Pension Schemes Bill [HL]

Debate between Baroness Drake and Baroness Neville-Rolfe

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Baroness Drake]

I certainly agree with the spirit behind the amendment—that transparency is a good thing and that the costs should be known—but I just hesitate over how the costs are looked at. One would think from some of the debates that I have participated in that I am reluctant to harness financial technology, but that is absolutely not the case. I am very pro it; I just want it done well.

I spoke at an industry event the other day. I will not name the person but it was the first time I had heard the CEO of a major financial organisation say, absolutely correctly, that a single piece of public policy—auto-enrolment—brought billions of pounds into the financial services industry which providers themselves did not achieve. I am conscious that the industry is very aware of its costs but it benefited hugely from a simple piece of public policy, and I found it quite rewarding that there was recognition of that. I have often said that all this money is coming in because the state took the decision to use the private sector to deliver a second-tier pension and therefore it has a wider responsibility for delivering a big piece of public policy.

I am not saying how one should do it, but it would be wrong not to attribute to the cost of the pension dashboard costs that should be incurred anyway. Where you start in looking at costs influences what they aggregate to. Getting the data accurate in order for the dashboard to work has to be done anyway. You cannot make a profit on inaccurate data. I know that that has been the model for a long time but it is not the correct model; it is a dysfunction in the market. On the trust-based side, the Pensions Regulator is driving, and is required to drive that occupational trust-based schemes and master trusts increase the accuracy of their data. If you are auto-enrolling somebody into a product, the least you should do is provide them with accurate data about what they have accrued. I would not want to attribute to the costs of the dashboard something that the industry and pension schemes should be doing anyway, which is getting their data accurate. It is indefensible to say, “It’s an unacceptable cost to require us to get our data accurate.” If they were told, “You’ve got to get it 100% as opposed to 99.9% accurate,” that might be unreasonable within the timescale, but that should be at the heart of providing pensions, whether contractually, by trust or whatever.

Also, the sector has a duty to harness what is available in financial technology so that people can access more easily what is available. I agree that there should be this visibility, but I make a plea. Some of these things required by the dashboard should be done anyway, and some are being driven to be done by regulators. We must not overstate the costs attributable to the dashboard when they would be incurred anyway to meet other government priorities or the efficient operating of pension schemes or market providers. That is my only hesitation.

[Baroness Neville-Rolfe]

I am a big supporter of auto-enrolment, which has been transformative and helps with this long-term problem of providing for old age. The cleaning of data is not a big aspect of the impact assessment I read, although I am sure that we will be advised on that by the department. A lot of it is setting the things up. It is good that data is gradually being tidied up. We must ensure that the system is clean for the future.

Pension Schemes Bill [HL]

Debate between Baroness Drake and Baroness Neville-Rolfe

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Baroness Neville-Rolfe (Con)]

My Lords, I look forward to hearing what my noble friend the Minister says about this and whether the sort of concerns that have been expressed are already dealt with somewhere else. A very good point has been made.

I want to ask a question on Amendment 27, in the name of the noble Lord, Lord Vaux. He talks about the value of the assets of the scheme, and my noble friend Lady Altmann made this point; there is a big difference between an actuarial valuation and an insurance valuation in a scheme. If you were to base this on an insurance valuation, you would catch quite a lot of pension schemes, including those which probably could pay some dividends. I was a little concerned about that, and I would like some clarification when we come to wind up on what is intended.

[Baroness Drake (Lab)]

My Lords, I support the principle behind Amendment 27, in the name of the noble Lord, Lord Vaux, but equally I have sympathy with the comments of the noble Lord, Lord Flight. When it comes to dividends, the mischief may be done regarding money leaving the sponsoring employer’s company before the regulator can mobilise its full armoury of powers. This is particularly true where the dividends are paid to parent companies overseas, where pursuing a legal route by the regulator may be difficult, even more so if we leave the EU, because jurisdictions will change—except possibly foreign-owned UK banks, where in fact the PRA has the power to intrude pre-emptively on dividends going over to the parent company. To that extent, there is an element of precedent, and the PRA would take into account the debt in the pension fund in considering the sustainability issue when it strikes a view on dividends paid to the parent company.

