers who might take guidance for advice in this new body. Those objectives are not specific requirements to do X, Y or Z, but broad, overarching principles and aims to which the body must have regard while exercising its functions. The objectives guide the body in the exercise of its functions; they should not provide a to-do list for the body.

Amendment 34 would alter the wording of the Bill to add a new objective that would require the new body to signpost appropriately to each of the body’s functions if people need multiple kinds of help. As I have said, the Government agree with the intent behind this amendment. We recognise that members of the public will have overlapping issues which require a mix of advice and guidance relating to debt, money and pensions. The body will be well placed to deliver this seamless service, including through warm handovers and signposting to the different functions it offers. This will be central to ensuring that members of the public receive the personalised, holistic support they need. It is important to remember that one of the key aims of bringing together the functions of the Money Advice Service, the Pensions Advisory Service, and Pension Wise is to improve the co-ordination of these services.

However, while we agree with the sentiment of the amendment, I do not think that it is required. I have already explained the purpose of the statutory objectives and we expect the body to signpost members of the public to the most appropriate source of help in order to provide a joined-up and holistic service. Having met some of these wonderfully skilled people who have many years of experience in the financial services industry and already operate in this sphere, I can only assume—because of their brilliant expertise and the way that they handle the public and the advice and guidance that they are able to offer—that they will achieve this. The current objectives enable the body to do just that. Indeed, for the reasons given, I believe that Amendment 34 is, with respect, rather narrow and inappropriate to include within the broader objectives specified within the primary legislation.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

Committee: 1st sitting (Hansard - continued): House of Lords
Wednesday 19th July 2017 Lords Chamber

[Baroness Altmann (Con)]

My Lords, given the hour I shall speak briefly to my Amendment 17 in this group. The single financial guidance body is being asked to develop a national strategy to improve financial education. At the moment the Bill specifies only that this needs to be delivered to children and young people. However, we need to educate everyone about finances, not just young people. We are auto-enrolling everyone in the workplace into pension schemes. We know that workers will not have been given any financial education at school, so why are we focusing only on children and young people? I would like to replace the phrase “young people” with the word “adults”. By the way, I accept completely the point that care leavers are extremely important. But as a complement to auto-enrolment, making sure that financial education is delivered, perhaps in the workplace alongside auto-enrolment, seems to be an important potential function of the single financial guidance body.

[Lord Sharkey (LD)]

My Lords, I shall speak to Amendment 18 in this group which is tabled in my name and that of my noble friend Lady Kramer. I agree with everything that has been said so far except perhaps for one thing. If the Government accept the amendment tabled by the noble Baroness, Lady Altmann, we will have a universal obligation as regards financial education. I can see the appeal of that in theory, but in practice I wonder how it would work out. Children and adults constitute the whole of the population, but I think that the intention of the Government in Clause 2(7)(c) is to identify groups where particular emphasis on the provision of financial education is needed. That is probably why they specifically mention “children and young people”. I agree with the approach of putting an emphasis on the groups that most need or will most benefit from financial education.

However, there are other critical target groups in need of special attention, and the noble Earl, Lord Listowel, has identified such a group. That is what our amendment is aimed at. It seeks to extend the group of special targets beyond a couple of age demographics to major financial events in the course of people’s lives. It would extend the group of special targets to those who are about to make major financial commitments. It specifies the obvious ones such as mortgages and pensions, and nowadays vehicle finance plans, but leaves it open to the SFGB to decide what other major financial commitments it may want to include in its overall strategy.

The Bill is drawn a little too narrowly on this issue and would benefit from our proposed changes and those proposed by the noble Earl, Lord Listowel. I hope that the Minister will feel able on this last amendment of the first day to break the habit of the day and accept a modest and uncontroversial amendment.

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Tabled by

[Baroness Altmann]

17: Clause 2, page 2, line 32, leave out “young people” and insert “adults”

--- Later in debate ---

[Baroness Altmann]

I thank my noble friend for her response. I stress that it is really important for us to overcome the idea that education is something that happens only when you are young. Education should be happening throughout life and, if this body is not going to co-ordinate the development of a national strategy for financial education not just for people who are young, perhaps my noble friend could give some thought to how we will develop such a national strategy.

Amendment 17 not moved.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

Committee: 1st sitting (Hansard): House of Lords
Wednesday 19th July 2017 Lords Chamber

Moved by

[Baroness Altmann]

4: Clause 2, page 2, line 11, leave out “advice” and insert “counselling”

[Baroness Altmann (Con)]

My Lords, this amendment goes to the heart of the consumer experience of what we are trying to do in the Bill. The single financial guidance body aims to provide holistic help, guidance, information and education to the public on their financial issues. The public are understandably often confused about what constitutes help, guidance, information and education versus what is called “advice” in a regulated sense. There is confusion at the regulatory level about the word “advice”, which itself has fed through into the wording of the Bill.

I respectfully request that my noble friend the Minister carefully considers the perspective of the person coming to this single financial guidance body and expecting to receive a holistic service that will cover their financial circumstances, in particular the circumstances of somebody who has significant debts and is looking for assistance in managing those debts in the best way for them. In the past, without auto-enrolment, the issue would have much easier, which may be why we are in this position, because there would have been no expectation that somebody in significant debt could also be contributing to a pension scheme, and increasingly, that is likely to be the case. The Bill is very clear that when it comes to pensions, money and other finances, this body will only give guidance, but when it comes to debt the word used is advice, because that is the word that has been used always in the past.

I have been trying to understand the customer experience of someone who will be coming to this body. I am informed that if that person has large debts, and goes for what is called in this Bill “debt advice”, the adviser will not be able to advise them on whether or not they should opt out of their auto-enrolment workplace pension scheme. Naturally, they would want to know that, but they cannot have a recommendation from this service, even though it is called an advice service. The only advice they can get is restricted and narrowly focused on what to do about the debt. We immediately have a potential confusion set up for the customer. We have an opportunity in the Bill to start to remedy this, but so far we have not.

There are two important points. First, advisers at the Citizens Advice money advice service have told me that the words “debt advice” are often off-putting for those who are in debt. They do not like terms such as “advice” or “financial advice” for some reason. Furthermore, the regulated activity is actually called “counselling”, and the definition that the regulator uses for “debt counselling” says that it involves the several elements, including advice given,

“to a borrower about the liquidation of a debt due under a credit agreement”.

It is clearly narrowly focused on that. The regulatory instructions in the manual about debt counselling spend quite some time trying to unpick what would constitute advice and what would not, but in each case what would constitute advice is not what one would consider to be independent financial advice on someone’s whole financial circumstances. We are supposed to be setting up a holistic guidance body. I am entirely supportive of the aims of the Bill and am not trying in any way to undermine them—they are right. What I am asking noble Lords to consider is whether we can take this opportunity to change the wording in the Bill which says “debt advice” and to use “debt counselling” instead. From what I am told by the advisers, that would be better received by those who need help. It would also be less misleading to those who might think that somebody can help them with the pension decision when this is not the case. I beg to move.

[Viscount Brookeborough (CB)]

My Lords, I support this amendment. I was on the ad hoc Select Committee on Financial Exclusion, which produced the report Tackling Financial Exclusion: A Country that Works for Everyone. We spent a whole Session on it and we covered all these points. I suggest that those who have not looked at the report should do so, not only because I was on the committee but because it is quite concise. We went to places like Toynbee Hall and we saw people who were affected.

If I ask you for your advice, you can just tell me to do this and that, which is the point the noble Baroness is making. Advice may not be helpful, whereas counselling is a two-way thing. To invite people to counselling is not to invite them to take your advice—it is to invite them to discuss what they are willing to find out, and to give them options. It is not speaking to them, it is discussing and talking things through with them.

The word “debt”, which has been mentioned, is not always helpful. Debt is almost considered a crime, but it is not. In fact, very often government institutions and regulations cause people to go into debt—so in many cases the debt is not even their own fault. We must remember that the Bill is about people, the way they think and are approached, and we want to encourage them to take this counselling. We do not want to ask them why they are here and then say, “Here is my advice”. It should be about invitation and discussion. This is a very simple amendment and I support the change of words.

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[Baroness Buscombe]

There is clearly an issue here. This question is being looked at, at the moment. As I explained before the noble Baroness, Lady Kramer, intervened, there is a consultation which covers a range of things, including how best to deliver debt advice and money guidance in a blended fashion, in line with the needs of the individual. This consultation has come about in recognition of the fact that there is no magic bullet at the moment for this issue. However, surely that should not prevent or preclude the creation of a body that will, to the best of its ability, signpost people in the right direction to receive the right guidance and advice as is appropriate.

I note what the noble Baroness, Lady Kramer, said about the name. I hoped that we had made it clear at Second Reading that the reason why we do not want to put the name of the body in the Bill is, unfortunately, we have every good reason to suspect that it could lead to other individuals holding themselves out and mimicking the body. It could lead to all kinds of problems if it was set up online as a spurious website, and so on. Call us cynical, but we have to be particularly cautious about that.

I am not convinced that politicians in Parliament are best placed to decide what the name should be. A lot of the terminology used within your Lordships’ House and beyond in our political lives, by those of us who are of a political leaning, no one understands. For example, when we talk about political wards, and so on, it sounds as though we are in a hospital. It is best left to the people who will be brought on board to run the single body to make those decisions and that that is done, therefore, through delegated legislation. On that basis, I hope my noble friend will withdraw her amendment.

[Baroness Altmann]

I thank my noble friend the Minister for her remarks and all noble Lords for their excellent contributions on these vital issues and for much of their support.

