State Pensions: UK Expatriates

Ian Blackford Excerpts

Thursday 20th April 2017 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a pleasure to follow the hon. Member for Worthing West (Sir Peter Bottomley), who made a gracious and fine speech about why this House, working cross-party, must deal with this issue. I commend all the other Members who have spoken in this debate, too. Let me say to the Minister that I suspect this is the last time in this Parliament that we will be discussing pensions matters. I have always enjoyed our spats across the Dispatch Box. I know he is an honourable and decent man, and I ask him to reflect carefully on all the speeches made this afternoon and to give us an indication that the Government are prepared, on the basis of affordability, to deal with this very real injustice that too many people are facing.

I am grateful to the Backbench Business Committee for granting this important debate on a motion standing in my name and that of the hon. Member for North Thanet (Sir Roger Gale). I am also grateful but saddened by the fact that we have to be here today debating this issue, which is fundamentally about fairness and which should, as has been said, have been resolved many decades ago.

The motion addresses the rights of just over 1 million UK pensioners who live overseas. We are talking about those who have paid national insurance on the basis that the payments made to the UK Exchequer entitle an individual to a UK state pension. When someone makes national insurance contributions, building up their entitlement, there is nothing that suggests that their right to a full pension will be determined by where they choose to live in future. Each individual has earned that entitlement, and it should be honoured. It is a simple matter of entitlement in what ought to be a contractual arrangement.

The Government repeatedly call the state pension a benefit, but that argument is undermined by the basic principle that entitlement is earned by making contributions. To achieve a full UK state pension, a person needs to have accrued 35 years of payments. In such a regime, why should someone’s place of domicile affect their rights? The UK is the only member state of the OECD that does not confer full pension rights, including the annual uprating of pensions, to those who have made contributions. It is simply not right that we discriminate against pensioners because of where they live; and let us make no mistake: that is what it is—discrimination. It is a failure of the United Kingdom to accept its responsibility to give full pension entitlement to those who have earned that right.

A person’s entitlement to the annual uprating of the state pension is determined by what country they live in. Some 679,000 UK pensioners who live in other countries do get the annual uprating, but there are 551,000 whose pensions are frozen at the level at which they first received their state pension when living abroad. Someone who is now aged 90 who had retired aged 65 in April 1991 would, had they qualified for pension uprating, now be receiving £119.31 per week; if their pension was frozen at the 1991 level, their weekly pension would be £52 per week. That is without justification. Such an individual would have lost out on £39,489 of pension income over a 25-year period as a consequence of their being in receipt of a frozen pension and denied their full rights. Think about what that means: by refusing to grant uprating, we are impoverishing our pensioners.

The average amount received by a pensioner with a frozen pension is just £2,258 per year, whereas the average for a pensioner living in the UK is £7,198 per year. We are denying pensioners income that rightfully ought to be theirs. Many will have to receive support from relatives, or perhaps they will have to return to the UK, where the cost of supporting such elderly residents is invariably higher when health and other social costs are taken into account. We also have to think about the fact that many people came to this country to work, often for many decades, and want to return to their country of origin in retirement. Such folk are put off by the reality of potentially being penalised through the receipt of a frozen pension. Where is the humanity in this? Where is the dignity in stopping people who have given long service to this country and paid their way retiring as they wish? They want to know that they will receive their full pension rights. This is a wrong that we must deal with. People who come to this country should not be penalised when they choose to go home.

Other countries see the current situation as a diplomatic grievance, and that will no doubt be a factor when the UK discusses trade deals. Other countries are going to turn around and say, “You want a decent relationship with us, but you are not prepared to treat your pensioners who live in our country fairly.” The fact that we are unique in the OECD in not accepting our obligations does not go down well with other Governments. We need to show leadership, and that we will stand by those who have earned a pension entitlement.

The International Consortium of British Pensioners has been mentioned by many speakers. I commend the consortium for the work it has been doing with the all-party group and the research it has conducted, which shows that because of the lower health and social care costs of somebody not living in this country, there is a saving of £1,575 for every pensioner who moves abroad. Such savings would partly offset the costs of annual uprating.

The House debated frozen pensions on 11 May last year. This debate follows other debates on this matter going back over the past few decades. The hon. Member for Worthing West mentioned Winston Churchill at the turn of the century; indeed, his grandson, also Winston Churchill, was involved in this matter, too. I have been sent a copy of a letter sent in 1993 by the younger Winston Churchill, the then Member for Davyhulme, to a retired pensioner living in Australia called Victor Humphries. Churchill stated in his letter that he hoped the

“Government may be shamed into taking steps to honour its commitment to expatriate pensioners”.

He went on:

“I have no doubt that if sufficient weight of Parliamentary support can be demonstrated for redressing this clear injustice, the Government will have no alternative but to back down.”

Winston Churchill was right in 1993, and all the Members who have spoken in this debate are right in 2017. It is shameful that, collectively, we have not yet dealt with this issue.

There is, of course, a topical aspect to the debate. Brexit hangs like a black cloud over this issue. Of the 679,000 UK pensioners who do receive an annual uprating, 492,000 are currently protected by the social security provisions of the EU single market. What is going to happen to the rights of those 492,000 UK pensioners post-Brexit? Will the Minister commit today to the continuation of the annual uprating for those living in EU member states? We often hear from the Government how they want to protect the rights of UK citizens living in Europe. Many of those citizens will be listening to or will hear about this debate. They will be concerned about their pension rights to the extent that, in the absence of any guarantees, many will consider whether they might not be able to afford to continue to live in an EU member state. The Minister can deal with that uncertainty today.

[Jeremy Lefroy (Stafford) (Con)]

Does the hon. Gentleman agree that it is inconceivable that this Government, or the Government after the election, would not guarantee uprating to British pensioners who live in the EU 27? As my hon. Friend the Member for North Thanet (Sir Roger Gale) said, it is therefore inconceivable that justice would not come at the same time for the people who have been denied it for so long. That would be discrimination of the worst sort.

[Ian Blackford]

I concur 100% with the hon. Gentleman; he is absolutely right. We have the opportunity today to deal with this matter and with the uncertainty facing UK citizens who live in Europe. That would be the right thing to do. As has been demonstrated, the cost of doing this for other British citizens would not be all that great. We can actually deal with this matter today if the Minister will recognise that it is a matter of good faith. As we go into the election campaign, I implore us all to make the commitment, collectively, to deal with the injustices we are discussing. If he so chooses, the Minister can remove the uncertainty today, or he can at least give us an indication that the Government are prepared to do something about this issue.

A further 186,000 UK pensioners live in countries with which the UK has a historical bilateral agreement on social security, including the US. A total of 551,000 UK citizens live in countries in which their pensions are frozen, with the largest numbers being in Australia where there are 246,000, and Canada where there are 144,000. The all-party group has met members of the Canadian diplomatic community, and I can tell the House that they are less than impressed with the behaviour of the UK Government on this matter. We are offending our international friends with our failure to take action.

We often hear about a postcode lottery; this is a national lottery, but one in which 551,000 British pensioners are paying the price. I am glad that the motion has cross-party support, and hope that the Minister will recognise the nature of that support and that we are all appealing to the Government to signal that there is an obligation on them to see sense on this matter. I look forward to the Minister’s response, and I hope we will hear from him that the Government are prepared to take action. It is about doing the right thing, and standing up and recognising that all pensioners, irrespective of where they live, deserve to be treated equally.

When we consider that the Government are lifting the limit on the period that UK citizens may live abroad but vote here from 15 years to their entire lifetime, we have to ask why the Government would want to confer voting rights on UK pensioners but deny them full pension rights? Perhaps the Government should reflect on the fact that more than 1 million UK pensioners live overseas. Those pensioners may have a reason to want to register to vote in this coming election campaign, given the infringement of their pension rights. As the hon. Member for Worthing West mentioned, there are 264,000 registered overseas voters—400 per constituency. Can Members imagine the threat to MPs up and down this country if frozen pensioners and others decided that they were going to exercise their franchise? With an election coming, a rise in registrations may just help focus the mind of the Government. What drives the decision-making process of the Government? Is it cost saving, or is it about accepting our obligations to meet a commitment to paying pensions regardless of country of residence?

I appreciate that the Minister will have been told by the Treasury not to offer anything. I know that he is a loyal Government servant and I understand his position. Let me, if I may, try to help him by strengthening his arguments with the Treasury. The right hon. Member for Tatton (Mr Osborne), the previous Chancellor of the Exchequer, said during a debate on the Pensions Bill in the 2003-04 session, when acting as the shadow Chief Secretary to the Treasury:

“If the system worked in the way that most people think, it would not matter where a person lived.”––[Official Report, Pensions Public Bill Committee, 18 March 2004; c. 256.]

I have to say that, on this occasion, I agree with him; it should not matter where a person lives. I appeal to the Minister to reflect on the words of his friend, the former Chancellor of the Exchequer. Those words were spoken when the right hon. Gentleman was in opposition, but each and everyone one of us should be judged by our deeds in government. It is not good enough to say the right thing when in opposition and then, when in government, claim that it is all about cost. We should be judged by our deeds, and today we have that opportunity. I implore the Minister to do the right thing on this issue today.

I have faith that the Minister will listen to reasoned argument and recognise that this is an injustice that needs to be corrected. Let me deal with the issue of affordability. The Government like to claim that the cost of unfreezing pensions is unaffordable. Ministers have sometimes cited numbers in the billions, but any such claim is highly misleading. The motion for debate proposes the withdrawal of the Social Security Benefits Up-rating Regulations. That would include previously frozen pensions in this year’s 2.5% increase, which would cost £30 million. Assuming that this inclusion continued in subsequent years, the total cost would rise by around £30 million extra each year.

