Pensions Dashboards Regulations 2022

Debate between Baroness Stedman-Scott and Baroness Drake

Tuesday 15th November 2022 Lords Chamber

[Baroness Drake (Lab)]

I am sorry to intervene, as I know that the Minister is trying to answer all the questions, but I want to ask a question on the regulated FCA authorised advisers. The whole point is that that system of authorised advisers, which has been changed several times, even on the FCA evidence is not sufficiently protecting people. The fact that it is being offered as a solution is one of our concerns.

[Baroness Stedman-Scott (Con)]

I note the noble Baroness’s point. This is something that we will take back with officials and to the relevant authorities, and it is something else that I shall write about and I hope give her a better answer than she has had to date.

The noble Baroness, Lady Bowles, raised the issue of risk of exploitation of data. Pensions dashboards and the technology behind them are designed to maximise data security. For example, pensions information is sent directly and securely from the scheme to the individual; it is not stored by qualifying pensions dashboard services or by the digital architecture. Individuals will always have control over who has access to their data, and will be able to revoke access at any time.

The noble Lord, Lord Jones, and the noble Baroness, Lady Sherlock, have raised to me individually the issue of British Steel pension schemes. The FCA is responsible for the regulation of the financial advice market and has looked closely at the advice provided to those BSPS members who decided to transfer out of the defined benefit scheme. It found that a very high proportion had received unsuitable advice, as has been said. The FCA has announced that it intends to take forward a scheme to provide compensation for BSPS members who received poor advice; it published a consultation on this scheme on 31 March, which has now closed. I think that the point that the noble Lord and the noble Baroness were making was that it must not happen again, and I am sure that message is understood.

The noble Baroness, Lady Sherlock, asked me to confirm when the data from personal and stakeholder pension schemes will be available to the public through the dashboard. She also asked what the position was with group personal pension plans. As set out in FCA rules, the majority of personal and stakeholder pension schemes are required to stage as part of the first cohort by the end of August 2023. That includes group personal pension plans. Until dashboards are launched to the public, schemes’ data must be available to invited users for testing purposes.

The noble Baroness raised a point about missing pots. Only a very small proportion of occupational pension scheme memberships are out of scope of the obligations to connect in our regulation and FCA rules. We expect that, at the point when dashboards are launched to the public, most individuals can be confident that all their pensions will be available to find via dashboards. When the value data for found pensions has not yet been provided—for example, if the member is new to the scheme, or when the value is still being calculated by the scheme—information to that effect will be displayed on the dashboard.

The noble Baroness asked how confident Ministers were about the quality of the data and whether the work has so far thrown up any concerns. It is critical that savers can trust the information in front of them; trustees and managers have existing legal obligations in respect of data quality, including the accuracy principle under UK GDPR, which requires that organisations ensure that data remains accurate and up to date. The Pensions Regulator set out its expectations on data quality in its record-keeping guidance; this includes that data is measured at least once a year.

The noble Baroness asked why the DWP had not set particular minimum data standards for schemes for matching and releasing data. The regulations allow for the trustees and managers of schemes to set their own matching criteria. We believe that schemes should be given discretion over which data elements they use to suitably search their records for a match. It is important that any scheme’s matching policy is appropriate to the level of confidence that they have in their own data; a uniform approach across all schemes would be likely to result in suboptimal matching.

Just to divert the House for a moment, I am conscious of how long I have been speaking, and I am keeping others from their business, but I am absolutely committed to answering these questions. With the leave of the House, I hope that I can carry on.

The noble Baroness, Lady Sherlock, asked whether I could explain for the record what would happen if the data submitted by a consumer was a partial match with data held by a firm. Schemes have the option of returning a possible match if they believe that they hold a record for an individual but are not certain. When a scheme returns a possible match, an individual will receive a limited form of administrative data that will enable them to contact the scheme to see if the possible match is in fact a match made.

The noble Baroness asked about screen-scraping. The regulations prohibit the storing of dashboards of view data, unless for temporary caching and for the sole purpose of displaying the view data in a single session. Similarly, transactions are not possible through the dashboard ecosystem. Making it possible for consumers to find information about all their pensions in a single place and requiring the consumer to undertake an identity verification check before being able to access that information significantly reduces the consumer appeal or perceived benefit of agreeing to screen-scraping. I have much more that I could say on that issue, so I shall write and place a copy of the letter in the Library of the House.

The noble Baroness, Lady Sherlock, and the noble Lord, Lord Davies, raised the point about complaints and where the liability lies if a customer makes a decision on the basis of view data that later proves to be inaccurate. As set out in our response to the consultation on the draft regulations, trustees or managers are responsible for meeting the requirements, which include receiving fine data, as well as undertaking, matching and returning the correct view data. Trustees or managers are not responsible for verifying the identity of users, and the authorisation of view requests or any processing of view data carried out by dashboards. The question of liability in the event that something goes wrong to the detriment of the individual would have to be considered on a case-by-case basis.

The noble Baroness, Lady Sherlock, raised the issue of liability and risk for trustees. The Government acknowledge that many trustees do an excellent job, often on a voluntary basis. The vast majority of trustees are in schemes with fewer than 99 members, so will be outside the scope of these regulations, unless they connected to pensions dashboards voluntarily. Although we accept that the regulatory requirements on trustees have grown a great deal over the years, this is only right, given what is at stake—we are talking about pension savings for millions of people.

The noble Baroness, Lady Sherlock, raised the issue of handling complaints and where consumers go to make a complaint. The dashboard ecosystem is made up of multiple different parts and, as such, dashboard users would potentially have complaints against a number of different parties. MaPS will therefore provide a central queries and complaints navigation tool, which qualifying pension dashboard services must direct individuals to, to help them understand their issues and know to whom they should direct their query or complaint if things go wrong, and the available routes to redress.

