Pension Schemes: Guidance
Baroness Drake Excerpts(2 years, 3 months ago)
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Viscount Younger of Leckie (Con)
Well, I do not really agree with the general points my noble friend has made. The main thing is that the regulator has a particularly strong role here, and it plans to publish its findings on what we are doing soon to provide schemes with examples of good practice. The regulator has found so far that most reports were published on time. This is to do with the publishing of reports. Almost all were substantial documents showing trustee engagement. In terms of my noble friend’s point about LDI, he will know that much progress has been made, led largely by the independent Bank of England working closely with the Treasury.
Baroness Drake (Lab)
My Lords, I declare my interest in the register as a trustee. The report raises key questions about fiduciary duty. In summary, we need clearer guidance from the Government on three key issues: the extent to which environmental and social factors form a core component of investors’ fiduciary duties; the fact that pension scheme fiduciary duties are not a substitute for what government should do; and the fact that government desire for more pension fund investment in UK productive investment has to align with pension trustee fiduciary duties. Can the Minister confirm that, when issuing more guidance on the fiduciary issue, they will address these particular three issues where the contours of fiduciary duty need clarity?
Viscount Younger of Leckie (Con)
As I have said before, it is the case that more progress needs to be made, and the noble Baroness has much experience in this field. Let us start with climate change, which poses major financial risk to pension schemes and savers’ returns, with almost £2 trillion in assets under management. I reassure her that pension schemes in scope of the DWP’s requirements, as I think she will know, must produce the annual TCFD report, which is based on four key pillars: governance, strategy, risk management, and metrics and targets. That might be five, but I think it is four.
Pensions Dashboards Regulations 2022
Baroness Drake Excerpts(2 years, 7 months ago)
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Baroness Drake (Lab)
My Lords, I declare my interest as a trustee of an early staging large master trust and a sizeable DB scheme, as detailed in the register. I thank the Minister for her very helpful presentation of these complex regulations. I acknowledge the work that has been undertaken to get this programme to this point.
A pensions dashboard is a great concept for the public good; the challenge is delivering it in a way that enables savers to access their pensions data securely so that it meets their needs and improves their outcome. Let us be clear: the information on the pension benefits and amassed assets of millions of citizens, covering trillions of pounds of value, will be made accessible through this dashboard. It is important that the Government get it right. These regulations form an important part of that assurance.
A consistent concern in this House has been the issue of identity verification to ensure that citizens are protected against fraudsters, scammers and others unauthorised to access their data. There are two key points for identity verification: that required for the citizen to access the pension finder service to search for and request information, and that required by schemes to identify whether they have a match to a request and whether to release the data to be viewed.
On the first, the pensions dashboard programme has procured an interim identity service provider while awaiting progress on the Government’s “One Login” solution as a ubiquitous way to sign into any GOV.UK service. On the second, these regulations leave to the trustee the data criteria for identifying a match and releasing value data. However, given the need to minimise the risk to the individual saver and the cybersecurity risk to the dashboard ecosystem as a whole, is it the Government’s intention that the “One Login” solution must be available for use before the Secretary of State announces the date of the dashboards available point, when the service is made available to the public?
The Minister referred to standards. The DWP has published draft standards outlining mandatory requirements for providers on how they must operationally and technically meet their legal duties, and the pensions dashboard programme has consulted on its approach to governance of standards in the future. However, those standards are outside the regulation to allow for flexibility and further development. While that may make sense, given the public interest in data on trillions of pounds of value being accessible through the dashboard, how will Parliament be kept up to date and receive the necessary assurance that the governance of the dashboard ecosystem continues to be fit for purpose?
Design standards matter too. I leave my actuarial noble friend Lord Davies to go into detail on this. Design standards are about presenting information in the way that will best help users to understand it. They are an important element in consumer protection. Inevitably, consultation to date has largely been with the industry, although user testing is undertaken during development and staging. Is it the intention to permanently embed user testing into future reviews and developments of those design standards, and how will that be done?
Compliance with dashboard requirements is being phased in from August 2023. Reflecting on what the Minister has said, it may be earlier. It will start with large DC schemes used for auto-enrolment. Trustees must connect by their staging deadline, with all in-scope schemes having to connect by 31 October 2025, as detailed in Schedule 2. As has been said, the Secretary of State will give six months’ notice before dashboards go live to the public, an increase on the original 90 days proposed. This is a sensible move, given the importance of getting this programme right, notwithstanding the previous Minister’s lack of sympathy for the delay— I think that the right decision has been made.
Regulation 4 states that, before specifying the dashboard available point,
“the Secretary of State must be satisfied that the dashboards ecosystem is ready to support widespread use of qualifying … dashboard services by the general public”.
I take that to mean that enough schemes are on board, the data is good enough and there is no prospect of crashing. What is the minimum extent of progress in implementing the DWP and FCA staging profiles that has to be achieved before a dashboard available point is announced, or is it necessary for the staging profiles to be completed in full before public access can commence?
