Pension Schemes Bill [HL]

Debate between Baroness Drake and Earl Howe

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

[Earl Howe]

My Lords, I begin by turning to Amendment 52, tabled by the noble Baronesses, Lady Drake and Lady Sherlock. We have been clear that the initial aim for dashboards is simply to present people with information about their existing pension provision, whether that be the state pension, occupational pensions or personal pensions. Giving people the opportunity to see that information in a single place will represent a significant achievement. The pensions dashboard programme published papers in April that identify the scope of this initial offer, and it announced recently that the call for input on these proposals will start in early July.

The concern raised by the noble Baronesses relates to transactions. It is worth reminding ourselves that people can already undertake all kinds of financial transactions online, such as transferring existing pension pots between providers or consolidating small pensions into a single account. However, any organisation offering such services must meet existing regulatory requirements. In relation to pension transfers, these include requirements designed to ensure that people understand the potential consequences of undertaking these transactions.

These legislative requirements arise from the Pension Schemes Act 1993 and a member’s statutory right to transfer their cash equivalent to a pension scheme of their choice. Clause 125 seeks to amend that statutory right by creating safeguards to give trustees and scheme managers assurance that such transfers are to safe destinations. I do not think that the noble Baronesses, or indeed anyone who spoke today, gave sufficient credit to those provisions. Any such functionality would also have to navigate other existing legislative requirements, including those set out by Section 48 of the Pension Schemes Act, which require members with a cash equivalent value in a defined benefit scheme greater than £30,000 to seek financial advice. Members with guaranteed annuity rates must be sent personalised, tailored risk warnings before they are informed that they must take such advice.

In addition, I ask the noble Baroness to take into account the Government’s amendments to Clause 125, which will add a further series of safeguards. By taking a regulatory power to notify members to take guidance and information where a transfer meets prescribed circumstances, selected “at-risk” members will have to pause their transfer and demonstrate they have taken action to consider the risks of proceeding. Therefore, it is not fair to portray the Government as ignoring consumer protection.

Alongside this, we have been totally clear that any organisation wishing to provide a pensions dashboard must first complete an authorisation process, overseen by the Financial Conduct Authority. Once it has been authorised, it will be subject to the existing regulatory requirements for that activity and for any other activity it has the regulatory permissions to carry out. Where applicable, this may include the new protections offered by Clause 125 of this Bill.

The decision on whether transactions will be allowed on dashboards is not one we will take lightly. First, we need to understand how users respond to initial dashboards offering a simple “find and view” service and, subsequently, what additional needs users may have where dashboards could add value. Any decision to enhance the functionality of dashboards would have to be supported by extensive user testing as well as a review of the existing consumer protections to ensure that all necessary safeguards are in place to protect the consumer. We would also need to consider the legislative implications of such actions. Any application to transfer made using dashboards would be subject to the transfer requirements set out in primary and secondary legislation that are in force at the time of the application.

I strongly believe that Amendment 52 is the wrong way to go. It would deny people the right to take control of their financial situation. It actively seeks to frustrate. It would mean that consumers, even when properly advised and informed, would have to follow a parallel track to execute their wishes. It may even go so far that it could stop dashboard providers developing useful modelling tools that could, for example, inform people of the potential benefits of increasing their contributions or the impact of increased earnings. This amendment risks stifling future innovations that could demonstrably benefit consumers. My noble friend Lady Neville-Rolfe made that point very effectively.

As I have indicated, this amendment completely fails to take into account the existing regulatory regime under which many types of financial transaction are already regulated. The Government have been clear that we want to enable consumer-focused innovation; as I have said, we will always ensure that safeguards are progressed in line with this innovation.

My noble friend Lady Neville-Rolfe asked whether our proposals risk contravening any GDPR rules. I remind her that only the Money and Pensions Service and qualifying pensions dashboard providers that meet the requirements set out in regulations and operate to agreed standards will be able to connect to the dashboard infrastructure, so the request will effectively be a subject access request from an individual to the data controller to view their data. The individual’s identity will have been verified to the agreed standard level so that the pension scheme can be confident about who is making the request. Any request to search for consumers’ pensions information that is not received from the pension finder service will not be provided via pensions dashboards.

Turning to Amendments 56 and 59, tabled by my noble friend Lady Altmann and the noble Baroness, Lady Bowles, we agree that the accurate recording and management of pensions data is important. That is why the Pensions Regulator set out its expectations on record-keeping in 2010. It provided additional guidance in 2017 and 2018 to support trustees and scheme managers in measuring and improving their data.