The noble Baroness, Lady Sherlock, raised the issue of scams and hackers and asked whether there is a strategy in place to counter the risk of scams within the system and whether this is being revisited regularly. It is crucial that dashboards give power to consumers and not scammers, which is why the dashboard ecosystem has been designed to ensure that only relevant pension schemes and authorised qualifying pension dashboard services have access. To maximise the effectiveness of the Money and Pensions Service pensions dashboard, users will have access to a retirement planning hub, which will provide onward planning journeys in a single place, supporting good decision-making. The FCA and MaPS will keep their rules and standards under review as dashboards emerge and evolve.

Gender Pensions Gap

Debate between Baroness Stedman-Scott and Baroness Drake

Monday 27th June 2022 Lords Chamber

[Baroness Stedman-Scott (Con)]

I think that the whole House will agree with the noble Baroness about childcare. There is work going on, first, to ensure that people are claiming what they are due and are receiving the help they should for childcare. However, that does not deal with the problem as it stands. So I can tell the noble Baroness that the Government are looking really carefully at childcare and are working with employers to see what they can do on flexible working to ensure that women can take their rightful place in the workforce.

[Baroness Drake (Lab)]

My Lords, the Minister’s reply reveals a disappointing tolerance of carers’ inequality. Caring is an economic activity, resulting in millions of women having to take periods out of the workforce, work fewer hours and receive lower pay. They are excluded from auto-enrolment into a workplace pension. They pay the penalty of lower pensioner income on a lifetime. When will the Government restore the principle that existed prior to 2016 so that carers are credited with benefits into the second-tier pension? The Government can do that tomorrow if they wish and restore the principle that existed prior to 2016.

[Baroness Stedman-Scott (Con)]

Carer’s credit is a national insurance credit available to people who provide care for one or more individuals for at least 20 hours a week. It can help individuals gain qualifying years that count towards the new state pension. Under new state pension reforms, carer’s credit has equal value to that of someone who pays national insurance contributions. In addition to carer’s credit, as I have already said, there is a wide range of other national insurance credits available to help people maximise their state pension entitlement.

Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022

Debate between Baroness Stedman-Scott and Baroness Drake

Wednesday 23rd February 2022 Grand Committee

[Baroness Drake (Lab)]

Before the Minister sits down, I am conscious of not going back to a supplementary question, so will be quick. On the small pots problem, I understand why it was said that it is not anticipated with, for example, nursery schemes, but we do not know what every scenario will be. I was seeking an assurance that these regulations do not set a precedent for removing de minimis protection for small pots, where needed. That is what I was looking for. I can see why a nursery scheme would address that, but it may not be the only solution.

I think I heard the Minister say that the regulator can consider the impact on existing sections when considering the authorisation of a new section, but could that be made clear in any letter? It is inevitable, as night follows day, that employers will want to change their pension arrangements at some point. This is just to be clear about the consequences, not to argue against what she was saying.

[Baroness Stedman-Scott (Con)]

On the two points just raised by the noble Baroness, Lady Drake, the answer to the first is no, and we will write to the noble Baroness on the regulator and the sections and place a copy of that letter in the Library. I commend these regulations to the Committee and ask for approval to implement them.

Underpayment of Benefits: Compensation

Debate between Baroness Stedman-Scott and Baroness Drake

Tuesday 18th January 2022 Lords Chamber

[Baroness Drake (Lab)]

My Lords, I refer to the Minister’s comment about payment of compensation to others being discretionary with a quote from the ombudsman:

“If Ms U’s decisions were typical, DWP will have declined to make others special payments on wrongly applied grounds, will have told them they could not complain to its Independent Case Examiner and will not have told them about the Ombudsman. That means that likely routes for such evidence were closed off.”


In the face of that clear statement from the ombudsman, how can the Government continue to refuse to commit to paying compensation to all other victims of the same maladministration?

[Baroness Stedman-Scott (Con)]

I can only tell the House the position of the department. I understand completely the situation and the depth of feeling about compensation for others, and I have to leave that to the Minister for Welfare Delivery and others in the department to consider, although there is no need to. As I say, if people feel that they are a special case and have experienced the same things as Ms U, we would want them to make their case.

Kickstart Scheme

Debate between Baroness Stedman-Scott and Baroness Drake

Thursday 29th April 2021 Lords Chamber

[Baroness Stedman-Scott (Con)]

As I originally said, we have 195,000 vacancies and more are still coming in, so we are positive that we will create hundreds of thousands of jobs for Kickstarters. We are well aware of the difficulties associated with the north-east. We are doing a deep dive on Friday with departmental officials, and we are working at pace to secure adequate opportunities for the plan for jobs. I am confident that we will meet our target in the timeframe allocated for Kickstart.

[Baroness Drake (Lab) [V]]

Can I press the Minister on my noble friend’s question? When will the Government report what direct action they are taking now to ensure they deliver equity across the regions on Kickstart placements? Sentiment is fine, but could we have the evidence of what the Government are doing to ensure equity? Secondly, unemployment of young black people started high and is rising faster than that of their white counterparts. What measures are the Government taking now to stop potential bias and discrimination in the hiring process for Kickstart jobs?

Pension Credit

Debate between Baroness Stedman-Scott and Baroness Drake

Monday 8th March 2021 Lords Chamber

[Baroness Stedman-Scott (Con)]

I understand the noble Lord’s desire to move speedily on this and I share that desire. Following our engagement session in November, policy officials met the BBC and the director of policy then had a meeting on 17 December. This was followed by a working-level meeting with the DWP and BBC on 11 February. On 29 March, the Minister for Pensions and I will meet the BBC director-general. Of course we will meet Peers again. We are open to dialogue and, in early May, there will be a stakeholders’ meeting including people from other industries.