Schemes will need to be data-ready for the dashboard to minimise the risk of data breaches or not returning a match. These regulations require schemes to provide detailed information to the regulators on find and view requests, the matching process, the number of possible matches, the number of positive matches and much more before the dashboard is publicly available, and subsequently after it is. What confidence level in respect of minimising false positives and false negatives in response to find and view requests must be met before the public announcement about the availability of the dashboard is made? What happens if all public service pension schemes are not ready to stage by September 2024, given the considerable relevance of these schemes to supporting widespread use of the dashboard?
Increasingly, DB schemes are transferring their assets and liabilities to an insurer under buyout. Do such buyouts pose complexity for the operation of the dashboard service, including from any differences in the FCA and the MaPS/TPR rules?
A key policy objective for the dashboard service is to connect individuals with an escalating number of small pots in the hope that people will transfer and consolidate them. The Government have not taken determined action on this problem to date and are clearly hoping that the dashboard will provide the solution. However, evidence shows that information access does not always overcome inertia, so is the dashboard now the Government’s primary policy for addressing the small pots problem? Will the DWP set hard targets for the reduction in small pots in its critical success factors?
Expected benefits to the consumer include the value of increased engagement, increased savings actions and more informed savings decisions, but these have not been monetised because the data is not available to do that. Given the lack of knowledge and understanding that often prevails, the complexity, the barriers of inertia, present bias and the unknown behavioural responses of providers and savers, it will be important to understand what actually is happening so as to understand the extent of the public outcomes or any emerging detriment from the operation of the dashboard. What plans do the DWP have for a programme of research and monitoring of behaviours?
Finally, on the FCA, there are four regulators in the dashboard space, so it is quite crowded. It raises issues of coherence, from the straightforward, such as minimising duplication of information demands on schemes, to the more complex potential for regulatory omission or confusion, as in the case of the steelworkers. These regulations do not cover FCA-regulated personal and stakeholder pensions. The duty placed on the FCA, to quote its policy statement,
“requires that we have regard to the requirements that the Government’s regulations place on the trustees of occupational schemes”—
so there is clearly scope for some differences. There will be closed books, legacy products, and funds where data quality will be poor and charges high. There could be differences in how pension values and costs and charge data are provided. For example, as I saw from the FCA’s own site, some FCA-regulated providers do not have information on costs and charges on certain plans available online. These schemes will be allowed just to explain where the consumer can find the details—but that is hardly a digital experience compliant with the standards that appear to be being set by MaPS.
Baroness Drake (Lab)
I am sorry to intervene, as I know that the Minister is trying to answer all the questions, but I want to ask a question on the regulated FCA authorised advisers. The whole point is that that system of authorised advisers, which has been changed several times, even on the FCA evidence is not sufficiently protecting people. The fact that it is being offered as a solution is one of our concerns.
Baroness Stedman-Scott (Con)
I note the noble Baroness’s point. This is something that we will take back with officials and to the relevant authorities, and it is something else that I shall write about and I hope give her a better answer than she has had to date.
The noble Baroness, Lady Bowles, raised the issue of risk of exploitation of data. Pensions dashboards and the technology behind them are designed to maximise data security. For example, pensions information is sent directly and securely from the scheme to the individual; it is not stored by qualifying pensions dashboard services or by the digital architecture. Individuals will always have control over who has access to their data, and will be able to revoke access at any time.
The noble Lord, Lord Jones, and the noble Baroness, Lady Sherlock, have raised to me individually the issue of British Steel pension schemes. The FCA is responsible for the regulation of the financial advice market and has looked closely at the advice provided to those BSPS members who decided to transfer out of the defined benefit scheme. It found that a very high proportion had received unsuitable advice, as has been said. The FCA has announced that it intends to take forward a scheme to provide compensation for BSPS members who received poor advice; it published a consultation on this scheme on 31 March, which has now closed. I think that the point that the noble Lord and the noble Baroness were making was that it must not happen again, and I am sure that message is understood.
The noble Baroness, Lady Sherlock, asked me to confirm when the data from personal and stakeholder pension schemes will be available to the public through the dashboard. She also asked what the position was with group personal pension plans. As set out in FCA rules, the majority of personal and stakeholder pension schemes are required to stage as part of the first cohort by the end of August 2023. That includes group personal pension plans. Until dashboards are launched to the public, schemes’ data must be available to invited users for testing purposes.
The noble Baroness raised a point about missing pots. Only a very small proportion of occupational pension scheme memberships are out of scope of the obligations to connect in our regulation and FCA rules. We expect that, at the point when dashboards are launched to the public, most individuals can be confident that all their pensions will be available to find via dashboards. When the value data for found pensions has not yet been provided—for example, if the member is new to the scheme, or when the value is still being calculated by the scheme—information to that effect will be displayed on the dashboard.