This debate gives a clear example of why these amendments are necessary. There is obviously immense confusion about what advice is, what guidance is, and how they work. If we are setting up one body, it is essential that we are able to have a holistic service. I reiterate that one of the issues at the heart of this, for me, is that the body needs to serve and think about people, not products. Currently, we have different bodies that are geared towards products, whether it is helping people with debt, pensions or other savings, or managing their money. However, we are setting up one body, which is being explained to the public as providing holistic help in one place.

If we continue to call this “debt advice”, I can imagine someone coming along to the body and saying, “Can you help me manage my debts?”, and the body saying, “Yes, go and get your debt advice”. The individual goes for the debt advice and then says, “I have got this workplace pension that I ought to enrol in, what do you think? Should I opt out or not?” The person giving the debt advice currently would have to say to them, “No, you need to get financial advice for that”, because that is what the other activity is called. The individual would say, “But I thought I was here for advice. You are giving me debt advice”. “Yes, I am giving you debt advice, but you need financial advice for the pension. I can only give you guidance on the pension”. So immediately it is not holistic and immediately the person is confused.

The official umbrella term for helping people with debt is “debt counselling”. Debt advice is a subset as a part of that. We have an opportunity now, when we are setting up a unified holistic body, to do something that is in the interests of the person who will come along with complicated circumstances. It would be a missed opportunity if we let this pass without clarifying it for ourselves and changing the words “debt advice” to something else. My noble friend mentioned that the Citizens Advice Bureau does not call it debt advice but “help with debt”. That is a clear indication that the people it serves do not like the term debt advice, which is what it has told me, too.

I accept completely and appreciate that my noble friend the Minister is looking at this and has spent time considering it, so I would ask her to please carry on doing so.

[Baroness Buscombe]

I am mindful of what my noble friend has said, and I hope that she is encouraged by my reference to the consultation that has been set up so that we can somehow overcome the issues around providing a truly seamless and holistic approach to giving people advice and guidance. We will think it through some more before Report, and I shall reflect on all that noble Lords have said. It has been very helpful to have this detailed debate.

[Baroness Altmann]

I thank my noble friend for those remarks and I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

--- Later in debate ---

It is a delicate balance. I have considerable sympathy with the protection that a debt breathing space system would provide, but a lot of risks also need to be taken into account. However, something should be done about all the very cheap loans that last for up to two years until suddenly the interest rate shoots up, perhaps from less than 1% to about 30%, because they are the cause of a lot of individuals’ problems.

[Baroness Altmann]

My Lords, I echo the wise words of my noble friend Lord Trenchard and certainly support the spirit of these amendments. It is right that we in the Committee should debate the concept of the single financial guidance body being able to help the Government in circumstances where the market is failing customers in a significant manner, such as has just been described. We all know that people are being enticed with teaser rates into debts that they are ultimately unlikely to be able to afford to repay. This is sometimes because salespeople are rewarded for the loans that they manage to get people to take on but do not necessarily stay around to worry about whether that debt is ultimately going to be repaid.

I also support the concept of banning cold calling. We will come to other amendments later on the claims management side. I would echo the concept in those on cold calling for pensions. The unsolicited approaches to people, enticing them to do things that are not in their interest, is a real problem. We would be wise to see whether we can find ways to address that while we are concerned with the financial circumstances of the general public in the context of the Bill.

[Lord Stevenson of Balmacara]

My Lords, we are not having much success with our amendments here on the other side. I had hoped that the climate of a Government not having a clear majority in either House and the general spirit of wanting to work together on improving things would allow them to put at least one change of wording into the Bill as it stands, if nothing else. But I see that the tyranny of the Bill is with us still, and that there is a determination in the serried ranks of those looking with stern faces from the sidelines to ensure that Ministers do not depart in a single way from the track by showing weakness. In fact, we think they would be strengthening the Bill by accepting some of our amendments.

At this moment, we are giving them two options for the breathing space. The very good amendment put down in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Sharkey, is echoed by Amendment 41, which is in my name and that of the noble Earl, Lord Listowel, and the right reverend Prelate the Bishop of Newcastle, whom I thank very much for their support. There is a bit of a movement across the House whereby the time has come for a breathing space. I hope that the response to this amendment will be better than before.

As has been said—I said this on an earlier amendment—it would be much better if the Long Title of the Bill were such that it would take a real policy direction, and that the amendments were therefore not curtailed in the way that they are. We are having to seek that the body, as part of a strategic function, has generalised powers. Would we go as far as a Henry VIII power? I think that our arms could be twisted on that. As the Minister is aware, they have been offered on previous occasions; in debating the Digital Economy Bill, we were almost throwing Henry VIII powers at them. But they would not take them, the tyranny of the Bill being so strong.

Here is another option: there is no doubt that a scheme called breathing space has been working well in Scotland. It has done so now for nearly 10 years and been through three or four refinements. Some of the questions raised by the noble Viscount, Lord Trenchard, have therefore already been addressed there, and I do not think he would find it quite so bad. I know that the noble Viscount is shocked by having the curtain of secrecy torn down regarding what happens in the creditors’ dark rooms when they discover that they have unpayable debts. However, I can tell him that if a breathing space is built in, as it has been in Scotland, it is possible to get returns to creditors that are much nearer the full 100% which they seek. We may be talking about 60%, 70% or 80%. Indeed, in the Scottish system the debt arrangement scheme has a pretty good record of getting 90% or 95% back to the creditors.

The noble Viscount should not be too worried about small entrepreneurs and others, when this is not their province. We are talking about household bills, credit card companies, banks and, increasingly, the Inland Revenue—it has money to spare, has it not? We are talking about local authorities, store cards and utility companies. These are the bodies creating the conditions, not necessarily in any destructive sense, under which it is too easy for people to borrow beyond their means to repay. The spiral of debt moves very fast when they suddenly get into it and find themselves in a hopeless situation. In StepChange—I am sure it was true of the other debt advice organisations—our best day in the year for business, but our worst day because of what was happening, was 23 January. That is the day when the credit card bills come in for Christmas and at that point, reality sometimes sinks in and people realise that they are out of their depth. They cannot respond and that is when the panic calls start.

One theme that we have not addressed in the Bill so far, but which I want to nail now, is the real problem there is in getting people to engage with the services that are available. We can label or signpost them—we can do what we like—but getting people to move from the vague realisation that there is a problem to actually seeking help in a constructive way that will get them out of their debt is the hidden problem. As well as making sure that the bodies we set up through the Bill work with the sole purpose of making sure that the consumer or individual citizen is at the heart of what they do, we have to recognise that we are not doing it well at the moment and there is still a long way to go.

Research carried out when I was at StepChange showed, I think, that it took about a year from people’s first indication of problems with their debts to seeking a debt management plan and going ahead with one. It must therefore be right that we all make every effort we can to ensure that there are systems, bodies, organisations, structures, mechanisms and techniques that will get people on to a way that gets them out of the debt, because the damage is so great. The breathing space scheme works in Scotland, and it is not difficult to see how it could be adapted to work in England. At the moment, there is no statutory scheme. We are talking about a breathing space period where interests, charges and collection activities are postponed without a requirement to make payments. That would give people time to seek advice and stabilise their finances enough for their debt adviser to recommend how to get out of it.

There is another thing about debt advice. I meant to make this point on an earlier amendment, and I apologise for getting carried away by what we were trying to do when we were discussing names. The physical product of most debt advice that is being exchanged in return for people’s engagement is a budget, which most people do not have. I am guilty of this, and most people in the Chamber probably are as well, as I do not have absolute certainty about where every penny of the very limited number of pennies I have under my direct control goes every month. Multiply that by the 63 million people in this country and you recognise that there is a bit of a problem here. If you ask them, people have no idea of what they are doing with their money. When I first went to Step Change, I was told that of 100 people who rang it, 30 people were obviously suitable to go straight on to a debt management plan and did, but about 10 of them actually had enough money to sort out their problems but did not know it. It was a question of going through every item of their expenditure line by line and making them believe that it was going to be all right and that, although it might take four or five years, there was certainly a solution. They did have the money, but they just did not realise it.

There is both a very simple solution to a lot of the problems we are seeing and a very complicated one, but both would benefit from having time to work through the options and to make sure that people are signed on and can go forward and get out of debt. We have to crack getting people. I think the Minister used the phrase “hot keying”, and I agree. If you catch them at any point in the cycle, hold on to them. Make them do something about their problem. Get them engaged and excited—and not only will you get them out of their debt problems but they will get an educational experience. It is only when people are in the crisis of not knowing what they are going to do, how they are going spend their money and whether they have enough cash to buy a meal for the kids that evening that they begin to feel, “I must get out of this and get it right in future”. That is what we must do.

When you can get a breathing space in, it is a sensible solution. It would work. The problem is that the Bill as currently constructed does not easily allow us to put this in as an amendment, but at the very least can we make sure that the powers exist for this to be taken as the next step forward, because it is certainly worth supporting?

Pension Protection Fund and Pensions Regulator

Baroness Altmann Excerpts

Thursday 13th July 2017 Lords Chamber

[Baroness Buscombe]

My Lords, the financial settlement regarding BHS is valued in total at £363 million, and £343 million has already been placed in a fully independent escrow account to fund a new scheme. The settlement with Sir Philip Green for the British Home Stores scheme is the largest of its kind the Pensions Regulator has reached to date. Indeed, in total, the Pensions Regulator has secured more than £1 billion for pension schemes through the use of settlement in avoidance cases. Existing members of the scheme now have three options: transfer to the proposed new pension scheme, opt for a lump sum payment, if eligible, or remain in their current scheme, which is expected eventually to transfer to the Pension Protection Fund. However, the new scheme will be a fully independent trust with independent governance and trustees. Neither Sir Philip Green nor the Arcadia Group will be involved in the management of the scheme. In the highly unlikely event that the new scheme fails, members can rely on the Pension Protection Fund.