[Baroness Drake (Lab) [V]]

My Lords, it is clear that the numbers in pensioner poverty have risen. Benefit take-up rates by poor pensioners are low—37%, or 1 million, do not claim the credit. They are now being billed for a TV licence that they should not have to pay for and that they cannot afford, and they will get even poorer. The Government handed over policy on pensioners and the licence fee to the BBC, but they did not hand over their responsibility for the poorest pensioners. I put again the question asked by my noble friend: will the Minister give a backstop date by which there will be a meeting of the Peers with the voluntary bodies involved with the pensioners, the BBC and DWP, so that all the parties in the room can look at this challenge that we need to face? Secondly, will the Minister confirm that she will consider innovative changes to get that take-up rate increased, such as auto-enrolling the poorest pensioners?

[Baroness Stedman-Scott (Con)]

I assure the noble Baroness that the Government are committed to action that helps to alleviate levels of pensioner poverty. I regret that I cannot confirm a backstop date, but I can confirm that we will meet Peers and that we will use all the tools available to us for innovation to try to help this group access pension credit.

Arcadia Pension Fund

Debate between Baroness Stedman-Scott and Baroness Drake

Tuesday 8th December 2020 Lords Chamber

[Baroness Drake]

To ask Her Majesty’s Government what steps they are taking to ensure that the Arcadia pension fund receives all of the contributions and assets agreed between its owners, any trustees and The Pension Regulator.

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

As Arcadia has now gone into administration, the Pension Protection Fund, working with the Pensions Regulator, will now act in place of the trustees and will negotiate on behalf of the scheme to ensure that it is treated fairly compared to other creditors and gets what it is due. If the regulator thinks there has been wrongdoing, it may also be able to use its anti-avoidance powers to get redress.

[Baroness Drake (Lab) [V]]

I thank the Minister for her reply, but it gives little assurance on the £210 million of security agreed with Arcadia getting to the actual schemes. Covid has a major impact, yet large pension deficits have not just built up over the past nine months but over years, and there will be other companies who took out dividends and assets to a value much greater than deficit recovery payments made, leaving their pension schemes more vulnerable than they should be. Will the Government consider urgent amendments to the Companies Act so that directors’ duties to shareholders are subject to a responsibility to repair deficits to pension schemes? We will otherwise have endless cases such as Arcadia recurring.

Supporting Disadvantaged Families

Debate between Baroness Stedman-Scott and Baroness Drake

Thursday 12th November 2020 Lords Chamber

[Baroness Stedman-Scott (Con)]

The right reverend Prelate is consistent in the issues that he raises, and I understand that. As for this happening more quickly, as I said, we were piloting and we were in dialogue. We were not sitting around waiting to be kicked into touch. As I have also said before, we have tested to make sure that these things can work. As for the long-term issue of a child poverty commission, I am not aware of any plans, but I will go away and double-check for him. I take this opportunity to thank the Church and all the faith groups who are supporting their communities in such an outstanding way.

[Baroness Drake (Lab) [V]]

My Lords, for the Government, protecting children is a moral imperative, because children cannot protect themselves. He may not have used those actual words, but they underpin the simple and compelling request from Marcus Rashford; that is why it was so clearly understood by the public and local businesses in their communities. I welcome the Statement as a contribution to preventing children going hungry, but this is a problem growing in prevalence and urgency. The role of local government is important, but may I push the Minister further on the question put by my noble friend Lady Sherlock about how “vulnerable” will be defined? That will be key in capturing the population to be helped and ensuring that some vulnerable families and children are not missed. For example, food aid charities have identified the emergence of the newly hungry—a growing cohort of people previously in jobs, who have been forced to use food banks and claim benefits for the first time during the pandemic. Will the Minister write, giving more detail on how the DWP will define vulnerable families in the Covid winter grant scheme, to ensure and give confidence that that category will include all those who need help?

There is a second example. On 9 November in the other place, the Secretary of State, Dr Coffey, said that

“every child has no need to go hungry in this country”,—[Official Report, Commons, 9/11/20; col. 649.]

and that there would be

“funding available for every child in the UK”.—[Official Report, Commons, 9/11/20; col. 637.]

But she did not expressly answer a question posed by Stephen Timms, so I ask the Minister that question again now. Will she confirm that this package of support extends to families who have no recourse to public funds?

[Baroness Stedman-Scott (Con)]

Of course we agree completely that children cannot protect themselves, and we must all do our part to protect them. Local government’s role is important, and we urge all partners in the communities that work with their local authorities, and the community groups with which they have relationships, to work together to identify those they know who really need this support. I undertake to write to the noble Baroness, as she requests, about the term “vulnerable”. As for those with no recourse to public funds, local authorities can, and already do, use their judgment to assess what support they may lawfully give to each person on an individual basis, taking into account their needs and circumstances. That includes providing a basic safety net option to individuals regardless of their immigration status, if there is a genuine care need that does not arise solely from destitution—for example, if there are community care needs or serious health problems—and there is a risk to a child’s well-being.

Pension Credit

Debate between Baroness Stedman-Scott and Baroness Drake

Monday 26th October 2020 Lords Chamber

[Baroness Stedman-Scott (Con)]

I would like to make it clear to all noble Lords that the Government are absolutely committed to as many people getting pension credit as are eligible. We have no plans, at the moment, to introduce targets on take-up. However, the noble Baroness makes a very good point, which can be joined up with the point that the noble Lord, Lord Foulkes, made. As I have said, I will go back to the department, and I will personally come back with a response.

[Baroness Drake (Lab) [V]]

My Lords, given excess death rates, the Government must be increasingly concerned about vulnerable, low-income pensioners. Pension credit is targeted on the poorest. Some 1.5 million pensioners claim it but, worryingly, four out of 10 eligible pensioners do not, and they are missing out on other benefits, too. Will the Government increase the guaranteed pension credit by at least the cash value of a triple-lock increase to the new state pension? Those eligible for, but not claiming, pension credit will get a TV licence demand for £157.50. How will the Government protect them, given that their campaigns are not enough?

