Pensions Dashboards (Amendment) Regulations 2023

Debate between Baroness Drake and Baroness Altmann

Wednesday 12th July 2023 Grand Committee

[Baroness Drake (Lab)]

I thank the Minister for so clearly setting out the purpose of the regulations. I enjoyed the reference of the noble Lord, Lord Young, to his previous contribution in the debate on this issue, which was well made. My position is that it is not disappointing that the Government’s enthusiasm for such an early launch has been tempered; I always considered that it would be a very complex project and I am delighted that there is now a much greater focus on the complexities and ensuring what is delivered. I never really wanted it delivered two years ago because I did not think that it would be well delivered then. It needs to be well delivered, because of the scale that it covers.

These regulations replace the pension schemes staging profile, staging deadlines and connection window with a single common deadline for connection of 31 October 2026. I want to reflect on the guidance to schemes on a new connection staging timetable.

The DWP’s description of the purpose of that guidance has varied according to which document is read—there is not an absolute consistency. The documentation ranges between encouraging schemes to meet the new timetable to threats of a breach of the regulations if they do not, and “having regard to” the guidance is a concept that is a little unclear. Can the Minister clarify what exactly is the status of that guidance and when a breach—and a breach of what in regulation terms—would be triggered?

I will move on to an issue that we probably have not debated a great deal in previous discussions of the dashboard. The Explanatory Memorandum refers to the monitoring and review of this legislation, saying that the approach to be adopted is

“to put in place a multi-strand evaluation strategy, the details of which are being explored”.

This strategy will

“ensure the critical success factors can be successfully tested with learning helping to further develop dashboards over time”.

The plans include research into dashboard usage, outcomes from that usage and information provided by providers. However, I cannot see any reference to key pensions public policy outcomes in those critical success factors. I did not see them when the previous regulations came with the Explanatory Memorandum and I cannot see them now.

To take it at its most basic, if, for example, as a result of dashboard usage, greater numbers of people took out more of their pension savings in their 50s or early 60s, is that a success because they have engaged, or undesirable because more people will have a lower income when they get to state retirement age? We have to be very clear what are the public policy aspirations we are seeking from that greater usage. Clearly, it is not set out, as far as I can see, in the critical success factors and the multistranded evaluation strategy—although I recognise that that is work in progress. Will any of those critical success factors identified in the Explanatory Memorandum be benchmarked against desired public policy outcomes over the long term?

Staying with that concept, what long term do we want as the outcome—not only from dashboards but a whole range of other things, although dashboards are before us today? Yesterday we saw eight papers on pensions, including analysis, consultations and consultation responses, all published in one go. I cannot let that moment pass without asking the simple question of the Minister: was any consideration given to how those eight papers and sets of proposals would impact on the multistrand evaluation strategy for the dashboard? I appreciate that the Minister may not be able to answer that today but it is an important question that needs answering.

For me, the decision by the department and the FCA to proceed with a gross investment performance metric in the proposed VFM framework, as announced yesterday, rather than net of all costs and charges, together with the continued dithering by the FCA over the transparency of costs and charges value reporting in decumulation products, is a backward step which does not resonate with the pension savers’ interest and informed decision-making. That was a deeply disappointing element of that VFM framework to read. We know from the FCA’s own findings that a wide range of charges are applied in the decumulation market, which should be rigorously assessed in a joint FCA/DWP/VFM framework. That has just been sidestepped.

Yesterday, the Chancellor referred positively to the Australian supers, but I point out that they have a tough regulatory requirement to report investment returns net of fees. If the Government are going to promote private market investment, where charges are higher, transparency of returns net of fees is essential if the saver is not to end up paying back the excess returns to the industry. The link to the evaluation strategy and the dashboard is: what information will be provided, what influences on behaviour are we expecting and how will that produce better outcomes? I must admit that, when I read that VFM framework, I thought it disappointing and rather contradicted the idea that members using the dashboard will make more informed decisions. I did not want the moment to pass without making that point.

[Baroness Altmann (Con)]

My Lords, I, too, thank my noble friend for his clear exposition of the regulations. I am very supportive of them and I think they have general support around the Committee. Indeed, they are pretty essential, as my noble friend described. If we do not pass them, there is a danger that schemes currently required to load data to the dashboard by the end of August will be in breach, and there will be nothing they can do.

