Pension Schemes Bill [ Lords ] (Fourth sitting)

Debate between Lord Mackinlay of Richborough and Lord Harrington of Watford

Committee Debate: 4th Sitting: House of Commons
Thursday 9th February 2017 Public Bill Committees

[Richard Harrington]

I think I understand the hon. Gentleman’s intervention; I accept that he did not mean it to become a speech, but I think it did. He knows, because I have told him privately, that it is the Government’s intention to resolve this issue. I have stated many times that I cannot go into what will be in the Green Paper. I also cannot accept that the new clause should be included in the Bill, because we are not ready for it. We do not have a solution; there is no simple solution.

The hon. Gentleman has been involved, not actually in this issue but in many others to do with asset management and financial services, and knows that everything is more complex than it first appears. I have accepted that there is a problem, I have mentioned that there are different entities that have to deal with it, and I have accepted that we have to try to reach a solution—by consensus, I hope. However, I cannot give him that good news today; I have to resist the new clause being added to the Bill.

[Craig Mackinlay (South Thanet) (Con)]

It is a pleasure to see you in the Chair and to serve under your chairmanship, Ms Buck. The experience of the hon. Member for Ross, Skye and Lochaber comes through very clearly.

I hope I can offer some help to the Committee. I realise that this is a complex area, but the hon. Gentleman’s new clause does not actually encompass the extent of the problem, which goes further. Under the old rules—extra-statutory concession C16 on the winding-up of companies, which was used widely until 2012—a group of directors or owners could wind up a company using a very informal method, but that did not cease their liabilities to that company. That liability extended for 20 years afterwards. That was then formalised under section 1030A of the Corporation Tax Act 2010, which gave a statutory basis to the informal winding up of companies with assets of less than £25,000. That provision is still used very widely. Directors or owners of such companies being wound up under that statutory method could still face 20 years of future liabilities, so although the hon. Gentleman has identified a problem in the system, it does not just apply to unincorporated associations.

The effect of the section 1030A of the 2010 Act, which came into force on 1 March 2012, is that directors and owners of slightly larger companies are going down the route of a formal liquidation, which terminates their liabilities for ever more. However, hundreds—if not thousands—of old, smaller companies using the old extra-statutory concession will still be caught by a section 75 notice. This is a very wide issue that does not apply only to unincorporated associations, so I do not think the hon. Gentleman’s new clause is enough to close down his concerns on future liabilities. Personally, I accept the Minister’s assurances, but I think this is the start of a wider debate as to how those liabilities can be cut down.

In the hon. Gentleman’s new clause 12, there is a problem with determining the proper value of a pension liability. It is not as sharp as just the transfer value that is often given, and we will need in future to be a little bit cleverer in how we actuarially assess pension liabilities.

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[Craig Mackinlay]

As my hon. Friend says quite clearly, the results will speak for themselves. I come back to the principles that I mentioned earlier: the fund has to have good returns and be well run and focused, because it has one function—to deliver good pensions. Again, I do not see that the new clause would achieve any of those principles, and if nothing else, it is unworkable because of the size of funds.

[Richard Harrington]

I absolutely agree with my hon. Friend; member engagement and involvement sounds very good—it is a laudable objective—but I have been around for nearly 60 years, of which I was in business for nearly 30, and I do not feel qualified to assess an investment strategy. I say that not to insult the vast majority of people, but because, although independent financial advisers and accountants may be able to do that, it is almost impossible for an individual to do so. We have to look at a way of ensuring that the investment strategy is the correct one for the majority of members, and that the regulatory system, the supervisory system and so on are in place. Hon. Members mentioned NEST, which already has more than 4 million members and 230,000 employers. This idea is very interesting but not at all practical.

I remind hon. Members that trustees play a key role in managing assets. They have overall accountability for the investment strategy. They have a legal duty; the hon. Members for Stockton North and for Ross, Skye and Lochaber—I can just about manage to say that now—used the expression “fiduciary duty,” and the trustees have a fiduciary duty to the members.

Laudable as new clause 2 is, pensions legislation already includes requirements for investment decisions to be transparent and in the best interests of members. The Government fully recognise the possible impact of investment decisions on members’ retirement outcomes. Even without the new clause, the Bill will add to those requirements. Clause 12(4)(d) already sets out that regulations made by the Secretary of State

“may include provision about…processes relating to transactions and investment decisions”,

while clause 12(2) states:

“In deciding whether it is satisfied that the systems and processes used in running the scheme are sufficient…the Pensions Regulator must take into account any matters specified in regulations”.

The new amendment would duplicate the provisions for master trust schemes that already exist under the Occupational Pension Schemes (Investment) Regulations 2005. The regulations require trustees of all schemes with 100 or more members to set out a statement of investment principles for their scheme. That statement must be made available to members on request and

“must cover…their policies in relation to…the kinds of investments to be held…the balance between different kinds of investments…risks, including the ways in which risks are to be measured”

and other key issues. The trustees must ensure

“that the statement of investment principles…is reviewed at least every three years…and without delay after any significant change in investment policy.”

