Occupational and Personal Pension Schemes (Amendment etc.) (EU Exit) Regulations 2018

Debate between Baroness Buscombe and Lord Adonis

Tuesday 15th January 2019 Lords Chamber

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

My Lords, these regulations make minor and technical changes to domestic legislation that would otherwise no longer operate effectively once the UK withdraws from the European Union. The regulations were specifically designed to ensure that domestic legislation continues to operate effectively in the event that the United Kingdom leaves the EU without a deal. In the event that a deal is reached, after the implementation period there will be a need to make legislative changes, but the nature of those changes will be informed by the nature of the relationship that exists between the EU and the UK.

Before I discuss the details of the regulations, it may be useful if I give some context and background. The UK is not reliant on any European institutions or agencies for essential functions in respect of private pensions such as approvals, licences, decisions or rights. The Pensions Regulator’s powers are derived from UK law. This means that the UK does not need to create any legislation to replicate domestically any EU-level activities relating to occupational and personal pensions after the UK’s exit from the EU.

Nevertheless, we must ensure that domestic legislation relating to occupational and personal pensions continues to work and does not rely on any definitions, obligations or reciprocal arrangements that will no longer apply once the UK is no longer an EU or European Economic Area member state. UK domestic legislation contains various instances of references to EU law, and to the UK as a member state of the EU, which will no longer be the case once the UK exits the Union. This includes where distinctions have been made between EU or EEA member states and overseas entities that will no longer apply, where the UK is referred to as an EU or EEA member state or where the UK is obliged to share data with EU agencies or member states under reciprocal arrangements that will no longer apply.

These regulations are made using powers in the European Union (Withdrawal) Act 2018 to fix legal inoperabilities and other deficiencies in retained EU law that will arise when we leave the Union. The legal powers used are those provided for under the European Union (Withdrawal) Act, and the amendments made are completely in line with both the policy and legal intent of that Act. The use of secondary legislation to amend primary legislation—so-called Henry VIII powers—was debated at length during the passage of the withdrawal Act. The Explanatory Memorandum that supports these regulations sets out the legislation in Great Britain that is being changed.

[Lord Adonis (Lab)]

The noble Baroness has just said that the regulations are completely in line with the EU withdrawal Act and do not go beyond any provisions in that Act. But from reading the Explanatory Memorandum and the impact assessment, my understanding is that the regulations had to be revised and re-laid, and that this is the second version of the regulations, because in the first version the regulations were defective. They were not properly consulted on and would have required pension funds to disinvest from European funds because they had not been subject to a proper consultation procedure. Furthermore, there has been no formal process of consultation on these regulations either. Could the noble Baroness inform the House about these matters?

[Baroness Buscombe]

I can inform the noble Lord. He is absolutely right that a formal consultation was not considered necessary for these changes as there is no policy change and they make only minor and technical amendments designed to ensure that UK legislation operates effectively on the day the UK leaves the EU.

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[Lord Adonis]

The Minister said that the regulations would be cost neutral and the Explanatory Memorandum says, as she has just noted, that they,

“make minor and technical changes”,

but that does not appear to be the view of the sector. The journal Professional Pensions, which did a long article on these regulations, quoted Faye Jarvis from Hogan Lovells who said the regulations,

“could result in significant costs being incurred, the magnitude of which will depend upon the level and type of exposure that would need to be relocated to comply with the rules in the event of … no deal”.

Since there has been no impact assessment, what the Minister is saying to House this afternoon is pure assertion. The only response that I have been able to discover—because although an impact assessment has not been conducted there has been a certain amount of response in the media—suggests that there might be significant costs. How does she think that the House can make a judgment between the claims of people in the sector that there could be significant costs and her assertion that there are no costs, when no impact assessment of any kind has been conducted?

[Baroness Buscombe]

My Lords, it is interesting that the noble Lord has taken one quote from one article on this. Certainly, our understanding from our discussions with industry is that because this focuses on cross-border activity, it is up to the industry to decide whether to do something different if we leave the EU with no deal. Our focus has to be on the resulting associated costs to all parties involved—for example, extra resources invested in trying to clarify the situation: in other words, certainty of the law post exit from the European Union.

Our focus is on what happens if there is no deal. Should different companies in the pensions industry choose to do something different post exit, there may of course be other impacts on business, but certainly in our discussions with business, that was not the impression we received.

[Lord Adonis]

Since there has been no formal consultation, the House has no basis on which to make any judgment at all. The Minister has simply made a number of assertions which appear to be at variance with the actual public response. She said that there have been ongoing consultations and dialogue. Can she tell the House more about them?