The ICBP has historically campaigned for pension parity, bringing currently frozen pensions up to UK levels immediately, which would cost £580 million, but that is not what is being proposed today. Any higher number cited by the Government involves looking at the cumulative cost over a longer period, which is not how new policies are usually assessed and is therefore misleading. The additional cost of uprating at 2.5% over the next five years would have a cost in year one of £30 million, rising to £33 million by year five, by which time it would have a cumulative cost of £158 million. Let me put that in context: the bill for UK state pensions is currently £86.8 billion. Partial uprating is equivalent to 0.03% of current pension spending.

Let me assist the Minister again. We are all aware that there is a separate national insurance fund, and we know from the Government Actuary’s Department that it is anticipated that that fund will have a surplus of £30.7 billion this year. Clearly, the cost of doing this can be met from the surplus that currently sits in the national insurance fund. Of course this is affordable. This is about our obligation to our pensioners and the human cost of not meeting those obligations. We need to listen to the voices of those who are discriminated against by our failure to pay full pension entitlement.

I will close now with some quotes. I know that the hon. Member for North Thanet has eloquently presented us with some human experiences, but let me just add to them, because at the end of the day it is the cost for the individuals that should concern us. Abhik Bonnerjee is 72 years old and now lives in Kolkata, India. After contributing to the British economy for 38 years, he is now scared of losing his home as he is struggling to survive on his frozen pension. He is considering moving to an unfrozen country. He said:

“The Government should be doing more, especially for Commonwealth countries, and MPs can’t explain why they are not.”

Bernard Jackson, 91, moved to Canada, but was forced to return to the UK in order to obtain his full pension. He said:

“I was brought up to believe that Britain was a fair country. It’s a disgrace, it has to end. It’s terrible to meet pensioners over here who say they have to come back to Britain because they can’t manage.”

[Mr Virendra Sharma]

This is an opportunity for the Minister to say today that Britain is still a fair country, so that the people can get social justice in other countries.

[Ian Blackford]

I am grateful for that intervention. I agree with the hon. Gentleman, and it is up to us to demonstrate that fairness. Why should people who have emigrated from the UK be put in this position? They have a pension entitlement, but they have to return here to get what is theirs. That cannot be right. That is not something that we should support.

Joe Lewis, 90, lives in Canada and has recently lost his wife. He will be moving back to the UK as he can no longer cope with his frozen pension. After suffering a severe fall, Joe is increasingly struggling to afford living and medical costs. The only way he can make ends meet is to use up all his savings. Joe says:

“All I want is my full state pension, which I have paid into my entire life.”

Why should Joe not get something for which he has paid? That is the salient point. Joe and everyone else we are talking about have paid national insurance. This is an entitlement.

George Gray, 77, now lives in South Africa. He paid national insurance for 48 years until reaching retirement at 65. He was completely unaware of frozen pensions until it came to applying for one. He states:

“I was even told that getting our state pension was not a right, but merely a benefit from the British Government that could be amended at any time - but I’ve paid for it all of my working life.”

Anne Puckridge, 90, now lives in Canada. She worked in the UK up to the age of 76, paying mandatory national insurance contributions, and now has a frozen pension. She says:

“The Government should be doing more, especially for Commonwealth countries, and MPs cannot explain why they are not.”

Jane Davies, 70, now lives in British Columbia, Canada. She worked in the NHS for more than 20 years, helping hundreds as she worked in rehabilitation and elderly care. She was unaware that pensions could be frozen. She has said:

“It’s outrageous when you think that it’s mainly Commonwealth countries that are affected, especially when Canadian pensioners living in the UK receive a full pension.”

That is why the Canadian Government are so exercised about this. They pay a full pension to their citizens living here, and yet we fail to reciprocate.

Wendy Moss now lives in Australia. She moved there in 2002 and was completely unaware that her pension would be frozen. She says:

“I am looking into a potential return to the United Kingdom, but need to ensure that my family can make the journey back with me.”

In conclusion, these stories are heartbreaking. Let this House show that we can deliver compassion and recognise injustice. Let the Government commit to fixing this issue before we go out and campaign. Let us show that we are prepared to do the right thing. When we are back, I will look forward to legislation being passed to fix this and to fix the injustices for the WASPI women as well.

--- Later in debate ---

[Richard Harrington]

Well, it is about the subjectivity of those words, if I may say so. I will try to address some of the points he made, but I cannot successfully answer his cricket team question. However, given that our civil servants will probably have less to do over the next few weeks than they have had to do over the last few weeks, I will formally write to him. As a child, with “Wisden” and everything else, I would probably have been able to answer his question myself, but I am afraid I cannot do that now.

As I was about to say before I was hit for six by that intervention, the United Kingdom state pension is payable worldwide, regardless of the recipient’s country of residence or their nationality. I say that formally on the record because were I a member of the public watching the broadcast of this debate or reading it in Hansard, I could quite easily get the impression, when we talk about scandals and things like that, that people were leaving the country and not getting their pension at all. The state pension is paid to people who are entitled to it when they leave the country, but increased—“uprated” is the expression in this context—abroad every year only when the recipient is in certain areas: in the European economic area, Switzerland, or a country with which the UK has a specific reciprocal agreement that allows for uprating. This is a long-standing policy that has remained consistent for about 70 years, and, as has been said, it has been the policy of consecutive Governments of all persuasions.

I recognise that this subject arouses strong opinions, and some of the language used is very concerning. Please do not think, Madam Deputy Speaker, that I think that the language used has been improper in any way, but it is very strong language about people suffering hardship and so on.

[Ian Blackford]

Does the Minister appreciate that there is clear evidence that people who have gone to live abroad have come back because they do not feel they can manage on a frozen pension? There is clear evidence that people feel that they have been affected quite significantly by that situation.

[Richard Harrington]

I do not disagree with that, but people also return for many other reasons. When people decide to emigrate and live abroad, they do it for a number of reasons. They take into consideration the cost of living generally and the cost of property, or food, drink and entertainment—whatever it may be—and the pension is part of that. Similarly, when they decide to return, part of the reason might be whether their pension increases by the rate of inflation, but I suspect that there are many other reasons as well—for example, ill health, getting older, and family issues. I could not dispute what the hon. Gentleman said—in fact, I would never try to dispute what he says—but it is part of the picture and it is not right just to pick out that particular point.

I felt it my duty when taking on this portfolio to speak to as many people as possible. In November last year, I attended a meeting at Lancaster House—a very grand venue—where there were leaders from the overseas territories. It was a big Joint Ministerial Council. I met many of the people mentioned by my hon. Friend the Member for North Thanet, from Montserrat, the Falkland Islands and elsewhere. They were very impassioned people who gave a series of speeches that were basically saying the same thing. That has been reflected in what has been said today. Several hon. Members, including my hon. Friend, referred to people not having parliamentary representation. That point was made strongly by the hon. Member for Leeds North West (Greg Mulholland). I was born and brought up in that constituency, so I accept what he said about its minority communities; I was a descendant of one of them. I could only say to the people at the conference that I was there to listen. It seemed from what they told me that Ministers of all persuasions have politely declined such an invitation before. I know that this is a very impassioned debate. People do feel very strongly about it, and it is not something that I take lightly.

Several contributors, including my hon. Friend, said that because all workers pay their national insurance contributions towards their state pension there is a moral right that they should receive an uprated state pension wherever they live. Moral rights are very subjective, but I know exactly what was meant. However, the rate of contribution paid has never earned entitlement to the indexation of pensions payable abroad. That reflects the fact that the scheme overall is primarily designed for those living in the UK, and it operates on a pay-as-you-go basis. Contributions paid into the fund in any one year contribute to the expenditure in that year. That is the way that public finance works. The contributions provide a foundation for calculating the benefits, but they do not pay for those benefits.

The hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) mentioned the national insurance fund. It is convenient to bring this up in debates, but in reality there is no surplus in the national insurance fund because it is all used to pay contributory benefits. It is basically a system of public accounting. The £16 billion that was mentioned is two months’ expenditure. It is just an advisory level for the fund suggested by the Government Actuary because it is a prudent working balance. It is not like having a bank account where we can say, “Oh, we’ve got a surplus—let’s use it.”

[Ian Blackford]

We all understand and accept that it is a pay-as-you-go system, but that does not detract from the fact that when someone pays national insurance, it is on that basis that they are earning entitlement from that mechanism. As for the national insurance fund, the surplus is actually £30 billion, and it needs to have—the Minister is right—two months’ cashflow within it, which is £16 billion. So the point remains the same—the money is there to do this.

[Richard Harrington]

I think, as we do on many things, the hon. Gentleman and I will have to agree to disagree on that, but we both fully understand each other’s arguments, I am sure.

The point about cost has been made very coherently. The Government generally take the view, of course, that the first priority is to ensure that older people in this country have an adequate income in retirement. Uprating all state pension payments in full to the rate currently paid in the UK, regardless of the recipient’s country of residence, would cost about an extra £500 million a year, increasing significantly over time. While that may not have been specifically argued for in this debate, people in favour of the motion are talking about a moral argument, not a legal argument. Many of us are here because we believe in moral arguments generally in our political lives, and I hope in our personal lives as well. That is why many of us do the job, so please do not think that I am pooh-poohing the idea of a moral argument. However, both systems of calculating this could be seen as being based on a moral argument.