Most people who are automatically enrolled into pension schemes are likely to remain in their scheme’s default fund and will not actively engage themselves in the governance of the scheme. That is why legislation makes requirements about governance and oversight of these matters, and why most schemes, including master trust schemes, need to provide a default strategy that covers similar areas.

Finally, multi-employer schemes have a legal duty under the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to make arrangements to encourage members of the scheme or their representatives to report their views on matters that relate to the scheme, including areas about which the new clause proposes that the trustees should consult scheme members.

Pension Schemes Bill [ Lords ] (Third sitting)

Debate between Lord Mackinlay of Richborough and Lord Harrington of Watford

Thursday 9th February 2017 Public Bill Committees

[Richard Harrington]

I quite agree, and of course there are checks and balances within the system: the pause order can be exercised only on a determination by the determinations panel, and then there is a higher level of scrutiny. In a small administrative matter, it would be totally irresponsible for the regulator to suddenly decide on a pause order with the exact effect that the hon. Gentleman alludes to, either on pensioners receiving benefits or on people working as normal and paying contributions that come out of their weekly or monthly statements.

I totally agree with the hon. Gentleman’s intent, but I think it is important to look beyond the general definition of a pause order and into the specifics, which I hope I have explained, albeit briefly. I ask him to withdraw the amendment; he makes an important point, but I think we have attended to the detail necessary to ensure that what he fears, and we all fear, does not take place.

As we have heard, amendment 37 is consequential on amendment 36, so I will discuss both SNP amendments together. The hon. Gentleman has stated that he supports them, so at least it will be on the record that the Opposition and the SNP actually agree on this subject. [Interruption.] That was teasing, to use this Committee’s terminology. I withdraw any teasability if I have caused offence.

Critically, amendment 36 would allow the Pensions Regulator to issue a pause order containing a direction that any paused payments into the scheme are to be

“collected and held in a separate fund, until the conclusion of the pause order”,

and amendment 37 would allow the Secretary of State to make regulations about the fund. On the face of it, it seems sensible to have a separate fund set up, but it would be extremely difficult in practice. Employers would have to negotiate with their employees to obtain their permission to take deductions from their pay and pay them into a different entity. That money would not actually be being paid towards a pension scheme; it would have to go to a solicitor’s client account, for example, or to another account that had been set up, instead of to the pension itself. There are tax implications and many other implications. That would cause fear, because people would think, “What is happening to my existing pension money? I am having to pay it into an emergency account.”

[Craig Mackinlay (South Thanet) (Con)]

On that point, may I ask what the sponsoring employer’s position would be under a pause order? Would the sponsoring employer be in contravention of his auto-enrolment obligations, having been forced to stop paying towards a master trust that is set up or is part of the employees’ contributions arrangements?

What would happen to the employer in terms of his obligations under auto-enrolment? Is it envisaged, if a pause order is in place, that he would have to keep the money within the business until the situation is resolved, and then that money be passed over to the same fund, if it is cleared to continue in operation, or to a new fund that stands in its place?

[Richard Harrington]

My hon. Friend raises a very good point that we have considered. Having been an employer for many years and supervised payroll systems, I understand that that would be the obvious thing to do: simply hold on to the money. Provided it was kept within a business but earmarked for that, I do not think anyone could say that the employer would be in breach of their legal duties for auto-enrolment.

Of course, then a problem arises. It sounds appallingly administrative and technical, but it is the sort of thing that lawyers make a lot of money out of. If it were paid into a non-pension fund emergency account, which I believe could be an unintended consequence of the honourable amendment tabled by the hon. Member for Ross, Skye and Lochaber, it could mean that the money is not being paid into a pension fund. What happens to its legal status, the tax and everything else? It is very much in extremis and complicated.

I am not regarded within the pensions trade as a great voice for employers, as I think everybody in the House would agree, but this would represent a significant burden for employers. I ask hon. Members to bear in mind that employers will not typically have been responsible for this problem—they will not typically have been responsible for the events leading to the pause order being made. From their point of view, they have simply been complying with their duties under auto-enrolment, as my hon. Friend the Member for South Thanet said.

I do not believe we can place them in a situation where they risk being unable to comply with their legal duties or where compliance becomes a significant burden. As I have said, this is very complicated and the tax and payroll implications are not certain. I think we would all agree that in these rare and very limited circumstances, the solution presented in the Bill is the most simple for employers to comply with. Given the very limited impact on scheme members and the low likelihood of this situation arising, I believe that is the right solution.

Pension Schemes Bill [ Lords ] (First sitting)

Debate between Lord Mackinlay of Richborough and Lord Harrington of Watford

Tuesday 7th February 2017 Public Bill Committees

[Craig Mackinlay (South Thanet) (Con)]

I am delighted to serve under your chairmanship, Mr Rosindell. I will probably say something more about my opposition to member trustees, which would be a step very much in the wrong direction, and I fear that the amendment tabled by the hon. Member for Stockton North would do that, but in a different way.

