Pension Schemes Bill [HL]

Baroness Stedman-Scott Excerpts

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

Moved by

[Baroness Stedman-Scott]

81: Clause 128, page 120, line 33, after “sections” insert “(Climate change risk) and”
Member’s explanatory statement
This amendment is consequential upon the Minister’s amendment to insert a new Clause after Clause 123.

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[Baroness Neville-Rolfe (Con)]

I look forward to hearing from my noble friend the Minister on this, but I confess that I have a little scepticism about this proposal. We have had many reviews of pensions, including the trailblazing Pensions Commission led originally by Adair Turner—the noble Lord, Lord Turner. Many changes have been made to the law, including auto-enrolment, which I think we in this Committee have all welcomed. Of course, those in the current Bill are important as we seek to tackle the issues raised by the BHS and Carillion cases and to introduce dashboards.

I am not convinced that this is the time for another commission and another review. I feel that this is the job of the Pensions Minister and the DWP. Quite a lot is going on in pensions, and the priority should be to make sense of the sort of issues we have discussed on this Bill or issues that arise on things such as exit from the EU, and to get on with those in a practical manner. I look forward to hearing from my noble friend. If she takes a different view, of course, I am happy to reconsider.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, I am grateful for the opportunity to respond to this amendment tabled by the noble Lord, Lord McKenzie. We do not think there is a need for this new clause to be included in the Pension Schemes Bill, as legislation is not needed for a pension schemes commission to be established. The pensions landscape has changed considerably since the 2006 Pensions Commission; there have been major reforms to the UK pensions system. We have successfully rolled out auto-enrolment, introduced the flat-rate new state pension, abolished the default retirement age and raised state pension age.

The first independent review of state pension age was published in 2017, and this Government have committed to undertaking a review of state pension age every six years, in accordance with statutory requirements, to enable consideration of various factors, including the latest life expectancy projections. This Government are committed to maintaining a pension system that enables financial security for current and future pensioners. Further refinement and evolution will no doubt be needed in future to take account of changes in the labour market, home ownership and debt.

However, a commission is not the only way to identify and make recommendations for the future. We continue to engage extensively with key stakeholders, including consumer and employer organisations and the pensions industry, working collaboratively to identify and take forward a robust programme of work that builds on the strong foundations now in place.

For example, the Government carried out a review of the automatic enrolment scheme in 2017. Implementation of the review measures will be subject to learning from the recent workplace pension contribution increases; discussions with employers and others on the right approach; and finding ways to make these changes affordable. Once the evidence on our reforms is clear, we will look again at the right overall level of saving and the balance between prompted and voluntary saving. We are monitoring the impact of pension freedoms and the effectiveness of regulation of the market and information and guidance.

It is right that individuals are trusted with their own hard-earned money and savings. They are best placed to manage their money throughout retirement. While it is not the Government’s role to monitor individual people and the decisions they make, we recognise that it is important to support individuals in making decisions for their retirement. That is why we established the Pension Wise service to provide free and impartial guidance to help consumers make sense of their options.

This Government are focused on delivering and improving aspects of the existing pensions system. We are open to looking at aspects of the current system, but do not feel that an examination of the fundamentals of the pensions system is appropriate at this time.

My noble friend Lord Young made the point that my colleague, the Minister for Pensions, has shown support for a commission. Noble Lords are right to pay tribute to those who were part of the Pensions Commission chaired by the noble Lord, Lord Turner, which was very successful at building consensus around the future of pensions policy. Although several individuals and groups have called for a pensions commission, there is currently little consensus about what the scope and structure of such a commission should be. We believe we can engage effectively with interested parties without needing another commission.

My noble friend Lord Young also mentioned Bright Blue and the Fabian Society calling for a pensions commission. Again, I understand that a number of key stakeholders have demonstrated their enthusiasm for a review of the pensions landscape.

I do not discount future reviews of some element of the pensions system. We have already undertaken some reviews and will no doubt undertake others. However, I believe that the fundamental structure of the pensions system, based on the recommendations from the Pensions Commission, is still valid.

[Baroness Sherlock]

I think I am right in saying that the argument for not proceeding was that there was no consensus around the aims or the remit. What attempt have the Government made to achieve consensus?

[Baroness Stedman-Scott]

The best answer I can give is that I will find out and write to the noble Baroness, because I do not have that information at the tip of my fingers.

The Bill will deliver further improvements, including strengthening consumer protections, improving scheme governance and communications, and facilitating the creation of pension dashboards. We will continue to review these improvements, including a contribution that a pensions commission could make in future. I respectfully ask the noble Lord, Lord McKenzie, to withdraw his amendment.