The noble Baroness asked how confident Ministers were about the quality of the data and whether the work has so far thrown up any concerns. It is critical that savers can trust the information in front of them; trustees and managers have existing legal obligations in respect of data quality, including the accuracy principle under UK GDPR, which requires that organisations ensure that data remains accurate and up to date. The Pensions Regulator set out its expectations on data quality in its record-keeping guidance; this includes that data is measured at least once a year.
The noble Baroness asked why the DWP had not set particular minimum data standards for schemes for matching and releasing data. The regulations allow for the trustees and managers of schemes to set their own matching criteria. We believe that schemes should be given discretion over which data elements they use to suitably search their records for a match. It is important that any scheme’s matching policy is appropriate to the level of confidence that they have in their own data; a uniform approach across all schemes would be likely to result in suboptimal matching.
Just to divert the House for a moment, I am conscious of how long I have been speaking, and I am keeping others from their business, but I am absolutely committed to answering these questions. With the leave of the House, I hope that I can carry on.
The noble Baroness, Lady Sherlock, asked whether I could explain for the record what would happen if the data submitted by a consumer was a partial match with data held by a firm. Schemes have the option of returning a possible match if they believe that they hold a record for an individual but are not certain. When a scheme returns a possible match, an individual will receive a limited form of administrative data that will enable them to contact the scheme to see if the possible match is in fact a match made.
The noble Baroness asked about screen-scraping. The regulations prohibit the storing of dashboards of view data, unless for temporary caching and for the sole purpose of displaying the view data in a single session. Similarly, transactions are not possible through the dashboard ecosystem. Making it possible for consumers to find information about all their pensions in a single place and requiring the consumer to undertake an identity verification check before being able to access that information significantly reduces the consumer appeal or perceived benefit of agreeing to screen-scraping. I have much more that I could say on that issue, so I shall write and place a copy of the letter in the Library of the House.
The noble Baroness, Lady Sherlock, and the noble Lord, Lord Davies, raised the point about complaints and where the liability lies if a customer makes a decision on the basis of view data that later proves to be inaccurate. As set out in our response to the consultation on the draft regulations, trustees or managers are responsible for meeting the requirements, which include receiving fine data, as well as undertaking, matching and returning the correct view data. Trustees or managers are not responsible for verifying the identity of users, and the authorisation of view requests or any processing of view data carried out by dashboards. The question of liability in the event that something goes wrong to the detriment of the individual would have to be considered on a case-by-case basis.
The noble Baroness, Lady Sherlock, raised the issue of liability and risk for trustees. The Government acknowledge that many trustees do an excellent job, often on a voluntary basis. The vast majority of trustees are in schemes with fewer than 99 members, so will be outside the scope of these regulations, unless they connected to pensions dashboards voluntarily. Although we accept that the regulatory requirements on trustees have grown a great deal over the years, this is only right, given what is at stake—we are talking about pension savings for millions of people.
The noble Baroness, Lady Sherlock, raised the issue of handling complaints and where consumers go to make a complaint. The dashboard ecosystem is made up of multiple different parts and, as such, dashboard users would potentially have complaints against a number of different parties. MaPS will therefore provide a central queries and complaints navigation tool, which qualifying pension dashboard services must direct individuals to, to help them understand their issues and know to whom they should direct their query or complaint if things go wrong, and the available routes to redress.
The noble Baroness, Lady Sherlock, raised the issue of scams and hackers and asked whether there is a strategy in place to counter the risk of scams within the system and whether this is being revisited regularly. It is crucial that dashboards give power to consumers and not scammers, which is why the dashboard ecosystem has been designed to ensure that only relevant pension schemes and authorised qualifying pension dashboard services have access. To maximise the effectiveness of the Money and Pensions Service pensions dashboard, users will have access to a retirement planning hub, which will provide onward planning journeys in a single place, supporting good decision-making. The FCA and MaPS will keep their rules and standards under review as dashboards emerge and evolve.
Universal Credit: People with Mental Health Problems
Baroness Drake Excerpts(3 years, 9 months ago)
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Baroness Drake (Lab)
My Lords, the question put in this debate is not about attacking Universal Credit or the commitment of the staff at the DWP. It is about a particular group of vulnerable people, whose vulnerabilities mean they cannot fully or effectively engage with the processes and procedures for managing their Universal Credit account and what further action the DWP can take to address what is a distressing problem. Not engaging effectively brings real detriment: sanctions, deductions, lost entitlements, decline in living standards, increased stress and decline in well-being.
Many have recognised the commitment and efforts of DWP staff during the Covid pandemic, particularly in the early months when so many applications were processed. The DWP was an important part of the solution to managing and surviving the pandemic. It has to be recognised that that would not have been possible without utilising the IT systems and digital engagement, given the volumes of claims and the constraints on other forms of contact.
