Baroness Stedman-Scott
Main Page: Baroness Stedman-Scott (Conservative - Life peer)
Baroness Stedman-Scott (Con)
My Lords, I thank my noble friend Lord Freeman for tabling this Question for Short Debate on the assessment of the condition of private sector pension funds. I also thank the noble Lord, Lord McKenzie, for his comment about my enthusiasm for this subject. I got enthusiastic when I started to take interest in my own pension scheme, so I must declare an interest in that I have a pension. I will also give your Lordships’ best wishes to my noble friend Lady Buscombe.
The nature of retirement has changed dramatically over the past decade. People are living longer and working more flexibly. It is important that government encourages and supports people to save for their retirement, to provide security later in life. As a result of recent reforms, millions of people look forward to a more secure retirement. We are continuing to improve the pension foundation for all pensioners, through a fair and sustainable state pension system. To achieve greater security, choice and dignity, we have introduced the new state pension. We continue to provide benefits such as winter fuel payments and have given those not eligible for the new state pension the opportunity to increase their state pension through a top-up.
We have already taken a number of important steps to strengthen the private pensions landscape: more than 9 million people are now automatically enrolled into an occupational pension scheme, and we have given people aged over 55 greater choice in how to access their private pension pots, which noble Lords have referred to. The new single financial guidance body will provide savers with more information and guidance on their retirement options.
We all know what a great success automatic enrolment has been in reversing the long-term decline in pension saving, and 2018 is a particularly important year, with the beginning of work to take forward and build support for the proposals we set out in our review of automatic enrolment, Maintaining the Momentum, published in December last year. This work highlighted some remarkable progress since 2012 in workplace pensions coverage. The workplace pension participation rate for women is now equal to that of men among eligible employees in the private sector, with around three-quarters of men and women participating in workplace pensions. Total annual contributions into workplace pensions were at a 10-year high of £87 billion in 2016. Automatic enrolment is normalising pension saving.
We will keep this movement going with two planned increases in contribution levels for automatic enrolment, in April this year and April 2019, at which point people who have been automatically enrolled will be saving 8% of their qualifying earnings. As a result, by 2019-20 we expect that an additional £20 billion will go into workplace pensions annually.
The increased number of people saving through automatic enrolment has led to a considerable expansion in the master trust market, from around 200,000 in 2010 to around 9.2 million by January 2018, with the majority of employers choosing to use a master trust pension scheme rather than setting up their own pension scheme. We will ensure that members of master trust schemes are provided with similar protections for their savings to members of other pension schemes through the authorisation and supervision regime set out in the Pension Schemes Act 2017.
Defined benefit pension schemes provide an important source of income in the retirement plans of millions of people. In the private sector alone, nearly 10.5 million members rely on such schemes with around £1.5 trillion of assets under management. They help to fuel the UK economy through investment in UK government bonds, corporate bonds and equities. News of increased deficits combined with a number of recent high-profile cases have led some commentators to declare that there is a fundamental problem with the funding and regulation of these schemes. While it is true that the defined benefit pensions landscape is evolving, as these schemes continue to close and be replaced by other forms of provision, it is not the case that fundamental change to the underlying legislation and regulation is needed. There are indeed new challenges for trustees and employers, but the Government are committed to improving the powers of the Pensions Regulator so that the defined benefit system continues to work in the best interests of those involved; that is, for members and pensioners, for today’s workforce, and for employers.
The noble Lord, Lord McKenzie, asked about the private sector defined benefit scheme and its future. The Government’s position on defined benefit pensions is clear: where employers can, they must continue to meet their responsibilities. The noble Lord, Lord German, asked whether the Government would meet their commitment to boost the Pensions Regulator’s powers. The Government’s manifesto further signalled our commitment to protect private pensions and indicated a number of areas in which they will bring forward, or will consider bringing forward new powers for the Pensions Regulator. In our upcoming defined benefit pension schemes White Paper, to be delivered in the spring—I know that the noble Lord, Lord McKenzie, said that spring has sprung; I am a little behind him on that, but we live in hope—we will explore the Government’s manifesto commitment to take action to prevent and punish those whose deliberate actions put pension schemes at risk. The White Paper will also set out the steps being taken to deliver new measures and build on existing measures to strengthen the regulator’s anti-avoidance framework and information-gathering powers.