I give credit to the proactive approach that the regulator is now taking to red flag where there is a kind of big ratio between dividends and deficit payment. However, that must be retrospective. The issue is capturing that mischief at the point when the money leaves the company; I am particularly concerned about where it is a foreign-owned company. Therefore, if some way could be found—perhaps by the regulator working with the department—to embrace dividends in some way in the notifiable events regime, that would be helpful. It is a problem, and once the money is gone, it is difficult to chase it, particularly when you have to go to jurisdictions where the power of TPR may not be strong.

Companies (Miscellaneous Reporting) Regulations 2018

Debate between Baroness Drake and Baroness Neville-Rolfe

Monday 9th July 2018 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, I declare my interests as set out in the register, and as a director of companies over a number of years and as a chartered secretary. I will not delay the House, but I am doubtful of the value of some of these changes, which represent micromanagement and/or bureaucracy, and there is a decidedly mixed level of support for some of them, as can be seen on pages 49 to 51 of the impact assessment.

I am a huge supporter of good governance, but it should be geared towards long-term value creation, and in a responsible way. Good companies create value, and the tax-take from such companies—not only company taxes but all the taxes they collect: VAT, rates and income tax—finances our schools, hospitals and public services.

There is no sunset clause but perhaps the Minister can confirm that there will be a review of these arrangements in five years’ time. Further, does he agree that creating long-term value and companies’ contribution to our economy, including productivity, which was mentioned by the noble Lord, Lord Haskel, should form part of that review?

[Baroness Drake (Lab)]

My Lords, I am conscious that Members of the House want to move on to other business, so I shall concentrate on two issues in the regulations that I think warrant being brought out and receiving attention.

There is a cross-cutting concern that, in referring to directors’ reporting responsibilities in relation to engagement with and having regard to the interests of their employees, the regulations do not refer to their “workers”; they refer only to their “employees”. This is a weakness in the regulations, as they do not encompass the reality of modern employment practices and business models, explicitly referred to in the Taylor review and the impact assessment. Reporting on a company’s impact on employment should be reflective of the entire workforce and not just direct employees.

A significant minority of the UK’s workforce is now not covered by the term “employee” and there is a correlation between indirect employment and low pay and insecurity. Excluding indirectly employed workers, some of whom are the most vulnerable, from the scope of these regulations contradicts a key rationale for statutory intervention—promoting equality and fairness. It will mean that directors’ reports will present an incomplete picture of engagement with the people whose work contributes to companies’ output and value. Therefore, do the Government intend to review Section 172 of the Companies Act to allow reporting on directors’ duties to address the workforce as a whole and not restrict it to employees only?

Another element of the regulations concerns me. Regulations that require reporting on the pay ratios of CEOs’ remuneration to employees’ remuneration are to be welcomed, but there is a risk that these regulations will fall short of what is needed. Again, they refer to employees and not the whole workforce, and that could result in misleading evidence on those pay ratios. The public interest is in the gap between wider workforce pay and executive remuneration. There is a precedent: gender pay-gap reporting covers both workers and employees, not just employees.

If evidence on pay ratios is to contribute to restoring public trust in business, it is important that there is integrity around the data collected and reported. Clear audit requirements need to be put on these pay-ratio exercises, and the lessons learned from the reported gender pay gap, highlighted by the Financial Times analysis, should not be missed. The Financial Times revealed that one in 20 UK companies that has submitted gender pay-gap data to the Government has reported numbers that are statistically improbable and therefore almost certainly inaccurate. Therefore, when do the Government intend to extend pay-ratio reporting to cover both workers and employees, and how will they satisfy themselves about the quality of the data provided on these pay-ratio reports?

Savings (Government Contributions) Bill

Debate between Baroness Drake and Baroness Neville-Rolfe

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 12th January 2017 Lords Chamber

[Baroness Neville-Rolfe]

It is an important but esoteric point. If I may, I will write to the noble Lord. I am sure that in time I will understand these arrangements better. On his point about saving on behalf of others, individuals will pay into accounts and receive a government bonus. There will be no restrictions on what individuals do with the bonus or savings, or where the money has come from. However, HMRC will carry out additional checks on a number of accounts and will respond to any intelligence it receives from third parties where this gives rise to doubt about a person’s eligibility.

The noble Lord asked about the Government’s latest position on borrowing from lifetime ISAs. The Government continue to consider whether there should be flexibility to borrow funds from an individual’s lifetime ISA without incurring a charge if funds are fully repaid, but have decided that it will not be a feature when it becomes available in April 2017.