Replacing the statutory staging timetable with a single end date of October 2026 is understandable. It is also welcome that the reference date for the dashboard requirements of pension schemes is being moved to 2023-24 so that it can include some of the newer pension schemes, which will then have to go on to the dashboard. However, I would be grateful if my noble friend could help me with a few questions. It is fine if he would like to write to me; I do not expect him necessarily to have all the answers, although he may not be surprised by the questions.

My first question relates to the Government’s intention to publish a new timetable in the form of guidance. When will it be published? Also, my noble friend said that it will not be mandatory, although trustees must, as the noble Baroness, Lady Drake, said, have regard to the guidance and will get at least six months’ notice. What is the penalty for non-compliance with the guidance, if it is not mandatory? If it is struggling, a scheme may simply say, “We’re not going to do it because the amount of money we need to spend to get on the dashboard is not worth our while”. The customers and members of those organisations would then not benefit from the dashboard.

My second question relates to the vital issue of data accuracy, which is essential for dashboards. I hear what my noble friend said about accuracy requirements in the GDPR. Following our briefing meetings, I was grateful to him and his officials for a follow-up letter that clearly explained that the Pensions Regulator has set out in guidance expectations on data quality, record-keeping, measuring data once a year and trustees ensuring that processes and controls are in place so that data standards are of good quality. Master trusts are supposed to have processes for rectifying errors they have identified and then reconciling them. This is all in place and is most welcome, but I have to ask my noble friend: where does responsibility lie for checking the data, ensuring its accuracy and then correcting and reporting back that those data have been assessed and corrected? If that does not happen, on whom would penalties fall? To whom can members and the dashboard turn to ask, “Are you sure these data are correct?” Who is ultimately responsible for signing off on that or carrying responsibility for penalties if that does not happen?

I have another question, in the light of the comments from the noble Baroness, Lady Drake, about the number of releases we have just had from the DWP. I admire the work that has been done by the department—it has clearly been extremely busy—and a lot of it is really useful. However, how will the dashboard dovetail with the reforms proposed for small pots? The Government rightly want to help people—as is part of the intention of the dashboard—to merge pots and not leave small amounts of money in legacy schemes. What are the plans for integrating the dashboard rollout with the small pots reforms?

Pension Schemes Bill [HL]

Debate between Baroness Drake and Baroness Altmann

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Baroness Drake [V]]

My Lords, Amendment 52 is in my name and those of my noble friend Lady Sherlock and the noble Baroness, Lady Janke. The Bill enables the introduction of an ecosystem of public and commercial pensions dashboards. When built, the dashboard service will find and display, for view by all individuals, all the information about their occupation, personal and state pensions in one place. The Secretary of State can mandate all pension providers and schemes, including the state, to release their data on an individual. That mandate will cover the financial data of many millions of people.

The intention is that the dashboard will contribute to better decision-making by individuals about their long-term savings. Unfortunately, the evidence shows that that will not automatically translate into engagement and good decision-making by everyone. Structures will need to exist around the dashboard which support people making choices and protect them from detriment. That is why Amendment 52 is important. The amendment ensures that a dashboard service should not go beyond the finding and displaying for view information on a consumer’s savings into allowing financial transactions to take place through the dashboard before Parliament has had the opportunity to consider the matter and approve this through primary legislation.

The long-term savings market is particularly vulnerable to consumer detriment, because of the asymmetry of knowledge and understanding between the consumer and the provider, consumer behavioural biases, the complexity of products, and the irreversible nature of many pension decisions. There is a plethora of reports from different regulators confirming this. Allowing transactions on commercial dashboards, such as the transfer of assets, could provide new opportunities for detriment. The impact of scams, mis-selling, provider nudging and poor decision-making could increase if an individual’s total savings are displayed in one place, the dashboard allows financial transactions, and the wrap of consumer protection is not fit for purpose. For some vulnerable customers, poor decisions could be more costly if the impact is across all their savings, and if people are scammed, they could be scammed out of everything.

Before transactions are authorised, Parliament needs to understand how the dashboard is driving behaviours, of both consumer and provider, and how consumers will be protected. In this market, the consumer demand side is weak, and, increasingly, regulatory focus is on provider supply-side controls to protect consumers’ interests. Commercial dashboards could make it much easier for firms that have attractive front-end offerings to capture consumer assets through, for example, encouraging early consolidation and the transfer of pension pots. It is to be remembered that pension transaction decisions are mostly irreversible, and poor decisions can be financially life-changing in their impact.

