Workers (Economic Affairs Committee Report)

Baroness Noakes Excerpts

Thursday 8th February 2024 Lords Chamber

[Baroness Noakes (Con)]

My Lords, I was a member of your Lordships’ Economic Affairs Committee when this report was produced, and I pay tribute to my noble friend Lord Bridges of Headley’s leadership of that committee.

We produced our report in December 2022. It then took about four months for the Government to respond and another nine months for us to get this slot to debate the report. As I have said before in your Lordships’ House, our reports really must be debated on a timely basis. The delay is a particular problem for this debate, not only because the data on which our report was based are out of date but because it is difficult to work out exactly what has happened subsequently, as my noble friend Lord Bridges and others referred to. The Office for National Statistics has paused its Labour Force Survey and is using new, experimental workforce data. We simply do not have a complete picture of what is happening at present.

In October 2022, there were 8.9 million economically inactive 16 to 64 year-olds, some 565,000 more than the pre-Covid era, which had been characterised by falling inactivity numbers. The latest figures published by the ONS, which my noble friend Lord Bridges of Headley referred to, show 9.3 million, reflecting a reweighting by the ONS. Other factors mean that the percentage inactivity increase is somewhat less. Whatever the precise number or percentage, there is clearly a problem and the trend is out of line with international experience.

As other noble Lords have said, the workforce participation rate is key to the growth of our country’s economy. The Office for Budget Responsibility’s 2023 Fiscal Risks and Sustainability report tested scenarios that increased or decreased health-related inactivity by 0.5 million. This moved the participation rate by a little more than 1 percentage point up or down, but the debt to GDP ratio moved by around 3 percentage points by 2027-28. Understanding what drives participation and inactivity rates is one of the most important issues facing economic management.

Behind the headline increases of economic inactivity, we found two key contributors: long-term sickness and inactivity among 51 to 64 year-olds. Most commentators, including the OBR, describe this in terms of the 50-plus age group getting sick and therefore leaving the workforce. Our examination found a different explanation, in that the over-50s became sick after they had decided to leave the workforce.

We really do not know much about the drivers of long-term sickness or early retirement. We were much encouraged during our evidence sessions that the Government were carrying out a workforce participation review. Several of our recommendations were aimed at ensuring that the review addressed many of the grey areas that we had identified. We thought that more work should be done on long Covid and the impact of NHS waiting lists. We wanted the review to focus on whether there had been a secular change in attitudes to work in the 50-plus demographic, and what could encourage them to stay in or return to work. We also recommended further work on the impact of savings and the furlough scheme on inactivity.

It was disappointing that the Government’s response to our report made no reference to the workforce participation review. My noble friend Lord Bridges of Headley then wrote to the Secretary of State for Work and Pensions, who replied saying that the review had resulted in a number of changes in the 2023 Budget. However, there was no sign of the further work that we had suggested. I find it curious that the Government do not want to get to the bottom of the issues impacting workforce participation and inactivity.

The government response, as is typical of government responses, listed lots of initiatives of varying degrees of significance. I do not doubt the Government’s desire to reduce economic inactivity. What I cannot see is a forensic approach to the problem. The initiatives might well produce results, but it is not clear that they are underpinned by a clear understanding of the underlying issues. This does not appear to be the best way to proceed.

I will highlight just one other area dealt with in the report, namely the impact of ageing on the UK’s workforce. This is not a new phenomenon, but in the past the reduction in the workforce due to retirement was masked by other factors, in particular the increased participation in the workforce of women. A simulation by the Bank of England shows that population ageing is increasing, knocking about five percentage points off the workforce each year by about 2032. Other factors are thought to be broadly static, so ageing will start to be a really big factor in the size of the workforce. The implications of this for economic growth are clearly significant.

In addition, successive reports from the OBR have shown how demographic changes contribute to a dramatic increase in the growth of debt as a percentage of GDP. The Government must face some difficult decisions, including about pensions and taxation, pretty soon if a longer-term financial crisis is to be avoided.

The response to our report was described as “the Government’s formal response”, but it came from the Department for Work and Pensions and ignored the broader economic issues of an ageing population. I hope my noble friend the Minister will be able to respond on behalf of the whole of government, including the Treasury, when he winds up.

Pension Schemes Bill [HL]

Baroness Noakes Excerpts

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

Moved by

[Baroness Noakes]

46: Clause 107, page 90, line 36, at end insert “, and
(d) the person was—(i) an employer in relation to the scheme, or(ii) a person connected with or an associate of the employer.”Member’s explanatory statement
This amendment confines the criminal offences in Clause 107 to persons connected with the pension scheme employer.

[Baroness Noakes (Con)]

My Lords, in moving Amendment 46, I shall also speak to Amendments 47 to 49, which are in my name and those of my noble friends Lady Altmann and Lady Neville-Rolfe. There was a wide-ranging debate in Committee on the two new criminal offences and two new financial penalty powers in Clause 107. Unfortunately, I was unable to be present for that debate, but my amendments were moved by my noble friend Lady Neville-Rolfe, and I have read the record in Hansard.