[Lord McKenzie of Luton]

I thank the Minister for her response on this matter and noble Lords who have spoken in favour of this proposition. For those who have felt unable to support it at the moment, I simply make the point that there is no particular timeline: it does not say that it must happen all at one time, or that it must happen tomorrow. There are clearly aspects of the current system which are unsatisfactory.

If I had to encapsulate that in two or three words, I would say that pensioner poverty and under-saving are still with us, big time. Somehow, we need to address that. Having said that, I beg leave to withdraw the amendment.

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[Baroness Bowles of Berkhamsted]

My Lords, I have added my name to this amendment because the circumstances that have been outlined are distressing and there seems to be no easy way for the affected people to address them. If they were bigger and more powerful, it is certain that they would not be pursued—not least because the instructions for pursuit, if I can call them that, are that you have to be able to recover more than it costs you to do so. It would not take a great deal of litigation for that to be backed off from.

It is another example of how unfair it is when people who have run a business as a partnership, unincorporated, are at a disadvantage compared with those who take advantage of limited liability. You are not doing anything bad by putting yourself and your livelihood on the line. It may be that it has not been done in the way that it should have been in small practices, such as plumbing companies, but when you find yourself in this kind of situation—which you would not be in if you had been incorporated—it has always been difficult to see fairness in the law.

The noble Baroness, Lady Altmann, has produced a tightly composed amendment. I have studied it and it seems to fit the bill. Obviously, if someone can improve on it that would be fine. Otherwise, I do not see how there will be fairness for those who do not have equality of arms with the larger companies, which have sometimes been allowed to leave schemes without necessarily paying up as much as they should. In such cases, the burden falls on smaller firms. The trustees should have taken that into account long ago. If they have not, why should the burden fall on those who cannot find the means to take the matter to court? Basically, that is what this is about. A large employer in the scheme would fight the case and perhaps there would be claims for negligent behaviour for some of what has gone on. This solution avoids quite a lot of unpleasantness and untidiness that might otherwise be the only way. If there is any way that the Government can pursue this amendment, it would be a very good thing.

[Baroness Stedman-Scott]

I thank my noble friend Lady Altmann for tabling this amendment and congratulate her on her tenacity in continuing her campaign to resolve this situation. If we were giving awards for tenacity, she would win, I am sure.

The Government understand the difficulties facing employers in these situations, especially where, in the past, they have taken all reasonable steps to fund the scheme as requested by the trustees. The amendment seeks to amend Section 75 of the Pensions Act 1995 to allow trustees further discretion to cancel a departing employer’s debt in certain circumstances. It raises a number of issues that I will address.

The effect of this amendment would be that every time it is applied, the employer covenant would be weakened, increasing the risk of thousands of members not getting their benefits in full. It is hard to envisage a scenario where trustees could agree to such an arrangement and still be compliant with their fiduciary duty to act in the best interests of scheme members. In particular, the proposals for a new de minimis threshold raise significant issues. Even if the threshold is set at a very low level, it could enable a large number of small employers to depart schemes without payment. The aggregate impact of this could be significant. Passing this level of debt on to employers who remain could make them insolvent.

It is worth noting that some flexibility already exists for trustees to collect reduced employer debts as long as the scheme is funded above a Pension Protection Fund level basis. It is set at this level to ensure that schemes do not place an additional burden on the Pension Protection Fund and, ultimately, the levy payers.

The amendment also proposes that debts could be compromised if the majority of the debt relates to orphan members whose employers no longer remain in the scheme. This would be very difficult for the scheme trustees, who have a duty to ensure that orphaned members’ rights are protected and that their scheme is properly funded. Removing orphan debts from the employer debt calculation would ultimately worsen the scheme’s funding position, putting thousands of members’ pensions at risk.

Further, this amendment would impose different statutory requirements on unincorporated and small employers, creating a number of challenges. For example, if all or the majority of the scheme’s employers were either unincorporated or small, it could mean that none, or very few, employer debts would ever be collected; in the long term, that could create a severe underfunding situation, with all the risks that entails.

The Government’s Green Paper and subsequent White Paper, which was published in March 2018, on defined benefit pension schemes looked very closely at this issue and considered carefully what could be done to relieve the pressure that some employers face from their obligation to pay an employer debt. The White Paper concluded that the existing arrangements in legislation, along with the deferred debt arrangement introduced in April 2018, provide enough flexibility for employers to manage their employer debts. Further, the current full buyout calculation method is the most secure and effective way of protecting members and remaining employers in a multi-employer scheme.