Dashboards are not a silver bullet for removing consumer risk. Most individuals do not proactively engage with their pensions until they have to. When they do, they can be price insensitive and vulnerable to nudging, inertia and judgments detrimental to their retirement income. We now see that vulnerability in the drawdown market following the introduction of pension freedoms, as the FCA has confirmed.

Consumers reveal powerful behavioural biases which have more impact on financial capability than lack of knowledge and information. They take what the FCA describes as the “path of least resistance”, even in the face of information available to them. If someone is looking to consolidate all their savings, rather like Alice and the Drink Me bottle, if there is a button on the provider’s commercial dashboard that is marked “Transfer All Savings”, they are more likely to press it.

The FCA rules have not prevented mis-selling. Regulated advice failed the Port Talbot steel workers. The FCA report on the financial advice market’s support to pensions does not make good reading. In a dashboard service which allows financial transactions, protecting individuals’ data, and who can hold, access and use it, are questions of major importance. This amendment does not argue against allowing financial transactions longer term over the dashboard, but it recognises that the consumer protection issues are of such importance and magnitude that the decision to allow transactions must be preceded by the approval of Parliament. Neither Government nor Parliament can be agnostic on the matter. The state supports the long-term saving system with more than £40 billion of tax relief and mandates employers to enrol millions of workers into a pension scheme.

The Government must ensure that the dashboard service makes a positive contribution to retirement income outcomes for the consumer and the public good of the UK. I am arguing that people should have the freedom to make good decisions and be protected from poor decisions that they cannot reverse. This is something that the FCA often tries to do, and I am sure that if one put the issue to some of those Port Talbot steel workers, they would agree. Some of those steel workers learned a cruel lesson: poor pension savings decisions are irreversible. In Committee on 2 March, the noble Earl, Lord Howe, commented:

“I do not believe that I expressed a categorical Government intention to include transactions on the dashboard. I said that we would make that incremental step only after the most careful consideration and public consultation, and assessment of all the risks. I freely acknowledge that risks exist in that quarter.”—[Official Report, 2/3/20; col. 209GC.]


My case, and the sheer weight of the evidence, is that such are the potential risks that Parliament itself should have its say and that scrutiny by secondary legislation in the affirmative is not sufficient. Furthermore, the very nature and extent of the protections required may, because of their nature, require primary legislation. This is not an area of settled policy and it is a matter of significance for many millions of citizens. I hope that the Minister will accept the amendment. If he does not, I intend to push it to a vote. I beg to move.

[Baroness Altmann [V]]

My Lords, I have little to add to the wise words of the noble Baroness, Lady Drake, on Amendment 52. There are significant dangers should there be an easy transaction button on a pensions dashboard right from day one. However, perhaps I may speak briefly to my own amendments, which have been kindly supported by the noble Baroness, Lady Bowles: Amendments 56 and 59.

Amendment 56 is probing in nature and seeks to amend Section 119 of the Pensions Act 2004 to provide that regulations may be imposed that would require information from occupational pension schemes to dashboards to be accurate and up to date. Further, the amendment would ask the regulator to impose requirements for regular data audits, accuracy checks and error correction reports.

--- Later in debate ---

[Baroness Altmann [V]]

My Lords, I support Amendment 71, to which I have added my name. I have little to add to the excellent words of the noble Baroness, Lady Bowles, and my noble friend Lord Young of Cookham.

I stress to my noble friend the Minister that this is a really important amendment. The Government’s recent White Paper called for pension scheme funding which enables the best deal for members, supports the economy and does not place extra burdens on business. If those are the objectives—and I think they are the right ones—they will be at odds with the draft DB funding code that may emerge from this legislation, which seems to want to drive DB schemes on a path to so-called de-risking, aiming for a particular date of maturity. This concept is simply inappropriate for an open scheme.

The regulatory approach for schemes such as USS or the Railways Pension Scheme would see their ability to invest for the long term, which must be in the members’ best interest, become much more difficult. There does not seem to be sufficient recognition of the difference in liquidity profile and investment horizon of an open, relatively immature scheme compared to a closed scheme. Indeed, this would pose an existential threat to the survival of all remaining 1,000 or so open schemes. In the face of quantitative easing, increasing exposure to gilts and fixed income assets makes little sense while central bank policy is designed to force bond yields lower. Forcing schemes to compete with central banks to buy ever more expensive bonds is the most expensive way to fund these pension commitments.