[Baroness Buscombe]

My Lords, we are constantly in touch with the Pensions Regulator, with which we have a very good relationship. We work very closely with industry. My honourable friend in another place, the Minister for Pensions and Financial Inclusion, also has ongoing discussions with the Pensions Regulator and individual companies within the pensions industry. The noble Lord will recall that I have stated that there was no formal consultation because there was no change to policy. Given that there is no change to policy and that we are dealing with minor and technical amendments, and given our constant and ongoing involvement with the industry—those in the industry are very much in touch with each other; it is not an industry that is hard to be in touch with—and this niche area of cross-border activity of pension companies and pensions, it is fair to say that the department has done all that is reasonably necessary and, indeed, cost-effective to limit our consultation to an informal ongoing communication with both the Pensions Regulator and industry stakeholders.

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[Baroness Buscombe]

My Lords, let me turn to the consultation that took place in relation to these statutory instruments. Other noble Lords have insinuated that there was no consultation. I made it clear at the outset that there was a form of consultation. As the noble Lord, Lord Kirkwood, made clear, there is in a sense consultation and consultation. We are talking here about consultation with those very closely connected with the industry. The Department for Work and Pensions engaged with a pension provider, an advisory firm and a trade body for occupational pension schemes, that trade body obviously representing a fair number of those in occupational pension schemes. Any suggestion by noble Lords that there has been no consultation is simply not true. I reassure the most reverend Primate the Archbishop of York that consultation took place with those involved in the bespoke part of the industry concerning cross-border activity within the EU. These SIs do not have any policy intent. They do not change policy; they are minor and technical amendments. It is not our role to look at the implications of a deal or no deal; it is more about ensuring that there is preparedness for a no deal and legal certainty when we leave the EU on 29 March.

I am grateful to the noble Lord, Lord Kirkwood, for his support and to hear that the Secondary Legislation Scrutiny Committee decided that the regulations were clear. Of course, it was necessary to re-lay them when an incorrect reference to UK regulated markets was found, but we were very quick to do that. We withdrew the draft regulations and re-laid them on 3 December. It is about making sure that we can be agile and flexible and therefore respond with certainty when we need to. Any question of there not having been consultation with those in the industry whom the regulations impact is simply not the case.

As always, the noble Baroness, Lady Drake, asked the more challenging questions. I will do my best to reply, but, if I fail with regard to any aspect of these very technical regulations, I will write to her. These statutory instruments fix elements of the UK’s occupational and personal pensions legislation that will not work effectively after the UK departs the EU, including where distinctions have been made between EU or EEA member states and overseas entities, such as EEA central banks, that will no longer apply, where the UK is referred to as an EU or EEA member state, or where it is obliged to share data with EU agencies or member states under reciprocal arrangements that will no longer apply.

If someone lives in the European Economic Area and has a personal pension or annuity with a UK-based firm, the firm should have made plans to ensure that the person can still receive payments from the personal pension or annuity even if the UK leaves the EU without a deal. If the firm needs to make any changes to the personal pension or annuity, or to the way in which it provides it, it should contact the person. If the person has any concerns about whether they might be affected, they should contact their firm. The UK state pension will still be payable cross border into the EEA.

The European Union (Withdrawal) Act repeals the European Communities Act 1972 and converts into UK domestic law the existing body of directly applicable EU law and UK laws relating to EU membership. So, this body is referred to as retained EU law. The Act also gives Ministers a power,

“to prevent, remedy or mitigate … any failure of retained EU law to operate effectively, or … any other deficiency in retained EU law, arising from the withdrawal of the United Kingdom from the EU”,

through statutory instruments such as these regulations.

We believe it is in the interests of both the EU and the UK for the UK to have a smooth and orderly exit from the EU, as set out in the withdrawal agreement. But it is our duty to continue to prepare for a range of potential outcomes, including no deal.

To answer the question from the noble Lord, Lord Warner, when companies invest in pension schemes it is up to those schemes and pension providers to think about their investment opportunities in future. It is not something that we can reflect through these statutory instruments.

I want to be sure that I have covered as much as I can to the best of my ability. Noble Lords have been concerned that we have not given these statutory instruments enough attention. I can only repeat that that simply is not the case.

[Lord Adonis]

The Minister is doing a great job of responding to the points raised. I raised the point about paragraph 2.5 of the Explanatory Memorandum, which says,

“UK occupational pension schemes will no longer need to obtain authorisation from the Pensions Regulator for cross-border activities”.

Can she explain what the impact of that would be and what the regulator has said about the effect it would have on the pensions industry?

[Baroness Buscombe]

The noble Lord is talking about cross-border pensions that do not have to come to our Pensions Regulator once we leave the European Union. The whole point is that we have to make sure that our Pensions Regulator no longer retains a power to influence cross-border activity where it ceases after we leave the European Union.