This debate has been predominantly about so-called partial uprating. I understand this to mean not to uprate fully but to uprate the current level of state pension that the person is receiving through the triple lock or equivalent from a future date, and only pay uprating going forward with no arrears. I had to look at that very carefully when I saw that we were having this debate, because partial uprating can mean different things in different contexts. It is superficially a very attractive argument to say, “We could do this because it’s a few million pounds a year—tens of millions, not hundreds or billions.” It is not like the cost involved in the case of the WASPI women; the hon. Member for Ross, Skye and Lochaber correctly mentioned that some independent research has been done on that, which I have read very carefully. That would cost billions of pounds, but this is about tens of millions of pounds, which, on the face of it, sounds like small change within the full scale of Government expenditure.

Pension Schemes Bill [Lords]

Ian Blackford Excerpts

3rd reading: House of Commons
Wednesday 29th March 2017 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

May I associate myself with the remarks made by the Minister and the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) about the events of last Wednesday? We should reflect on the fact that those events were unfolding outside this Chamber while we were having our debate. Our thoughts are very much with those who, in the line of duty, defended our interests, including the police officer who lost his life, as well as with the others who lost their lives, those who have been injured and all those who have been affected.

As we have this debate, we should reflect on the responsibility that all Members have to build an architecture that creates a climate in which consumers around the UK can safely invest in pension schemes and savings, and in which there is an element of trust. I broadly welcome the Bill’s role in improving the landscape. It is an important step forward in so far as it puts in place the necessary protection for those who are investing through auto-enrolment. It is crucial that we have the regulation in the Bill.

Like the Labour spokesperson, the hon. Member for Oldham East and Saddleworth, I would have been happier if the Government had accepted some of our amendments. Having said that, I was very much encouraged by the Minister’s response last week, particularly to an amendment I tabled regarding section 75 of the Pensions Act 1995. I welcome the commitment to revisiting this issue. As has been said, the Bill has to be seen in the wider context of what we are seeking to achieve on pensions.

Two of my new clauses were not selected for debate, one of which was on the establishment of a pensions and savings commission. I still believe that the Government should consider that proposal, because an awful lot is going on in this landscape, some of which was described by the hon. Member for Oldham East and Saddleworth. There is the forthcoming review of auto-enrolment. We have had the Cridland review, the Green Paper on defined-benefit pension schemes and the FCA paper. I think that there is a willingness among all of us to work collegiately to improve the interrelationship of all these factors. I look forward to the debates that we will have in taking this forward. This all comes back to my point about how we can create further confidence so that we get effective saving in the pensions landscape.

I put this in the context of the Green Paper, one of the most striking features of which is the indication at its beginning that the average defined-benefit pot is £7,000. We all have to accept that pension savings are not at an appropriate level. We all want people to save to such an extent that they can have dignity in retirement through both their workplace pension and the state pension provision. I look forward to working with the Government on the review of auto-enrolment. While we are improving the protection for today’s consumers, we need to do more to protect other people, particularly a lot of women who have been excluded, such as those in part-time jobs who are below the threshold, and the self-employed.

I applaud the Government for what they are doing. While the Bill is a very necessary step forward, there is much more that we can do by working together for the mutual benefit of those who invest in pension schemes.

Question put and agreed to.

Bill accordingly read the Third time and passed, with amendments.

Oral Answers to Questions

Ian Blackford Excerpts

Monday 27th March 2017 Commons Chamber

[Richard Harrington]

I would like to be able say that it is enough, but I do not think it is. The steps we intend to take should make prosecutions for scam cold calling much easier. If I am asked the question again in the future, I hope to be able to answer in the affirmative.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

On the issue of accurate and clear information, the Cridland report, published last week, stated:

“An increase of the State Pension age every ten years—and by only one year per decade—represents an appropriate pace of change”.

Does the Minister agree with that statement? If so, will he revisit the issue of the WASPI women, who face an increase in the state pensionable age of more than five years this decade?

Pension Schemes Bill [Lords]

Ian Blackford Excerpts

Wednesday 22nd March 2017 Commons Chamber

In conclusion, I am concerned that a lack of transparency in the scheme is a problem, and that that problem lies with insurance companies and master trusts. I am concerned about the low paid; the person with multiple jobs; women; people under 22; carers; and the self-employed, who have not been looked after by this Bill. I am concerned that the Government have removed the funder of last resort clause, which the Labour Lords succeeded in putting into the Bill. These are all issues that, I assure the Minister, we will continue to debate. However, for now, I look forward to his response to the new clauses and amendments I have highlighted.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

I rise to speak to new clauses 6 to 9 and amendments 5 to 9. I am disappointed that new clauses 10 and 11 were not selected for debate.

--- Later in debate ---

[Mhairi Black (Paisley and Renfrewshire South) (SNP)]

Does my hon. Friend agree that it is because of such examples as he has touched on of unincorporated businesses at risk of losing personal assets that it is so pertinent that the Government bring forward the solution right now rather than wait for the opportunity to pass?

[Ian Blackford]

I am grateful to my hon. Friend, who is absolutely right. These are complex issues. That is why we make the suggestion that we are willing to work with the Government on this. We have to find a solution to this because at the end of the day ordinary people who have done the right thing could now be faced with losing their house, and that cannot be right. This issue has to be resolved.

There are a number of options for the UK Government to consider but each one has complications for the pension schemes, employers and scheme members. We urge the Government to weigh up the interests of employers with the need to protect benefits for pension scheme members. The former Pensions Minister in the other place, Baroness Altmann, indicated that she would look closely at how a solution could be reached to this complex issue. We need the same assurances from the Minister that he will work to find a solution for the industry and use this Bill to bring forward a solution.

SNIPEF’s four objectives are to achieve an amendment to section 75 debt legislation, as its main concern is for those involved in the unincorporated businesses that my hon. Friend mentioned who are at risk of losing their personal assets including their homes. It wants the Government to conduct a review of the actuarial methods used to value pension scheme liabilities, as it believes that the calculation of section 75 employer debt on a full annuity buyout basis is inappropriate and detrimental to non-associated multi-employer schemes given current economic conditions. It argues that orphan debt in any non-associated multi-employer scheme should be excluded from the calculation of section 75 employer debt. It suggests that provided the scheme is deemed to be prudently funded, the PPF acts as guarantor of last resort for orphan liabilities. It also believes that any changes in legislation should apply retrospectively to all employers from 2005. It would be helpful to get the Government’s view on this request. SNIPEF recently met the Minister, and it has advised SNP MPs that he confirmed that the objectives may have been incorporated within the Green Paper. We are now interested to hear the Government’s view as to whether they have identified a solution.

I want briefly to make passing reference to my two new clauses that have not been selected for debate, and signal my disappointment about that. New clause 10 would require the Secretary of State to identify support for women affected by the changes to the timetable for state pension age equalisation. We are disappointed that a pensions Bill has not been brought forward to deal with the pressing injustices within the pensions system.

[Mhairi Black]

Does my hon. Friend agree that by missing this opportunity the Government are wilfully ignoring it, much like they are ignoring the WASPI women themselves?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We do not discuss new clauses that have not been selected. We have to deal with what is before us and that is the new clauses on the selection list. I know that the hon. Gentleman wants to stay in order by dealing with those, not those that have been omitted.

[Ian Blackford]

Thank you, Mr Deputy Speaker; I am happy to receive the guidance that you have given me. I simply wanted to put on record that we had missed the opportunity to debate the measures today. I know that we will have the opportunity to raise these two issues again, so I will skip on without making any further reference to them.

The SNP believes that we need to look holistically at the problems inherent in the system and build on opportunities such as auto-enrolment. Only by giving pensions thoughtful consideration can the Tories get this right. With alarm bells ringing about the injustices facing the WASPI women, and concerns that we could see another hike in the state pension age, even the idea that the Government are contemplating reviewing the triple lock post 2020 is deeply troubling. If I may say so, we know that only by delivering an independent Scotland can the SNP deliver dignity in retirement.

I turn to amendment 5, which would mean that the financial sustainability of the scheme funder had to be taken into account when assessing the financial sustainability of a master trust scheme. The Association of British Insurers has told us that insurance companies already hold a very significant amount of capital under the European regulatory framework for insurance, solvency II. In our view it would not be reasonable, nor is it necessary, for insurers to be required to hold separate or additional capital on top of that to meet their new obligations as master trust providers under the Bill. We would like to hear assurances from the Government that insurers will be exempt if they already adhere to FCA and PRA regulatory and financial sustainability requirements.

Amendment 6 allows for exceptions to the requirement that a scheme funder must only carry out activities directly relating to the master trust scheme for which it is a scheme funder. Amendment 7 makes provision for the Secretary of State to define “restricted activities” by regulation, including a list of specific activities restricted to minimise the risk of loss by master trust scheme funders. Through these amendments, we acknowledge that there may be circumstances in which the scheme funder requirements in the bill should not apply. The amendments state that the requirements need not apply to firms whose activities are already restricted by virtue of existing regulation.

The ABI has said that, in particular, the Prudential Regulation Authority rules mean that insurance activities of the scheme funder that are not directly related to the master trust scheme are transparent and do not threaten the solvency or sustainability of the master trust. The ABI says:

“This is a sensible and pragmatic approach”.

It would be useful to understand what additional requirements will need to be met for firms to be exempt from the scheme funder requirements. It would also be helpful to gain an assurance that the Government are committed to working with the industry throughout the development and consultation process for the regulations.