[Baroness Altmann (Con)]

My Lords, would my noble friend care to agree with me that the Pension Protection Fund is performing a vital function very well? Its investment policies and levy management have achieved a significant funding surplus and tens of thousands of workers are receiving most of their promised pensions, whereas in the pre-PPF days, they would have lost the entire amount.

[Baroness Buscombe]

I thank my noble friend very much for her question. She is completely right. With regard to the British Home Stores financial settlement, the lump sum payment option will be available to members with small pots of up to £18,000 in value. Those who choose not to take a lump sum and opt to transfer to the new scheme will be entitled to the same benefit structure as all other members. The new scheme will also be eligible for the Pension Protection Fund.

Financial Guidance and Claims Bill [HL]

Baroness Altmann Excerpts

2nd reading (Hansard): House of Lords
Wednesday 5th July 2017 Lords Chamber

[Baroness Altmann (Con)]

My Lords, it is an honour to follow so many excellent speeches from so many noble Lords. This House contributes huge expertise to our legislation. I also welcome my noble friend to her new ministerial role and congratulate her on her excellent speech.

I warmly welcome the aims of the Bill. I am wholly supportive of a unified approach to public financial education and free, impartial and unbiased guidance to help people to make better financial decisions. The level of financial education in Britain is very low and the level of consumer debt worryingly high. The latest figures show that consumer borrowing is rising strongly, and the aim of the Bill—to help the public to understand how to manage their finances—is absolutely right.

However, I am concerned that the wording of the Bill will unhelpfully prolong a major misconception in personal finance that has permeated the industry for years but could at last be addressed. I am talking about the use of the word “advice”. For far too long there has been a public perception that this thing called “financial advice” is free. In the past, of course, it often was apparently free because so-called advisers were being remunerated by a financial company for selling its products. They were not really advisers; they were salesmen. This commission-driven culture caused many scandals, and it incentivised behaviour that was not in the customers’ best interests. Rightly, the regulator has tried to clamp down on such practices. It now insists on a stark differentiation between what can be called “advice” in personal financial services and what is merely guidance, information or sales. This is not a minor technical point; it is a fundamental issue. Indeed, we need a proper definition of what constitutes guidance, which I do not believe we yet have.

The new single financial guidance body will look at pension guidance, money guidance, a national strategy to improve financial education, and debt advice. In fact this debt advice does not even have to be regulated but in some cases can be delivered by unregulated bodies. That is worrying. The word “advice” is a hangover from past thinking. It is the last vestige of an old system that needs updating. You cannot give what is called “advice” in a personal financial sense without being regulated. Nowadays, with auto-enrolment into workplace pensions and with pension freedoms available to people over 55, focusing only on the debt part will make any so-called debt advice incomplete and thus not holistic. However, if the debt help or counselling takes account of pension matters—as it should, especially given auto-enrolment—then the new service from the single financial guidance body could fall under regulated financial advice rules and would stray beyond pension guidance. This opens up the Government or those delivering the service of the new body to risk, and perpetuates confusion. At last there is an opportunity to address some of the confusion in the context of financial help for individual citizens. Guidance, help, information, education and counselling can be available for free, but advice is not.

There has been much misuse of the word “advice” for so long, even at the top of government. When Chancellor George Osborne announced the pension freedoms, he said the Government would also ensure that members of the public would have access to free impartial advice. What he meant, and what was introduced, was free guidance, not advice. Indeed, the helpful briefing from the House of Lords for today’s debate talks about merging three existing advice channels into a single body, yet those three bodies do not give advice even though their names misleadingly suggest that they do. The Money Advice Service and the Pensions Advisory Service do not actually give financial advice.

The October 2015 consultation on public financial guidance and the March 2016 public financial guidance review led to the decision to replace the Money Advice Service with a new streamlined body for money guidance, and then a second new body to merge the Pensions Advisory Service and Pension Wise. It seems to me that pensions cannot be divorced from other finances, whether that means savings accounts, auto-enrolment, debt or whatever. The thinking behind having two bodies was wrong, and I believe having one body is right. The old idea was based on products, not people. People have a broader need than one product, and I hope the new guidance body will give us an opportunity to think about it from the point of view of the people who need help, rather than the products that tend to be focused on by the industry.

Unfortunately, the Bill prolongs the problem. If the debt piece is called advice, then it has to take account of the pension piece, and once it is doing that, the pension element will have to be advice too, not just guidance. I ask my noble friend the Minister to consider amending the word used by the single financial guidance body and the FCA so that it is debt guidance, not debt advice. We could use other words, such as debt resolution, counselling or help, but guidance seems to make sense.

On another topic, I am seriously concerned that the Bill must not pose a threat to the marvellous work done by the Pensions Advisory Service, which has rightly been commended by many noble Lords. This is one of the jewels in the public financial guidance system. Staffed significantly by volunteers, TPAS helps the public to understand pension issues and can intervene to assist if there are difficulties with pension schemes. It even has a dedicated helpline for women, who so often lose out in pensions and need special help. It is funded from the general levy on pension schemes, and the costs are low but the value it delivers is high. The Pension Wise service is also funded by the pensions guidance levy, but I note that it has just been announced that the levy for pension guidance has been cut. Satisfaction ratings for those services are really high. Please can my noble friend offer some reassurance that the operations of TPAS and Pension Wise will not be downgraded but will be preserved and protected after the restructuring?

Turning briefly to claims management companies, as has already been pointed out, the Conservative manifesto promised to consider banning claims management companies from cold-calling members of the public. This is absolutely right, and the Bill should clamp down on CMCs which operate unscrupulously and their unsolicited calls or texts—which so many noble Lords, such as me, regularly receive. As the APIL says, lawyers are not allowed to cold call, so why should CMCs? Tougher regulation and capping fees can help, but banning nuisance cold calls that encourage people to make false claims is absolutely right.

Let us not stop there. To echo the calls from, among others, the noble Lords, Lord McKenzie and Lord Sharkey, I ask my noble friend to consider bringing back the abandoned legislation to ban cold-calling on pensions, too. If others do not, I hope to table a probing amendment in Committee on the issue, as it is one that I feel so strongly about and had hoped would be resolved. It is important that we can give the public the message that if someone cold calls them about their pension, they are breaking the law, so just hang up. I am also interested in the idea put forward by consumer group Which?. It suggests requiring companies to pay the claims management firms, rather than consumers having to pay from any compensation. If the companies have to pay, it may deter some of the cowboys, because they will be better able to recognise poor practice.

Finally, I raise two further items. The Bill proposes not carrying over powers for the financial guidance body to help the public with secondary annuities. I know that this has been abandoned for now, but I still hope that somehow a change of heart may arise and that people may indeed be able to sell their unwanted annuities. Transferring this power to the single financial guidance body would at least ensure that there would not be any new unnecessary barriers in the way to that.

The problem of net pay schemes rumbles on. Many of the lowest earners, particularly women, are losing out on money that they should have, and the size of the problem is growing, but employees are powerless to get this money back. I suggest that the single financial guidance body should have a remit to help employers and members to understand the need to ensure that the pension scheme used for low earners in auto-enrolment does not force them to pay more for their pensions than they should. I ask my noble friend to go back to the department and consider this matter again carefully.

Having said all that, I stress that I welcome the Bill and its overall aims and look forward to seeing it pass through Committee and its other stages—slightly amended, I hope—and on to the statute book.

Bereavement Benefits

Baroness Altmann Excerpts

Thursday 6th April 2017 Lords Chamber

Asked by

[Baroness Altmann]

To ask Her Majesty’s Government whether they will reconsider changes to bereavement benefits for parents with dependent children.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Henley) (Con)]

My Lords, bereavement support payment is a new benefit intended to help people with the immediate additional costs of bereavement. It will not be taxed and is disregarded for income-related benefits, thus helping those on the lowest incomes the most. Those who need further support will be able to access better-placed areas of the welfare system for long-term, means-tested financial assistance.

[Baroness Altmann (Con)]

I thank my noble friend for his response and agree that the old system needed modernising and the new system has some advantages, but these reforms are designed to cut £100 million from welfare spending for bereavement. Within that reduced budget, bereaved partners without children will get more at the expense of those with young children, who will receive significantly reduced support which will stop completely after just 18 months. What is our national insurance welfare state for if not to support families properly in such tragic circumstances? Will my noble friend acknowledge the problems that this is likely to cause and relay concerns from across this House expressed in a cross-party letter to my right honourable friend the Secretary of State asking his department to reconsider these reforms by extending support for bereaved children beyond the inadequate 18 months?

[Lord Henley]

My Lords, I am aware of the letter that my noble friend refers to. My right honourable friend will answer it in due course. I can give an assurance that we have consulted on these matters—my noble friend will be aware of this because she was a part of it—legislated on them and consulted on them again. We made changes to the regulations before we introduced them and we have made a commitment in the impact assessment that there will be a further review. Nevertheless, I will convey my noble friend’s concerns to my right honourable friend, and I am sure that, his door always being open, he will be more than happy to see her.

Pension Schemes Bill [HL]

Baroness Altmann Excerpts

Ping Pong (Hansard): House of Lords
Wednesday 5th April 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, the Bill, in strengthening the regulation of master trusts, is indeed welcome. I noted that a recent release by the ONS on funded pensions and insurance in the UK national accounts referred to the significance of the establishment of DC master trusts, so in general there is increasing recognition of the importance of having fit-for-purpose regulation of master trusts. However, the government amendments in this group raise certain questions that I would like to put to the Minister.