The Bank of England’s pension scheme is an ideal example. It follows a lowest-risk approach, investing solely in gilts and other such supposedly safe assets. It does not match its liabilities, but it is open and entails a contribution rate of between 40% and 50% of pensionable salary. Should such pension contributions be required without any upside potential for a diversified investment strategy that can take advantage of the wide range of investment options available from infrastructure assets, building housing for rental and other areas where pension schemes with a long-term horizon are ideally placed to take advantage—for example, our own infrastructure, in which other countries’ pension schemes have significantly invested—schemes such as RPMI would require such significant contribution increases that members could not afford it and would opt out, and employers could probably not afford it either.

Therefore, I urge my noble friend to look carefully at this really important issue and to recognise explicitly that there are different needs for open DB schemes relative to those that are otherwise closed.

[Baroness Drake [V]]

My Lords, I speak in support of Amendment 71. Given the hour, the noble Baroness, Lady Bowles of Berkhamsted, with her usual skill, has captured the issues clearly and succinctly. It is clear that there is genuine concern among those running DB schemes which are materially open to new members with strong employers, such as the sections of the Railways Pension Scheme and the Universities Superannuation Scheme. They fear that they will be forced to de-risk unnecessarily, with all the implications that that carries and all the potential detriment for both employers and employees in the scheme.

The amendment seeks to address two issues: first, that it should not be government policy to require trustees of pension schemes materially open to new entrants with strong employer covenants to adopt a strategy that will result in them de-risking their investments unnecessarily and prematurely, for all the reasons that other noble Lords have clearly articulated; and, secondly, that the Secretary of State, in exercising powers under Schedule 10 to make provisions through regulation on the funding of defined benefit schemes, should make provisions that are consistent with the policy in the White Paper statement that running on with employer support could be an acceptable long-term strategy for a materially open scheme. The amendment is consistent with any reading of the government policy in the White Paper, but it seeks to ensure that it happens.

Financial Guidance and Claims Bill [HL]

Debate between Baroness Drake and Baroness Altmann

Ping Pong (Hansard): House of Lords
Tuesday 1st May 2018 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I recognise that the constructive engagement of the Ministers with Members in the House of Commons and noble Lords in this House has resulted in beneficial amendments to the Bill and enthused people about the creation of the new financial guidance body. I accept that we need to move on and let the department get on with building the new body and delivering all the grand things that we want it to achieve. I thank the Minister and the Bill team for the access that was afforded to me personally to raise matters on the Bill.

I welcome the Minister’s clarification that the reference to pension guidance in Amendments 7 and 8 is defined by reference to Section 5 in the Bill, on the new body’s pension guidance function, which itself is a subset of Section 3, which requires that guidance to be free and impartial. I think there was some misunderstanding and it is very helpful that that clarity of link between the sections has been made clear.

If I may make one final observation, a well-founded consensus on matters of high principle supported by legislation can sometimes be undermined in the implementation. Everyone agrees that referring people by default nudging to impartial guidance before they access their pension savings is an integral part of protecting consumers and enabling them to make more informed decisions. However, there are anxieties that the FCA and the Secretary of State, in setting the rules for the process, should not give administrative control to the providers particularly of the opt-out process, given that the providers will not be impartial because they have a direct interest in retaining the consumer as a customer for their product. So any reassurance from the Minister that the Government recognise this concern, and intend that the rules for nudging and defaulting people into impartial guidance will be designed in such a way as to prevent providers from manipulating the process to undermine the referral to guidance, would be welcome.

[Baroness Altmann (Con)]

My Lords, I am grateful to the Minister and officials for their work on the Bill, but significant flaws remain, including a point on which I hope the Minister will be able to offer reassurance relating to pensions guidance.

Along with the noble Lords, Lord Sharkey and Lord McKenzie, Members of this House voted by 283 to 201 in October to add an amendment creating provisions for savers to be defaulted to impartial, independent guidance if they have not already received guidance or regulated advice before they decide when, whether or how to access their pensions. The purpose of those provisions was to address the consistently low take-up level of pensions guidance by harnessing the potent force of inertia.

The amendment passed by this House was supported because there is a wealth of evidence suggesting that people are ill-equipped to make key decisions without such impartial, independent professional support. That was specifically the intention behind setting up the Pension Wise service when the pension freedoms were introduced. I hasten to add that I congratulate the Government once again on introducing those pension freedoms—I think that that was the right thing to do—but fewer than one in 10 are making use of this guidance, despite the fact that so many need it.