Amendments 8 and 9 provide the Pensions Regulator with an alternative to stopping payments to the schemes under section 5(b) of a pause order. Amendment 9 is consequential on amendment 8. The Bill creates a new power enabling the Pensions Regulator to make a pause order requiring certain activities to be paused once a trust has experienced a triggering event. That includes accepting new members, making payments, accepting contributions and discharging benefits. The TUC is concerned about the impact of a pause order on a member’s savings because there are no mechanisms in place to allow ongoing contributions to be collected and held on behalf of a saver. We contend that it is unacceptable for a member to be penalised, and in effect to lose wages in the form of employer contributions, because of events out of their control. The Society of Pension Professionals has said that it will be necessary to ensure that the period of effect of a pause order cannot start before the trustees actually receive notification of the pause order. That would mean that any contravention could occur only after the trustees are were receipt of the order. Without this, they argue the trustees could be in breach of a pause order, through no fault of their own, if a direction is not complied with during the period between the date on which the regulator makes the order and the date on which the regulator notifies the trustees of it—for example, if new members joined the scheme in that period contrary to a direction under clause 32(5)(a).

The Government should clarify whether they intend to take action to protect savers now, as we are disappointed that our amendments were defeated at earlier stages. I look forward to hearing the Minister respond. We have sought to work constructively with the Government to enhance the Bill, which we broadly welcome. We affirm our position of wishing to work with the Government where we can to create an environment in which workers can have faith and trust in pension savings.

We should all desire to develop a landscape in which pension saving is encouraged, allowing us to ensure that all our pensioners—from both their own provision and the state pension—have dignity and security in retirement. The Bill helps us along that road, as far as the regulation of master trusts is concerned. There is more to do to enhance auto-enrolment, and I look forward to working with the Government to take steps to include those who are currently excluded from pension savings, particularly the self-employed and many part time workers, especially women.

In closing, although I welcome the Bill, I reflect on the fact that it was necessary for me to put down a prayer last night on frozen pensions after the Government again brought forward a statutory instrument to freeze the pensions of hundreds of thousands of British pensioners who are being denied their full rights. In pushing the measure through, the Government have denied Members of this House the right to debate the matter. I encourage all hon. and right hon. Members to sign early-day motion 1097. I hope that if we can, as I believe we can, demonstrate broad cross-party support against this measure, the Government will have the grace to bring forward a debate on this matter before recess. This early-day motion has already been signed by Members from six parties, including the Government party. I encourage them to listen to us on this matter, as part of proceedings on the Bill.

Pension Schemes Bill [ Lords ] (Third sitting)

Ian Blackford Excerpts

Thursday 9th February 2017 Public Bill Committees

[Richard Harrington]

The hon. Gentleman is correct, but of course it is at the discretion of the regulator, which will be dealing with all the circumstances. It could also be a very short period—that is the intention. I hope he agrees that the regulator has to have flexibility to deal with the specific circumstances of a particular case.

The scheme would have to be in a triggering event period, which means that one of the key risk events, which I explained previously, has occurred in relation to the scheme, the obvious one being that the scheme funder has become insolvent. Alternatively, the order could be made in relation to an existing scheme if it has submitted its application for authorisation and the decision on that application is not yet final. To satisfy the criteria, further conditions must be met. The regulator has to be satisfied that if a pause order is not made, there is or is likely to be an immediate risk to the interests of members in the scheme or the assets of the scheme.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

I am listening carefully to the Minister. We all understand the circumstances that would end up with a triggering event and what he describes as the potential insolvency of the scheme funder, but we have all been keen to make sure that in those circumstances the assets of the plan holders are protected. I want to tease out with him that scenario where we believe that the funds are protected. On the basis of the fear and alarm that could be spread when people see that their pensions are not being paid, I have a predilection for making sure that both payments into funds, whether it is a new fund that is created in the short term, or payments out of funds are maintained. There is a threat to confidence in master trusts and auto-enrolment if there is a pause in payments being made. On the basis that it always should be the case that the fund assets are protected, although I understand that there are certain circumstances where the regulator may want to take particular action, we have to be careful to scope out exactly what those circumstances might be.

[Richard Harrington]

The hon. Gentleman tries to tease things out from me and I am afraid I have to tease him back by saying that it is impossible to state the particular circumstances of every case. I was going to say later, in response to SNP amendment in this group, that no one wants to cause panic among members. There are many triggering events and there will be cases where the regulator might need to issue one of these pause orders, but they will be sorted out hopefully quite quickly; that is the idea. I do not see how, in those circumstances, writing thousands of letters to people would not cause precisely the kind of panic and lack of confidence that we are all trying to prevent.

I will return to that point. As with everything in the Bill, this is not a question of one side making stupid points and the other making sensible points; this is about trying to envisage different circumstances that might arise. It is my duty and my job to make sure that the regulator has flexibility, although I quite understand the hon. Gentleman’s point of view.

[Ian Blackford]

I absolutely understand and have no reason in principle to believe that the regulator may not have to have such a power. However, I am trying to understand what kind of event might lead to such action taking place if it is the case that plan holders’ assets are protected. Is it to do with any particular costs of administration for delivering all this? I am not clear what kind of event might lead to such action having to be taken.

[Richard Harrington]

It has been mentioned that, for example, suspicions of fraudulent activity might, in extremis, be such an event. Alternatively, the regulator might not yet be satisfied with respect to the administration of the scheme. The pause order clause is intended to apply in extremis. I am certain that most things will be taken care of in the normal course of things, but we felt that the regulator needed that power in extremis. That does not necessarily mean that the sky has to be falling in. A pause order might be used to concentrate people’s minds on resolving the situation quickly. Nevertheless, the power is there. It can be used

“during a triggering event period…if…the Pensions Regulator is satisfied that making a pause order will help the trustees to carry out the implementation strategy.”

The order is designed for quite particular and limited circumstances. I know that we keep using sledgehammer and nut analogies—on Tuesday I mentioned kernels— but I really believe that if it did trigger the kind of communication that the Opposition referred to, it might cause a major panic, which is something that we have to avoid and that the system exists to resolve.

--- Later in debate ---

[Ian Blackford]

It is a pleasure to see you back in the Chair, Mr Rosindell. I know that, in the interests of brevity, we are considering this slightly the wrong way round, in that I will speak to the amendment that the Minister has already responded to.

We all share the desire to ensure that the plan holders’ funds are protected in both the accumulation and decumulation phases. We are concerned about the impact of a pause order on a member’s savings, as there are no mechanisms in place that allow ongoing contributions to be collected and held on behalf of the saver. I know that the Minister has said that there are issues about where the funds would go and what kind of protection would be given, but those are exactly the kinds of things that we have to resolve in this Committee. It is clear that any additional contributions that savers make at a time of a pause order have to be protected properly, but surely it is within our gift to architect that properly.

It is unacceptable that a member should be penalised, and in effect lose wages in the form of employer contributions, due to events that are out of their control. The Society of Pension Professionals has also said that it will be necessary to ensure that the period of effect of a pause order cannot start before the trustees receive notification of the pause order. That would mean that any contravention could occur only after the trustees are in receipt of the order. The society argues that without that notification, the trustees could be in breach of a pause order through no fault of their own if a direction is not complied with during the period between the date the regulator makes the order and the date the regulator notifies the trustees of it. That could happen, for example, if new members joined the scheme in that period contrary to a direction under clause 32(5)(a). The Government should clarify whether they intend to take action to protect savers.

[Richard Harrington]

Mr Rosindell, before we end our debates on this clause, I would like to make a point of clarification regarding an error on my part. In previous sittings, when I was referring to the regulations generally, I said that they are subject to the affirmative procedure. However, I made a mistake in referring to clause 28 in that context, because the negative procedure applies there. I apologise for that. Obviously, it was not done on purpose. I hope that Members will forgive me.

Regarding the amendment itself, I have adequately covered the points that have been raised, and I reiterate the Government’s position that we reject the amendment.

--- Later in debate ---

[Alex Cunningham]

I am afraid I have to disappoint the Minister. I am not going to withdraw the amendment. The bottom line is that there is always a real possibility—a quite long word with an extremely long meaning—that there could be a failure in the system, and that failure could result in a loss of income to some of the most vulnerable people in our society. For that reason, I intend to press the amendment to a Division.

[Ian Blackford]

I will support the amendment. We have to feel satisfied that there are reasoned arguments why a pause order should be made and why payments should not be paid to pensioners. I am certainly willing to listen to further arguments, but I do not think a clear case has been put for why it should be made, except in very extreme cases of fraud and so on, and that case has not been made. Equally, in terms of retaining confidence, I wish to press our own amendment on the basis that it is important that plan holders continue to make payments, even in a triggering event. I want to test the will of the Committee and press our amendment to a Division as well.

Question put, That the amendment be made.

--- Later in debate ---

[Richard Harrington]

As hon. Members will be aware, what we are now discussing is not restricted only to master trusts; the rest of our discussions today have been. It is a bit of a change. We are now talking about all occupational pension schemes.

The clause will cap exit charges and member-borne commission, which is the sort of thing we all want. Like most of the measures in the Bill, it relates to what we all accept is a problem; in this case it is exit charges—where they come from, who pays them, how they are calculated and so on. The hon. Gentleman refers to protecting members, which I perfectly understand, but that is the point of the legislation. I say that in case anybody reading about the Bill in Hansard or elsewhere thought that the Opposition were trying to protect members and the Government were not. The intention of the Bill is to protect members. I have laboured that point—I hope that the hon. Gentleman will excuse the pun on his party’s name—because it is fundamental.

The clause amends the existing legislation—the Pensions Act 2014—to allow regulations to be made that enable a term of a relevant contract on charges to be overridden if that contract conflicts with a provision in those regulations. I emphasise that the power will allow for a contract to be overridden only if it conflicts with a provision in the regulations, which will ensure that relevant contracts are consistent with regulations and will provide certainty to the parties involved.