Amendment 2 to Clause 9 simply deletes the provision for a funder of last resort. That is disappointing. Will the Minister update the House on what further action the Government have taken since the Bill was last considered by this House to address the protection of scheme member benefits in the event of a master trust winding up with insufficient resources to meet the cost of complying with and obligations under the Bill? The noble Lord, Lord Freud, implied that there was ongoing work and discussions with the industry, so it would be helpful to know what actions have been taken.

The other government amendments in this group, to Clauses 25 and 34, addressed the issue of allowing, in a wind-up on failure, the transfer of scheme members and their benefits to a receiving scheme that is not a master trust—for example, a group personal pension. While not wanting to disagree in principle with widening the pool of schemes to which transfers can be made, I think that that change to the Bill raises some questions. Given that the Pensions Regulator will be authorising a transfer to a scheme that has not been subject to the master trust authorisation regime, how will it satisfy itself that the receiving scheme on transfer is both sustainable and well governed?

The Bill provides under Clause 34 for a prohibition on increasing or imposing new charges on members by either the transferring or the receiving scheme in order to meet the cost of resolving failure. As a non-master trust receiving scheme will not have been subject to the authorisation regime and the continuity and implementation strategy requirements in the Bill, how will the Pensions Regulator apply the prohibition on increasing charges and police it after the transfer of members to a non-master trust, given that the receiving scheme will not be in its regulatory jurisdiction?

Government Amendment 13 provides for regulations to allow for transfers from a master trust to a contract-based scheme. Given that the transfer will be from a trust to a contract arrangement, do the Government consider that there are any special considerations that the regulations will need to address? If so, what are they?

[Baroness Altmann (Con)]

My Lords, I welcome much of the thrust of the Bill. I am also delighted to see Amendments 3 and 4, which, I hope, ensure that insured master trusts will not be forced to separate from their insurance parent, which would have forced them to face higher costs and reduced the security of their members. I am very grateful to my noble friend for taking on board the comments made during the Bill’s passage through this House.

It strikes me that Amendment 2 should be considered separately from those to which it has been joined. I reiterate my strong concern—notwithstanding the reassurances from my noble friend—about leaving out Clause 9. I understand that there is a view that it is unnecessary and that the new regime will ensure that master trusts have sufficient resources, are financially sustainable and have capital adequacy in place. However, even with new schemes and the best will in the world, capital adequacy tests may prove inadequate. No provision in the Bill would cover members of a very large pension scheme that suffered a catastrophic computer failure and lost member records. The cost of restoring that could be well above the capital adequacy put in place, and nothing in the Bill explains where the cost of restoring those records would be covered. The only place might be the members’ pots themselves, which is not supposed to happen.

I vividly recall assurances given by Ministers on defined benefit schemes during the 1990s, when the minimum funding requirement was supposed to ensure that schemes would always have enough money to pay pensions. No one foresaw the problems evident in the early 2000s, when schemes that had met MFR legislation wound up and ended up without enough money to pay any money to some members on the pensions that they were owed.

Even more concerning than that is that the Bill is being introduced when 80 or so master trusts are already in existence in the market with a huge number of members across the country already saving in a pension. These trusts have not been subject to the capital adequacy test or other tests that the Bill will rightly introduce. What is the protection for members of existing schemes who are saving in good faith? They are not protected at all. That was why I was very pleased that we passed the amendment concerning the scheme funder of last resort. I echo the question of the noble Baroness, Lady Drake: what discussions have taken place with the industry to find a solution to cover the eventuality—we do not expect it and it is, I admit, a small probability—that an existing master trust winds up without enough funding to cover the costs of administration to sort out its records and transfer them over to another scheme? I should be grateful for some information from my noble friend about whether there are ongoing discussions and how the department sees that eventuality being covered: where would the money be found?

On Amendments 5 to 19, I share some of the reservations mentioned by the noble Baroness, Lady Drake, such as the regulatory disparity between a master trust, which would be regulated by the Pensions Regulator—and therefore under its control, if you like —and a master trust transferred under the amendments to a pension scheme regulated by the Financial Conduct Authority. How would the regulatory systems work together when they are under different legislation?

I have other concerns, but I may raise them under the next group.

[Lord McKenzie of Luton]

My Lords, let me start by expressing our regret that the requirement for there to be a funder of last resort—successfully pressed by my noble friend Lady Drake on Report—has been deleted from the Bill. That concern was also expressed by the noble Baroness, Lady Altmann. We of course accept that the whole purpose of the Bill—its protections, including capital adequacy, financial sustainability, systems requirements, scheme funder and transfer regime—is to secure people’s pension pots, militate against scheme failure, and ensure good order when difficulties arise. But as my noble friend asserted on Report, notwithstanding this, it cannot be guaranteed that a master trust will not fail and when it does there will be an available master trust to step into the breach so that members’ funds are protected. The noble Baroness, Lady Altmann, has just expressed similar concerns with vivid potential examples.

In seeking to resist the funder of last resort proposition, the noble Lord, Lord Freud, claimed that it would be costly and a disproportional response to the issue and with moral hazard implications—arguments deployed by the Parliamentary Under-Secretary of State for Pensions in the other place. We remain unconvinced of these arguments when put in the balance against the importance of protecting people’s savings. Nevertheless, we need to examine how the Commons amendments to Clauses 25 and 34 contribute to ameliorating this risk, which at least potentially they do.

We acknowledge the amendments to Clauses 25 and 34 which potentially widen the scope of continuity option 1 and expand the prohibition on increasing administration charges or imposing new administration charges. In particular, they raise the prospect of the accrued rights and benefits under a master trust scheme being transferred to an alternative pension scheme which is not a master trust. No detail is offered in the amendment about the likely characteristics of an alternative pension, other than the fact that it must be a pension scheme under the 1993 Act. This of course will include both personal and occupational pension schemes. Regulations will spell out the circumstances when the alternative might be available, and the characteristics of an alternative scheme. Regulations will also spell out how such an option is to be pursued.

While we can see the benefits of a potentially wider pool of pension schemes which could be available in the event of a master trust failure, it begs a number of questions about how any alternative scheme would be regulated and what protection it would offer members. My noble friend Lady Drake, in particular, as ever has produced some forensic questions to seek at least some clarity on key issues: further actions and discussions that have taken place; whether a receiving alternative scheme is sustainable and well governed; how such a scheme can operate a prohibition on increasing charges and preventing members’ funds from being accessed; and consideration of how bulk transfers would work. The noble Baroness, Lady Altmann, joined in the same sort of inquiry.

It remains to be seen how much these amendments provide a real opportunity to add a layer of protection and whether the market will offer up alternative schemes which can assist. We look forward to the Minister’s reply, but we are not minded to oppose these amendments.

--- Later in debate ---

21: Clause 46, page 31, line 3, leave out subsection (2)

[Baroness Altmann]

My Lords, before the Bill passes through, I will make a couple of observations. Perhaps the Minister, who will not have the answers now, might write to me to allay some of my concerns that I will put on the record about the Bill.

The first regards net pay schemes being used for auto-enrolment as master trusts for low earners, who cannot get tax relief so they end up paying 25% more for their pensions. These low earners, who are probably mostly women, are the ones who surely most need extra money yet are unable to receive it. There is nothing in the master trust framework that will require employers to ensure that low earners are not enrolled into such schemes. Indeed, one pension scheme—NOW: Pensions—is reimbursing members for the tax relief they have lost, which is fine; they are not out of pocket.

The second issue on which my noble friend might be able to write to me is that I remain concerned that during a pause order, members may in fact lose entirely their entitlement to an auto-enrolment pension building up for them—for an indefinite period, because we do not know how long the pause order can last.

[Lord Henley]

My Lords, I am not sure that I have ever spoken on a privilege amendment before, but I have noted what my noble friend had to say and I promise to write to her. I beg to move.

Pension Schemes Bill [HL]

Baroness Altmann Excerpts

3rd reading (Hansard): House of Lords
Monday 16th January 2017 Lords Chamber

[Lord Naseby (Con)]

My Lords, I welcome the amendment from Her Majesty’s Government, as I very much welcome the Bill. However, it still raises the outstanding problem in Clause 10, on scheme funding. The point is that a master trust can, if it so chooses, be treated as a separate legal entity and, as the Bill stands, can still transfer the risk to another entity. That remains one of the problem areas, because solvency for any of these master trusts is absolutely vital to current and future pensioners. I place on the record that although what we have heard this afternoon is an improvement, it does not solve that problem.

While I am on my feet, there is still concern from insurance companies that run master trusts that, under the Bill, they may be required to keep separate solvency requirements for the master trust element of their business when the majority must already comply with Solvency II financial regulations, which are extremely stringent and ought to be enough to cover any of the required security for their master trust business.

[Baroness Altmann (Con)]

My Lords, I echo some of my noble friend’s concerns. I welcome the Minister to his position and wish him much success.

Obviously, I welcome the Bill, which is much needed. It is vital that we protect members’ pensions and ensure that accumulated savings are safe in the event that the master trust scheme fails. Therefore, I broadly welcome the measures in the Bill. However, having engaged with Ministers to try to tidy up some important points to ensure that the Bill works as intended and needed without serious side-effects, I would like to place on record some issues that still require attention.

Pension Schemes Bill [HL]

Baroness Altmann Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 28th November 2016 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I shall speak to Amendment 45 and to the other amendments in this group. My noble friend Lord McKenzie will speak to Amendment 47A.

Clause 31, taken with Schedule 1, provides a power for the regulator to pause certain master trust activities once a triggering event such as a wind-up has occurred. That power can be exercised if there is an immediate threat to the assets of the scheme or it is in the interests of the generality of the scheme members. A pause order prevents new members coming in, payments being made, further contributions being received or benefits being paid. That is a sensible provision. The administrative and accounting records of the master trust or of other companies used by the trust to hold investments or provide services may be in a mess. It may not be clear who is entitled to what. Evidence of fraud may emerge during a triggering event. The early years experience of the Pension Protection Fund when accessing schemes that have the mix of DB and DC benefits revealed just how poor the records could be and the problems that that throws up.