At Second Reading in the other place in February, I was pleased to hear assurances from the Pensions Minister that the new clauses would be strengthened—albeit by some fine-tuning. The same assurances were given in evidence to the Work and Pensions Select Committee, yet the Commons amendments show that the promised fine-tuning seems to have been somewhat inadequately applied.

Instead of being strengthened, the default guidance provisions added by noble Lords have been replaced with clauses that merely require pension providers to refer savers to guidance if they have not yet done so. This introduces no new requirement for providers beyond what is already required by FCA rules. The new clauses also leave open the possibility that savers may opt out of guidance by their scheme provider. The FCA’s consumer panel believes that this is inadequate, the noble Baroness, Lady Drake, just expressed similar concerns, and I should be grateful if my noble friend could reassure the House that there will be a separate and impartial opt-out process. There are significant reasons to fear that consumers may not otherwise receive the assistance that they desperately need.

If providers have an interest in not sending people to the guidance service and finding ways in which they can encourage them to call their own helpline or take advantage of their own services, the concerns expressed by Age UK, the Financial Services Consumer Panel and by noble Lords when the Bill was originally passed will, unfortunately, be borne out.

This may seem a small point, but a great deal depends on it for millions of savers. As the Work and Pensions Select Committee pointed out, providers do not usually benefit if there are higher rates of guidance take-up—indeed, it may be to their detriment—so they may well try to find ways round and an opt-out process that is not impartial and, perhaps, take advantage of customers in that way. Therefore, I would be grateful if my noble friend was able to offer reassurances about the opt-out process. I welcome the idea of default guidance, but I hope that regulations will be a lot stronger than the current legislation seems to suggest.

Financial Guidance and Claims Bill [HL]

Debate between Baroness Drake and Baroness Altmann

Committee: 4th sitting (Hansard): House of Lords
Wednesday 13th September 2017 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I, too, rise to support the noble Lord, Lord Holmes of Richmond. I congratulate him on using the opportunity of the Bill as it opens up the issue of how the FCA regulates claims management companies to seek to introduce the regulatory principle that an authorised person should act more in the best interests of consumers, particularly vulnerable customers. Consistently, not just today but previously, the noble Lord has put a powerful and informed case, particularly with regard to people with serious health conditions, including cancer, who have to cope not only with their illness but the financial impact of their diagnosis. That impact is felt not only in loss of income but in loss of access to or poor treatment by financial services companies. This, in turn, compounds their financial difficulties. The evidence of that negative experience is increasingly documented but people just know it themselves, intuitively. As Macmillan confirmed, and as referred to by the noble Lord, 90% do not even tell the bank when they have a problem, because they know that either it will be held against them or that there is little or no prospect that the firm will assist or offer support to mitigate the problems that their ill-health diagnosis has triggered. Not only will they face prejudice but they will be competing with customers who present a more attractive commercial prospect.

This growing problem will not be addressed simply by exhorting firms to behave better; the Government need to take much more of a lead. The Government have also been urged to take such an initiative by the Lords Select Committee on Financial Exclusion and the Financial Services Consumer Panel itself. A regulatory principle, as proposed by the noble Lord, Lord Holmes, would place an expectation on firms to support customers at times of vulnerability, change corporate culture towards the vulnerable and enable vulnerable customers to have the confidence to ask—and to ask earlier—for support, thereby enhancing their ability to manage their financial affairs.

As other noble Lords have mentioned, the FCA has committed to publishing a paper on duty of care but, by resting on that, the Government are kicking this problem into the very long grass. As the noble Lord, Lord Holmes, commented, the FCA has stated that it will not prepare such a paper until after our withdrawal from the EU. The paper will, as has also been said, only just start a very long process of dialogue, consultation, response, drafting and so forth. There will be a lot of people diagnosed with serious ill health in that time whom the environment will not support. There really is an urgency for those 4 million or more people who are expected to be diagnosed with cancer within the next 15 years.

The Government should seize the moment by taking the opportunity of this Bill to embrace the intent of the amendment of the noble Lord, Lord Holmes. I am sure the Minister will say that the amendment is either too extensive in its expectation or creates regulatory uncertainty, but it allows for the detail of how the regulatory principle of duty of care can be translated into the financial conduct rules by the FCA. Through its supervision, the FCA can identity and assess firms’ conduct that may affect consumers’ access. It has the power to make firms change their behaviour, but only where this is within its remit. Unfortunately, the FCA has no specific duty relating to consumers’ access to financial services. The noble Lord’s amendment strengthens the FCA’s remit in respect of claims management companies by introducing that regulatory principle, which begins to define how and when those companies should act in the best interests of consumers.