The scope of the offences and penalties is very widely drawn and, while they do not apply if there is a “reasonable excuse”, there is no clarification of that term in the legislation. My noble friend Lord Howe spoke at length and helpfully in Committee, but it remains the case that there is considerable anxiety from pensions professionals and from companies about the impact of these provisions on ordinary commercial transactions. In Committee, the Government resisted attempts to define “reasonable excuse” and preferred to leave this to non-binding guidance from the Pensions Regulator—that may or may not be forthcoming as there is no obligation on the regulator to produce any guidance—and ultimately to the decision of the courts. We therefore have the classic formula for uncertainty for all those who might be affected by Clause 107, and that uncertainty could of course last many years, until enough cases establish the boundaries of the new offences and penalties.

My amendments today take a different approach from that in Committee and seek to limit the offences and penalties in the same way as the contribution notice regime in the Pensions Act 2004—namely, to the employer or to an associate or connected person of the employer. In Committee, my noble friend Lord Howe gave some examples of the people that the Government intended to be covered by Clause 107. On my reading of the scope of the contribution notice regime, all those mentioned by my noble friend would indeed have been covered by the amendment. If the Government think that the contribution notice’s scope is inadequate, I would have expected them to amend that scope in this Bill; after all, the contribution notices are there to make sure that defined benefit schemes are adequately funded. Criminal penalties and financial sanctions might make everyone feel better, but they do nothing directly to protect scheme funding.

I suspect that the Government intend these new provisions to apply to more people than are covered by contribution notices. In that case, it would seem to me essential that the Government set out clearly who they want to be covered by Clause 107. It cannot be right to create criminal offences without such clarity. However, even if the Government will not do that, I hope that the Minister can be clear about who they do not intend to be covered by Clause 107.

I shall concentrate my remarks on two groups—lenders and landlords—but the problem is wider and extends to all commercial counterparties. I should at this stage declare my interests as recorded in the register, including my directorship of the Royal Bank of Scotland.

I start with an employer who has a loan from a bank. That could fall due for repayment, because its term has ended or covenants have been breached. If the bank seeks repayment of a loan or decides not to renew it, that may cause financial difficulties for the employer. At one end of the spectrum, it could impair the employer’s ability to continue to trade as a going concern. In less extreme cases, it could impact, for example, the employer’s ability to meet payments under an agreed deficit repair plan. In either case, the result is material detriment within the terms of Clause 107. A bank should be well aware of this, because lenders have to know basic financial facts about their customers, including their pension commitments. That is clear within the language of Clause 107, but is it what the Government intend? If not, will the Minister say that clearly?

Similarly, a landlord may decline to renew a lease or decide to enforce early termination due to breaches of covenants. This can cause or amplify financial stress in an employer and have a knock-on impact on its ability to support its related defined benefit scheme. Is the landlord within these new offences and penalties or not? In the case of landlords and banks, there is no commercial or other nexus between them and the defined benefit scheme, yet they are drawn within the net of Clause 107 because their actions or conducts could indirectly impact the benefits payable by the scheme.

I remind my noble friend that we have not even begun to see the impacts of the coronavirus pandemic on businesses. The wonderful financial support provided by the Government in these early days of the pandemic will soon come to an end. Many businesses will be facing an uncertain future and are likely to have taken on additional debt. They may need more debt to survive. Many have chosen not to make quarterly rent payments this year. Their pension scheme deficits will almost certainly have worsened, due to extremely low interest rates and weak asset prices—a double whammy. The noble Lord, Lord Hain, referred to this in an earlier group of amendments. Banks and landlords will be making big decisions about enforcing existing loans or leases, as well as making new ones.

The impact could go beyond concerns about particular commercial transactions, with a chilling effect more widely. Defined benefit scheme employers may well become untouchables as counterparties, if there is major uncertainty about the implications for those who deal with them. My preference would have been for the Government to be clear about what counts as a reasonable excuse for the purposes of Clause 107. My Amendments 46 to 49 have instead concentrated on the persons who are intended to be covered by the new offences and penalties in order to invite the Government to provide certainty to third parties about whether they can expect to be covered by Clause 107. I beg to move.

--- Later in debate ---

It is clear that the majority of those involved with pension schemes want to do right by the members. However, I hope no one would disagree with the proposition that there should be sufficient safeguards to protect members’ pensions from the minority who are willing to put them at risk. If the scope of the offences as introduced in Clause 107 were to be narrowed, then the deterrent and the safeguards provided by the offences would, without a shadow of a doubt, be weakened. With that in mind, and in coming back again to the point I made a moment ago that this is in no way about trying to frustrate legitimate business activities conducted in good faith, I would hope that my noble friend feels sufficiently reassured to withdraw her amendment.

[Baroness Noakes]

My Lords, I first thank all noble Lords who have taken part in this short debate. I was pleased to get support from my noble friends Lady Neville-Rolfe, Lady Altmann and Lord Trenchard.

I am grateful for what my noble friend the Minister has said, in particular that Clause 107 is not aimed at legitimate business activities conducted in good faith. He went on to say that there were other activities which might harm the defined benefit scheme but that they would be caught only to the extent that there was not a reasonable excuse. We will come back to that being the heart of the problem because there is no real comfort about what is included in “reasonable excuse”. We are invited to rely on future guidance on prosecution issued by the Pensions Regulator and guidance on how the regulator would approach the reasonable excuse.