The noble Baroness, Lady Drake, said that the Help to Save scheme was not generous enough. On increasing the 50% bonus, our pilots for the saving gateway showed that a higher match rate of 100% made people only 5% more likely to open an account than a 50% match, and the amount of money saved into accounts was not significantly affected. On the two-year bonus period, I can make it clear that no one will be penalised for early withdrawals if they need to make any. The rationale of the scheme is to encourage people to develop a regular savings habit that will last beyond their participation in the scheme because it is valuable more generally.

[Baroness Drake]

I appreciate that this is a money Bill, but on the noble Baroness’s last point—I really do want the Help to Save scheme to work—the fact that the evidence shows that a matching contribution from the Government raises the participation rate by only 5% is not a reason not to match, because for those who are participating, their resilience is greater. A sort of apples-and-pears argument is being deployed here. A more generous match increases the resilience of those who do participate.

On the participation rate, all the behavioural evidence is that simply having good information does not necessarily deliver the level of behavioural response. More of a nudge, more of an active plan, may deliver more than a one-in-seven participation rate.

[Baroness Neville-Rolfe]

I take note of the noble Baroness’s point. There is a balance here. I have set out why we have got to where we have got to. Indeed, I look forward to debates on the statutory instruments for this Bill in the fullness of time. I am sure nobody has ever said that before.

The noble Lord, Lord Sharkey, asked about other providers. He referenced a discussion in the other place about the involvement of credit unions. We have appointed NS&I as the scheme provider to remove significant administrative and compliance costs associated with allowing different providers to offer accounts. An option where we fund NS&I to provide accounts while allowing other providers to offer accounts on a voluntary basis would not provide value for money, but—this answers his question—we shall not rule out the option for a range of providers to offer accounts as long as they deliver national coverage. We felt that the credit union did not do that. That is why the Bill has been drafted to accommodate different models of account provision, although other models are not in the current plan.

BHS

Debate between Baroness Drake and Baroness Neville-Rolfe

Monday 6th June 2016 Lords Chamber

[Baroness Neville-Rolfe]

I thank my noble friend. I am not familiar with the earlier legislation, which has of course been replaced, but I can say that we have set up, in good time, this Insolvency Service inquiry. We are hoping to get the results from the administrators around the end of July. There are powers to disqualify directors and any evidence of criminal behaviour can be referred to the relevant investigatory authority for investigation and, potentially, prosecution. We have to do the right things that we can do under the existing powers, and we are pushing ahead with that. Then, obviously, we need to reflect on whether or not those powers are the right ones. I should have said earlier that the funds made available for redundancy will come out of the Government budget rather than the administrator’s.

[Baroness Drake (Lab)]

My Lords, I declare my interest as a trustee of the Santander and Telefonica pension schemes. I welcome the Government’s commitment to assisting the workers and their families who have been impacted by the events of BHS and Austin Reed. For them, this is a real and human story. Job loss is always stressful, people are anxious and families are affected, so anything the Government can do to find these people new employment has to be a priority. As we get into the investigation of BHS, several thousand people will be anxiously wanting to know how and when they can get into employment and fund their mortgages, children, homes and everything else.

I am conscious that there are various bodies investigating the circumstances surrounding the collapse of BHS and the implications for its pension scheme. Therefore, I do not want to express an opinion on the role of any player but I will ask the Minister two specific questions. The rules of the DB pension regulatory system were written in the context of the view taken of risk at that time. Regulation can never remove all risk but the economic and commercial circumstances have changed. We live in a post-2008 world where assumptions about growth, interest rates and investment returns are more restrained, and companies frequently change hands or corporate restructurings occur. These can happen quite quickly, so the assessment of an employer covenant backing a given pension fund has to be frequently monitored and reviewed. It cannot be done and simply put on the shelf. I know from personal experience that things can move very quickly, and the circumstances that you find your scheme in can be materially quite different. Will the Government consider reviewing whether the regulator’s powers remain fully fit for purpose and are still sufficient to allow it to address threats to the funding of DB pension schemes?

The BHS events also confirm what I already knew as a trustee: that trustees have little or no powers to intervene in a corporate event, even when they anticipate it will weaken the employer covenant significantly or prejudice the scheme’s funding level. Are the Government considering a review of the sufficiency of trustees’ powers where a corporate event significantly weakens the position of the pension scheme? At the moment there is very little they can do other than report to the regulator.