Universal Credit is now digital by default. Indeed, the advances in technology allowed the rapid expansion of digital engagement between businesses and businesses, businesses and consumers, service providers and users, which was fundamental to sustaining the economy over the last 18 months. But digital engagement, particularly when combined with complex processes, can pose problems for those with mental health problems, which are further exacerbated if the decision-making journey is difficult to comprehend or navigate. This is evidenced in the provision of court services, public services and, indeed, commercial services. Increasingly, in the commercial world of financial services, companies are recognising the need to adapt their processes to deal with vulnerable customers, including those with mental health problems, who, sadly, are growing in number. Those difficulties in navigation are spelled out very clearly in the Set Up to Fail report published by the Money and Mental Health Policy Institute. The report is particularly compelling because it takes evidence directly from the people who have mental health problems, the majority of whom said they simply could not manage their account without help from family and friends.
The difficulties emphasised in the report include claimants not being told that they can give permission for someone to help manage their account, not being told how to make that request and, when they do, having to specify which exact tasks they want a third party to help them with, without any guidance given on how to do that. Of course the claimants could ring the DWP, but more than half say that they have severe difficulties in using the phone precisely because of their mental health problems, so you have a circle of lockout. The report describes this as an absurd situation whereby those who want to nominate a person to help them have to navigate complex and unclear processes similar to those which they needed help with in the first instance—a Catch-22.
The DWP has introduced measures to assist those with mental health problems but the report argues that they are not sufficient. Many with mental health problems lack social, emotional and financial resilience, and the welfare system should be a critical line of defence for them which minimises the barriers to mitigating that. Many such claimants struggle on alone, incurring the negative consequences. My noble friend Lord Davies detailed what needs to be done to assist claimants, particularly with regard to obtaining explicit consent for another person to help them manage their account.
However, like my noble friend Lady Donaghy, I stress the importance of considering that recommendation of extending the help-to-claim service through the citizens advice bureau to also provide a help-to-manage service for vulnerable claimants with a universal credit account. Managing the needs of vulnerable claimants does not cease when they open an account or when it is set up, and indeed their mental health problems may occur after an account has been opened. People’s circumstances change and the population with these problems changes. There are other publicly funded help and guidance services that do not apply such a cut-off criterion. It seems such an arbitrary thing to do given the nature of the problem that must be addressed. An extension of the service would also help to protect those vulnerable to coercive behaviour, for whom explicit consent for a family member to assist may not be their desired answer to the problems that they face.
The incidence of mental health problems is increasing, even more so in the exceptional circumstances prevailing in today’s world, and if those with vulnerabilities are not given more help and guidance then a welfare system that is intended to support them could contribute to a further decline in their mental and financial well-being. If the department can introduce further measures to assist claimants with mental health problems then, as my noble friend Lord Davies argued, they can trigger a virtuous circle of preventing people becoming more stressed and unwell, assist the NHS, contribute to the community, and increase the prospects of people’s engagement with the world of work.
I have three questions for the Minister. Will the Government further consider introducing measures to improve the experience of claimants with mental health problems? Will the Government consider the recommendations in Set Up to Fail, particularly those directed at improving and simplifying the process whereby explicit consent to third-party support in managing a universal credit account can be secured? Will the Minister commit to taking away the proposal that the remit and role of the help-to-claim service is extended to provide a help-to-manage service for these most vulnerable clients?
Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021
Baroness Drake Excerpts(3 years, 9 months ago)
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Baroness Janke (LD)
My Lords, we certainly agree with the policy aims and mechanisms of this instrument and endorse the Government’s actions to make sure that
“members do not languish in sub-optimal arrangements that do not meet governance requirements and are unable to take full use of investment opportunities, to the benefit of the end saver’s eventual retirement outcome”,
as the Explanatory Memorandum states.
As the Minister has said, paragraph 7.6 of the Explanatory Memorandum explains that Regulation 2 requires that schemes holding assets worth less than £100 million and which have been operating for three or more years are to compare charges, transaction costs and the return on investments with three other schemes. We are not clear how those schemes are to be selected and who is to select them. Is it the trustees, for example? Are there selection criteria other than that they have assets of more than £100 million and are personal pension schemes? If it is not the trustees, who selects the comparator schemes?
Paragraph 7.8 states:
“Where the trustees have reported that the scheme does not provide good value for members, they are also required to report whether they propose to wind up the scheme and transfer the members’ rights into another scheme or explain to TPR why … not … and what improvements they are planning to make.”
What happens if these improvements are not acceptable to the Pensions Regulator and what powers does the regulator have based on compliance or non-compliance with Regulation 3?
We would probably all agree that it is a good idea to encourage smaller funds to transfer rights or improve if Regulation 2 comparisons show poor performance, but what about larger funds? Should there not be a requirement for them to undertake the same comparisons and take the same actions if their schemes show poor value for money for their members? It is easy to see why small funds should be encouraged in this way but hard to see why larger firms are not similarly encouraged. I would welcome the Minister’s clarification on these points.
Baroness Drake (Lab)
My Lords, I refer to my entry in the register of interests, particularly as trustee of a large master trust and the Telefónica pension scheme. I thank the Minister for the clarity of her explanation. It is a pleasure to talk face to face, rather than digitally, for once.
