Pension Scams

Debate between Baroness Stedman-Scott and Baroness Bowles of Berkhamsted

Wednesday 14th October 2020 Lords Chamber

[Baroness Stedman-Scott (Con)]

It is a great tragedy that these scammers are so clever and such ruthless people. The Government passed legislation in 2015 making it a requirement that all people take advice, and we have banned cold calling, but there is a recognised need for more action to address this issue. It is important that people take advice from the Money and Pensions Service but I am sure that in the Project Bloom activity more communication will come out to people. I hope that this will help.

[Baroness Bowles of Berkhamsted (LD) [V]]

One recommendation in the report is to ensure that victims of fraud are not liable for tax penalties. Will the DWP take that up with HMRC? If HMRC also suffered from the fraud, would greater protections be more forthcoming?

[Baroness Stedman-Scott (Con)]

I referred earlier to tax and the issues that people face as a result of scams. As I said to the noble Baroness, Lady Warwick, the Minister for Pensions is quite prepared to meet on this and other issues, and I will extend that invitation to the noble Baroness so she may raise her point.

Universal Credit

Debate between Baroness Stedman-Scott and Baroness Bowles of Berkhamsted

Tuesday 2nd June 2020 Lords Chamber

[Baroness Stedman-Scott]

I do not wish to be negative in any way but I have no knowledge of the Government considering that. Therefore, I am unable to say more than I have already said.

[Baroness Bowles of Berkhamsted (LD)]

Does not the mechanics of the whole-month approach to changes in circumstances create arbitrary fluctuations in income that are hard for those on low incomes to manage?

[Baroness Stedman-Scott]

I am not sure that I agree with the noble Baroness about the complexities of the changes. As we have made clear all along, we are trying to make the universal credit system replicate the world of work. However, I am aware that people on low incomes have difficulties, and I assure the noble Baroness that the Government want to do all they can to help them.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Bowles of Berkhamsted

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

[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.

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[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.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Bowles of Berkhamsted

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

[Baroness Stedman-Scott]

Of course.

[Baroness Bowles of Berkhamsted]

The point made by the noble Baroness, Lady Drake, is similar to the point that I was going to make. Some of the answers the Minister gave, in particular to my questions, were good and comprehensive, but they rely on having an appropriate plan in place. The point is that there are times when the appropriate plan is no longer appropriate, and at that point it all falls apart. I think what the Minister has said is that in regulations there will be things that will allay some of our fears, but it would be nice to have something about that in the Bill, because otherwise we are taking it on trust. It is not that we inherently mistrust the Minister or her officials. Of course there have been previous framework provisions that have been remarkably empty of policy, but that does not make it correct. The Government and this Parliament make policy. Regulators do not make policy; they shy away from it. There is no greater making of policy than putting it in the Bill.

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[Baroness Bowles of Berkhamsted]

I am sorry to interrupt but this is specifically on the government amendments. Like others, I welcome what is there and I hear the Minister referring to the matter as urgent and important. I just come up against a block when I see that it says “Regulations may impose”. Why can we not have “must” if there is an intention that these things are to be done? From the particular point of view of justice, in new Sections 41C and 41D, the reference to what would be your right of appeal to a tribunal still comes under “may”. I know that it is a standard formulation but it really does not appear to be right, because nothing is actually promised when it says “may”. Why can we not have “must”, and certainly have “must” when it comes to defences and reference to tribunals?

[Baroness Stedman-Scott]

In answer to the noble Baroness, subject to the passage of the Bill we will consult extensively this summer on the content of new regulations, which will likely include the content of these new requirements and the timing thereof. When we lay regulations and when they come into force will depend upon the outcome of the consultation, but we will respond to that within a year of its launch.

[Baroness Bowles of Berkhamsted]

That still does not mean that something will definitely happen then. I understand that the regulations’ shape depends upon the consultation but they should be regulations that do something, with a promise that we are going to have them—that there will be some, not that there “may”.

[Baroness Stedman-Scott]

As I understand it, we have to consult before we can make that decision.