[Baroness Neville-Rolfe]

I am grateful for the noble Baroness’s thoughtful comments. I, too, used to be a pensions trustee and my experience was that you lived in constant fright of doing the wrong thing and that you really did try very hard to be on top of management and to make sure your responsibilities were fulfilled—otherwise the riot act was, rightly, read to you by pension schemes’ legal advisers. You also tried to look ahead, and any suggestion of M&A was always a good opportunity to try to make sure that the pension fund always got topped up. I know that the Pensions Regulator has spent a lot of time trying to train the remaining defined benefit pension schemes to do things well.

We need to see the results of the insolvency and the Pensions Regulator investigation to see where we get to. Obviously, these kinds of arrangements are kept under review. I take the point, also made by the noble Lord, Lord Mendelsohn, that circumstances are a bit different now. Trustees have strong powers, and if you were to look at the whole situation, you would need to look at that as well. These defined benefit schemes are of course, in a way, a good thing, because the employer provides pensions for the workers so that they do not have to have state pensions. These schemes, which have now largely disappeared, can be extremely favourable for those who have them, giving them security, making them loyal to the employer and so on. It is a difficult area and I am in danger of straying into the territory of the Pensions Minister.

Consumer Rights Bill

Debate between Baroness Drake and Baroness Neville-Rolfe

Wednesday 22nd October 2014 Grand Committee

[Baroness Neville-Rolfe]

My Lords, I thank the noble Baroness, Lady Hayter, for her knowledge and for her experience of the Financial Services Consumer Panel, albeit that that was from some time ago. Since then, of course, many, many changes have been made to the financial regulatory regimes following the financial crisis, which occurred after many years of the Labour Government.

Having said that, I appreciate the concerns that lie behind the amendment. I think we are all agreed that consumers—and, for that matter, society as a whole—need a better deal from our banks. The question is how we achieve that, and I can see why some would think that this amendment would help. However, the Government do not consider that it would make a real difference for consumers or add very much to what the Government are already doing. I shall explain why and begin with what this Government have done to strengthen bank regulation and the protection of customers.

First, we replaced the flawed system of financial regulation. The Financial Services Act 2012 put in place two new, properly focused financial regulators: the Prudential Regulation Authority, which is a subsidiary of the Bank of England, and the Financial Conduct Authority. These reforms mean that the PRA can concentrate on ensuring that our banks are prudently and competently managed, reducing the risk of serious financial failure. That may not seem to be of immediate relevance to consumers; none the less, it goes right to the heart of part of this amendment. The PRA seeks to ensure that banks are properly managed and soundly run, so the PRA also contributes to ensuring that the bank’s core services—taking deposits, withdrawing money, making payments or providing overdrafts—to consumers are provided with “reasonable care and skill”. In a sense, therefore, the work of the PRA and its detailed rules already cover the same ground as the amendment.

Of course, this Government are bringing in ring-fencing to ensure that core banking services—in particular, the taking of deposits from individuals and small businesses—are undertaken in a separate legal entity, insulated from wholesale and investment banking activities. This will support continuity of provision of vital services and help to make UK banks sufficiently resilient to withstand excessive financial shocks—surely a vital part of caring for the consumers of core banking services. Therefore, it is not clear to me what imposing the duty of “reasonable care and skill” would add to requiring banks to comply with the ring-fencing and the many other regulatory requirements.

I turn to the FCA and the protection of consumers more directly. The Government’s reforms mean that the FCA can concentrate on ensuring that all financial services businesses conduct themselves properly in their dealings both with ordinary retail customers and in wholesale financial markets. This wide remit is shaped by the FCA’s statutory objectives and delivered through the FCA’s rules. These rules include the 11 FCA principles for businesses. These are high-level requirements which already cover the ground set out in the amendment.

If I may, I shall take the time to run through four of the principles. Principle 2 is:

“A firm must conduct its business with due skill, care and diligence”.

Principle 6 states:

“A firm must pay due regard to the interests of its customers and treat them fairly”.

Principle 8 is:

“A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client”.

I know that the noble Baronesses, Lady Drake and Lady Hayter, rightly feel particularly strongly about this conflict of interest issue. Principle 9 states:

“A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment”.