I agree entirely that the regulations under clause 12 will be subject to the Secretary of State’s involvement in laying out those regulations in due course, and under clause 13 the continuity strategy—what that might mean and what regulations we may expect are fairly well laid out—but I am afraid that, to my mind, “member engagement strategy” is wording that is rather too loose. If we encouraged such a strategy, I would like to see in any amendment what that might involve and an expectation of what we may see in regulations from the Secretary of State. I would not want a perfectly good scheme to fail because of an interpretation that might mean lots of different things to different people. My member engagement strategy might be rather different from that of the hon. Gentleman, so I will not support the amendment.

[Richard Harrington]

I would like to make a general point, which the hon. Member for Ross, Skye and Lochaber also made and which was agreed by everyone: we are all in favour of more people getting involved in their pension scheme. For many years, it became clear, particularly under defined-benefit schemes, that people had other things to think about for most of their life and that they thought their employer would take care of their pension, whether in the public sector or in a defined-benefit scheme. It was not that they could not care less, but they thought that as long as they paid their bit they did not have much to worry about.

The general point—it is not specifically a regulatory point for the Bill—is that the general policy of this Government, the previous one and, I am sure, all future Governments will be to make people far more aware of their pensions because they are predominantly defined- contribution schemes. People must know and be able to calculate their pension, but perhaps the old boring statement sent out every so often is not the way to do that. We hope that apps and other systems will mean people are a lot more aware of it.

The general point of people being a lot more knowledgeable about their pension arrangements is taken as read and my responsibility and role is to help to promote that through communications, advertising, technological changes and so on. However, that is separate from the regulatory point. It underlines what everyone in this room really wants.

On the regulatory point in the amendments tabled by the hon. Member for Stockton North, I share his view of the theoretical constituents in the Price Bailey report. I do not think many of my constituents have £55,000 a year either, but the report makes some good points. We are here to discuss the amendments specifically. You are being patient, Mr Rosindell, but I wanted to make that more general point.

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[Craig Mackinlay]

On the point about the person who promotes or markets the scheme, a lone employer or an employer thinking about his options, whether it be the National Employers Saving Trust or another master trust, may ask his independent financial adviser to consider which scheme is suitable for his business. How would the Pensions Regulator get involved with subsection(3)(a)—

“a person who promotes or markets the scheme”?

The subsection includes the word “may”. I am concerned that we may be putting regulatory requirements on IFAs who are already duly authorised under the FCA and may be caught under this clause. Was that the Minister’s intention?

[Richard Harrington]

No, I confirm that that was not the Minister’s intention at all. As we get through the regulations for this Bill, it is precisely that kind of case that we need to take into consideration, and there may be others. An IFA, of course, would be regulated and deemed to be a fit and proper person by the FCA. I am not very familiar with those rules, because they are outside my area of responsibility, but I think that they are pretty stringent and that they might be directly comparable to those under the Pensions Regulator. However, it is a fair point. In fact, most companies in the position to which my hon. Friend refers usually have to go to a professional adviser to be able to make that decision, because they have neither the time nor the experience to make the decision themselves, unless they are a very large company with suitable employees.

The regulation-making powers are needed to respond to developments in the market where the structures of master trusts might evolve to include other functions. There is a regulation-making power that enables regulations to specify matters that the regulator must take into account when assessing whether someone is a fit and proper person. As with other provisions in the Bill, we intend to work closely with industry, regulators and Her Majesty’s Revenue and Customs in developing these regulations, as well as conducting formal consultation.

The clause also gives the regulator a discretion to take into account other matters as it considers appropriate when carrying out the fit and proper person test, including matters related to a person connected to the person being assessed. That will give the regulator the flexibility to ensure that it can be fully satisfied that the criteria for a fit and proper person have been met and not avoided on technicalities.

The fit and proper person criteria are a key part of the new regime for master trusts. They relate to the competence and propriety of those responsible for the pension savings of thousands workers.

Pension Schemes Bill [ Lords ] (Second sitting)

Debate between Lord Mackinlay of Richborough and Lord Harrington of Watford

Tuesday 7th February 2017 Public Bill Committees

[Craig Mackinlay]

I seek just one clarification from the Minister. Earlier today we agreed to Government amendment 3, which defined a scheme funder as

“a body corporate or a partnership that is a legal person”.

However, item 5 in the table of triggering events listed in clause 22(6) interprets a scheme funder slightly differently, as

“a person or body of a kind that meets requirements prescribed under…the Pensions Act 2004”.

I am concerned that we have agreed to an amendment that exempts individual persons, but there seems to be a slightly different interpretation of what the scheme funder is in the table of triggering events. It may just be an oversight, but some clarification would be helpful.

[Richard Harrington]

I will get back to my hon. Friend on that very technical point, but I do not believe that there is any intention for the definition to be different.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22 ordered to stand part of the Bill.

Clause 23

Notification requirements