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[Baroness Stedman-Scott]

I thank the noble Baroness, Lady Bowles, for tabling this amendment, which would require the Pensions Regulator to provide a report to the Secretary of State for the purposes of the Company Directors Disqualification Act 1986. Director disqualification is within the remit of the Insolvency Service, which has the powers, resources and expertise to disqualify directors. As such, the Pensions Regulator does not have the power to disqualify directors, as this would be unnecessary, costly and inefficient. However, the Pensions Regulator is already able to share information with the Insolvency Service if it meets the “gateway” criteria as outlined in its restricted information regime under Section 82 of the Pensions Act 2004. The regulator can use this gateway in circumstances where the sharing of information is with a view to instigating director disqualification proceedings.

As such, the regulator is already able to share information with the Insolvency Service where it has identified persistent wrongdoing by a director or where it has already taken regulatory action. Under Section 8 of the Company Directors Disqualification Act 1986, the Insolvency Service is then able to apply to the court for a disqualification order on behalf of the Secretary of State, based on investigative material provided by other agencies or departments. Whether or not the Insolvency Service takes action to disqualify a director on the basis of information provided by others, such as the Pensions Regulator, will depend upon its assessment of the case in question. The Pensions Regulator and the Insolvency Service regularly engage with each other to discuss areas of joint interest. They continue to monitor the effectiveness of the disclosure process and are taking steps to streamline it when necessary. This will help to ensure that the organisations are able to work together to achieve successful outcomes and better protect the public.

In summary, the amendment is looking to introduce a process which is already in place. The Pensions Regulator and the Insolvency Service continue to work closely together to streamline this disclosure process and ensure that both organisations have a good working knowledge of each other’s remits. On that basis, I urge the noble Baroness to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for that explanation. I think that there are two provisions within the Company Directors Disqualification Act: the ones with the Insolvency Service tend to be based around purely financial mechanisms. I will carefully read the response in Hansard to see whether it covers everything that I envisaged it should. I am a little suspicious that it does not; there would otherwise not be the provision of Section 8(1) and its very careful amendment in 2015. As the Committee might expect, I have had some communication with QCs who deal with these kinds of issues. If it is covered, I am happy; if not, I would like to see whether we can tighten it up. With that, I beg leave to withdraw my amendment.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Bowles of Berkhamsted

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Baroness Bowles of Berkhamsted]

I would like to intervene at this point because a lot has been spoken about. When there is a calculation of the percentage of the value of the assets for an individual transferring out, which is done on various actuarial calculations, will those actuarial calculations be able to take into account long-term market risk so that there is an element of the fact that if you are withdrawing at a time of high markets, you may be getting more, as I said, than would have been your long-term due? If there is no such mechanism, have we learned nothing from mutual funds running on net-asset value, where there are runs and the people who are slowest to move and get their money out are the ones who are trapped with low value? We have invented things such as gating mechanisms to cope with that. There is potentially such a thing as a run on a pension fund, so how will we guard against that?

[Baroness Stedman-Scott]

The noble Baroness is renowned for her forensic abilities. I am advised that we will need to write to her on that particular question. In fact, we are meeting this week, and I hope we can get her an answer that is accurate and share it with other noble Lords, if that is acceptable.

I recognise and share noble Lords’ concerns. I assure your Lordships that the Government are not oblivious to the potential risk in CDC schemes. I hope my explanation has reassured your Lordships that our proposed legislative framework is designed to ensure that both employers and trustees are alive to these threats when designing their CDC schemes, and that the Pensions Regulator is able to undertake appropriate scrutiny both before and after granting authorisation. With that, I urge the noble Lord to withdraw his amendment.

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[Baroness Stedman-Scott]

Noble Lords must forgive me for turning to my friends. This is my first Bill. The answer to that question is no, it should not be.

[Baroness Bowles of Berkhamsted]

Now I am confused. In the previous group, when we were talking in anticipation about buffers and intergenerational fairness, the Minister said that there would be headroom funding. I understood that to be up front, getting the scheme up and running, but the Minister then said that that was going to be spent. I do not think she said what it was going to be spent on, or have I got the wrong end of the stick?