At this point it might be helpful if I clarified that the clause is distinct from previous clauses in the Bill that refer to charges, which all relate to the proposed master trust authorisation scheme. The discussions on charges and capping before now were specific, whereas this discussion is general. We intend to use the clause alongside existing powers in the 2014 Act to make regulations clearly to cap or ban early exit charges. Those charges are any administration charges paid by a member for leaving their pension scheme early when they are eligible to access pension freedoms, which in the past they would not have faced at their normal retiring date.

I mentioned early exit charges before in a different context. Cynical commentators might say that providers impose those charges to take advantage of a situation—a kind of last hurrah—because they know they are going to lose the value of a pension. The industry’s converse argument, which I have some sympathy with, is that they calculate the value of a pension over a period of years, and early exit means that value may then be x years minus 10. That is not a ridiculous argument, but the Bill makes it clear that the Government do not have much sympathy for it.

As has been mentioned, the Financial Conduct Authority will make rules to ensure that the cap or ban on early exit charges in personal and workplace pension schemes, which they regulate, will comes into effect on 31 March 2017. That has already been approved by Parliament through amendments to the Financial Services and Markets Act 2000, which broadly allows for a contract to be overridden. The consultations we undertook on early exit charges and member-borne commission showed that the charges generally arise in contracts between trustees or managers of certain occupational pension schemes and those who provide administration services to the scheme.

Our existing powers in schedule 18 to the Pensions Act 2014 enable us to make regulations that override any provision of a relevant scheme where it conflicts with a provision in those regulations. For example, we have used that power in relation to the appointment of service providers in the scheme administration regulations. The reason we are taking this new power is that the existing power does not extend to the contracts under which these charges arise. That is why clause 42 contains a power to allow the overriding of a term of a relevant contract that conflicts with a provision of the regulations under schedule 18. What is a relevant contract? It is defined as one between a trustee or a manager of a pension scheme and someone providing services to the scheme.

The regulations that we intend to make will apply to charges imposed from the date the regulations come into force, even where these arise under existing contracts. We expect the regulations to come into force in October this year, so it is not a long difference. It is a difference for legislation reasons, but on the scale of things it is not a lot.

[Ian Blackford]

rose—

[Richard Harrington]

If the hon. Gentleman would bear with me, I will answer the question asked by the hon. Member for Stockton North before giving way, unless it is really urgent.

[Ian Blackford]

My point is in relation to new clause 8, which I have tabled. I want to be clear that the Minister is saying that there will be no exit charges for anyone exiting a master trust, whether a new saver or someone who is currently in a master trust plan. If the answer is in the affirmative, I would be happy not to press new clause 8, because it would be superfluous.

[Richard Harrington]

I will come to that point in a minute, if I may first respond to the question from the hon. Member for Stockton North—I am not ignoring what the hon. Gentleman has just said, but I think that the answer will become apparent.

There was public consultation in 2015 that concluded in August. Since then we have had various discussions with providers and other industry bodies; we are really trying to get everyone involved. Again, we do not want to be unfair to one side or to create loopholes that should have been anticipated. I think that the hon. Member for Stockton North will accept that this area is complex.

--- Later in debate ---

[Richard Harrington]

If I may, I will answer the question from the hon. Member for Ross, Skye and Lochaber concerning new clause 8 and the point about no exit charges from a master trust. I confirm that when a master trust is closing the scheme cannot levy a charge for leaving. I believe that responds to his question, unless I misunderstood it.

[Ian Blackford]

No, I do not think it does. To be absolutely specific: in any circumstances of any exit of an individual from the master trust there would be no exit fee. If the Minister is responding to that statement in the affirmative, I would happily withdraw new clause 8, if that is permissible.

[Richard Harrington]

When the master trust is closing it cannot levy a charge. That is as clear as I can be. Perhaps we can discuss the point in more detail. I am not trying to mislead the hon. Gentleman and he knows that, I hope.

The pensions market is continuously evolving and modernising and that extends to charging practices. It may be necessary to alter the charges requirements at pace to reflect any changes in the pensions market that may disadvantage members. I revert to the point I made to the hon. Member for Stockton North: that is the purpose of the whole exercise; we are doing it for that reason. That is why we intend to consult on the draft regulations later this year. I am aware that people outside the House, and sometimes hon. Members, groan when a further consultation is announced, as though the Government are doing it to kick the can down the road. I can assure them that that is not the case. We intend to get it right and public consultation is very important.

The regulations would also be subject to parliamentary scrutiny, as I have explained, through the negative procedure. The Delegated Powers and Regulatory Reform Committee was content with that approach because it would allow future legislation to be amended quickly to provide the member protection that the hon. Gentleman and I both want.

Before I conclude on this clause, I will address the point made by the hon. Member for Ross, Skye and Lochaber. I have learned the name of his constituency now and look forward to visiting. He was satisfied by my answer to his earlier question but he wants to know what happens if the master trust is not closing. In that case, the normal exit charge protections apply; there is no difference. I believe that is a clear answer to his question.

--- Later in debate ---

[Ian Blackford]

The proposed new clause contains a principle that I think we would all like to encourage concerning member engagement. There is the issue of democracy and the fact that these are members’ funds, and I think that we all get that point. The salient point for me is that addressed by other hon. Members: trustees are to act in the best interests of their members. We all recognise the duty and obligations that trustees must have. It is important, whether they are independent or member trustees, that they are aware of their responsibilities.

The key matter, in what is becoming a very complex world, rightly with increasing regulation, for which we understand the reasons, is that trustees can discharge their obligations and duties. Although I would encourage member trustees to be involved, and it is important that they are given adequate training, I would find it difficult to support the compulsion in the proposed new clause that member trustees must make up 50% of the board. That would be the case in an ideal world.

[Alex Cunningham]

I did not say 50%. That was an example. We would need a situation in which we can have some member trustees.

--- Later in debate ---

[Ian Blackford]

Reference has been made to member trustees making up 50% of the board, which is something I could not support. I can support the general principle that member trustees should be represented, that there should be elections and that they should be able to take the time they need to devote to this and get proper training, but I cannot support at this stage having compulsion as part of that, on the basis of the responsibilities that trustees have to represent all member interests.

[Craig Mackinlay]

I can understand the laudable aims of the hon. Member for Stockton North, but where such boards have had member participation, the reality has not always been a fantastic success. I had an oblique interest in the Maxwell pensions fiasco because I belonged to a firm of chartered accountants appointed to look into that big mess, so I have some experience of that. I was also a member of the Joint Committee that looked into the BHS pension schemes, which also had member participation. That really did not come out as a great success. There was no issue of fraud, but were those employee members really tough enough to stand up to an overpowering sponsoring employer?

What we have is different from the occupational pension scheme arrangement, for which I think it is good, right and proper for its members to participate. We are considering master trusts, in which thousands of employers may be involved. I am sure that there may be only a few hundred master trusts that would bother to adhere to the new clause’s regulations after they come into place. The National Employment Savings Trust is probably going to be the biggest master trust for some time to come, with possibly millions of employees involved, and I cannot understand how on earth we could have an election process involving millions of people and different employers.

--- Later in debate ---

[Craig Mackinlay]

I thank my hon. Friend for outlining further the complexities of what the hon. Member for Stockton North is proposing. What we are looking for from master trusts is that they are well run, safe and that they actually perform for the pensioners of the future. With the greatest respect, the administrative costs of what he is proposing could actually outweigh any positive parts that he thinks will come out of it, so I cannot support his new clause.

[Ian Blackford]

I know that the hon. Member for Stockton North has stated that he is not asking for a majority of trustees to be elected, but that is exactly what new clause 1 calls for—it calls for at least half of the trustees of a scheme to be member trustees. I just wanted to clarify that point. For that reason, I cannot support the new clause.

Question put, That the clause be read a Second time.

Pension Schemes Bill [ Lords ] (Fourth sitting)

Ian Blackford Excerpts

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

[The Chair]

I understand that following the debate this morning, Mr Blackford no longer wishes to move new clause 8. Is that correct?

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

That is correct.

New Clause 11

Asset protection for unincorporated businesses

“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses at risk of losing their personal assets including their homes.”—(Ian Blackford.)

Brought up, and read the First time.

[Ian Blackford]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss the following:

New clause 12—Review of actuarial mechanisms for valuing pension scheme liabilities—

“Within six calendar months from the day on which this Act comes into force, the Secretary of State must conduct a review of the actuarial mechanisms used to value pension scheme liabilities under section 75 of the Pensions Act 1995.”

New clause 13—Non-associated multi-employer schemes: orphan debt—

“The Secretary of State must, by regulations, exclude from the calculation in section 75 of the Pensions Act 1995 the orphan debt in any non-associated multi-employer scheme.”

[Ian Blackford]

It is a pleasure to serve under your chairmanship, Ms Buck. I thank the Committee for its assistance in taking new clauses 11 to 13 earlier than planned.

New clause 11 would help to deal with an issue facing plumbers in Scotland. Plumbing Pensions (UK) Ltd was established in 1975 to provide pensions for the plumbing and heating industry UK-wide. The scheme is managed by a group of trustee directors appointed from nominees of the Association of Plumbing and Heating Contractors in England and Wales, the Scottish and Northern Ireland Plumbing Employers Federation and Unite the union. The scheme has more than 36,000 members and assets in excess of £1.5 billion.