[Baroness Stedman-Scott (Con)]

The noble Baroness makes the point that there are, I think, 1.1 million people who could have pension credit if they made a claim and were eligible. I know of no plans at the moment to uprate the other benefit to which the noble Baroness referred, but I will go away and find out and respond to her in writing.

Pension Scams

Debate between Baroness Stedman-Scott and Baroness Drake

Wednesday 14th October 2020 Lords Chamber

[Baroness Drake (Lab) [V]]

My Lords, even where a key risk to their savings is identified and information and red-flag warnings are given to the individual, they can still transfer their pension, and too many do, regardless. Pension providers and trustees have few, if any, powers to stop this. Will the Government extend the powers of the regulator to allow an override of the individual’s statutory right to transfer in the event of a suspected scam, thereby safeguarding their savings and future well-being?

[Baroness Stedman-Scott (Con)]

I am happy to confirm to the noble Baroness that the Minister for Pensions has written to the chair of the Work and Pensions Select Committee about this—I will place a copy of his letter in the House of Lords Library—and I can confirm that the Government are already taking further legislative action through the Pension Schemes Bill. I say again that the Minister for Pensions is quite prepared to meet noble Lords to discuss this issue.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Drake

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

[Baroness Stedman-Scott]

My Lords, I begin by addressing the amendment to Clause 14 tabled by the noble Baronesses, Lady Sherlock, Lady Bowles and Lady Drake. In doing so, I want to stress that ensuring members are treated fairly has been a central part of our work on CDC schemes since we began. As I explained in Committee, and in more detail in the letter sent to your Lordships on 5 March, the financial sustainability requirement will mean that CDC schemes are established on a sound financial basis and members are adequately protected from unfair and excessive administration charges.

I understand the intention behind this amendment but I do not consider it to be a necessary addition. For the financial sustainability requirement at Clause 14 to be met, the trustees must provide evidence that they can access sufficient financial resources to cover the costs associated with setting up and running the scheme, as well as those associated with dealing with triggering events. If the regulator is not satisfied about the security of these resources and that they can be accessed as needed, the requirement will not be met and the scheme will not be authorised. It may well be that, in the early days of a CDC scheme, initial funding comes from the employer, but our approach does not just rely on employer-provided financial support; it enables trustees to draw on other options, including funds held in escrow, insurance policies or contingent assets. These should be available to cover any costs arising from a triggering event.

The noble Baroness, Lady Drake, asked who can be required to meet the cost of triggering event. The regulator will work with the trustees, employees and others connected to the scheme to ensure that the scheme always has secure access to sufficient assets so that members’ funds are not affected. My noble friend Lady Altmann made the point that transfer values should be adjusted for future risk. Our legislation will require benefits and transfer values to be calculated based on long-term factors such as longevity, inflation and investment returns. This has the effect of smoothing outcomes and will mean that transfer values will not suddenly rise and fall, making cashing-in not as attractive as my noble friend suggests.

Once authorised, the scheme will need to continue to have access to sufficient financial resources so that it continues to meet the financial sustainability requirement. The regulator will monitor this through ongoing dialogue between the trustees, intelligence work and the significant events framework in Clause 28. This will ensure that it can intervene if it is concerned about a scheme’s financial sustainability and that, where necessary, a scheme could be de-authorised and wound up using the financial reserves. Our approach means that a CDC scheme must remain financially sustainable and able to deal with situations such as an employer withdrawing from the scheme or becoming insolvent.

As we set out in the letter that we sent to noble Lords, we are also taking additional steps to protect members. The CDC charge cap will help to protect members from excessive administration charges if the usual running costs of a scheme increase significantly for any reason. In addition, the continuity strategy at Clause 17, the implementation clause at Clause 39, and the prohibition on increasing charges during a triggering event at Clause 45 are all designed to protect members’ interests when things go wrong.

I now move on to address Amendment 32, tabled by the noble Lords, Lord Sharkey and Lord Vaux, and the noble Baroness, Lady Bowles, which is about intergenerational fairness—a matter raised by many noble Lords and the subject of extensive discussions. We have been mindful of the problems that other countries have experienced, for example in their approach to adjusting benefits. We have learned from these. That is why envisaged regulations under Clause 18 will mean that the CDC’s scheme rules must require that there is no difference in treatment between different cohorts or age groups of scheme members when calculating benefits and applying benefits adjustments.

The noble Baroness, Lady Janke, raised a point about issues experienced by CDC schemes in the Netherlands. We have been mindful of the problems that other countries have experienced. UK CDC schemes will not be required to have a buffer to smooth out fluctuations in the value of the benefits. Members’ benefits will be adjusted each year in light of the most recent actuarial valuation. This protects members from the need to fund a surplus and means that adjustments to benefits are provided for each year rather than hidden and stored up.

I welcome the sentiment behind the proposed amendment; it is something to which we want to give further consideration. We need to give careful thought to how such reporting might work in practice and would want to work with trustees, administrators and the regulator to ensure that any such requirement is proportionate, appropriate and clear. We would also want to consult on any such approach to make sure that it is effective. I reassure all noble Lords that we will give this matter careful consideration. Should we need to bring forward such a requirement in regulations, we already have sufficient powers in existing legislation to require schemes to report on fairness in CDC schemes if warranted. This includes powers under Section 113 of the Pension Schemes Act 1993 and Clause 46 in Part 1 of the Bill. There are also equivalent Northern Ireland provisions. For the reasons that I have set out, I ask the noble Baroness to withdraw the amendment.