While the Government recognise the difficulty facing companies in managing this debt, they cannot, at this time, offer any easements beyond those already provided for in legislation. However, recognising the many representations that the Government have received supporting a change that would assist employers in this difficult position, we will keep this under review and continue the dialogue.

My noble friend Lady Altmann raised the issue of retired employers triggering a debt and being unable to pass it on. Flexibility in the rules enables retired employers to pass their scheme on to another employer without triggering an employer debt. The scheme has a streamlined, flexible apportionment arrangement, which could help employers in this situation.

My noble friend also made the point that some people find themselves in extreme difficulties, with the potential to lose their home. The employer debt regime is designed to protect employers who remain in a multi-employer scheme. It would be unfair to burden remaining employers with additional unplanned costs to cover the shortfall that would be created by relaxing requirements for one group of employers. The flexible apportionment arrangement currently available in legislation can be used to help unincorporated employers who wish to incorporate.

My noble friend Lady Altmann also asked whether the scheme is fully funded. My noble friend the Minister mentioned that the scheme is fully funded on a technical provision basis. However, I understand that the scheme is underfunded on both a budget basis and a PPF basis. The next scheme valuation is due in April 2020, which will give us a clearer picture of the scheme’s funding position.

I thank my noble friend and other noble Lords for their contributions to the debate on this amendment. I know how important it is to my noble friend, but, on the basis of my response, I respectfully ask her to withdraw the amendment.

[Baroness Altmann]

I thank my noble friend for her response, but I confess to being extremely disappointed with the robust refusal to address the issue. The current easements are not working, otherwise I would not be trying to press this amendment. The deferred debt arrangement does not remove the debt; it just pushes it into the future, so the person will still be made destitute at some point. Trustees are refusing a flexible apportionment arrangement, so clearly that is not an option.

We seem to have lost sight of the materiality issue and of what we are trying to do with the bigger employers. There are already some ways in which trustees can not collect Section 75 debt. I am just trying to extend those very slightly; it will not apply to the majority of employers in the scheme and it will not materially impact on the solvency and survival of the scheme.

I beg leave to withdraw the amendment, but I urge my noble friend to go back to the department to see whether there are any ways in which we might be able to inject some further easement for multi-employer, non-associated schemes, which were never designed to do this to good employers.

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Moved by

[Baroness Stedman-Scott]

98: Schedule 11, page 186, line 16, at end insert—
“11A_(1) The Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) is amended as follows.(2) After Article 41 insert—“41A Climate change risk(1) Regulations may impose requirements on the trustees or managers of an occupational pension scheme of a prescribed description with a view to securing that there is effective governance of the scheme with respect to the effects of climate change. (2) The effects of climate change in relation to which provision may be made under paragraph (1) include, in particular— (a) risks arising from steps taken because of climate change (whether by governments or otherwise), and(b) opportunities relating to climate change.(3) The requirements which may be imposed by the regulations include, in particular, requirements about—(a) reviewing the exposure of the scheme to risks of a prescribed description;(b) assessing the assets of the scheme in a prescribed manner;(c) determining, reviewing and (if necessary) revising a strategy for managing the scheme’s exposure to risks of a prescribed description;(d) determining, reviewing and (if necessary) revising targets relating to the scheme’s exposure to risks of a prescribed description;(e) measuring performance against such targets;(f) preparing documents containing information of a prescribed description.(4) Regulations under paragraph (3)(b) may, in particular, require assets to be assessed by reference to their exposure to risks of a prescribed description and may, for the purposes of such an assessment, require the contribution of such assets to climate change to be determined.(5) In complying with requirements imposed by the regulations, a trustee or manager must have regard to guidance prepared from time to time by the Department.41B Climate change risk: publication of information(1) Regulations may require the trustees or managers of an occupational pension scheme of a prescribed description to publish information of a prescribed description relating to the effects of climate change on the scheme.(2) Regulations under paragraph (1) may, among other things—(a) require the trustees or managers to publish a document of a prescribed description;(b) require information or a document to be made available free of charge;(c) require information or a document to be provided in a form that is or by means that are prescribed or of a prescribed description.(3) In complying with requirements imposed by the regulations, a trustee or manager must have regard to guidance prepared from time to time by the Department.41C Articles 41A and 41B: compliance(1) Regulations may make provision with a view to ensuring compliance with a provision of regulations under Article 41A or 41B.(2) The regulations may in particular—(a) provide for the Authority to issue a notice (a “compliance notice”) to a person with a view to ensuring the person’s compliance with a provision of regulations under Article 41A or 41B;(b) provide for the Authority to issue a notice (a “third party compliance notice”) to a person with a view to ensuring another person’s compliance with a provision of regulations under Article 41A or 41B;(c) provide for the Authority to issue a notice (a “penalty notice”) imposing a penalty on a person where the Authority are of the opinion that the person—(i) has failed to comply with a compliance notice or third party compliance notice, or (ii) has contravened a provision of regulations under Article 41A or 41B; (d) provide for the making of a reference to the First-tier Tribunal or Upper Tribunal in respect of the issue of a penalty notice or the amount of a penalty;(e) confer other functions on the Authority.(3) The regulations may make provision for determining the amount, or the maximum amount, of a penalty in respect of a failure or contravention.(4) But the amount of a penalty imposed under the regulations in respect of a failure or contravention must not exceed—(a) £5,000, in the case of an individual, and(b) £50,000, in any other case.(5) In this Article “First-tier Tribunal” and “Upper Tribunal” mean those tribunals established under section 3 of the Tribunals, Courts and Enforcement Act 2007.”(3) In Article 113 (breach of regulations), in paragraph (3)(b), after “10” insert “or under provision contained in regulations made by virtue of Article 41C”.(4) In Article 167 (Assembly, etc. control of orders and regulations), after paragraph (3) insert—“(3A) Paragraph (2) also applies in relation to the first regulations made by virtue of Article 41A or 41C (whether made alone or with other regulations).””Member’s explanatory statement
This amendment makes provision for Northern Ireland that is equivalent to the provision made by the Minister’s amendment to insert a new Clause after Clause 123.