The regulator already expects schemes to conduct annual reviews of their data that cover presence and accuracy, that trustees engage with administrators to identify and prioritise data for improvement, and that they report their data scores so that the regulator can monitor improvements and target its engagement with schemes. The Pensions Regulator has increased its scrutiny of scheme records and has targeted regulatory intervention based on reported data scores. Previous interventions have seen positive results.

The Financial Conduct Authority also has relevant requirements in place. Under its general compliance requirements in the FCA handbook concerning senior management arrangements, systems and controls, firms are required to

“establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives (or where applicable, tied agents) with its obligations under the regulatory system”.

As a result, when the FCA makes rules to compel schemes to provide data via dashboards, these will have to comply with this provision; we expect the rules themselves also to set out that the data must be accurate. In addition, the Financial Conduct Authority has the power to make further rules relating to data accuracy so long as it advances one or more of its operational objectives and is consistent with data protection legislation.

Alongside those requirements, the Minister for Pensions and Financial Inclusion recently wrote to some of the largest pension schemes, providers and third-party administrators to galvanise the industry’s approach to data accuracy and readiness for dashboards. The Minister requested a status report on the quality of their scheme data and, accordingly, their plans to improve it. The Government will feed the findings into the pensions dashboards programme to support their efforts. Schemes will be required to meet a clear set of data standards to connect to the dashboard system; these will be finalised in the autumn.

In addition, the programme will work with the regulators to develop a comprehensive onboarding strategy to support schemes in preparing their data ahead of their connection to the dashboard infrastructure. These activities seek to ensure that dashboards are a success by achieving the necessary coverage and that the data supplied is accurate and clearly understood by the user.

With those assurances and explanations, I hope that my noble friend will feel able not to move her Amendments 56 and 59 when they are reached.

[Baroness Drake [V]]

My Lords, I thank all noble Lords who have supported Amendment 52. I say to the noble Earl that nothing in my amendment would deny any of the things that he listed. That is simply untrue. It seeks to say that Parliament should have the authority to clear taking transactions on to a dashboard system. The noble Baroness, Lady Bowles, captured it quite succinctly: transactions are a key risk danger point and require attention in that sense.

The noble Earl does not deny that there are risks. The difference between us is that I believe that the scale and implications of those risks, and the unknown evidence that is yet to come forward from our experience of the dashboard, are such that this should not be dealt with by regulations or secondary legislation. It should be dealt with by Parliament clearing enabling legislation to allow people to transact on dashboards. That is the thrust of my amendment; it is not to deny people freedoms. This is not without precedent. It was Parliament that intruded to insist that charge caps should be applied to pension savings pots. In spite of the arguments articulated against that, the industry has survived perfectly well and everybody has gone on to thrive under charge caps on pension schemes.

In moving my amendment, I did not put forward a single argument saying that the Government were neglecting consumer protection. Ironically, a lot of the protections that the Government are introducing are to deal retrospectively with the consequences of introducing pension freedoms without a protective consumer wrap. It would be sensible not to make the same mistake twice.

The issue here is that the scale of the potential risks—the unknowns of what behaviour will be like on the dashboard—are such that, in my view, it is perfectly reasonable to say that that issue should come back to Parliament for clearance through primary legislation rather than through regulations or secondary legislation. I wish to press my amendment to a vote.

Pension Schemes Bill [HL]

Debate between Baroness Drake and Earl Howe

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Baroness Drake]

I want to take the first opportunity to come back on this because I am conscious that a lot of people are interested in this debate.

I am a little disappointed that the major part of the Minister’s contribution was a bit of a push-back, saying that the Government are all over this and that this is fine when evidence for that is not there. He did become more conciliatory at the end; I hope that the department find a way to bring together an eclectic group of people.

I simply disagree with some of the things that the Minister said. In reference to the small pots, the DWP did a great deal of work on the earnings threshold. It was set at a much lower level based on the DWP’s work, though perhaps not under the current Administration. In the review that led to that threshold going up—originally, it would have gone up to as high as £12,500 if a stroppy group of Peers had not turned up every time automatic enrolment earnings threshold regulations came before the House; in the end, somebody waved the white flag and said, “Oh, freeze it, we can’t face that lot every year”—the reason given, which is on the record, is that if you take it lower than £10,000, it produces small pots, which are inefficient to the industry. Well, that is irrelevant. This is a piece of public policy for mass coverage. That is what made me so angry. It was not based on a gender analysis; it was based on inefficiency in the industry. I invite noble Lords to go back to the report that gave the reason for raising that earnings trigger. There is evidence there. It may be that more modelling or more debate about the behavioural impact of coming significantly below the trigger is needed, but that work was done by the DWP. It may have a different view now but its view a few years—perhaps 10 years—back presented the evidence in a different way.