[Baroness Drake [V]]

My Lords, I support Amendment 32, but I shall direct my comments to the Minister’s response to Amendment 8. The Minister has been very courteous in the face of my persistence on this issue and I have listened carefully to what she has said. In listening, I noted four things: first, that the powers in the Bill mean that the regulator can require initial funding from employers in the setting up of a CMP scheme; secondly, that those funds can be used to buy an insurance policy or be put into an escrow account; thirdly, that they can be available to fund triggering-event costs; and fourthly, should a triggering event occur, the regulator will work with both the employer and the trustees to ensure that sufficient financial resources are available to meet the costs of a triggering event. That is my understanding of what the Minister has said; I would, of course, expect the final regulations presented to Parliament to reflect that. On that understanding, I shall not push Amendment 8 to a vote. I beg leave to withdraw it.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Drake

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

[Baroness Stedman-Scott]

In the circumstances, I will write to the noble Lord if he will allow me.

In conclusion, for the reasons I have outlined, I ask the noble Baroness, Lady Altmann, to withdraw her amendment.

[Baroness Drake]

This has become more problematic because of pension freedom. Before that, you could not quickly rush to play Gauguin in Tahiti and disappear, taking all your money with you, because you could not get it out in that way. At the age of 55, you can now do that if the taxman can chase you for the marginal rate of tax. There were partners, particularly women, who had certain protections in DB. In DC, at least the requirement to annuitise left some mechanism to temper this problem, although it did not deal exclusively with it. Pension freedom has transformed that.

I know that we will come later to the issue of gender and pensions—where I suspect that we will come back to this issue, among others—but there is a real issue here for partners, particularly women. If the person with the pension chooses simply to take the cash and go, once that has happened, it is very difficult for the partner to protect themselves or do anything about it. That is the underlying tension.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Drake

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

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

I thank the noble Lords for tabling these amendments and all noble Lords for their contributions to this debate. It would be helpful to consider these amendments together, as they seek to address the payment of dividends when a defined benefit pension scheme is in deficit. One amendment seeks to prevent the payment of a dividend unless signed off by the trustees and the regulator; the other would require the sponsoring employers of pension schemes to submit a notice and accompanying statement to the regulator and to trustees when the employer declares a dividend in certain circumstances.

I do not think that the amendment to the Companies Act would have the effect that I believe is intended, as there are various technical problems with it. I will not go into these now, as it is more important to address the principles. The Government agree that defined benefit pension schemes in deficit should get a fair proportion of the resources available to employers.

The Government believe that they are taking a proportionate approach. The problem is not the payment of dividends; it is that some companies do not pay enough into their defined benefit pension schemes as part of the recovery plan when the scheme is in deficit. We believe we can address this problem proportionately without inhibiting reasonable dividend payments, which are a legitimate and essential part of normal business activity. We inhibit investment in UK business at our peril. A strong, profitable employer is the best possible protection for pension scheme members.

In addition, I should point out that pension schemes are also major investors. They receive significant dividends, and inhibiting or blocking these payments would impact their income and funding position.

The Pensions Regulator can, and does, take action to ensure that sponsors treat their schemes fairly. For example, in one case, a defined benefit scheme is now better funded after an upfront payment of £10 million, a reduction in the recovery plan length from 13 to seven years, annual deficit recovery payments of £3.7 million and a commitment to stop dividend payments for six years.

Information about dividends paid by these companies may be needed, but this is already available for public companies and can be obtained for private ones. The regulator takes this into consideration when it is looking at risks to a pension scheme. It would be disproportionate and unnecessary to require the sponsoring employers of pension schemes to submit a notice and accompanying statement to the regulator when the employer declares a dividend. Provided that a suitable recovery plan is in place, and the employer has the resources to pay the additional deficit repair contributions agreed, the company should be able to choose what it does with the remainder of the distributable reserves—it is rightly subject to business priorities.

But we do need to do more to ensure that the regulator can take a tough line where needed. That is why we are taking a power in this Bill to set out more clearly in secondary legislation what is required for an appropriate recovery plan. The secondary legislation will be informed by the regulator’s consultation on its revised funding code, and will work in tandem with it. The code will set clear expectations on what is an acceptable recovery plan, include guidelines on recovery plan length and structure, and support the regulator in enforcing these standards.

I turn now to some of the specific questions raised. The noble Lord, Lord Vaux, asked why the requirement under new Section 69A for a notice and accompanying statement cannot be included the Bill. New Section 69A is intended to give the Pensions Regulator information about events that pose greatest risk to pension schemes. The range of events for which a notice and accompanying statement must be given will be varied and will likely change in time. As such, the Government consider this to be a matter that is appropriate for secondary legislation. By setting out the range of events that are subject to the notification requirement in regulations, this enables new events to be added, or existing events to be removed, in order to keep pace with changing business practices.

The noble Lord, Lord Vaux, asked: why do we not propose to require a notice and accompanying statement when a dividend is paid? Dividends paid by companies with a pension scheme surplus, or those where an appropriate recovery plan is in place and deficit repair contributions are being paid, are unlikely to have adverse impact on the scheme or require any mitigations. A notice and accompanying statement about dividend payments by these companies would be unnecessary, and handling this information would be an ineffective use of the Pensions Regulator’s resources. Instead, the regulator will focus on companies where schemes are in deficit and where an appropriate recovery plan is not in place. Information about dividends paid by these companies may be needed, but this is already available for public companies and can be obtained by private ones.

The noble Lord, Lord Vaux, asked: if dividends are not limited, is there not a risk that all the money will be gone before the needs of the scheme are considered? The trustee and sponsoring employer agree an appropriate funding target and deficit repair contributions to eliminate any deficit over an appropriate period. If an appropriate recovery plan is not in place, the regulator has powers to impose a schedule of contributions. Provided that an appropriate recovery plan is in place and the agreed deficit repair contributions are being paid, it is right that how other resources are used is a matter of business priorities. It would not be helpful or proportionate for the payment of dividends to be notified to the regulator.