[Baroness Altmann (Con)]

My Lords, I, too, rise briefly to support my noble friend’s amendment and congratulate him on laying it in the way he has. I certainly sympathise with him about wishing to put in measures which might originally seem out of scope and the need to be rather convoluted about it. I also echo the words of the noble Baroness, Lady Drake: these are issues that have been recommended by the Financial Services Consumer Panel, highlighted by the Lords Select Committee on Financial Exclusion and would go some way to help change corporate culture to support those who are going through serious, perhaps unexpected, illness and need time to adjust to their circumstances or to cope with their treatment.

The cancer charities are rightly raising this issue and it would be very helpful if the FCA were able to encourage firms to introduce some kind of special measures or special help in recognition of the circumstances that people will from time to time find themselves in—not only to help those people when they apply for that help but to encourage somebody who has had a cancer diagnosis, for example, to ask for help, which very often right now they do not even think of doing. Therefore, I hope my noble friend will take this matter to heart and take this opportunity to address an issue that could have serious and important social benefit.

Pension Schemes Bill [HL]

Debate between Baroness Drake and Baroness Altmann

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.

Pension Schemes Bill [HL]

Debate between Baroness Drake and Baroness Altmann

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.

--- Later in debate ---

[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.

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2016

Debate between Baroness Drake and Baroness Altmann

Monday 14th March 2016 Grand Committee

[The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)]

My Lords, this order, which was laid before the House on 8 February 2016, reflects the conclusions of this year’s annual review—required by the Pensions Act 2008—of the automatic enrolment earnings thresholds. The review considered both the automatic enrolment earnings trigger, which determines the point when someone becomes eligible to be automatically enrolled into a workplace pension, and the qualifying earnings band, which determines the earnings levels in relation to which the enrolled employee and their employer have to pay contributions into a workplace pension.

The order sets a new upper limit for the qualifying earnings band and is effective from 6 April 2016. The earnings trigger and the lower earnings limit are not changed within this order. The lower earnings limit remains as set in the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2015. The earnings trigger also remains that set in the Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014.

Automatic enrolment continues to make workplace pension saving the “new normal”. The proportion of those enrolled who later choose to opt out remains low, at 9%, according to the Employers’ Pension Provision Survey 2015, which is well below the original programme assumption of 28%. Our new awareness campaign, launched in October 2015, Don’t Ignore the Workplace Pension, builds on previous campaigns that sought to normalise pension saving among individuals and is designed to prompt employers—small and large—to find out about their duties and the process of automatic enrolment.

Automatic enrolment continues to bring into its target group those least likely to save for retirement. Low-paid workers and women, who are often likely to be low earners, have traditionally been underrepresented within workplace pension savings. Since 2011 the private sector has seen a 24-percentage-point increase in eligible female participation in workplace pensions, and in 2014 there was no gender gap in participation, with 63% of both eligible men and women participating.

This positive trend is expected to continue as we enter automatic enrolment’s most significant stage: the phased rollout to small and micro employers from now on. Last year saw the successful staging of the first tranche of small and micro employers. Over the next 12 months, more than 700,000 small or micro employers are projected to have started enrolling their employees into a workplace pension. Many tasked with this legal duty are not commercial enterprises but individuals who employ single members of staff, such as nannies, home helps or personal care assistants. At this crucial stage of implementation, it is therefore more important than ever that when deciding the thresholds for joining and contributing to a workplace pension we strike the correct balance between minimising the administrative burden on employers and ensuring that as many people as possible save in a workplace pension.

To describe the impact of the order, I turn first to the qualifying earnings band. This sets the earnings levels within which an automatically enrolled employee and their employer have to pay a proportion of the employee’s income into a workplace pension. Past reviews have generally linked this to the national insurance bands and this has been uncontroversial. As I signalled in my Written Ministerial Statement on 15 December 2015, the lower limit for the qualifying earnings band will remain unchanged and aligned with the national insurance lower earnings limit of £5,824. This order will align the qualifying earnings band upper limit with the new national insurance upper earnings limit of £43,000. By maintaining the alignment with the national insurance thresholds, both at the point where contributions start for low earners and are capped for higher earners, the overall changes to existing payroll systems are kept to a minimum. This decision therefore both ensures simplicity and minimises the administrative burden of compliance for employers in 2016-17.