The amendments in this group in my name and that of my noble friend Lord McKenzie are directed at how the pause will work in practice. Clause 31(4) restricts the use of a pause order to circumstances in which there is,

“an immediate risk to the interests of members … or the assets … and … it is necessary”,

to act. Amendment 45 adds the words “or prudent” after the word “necessary” to protect members’ interests, as a condition to be met if a pause order is to be made. The intention behind inserting that phrase is to give the regulator greater discretion and an ability to act more cautiously and earlier than is suggested by the word “necessary”—and, indeed, before a risk has crystallised—to allow the regulator to mitigate emerging risks to members and take action when in their informed view it would be prudent to do so. The power to issue a pause order comes into effect only when there is a triggering event, when a failure of some kind has already occurred, which means that the likelihood of a risk to the assets or members crystallising is greater, so allowing a prudent approach in those circumstances seems sensible.

If a pause order is in place, Clause 31 provides that no subsequent pension contributions due to be paid into the scheme by or on behalf of the member or employer can be paid, and any pension contributions deductions from a member’s earnings will be repaid to them. Under the Bill as drafted, the total period during which a pause order can be in place is six months, but the Government have tabled Amendment 52, which will allow the regulator to extend the pause order on one or more occasions, unconstrained by the six-month limit. So, the pause order could stay in place for quite a long time. During the period when the pause order is in place, the member loses the ability to save for a pension through the workplace scheme, loses the tax relief and loses the employer’s contribution due under auto-enrolment. It is harsh on the individual to lose pension savings and interrupt the harnessing of inertia in auto-enrolment, when through no fault of theirs a master trust fails.

Amendment 46 would address that loss to the member by requiring that pension contributions that would otherwise have been due to a member should be held in an escrow account or otherwise under arrangements to be specified by the regulator. Those contributions could be held somewhere safe until the pause order is lifted and then paid into members’ individual pension pots. It would not be necessary for the money held to be invested so as to gain value that reflects what the member would have received if the original scheme had not been wound up. Holding it in a cash fund could be sufficient.

Does the Minister agree that it is harsh and unfair for workers to lose savings in their pension pots under auto-enrolment as a consequence of a master trust’s failure? Will he consider a provision allowing the pension contributions otherwise due by and held on behalf of the scheme member to continue to be paid into an appropriate holding vehicle during the period of the pause order? Clause 31 allows a pause order to prevent the making of payments and the paying out of benefits while it is in place. Depending on how such an order is applied, and for how long, that could pose real problems for some members of the scheme. Amendment 50 would allow payments to be paid for someone in ill health. For example, an older person with debilitating chronic ill health or a terminal illness could be in real difficulty if they were denied access to pension savings that they needed to live on. How is it intended that the pause order regulations will address the needs of people in ill health?

Master trusts will receive pension contributions into members’ pots, but they will also pay out money to members accessing their savings. Where a scheme member has been relying on such payments to live, and may have standing orders in place for their bills, if payments are suddenly ceased they could be in some difficulty. How will the pause order regulations address the needs of those people, particularly pensioners, who are dependent on payments received from the master trust? As I said in opening, the provision for a pause order seems sensible: it is the manner in which that order is operated that could cause unfairness or difficulties.

[Baroness Altmann (Con)]

My Lords, I support these amendments, and I would like to probe the Minister on what the pause order is really meant to achieve. As the noble Baroness, Lady Drake, has just asked, how does he envisage it will work in practice? If a pause order is introduced by the Pensions Regulator, it is likely that an employer will be in breach of its auto-enrolment duties and potentially in breach of contract with its employees. In those circumstances, we could need some of the bulk DC transfer regulations, which we have discussed and I hope we may come to later, to enable a scheme to ensure that such transfers can be made relatively swiftly and without too much expense—perhaps before a triggering event, although the proposal is currently only if there is a triggering event. That would require some of the existing regulations that are made with DB schemes in mind to be undone.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, I thank noble Lords for the debate last Monday when a number of amendments were considered. Today should bring an equally interesting discussion on a slightly broader range of topics. This group relates to the new pause power introduced in Clause 31, and includes some amendments tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, and some tabled by me. I thank the Committee for its forbearance in considering government amendments at this stage.

--- Later in debate ---

I note that the noble Lord, Lord McKenzie, has also tabled Amendment 47A on tax treatment, which would provide that contributions in the form of tax relief at source would not be subject to the pause order. This amendment is unnecessary. I reassure the noble Lord that if the intent is to ensure RAS rebates which are due on contributions due before the pause order is in place, but which are paid after the pause order is made, Clause 31(6)(a) already achieves this. However, when I read Amendment 47A with Amendment 46, I wonder whether the intent is broader than this. If instead the intent is to ensure pension RAS tax treatment of the contributions being paid into an escrow or another account during the pause power, I am far from clear that this is achieved without also needing changes to complex tax law. However, the key issue here is that I do not think Amendment 46 works or achieves the right balance of cost and complexity for the rare occasions on which this type of pause order is likely to be used.

[Baroness Altmann]

If there is no such provision as that in Amendment 46, what exactly protects members and employers by ensuring that they can continue with their legal duties to contribute to pension schemes for their members under auto-enrolment? Currently, it is not clear to me how it is intended that this pause order will fit with the legal obligations or contracts between the employer and the employee in relation to ongoing pension contributions.

[Lord Freud]

I think I am right in saying that the pause order would effectively trump those obligations while it is operating. However, I will come back on the detail of that. I think that is accurate. That is why it is in the legislation—so that there is legal clarity about the obligations people have when they pay into a scheme that is formally paused by the regulator.

Under Amendment 50, the pause order would not be able to prevent payments with regard to ill health benefits. The current provisions mirror those in the Pensions Act 2004 with regard to the Pensions Regulator’s freezing order. I am not convinced that there is sufficient argument on why this should differ to those provisions. In particular, the pause order direction can specify payments, so—in response to the noble Baroness, Lady Drake—the regulator will be able to consider whether to use the power to stop such payments.

The provisions in Schedule 1 to which the noble Baroness has added her amendments make it clear that there is no impact on orders made on divorce which modify members’ rights in the scheme. They do not provide for generalised exemptions to the power to prevent transfers under the pause order. The amendment would mean that, regardless of the situation, ill health payments could not be affected by a pause order. Government Amendment 47 would enable the regulator to tailor the pause order to the circumstances with regard to stopping benefit payments. I hope that the noble Baroness will agree that that solution is better than the one in Amendment 50. That would include being able to apply the pause to specified benefits and specified members, and in a way that would take account of the specific case and situation. I therefore trust that this gives some comfort that the regulator could consider certain types of membership.

To come back to the question raised by my noble friend Lady Altmann, on the legal duty for employers, paragraph 13 of Schedule 3 ensures that a pause order will not cause employers to fall foul of their legal duties. I am glad to be able to confirm that.

[Baroness Altmann]

Does that also apply to a contract between the employer and the employee for pension contributions rather than just under auto-enrolment, if it is a term of the employment contract?

[Lord Freud]

I think that the situation is the same—the fact that you have primary legislation will allow that to happen. I will clarify that, but I think that is the point of primary legislation.

I make the point to the noble Baroness, Lady Drake, that the Pensions Regulator will make a pause order only under carefully considered circumstances. The pause order may last for the duration of a triggering event period but is not likely to continue for a significant length of time, and the regulator must weigh up the potential impacts on members when considering whether to issue such an order.

I shall now turn to the government amendments on the pause power.

--- Later in debate ---

[Lord Freud]

Let me just respond. The difference is that we are trying to get control of an obviously difficult situation. The pause is to allow the regulator to go in and make sure that the situation is sorted. We are not talking about keeping the flow of things going in a normal way; we are talking about a very difficult situation. We are worrying about losing the money that is already there, not about the smooth flow. We are typically talking about a very short period. Setting up large paraphernalia, which the noble Baroness is beginning to drift towards, would not be the point. The real point is to get the funds transferred as quickly as possible.

The noble Baroness asked where the legislation is. I can direct her to Clause 31(5)(c), which states that any contributions not paid over to the scheme are returned to the member, and paragraph 13 of Schedule 3, which ensures that the pause order will not cause employers to fall foul of their legal duties. I hope that that helps the noble Baroness in her consideration of what we are doing.

[Baroness Altmann]

I have a couple more probing questions for my noble friend. The pause order is obviously intended to be used only in exceptional circumstances and in extreme concern about the solvency or probity of the master trust itself. I can certainly understand that, in that situation, one would not want to take any new employers, so it would pause adding any new employers. But it still seems that there is no protection for the ongoing accrual of members’ pension benefits, which is what we are trying to do with auto-enrolment. If the procedures suggested in the amendments in the names of the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, are not considered appropriate—in other words, for the regulator itself to collect in the contributions—would it not be prudent at this stage and before the legislation is passed to have a proper plan for how ongoing contributions can be made and collected, perhaps through some form of bulk defined contribution transfer, even on a temporary basis, for members without consent to another master trust? At this stage we should produce such a plan rather than wait and hope that it will be okay.

[Lord Freud]

I am grateful to my noble friend. There are different processes going on and the intention of the pause order is not to be the paraphernalia for sorting out a scheme that is in difficulty. What we are looking at is a process we can go to where we can discuss option 1 and option 2 in order to transfer the funds to a better functioning scheme. While we are doing that, we are pausing it to allow the process to happen. It is important to view the two things on more of a sequential basis than trying to make a big performance of the pause order. It is there for a different reason: it allows us to get on with sorting out the scheme and making the transfers that my noble friend is looking for.