Of course, there is a risk that excessive dividend payments could be made, which could result in the sponsor being unable to meet its obligations to make payments as part of the recovery plan, but this is very much the exception rather than the rule. We think that intervention to prevent dividend payments in some circumstances poses a greater risk of inhibiting investment in UK business and that our approach can deter inappropriate dividend payments and put things right if that happens.

The noble Lord, Lord Sharkey, requested information about the regulator’s success in engaging with employers, and we will write to the noble Lord with that information.

[Baroness Drake]

Does the Minister accept that a regime for notifying dividends is not necessarily the same as stopping the payment of dividends?

[Baroness Stedman-Scott]

I will carry on and answer the question from the noble Lord, Lord Flight, and then I will answer the question asked by the noble Baroness, Lady Drake.

The noble Lord, Lord Flight, asked what the Government are doing to reform the UK’s dividend regime. The Department for Business, Energy and Industrial Strategy is considering the case for requiring companies to disclose information about their distributable reserves from which dividends are paid. The Institute of Chartered Accountants in England and Wales has been asked to provide technical advice and options for doing so. It is expected to report shortly. Sir Donald Brydon’s recent independent review into the quality and effectiveness of audit recommended that directors make a statement that the proposed dividends would not threaten the existence of the company and are within known distributable reserves, and, in some circumstances, that the distributable reserves should be subject to audit. Further consultation on this is expected later this year. The department has welcomed the Investment Association’s recommendation to companies that they should publish a dividend policy setting out the board’s long-term approach to making decisions on the amount and timing of return to shareholders.

In answer to the question asked by the noble Baroness, Lady Drake, yes, notifying is different from stopping. We do not want to stop them; we want to focus on ensuring that an appropriate recovery plan is in place. Things can be put right.

The noble Baroness, Lady Bowles, asked how the Pensions Regulator knows what resources the employer has and whether a recovery plan is appropriate. In assessing the appropriateness of a recovery plan, the Pensions Regulator looks at the strength of the employer covenant, which is a measure of the ability of a scheme’s employer to support the scheme now and in future. The regulator takes account of a range of employer-specific information, including underlying trading strength and trajectory, profits, cash flows, debt structure, market risks and opportunities, asset strength, and insolvency risk. This can come from a range of sources including statutory accounts, publicly available information such as credit ratings, market analysts’ views, sectoral analysis and analysis performed by the trustees, the employer or its adviser. The regulator will also focus on how a company uses the cash flow it generates to assess whether a scheme is receiving an appropriate and fair share of these amounts. Greater clarity will be provided through the provisions we are proposing in the Bill, and the regulator intends to set clearer guidelines on recovery plan length and structures for schemes in different circumstances. This will help to improve regulatory grip and make enforcement easier.

The noble Baroness, Lady Bowles, also asked how we will ensure that companies with significant available resources address defined benefit pension scheme funding shortfalls more quickly. Most employers do the right thing and treat their schemes fairly, but we know that this best practice is not universal and that some employers are not devoting a fair proportion of available resources to paying down deficits. We are determined to do something about this.

--- Later in debate ---

[Baroness Stedman-Scott]

The last word I would use to describe the noble Baroness is simple; that is not the case. She and other noble Lords have raised some interesting, valid and appropriate points on this issue. I believe that the best way that we can delve down into this and, I hope, give the comfort that they are looking for, is to meet to discuss it outside the Committee, which we are happy to do.

[Baroness Drake]

I would just say that my argument is not with the noble Baroness personally; she will be provided with the arguments to answer the points we are asking. The argument she put was that the recovery plan would be the route through which one would deal with an excessive payout of dividend, but the recovery plan is also based on an assumption about the strength of the sponsoring employer covenant. If, after that recovery plan is settled, there is a huge dividend payout—particularly to an overseas parent—which impacts the strength of that covenant, I cannot believe that the regulator would sit there and say, “We will wait until the next actuarial valuation and the new recovery plan before we act”. It would act: it has a range of powers to act straightaway. If there is a material change in the constituent elements that went into the recovery plan, the regulator has to act. A major excess of dividend payment from the sponsoring employer could materially impact the covenant strength. That is already in legislation. We just want to capture the impact of the high levels of dividend payment.

[Baroness Stedman-Scott]

I thank the noble Baroness for the points she has made. I think we should put this into the conversation that we will have to try to give answers which give noble Lords the comfort they need. My officials will call a meeting, and we will look at Hansard and try our very best to answer all the specific questions and allow further debate to resolve these issues.

Pension Schemes Bill [HL]

Debate between Baroness Stedman-Scott and Baroness Drake

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

[Baroness Stedman-Scott]

My Lords, this has been an excellent debate with excellent contributions. I thank noble Lords for the time they have spent preparing and delivering those contributions. I thank everybody who has taken part. It has been encouraging to hear the positive responses to the measures this Bill proposes. Noble Lords have certainly laid down the challenges we need to address.

The noble Baroness, Lady Sherlock, asked me about our confidence in the Bill. We will have confidence in it if we all work together and turn every stone to make it fit for purpose. I pledge that the Government will do that, and I see no dissention from us working together to achieve that.

I shall deal first with delegated powers and the commitment I made to your Lordships that we will bring forward some examples in relation to Part 1. I do not use the word “trepidation” in conjunction with my noble friend Lady Fookes—it is quite the other way round—but I have her point about Part 3 and the point made by the noble Baroness, Lady Sherlock, about Part 4. We have a wonderful Bill team who are working incredibly hard, and if they tell me they will have them, they will have them.

I understand the concerns raised by some noble Lords in this debate that there are important legal principles at stake before the proposed delegated powers can be exercised properly. In many instances the Government have promised to consult further on the technical substance, particularly in relation in Part 1. There are also instances where there may be a statutory requirement to consult because of a connection to existing legislation. Where there is an intention, promise or legal requirement to consult on the substance of secondary legislation, the legal position is clear: the Government cannot prejudge the outcome. In opening this debate, I said that I have listened to what noble Lords have been telling me, and we are preparing illustrative regulations relating to Part 1 which will be available before Committee. I also pledge to meet noble Lords before Committee to discuss them and all the questions that I will not have time to answer. Noble Lords can see that I have them, so I am not trying to get out of doing the job.