Of the three main provisions in these draft regulations, one requires smaller DC schemes with less than £100 million to demonstrate overall good value. If they cannot, the expectation is that they will wind up and consolidate into another scheme. The regulations also require schemes to take their net investment returns and increase flexibility to take account of performance fees when calculating the 0.75% pension cap on pension savings.
I support the focus on smaller schemes and the drive to consolidate them into larger schemes. The TPR evidence reveals that many smaller schemes struggle to match the governance, investment opportunities and charges delivered by schemes operating at scale, but the Minister’s aspirations are high. I quote Guy Opperman, who wrote:
“It is not my intention to stop at £5 billion”,
and that
“There is no doubt in my mind that there must be further consolidation”,
and that
“further action will follow”.
However, even a threshold of £5 billion goes beyond small and will catch all but the very largest of DC schemes.
The Minister believes that consolidation drives better member outcomes, a view again with which I agree, and I accept that scale matters. The Minister wants to understand the barriers to further consolidation through two lenses. He stated:
“I am particularly keen to understand how the creation of greater scale in the DC market can benefit members through economies of scale and access to alternative investments.”
However, the Government have to recognise that they created some of those barriers, even though the case for scale was well documented at the time. When auto-enrolment was introduced, they took the view that there should be an open market with virtually no barriers, or few barriers, to entry, with the inevitable proliferation of provision and the acceleration of small pot numbers that followed, which made decisions for employers even more complex. The transfer of the cost of market failure on to the members of the growing number of poorly regulated master trusts was eventually recognised and led to the new authorisation regime. At the start of that authorisation regime there were 90 master trusts; 37 were granted authorisation, a reduction in the overall size of the market by 58.8% in a little over a year, perhaps an indication of how inefficient the original policy had been. Is it anticipated that the drive to accelerate the consolidation of schemes will lead to a further reduction in the number of authorised master trusts? Will the TPR be expected to modify its approach to the authorisation criteria? Given the Minister’s aspiration and the Government’s drive for greater consolidation, what do they consider would be the optimal outcome in terms of the number of schemes? How do they define optimum scale in terms of assets under management?
The Government’s policy that consolidation into fewer and larger DC schemes will facilitate greater investment into a wider range of assets and bring benefits to scheme members and the UK economy was captured in the letter of 4 August from the Prime Minister and Chancellor, entitled Igniting an Investment Big Bang: A Challenge from the Prime Minister and Chancellor to the UK’s Institutional Investors. They called for the need to,
“seize this moment … to unlock the hundreds of billions of pounds sitting in UK institutional investors”—
particularly pension schemes—
“and use it to drive the UK’s recovery”,
and growth. They added that the Government were,
“doing everything possible—short of mandating more investment in these areas as some have advocated—to encourage a change in mindset and behaviour among institutional investors, and we remain open to addressing further barriers”.
Pensions Regulator (Employer Resources Test) Regulations 2021
Baroness Drake Excerpts(3 years, 9 months ago)
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Baroness Drake (Lab)
My Lords, I thank the Minister for her clear explanation of these regulations. I welcome them, but I would like to raise one or two questions which seek some clarity.
The Pension Schemes Act 2021 gave the regulator new moral hazard powers with the introduction of two new criminal offences and by extending the flexibility available to the regulator to make connected parties such as group companies and directors liable for pension scheme deficits, and make payments to a scheme, by issuing a contribution notice. The Act introduces two new tests for imposing contribution notices: when the regulator considers that an act or failure to act materially reduces the employer debt likely to be recovered if a Section 75 debt has fallen due immediately after an insolvency event or reduces the resources of the employer in a manner which was material when compared to the debt in the pension scheme—the employer resources test, which is the subject of these regulations.
They set out that employer resources test for assessing whether a relevant act or failure to act reduced the value of the employer’s resources and whether that reduction was materially relevant to the pension scheme’s debt. I read in detail that the employer resources will be assessed through the pre-Act normalised annual profit before tax measure, under which non-recurring or exceptional items are removed, and then the impact of the act or failure to act on that profit is determined. If that impact is material, the regulator can start to build its case for a contribution notice. Indeed, it is a measure akin to the employer’s ability to support the scheme. The measure is sometimes used in the preparation of an employer covenant analysis undertaken for trustees.
For the record, as it is not clear, can the Minister say how dividends, including payments within a group of companies, will be treated in the normalised annual profit before tax measure and in the assessment of material detriment? That certainly proved a controversial issue of concern during scrutiny of the Pension Schemes Act 2021, and it is not clear—certainly not to me—how those will be considered under the new test. From a pension scheme member’s point of view, if the resources of the employer sponsoring the scheme are weakened through transferring assets or dividends, leveraging more debt or some other reason, the employer basically may be less good for the money and pension benefits will be less secure. They will look to the cavalry at the regulator to come over the hill and issue a contribution notice, and they need to have the confidence that that will actually be done with more focus, positivity and speed of action than the past has demonstrated.