I say to my noble friend that the pensions advisory industry has not always found guidance issued by the regulator helpful in guiding, as opposed to giving warnings about what the Pensions Regulator does not like. I do not think there is a lot of hope that that guidance will necessarily put an end to the uncertainty—and, at the end of the day, we are left with major uncertainty hanging over business until cases come before the courts and we see what the Pensions Regulator does in practice.

Having said that, as my noble friend knows, I never intended to divide the House and am grateful for what he has been able to say today. I will want to reflect on it further with those who have helpfully provided briefing on this. I know that some parts of the industry may want to stay in dialogue with the Government as the Bill goes forward. We will obviously have Third Reading in your Lordships’ House, but the Bill is a Lords starter and it will be taken in another place. So, while for today I will withdraw my amendment, and while I believe that we have made a lot of progress, we may not have made quite enough in making people comfortable that the range of transactions which could potentially be caught by this will not unintentionally fall within the ambit of Clause 107. With that, I beg leave to withdraw the amendment.

Amendment 46 withdrawn.

--- Later in debate ---

I hope that my noble friend will feel able to reassure the House or even perhaps accept Amendment 50, if not now then perhaps at Third Reading. I congratulate the noble Lord, Lord Vaux, on tabling these amendments. I look forward to the Minister’s response.

[Baroness Noakes]

I shall be brief. I indicated that I want to speak on these amendments because I am concerned about the impact that they would have on companies’ ordinary transactions. Part of the problem would be that there is no distinction between ordinary dividends and something that might be regarded as an excessive dividend.

The noble Lord, Lord Vaux, has taken the approach of saying that share buybacks are always less common and always have to be referred to the regulator but other distributions of capital by way of dividend are not. Life is never that simple; if you are sitting in a boardroom deciding on dividend policy, there is clearly an approach to ordinary ongoing dividends. Then there is what you do with surplus capital, which can go by way of either a special dividend or a share buyback. I do not know how this amendment could possibly differentiate between those.

When one gets into the detail of Amendment 51, which tries to set a level at which so-called ordinary dividends would trigger the potential interest of the regulator, we could potentially get into problems. I do not think that it would be healthy to have major uncertainty hanging over companies undertaking their ordinary approach to the distribution of profits alongside what might well already be a well-defined deficit repair plan with contributions already agreed with the pension trustees, and then have something on top be required to go to the Pensions Regulator. The definition of what the regulator should be interested in will end up with a lot of things being notified to the regulator that, frankly, cause no concern at all. I do not think that that is an efficient way to approach life.

[Baroness Neville-Rolfe [V]]

The noble Lord, Lord Vaux, has adapted his amendments to meet some of the concerns that we all expressed in Committee, for which I thank him, but I am afraid that I am still not happy with the two amendments that he has tabled. For example, nearly all pension schemes are in deficit. Amendment 50 would allow the Pensions Regulator basically to stop all buybacks, which is a matter not for this Bill but for a governance Bill—following proper review and consultation—because buybacks can be justified in some circumstances and we have not had a chance to debate that.

The coronavirus measures, with which a parallel was drawn, are unique and different—that has been made clear in parliamentary agreement to them—so it is better to leave the arrangements to ministerial discretion, as the noble Lord, Lord Vaux, suggested. We have to remember that, however good the regulator is, he or she introduces delay and uncertainty, so we need to make sure that the powers are used with care.

Pension Schemes Bill [HL]

Baroness Noakes Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Baroness Noakes (Con)]

My Lords, it is some time since I have spoken on a pensions Bill. Indeed, I think the last occasion may well have been when the noble Lord, Lord McKenzie of Luton, was sitting in the place now occupied by my noble friend the Minister and I was sitting where the noble Lord now sits. I particularly recall many hours late into the night spent debating the powers of the Pensions Regulator in the Pensions Act 2008. I shall return to that when I speak about Part 3 later in my speech.

I shall start with collective defined contribution schemes. These account for more than half the pages in this quite long Bill. We are promised large volumes of delegated legislation to follow. I have no particular objection to CDC schemes, but the plain fact is that this extraordinarily complex legislation is being introduced to accommodate just one employer, namely Royal Mail. Despite a wide-ranging consultation and exposure in the specialist media, there has been absolutely no other corporate interest in CDC schemes. Other private sector companies have transitioned in whole or in part from their DB schemes unaided and it is far from clear to me that this is a good use of government and parliamentary time.

Nevertheless, now that we have the Bill, I would like to raise one question with the Minister. The Government have been clear that they wish to ensure that pension freedoms are available to members of CDC schemes as they are to members of other schemes. At one level, that sounds perfectly okay, but I am concerned about the impact that this might have on the notion of shared risk, which is an intrinsic part of CDC schemes. My particular focus is on longevity risk.

Pension freedoms are not always used wisely, but one clear beneficial use case—it applies even to defined benefit schemes—concerns members whose health status means that they can do better by removing their funds and purchasing an impaired life annuity. If members of CDC schemes in this situation acted rationally and took their share of the assets out of the scheme, that could well disadvantage the remaining members. The average life expectancy of those remaining would increase and, all other things being equal, the benefits payable to them would reduce. Are the Government comfortable with this outcome, in effect allowing selective risk-sharing under this new arrangement? This is a subset of the wider issue of intergenerational fairness, which has been raised by other noble Lords, including the noble Lord, Lord Sharkey.