I want to put to bed very quickly the question asked by the noble Baroness, Lady Bryan, about whether we have any plans to increase the state pension age to 75. This is not government policy. The recent independent report recommending raising the state pension age to 75 is not a government report. I hope that gives her comfort.

The multiple dashboard point was raised by numerous noble Lords. The noble Lord, Lord McKenzie, made the point that there should be a single, government-run, non-commercial dashboard to protect consumer interests. We agree that there should be a dashboard that has no commercial aspect. The Money and Pensions Service has made a commitment to deliver such a dashboard.

The noble Lord, Lord McKenzie, asked whether the CDC is just a backdoor to allow employers to close defined pension schemes and impose collective pensions. CDC schemes are unlikely to work well unless the employer and employees are comfortable with the approach. I am sure that employers with open defined benefit schemes are well aware of that. The CBI’s response to our consultation on CDC makes interesting reading. It said that CDC has advantages for both employers and employees and welcomes the opportunity that CDC presents to help fill the gap between defined benefit and current defined contribution schemes.

The noble Lord, Lord McKenzie, was very busy in this debate. He asked why we have not implemented the 2015 Act. Our approach to CDC schemes has developed since, and after much scrutiny we concluded that new primary legislation is necessary to ensure that we get the CDC exactly right for the United Kingdom.

The noble Lord, Lord McKenzie, and the noble Baroness, Lady Warwick, asked why our superfund is not in the Bill. Developing the new regulatory framework for superfunds is a complex task and we are working hard across government and with relevant stakeholders to build consensus on the right approach. We aim to publish shortly our response to the consultation which will set out in more detail our proposals for a future legislative framework. Once this work is completed, we will legislate as soon as we can.

The noble Lords, Lord Sharkey, Lord McKenzie and Lord Vaux, and the noble Baronesses, Lady Donaghy and Lady Janke, raised intergenerational fairness. Fairness between age cohorts has been one of our key considerations from the beginning of our work on CDC schemes. That is why we intend to bring forward scheme rule requirements using regulations under Clause 18. This will ensure that all members, whether active, deferred or pensioner, will share the effects of investment outperformance and underperformance in the same way every year. Should a scheme’s rules not be compliant, it will not be authorised to operate by the regulator.

The noble Lord, Lord McKenzie, and my noble friend Lady Noakes asked how many employers are considering CDCs. It is true that only one company is, namely Royal Mail. However, others are interested. We want to make sure that CDCs work before any future increase.

The noble Lord, Lord McKenzie, asked about automatic enrolment and what the Government are going about the gender pensions gap. Automatic enrolment has been a great success and is already having an impact on the gender pensions gap. Participation in pension saving among eligible women in the private sector has risen from 40% in 2012 to 85% in 2018, which is equal to the figure for men. We have made great progress on that.

[Baroness Drake]

The Minister is accurate. I do not disagree with her description of what is happening with women in the eligible population for auto-enrolment, but it is the millions not in the eligible population for auto-enrolment whom we are particularly concerned about and whom those figures do not address.

[Baroness Stedman-Scott]

The noble Baroness, Lady Drake, is absolutely correct and I am glad that she pointed out the difference to me. I would like to meet her before Committee to address that issue, if she is happy to do so.

The noble Lord, Lord McKenzie, asked why the Government have not legislated for the measures in the 2017 automatic enrolment review in this Bill. The Government have set out their ambition to lower the age at which people are automatically enrolled from 22 to 18 and to abolish the AE lower earnings limit in the mid-2020s. Our approach will be to expand the coverage and increase the amounts put into retirement savings by millions of working people, focusing on younger people and lower earners.

The noble Baroness, Lady Donaghy, and the noble Lord, Lord McKenzie, raised the subject of the self-employed. The 2017 automatic enrolment review concluded that the current automatic enrolment framework is not suitable for the self-employed. They are a highly diverse group and one solution will not necessarily fit all. The Government have committed to carrying out research trials to form the evidence base and future policy.

The noble Lord, Lord Sharkey, asked what the Government are doing to tackle investment scams—an issue raised by other noble Lords. These scams are outrageous. The Government are committed to raising awareness about pensions scams to help protect consumers. As part of this, the Financial Conduct Authority launched its ScamSmart campaign to raise awareness of the steps that people can take to avoid investment scams. During the campaign, 173,000 users visited the ScamSmart site, and 376 users were warned about an unauthorised firm.

The noble Lord, Lord Sharkey, raised the need for a stronger nudge towards guidance, as provided for in Sections 18 and 19 of the Financial Guidance and Claims Act 2018. In that Act, we committed to test different approaches to providing a stronger nudge towards Pension Wise guidance. Pension Wise began this work on Royal Assent of the Act and it was picked up at the launch of the Money and Pensions Service. Trials commenced in October 2019. We are on course for those trials to finish and for qualitative work to be undertaken ready for the publication of the evaluation report in the summer.

Many noble Lords raised the question of whether there should be one dashboard or multiple dashboards, and the views on that were mixed. My noble friend Lady Fookes asked why there should not be just one, but I was interested to hear the noble Lord, Lord Sharkey, say that multiple dashboards will give consumers more choice in where they access pension information. Multiple dashboards will help to meet the varied needs of the 24.5 million people with pensions and wealth. I am sure that this is a topic on which we will have extensive discussions prior to and during Committee.

The noble Lord, Lord Vaux, made the point that the payment of dividends will not be a notifiable event. It would be disproportionate to require every dividend payment to be notified to the regulator. Hindering dividend payments could affect pension schemes, as many are shareholders in companies with DB schemes.