In their response to the consultation published on 29 June, the Government set out their reasoning for the employer resources test. In summary, it said that, in the majority of past contribution notice cases, the regulator faced
“difficulty in forecasting the medium and long-term performance of a business for the purposes of the … ‘material detriment test’.”
This is because it had to extrapolate from an employer-related act into the future, with the uncertainty and challenges that causes evidentially. Indeed, trustees can experience exactly those similar difficulties in trying to assess those implications for the employer covenant, because there is no industry consensus on how to value the employer covenant. Therefore, the employer resources test removes the need to forecast how the employer might or might not have performed in the absence of that act and assesses the impact on a snapshot basis. So it is quicker, sharper and more efficient.
However, the regulator still will not be able to issue a contribution notice if a party can show that they meet the conditions for a statutory defence and can provide reasonable excuse. The three premises are that they gave prior consideration to the test and to the extent that the failure or failure to act would reduce the value of the employer’s resources in a material way; that they took all reasonable steps to mitigate any such detrimental impact; and that it was reasonable for them to conclude that the act would not detrimentally affect in a material way the likelihood of the scheme members receiving their benefits.
I sighed a little because, even after applying the employer resources test, the regulator still has to conclude that it would be reasonable to impose a contribution notice, taking into account all relevant factors including the extent of any mitigation provided and a broader assessment of the employer’s strength. I just wonder whether we are going to face a potentially long and drawn-out process, which the employer resources test was intended to remove, in the way in which the defence arguments can be applied and whether the Government’s intention of deploying an employer resources test as a quick and efficient snapshot—rather than on a holistic basis—could be undermined.
I ask the Minister: what powers or processes are relied on to prevent the statutory defence conditions undermining the policy intention to have a quick and efficient employer resources test? Is it the intention to issue fuller guidance on how measures to mitigate the detrimental impact on pension schemes of an act or failure to act will be assessed as to whether they are sufficient to meet the statutory defence? These are the kind of realities that trustees will need to understand and employers will need to know.
Just as a concluding line, poor behaviour affects not only the value of members’ benefits paid but, as the Pension Protection Fund is funded by a levy, it affects those businesses which abide by the rules but end up bearing the costs and subsidising those businesses which seek to avoid their pension liabilities. Good employers and trustees or members have an interest in these new regulations working efficiently.
Lord Vaux of Harrowden (CB)
My Lords, it seems like quite a long time ago that we were last in this Room. In fact, I think the last time I spoke in this Room was in the discussion on pension schemes, so it is nice to see a lot of old faces. There is a nice feeling of déjà vu about it. These regulations are reassuringly brief, so I will try to keep my comments equally brief, if I can.
First, I was a bit confused by the name of this, which refers to an employer resources test, that test being profit before tax. Profit before tax is not a measure of a company’s resources. It is a backward-looking measure of a company’s profitability. I question the comments in the Explanatory Memorandum that
“profit before tax … is less subjective than other options”.
Notoriously, profit before tax can be made to be whatever one wants it to be. A cash-flow measure would be an altogether less subjective, more objective measure. Profit before tax also does not, as the noble Baroness, Lady Drake, has said, take account of other forms of leakage of resources out of the company, be they dividends, share buybacks or massive capital expenditure. It is perfectly possible for a company to be highly profitable and highly indebted at the same time and therefore to have very low levels of employer resources.
I was a bit confused by the title, and would therefore like to add my name, as it were, to the question asked by the noble Baroness, Lady Janke, about why the Government did not go down the holistic route of looking at multiple measures that give a full picture of the employer resources rather than this one very narrow picture which is only a backward snapshot.
I have two other questions that relate to the discussions we had at the time of the Pension Schemes Bill. This instrument is obviously relevant to the subject of dividends that companies with deficits pay. The noble Baroness will remember that we had quite a lot of discussions about that back then. Indeed, the Minister at the time agreed that the Government would keep the question of dividend payments by companies in deficit under review.
I have two questions. First, can the Minister explain what assessment the Government have made of the impact that these regulations might have on the ability of companies to pay dividends? There has been some speculation in the press that it might significantly depress the payment of dividends by companies, something which on the whole is a good thing, but there could be situations where that could be a negative. Secondly, I would welcome confirmation from the Minister that the Government are still keeping under review the question of payment of dividends by companies that have deficits, as they promised.
Kickstart Scheme
Baroness Drake Excerpts(4 years, 2 months ago)
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Baroness Stedman-Scott (Con)
As I originally said, we have 195,000 vacancies and more are still coming in, so we are positive that we will create hundreds of thousands of jobs for Kickstarters. We are well aware of the difficulties associated with the north-east. We are doing a deep dive on Friday with departmental officials, and we are working at pace to secure adequate opportunities for the plan for jobs. I am confident that we will meet our target in the timeframe allocated for Kickstart.
