Insurance and Reinsurance Undertakings (Prudential Requirements) (Amendment and Miscellaneous Provisions) Regulations 2024

Earl of Courtown Excerpts

Monday 28th October 2024 Grand Committee

[Lord Davies of Brixton (Lab)]

My Lords, I recognise the circumstances in which these regulations have been brought forward. They are part of the Brexit dividend that we end up discussing—this carrying forward of regulations as a consequence of leaving the single European regime. I will use them as an opportunity to raise an issue of concern about the reassurance provided for people’s pensions.

As noble Lords will know, the benefits held by occupational pension schemes—specifically defined benefit schemes—are increasingly being shifted away from those schemes; they are being wound up. The benefits are being protected in one way or another. An increasingly popular way of protecting members’ benefits following the winding up of a scheme is bringing them out in the form of annuities. The annuity market is commercial, and I think people who hold annuities are often surprised at the way their futures are treated as a form of commodity to be bought and sold on markets and—relevant to these regulations—to be reinsured in ways that leaves them concerned about the security afforded for their future pensions. The particular concern, and these regulations are directly relevant, is those annuities where the reinsurance arrangements are dealt with by overseas entities. The distance between people’s expected future pensions and where the ultimate security for their pension rights lies is giving rise to increasing concerns.

There were suggestions earlier this year that the Bank of England would tighten supervision of life insurance—the annuity offices’ use of what are called funded reinsurance markets—and the extent to which this approach to securing people’s pensions will lead to riskier benefits securing members’ rights and riskier securities holding members’ rights, and the extent to which the ultimate protection is achieved not under UK provisions but by the provisions placed on overseas reinsurance facilitators. I raise that in the context of these regulations. It is an issue on which I have not given notice to my noble friend so I am not expecting an immediate response, but perhaps she could commit to giving some attention to the concerns held by ordinary policyholders about where, ultimately, the security for their benefits ends up when they are bought out of their occupational pension schemes. If necessary, perhaps we could have a meeting to discuss this in greater depth and with greater notice.

[The Earl of Courtown (Con)]

My Lords, I welcome these regulations and thank the Minister for her very clear description of their use and how they will be put into practice. We on these Benches recognise the importance of this legislation in ensuring that insurance firms act safely and responsibly. The legislation also seeks to minimise the likelihood that insurance firms will come into financial difficulty. This instrument will allow for this by making a series of amendments to legislation—that is, to make certain that the UK’s insurance regulatory regime functions as planned following the implementation of the Solvency II reforms and the revocation of assimilated EU law at the end of this year.

The previous Government, following engagement with industry, created detailed plans to reform Solvency II, and we welcome this Government’s decision to continue our plans. These reforms were designed to allow for a prosperous insurance industry, while ensuring the soundness of firms by demanding that insurers hold enough capital to withstand. I have just one question for the Minister: can His Majesty’s Government confirm what conversations they are having with the insurance industry to ensure that these reforms are implemented properly? I again confirm that His Majesty’s Opposition welcome these regulations, and I look forward to the Minister’s response.

[Baroness Blake of Leeds (Lab)]

My Lords, I thank noble Lords for their interest in this area, which is exceptionally important to putting ourselves in the best possible position to take advantage of the different agendas that the Government are moving on.

My noble friend Lord Davies was absolutely correct that I am unable to answer his specific questions today —they are outside the scope of this SI. However, HMT officials would be pleased to write to him. I am sure that, if there is a need for meetings, we can move forward.

I welcome the comments of the noble Earl, Lord Courtown. I absolutely assure him that there is continued engagement with the industry at ministerial level. There is a recognition that it has taken a significant time for the process to get to this point. We are almost at the last hurdle, and it is crucial that we keep everybody informed and successfully move forward towards its conclusion at the end of the year.

I am sure the Grand Committee will join me in supporting these amendments to ensure a smooth transition to the reformed Solvency II regime.