--- Later in debate ---

When the pension freedoms were announced, they were received by many with rapturous acclamation as a reform with no downside. However, the evidence now is that unsupported savers with insufficient financial capability are providing a free lunch for the sharks. The future is a growing defined contribution market and many more savers will be at risk. The noble Baroness, Lady Bakewell, is right in her desire to ban unsolicited communications and the Chancellor is right to acknowledge the scale of savers’ vulnerability to scams. I hope the Government’s action is rapid and comprehensive because, looking at the evidence from TPAS, every month of delay means another human tragedy as lifetime savings are lost to scammers.

[Baroness Altmann]

My Lords, I support the amendment in the name of the noble Baroness, Lady Bakewell, and welcome the Government’s announcement that they will consult on banning cold calling and look at tightening up the procedures for transfers. Both of those are very important—but so is acting swiftly, as the noble Baroness, Lady Drake, mentioned. The longer we delay, the more people are caught. Banning cold calling will not necessarily stop people’s pensions being transferred, but it will send a clear signal to anyone who gets that sort of unsolicited approach that the person approaching them is doing something illegal. That is important, because at the moment people do not know this and we cannot give that message. If we wait until there has been a scam, the money is already lost and we are too late.

The Government must do everything they can to avoid this kind of scamming, which is going on as we speak. I am constantly getting letters and emails from people explaining the way in which they have been scammed. It has come to my attention that an individual who was involved in mortgage scams as long ago as 2002 has set up a new system for scamming pensions. Some parliamentarians seem to have been taken in by this system, which takes people’s pension money and invests the proceeds of a defined benefit scheme, which are completely guaranteed, into one unregulated investment promising exceptional returns. I have seen the materials: it is extremely plausible, as is the person responsible. This was the subject of a BBC exposé but seems to have morphed, with the same people, into a new type of scam. As I say, Members of this House and the other place have apparently been caught up in this and look as if they have been endorsing it.

It is important that we do all we can. I completely support the amendments that the noble Baroness has tabled. At some point we might also consider introducing a ban on selling lists of people’s details. The Bill should say clearly to the public, “Nobody who approaches you out of the blue about your pension, offering you either a free review or some kind of exciting investment opportunity, is bona fide”. We need to be able to give the public that very important message. Currently, we cannot do that. The amendment, if it is agreed, would allow us to do so.

[Lord Flight (Con)]

My Lords, the establishment of an intelligence unit to smell out the operators of scams, track them down and prosecute them before they have a go at robbing people is perhaps almost more important than merely changing the law, which is welcome in itself but does not necessarily solve the problem. The issue is where such an intelligence unit should be located. Should it be part of the Pensions Regulator, the police or the FCA? Too often regulators are seen as doing nothing until the media or “Panorama” have exposed something, and then they address it, whereas the public expect them to spot the bad eggs and deal with them before they have too much opportunity to rob the public.

[Baroness Altmann]

My Lords, I will comment briefly on my noble friend’s absolutely valid observations. The concerns expressed across the House on this issue are particularly acute as there has been an interdepartmental, cross-government approach to try to clamp down on these issues. Police initiatives such as Action Fraud and Operation Scorpion have all supposedly joined together to fight this issue. The FCA is involved as well. However, in response to Written Questions that I have tabled, my noble friend has said that so far this year, for example, nobody has even been charged and, over the last few years, nobody has been convicted. So this initiative, while very worthy, is not necessarily catching the public’s attention. If you ask those who have been scammed where people should go if they are not quite sure about something or have had a problem, they simply do not know. So we either spend a lot more money advertising the existing initiatives or, preferably, ban cold calling and introduce further measures—as the Chancellor has already indicated is the intention—to prevent or make more difficult the transfer of pension money to one of these unregulated vehicles. If we do that, the public will be better protected.

[Lord McKenzie of Luton]

I will be brief as I do not want to echo the fantastic contributions made by the noble Baroness, Lady Bakewell, my noble friend Lady Drake, the noble Baroness, Lady Altmann, and the noble Lord, Lord Flight. I can see that if an intelligence unit were part of a wider cross-government approach, it could well pay dividends. However, I fear that we would simply replicate arrangements whereby HMRC constantly chases tax avoiders, alights on some and then there is a change, and then somebody draws a line somewhere else and it is a never-ending process. Nevertheless, it may be worth while pursuing that.

The noble Baroness, Lady Bakewell, should be congratulated on bringing forward this amendment, the thrust of which we clearly support—although I disagreed with her on her last amendment. As others have said, events have to a certain extent overtaken it because we heard from the Chancellor last Wednesday the welcome news that the Government will shortly publish a consultation on options to tackle pension scams, including cold calling. It proposes giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse “small self-administered schemes”. So this approach appears to take us a little further than the strict terms of the amendment, but if we are to forgo the opportunity to legislate now, at least on cold calling, we need some reassurance from the Minister on how short is “shortly” and what legislative vehicles will give effect to these conclusions.

I do not seek to repeat a number of the awful situations that noble Lords have identified, of people being deprived of their life savings. We have argued before that insufficient groundwork was undertaken by the coalition Government when they introduced these reforms; my noble friend Lady Drake made that point. One omission was clearly to anticipate the opportunities for fraud which these changes attracted. So if the Government are not able to convince us how quickly they can introduce measures to tackle these problems, we will be minded to support the amendment in the name of the noble Baroness, Lady Bakewell, at least as an interim measure.

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[Lord Flight]

My Lords, Amendment 80 proposes a new clause that would enable the trustees of master trusts, or the sponsors or sometimes the managers of group personal pension schemes, to require the transfer of accumulated assets from default funds when moving from one investment manager to another.

The issue here is that at present the agreement of the individual members of the scheme is required, but often deferred members, although advised of the new arrangements, do not have the time to be bothered with them. As a result, small bits of money are left in historic default funds where no one really keeps a watchful eye on them.

It is in the interests of members in default funds to move to the default fund of the new manager when there is a change of manager, so that their funds are kept under surveillance. In addition, quite often the reason for moving to a new investment manager is that the performance of the previous investment manager has been unsatisfactory, so there is at least the possibility that shifting to a new scheme default fund will provide an improvement in performance.

I raised this issue at Second Reading and am interested to know what the Government’s attitude towards it is. I am aware of the debates of the past on this subject but, from some direct observation, I suggest that the point is particularly relevant for investments in default funds. Where individuals have chosen their own sub-funds—for example, in a group personal pension scheme or where they are offered under a master trust—they are naturally going to be interested in looking after their own investments. Therefore, in a sense, it is not necessary. But where people have chosen a default fund, I think it makes more sense, both administratively and in terms of the potential returns achieved, if the default funds follow the pension pot.

[Baroness Altmann]

Might I suggest that my noble friend’s amendment is particularly relevant where the master trust has had a triggering event? At the moment, the rules for a bulk transfer of defined contribution benefits do not allow trustees easily to transfer the members’ rights across to another scheme. In many cases it may require member consent or complex calculations that are based on defined benefit schemes and not defined contribution schemes. Therefore, I certainly echo the sentiments expressed by my noble friend about the importance of being able easily to transfer accrued rights across from one scheme to another without member consent. As he rightly said, very often members become a little disengaged from their pension pots and may not themselves want to engage in the idea of transferring across. Somebody else being able to do it on their behalf would make sense.

It may also be prudent to consider the notion of bulk transfers, which I did raise on the first day of Committee, even in the circumstances that there has not been a triggering event. That might more easily facilitate the orderly transfer across of members’ accrued benefits under a scheme in which it is considered likely or inevitable that a triggering event will occur. The Pensions Regulator may then be able to be proactive rather than reactive in being able to protect members’ rights and transfer them across without consent in certain circumstances. I would be grateful to hear my noble friend the Minister’s thoughts on that issue.

[Baroness Drake]

My Lords, as others have referred to, central to the resolution regime for a failing master trust is the transfer of the members and their benefits to another approved master trust. However, for this to be achieved efficiently and promptly, and indeed legally, it would be necessary to undertake a bulk transfer of members and their assets. But as the noble Baroness, Lady Altmann, has detailed, the current rules on bulk transfers would not be fit for purpose for a failing master trust, with its range of different employers and the potential to provide a wide range of benefits and investments to members, who could be either accumulating or accessing their savings. The amendment put forward by the noble Lord, Lord Flight, is an attempt to address that problem and provides a welcome opportunity to address the issues, because they are concerns that are clearly shared by various Members of this House.

The provisions in the Bill and the regulations will need to enable those bulk transfers to take place efficiently and legally. The regulations will need to set out a clear set of rules. Amendment 80 gives the Secretary of State considerable overarching and overriding powers to require the trustees of a failing master trust to transfer accrued benefits. They are extensive powers, but I suspect of an order probably needed to make the transfer regime work in the event of a master trust’s failure.

These powers will give the Secretary of State and the regulator the ability to direct where, potentially, many millions of pounds of members’ money is transferred to. Had we had draft regulations before us, we might have had many questions. I refer in particular to the House having discussed at length the problems that can occur if the administrative records of the master trust are incomplete or in disarray. Even something simple like the lack of a current address for a member can cause delay if a notification is required, I promise. I have been there and bought the T-shirt. It is a nightmare.