Baroness Drake (Lab) [V]
Can I press the Minister on my noble friend’s question? When will the Government report what direct action they are taking now to ensure they deliver equity across the regions on Kickstart placements? Sentiment is fine, but could we have the evidence of what the Government are doing to ensure equity? Secondly, unemployment of young black people started high and is rising faster than that of their white counterparts. What measures are the Government taking now to stop potential bias and discrimination in the hiring process for Kickstart jobs?
Pension Credit
Baroness Drake Excerpts(4 years, 3 months ago)
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Baroness Stedman-Scott (Con)
I understand the noble Lord’s desire to move speedily on this and I share that desire. Following our engagement session in November, policy officials met the BBC and the director of policy then had a meeting on 17 December. This was followed by a working-level meeting with the DWP and BBC on 11 February. On 29 March, the Minister for Pensions and I will meet the BBC director-general. Of course we will meet Peers again. We are open to dialogue and, in early May, there will be a stakeholders’ meeting including people from other industries.
Baroness Drake (Lab) [V]
My Lords, it is clear that the numbers in pensioner poverty have risen. Benefit take-up rates by poor pensioners are low—37%, or 1 million, do not claim the credit. They are now being billed for a TV licence that they should not have to pay for and that they cannot afford, and they will get even poorer. The Government handed over policy on pensioners and the licence fee to the BBC, but they did not hand over their responsibility for the poorest pensioners. I put again the question asked by my noble friend: will the Minister give a backstop date by which there will be a meeting of the Peers with the voluntary bodies involved with the pensioners, the BBC and DWP, so that all the parties in the room can look at this challenge that we need to face? Secondly, will the Minister confirm that she will consider innovative changes to get that take-up rate increased, such as auto-enrolling the poorest pensioners?
Baroness Stedman-Scott (Con)
I assure the noble Baroness that the Government are committed to action that helps to alleviate levels of pensioner poverty. I regret that I cannot confirm a backstop date, but I can confirm that we will meet Peers and that we will use all the tools available to us for innovation to try to help this group access pension credit.
Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021
Baroness Drake Excerpts(4 years, 4 months ago)
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Baroness Drake (Lab) [V]
My Lords, I refer to my pension scheme interests as listed in the register.
I, too, thank the Minister for her presentation. Auto-enrolment has been stress tested during this pandemic and in large part has stood up well, reinforced by support from the Treasury through the various job protection measures. No doubt, the DWP has been a powerful influencer as to the strategic importance of protecting the private pension system. But, in making that acknowledgement, I want to refer to some—I cannot cover all—of the casualties that have occurred.
The key target group for public policy on auto-enrolment is low-to-moderate earners, including young people and women, but the pandemic has brought widening divisions. Young people are more likely to work in the most impacted sectors, to be made redundant or be furloughed, and to find it harder to enter a difficult labour market. In 2017, the Government commissioned a review of automatic enrolment and committed to changes by the mid-2020s to extend coverage. I am sure that if I ask the Minister for a timetable for those changes, she will repeat that it must be considered in the context of supporting businesses and getting people into work, but I want to push back on that argument, on a particular priority.
Young people will feel the consequences of the pandemic for their life chances for many years to come. The Government should give priority to automatically enrolling workers from age 18 and enrolling all young people registered as unemployed or earning below the earnings trigger into a private pension account, into which government makes a contribution. Other public service obligations are built into the design of auto-enrolment. This should be another—to increase the prospects of young people building up a decent pension pot, which has taken a kicking as a result of the pandemic. Will the Minister consider that proposal and give it priority?
The £10,000 earnings trigger has been frozen, but it still means that women will make up well under 40% of the eligible population for auto-enrolment. If more unemployed women re-enter the labour market on lower earnings, even the estimate of 8,000 more becoming eligible could well be overstated. There are other inhibitors to women building up their pension pot. Noble Lords have already raised the issue of tax relief. However, some master trusts offer both relief at source and net pay. It is not the case that all schemes offer only one option. But the main point is that we still have significant unresolved inequalities in respect of women, auto-enrolment and private pension schemes, which the Government do not seem to have the drive to address.
Another casualty is that rising unemployment will accelerate the small pension pot problem, particularly in sectors where the incidence of small pots is already high. As a DWP report suggests, it is employment ending and transitions to new jobs that drive growth of small pots, rather than active decisions to discontinue saving. There is a really pressing need to find a solution. The Government tilted at one in 2013, with pot follows member, but then kicked the can down the road. By when do the Government anticipate they will have a solution for small deferred pots that is fit for purpose?
Finally, it is now over five years since pension freedoms were introduced. There is increasing evidence that industry and policymakers are creating a retirement market based on assumptions about savers’ behaviours which are inconsistent with how they actually behave. Pension freedoms have also reframed the pension pot away from being the means, together with the state pension, to secure an income for life in retirement to being seen as an accessible pot of money to fund priorities in the near-term future. If that reframing persists, there will be a real public policy failure in 20 or 25 years’ time in terms of the money that people have as income in retirement. When will the Government commission a review of the impact of pension freedoms on desirable public policy outcomes?