The order does not change the earnings trigger. This remains at the value set in the 2014-15 order. This trigger is the earnings level at which individuals are eligible to be automatically enrolled into a workplace pension scheme by their employer. We have decided to maintain the existing automatic enrolment earnings trigger for 2016-17, so it will remain at £10,000. Due to anticipated wage growth, and with maintenance of the earnings trigger, we expect that an additional 130,000 individuals will now meet the earnings criteria and be brought into the automatic enrolment population. Of these, we estimate that 71%, or around 91,000, will be women. Individuals earning below the £10,000 earnings trigger but above the lower earnings threshold will still have the option to opt into a workplace pension and benefit from their employer contributions, should they wish.

In conclusion, the decision to maintain the earnings trigger at £10,000 will increase the number of low earners and women who meet the earnings criteria, and who are therefore automatically enrolled into a workplace pension. This decision will increase the total numbers saving into a pension and total savings. It is expected to further increase the number of women eligible to enrol, or be re-enrolled, into a workplace pension.

The decision to maintain the alignment of the lower and upper earnings qualifying bands with national insurance contributions thresholds maintains simplicity, and ensures that there are no new potential administrative burdens on employers at a crucial stage of the programme’s wider rollout. The order therefore ensures that automatic enrolment will continue to provide greater access and opportunity for more individuals to save into a workplace pension with the help of their employer, and those enrolled will have a chance to build up meaningful pension savings. I commend the order to the Committee.

[Baroness Drake (Lab)]

My Lords, these regulations provide an annual event for me. While I consistently recognise the success of the department in rolling out auto-enrolment, and we have all been pleased by the power of inertia to sustain low levels of opt-out, in previous years I have been increasingly frustrated by the number of women being excluded from auto-enrolment because of the rather aggressive way in which the earnings trigger was increased. Last year I came with a little more humility and was pleased to see that the earnings trigger was being maintained at £10,000 rather than tracing the tax threshold, and of course I am pleased that it is being maintained at £10,000 again. Those are the positives, and I am a “half full” person, but even a “half full” person still wants the extra half-glass that remains empty. I continue to remain concerned that only 38% of the eligible auto-enrolment population are women. In my view, that is still too low. A core principle in designing the new private pension system was that it should work for women, and I do not think that that principle is being met with in that percentage level.

Occupational Pension Schemes (Scheme Administration) (Amendment) Regulations 2016

Debate between Baroness Drake and Baroness Altmann

Monday 14th March 2016 Grand Committee

[Baroness Altmann]

I am happy to try to cover it if the answers that I have given are not sufficient. One of the crucial tests here is whether a scheme is promoting itself to outside employers rather than being part of a group. If a company is being taken over or if shares are changing hands, but it is all within the same group, same company and same partners, it is likely to be considered a connected scheme rather than a multiemployer scheme and therefore exempt. However, if there are other issues that the noble Lord would like me to elaborate on outside this debate, I am happy to explore those.

[Baroness Drake (Lab)]

I was not going to come in on this regulation but the Minister’s comments have prompted a question in my mind. If a company is in the corporate group and participating in a pension scheme—so it does not come under the definition of a multiemployer scheme—and that company then leaves the corporate group but continues to participate in that pension scheme, would that automatically transfer it to the status of a multiemployer scheme?

[Baroness Altmann]

The noble Baroness raises an interesting point, which I myself have explored. It is the case that if an employer leaves a previous group but the employees are still part of that scheme, it will be considered a connected scheme because the members are still part of the same group. The group stays in the scheme, so in that circumstance it would still be part of the group rather than becoming a multiemployer scheme, as long as it is not then opening itself to promotion to attract other employees and employers. I hope that that answers the noble Baroness’s question.

[Baroness Drake]

I do not want to labour the point but I am still not clear in my mind: if you have a corporate group of companies and one of them literally is divested in some way, and it continues to use that pension scheme but is no longer part of the corporate group, what status does that trigger? I am happy to pursue this question offline.

[Baroness Altmann]

Regarding these regulations, as I have just described, if employers that are outside the group can fit within these corporate scenarios—that will include where an employer was part of the corporate group but has now left the group and continues to participate in the scheme—they are considered a corporate group scheme.