As many noble Lords will know, there are a very large number of detailed rules to which banks and other financial services firms are subject, each one of which is, in one way or another, an articulation of a duty of care to consumers or to society as a whole. It seems to me that there is a real question about what the amendment would add to these existing duties.

However, I will comment on the amendment in detail. Its first limb seeks to impose a fiduciary duty to provide core services with reasonable care and skill. The term “fiduciary duty” typically describes the kind that a fiduciary owes to a beneficiary, such as a duty of confidentiality, a duty to avoid conflicts of interest and a duty not to profit from his or her position. These are the duties that a director owes to a company, an agent owes to a principal or a trustee owes to a beneficiary. There will be cases in financial services where such a duty will be appropriate and, in those cases, it—or similar duties—tends already to be imposed either as a matter of general law, as obligations under the Financial Services and Markets Act, FiSMA, or in the FCA or PRA rules.

Such a duty would not necessarily be appropriate for the provision of core services, which are subject to a contract between the bank and the customer. Of course, regulatory rules made under FiSMA are there to ensure the fair treatment of customers and the proper conduct of business more generally. I am also not sure whether a duty to perform services with care and skill could be described as a fiduciary duty, but it would already be part of the contractual obligations and will be reflected, where appropriate, in the obligations imposed under FiSMA or in the regulators’ rules. The Government consider, therefore, that in view of the extensive sector-specific legislation in this area and the general position under contract law, imposing the fiduciary duty suggested in the amendment would not give the consumer any additional remedies.

Turning to the wider duty of care proposed in the amendment’s second limb, I suggest that it is far from clear what this could add to the existing obligations or regulatory requirements to which the ring-fenced body is now subject. There are, for example, obligations under FiSMA and the regulators’ rules, some of which are obligations to the bank’s own customers. For example, principle 6 of the FCA’s principles for businesses states:

“A firm must pay due regard to the interests of its customers and treat them fairly”.

Other obligations are in effect obligations to consumers of financial services more generally or to society as a whole. For example, principle 2 of the principles for businesses states:

“A firm must conduct its business with due skill, care and diligence”.

The noble Baroness, Lady Hayter, suggested that the Government were relying on case law to ensure a duty of care. That is not the case. Key obligations are in explicit law: that is, the FCA rules to which I have referred, such as the principles for businesses.

I am grateful to the noble Earl, Lord Lytton, for his early intervention and look forward to discussing his amendment. He asked about banks passing the duty of care back to surveyors. Banks and other financial services firms are subject to rules made by the FCA, as I have emphasised at great length. They cannot avoid those requirements by saying, “It’s the surveyor’s fault”, but surveyors may of course owe appropriate duties to their customers as well.

Perhaps I could mention redress. Regulatory rules give effect in a precise, meaningful way to the duties that banks and other financial services firms owe to their customers and to society as a whole. However, that leaves the question of redress. Surely, it might be argued, the amendment would help consumers to get redress in appropriate cases, either by taking action in the courts or by making use of the Financial Ombudsman Service. I am afraid that that does not seem to be the case. As we have seen, the duties proposed in the amendment would overlap with existing duties under the principles for businesses and cannot be as detailed as the regulators’ other rules, which can be used to bring a complaint to the bank or to the ombudsman. In any case, we have existing machinery to deliver redress for consumers. For example, in 2013-14 the Financial Ombudsman Service resolved more than 500,000 complaints in total, resulting in compensation for consumers in 58% of cases. If there are problems of financial regulation, the financial regulatory framework is a much better place to resolve these problems.

I should perhaps add, in view of what the noble Baronesses, Lady Drake and Lady Hayter, have said about people knowing their rights, that the opportunity will be taken to improve communication when the Bill takes effect. The FCA will be preparing guidance for traders on its site and Citizens Advice will host information for consumers. I noted the point raised by the noble Baroness, Lady Drake, about information on pension transfer. Her daughter is very fortunate to have such a well informed parent to assist her—

[Baroness Drake]

I tell her that frequently.

[Baroness Neville-Rolfe]

However, if I may, I shall think about that one, as it probably goes a little bit beyond today’s discussion.

In conclusion, the Government firmly believe that it is better to impose specific, focused requirements on banks and other financial services firms through the regulatory system. Customers and regulators can more effectively hold the bank to account when they do not comply. I hope, therefore, that the noble Baroness, Lady Hayter, will agree to withdraw this amendment.