Universal Credit (Transitional Provisions) (Claimants previously entitled to a severe disability premium) Amendment Regulations 2021
Baroness Drake Excerpts(4 years, 4 months ago)
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Baroness Drake (Lab) [V]
My Lords, I congratulate my noble friend Lady Sherlock on bringing clarity to the dauntingly complex in expressing her regret. We should be clear, to quote Scope, that this change affects a group with some of the highest support needs and extra costs. These are the people we are putting at risk, many of whom are shielding at home and facing spiralling energy costs. I, too, quote Marie Curie, because it is such a reputable organisation, about those living alone with lifetime illnesses and the cut in SDP. It says that without this money available, many more people are likely to struggle to afford the costs of care. That is likely to reduce social contact, increase their social isolation and have a devastating effect on many people nearing the end of their lives.
I have absolutely no doubt that the Minister is committed to enhancing the well-being of those with serious disabilities, but regrettably, as so powerfully articulated by my noble friend and reputable voices on behalf of those with disabilities, the new regulations will give rise to detriment for some severely disabled claimants. The loss of SDP under universal credit leaves new claimants worse off. Vulnerable claimants might not understand that they could suffer financially by moving from legacy benefits to universal credit. Not all existing claimants will be fully compensated for the loss of the severe disability premium when moving on to universal credit, and the transitional compensation that is made available has limitations. Claimants on those payments will not receive any annual uplift in their universal credit, so the support erodes away. The payments are insufficient to match the combined losses under universal credit. The payment could be lost through certain changes of circumstance, and the managed migration has been paused.
The Explanatory Memorandum did not initially make it clear that these transitional payments will erode over time. That is ironic, because these regulations present one of the harshest examples demonstrating why legacy benefits should be uplifted in line with universal credit throughout the pandemic and that the £20 weekly uplift should be retained after April.
In February, the Disability Benefits Consortium reported that over 2.5 million people are claiming legacy benefits, the majority of whom are disabled. Pre-pandemic, nearly half the people in poverty were disabled or living with disabled people. The pandemic has compounded their difficulties.
On 8 February, I received the letter that the Minister issued to all Peers, highlighting the great efforts made by DWP staff during the pandemic, which I completely endorse; I am full of admiration for the effort they have put in during the pandemic. However, she went on to refer to public expenditure on job protection, sustaining the welfare safety net and interventions to get people back into work. That and other public expenditure has to be assessed against the economic costs of not undertaking such state intervention. Yes, the Chancellor has challenging judgment calls to make, but the efficacy of those judgments does not hang on cutting the income of those with the severest disabilities. He has far more powerful fiscal measures in his armoury. Nothing about the saving, which targets such a vulnerable group of people, will seriously contribute to the challenges he has to deal with.
The complexity and downsides of these new provisions will make them very difficult, if not impossible, for some severely disabled claimants to understand. As Citizens Advice said:
“Everyone’s situation is different. That’s why it’s important to seek independent advice before making a voluntary move to Universal Credit from another benefit which includes a severe disability premium. You won’t be able to reverse your decision … you could end up worse off, despite the temporary uplift to Universal Credit.”
I add to the compelling questions posed by other noble Lords: where can claimants go for this advice? Where will they find the sources of this advice and will the DWP pay charities to assist with advice provision? As I said on opening, this is a sad tale.
Social Security Benefits Up-rating Order 2021
Baroness Drake Excerpts(4 years, 4 months ago)
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Baroness Drake (Lab) [V]
My Lords, I thank the Minister and welcome the decision to increase the guaranteed pension credit by the value of the cash increase in the basic state pension. Pension credit is targeted at the poorest pensioners, and it has always surprised me that the Government, given their manifesto commitment to the triple lock for the basic and new state pensions, never committed to a protective underpin for our poorest pensioners. Some 1.5 million people receive pension credit, but over a million eligible pensioners do not claim. Now, by not claiming, many will see their annual income reduce by £157.50 when they get their TV licence demand. The BBC, by targeting pensioners in receipt of the pension credit for exemption from the licence fee, perversely excluded over 1 million eligible people for not claiming that credit. Recently there has been radio silence from the Government about how they are progressing and protecting this million, so can the Minister reassure the Committee that they are not walking away from the problem, having handed over policy on pensioners and the licence fee to the BBC?
In the UK, declining levels of household financial resilience were a growing problem before the pandemic and increasingly evident during it, contributing to the easements necessary to create a functioning welfare system. Factors that increase household resilience, such as employment benefits, state benefits, insurance savings and affordable credit, were all weakening. Indeed, only 28% of employers, for example, now provide more than statutory sick pay of £94.25 per week—a reality quickly evident when the virus started to spread. Did the Government give any consideration to increasing the rate of statutory sick pay by more than the 50p in this SI and, if they did, could the Minister share it with us?