[Lord Adonis]

It says “UK occupational pensions schemes”. It does not say other schemes.

[Baroness Buscombe]

These are pension schemes operating in member states. If they are operating in member states they do not then have to make sure they abide by UK law and the UK Pensions Regulator. If they happen to be operating in the EU, they do not have to abide by UK law if we leave the EU. Does that make sense? I hope it does.

Occupational and Personal Pension Schemes (Amendment etc.) (Northern Ireland) (EU Exit) Regulations 2018

Debate between Baroness Buscombe and Lord Adonis

Tuesday 15th January 2019 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I will avoid repetition. In the debate on the previous SI, I logged my concerns about the UK leaving the EU pension cross-border regime, the protection of members’ assets and their movement in cross-border schemes, and the significance of the cross-border issue between Ireland and the UK. That particular problem triggers a concern about a wider issue.

These draft Northern Ireland regulations apply to policy areas which are a transferred matter for Northern Ireland. In the absence of a Northern Ireland Executive, the Government are taking steps to secure a functioning statute book in the event of a no deal. The UK Government are clearly taking through the necessary secondary legislation at Westminster in consultation with Northern Ireland departments. These regulations are a classic example of doing that in the absence of the Northern Ireland Executive. The Government are able to do that through the Section 8 powers in the withdrawal Act and Schedule 3, which relates to Northern Ireland in particular.

I fully appreciate and accept the problems that the Government face in Northern Ireland, but the democratic deficit that exists there, as a consequence of the problems that we face, is even more concerning in a no-deal scenario because the risks and consequences flowing from it are even greater. That will exaggerate the consequences of no deal and having no Northern Ireland Executive to express the opinion or represent the interests of the people of Northern Ireland. Could the Government look at what they can do, even with the withdrawal agreement, to have a strong relationship with the Irish regulator? The Northern Ireland Executive are not here to articulate the significant issue of pensions in Northern Ireland.

[Lord Adonis (Lab)]

Will the Minister tell us more about what consultation there has been with the Irish regulator and stakeholders in Northern Ireland, not just about the technical details of these regulations but also on the wider implications for pensions and pension funds in Northern Ireland if there is no deal? Can she also confirm my reading of the Explanatory Memorandum and the text of the order? It is that this order went through exactly the same process as the previous one and had to be withdrawn because the defective drafting meant that it would not be possible for UK pension funds to invest in certain European assets under the changes that were first proposed. I assume that is because it was drafted in the same way as the first regulation and had to be changed in the same way. Is that the case? Was it the same defect in both regulations that had to be corrected?

Secondly, what further consultation has there been with the pensions industry in Northern Ireland since this new draft regulation has been laid? Does it have concerns similar to those which I quoted in relation to the previous regulation, and might more issues come out of further consultation? As my noble friend Lady Drake has said, there are some concerns about there not being a Northern Ireland Assembly or Executive. This has all been done at two stages removed and, since we have special duties in respect of Northern Ireland, it would be good to have reassurance that these processes have been gone through.

[Baroness Buscombe]

I will respond to both noble Lords on these issues around Northern Ireland. First, in response to the noble Lord, Lord Adonis, there was the same error when the regulations were first drafted. When that error was picked up, the situation was immediately changed. We withdrew the draft regulations and they were relaid in their current form on 3 December. It is important to stress that we have ongoing discussions. We consult with the Irish regulator and Pensions Regulator on an ongoing basis. We of course need to remove the cross-border regime that exists between two member states. We have, therefore, been in discussions with the Irish regulator and Pensions Regulator to reflect Northern Ireland and its relationship with Ireland, which will remain within the EU. These discussions will continue, as we want to make sure that we can transpose statutory instruments, doing for Northern Ireland as we do for the UK, to ensure that there is legal certainty.

In a no-deal situation, the UK cannot participate in the EU’s authorisation regime for cross-border activity, as we will no longer be a member state. However, we are working with the Pension Regulator, Northern Ireland and industry stakeholders to see what can be done to support members of cross-border schemes, including where employees or Irish employers are across the border and contribute to a UK occupational pension scheme. Notwithstanding the reality that these regulations do not address that, we are cognisant of the fact that we need to do all we can to work across border in relation to Northern Ireland and Ireland to ensure that, in any event, the proper protections can be put in place and we can reassure employers and employees with regard to occupational pension schemes. I hope that that goes some way to reassure noble Lords.

It is common practice to have mirroring legislation. These instruments do not make policy changes but are designed to ensure that UK law in the field of occupational and personal pensions continues to operate effectively in the event that the UK exits the EU without a withdrawal agreement in place. I hope that noble Lords will support these regulations.