Under section 75 of the Pensions Act 1995, employers may, in certain circumstances, become liable for what is known as a section 75 employer debt. That debt is calculated on a buy-out basis, which tests whether there would be sufficient assets in a scheme to secure all members’ benefits by buying annuity contracts from an insurance company. Legislation specifies that a section 75 employer debt becomes payable when an employer becomes insolvent, winds up, changes its legal status or ceases to have any active members in the scheme. Although we must be mindful that the purpose of those rules is to protect pension benefits, the way they are currently framed creates problems for some stakeholders, and we are sympathetic to SNIPEF’s concerns, which I know it has also raised directly with the Minister.

The solution is not clearcut. There are several options for the Government to consider, but each has complications for pension schemes, employers and scheme members. We urge the Government to balance employers’ interests with the need to protect benefits for scheme members. The previous Pensions Minister, who sits in the House of Lords, indicated that she would look closely at how a solution to this complex issue could be reached. We need the same assurances from the current Minister that the Government will work to find a solution for the industry. They could use the Bill to bring forward such a solution.

SNIPEF aims to achieve an amendment to the section 75 debt legislation. Its main concern is for unincorporated businesses where people risk losing their personal assets, including their homes. It wants the Government to review the actuarial methods that are used to value pension scheme liabilities, as it believes that given the current economic conditions, the calculation of section 75 employer debt on a full annuity buy-out basis is inappropriate and detrimental to non-associated multi-employer schemes.

SNIPEF argues that orphan debt in any non-associated multi-employer scheme should be excluded from the calculation of section 75 employer debt. It also suggests that, provided that schemes are deemed to be prudently funded, the Pension Protection Fund should act as guarantor of last resort for orphan liabilities. SNIPEF believes that any changes in legislation should apply retrospectively to all employers from 2005. It would be helpful to hear the Government’s view on that request.

As I mentioned, SNIPEF recently met the Minister, and it has advised several MPs that he confirmed that those objectives could be incorporated in a Green Paper, but I want to use the opportunity of the Bill to address these matters. We are eager to hear whether the Government intend to include a solution in the Bill, and I look forward to the Minister’s comments.

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

It is appropriate, given the temperature in which we are working, that plumbers are mentioned. I only wish that some of them were in the Public Gallery to make repairs so that hon. Members would not have to wear their coats.

I joke about that, but I accept that this is a serious matter. When it was brought to my attention, it was my duty and pleasure to meet representatives of not just the plumbers but others. The Government are not ignoring the issue. Although some stakeholders have run an effective public campaign, as is their right, it was the job of the Department for Work and Pensions anyway to get to grips with this, despite the fact that MPs have contacted us individually, such as the hon. Member for Ross, Skye and Lochaber—

[Ian Blackford]

Well done!

[Richard Harrington]

Thank you. I have finally got it. I shall provide tuition for other hon. Members.

This issue is important. For the record, I should remind hon. Members who are not as familiar with it as the hon. Member for Ross, Skye and Lochaber why the employer debt legislation is in place. It is to help ensure that members of salary-related occupational pension schemes receive the pensions they worked for and have been promised when their own employer cannot provide them. I think everyone would agree that that is a noble aim. Were that not a rule, it would have led to even more difficulties.

When I see representatives of those in such positions, I try to think about this key question: if they are not responsible for the debt, who is? Someone has to be responsible for it. As hon. Members will have picked up from the hon. Gentleman’s speech, people who have been working quite properly and, typically in this field, running their own businesses find themselves with—I do not know what the legal term is—a contingent liability that could be called upon. It is not as though they have received an invoice or a demand, or people have been banging on the door to repossess something, but it is understandably on their minds that that could and might happen, which is a serious matter.

[Ian Blackford]

That is exactly the point. We are talking about often small businesses that have done the right things in making sure their employees are protected and have adequate pension provision, but there is a sword of Damocles hanging over them with the worry and uncertainty, caused purely by this debt, that they may lose their businesses and houses.

[Richard Harrington]

I accept the hon. Gentleman’s point. We all agree there is a problem. I do not see how anyone could disagree with that. These people are simply in an unfortunate position, but the Government have to decide, “If not this, what?” and “What are the alternatives?” The hon. Gentleman said, as the groups involved have, that the debt should be passed to the Pension Protection Fund, which everyone would agree has been a very successful mechanism. We mentioned the Maxwell case before lunch. The PPF was intended to deal with failing schemes. It is paid for by the levy payer—by all the successful pension schemes—and I am sure they complain because it is a significant amount of money, but everyone would agree that it has been successful.

In this case, we would place an unfair burden on the PPF, because we are not talking about failing schemes. Many of them are successful and proper. That is why I mentioned a contingent liability. If it is your liability— I do not mean yours, Ms Buck, but anyone’s—it is real to you. It is not quite as real as having an invoice or a demand, but it is there all the time. I do not deny that. However, passing the debt to the PPF would place an unfair burden on the PPF and its levy payers.

Like so many issues facing defined-benefit schemes, the problem is complex and finding a solution is difficult. I accept that it is for the Government to address it. That is what we are elected and paid for. But like everything else in government, there is not an instant, easy solution. It is worth highlighting the fact that the Government have already made significant changes to the legislation in response to representations made by some employers. A number of mechanisms have been made available in employer debt regulations whereby only part of the debt or none may be payable. There are eight such mechanisms in legislation. A wide variety of circumstances can arise, because there are a lot of diverse scheme structures. The best example, which has been discussed with the plumbers and those making similar representations, is flexible apportionment arrangements, which permit an employer debt attributable to the departing employer to be shared among the remaining employers. That sounds attractive, but it is part of a triangle of previous employers, remaining employers and the PPF—it is about which of them gets kicked with this liability. Each group is obviously going to be in favour of the others getting it. I say that not to cast any aspersions or to make a value judgment, but it has to go somewhere, and in the end that is for Government to decide. On the face of it, however, that would be such a solution.

New clause 11 calls specifically for a change by regulations to the employer debt legislation in the Pensions Act 1995. It is aimed at providing protection for the owners of unincorporated businesses. Many of the plumbers who have made representations happen to be self-employed because that is the structure of their business, but they are not self-employed and running a large business. They just happen to be a business owner who is self-employed. A mandatory provision to protect one group of employers from their responsibility for an employer debt, for which there may be personal liability, again boils down to that debt needing to be met in some way by others in order to safeguard members’ pensions. It is true to say that such an approach would also conflict with existing employer debt provision that recognises the wide range of employers who participate in occupational pension schemes. It does not differentiate between different types of business structure in relation to employer debt duties.

Secondary legislation, in the form of the 2005 employer debt regulations, already includes a range of mechanisms to facilitate the management of an employer debt when an employer ceases to employ active members of a pension scheme. The regulations operate so that in some circumstances, only part of the debt or no debt may be payable. Those regulations are currently under review. We had a call for evidence about the operation of employer debt legislation in non-associated multi-employer schemes. We needed to call for evidence because there are losers and winners. It is the role of Government to try to assess interests, and some form of judgment has to be made. This area of legislation is extremely complex, and we have to check and consider things carefully.

I reiterate that we are not kicking the can down the road—it is not that we do not want to make a decision. It is a complex issue, and we are looking to consult on specific proposals in the very near future. In any case, a whole range of new proposals might come about in our Green Paper on defined-benefit schemes. If I say the release of that Green Paper is imminent, that could mean anything from tomorrow onwards, but it will be very soon.

--- Later in debate ---

[Ian Blackford]

I think the Minister will accept that I am trying to be helpful to the Government in trying to find a resolution to this situation. Let us look at the wording of new clause 11 again:

“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses at risk of losing their personal assets including their homes.”

I would be content if we could get an assurance that the Government are willing to work together with us to solve this problem. The Green Paper will be coming forward, and I appreciate that the Minister has said he is prepared to look at this matter and see whether there is a resolution that can be found that would not have any unintended consequences,. I seek assurance from the Government that that will be the case. I know the Minister cannot be too prescriptive about the Green Paper at this stage, but I hope there is willingness to ensure that these issues of actuarial valuations will be taken into account in it.

[The Chair]

Order. I remind hon. Gentleman that he is making an intervention, not a speech.

[Ian Blackford]

Sorry, Ms Buck; I will sum up. I am trying to get to a consensus, so that we can work together on this.

--- Later in debate ---

[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.

[Ian Blackford]

On the basis of the Minister’s response, I will certainly not push the new clause to a vote. We have received assurances that the Government will look at these issues; I hope they will not only be addressed in the Green Paper, but that there is the possibility of legislation as a result of that. I think we all recognise—there is a consensus on this—that we have to make sure we can resolve this problem for the benefit or incorporated and unincorporated businesses. On that basis, I will happily leave things as they are for now. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 2

Investment Strategy

“(1) A Master Trust, after taking proper advice, formulate an investment strategy which must be in accordance with guidance issued from time to time by the Secretary of State,

(2) The Trust must consult scheme members on—

(a) the Trust’s assessment of the suitability of particular investment and types of investment;

(b) the Trust’s approach to risk, including the ways in which risks are to be assessed and managed;

(c) the Trust’s policy on how social, environmental, and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments;

(d) the Trust’s policy on the exercise of the rights (including voting rights) attaching to investments; and

(e) the right of scheme members to consider non-financial issues relating to their investments and be consulted on these issues.

(3) The Trust must review the strategy at least once a year, and revise if appropriate

(4) The Trust must revise the strategy at any time if there is any significant change to the information included in it.

(5) In the event of (4) above, the Trust must consult with scheme members, and the revise the strategy in the light of comments made.