I now turn to Part 3 and the Pensions Regulator. I thank the Association of Pension Lawyers for its analysis of the new offences, which I know has already been provided to the Minister’s officials. Very briefly, its concerns relate to the scope of the new criminal offences set out in Clause 107, the meaning of “likelihood” and “materiality” in that clause, and the way in which the reasonable excuse defence will work.

When the Government first announced these new offences, they were explained in terms of people running their companies into the ground. It often happens that, when legal draftsmen get to work, an intuitively reasonable proposal ends up being so wide that it can trap the unwary. The issues that have been raised are serious and I hope the Minister will be able to allay the fears expressed. In doing so, I hope that she will not simply fall back on the courts acting reasonably in interpreting the new offences. If we have to wait until we get a body of case law, which could take a decade or more, that will mean major uncertainty for the business community.

I have a separate question for the Minister on Part 3, concerning the new financial penalties of up to £1 million in Clause 115. I support the principle of the Pensions Regulator being able to take swift action, but such powers carry dangers, especially when used against those concerned with the pension funds of smaller companies. I would like to understand what checks and balances exist within the system to ensure that this power is used in a proportionate way. Can a person in receipt of a financial penalty challenge the Pensions Regulator? Will there be an opportunity for an appeal to an independent body? This is particularly important because the invocation of the penalty powers involves several key judgments, including materiality and likelihood, just like the criminal offences, but there is no court to interpret them. The Minister will know that something more accessible than judicial review is needed because in practice that is simply not available for those with limited resources.

My last topic is the pensions dashboard in Part 4. I have to say that this is at best a half-baked policy. We have no idea exactly how this will work. Part 4 is littered with rule-making powers which may well tell us in due course what is involved. The impact assessment has a huge range of potential costs between £0.5 billion and £2 billion over 10 years. My noble friend Lady Neville-Rolfe referred to the figure of £1 billion, but it is over £2 billion if you take the set-up costs and the ongoing costs over the first 10 years. If this were a business proposition, it would be sent away and told not to come back until the costs and precise impacts had been precisely worked up. Furthermore, benefits have not been clearly identified and the impact assessment admits that the behavioural impacts are “highly uncertain”. I do not doubt that having 10 or 11 jobs over a working life means that keeping track of pension entitlements is a problem. But I am far from clear that the dashboard is the answer and we are no further forward in giving people access to advice, as opposed to guidance, on what to do when faced with the information that the dashboard contains.

I have long thought that a more sensible approach would be to facilitate the consolidation of pension pots, which means tackling the cost and bureaucracy involved when people attempt to do that for themselves. Switching bank accounts has been made pain free for consumers but there has been no equivalent for pensions. I completely accept that the issues are far more complex for pensions than for bank accounts; equally, the industry has no real interest in solving this problem. The Government would be doing pension savers a great service if they set their sights a bit higher than this dashboard.

Marriage (Same Sex Couples) Bill

Baroness Noakes Excerpts

Wednesday 10th July 2013 Lords Chamber

[The Lord Bishop of Guildford]

My Lords, the noble Lord, Lord Alli, has already spoken of some support from these Benches for his amendment. I will not repeat what I said at an earlier stage, but I wish to support him again, and also, as the noble Lord, Lord Lester, has just said, to support the device of regulation as a practical way forward.

[Baroness Noakes]

My Lords, my heart is completely with Amendment 84 in the name of the noble Lord, Lord Alli, but I have trouble in my head to completely agree with the amendment, mainly because we are opposing a retrospective burden without any evidence of what that impact might be. I completely understand the case for the individuals who are affected. We do not know where the cost will actually be borne. The cost is low overall, but it is not correct to compare it to the amount of assets under management, as was done in Committee, because the instance might be in very small pension schemes. It might be the instance of a relatively small scheme with a relative small number of members, one highly paid member with a civil partner—or married in a same-sex couple—who is very much younger. That would have a very disproportionate impact on the actuarial valuation of the liabilities in that small scheme, which could be a charity or a small business. I would be much more comfortable if we knew what the impact was. We may still, knowing the impact, go ahead, and that is why I strongly support Amendment 84A but have a little difficulty with Amendment 84.

Marriage (Same Sex Couples) Bill

Baroness Noakes Excerpts

Monday 17th June 2013 Lords Chamber

[Lord Higgins]

My Lords, two themes have run through the debate. On one there is almost universal agreement that we must seek to achieve equality. We also have to recognise that there are differences between the two forms of marriage. Having said that—and I am sorry that I do not carry the noble Lord, Lord Alli, with me—it seems to me that we need effectively to recognise both the need for equality and the point that I have just made. I led from the Front Bench on the Civil Partnership Bill, which was a great step forward. None the less, it is perhaps unfortunate that its terminology did not recognise the aspect of equality, and it has certainly not been recognised by the country as a whole. What we need, therefore, is some recognition that there are two forms of marriage. If we do that, marriage will appear on both sides of the equation, representing equality. As suggested in Amendment 34, we need to have traditional marriage on the one hand, and same-sex marriage on the other. If we do that, we can achieve both of the objectives we seek, and reconcile the differences which have otherwise been apparent in the debate. One hopes that both the gay community and the community as a whole will recognise the status of these two forms of marriage as equal. I see no reason why this can not be done.