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[Baroness Bowles of Berkhamsted]

There is nothing that needs to be added; it has already been said. I just want it to be noted that I, too, support the principle behind the amendment.

[Baroness Stedman-Scott]

I thank noble Lords for raising these amendments that relate to events which can occur in an authorised CDC scheme and which must be notified to the Pensions Regulator. The amendment in the names of the noble Lords, Lord Hutton and Lord McKenzie, would require the trustees of an authorised CDC scheme to notify the regulator where a person assumed a role that was subject to the fit and proper persons assessment. This notification would be required within two weeks of the change. The regulator would be required to assess whether the new person met the fit and proper persons requirement. Where it was not satisfied, the amendment would require it to consider withdrawing authorisation from the scheme.

The fit and proper persons requirement is set out in Clause 11 and is one of the authorisation criteria. The aim is to ensure that only suitable people are involved with a CDC scheme in order to protect the interests of members. It is also worth noting that the Bill already includes a power in Clause 30 for the regulator to withdraw a scheme’s authorisation if it is not satisfied that the authorisation criteria are met. The regulator will need to be satisfied that this is the case on an ongoing basis, including that the fit and proper persons requirement continues to be met. Some events would still warrant consideration by the Pensions Regulator because they could affect the ability of an authorised CDC scheme to continue to meet the authorisation criteria.

Clause 28 covers such “significant events”, which must be notified

“as soon as reasonably practicable”

to the Pensions Regulator. The draft illustrative regulations that we shared with noble Lords, and which have been placed in the House Library, provide an indicative list of potential significant events. Noble Lords may be reassured to know that the event in their amendment is contained in the illustrative regulations. We will work with the Pensions Regulator and others to develop the CDC significant events; we will also consult on the draft regulations in due course.

Amendment 11, tabled by the noble Lord, Lord Sharkey, would mean that the decision of any employer or relevant former employer

“to withdraw from the scheme”

would automatically be considered a triggering event. It may be helpful to point out that the triggering events listed in Clause 31 are already intended to capture withdrawal events that pose a significant risk to the future of a CDC scheme. For example, the withdrawal by the employer from a single employer-established CDC scheme or the largest employer in a connected employer scheme may trigger the winding up of a scheme. The withdrawal may also have arisen as a result of employer insolvency. In this scenario, it is clear that such a decision could risk destabilising the scheme. As such, it should be treated as a triggering event and be subject to greater scrutiny and oversight by the Pensions Regulator to ensure that the trustees are taking all necessary steps to address the issue and protect members.

Not every withdrawal of an employer, however, may pose such a significant threat to the scheme. For example, the impact of a small connected employer deciding to withdraw from a CDC scheme may be minimal on the viability and sustainability of the scheme; it may not warrant a decision to wind up the scheme as a whole. Such an event would be more appropriately dealt with as a significant event. We intend that such events should still be reflected in the continuity strategy, so that the regulator is aware that this risk has been considered and planned for.

We propose that regulations would provide for such events to be a significant event, which would need to be notified to the regulator. Such a notification will allow the regulator to engage with the trustees to ascertain the impact on the scheme’s viability and continuity, and whether this should lead to a formal triggering event or other regulatory action. This approach allows the regulator to retain appropriate oversight of withdrawal decisions and resulting actions, while providing some flexibility and proportionality in approach where the withdrawal of the employer is not expected to impact significantly on the scheme. I am also pleased to advise the Committee that the regulator will engage with the scheme to look at the options before withdrawing authorisation. For the reasons I have set out, I urge the noble Lord to withdraw his amendment.

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[Baroness Stedman-Scott]

My Lords, we are committed to protecting members of workplace pension schemes from unfair charges. This is why we introduced a 0.75% cap on charges in the default funds of money purchase schemes used for automatic enrolment. This cap, which received cross-party support, has proved successful, with average charges in schemes used for automatic enrolment reducing by a significant margin. We want to ensure that members of collective money purchase schemes in Great Britain and Northern Ireland can be similarly protected, which is why we are tabling these amendments.