Is it the Government’s intention that bulk transfers will be able to take place during a triggering event before all past records are clarified? Post-transfer to the receiving scheme, who will bear responsibility for any administrative errors that existed at the point of transfer? Will there be circumstances where the regulations under this Bill will override other pension regulations in order to effect that bulk transfer? I have one small example. Under auto-enrolment, when members are in self-select funds and are transferred without their written consent, they are from then on treated as having been put into a default fund and the charge cap of 0.75% is applied. I do not want to go into too much detail, but that is to illustrate the question of whether there will be circumstances where the regulations under the Bill will override other pension-related regulations. I commend the amendment because it seeks to address an issue that all of us are aware of if the resolution regime will be based on directing the trustees of failing schemes to transfer their members’ benefits to other master trusts.

--- Later in debate ---

[Baroness Altmann]

Perhaps I may follow up that comment. Yes, indeed, there will be transfers on a triggering event, but I seek some reassurance that proper provision will be made for bulk transfers that do not depend on defined benefit rules which make those bulk transfers much more costly and time-consuming and do not automatically ensure that they can occur in a timely way. Does the Minister also consider that there could be circumstances where a bulk transfer could happen without a triggering event? We are trying to consolidate schemes, but we know that there are schemes already in existence that will need to consolidate and either will not or will not wish to meet the authorisation criteria. If there were the possibility of doing so, that would be helpful. Finally, going back to a point that I raised on our previous day in Committee, it is true that the Bill will place what is potentially a legal duty on trustees to effect a transfer, so there will be an obligation for that transfer to happen. But I am not clear that we are any the wiser as to who would be able to fund the transfer if the records of the scheme are in disarray and there are no funds to pay for advice or administration services to enable the transfer to be made. What provisions can we rely on to ensure that the transfer takes place, and of course I am referring again to some kind of potential back-stop insurance as required in case the costs cannot be met anywhere else.

[Lord Freud]

We are currently considering whether there may be some scope to simplify the current arrangements which will make life easier for defined contribution schemes when making bulk transfers, but we must do that at a time when we do not compromise member protection. As my noble friend will be well aware, there are certain protections in place such as the requirement for an actuary to certify that the members’ rights in the receiving scheme are broadly no less favourable than those which are being transferred. When a transfer is made under the mechanisms of this Bill, after a triggering event when the regulator is looking at it, one of the main points is to make sure that there is adequate capital to fund such an event. I will have to come back to my noble friend on how that will work when a bulk transfer is made and the regulator is not involved in the process. What one would normally expect to see is a negotiation with the receiving scheme manager to ensure that it is able to fund the transfer because of the benefits of scale through putting together two systems. I imagine that when the regulator is not involved in the process, that is where the money will come from. I will double-check that and come back to my noble friends, but that is how I foresee it happening.

--- Later in debate ---

[Baroness Bakewell of Hardington Mandeville]

My Lords, I am conscious that people are waiting for the Urgent Question on Aleppo. However, I feel that this is a really important issue. I am concerned, as are others, that the Government appear to be backtracking on their manifesto promises on the secondary annuity market. As part of the pensions freedoms, the Government planned a secondary annuities market, where original purchasers who had a poor or inferior-quality product would be able to sell it and buy a better one with the cash. This move and this promise were welcome. The Conservative Party manifesto of 2015, on pages 65 and 67, promised:

“We will … give you the freedom to invest and spend your pension however you like … we will allow pensioners to access their pension savings and decide whether or not to take out an annuity, so they can make their own decisions about their money”.

The message was clear going into the election: the Conservatives would help those who had poor annuities and allow them to get a better deal for their money.

However, as has been widely publicised, not least in the Daily Mail on 16 November, there has been heavy lobbying against this move by the pensions industry, which has claimed it would be hard to set up a secondary market and difficult in terms of consumer protection. This lobbying seems to have come to a head at Gleneagles, when Government Ministers came under heavy fire from insurance company chief executives and gave way under the pressure. The resultant government change of mind has left many people with poor annuities that they now cannot get rid of.

It is all very well for the Government to succumb to the pressures of the insurance industry; I would prefer them to succumb to the pressures of the pensioners who are suffering as a result. The Daily Mail highlighted the cases of various pensioners. One 70 year-old veteran who would love to own a second-hand car said:

“Waiting at the bus stop for the hourly service to Nottingham city centre can be a miserable affair—particularly as the winter days draw in”.

He,

“must make the lengthy journey from his sheltered housing in the outskirts of the city every time he needs to go to the supermarket or visit friends”.

For him,

“and millions of pensioners like him, the Government’s promise to let him sell his paltry retirement income for a lump sum offered a vital lifeline. The Army veteran was preparing to exchange his £11-a-week … annuity for a few thousand pounds—enough to buy a small runaround to get to town and back”.

But the Government’s “dramatic U-turn” scrapped his plans. It means he will have to carry on taking the bus. He said:

“‘I was so disappointed when I heard the news … These insurance companies are making so much money from us and their bosses are earning millions. The money from my pension would be a small amount to them, but it would make all the difference to me’. Until the rules were changed in 2014, more than 400,000 savers a year bought annuities when they retired”.

Consumer protection can be problematic but it is not rocket science. We are extremely disappointed the Government have reneged on their promise and left people in the lurch. This should be rectified in this pensions Bill and is a big omission.

The original proposal turned pensions savings into income: for example, each £10,000 might give you £500 a year. Plans for a so-called secondary annuities market would have enabled savers to sell these deals. The idea was that insurers would compete to offer lump sums if a pensioner gave up the guaranteed monthly payouts. I have received case studies and lobbying on this issue, some couched in such strong words that I am unable to repeat them in this Chamber, but the Government must be under no illusion that feelings are running extremely high on this issue.

The decision to kill off the secondary annuity market even caught pensions companies off guard. Legal & General, for instance, had invested a considerable amount of resources in a new website, auctionmyannuity.com, so that it could act as a broker when the market launched in April. Obviously it thought the idea was viable and believed there were companies interested in doing it that would have been ready by April.

Legal & General’s website would have offered identity checks, risk warnings and advice on how to avoid falling victim to fraud. The former Pensions Minister, the noble Baroness, Lady Altmann, said:

“The Government was being furiously lobbied by the industry in the weeks before they cancelled the market. Protections were in place. Most of the work was already done. Legislation had been laid. If the Government felt that consumers were still not protected enough, it could have delayed the launch, not abandoned it altogether”.

However, despite all the groundwork that had taken place, the Government decided to cave in to the lobbying.

I will leave noble Lords with the following case. A pensioner, aged 68,

“receives a £160-a-month annuity from a £52,000 pension pot with Prudential. It took the former roadside equipment installer from High Wycombe, Bucks, 30 years to save the money. He would have never taken the deal three years ago had he realised the Government was preparing to allow savers to take their pensions as cash”.

He now fears that his wife, who is 67,

“a local authority worker, will not get a penny, should he pass away suddenly. The small print of the annuity contract states that payments are only guaranteed for ten years after the date”,

in 2014 when he signed up.

“Should he die after this date, the remaining cash will go straight into his insurer’s pockets”.

He says:

“I think it’s diabolical that the Government has gone back on its word … I wouldn’t blow that money, but I could do something with it, perhaps keep it invested, instead of an insurer taking the lot”.

This is a serious issue and I hope the Minister is minded to give at least some comfort to all those affected in their old age. The Government must do something about secondary annuities for all those suffering under the current system. I beg to move.

[Baroness Altmann]

My Lords, I commend the noble Baroness, Lady Bakewell, on her amendment. I was proud that the Government finally recognised the need to allow people to undo unwanted or unsuitable annuities when that decision was announced and indeed put in the manifesto, which the noble Baroness quoted.

Government rules effectively forced people to buy these products even though they did not want or need them. They had no protection when they were buying but the plans were in place to ensure that they would have protection if they considered reselling them. There was to be mandatory Pension Wise guidance and advice depending on the value of the annuity, and indeed legislation had already been passed to make that happen. As the noble Baroness mentioned, companies have already spent quite significant sums in preparation for this market, which consumers want and in some cases need, as the case studies showed.

In the annuity market it is normal for there to be only a small number of providers, which has never stopped that market operating in the past. For defined benefit pension schemes and bulk annuities, for example, for many years there were only ever two companies that would offer quotes. That should not be a reason to stop people being able to sell their annuity. Indeed, many people with secure defined benefit pensions, and the additional voluntary contributions that they were saving on top of that, were often forced to buy an annuity that they clearly did not need. Very often, because the regulatory system drove people to shop around for the best rate, they did not know that that would not actually necessarily be the right product. If you shopped around for the best rate and bought the single-life annuity, there was no protection for your spouse. In some cases, individuals have bought a product that they do not need and is not suitable for their family circumstances. This measure would have given them an opportunity to undo that. The law currently allows people who have less than £10,000 a year in an annuity to undo it, but if we do not proceed with the plans that were previously in place, they will potentially be doing so without any consumer protection. The plans had been to ensure that there was consumer protection before this happened.

It is not up to the Government or the pensions industry to decide what is best for somebody’s money; they are the ones who know that. If they have bought something that is not suitable, it is right that the Government give them an opportunity to undo that deal. If you buy a brand-new car and it is the wrong car for you, you have the opportunity to sell it in the second-hand market—yes, you have to take a discount; yes, it may be a significant discount; but that is your choice. When the Government have enshrined freedom and choice in the pension system, it is appropriate for us to continue to enable people to access their savings, which they need and to which they were promised access. If it requires a delay to get the consumer protection in place, so be it. That is a shame, but it is at least a rationale for asking people to wait longer. To take away the opportunity altogether seems unfair, as the noble Baroness, Lady Bakewell, said. She is receiving representations; I am hearing from large numbers of ordinary people across the country how much it would mean to them to have the opportunity to undo an annuity that they no longer want, or perhaps never even wanted or needed.