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Moved by

[Baroness Stedman-Scott]

99: Schedule 11, page 186, line 22, after “(d)” insert “, (2A)(a), (b) or (d)”
Member’s explanatory statement
This amendment makes provision for Northern Ireland that is equivalent to the provision made by the Minister’s amendment at page 118, line 11.

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[Baroness Sherlock]

My Lords, I, too, share the aspiration of the noble Baroness, Lady Bowles, to constrain somewhat the use of the extensive powers that the Government are blessing themselves through this Bill. I will not, however, reopen that debate in any great detail, although there is a temptation to say “We have another whole hour of Committee, we can debate this at great length”. The danger of a list is that some noble Lords will have concerns about particular aspects, such as constraining trustee power, while some will be in favour of multi-employer collective money purchase schemes. Most of us, however, would have reservations about the ability to amend primary legislation.

Although it may not feel as though Bills come along in super abundance, in the field of pensions it feels like they come along all the time like the number 19 bus, but I take the point. In fact, if we are going to have a list I would like to add to it: I would start with not allowing dashboards to do transactions without covering that in primary legislation. I have a long list in my notes which I will develop at length should we return to this. What might be helpful is if the Minister, in replying, would tell Committee whether the Government intend to do any of these things.

[Baroness Stedman-Scott]

My Lords, the question of delegated powers has already been extensively discussed in relation to the relevant clauses. My noble friend Lord Howe has already eloquently covered the Government’s position on these powers. As I said before to this Committee, the use of secondary legislation to set out more detailed technical matters, or to amend primary legislation for specified purposes, is consistent with the general approach in pensions legislation.

As with other pensions legislation, the provisions in the Bill embody the fundamental policy, while provisions of a more technical nature, or which are by their nature liable to change, are delegated to secondary legislation. This staged approach has two benefits. First, it enables flexibility to ensure that the legal framework remains appropriately tailored to developments in the pensions industry. Secondly, it enables government to provide legal certainty more quickly. This is important for the pensions industry and for member protection. It is a common feature of pensions legislation, which is by its nature very technical and can be subject to change.

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[Baroness Sherlock]

I am grateful to the noble Baroness for giving way, especially as I am about to abuse her generosity by asking a more general question. It is directed across the table, and is something that I forgot to ask in my own contribution.

The noble Baroness asked for assurance on various points. At various times during the Committee, the Minister has kindly agreed to write to noble Lords. Can the Minister confirm that those letters will come before Report?

[Baroness Stedman-Scott]

I can absolutely ensure that those letters will be with all Committee members before Report. We have debated these issues and I have listened to the concerns raised by noble Lords. We believe that all the powers are suitable and appropriate.

[Baroness Bowles of Berkhamsted]

I am not convinced, but we will await those letters—that was a very useful intervention. This is a matter that, one way or another, we may have to return to in some guise on Report. For now, I beg leave to withdraw my amendment.