Our response to the consultation on delivering CDC schemes confirmed our intention to implement an annual CDC charge cap set at 0.75% of the value of the whole CDC fund, or an equivalent combination charge. The response also confirmed our intention that the scope of the CDC cap will be the same as the existing charge cap. Unlike the existing charge cap, which applies at member level, our intention is that the CDC charge cap will apply across the whole of the fund. This reflects the collective nature of these schemes and means that the CDC charge cap will apply to all members in the collective money purchase scheme, including pensioner members. Again, this reflects the collective nature of the schemes and the fact that the same fund will provide members with a variable pension income in retirement. We want to ensure that members of CDC schemes also benefit from other existing charge control measures, such as the member-borne commission ban and the early exit charge cap.

I will speak first to Amendment 15, which will amend the Pensions Act 2014 to ensure that the powers in that Act, under which we are able to provide for a charge cap and other charge control measures, can also be used in the case of collective money purchase schemes in Great Britain. We are amending paragraph 1 of Schedule 18 to that Act, which provides a power to prohibit by regulations certain charges in relevant schemes. This is to make clear that regulations under this power can also be made in relation to collective money purchase schemes. As with the existing default fund charge cap for DC schemes, it is appropriate to use regulations to define the details of the cap and how it will apply. We will of course engage with the regulator and stakeholders in developing these details and will then consult on the draft regulations. We aim to align the application of the CDC charge cap with that of the existing charge as far as possible.

It is entirely appropriate that members of collective money purchase schemes benefit from similar charge control protections that apply to members of individual money purchase schemes. This amendment makes clear that regulations made under the powers in Schedule 18 to the Pensions Act 2014 can provide for controls on the charges borne by members in collective money purchase schemes. The amendment to paragraph 1 of Schedule 18 to the Pensions Act 2014 means that where a scheme which provides CDC benefits has more than one section, each section offering CDC benefits will be treated as a separate scheme for the purposes of the charge cap provisions. This is consistent with other provisions about how sections of schemes offering CDC benefits are to be treated and ensures that sections offering CDC benefits do not cross-subsidise other sections of the scheme.

The amendment to Section 54 of the Pensions Act 2014 means that the first regulations under paragraphs 1 or 3 of Schedule 18 made in relation to CDC schemes will be made by the affirmative resolution procedure. Section 54 already provides for the first regulations under these paragraphs to be made by the affirmative procedure, but regulations have already been made under these paragraphs. We wish to ensure that the first regulations made in relation to charge caps for CDC schemes have the same level of parliamentary scrutiny as those regulations did. Turning briefly to Amendment 16, this makes corresponding changes to Northern Ireland legislation to provide for a charge cap for CDC schemes in Northern Ireland. This will ensure parity of member protection for members of CDC schemes across the UK. I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I have no objection to making things the same everywhere, but last time I came across this 0.75% cap I did not ask a question, so I will now. What exactly does it cover? Compared to some SIPP investor platforms and so forth, it seems rather high. Does it cover all the trading charges as well? You can get 0.15% from Vanguard, 0.25% from AJ Bell and up to 0.45% with all your trading charges covered from Hargreaves Lansdown. I could go on. If you go to some of the insurance companies —I will go on—they tend to be greedier, up to 0.3%, but that is far short of 0.75%, so what is this paying for?

[Baroness Altmann]

I shall raise similar points. Will ask my noble friend say how the 0.75% charge cap was arrived at, given that the purpose of the CDC scheme, as I understood it, is to provide members better value than if they had their own defined contribution fund and to benefit from the economies of scale of collective management and administration, which clearly should be much lower per member than an individual defined contribution scheme?

Another point my noble friend mentioned is that that there should be no exit penalty. If that were the case, the issue we were discussing earlier about potentially reducing or applying a risk margin to transfer values would become impossible. Intergenerational fairness, which we were concerned about in our earlier discussions in Committee, may be undermined if there is an express prohibition on what may be called an exit penalty, but which to others is a risk margin or buffer against future market dislocations or changed assumptions.