There is a well-established legislative framework that provides protection for members. The Pension Protection Fund was set up by the Government to pay compensation to members of defined benefit schemes where the sponsoring employer is insolvent and the scheme’s funding level is not sufficient to secure pensions at least equal to the level of compensation that the Pension Protection Fund would pay. It is also important to note that the Government are acting in a joined-up way to ensure that all parts of the business, legal and governance framework are considered.
I shall now answer some of the questions that noble Lords have raised, and within the timeframe I have, I shall do my best to go through them. The noble Lord, Lord Freeman, talked about the Green Paper. I should say that the Green Paper has considered the powers of the Pensions Regulator and has encouraged a debate on striking the right balance between the needs and aspirations of sponsoring employers and members. As I have said, the Pension Protection Fund operates in the wider economy to ensure that no one in any group is unfairly disadvantaged. I think I have covered the publication of the White Paper. However, I have to say that the pensions dashboard mentioned by the noble Lord, Lord Freeman, sounds like a good idea. I should be most grateful if the noble Lord could write to help me understand it.
My noble friends Lady Altmann and Lord Freeman both talked about a cold call ban. We are committed to introducing a pensions cold calling ban as swiftly as possible. We tabled an amendment to the Financial Guidance and Claims Bill to enable us to make regulations to implement the ban. If we have not made these regulations by June, we will publish a statement explaining why and outline a timetable for delivering it.
My noble friend Lord Freeman mentioned CPI and RPI. In the Green Paper we discuss schemes that still use RPI and will set out our position in the White Paper.
My noble friend asked about Royal Mail and the CDC scheme. Royal Mail will close its defined benefit pension scheme and open a defined contribution scheme from 1 April this year. It is working hard with the Communication Workers Union to develop a collective defined contribution scheme, which both parties believe will better meet their needs. This is expected to replace the defined contribution scheme when and if the Government make the necessary changes to the legislation. We expect details of Royal Mail’s proposals imminently. Ahead of that, it is too early to say exactly how the Government will respond. It is also not possible to be more specific about the timetable.
My noble friend also asked about the timing for the introduction of the single financial guidance body. After Royal Assent, we will need time to get the body up to speed, so it will not be before the autumn of this year.
I thank my noble friend Lady Altmann for her contribution to this debate. In the Chamber the other day I mentioned that around the House there are giants on certain subjects. That met with an interesting response but I consider her a giant in the pensions field. I am pleased to have her here today and I hope to learn much from her. I shall be very happy to meet her along with officials, who I am sure will set up that meeting.
On the issue relating to women that my noble friend raised, automatic enrolment was designed specifically to help groups who historically have been less likely to save, such as women and low earners. The workplace pension participation rate of women is now equal to that of men among eligible employees, with, as I said, 73% of women now participating. In the words of, I think, the good man General William Booth, “That and better will do”.
My noble friend Lady Altmann asked what independent trustees can bring to the role. A professional independent trustee can help to ensure that the scheme is run professionally and avoids some of the governance and financial risks inherent in a less experienced and less professional approach. My noble friend spoke about the promotion of pensions and “free money”, which we do not hear about too often. The Government agree that pensions are a fantastic product, which is why noble Lords will have seen posters and TV commercials promoting automatic enrolment.
My noble friend also asked what the Government are doing about default guidance. The Government tabled further amendments on this on Monday. These will be debated in the Commons next Monday, when the Financial Guidance and Claims Bill reaches its Report stage.
The final point that I will make in the time allowed is about GKN and Melrose, raised by the noble Lord, Lord German. It would not be appropriate for Ministers to comment on individual cases. They are a matter for the independent regulator, and therefore we cannot discuss the specifics of this case. The regulator operates a statutory clearance procedure to provide greater certainty for those who are considering transactions involving companies with defined benefit schemes. If clearance is not applied for and granted, the regulator may exercise its powers up to six years after a transaction has taken place if it considers that the transaction was aimed at avoiding a debt for the pension scheme.
I have tried to answer as many of your Lordships’ questions as possible. If, on reading Hansard and talking to the officials, I find that I have missed any, I will ensure that all noble Lords are written to. I end by thanking everybody for their preparation for and contributions to this debate on a most important subject.