The noble Lord also raised the Dutch scheme. Despite communication issues in Holland, for generations the Dutch scheme worked as though it were a DB scheme. Where adjustments needed to be made, these came as a surprise. We will ensure that in communications to members, particularly at key points throughout a member’s pension scheme journey—on joining and annually, and before and during retirement—CDC schemes are clear and transparent that benefit values may go down as well as up.

The noble Lord, Lord Vaux, asked what safeguards there are to ensure that transfer values are fair. The cash equivalent transfer value represents the actual calculated cash value of providing members’ benefits within the scheme. Legislation provides a framework for the calculation of transfer values that trustees must follow.

The noble Lord also asked why companies should not be stopped from paying dividends if their pension schemes are in deficit. We do not believe that it is sensible to stop companies paying dividends to shareholders, even when a scheme is in funding deficit. Government intervention to block dividend payments could discourage investors and weaken the business, further reducing the security of the defined benefit scheme.

The noble Lords, Lord Vaux and Lord Sharkey, and others raised a lot of questions on that subject. It is not that I am not trying to give an answer; it is just that I am unable to do so at the moment, but I will get back to them.

My noble friend Lady Altmann asked what the sanctions will be for pension scheme providers who do not comply with compulsion. If a pension scheme provider fails to comply, it might be subject to penalties, including fines. The regulator will have a range of powers, including issuing compliance notices, penalty notices and fines.

My noble friend also raised the question of simpler annual benefit statements. The industry delivery group will consider the outcome of the consultation on simpler statements when making recommendations on the information to be included on dashboards.

I pay tribute to my noble friend Lady Altmann, whose tenacity on net pay allowance and tax relief is legendary. She has taught me everything that I know about it. That was a matter raised also by the noble Lord, Lord McKenzie. I am not trying to get out of anything here but it is a matter for the Treasury. However, the Government recognise the different impacts of the two systems. To date, it has not been possible to identify any straightforward or proportionate means to align the effects of net pay and relief at source. However, as announced in our manifesto, the Government will conduct a comprehensive review of how to fix this. We say that we will do it.

My noble friend Lady Altmann asked whether the new scheme’s funding requirements support the plumbing pension scheme. I am afraid that I am not able to give a response to that at the moment but I would love to meet her and give her the information that she requires, as well as making it available to other noble Lords.

I am taking a moment to look through my responses in an attempt to be fair to all noble Lords, although I do not think that I am doing a great job.

The noble Baroness, Lady Drake, raised the important point of carer’s credit and the family carer top-up. The Government recognise the valuable role of carers and the fact that they are disproportionately women. The Government Equalities Office gender equality road map, published in July 2019, set out plans to support carers. They included helping people to return to work after taking time out for caring. We are working closely with colleagues in the Money and Pensions Service to empower people to take informed decisions about saving throughout their lives. I am sure that we will revisit this very soon.

We have talked about the gender pay gap—a matter raised by the noble Baronesses, Lady Drake and Lady Bryan. As I said, automatic enrolment has helped lots of women—I have given the statistics. We want to empower them to take informed decisions about saving throughout their life, but we have made progress in bridging the gap.

The noble Baroness, Lady Drake, talked about the consumer protection regime. The Government recognise that the regulation of dashboard providers is critical to maintaining public confidence. My department has been working with HM Treasury and the FCA to decide how best to ensure that the regulatory regime is appropriate and robust.

The noble Baroness, Lady Drake, also raised the important issue of the security of data on pension dashboards. Ensuring the security of data is key to establishing consumer confidence in the dashboards. The Government are committed to ensuring that the infrastructure includes a level of identity assurance that satisfies the good practice established for national cybersecurity.

The noble Baroness, Lady Drake, and my noble friend Lady Noakes raised the subject of the Pensions Regulator. They questioned the impact of the new criminal offences and wondered whether their scope was too wide. We do not want to stop legitimate business activity, such as lenders taking security for normal financing activities. The Government are clear that businesses must be allowed to make the right decisions to allow them to develop and grow.

The majority of employers want to do right by their scheme. However, we must ensure that sufficient safeguards are in place to protect members’ pensions from the minority who are willing to put them at risk—I mention no names. The Government are committed to the Money and Pensions Service providing a dashboard, and MaPS committed to providing a dashboard in its 2019-20 business plan.

I turn to the contribution of my noble friend Lord Young. His powers of foresight are legendary; I am envious, and I am sure that many in both Houses would like to have them. The same is true of his oratory powers; he is very eloquent and his Front-Bench contributions are much missed in this House. We will meet before Committee. Time is really getting on now. I will respond directly to my noble friend Lord Young on the points he raised, and will have an answer to the point raised by my noble friend Lord Flight on equity release.

My noble friend Lady Noakes asked whether there are adequate appeal processes. The answer is yes and I would be very happy to talk her through those at a later time. Her description of a “half-baked dashboard” is interesting. We undertook a significant consultation and got more than 120 responses. These were published in April 2019 and were taken into account during the development of the legislation. We will continue to seek all views as we develop regulations.

The noble Baroness, Lady Donaghy, raised a point about holders of multiple part-time jobs. Currently, where an individual does not earn more than £10,000 per annum in a single job but earns more than the lower limit of the automatic enrolment qualifying earnings band, they can opt in to a scheme in one job and receive the mandatory pension contribution from their employer on earnings over that level.

The noble Baronesses, Lady Hayman and Lady Jones of Whitchurch, talked about climate change. This is a subject close to our hearts and I will meet with them both to talk in more detail. The Government are absolutely committed to tackling climate change and recognise the concerns that have been raised. We have already introduced legislation to require pension schemes to state their policy. In building on this, the DWP continues to work with the industry.

On dashboards, we expect that initially there will be no more information than is already available; to start with, simple information will become available. The delivery group may make recommendations for adding more detailed information as the needs and interactions of users develop.