[Lord McKenzie of Luton]

My Lords, we were a little surprised—perhaps we should not have been—to see this amendment seeking the establishment of a secondary annuity market, given the Statement made by the noble Lord, Lord Young of Cookham, just a month ago. I say first to the noble Baronesses, Lady Altmann and Lady Bakewell, that the fact that people may have ended up with an annuity which is not the greatest in the world does not mean that they should compound that problem by doing a bad deal in the secondary annuity market. That is the nub of this issue. You simply cannot equate a transaction on a second-hand car with the sale of an annuity. It is fairly clear what is the market price for a second-hand car; there is a vibrant market out there, as I understand. It is quite different with annuities. That is at the heart of this issue.

An amendment seeking to establish a secondary annuity market was rejected by the noble Lord, Lord Young of Cookham, and we supported him in that. In that Statement, he explained that the Government had consulted extensively with the industry and consumer groups to explore whether conditions for a secondary market in annuities could be established. The conclusion was that, without compromising consumer protection, there were likely to be insufficient purchasers to create a competitive market and that pensioners were likely to incur high costs in seeking to sell. They concluded that the policy would not be taken forward, despite the loss of front-end-loaded tax revenue to the Exchequer. As I said, we supported the Government in that, and we oppose this amendment.

We were sceptical from the outset that this was a sensible policy, and my noble friend Lady Drake and I raised a number of concerns when it first surfaced as part of the Bank of England and Financial Services Act. Indeed, we went on a delegation to see the noble Baroness, Lady Altmann, in her former role. There is of course no pre-existing secondary annuities market to help form a judgment on these matters, but what was proposed was potentially very complicated, with the players including individual annuity holders, potential beneficiaries and dependants, purchasers of rights of an annuity under a specific regulated activity, a further regulated activity for providers buying back annuities, regulated intermediaries, IFAs providing mandatory regulated advice, and authorised entities to check that holders of relevant annuities had received appropriate advice.

No wonder that even the then Pensions Minister, Steve Webb, opined that, for the vast majority of consumers, selling an annuity would not be the best decision. There would be significant costs arising from the necessary regulatory systems. There were further unresolved issues of means-tested benefits and social care and how the income deprivation and capital disregard rules would work in this context. There have been many problems—and, at the end of the day, concerns that there would be insufficient purchasers to make the market work for pensioners. I have not heard any new points raised by the noble Baroness, Lady Altmann, that dislodge this conclusion. Surely there is more for the pensions sector to concentrate on at this time than complicated arrangements that will likely serve only a very few.

Pension Schemes Bill [HL]

Baroness Altmann Excerpts

Committee: 1st sitting (Hansard - continued): House of Lords
Monday 21st November 2016 Lords Chamber

[Lord McKenzie of Luton]

I shall speak also to Amendment 38. Amendment 37 seeks to probe an additional route to continuity. As the Bill stands, where trustees have chosen, or are required, to pursue continuity option 1, they must identify one or more master trust schemes to which members’ accrued rights and benefits are proposed to be transferred. Continuity option 2—an attempt to resolve the triggering event—is a route to be determined by the trustees, and not, seemingly, the Pensions Regulator. It is understood that in some circumstances a route to achieving continuity would be to change the scheme funder at the initiation of the Pensions Regulator as an alternative to transferring out or winding up a scheme. On the face of it, the regulation-making powers of Clauses 24(3)(a) and (b) do not seem to cover the position, but perhaps the Minister will tell us how, or indeed whether, this outcome can be accomplished.

Transferring the responsibility for a master trust to a new scheme funder could provide a quick answer to a collapsing master trust and would fit in with what happens with standard occupational schemes where it is wished to avoid having to wind up the whole scheme if a scheme sponsor becomes insolvent. Changing the scheme funder could be an easier solution that costs less and helps members because it keeps the scheme intact and avoids unnecessary investment transition costs and expenses for the members. Does the Minister agree that this opportunity should be available and, if so, can he put on the record how it might be accomplished?

The purpose of Amendment 38 is to highlight circumstances under continuity option 1 which require a transfer out and winding up and for members’ accrued rights and benefits to be transferred. Notwithstanding regulations which might require transfers to alternative schemes or the right of employers or members to opt out of a proposed transfer, what is the position if the trustees simply cannot identify a transferee scheme? How is continuity option 1 to proceed? It is accepted that the focus of the Bill is just the money purchase component of a master trust but, if other benefits are provided, what is the position regarding these and how are they to be covered by other legislation and regulations? I beg to move.

[Baroness Altmann (Con)]

My Lords, I want to raise an issue which is very relevant to this point. As the Bill will, rightly, require continuity strategies for the event of failing master trusts, I ask the Minister to consider introducing measures that will facilitate bulk defined contribution pension transfers. At the moment, the bulk transfers are governed in a way that would be suitable for defined benefit schemes rather than defined contribution schemes. It seems that we have an opportunity to disapply Regulation 12 of the 1991 preservation regulations and to introduce measures in this Bill to directly facilitate defined contribution pension transfers, which could also cut the costs of transferring across.

[Lord Young of Cookham (Con)]

My Lords, I am grateful to the noble Lord, Lord McKenzie, for proposing his amendment. I am afraid that I am back in the default mode of resisting.

Before I address the amendments, I say to my noble friend Lady Altmann that I would like to reflect on what she said about the transferability of defined contribution pots and perhaps write to her, because I am not sure that it directly arises from the two amendments before us.

Clause 24, and the regulations to be made under it, sets out the detail of continuity option 1 and the requirements relating to it—where a master trust chooses or is required to transfer out its members and wind up. This option would be pursued where a master trust scheme could no longer satisfy the regulator that it met the authorisation criteria and had its authorisation withdrawn or refused, or where, for any other reason, it could no longer continue to operate and the trustees chose to pursue continuity option 1 rather than resolve the triggering event and keep the scheme running.

To protect the rights that members have accrued in the scheme, it is necessary that these rights be transferred to alternative schemes or pension arrangements. Clause 24 therefore requires that under option 1, the trustees of the scheme must identify a master trust to which members’ rights and benefits can be transferred. Then the trustees have to notify members and employers of the transfer, as well as of other information that will be set out in regulations.

The aim of Clause 24 and the related clauses is that members will continue to save in a pension despite the master trust of which they are a member experiencing a triggering event that results in the scheme having to wind up. In this situation members should be transferred out to an authorised master trust and continue to save with as little disruption as possible. We want to encourage and facilitate the continuity of pension saving. Therefore, when a master trust is going to close, the provisions in the Bill will mean that members have the reassurance that, if they do not make an active decision to go elsewhere, they will become a member of an alternative master trust that has been authorised by the Pensions Regulator.

Amendment 37 provides that where the trustees have the choice, and have decided to pursue continuity option 1, they can do so, except where the Pensions Regulator decides that continuity of saving for members would be best achieved by the substitution of a new scheme funder. I think that the noble Lord, Lord McKenzie, was seeking to give the regulator some sort of power to require the trustees to follow continuity option 2 instead of continuity option 1, where the trustees had chosen the latter. However, in effect the amendment would give the regulator the power to exempt a scheme from fulfilling the requirements under continuity option 1 where the trustees have decided or are required to pursue this option and where the regulator is satisfied that continuity is best achieved by the substitution of a new scheme funder. I see real difficulties in what the noble Lord has proposed.

Trustees are responsible for running and managing their scheme and making decisions in relation to it. They have a fiduciary duty to act in the best interests of the members of their scheme—a point that the noble Lord, Lord Kirkwood, made during our discussions. This amendment would effectively allow the regulator to second-guess and overrule trustees and to make a decision about a pension scheme. This would be a fundamental change to the principle that trustees have responsibility for managing their scheme. We do not think such an intervention by the regulator would be appropriate.

The option of finding a new scheme funder, as proposed by the noble Lord, is already open to trustees as a means of resolving the triggering event and continuing. Depending on what triggering event the scheme experienced, there could be a variety of ways of resolving it. We consider it important not to limit these, but to give trustees the freedom to resolve the event and the regulator the power to decide whether it is satisfied that the triggering event has been resolved. Where the sourcing of a new scheme funder is the most appropriate resolution of a triggering event, as suggested by the noble Lord, it should be up to the trustees to identify this funder. It should not be the Pensions Regulator’s responsibility to decide what the resolution method should be, for example, that the method should be a new scheme funder, or to source that funder. That is not the regulator’s role and it would be overruling the trustees, who rightly have ultimate responsibility for the scheme and its members.

We consider it important that any resolution of the triggering event and continuation of the scheme be subject to the full requirements of option 2. These requirements include the preparation of a comprehensive and detailed implementation strategy by the trustees, having certain safeguards in place for members and employers, additional support and assistance for them, and greater protection for members. Further, there is oversight of the adequacy of the strategy by the regulator.

We agree that where a master trust has experienced a triggering event, a new scheme funder could be identified and could be the most appropriate resolution of a triggering event. However, the Government believe that it is the trustees’ responsibility to make decisions for the scheme, and that if they want to resolve the triggering event by finding a new scheme funder, they should go down the route of continuity option 2.

Amendment 38 makes two additions to what will be covered by the regulations. The first part of the amendment would require the regulations made under this clause to set out what happens where the trustees have not been able to identify a master trust into which their members will be transferred. As the Bill makes clear, there will be a comprehensive set of regulations under Clause 24 that will cover many areas. These regulations will cover members’ right to transfer to a scheme of their own choosing, if they do not wish to transfer to the trustees’ choice of scheme. Members could also take up other pension options open to them, where relevant. Where a member is in receipt of a pension from the failing master trust, they will have the right to transfer their benefits to an alternative appropriate arrangement. For example, this could include a draw-down arrangement or the purchase of an annuity.