[Baroness Noakes]

My Lords, normally I agree with everything my noble friend Lord Higgins says. I am in profound disagreement with him today. He has emphasised that he believes that marriages between same-sex couples and heterosexual couples are different. There are all kinds of marriages that are different: marriages between divorced people; marriages with and without children; death-bed marriages. However, we do not find different terms for those. Noble Lords need to ask themselves serious questions about why they wish to continue to emphasise sexual orientation in the names that they give certain statuses. By perpetuating giving a different name to marriage in the context of gay and lesbian people, we are wishing to continue to regard them as different from us. Inclusion is what this Bill is about, and what we should be about in society generally, because that is what will make us a stronger society.

[Lord Singh of Wimbledon]

My Lords, the legislation itself refers to two different types of marriage. It is there in how it is written. I am concerned that the attempt to find some common ground between deep divisions is being interpreted as some sort of wrecking amendment. The idea of union is fine; it says everything. I cannot see any difference. The English language is very rich in giving precision to meaning, but sometimes it is not precise enough. We do not want to make it less precise. For example, the Indian languages Hindi and Punjabi have different words for “uncle” and “aunt” depending on which side of the couple they come from, the mother’s or the father’s. These words give precision so that you know what you are talking about. Here, if you use the words “union” and “marriage”, that is fine; we know what we are talking about. There is nothing to suggest that one is less equal than the other, which would be totally wrong.

Marriage (Same Sex Couples) Bill

Baroness Noakes Excerpts

Tuesday 4th June 2013 Lords Chamber

[Baroness Noakes]

My Lords, it is a privilege to start our second day of debate on this important Bill. Yesterday our debate was a wonderful demonstration of this House’s ability to tackle difficult issues with restraint and respect, and I hope that we may continue in that vein today.

There are three main reasons why I support the Bill. First, I support it because I am a firm believer in marriage. Enduring relationships between couples, based on love, respect and responsibility, are good for the people involved and, in turn, strong relationships are good for society. Couples who want to share their lives together do not have to get married, and the Bill will not change that, but many value the sustainability and stability that marriage offers. I believe that marriage is a great environment in which to raise children but, for all kinds of reasons, marriage today is not defined by children or even by the possibility of procreation. Marriage is a much bigger concept than that.

Being gay or lesbian is not a lifestyle choice but an essential fact about a small but significant minority. It is as natural for them to seek lifetime relationships with a person of the same sex as it is for most of us to share our lives with an opposite-sex partner. As a happily married woman, I will gladly extend marriage to committed couples who happen to be of the same sex. I genuinely find it difficult to work out why other happily married people want to deny them the privilege of marriage, and I certainly reject the suggestion made yesterday that same-sex couples should invent their own name in place of marriage.

My second reason is that same-sex marriage has popular support. The House of Commons Library note on the Bill makes it clear that polls can be skewed by the questions asked, but the clear evidence from the various polls that have asked straightforward questions about same-sex marriage is that there is a majority, and an increasing one, in favour. The most important feature is that support is huge in the younger age groups, and only those over 65 show net opposition. I hope that noble Lords will reflect today that same-sex marriage will have its greatest impact on age groups that are barely represented in your Lordships’ House.

Freedom is my third reason for supporting this Bill. We have to ask very serious questions about why the law should deny people the freedom to do things that they want to do. Of course, there are strong public policy grounds for stopping people from doing all sorts of things, but I struggle to see what public policy grounds should prevent same-sex couples from being married. If we embrace the freedom to marry in the Bill, it will surely bring happiness to a minority. I have heard nothing in the debate thus far that points to clear and specific harm to other groups in society.

I could have seen a public policy reason for objecting to the Bill if it rode roughshod over the ability of the established religions to maintain their own concepts of marriage, but the quadruple lock arrangements in the Bill seem to me—and to the Church of England, if I read its announcement last month correctly—to provide robust protections for religious freedoms.

Marriage is a great institution that belongs to society as a whole, not to particular groups. Parliament is the right place to guard access to marriage. We have the privilege of a free vote and we must use it with wisdom, for the benefit of society, regardless of our personal preferences. If the noble Lord, Lord Dear, decides to divide the House, I hope that we will respect the clear decision of the other place on a free vote. We can then move on to the job that we are good at, as a revising Chamber, testing all the detailed concerns that have rightly been raised by noble Lords in this debate.

EU Report: Women on Boards

Baroness Noakes Excerpts

Tuesday 13th November 2012 Lords Chamber

[Baroness Noakes]

My Lords, I congratulate my noble friend Lady O’Cathain on her report and on this debate. I support getting more women on boards but I want to achieve that through merit not discrimination. The effort to get women on long lists is fine, but that is where discrimination should end. The debate often equates diversity, which is a good thing on boards, with more women. This is wrong. Female board members are not automatically more diverse than their male counterparts. Concentrating on gender diversity risks losing sight of what real diversity can contribute to board success. The report is brave to say that the economic case for more women on boards has not been made. The enthusiasts have confused correlation with causation, and I hope that Ministers, including my noble friend on the Front Bench this evening, will stick to the evidence in future and not make assertions about improved performance and productivity.

I believe that focusing on the proportion of board membership achieves diversity box-ticking without achieving sustainable change. Because the proportion of executives on boards has declined from around one-half to around one-third over the past 10 years, the focus has therefore been on non-executive appointments. However, in my view the debate needs to shift decisively towards the much more difficult issue of women executives. Why is it that management boards still look unbalanced? Why are the women who are there are often in functional roles rather than general management ones? This is partly about working practices, as the report suggests, but also about culture—as the report also suggests—and the hidden barriers in workplaces and the implicit assumptions about career patterns. These are not areas that board percentages can tackle.