I do not disagree with the Minister that automatic enrolment has had a real benefit for women—if they are in the eligible population. If they are not, they cannot be among the people gaining from the upside of auto-enrolment. Many carers are precisely the people who are not in the eligible population.

I entirely accept that for a lot of women, an absolute improvement arose as a result of the new state pension, but the pension gap—the pay gap—is about relativity. If you give a man a pay rise of £10 and you give a woman a rise of £5, you can stand up and assert, “The woman is £5 better off: let us celebrate!”. What you have missed is that the pay gap has increased, because the man got £10. The benefits of the single state pension improve the relative position of a lot of people, not just the low-paid but huge numbers of people right across the public sector in DB schemes and generous DC schemes who, for a most modest increase in their national insurance, got that improvement in the state second pension together with the benefits of auto-enrolment or their defined benefit pension system as well. Therefore the relative position of carers was disadvantaged. Yes, their absolute position over a certain period—or after a certain period, although that is not the case—has improved, but the relative relationship did not, because everybody had that benefit from the reform to the state second pension.

I do not want to dwell on that, but there is a community out there who, if I did not do them justice and push back, would say, “Jeannie, why did you just accept those arguments?” I take the Minister’s final remarks about working for the Government. There are groups out there in industry, employers, academics and gender groups who want to work this out with the Government. I hope that the Government can find a way fairly soon to bring together a working group, or whatever. There is a feeling, “How does one communicate to the Government the growing feeling on the gender pension gap?” I felt that I had to push back, because there was a slightly dismissive approach that there was no gender pension gap problem, and there is.

[Earl Howe]

I hope that the noble Baroness will not go away with that impression. We are aware that there is a gap to be bridged. The key point I would ask her to reflect on is that, despite the desire to go faster in this area, there is a risk in doing so. We have learned lessons from the phased approach that we have already adopted. It was the right approach. The gradual approach brought everybody on side. We gathered evidence in the process; we are still gathering that evidence, and the evidence-based approach is the other watchword to bear in mind.

Pension Schemes Bill [HL]

Debate between Baroness Drake and Earl Howe

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

[Earl Howe]

It will be entirely up to the consumer to decide whether they wish to have a dashboard showing all the information relating to their pension entitlements. Nobody will be forced—

[Baroness Drake]

At one level it is entirely up to the consumer, but if somebody hacks into the system or steals their identity, that is not under the control of the consumer.

[Earl Howe]

I will come on to the question of identity in a second when I address the amendment tabled by my noble friend Lord Young. Clearly, we want to do our utmost to ensure that the system is secure and that data can be accessed only by those entitled to access it.

I share the aim of noble Lords to make dashboards as useful as possible to individuals planning for their retirement. To that end, we are considering many of the aspects in these amendments as potential features of pensions dashboards in the future. Having said that, I need to come back to a point that I made earlier. The development of a pensions dashboard service that gives consumers a single point of access to their pensions information is a complex undertaking.

I remind the Committee that there are over 40,000 schemes, around 25 million people with private pensions wealth and a huge amount of state pension information. My noble friend Lady Altmann was absolutely right to stress that. It is why we have asked the industry delivery group to work with representatives from the pensions industry and consumer groups to ensure that the service is accurate, secure and consumer focused. Once again, I underline the word “secure”. I have to sound a cautionary note to noble Lords who want to broaden out the service in short order. Again, my noble friend Lady Altmann is quite right: adding any further complexity at this stage, however well intentioned, risks delaying the delivery of pension dashboard services to individuals.

I am sure we can agree that it is important that the design of this service is consumer focused. It must consider potential risks to the consumer and provide benefits to individuals planning for their retirement. The industry delivery group will undertake further user research and testing to ensure that that is the case. Any additional functionality should be made available only if three conditions are met: a clear consumer need should have been identified; safeguards and protections must be in place; and any functionality must be controlled and tested.

With those thoughts and aims in mind, I turn, first, to the amendments tabled by my noble friend Lord Young. In Amendment 45, he raises the important point of identity verification. This is crucial in giving consumers and pension providers confidence in the security of their data. In order to ensure a consistent consumer experience, the dashboard infrastructure should have one digital identity standard agreed across the industry. The level of identity verification used must be consistent with the internationally recognised standard published by government—the good practice guidance on identity proofing and verification. The good practice guidance is designed to be as inclusive as possible, so that as many people as possible are able to securely access the online services.

The creation of a digitally secure identity is complex. Last year, the Government introduced the digital identity unit, which is now leading work to develop a digital identity solution that can be used across the public and private sectors. The industry delivery group will work with the digital identity unit to enable the delivery of a secure, effective and inclusive identity service for users of the pensions dashboard. I understood what my noble friend said about Verify, and I assure him that the industry delivery group has this issue squarely on its radar. It is being informed by industry experts and consumer groups, and it will carefully consider available options and make recommendations on the best identity solution for pensions dashboards. The solution may not be Verify.