(6) The Secretary of State may make regulations with a view to ensuring that the information disclosed under subsection (1) is provided in a timely and comprehensible manner.”.—(Alex Cunningham.)

A Master Trust must include an investment strategy which outlines what the Master Trust should consult scheme members on in areas of investment.

Brought up, and read the First time.

[Alex Cunningham (Stockton North) (Lab)]

I beg to move, That the clause be read a Second time.

Welcome to our walk-in fridge, Ms Buck. I had a discussion with the Government Whip, the hon. Member for Winchester.

--- Later in debate ---

[Alex Cunningham]

I was talking about the conversation that I had with the Government Whip about whether we should invoke the Factories Act. He reminded me that, unhelpfully, said law does not apply to the Palace of Westminster. The Minister mentioned kicking a can, and I remember playing kick the can in the street as a young boy. Perhaps you can provide us with a can, Ms Buck, and we can have a game after we debate the next new clause to warm ourselves up.

New clause 2 continues our theme of transparency and member engagement. It is designed to improve the way that master trusts consult their members about their investment strategies and ensure that members are aware of the guidelines that trustees establish for the management of members’ assets. The new clause would modernise the approach to fiduciary—I find that word even more difficult to say than “Lochaber”—management of savers’ assets and update the statement of investment principles approach currently required of master trusts. A master trust would have to have an investment strategy and consult scheme members about that strategy and about socially responsible investment—commonly known as environmental, social and governance issues.

Until now, every occupational pension scheme has been legally required to prepare and maintain a statement of investment principles, which is expected to cover the trustees’ plans for securing compliance with their statutory duties, their policies on investments, risks and returns, and how they will exercise their voting rights. In short, it allows trustees to consider factors that they believe will influence the financial performance of their investments and consult members about those issues. As long as pension funds can show that any investment or policy decision was made on a fiduciary basis and members were consulted, they can avoid the charge that they have not considered members’ best interests.

Public opinion tends to position the average citizen as a helpless bystander in this drama, but in fact it is their money that underpins the entire system. Anyone with a pension is, indirectly, an owner of Britain’s biggest companies. The new clause seeks to create a world in which people feel that their savings give them a positive stake in the economy and a voice in how the companies in which they invest are run. Although we may hope or even expect that scheme members have a say, the reverse is true: power has become increasingly concentrated in the hands of a relatively small number of opaque and unaccountable financial institutions. As the Kay report showed, those institutions often face systematic pressures to act in ways that may not serve savers’ interests. Direct accountability to savers is a vital component of a healthy economic and financial system. As millions more savers are about to enter the capital markets through pensions auto-enrolment, now is the right time to build a more accountable system.

In June 2011, the Government invited Professor John Kay to conduct a review of UK equity markets and long-term decision making. The Kay review considered how well equity markets were achieving their core purposes—to enhance the performance of UK companies and enable savers to benefit from the activity of those businesses through returns to direct and indirect ownership of shares in UK companies. The review identified that short-termism is a problem in UK equity markets. Professor Kay recommended that company directors, asset managers and asset holders should adopt measures to promote both stewardship and long-term decision making. He stressed in particular:

“Asset managers can contribute more to the performance of British business (and in consequence to overall returns to their savers) through greater involvement with the companies in which they invest.”

He concluded that adopting such responsible investment practices would prove beneficial for investors and markets alike. In practice, responsible investment could involve making long-term investment decisions, as well as playing an active role in corporate governance by exercising shareholder voting rights.

I hope that master trusts will want to consider the Kay review’s findings when developing their proposals, including what governance procedures and mechanisms are needed to facilitate long-term responsible investing and stewardship through the funds that they choose for members to save into. The UK stewardship code published by the Financial Reporting Council also provides master trusts with guidance on good practice in monitoring and engaging with the companies in which they invest. The new clause would ensure sure that trustees are guided by the members of the scheme whose money they invest.

In recent decades, efforts to improve the way companies are run have focused heavily on making directors more accountable to their shareholders—for example, the recent introduction of a binding “say on pay”—but the job is only half done. Ownership rights are exercised largely by institutions that are themselves intermediaries. Accountability to the underlying savers who provide the capital remains weak. The logical next step must be for institutional investors to extend the same accountability they expect from companies to the savers they represent.

The UK stewardship code was introduced in the aftermath of the financial crisis to address concerns that shareholders were behaving as absentee landlords. Rather than being enforced by regulators, it is a voluntary code that relies on scrutiny from below to promote compliance, mirroring the corporate governance code for companies. The investment regulations currently require master trusts to set out within the statement of investment principles the extent to which social, environmental or corporate governance considerations are taken into account in the selection, retention and realisation of investments, but savers are left out of the loop. Just as I have argued for greater engagement with members on other issues, I believe it is needed here too.

In addition, accountability should build trust in the system even among those who do not choose to engage, thus encouraging people to keep saving. That is an important consideration in a market where just 7% of retail investors trust investment firms to do the right thing and consumers cite lack of trust as the No. 1 reason for opting out of private pension saving. Practical objections on the grounds that savers are not interested or not capable of engaging with their money simply perpetuate a vicious circle of disengagement. Savers may be put off by the language of investment, but that does not mean they are not interested in where their money goes. The onus must be on the master trusts and the wider investment sector to communicate with savers in a way they find meaningful. Likewise, savers may lack understanding of the technicalities of investment, but there are many matters on which they are qualified to comment, including the way their scheme behaves as an owner of major companies or its policy on social, environment and governance issues.

Transparency is necessary, but not sufficient for a more accountable investment system. Savers must also have the right to engage directly with decisions about their money, in the same way that shareholders engage with companies. Of course, we are not suggesting that all savers should be consulted on every decision. In our view, engagement with savers has three key elements. Savers should have the right to be consulted about investment policies, particularly those that should be firmly grounded in the views of savers, such as socially responsible investment policies. It is sometimes argued that since savers will inevitably disagree, acting on their views can prove difficult, but that objection can be refuted by example: schemes such as the National Employment Savings Trust demonstrate the possibilities of using face-to-face engagement with savers to inform the development of policy. Savers should be able to subject decisions made on their behalf to healthy scrutiny and challenge. While companies are obliged to hold annual meetings at which the board accounts to their shareholders, no such requirement extends to pension schemes.

Making capital markets more answerable to the individuals whose money they invest offers a potential lever for rebuilding trust in the City and for promoting more responsible and long-termist corporate behaviour. Such accountability must be nurtured over time by institutional investors such as master trusts, other pension savers and civil society in general. As Mark Carney said back in 2013, if it is

“finance that becomes disconnected from the economy, from society, finance that only talks to itself and deals with each other, that becomes socially useless.”

We have an opportunity here to change the landscape that sees pension savers as passive uninterested participants by engaging with them on decisions that affect their lives. When I started this speech, I said I was continuing the theme of member engagement. The new clause would extend what currently happens in relation to investment decisions, and I commend it to the Committee.

[Ian Blackford]

Before the hon. Gentleman concludes his speech, I wanted to ask about subsections (3) and (4) of the new clause, which state:

“The Trust must review the strategy at least once a year…The Trust must revise the strategy at any time if there is any significant change to the information”.

Can he explain what form that review would take and what role investment advisers would have, if any, in that review?

[Alex Cunningham]

That is an extremely difficult question to answer. [Interruption.] Everyone can laugh, but the Government talk about regulations and laying down guidance, and I hope that they would be able to provide the necessary guidance.

[Ian Blackford]

This is actually a very serious point. The hon. Gentleman’s new clause would require an annual review, so it is pertinent to ask how that would be conducted and what role, if any, investment advisers would have.

[Alex Cunningham]

There has to be a role for investment advisers, but the crux of my point is that members should have some say in the investment decisions that affect them.

[Ian Blackford]

Can I deduce from that that the hon. Gentleman actually has no idea how such reviews should be conducted?

[Alex Cunningham]

That is not exactly the case. It is clear that we need a set of circumstances in which members are properly engaged, equipped and informed. If they are, they will be able to contribute.

--- Later in debate ---

[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.

[Ian Blackford]

I am listening carefully to the Minister, and I broadly agree with him. Obviously there will be ongoing reviews of investment strategy, which should be communicated to members where appropriate. One way in which that could be done, as a matter of best practice for these schemes, would be for a statement of investment principles to be mailed to members as part of the annual report. That would give more clarity on the direction of travel of the fund’s investments.

[Richard Harrington]

As usual, the hon. Gentleman makes a very sensible suggestion, which should be considered. However, I believe that everything in the new clause is already included in legislation and that it is therefore unnecessary, so I urge the hon. Member for Stockton North to withdraw it.

State Pension: Working-class Women

Ian Blackford Excerpts

Thursday 9th February 2017 Westminster Hall

Mrs Tenniswood is a dressmaker. As such, she is often required to get down on her knees to pin and check fittings, and sharp eyesight is essential, given the detailed stitching required. Having done that physically demanding job for 42 years, she was suddenly told she would have to wait another six years for her state pension, during which the condition of her eyesight and joints will worsen as her profession takes its toll on her body. I do not know about you, Mr Flello, but I find bobbing to catch the Speaker’s eye quite tiring; I certainly would not want to be working on my knees in my 60s.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

The hon. Lady is giving a graphic account of the difficulties that Mrs Tenniswood and many other women have faced. Mrs Tenniswood has paid national insurance contributions for 42 years. Is it not the case that somebody in her situation was doing that under the impression that that was a contract with the Government—an entitlement to a pension? The hon. Lady has described how Mrs Tenniswood has had to write and ask for her pension statement, but the Government should have communicated with Mrs Tenniswood. That failure of communication has not allowed people the time to properly prepare, which is the real damage caused by the changes.