Lastly, I cannot support even a reserve right of Brussels to legislate on quotas. The report should have used a little more Anglo-Saxon directness in telling the Commission where it should put its quotas.

Pensions Bill [HL]

Baroness Noakes Excerpts

Tuesday 15th February 2011 Lords Chamber

[Baroness Noakes]

My Lords, I support this Bill. It is a bit of a ragbag of measures but I think that it has two main themes. The first is the need for pensions to contribute to deficit reduction and, importantly, to the restoration of our economy to a sustainable path for the future. The second is to support the need, which is supported on all sides of the House, to generate more savings to contribute towards retirement.

I shall start with restoring the nation’s financial health. I fully support the proposals in the Bill to increase the state pension age to 66. That is long overdue. Taxpayers currently spend about 5.5 per cent of GDP on state pensions alone. Bringing forward a planned increase of the state pension age will be a useful contribution to controlling the inevitable upward trend in that cost.

My concern is that increasing the age to 66 does not go far enough and that instead we should be looking at accelerating and extending the current plans to increase the state pension age to 68 by 2046. The Government should be bolder and reflect the fact that life expectancy continues to outpace cautious expectations. Can my noble friend the Minister say why the Government are not using the Bill to go beyond this first step of accelerating the age to 66?

Last year, the European Commission published proposals to increase pension age automatically in line with life expectancy. Although I do not think it is any business of the EU to tell member states what they should do in this area, I think that it has some promise as an idea. Do the Government believe that there is merit in creating a more automatic link in future so that further increases in state pension age can be a matter of evidence rather than a matter of politics?

I also support the Government’s decision about converging the pension ages of men and women. I support it despite the small transitional impact on some women, to which other noble Lords have already referred and doubtless more will do so. The initial plan to bring women and men into line was far too leisurely. I never understood why women were allowed to draw a state pension much earlier than men, because their life expectancies have always been longer than those of men. Doubtless that was due to some misguided notion about the weaker sex. Your Lordships' House is proof that such ideas are long past their sell-by date.

Another key aspect of controlling the cost of pensions for taxpayers is dealing with the increasing cost of public sector pensions. Like many noble Lords with an interest in this area, I am looking forward to the final report of the noble Lord, Lord Hutton, later this year. His commission recognises that there has to be some way of controlling the burden of public sector pensions on taxpayers. If most public sector pensions were funded rather than unfunded, I have no doubt that the logical path would be for public sector pensions to follow private sector pensions and move away from defined benefit terms. Since the previous Government took power, the number of active members in open private sector defined benefit schemes has plummeted by about 80 per cent to about only l million people. By contrast, almost all of the 5 million or so active members in public sector schemes are in defined benefit schemes. The Government must deal with this inequality. Taxpayers simply will not tolerate funding public sector pensions at levels significantly beyond the opportunities available to them.

The real barrier to change is that the majority of public sector pensions are funded on a pay-as-you-go basis. If we shift to a defined contribution basis, we might have to pay out in cash on both bases simultaneously, which is of course impossible in the context of the nation's poor financial position. So I support the initial emphasis on pragmatic ways of reducing the cost of those pensions. This must inevitably involve greater employee contributions, as the interim report of the noble Lord, Lord Hutton, recognised. For this reason, I support the provisions of the Bill which bring judicial pensions into the real world of employee contributions. I hope that the Government will ensure that the contributions will be realistic relative to the very significant benefits which are obtained by members of the judicial schemes. I also hope that the Government will remain resolute when the inevitable judicial lobbying starts and that they will not cave in, like their predecessors.

Let me turn now to the improvements to auto-enrolment which underpin the policy, which has always had cross-party support, of generating more pension savings. I support auto-enrolment because it should dramatically increase the numbers saving for their retirement but my support has always been subject to the caveat that the very real needs and concerns of employers have to be recognised. If we overburden employers, we will kill jobs, which will defeat the object of increasing work-based pension provision. I do not believe that the previous Government always gave due weight to the concerns of employers.

The current Government were absolutely right to initiate a review of auto-enrolment, and the changes being made in this Bill are welcome. In particular, I welcome the higher earnings trigger and the optional waiting period, both of which will make it easier for employers to accommodate the new requirement.

I particularly welcome Clause 10, which introduces alternative self-certification requirements. The noble Lord, Lord McKenzie of Luton, may well recall the many discussions that we held during the passage of the Pensions Act 2008, when I tried, with only partial success, to shift the Government from their stance of requiring private schemes to match the Act's curious calculations at the level of every single employee. The best was very much the enemy of the good, and I applaud this Government's decision to help good private schemes to exist on a much more pragmatic basis. I hope that the Government will also ensure that the impact of phasing does not undermine the good work that they have done in Clause 10 and that phasing can be allowed to go alongside meeting the new self-certification tests.