ID verification will have to meet the standards for all parties, including state pension, and that requires a high level above that for an individual scheme. Whatever happens, I can assure my noble friend that dashboards will be free at the point of use for consumers; that includes identity verification. Digital identity remains a priority for government and we are considering ways in which to continue this work with departments across government. We hope to make announcements on that in due course.

On Amendment 38, the Government fully support beneficiaries with entitlements having access to their pension information via dashboards. I can tell my noble friend Lord Young that this clause, as already drafted, enables this to happen. The delivery of this facility will be considered by the industry delivery group. However, his amendment does not distinguish between beneficiaries with entitlements and potential beneficiaries, without current entitlements to the scheme. Creating provision for a person with a potential entitlement introduces considerable legal and technical challenges about data protection and confidentiality in relation to the principal scheme member. The members themselves should have control of the access to such information, and this should happen only with consent. We should be wary of undermining confidence that an individual’s own pensions data will be kept safe, confidential and secure.

On Amendments 43 and 44, the Government recognise that some people will have a range of assets, including their homes, which could be used to form part of an individual’s retirement income. I understand all that my noble friend said in favour of adding to the dashboard in this way. However, I question whether such amendments are either wise or necessary. Many income projection tools are available through independent financial advisers to support individuals with this. The amendments open up the possibility of financial advisers being able to add information and make calculations directly on to a dashboard. This would significantly extend the scope of pensions dashboards, adding more complexity and risk to delivery.

That cautionary note is quite a good segue into Amendment 39 in the name of the noble Baroness, Lady Sherlock, on financial transactions. The document Pensions Dashboards: Government Response to the Consultation sets out that qualifying pensions dashboard services will not initially have the capability to facilitate transactions. They will start with a “find and view” function, allowing only individuals to see their information. Further functionality will be carefully considered, taking into account the potential risks to consumers alongside the potential benefits.

It may reassure the noble Baroness, Lady Drake, that although the Government have been clear that we want to enable consumer-focused innovation in the long term, this does not necessarily lead to transactions on dashboards. I also respectfully remind her of the mantra that we have uttered many times: that the consumers’ interests must come first. We set out in our consultation document three overarching design principles, which underpin the pensions dashboard ecosystem. These are: first, to put the consumer at the heart of the process by giving people access to clear information online; secondly, to ensure that consumers’ data are secure, accurate and simple to understand; and, thirdly, to ensure that the consumer is always in control over who has access to their data.

--- Later in debate ---

[Baroness Drake]

The liability model has not been settled. That is perfectly understandable; I do not rush to criticise it because there is a lot to do. All I would say, because I cannot resist doing so, is that it goes to the argument that one should start with a public dashboard. My question follows on from that asked by my noble friend Lord Hutton. On reading Clause 118, clearly powers are given to certain parties to set requirements—with the exclusion of the Secretary of State, who is in a totally different position. Can the Minister confirm that no such powers under Clause 118 can override the FCA’s existing powers? He may not be able to answer that yet but it would give clarity.

[Earl Howe]

I believe that to be so but I need to take advice; I will write to the noble Baroness on that point.

Pension Schemes Bill [HL]

Debate between Baroness Drake and Earl Howe

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

[Earl Howe]

I believe I am right in saying that while your Lordships’ Delegated Powers Committee had some trenchant things to say about the delegated powers in the rest of the Bill, it felt pretty relaxed about the powers in Part 4, because it recognised that it was absolutely necessary to have the kind of flexibility I referred to. We must take it that the committee looked at these matters in some depth. Clearly, it did not feel constrained in criticising the nature of the powers in other parts of the Bill. I think the delegated powers here are necessary. I do not think we should be frightened of them, but I can see that the accumulation of them might appear off-putting to noble Lords.

[Baroness Drake]

I am conscious that I was a member of the Constitution Committee. The issue is not that simply the Government do or do not want flexibility. The issue is that such extensive delegated powers are being taken in the absence of significant areas of policy being settled. That is not the correct way to approach legislation.

--- Later in debate ---

[Earl Howe]

I hear what the noble Baroness says. It is not that the policy is not settled but that the implementation of the policy is not settled. We know broadly what we want to achieve but the detail has yet to be worked through; including the functionality and the way that the liability model will form. We do not know all the answers; we know some of the answers, but not all of them. I do not accept that the policy as such is a blank sheet of paper.

[Baroness Drake]

I beg leave to withdraw my amendment.