My greatest regret is that the Government have not heeded concerns about micro-employers. We are talking about the vast majority in terms of numbers of employers—probably two thirds of the total—but, of course, a far smaller proportion of affected employees. The Government have decided to include micro-employers fully within auto-enrolment, notwithstanding the very much higher cost burdens on them. Many of these people are simply private individuals employing personal staff. Real burdens will be imposed. I am aware that the Government's review recommended no change on micro-employers, but that was hardly surprising given the composition of the review team. I do not believe that flagging and communications, which have been put forward as solutions to the problems of micro-employers, have any beneficial impact. They are bureaucratic activities which will do nothing to reduce the regulatory burden on micro-employers, let alone to reduce the cost of auto-enrolment, and we have to remember that the Pensions Regulator has no experience of dealing with micro-employers. I predict that there could well be a backlash from micro-employers once they understand the requirements. I hope that the Government will keep an open mind and be prepared to be flexible as the impact of this policy unfolds.

I should declare that I am a sceptic on the value of NEST. I believe that there were alternatives to one big nationalised pension scheme which could have been pursued. I have seen nothing to suggest that NEST will be incentivised to do other than behave like all monopolies—that is, in an inefficient and unresponsive way—but it is not a part of this Bill, and I do not, in many ways, blame the Government for taking the line of least resistance, given the large amounts of money that have already been invested in the development of NEST. We shall see whether NEST justifies the trust that the Government are placing in it.

The last topic that I would like to address is the use of CPI rather than RPI in revaluation and indexation. First, I support the Government's decision to use CPI to uprate public sector pensions and many benefits. It should provide a welcome contribution to reducing the costs of those items over time. However, as the Minister pointed out, that is not in this Bill. I regret the fact that the Government are not using this Bill to help private sector employers shift from RPI to CPI, and I disagree with the noble Lord, Lord German, on this. If CPI is a proper measure of inflation for the purpose of increasing benefits and public sector pensions, it is difficult to see why the Government have not helped private sector employers to make an equivalent change. The Government know full well that without statutory help it is not easy for employers to make this change, except by very costly negotiation. Having said that, I support the intention of Clause 14 in trying to avoid the ratchet effect on private sector revaluation and indexation when CPI exceeds RPI. I have already mentioned to my noble friend the Minister that the CBI is concerned that this clause may not quite achieve the clear policy intent set out for it, and I hope that he will consider an amendment in Committee to put this right.

Pensions: Automatic Enrolment

Baroness Noakes Excerpts

Thursday 10th June 2010 Lords Chamber

[Baroness Noakes]

My Lords, for the avoidance of doubt, I draw the attention of the House to my interests as shown in the register. I do not believe that any of them constitutes a relevant interest for the purposes of my participation in today’s debate, but in these difficult times it is always better to be safer and certain. I congratulate the noble Lord, Lord Kirkwood, on securing this debate so early in this new Parliament. I also congratulate my noble friend Lord Freud on his appointment as Minister and I look forward to his response.

As my noble friend Lord Fowler pointed out, pensions are one of those topics that attract only a small group of usual suspects, who usually know rather a lot about the subject, and so it has turned out again today. It was certainly the case when we considered the Pensions Act 2008, which I am sure is engraved on the heart of the noble Lord, Lord McKenzie of Luton, who so ably led for the Government on that Bill. I support what the noble Lord, Lord Kirkwood, said about the noble Lord, Lord McKenzie of Luton, and his handling of the Bill—indeed, the whole of his portfolio—as Minister.

When I took part in the debates on the Pensions Act 2008, sitting in the seat now occupied by the noble Lord, Lord McKenzie of Luton, I was grateful for the briefing provided by a number of outside bodies, but in particular that from the Confederation of British Industry and the Association of British Insurers. I am grateful to those bodies for briefing me again today for the purposes of this debate. It is a pity that the noble Lord, Lord Lea of Crondall, is no longer in his place after intervening earlier and implying that the attitudes of industry were inimical to auto-enrolment. I can certainly confirm that the Association of British Insurers and the Confederation of British Industry support auto-enrolment and are trying to work on the practicalities of making it a success.

As has already been said in the debate, there was a broad consensus around the Pensions Commission’s proposals for auto-enrolment as the basis for achieving a significant increase in the number of those saving towards their retirement. My party always registered some caveats about the scheme, in particular in relation to costs, to which I should like to return later. I understand that the coalition’s Pensions Minister in another place, Mr Steve Webb, has said that the Government will go ahead with auto-enrolment but that they will review the specifics of the scheme. Like the noble Lord, Lord Kirkwood, I hope that my noble friend can give some more details today about that review. He must be aware that employers and the pensions industry need to know what this review will entail, who will undertake it, when it is expected to be completed and who will be consulted. If there is any substantial uncertainty about the way ahead, that will inevitably affect the willingness of the business community to devote significant resources to continuing to prepare for something that may change. I hope that we can have more clarity on this today.

In my view, the previous Government’s approach had one fundamental flaw. They built their scheme of auto-enrolment around the proposition that every employee earning above the threshold should be included. I believe that this is an unrealistic approach, which in practice has produced real difficulties. The prize for society as a whole is to get a significant number of people saving for their retirement and saving more than was the case in the past—but not every last one. Policies that try to do too much often run into problems, as we have seen with many grandiose projects in the public sector. In the world from which I come, achieving an 80/20 solution—that is, 80 per cent of the benefits for 20 per cent of the costs—would be regarded as an excellent outcome. However, the former Government pursued the last percentile of benefit regardless of its cost.

Auto-enrolment is due to start in 2012, which does not leave much time to sort out the remaining details. The business community believes that the Government should look again at the draft regulations. The previous Government’s first shot at the draft regulations was pretty dreadful and business bodies and the pensions industry have been working with the department to try to get them into a shape that is acceptable. While this has largely been achieved, there remain aspects that cause disproportionate cost and complexity for employers. Will the new Government’s review be looking again at these regulations in order to see whether greater simplicity and lower costs can be achieved?

The noble Lord, Lord McKenzie, will recall our discussions about qualifying earnings, which have been alluded to. These had a particular impact on employers who already had good pension schemes but who used definitions that, although they are common in the private pensions industry, are quite unlike those used in the Act. The noble Lord was helpful and facilitated some amendments to the Bill, which allowed the regulations to accommodate the different ways in which employers are structured as regards their pensions, but that has simply deferred the problem to the regulations. I understand that the regulations in draft still do not recognise the difficulties for employers. The business sector has developed a self-certification approach that is practical and delivers a high degree of conformity, but that has not yet found favour with the Department for Work and Pensions. I ask my noble friend to ensure that his department will start to operate in a pragmatic way that supports employers who are trying to deliver good workplace pensions rather than penalises them for not guaranteeing the last percentile of benefit.

In addition to the qualifying earnings problems, the timing arrangements for auto-enrolment into personal accounts are also a problem. It is inefficient if, as currently planned, the rules require the enrolment of people who are likely to opt out—short-term workers, for example. Business would like enrolment to be delayed for, say, 30 days, which would avoid most of the unnecessary paperwork. To date this has been resisted, so will my noble friend ensure that the department looks at this again? The Government also need to look again at the impact on very small businesses. Again in their zeal to pursue the last percentile, the previous Government included even the smallest employer, including someone employing one person, such as a nanny or a housekeeper.

The previous Government also rejected using HMRC to administer the scheme alongside PAYE and, in so doing, they created an administrative cost for the scheme and a burden for small employers that are disproportionate. I hope that my noble friend will say that the new Government will look again at taking micro-employers out of the ambit of auto-enrolment.

The previous Government never faced up to the very real threat to workplace pensions of employers levelling down to the personal accounts scheme. Every time the Department for Work and Pensions insists on an employer-unfriendly rule, it makes it harder to maintain an existing workplace pension scheme and increases the likelihood that employers will simply default into the personal accounts scheme. This will hurt employees because most workplace schemes contribute more than is required under the 2008 Act. Our Government need to recognise that encouraging workplace pensions means encouraging employers, not hitting them with administration and regulation. This is part of a bigger theme of government action harming workplace pensions. It started in a big way with the ACT raid of 1997 and has got worse over the past 13 years. I hope that we can return to those broader issues on another day.

I emphasise that there is one area in which the business community does not want change—the timetable for implementation. I know that when my party was in opposition we criticised the previous Government’s draft timetable, which will delay full implementation of the employer contribution until 2017, but I believe that it is a pragmatic approach that allows a reasonable time for employers to plan for the cost implications of auto-enrolment. I hope that my noble friend can confirm today that the new Government will not shorten the timetable.

I turn now to costs. In opposition, my party did not believe that the personal accounts scheme could be delivered for the 0.3 per cent annual charge that the Pensions Commission calculated, and so it has proved. While there will be an annual charge of 0.3 per cent, there will be a whopping 2 per cent upfront charge in order to cover the set-up costs. In addition, according to a Written Answer that I received from the noble Lord, Lord McKenzie of Luton, just before the Dissolution of the previous Parliament, the personal accounts scheme will start this summer with a debt of more than £60 million and over the following five years will borrow another £400 million from the Government. There is no sign that when we get to 2015 the appetite for public money will have run out.

While the 2 per cent upfront charge may be necessary to keep these huge borrowing figures from ballooning even further, no date has been set for its removal. The CBI is concerned that the 2 per cent charge will increase opt-out rates and thereby defeat the purpose of the policy. The perceived returns on saving will simply not be sufficient, particularly for older workers being enrolled. Is my noble friend satisfied that the costs that underpin the need for this upfront charge and the massive borrowing are reasonable and that the scheme has not been overengineered?

Perhaps more worrying is that the previous Government announced in March that they proposed additionally to subsidise the scheme to an unspecified extent on the basis that it would have to accept all comers, which the commission had not thought necessary when it produced its 0.3 per cent costing. Can my noble friend say today what this proposed subsidy will cost? Do the new Government sign up to the subsidy on top of the high lending that has to be provided to the scheme?

Lastly, there will also be costs to the Pensions Regulator for policing auto-enrolment. I understand that those costs, too, will be met by further public money. Will my noble friend say how much that will cost? Why is the cost of regulation not borne by pension savings, as happens with other forms of pension saving?

I do not have to remind my noble friend that we live in an age when public expenditure must be cut and that we cannot afford, as the previous Government planned, to carry on spending regardless of the consequences. That may mean that the scheme for auto-enrolment and personal accounts has to be trimmed in order to fit what can be afforded. We cannot have everything that we want. I support auto-enrolment, but not at any cost. I have major concerns about the cost to employers and the cost to the public purse. I hope that my noble friend will be prepared to take radical action when the Government review their inheritance on auto-enrolment. When they do that, I hope that they will also abandon the notion of chasing every last percentile.