[Chi Onwurah]

The hon. Gentleman is quite right—there is a sense of a broken contract between the state and hard-working citizens. The failure to give adequate notice means that the changes could not have been planned for. The consequences of many life decisions that WASPI women have taken are now that they face many years of reduced income that they could not have anticipated.

Mrs Tenniswood’s experience is far from unique. One woman told me that she has a neck injury and spondylitis —two debilitating diseases that would exclude her from many jobs. She said:

“I do not want to be forced to work until I drop.”

Why should she be? Another woman told me that she had recently been diagnosed with osteophytic lipping in her hips. She said:

“I am not so mobile as I once was. I cannot possibly carry on getting in and out of a car with the chemist’s deliveries—”

that is her job—

“30 to 50 times a day.”

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

I had not intended to speak this afternoon, Mr Flello, because I expected the debate to be over-subscribed. I am sad that more hon. Members are not here to speak on behalf of working-class women. I have looked into the figures, and I understand that 2,410 women in my constituency are affected by the changes. The figure for the whole city of Glasgow is 23,100 women. That is no small number; it is a huge number, in a city that has had heavy industry and long-standing economic deprivation. Those women have worked damn hard for that money and they deserve the pension they thought they would get. I am hugely disappointed that successive Governments did not do more to notify them. Those who got in touch with me at my surgeries and through my office spoke of their shock that they were not told that they would not have the life they had planned for their expected retirement after working so hard in so many heavy industries for low pay, sometimes with pay discrimination. They were shocked not to be told and to find themselves without the retirement they had expected.

The number of women who have been in touch with me is nowhere near 2,410. We can all do more every day to make sure all the women affected know that we are on their side and fighting for them. I pay tribute to the WASPI campaign in Glasgow, which is doing so much to achieve that. I was proud to go to the demonstration in George Square last year, but there were not 23,000 people there that day. This is the tip of the iceberg. The women are finding out not from the Government, but through the WASPI campaign, social media, their families and friends and their own networks. That is the sad thing. The campaign is great, but it demonstrates how much these women have been let down.

One woman I must mention—or I will be in serious trouble—is my mother-in-law. She has worked all her life and has had the goalposts moved not once but twice, with loss of access to her pension for six years. She had planned and worked hard for her pension and it is hugely disappointing that the Government have left her in this situation.

[Ian Blackford]

One thing that annoys me is that the Government keep saying that no woman has suffered an increase in their pensionable age of more than 18 months. That is patently not true. As my hon. Friend has just said, some women have seen a six-year increase in their pensionable age. The Government should start telling the truth.

[Alison Thewliss]

My hon. Friend is absolutely right, and I commend his campaigning on this issue. Women have been cheated and it is entirely unfair. The Government expect many of them to seek work. I met a constituent outside Bridgeton Jobcentre a few weeks ago when campaigning against its closure. She was 62 and she was in absolute pieces because she had been called to the jobcentre. She had moved between employment support allowance and jobseeker’s allowance. She is not fit to work. She had been through a traumatic experience. Her daughter had died. She has poor physical and mental health and she told me about her pension age, which has added insult to injury. She has been through enough in her life. She deserves peace of mind and time to enjoy the retirement she should have.

Instead, at the age of 62, the Government expect that woman to go out and seek work, which, given the condition she is in, is pretty unlikely. Having spoken to her, I cannot see that many employers would consider her a good employee prospect, given her circumstances and the experience she has had in life. What employer will say, “Yes, we will take her on. She may be here for a couple of years, if that, because her health is poor, so she might not be here for long.”? Sadly, she is not a good prospect. She has worked all her life and she is tired. She is done and she deserves the time and peace she thought she would have. She deserves a dignified retirement.

Life expectancy in the east end of Glasgow is significantly lower than in other parts of the country and other parts of Glasgow. On the train from Bridgeton to the west end, there is a huge gap of eight to 10 years in the life expectancy of people on the same train line because the heavy industry and its legacy has meant that some women have suffered ill health all their lives. Some have suffered as a result of the industries their husbands worked in. Women were expected to launder their husband’s clothes and have suffered asbestos-related conditions. That has not been recognised well enough. These women have worked very hard and they deserve a dignified retirement.

--- Later in debate ---

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a great pleasure to serve under your chairmanship, Mr Flello. I thank the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) for securing this debate and putting across vividly the impact on women in her constituency. My hon. Friends the Members for North Ayrshire and Arran (Patricia Gibson) and for Glasgow Central (Alison Thewliss) spoke about the human cost of what has happened and the fact that so many women have been denied what is rightfully theirs.

I dearly wish that none of us were here today because the case has been made time after time, and it is time that the Government started to take notice. The phrase, “doing the right thing” has been used, but when reflecting on all that has gone on, not just all our debates but the 245 Members of Parliament who have lodged petitions on behalf of the WASPI women, the Government must respond to the pressures those women have been under.

What we cannot get away from is that the women rightly feel let down and that they have not had adequate communication. The point has been made, and no one disagrees that equalisation should take place, but it must happen fairly. This affects so many women— 2.6 million throughout the UK and 243,900 in my own country of Scotland. Many of those women are working-class and have faced particular pressures. There is an opportunity here today for the Government to admit that a wrong has been done and that effective notice was not given of an increase in pensionable age, and to recognise that the process of increasing pensionable age must be slowed down. It must be slowed down before it is too late.

I want to pick up on the issue of a pension being a right. Frankly, I am sick fed up of hearing the Government say that this is not a right but a benefit. They cannot get away with weasel words, because that is all they are, Minister. All these women, including many of the women sitting here and the women from Newcastle upon Tyne Central, have paid 42 years-worth of national insurance contributions. If that does not give them a right to a pension, I do not know what does. It really is about time that the Government accepted their moral and ethical responsibilities and stopped hiding behind the language that this is not a contractual obligation.

As my hon. Friend the Member for North Ayrshire and Arran said, if what has been done had been done by private pension providers, you can bet your boots that the ombudsman would have been involved. You can bet your boots that those pension providers would have been taken to court, so for once, when you stand up this afternoon—I appreciate that you are not the Pensions Minister and are here in another guise. I apologise for using the word “you”, Mr Flello. I am asking the Minister to recognise that this is not about benefits. It is about women who have paid in, and it is about time that they got their just rewards.

We often hear that the issue is affordability, and the point was made about austerity. The Government cannot run away from the fact that there is a national insurance fund and that fund is sitting, in year 2016-17, with a surplus of more than £30 billion. We have heard about mitigation, and different proposals have been made. We in the SNP have tried to contribute to that by commissioning our own research—the Landman Economics report, which was published last year—and it has been ridiculed and brought into question by the Government.

I have always made it clear that our favoured option, option 2 in the report, which calls for the slowing down of the increase in pensionable age, which would take a further two and a half years, would cost, in the lifetime of this Parliament—I stress “in this Parliament”—an additional £8 billion, but the Government have told us that we are wrong and the figure is £30 billion. The Government should sit down with me and go through our calculations, which are based on the Treasury model. They need to stop traducing the SNP and admit that the £8 billion figure is correct and that they can meet that cost out of the surplus that they have today in the national insurance fund. I say that because the payments into the national insurance fund have come from these women. This is about their entitlement and the fact that in the course of this Parliament, the Government could easily meet that obligation. When will the Government start to listen and actually do the right thing?

Thanks to freedom of information requests, we learnt that the DWP began writing to women born between April 1950 and April 1955 only in April 2009 and did not complete that process until February 2012. It wrote to women to inform them about changes in legislation going back to the Pensions Act 1995, but they had taken 14 years to start the formal notification process. It was 14 years after the legislation had been passed before the Government bothered to write to people. Taking 14 years to begin informing women that a pension that they had paid for was to be deferred is quite something. Can we imagine the outcry if a private pension provider behaved in such a manner? There would be an outcry in this House. Considering that entitlement to a state pension is based on national insurance contributions, the Government have an obligation to act in a fair manner. They have changed the entitlement to something women have paid in for with an expectation of retiring at age 60, and when the goalposts were moved, the Government could not get round to informing the women in a timely manner.

A woman born on 6 April 1953, who under the previous legislation would have retired on 6 April 2013, would have received a letter from the DWP in January 2012 with the bombshell that she would now be retiring on 6 July 2016—three years and three months later than she might have expected, but with only 15 months’ notice. We are talking about 15 months’ written notice that what she thought was a contract the Government had willingly ripped up. That is exactly why the Government have a duty to act: women born in the 1950s have not been fairly treated.

The lawyers Bindmans have published a guide to DWP maladministration in the WASPI women’s case, and let us be in no doubt that it is maladministration that we are talking about in this instance. The paper is a damning indictment of a failure to communicate effectively and directly with the women involved. It refers to the events that led to a change in women’s pensionable age, beginning with a White Paper in December 1993 that stated:

“In developing its proposals for implementing the change the Government has paid particular attention to the need to give people enough time to plan ahead and to phase the change in gradually.”

There is not much there I would not agree with, but when we accept the need for people to plan ahead, we need to write and tell them. The intent was there in the White Paper in 1993, yet it was 2009 before the Government acted.

Then there is the issue of phasing in gradually. I would not define that as increasing women’s pensionable age by three months for each month that now passes. The pensionable age will increase by three months in the month of February and by another three months in March. That is not gradual. It is scandalous that women’s pensionable age is increasing so rapidly. It is not within the spirit of what the Government outlined in their original White Paper.

In October 2002, while giving evidence to a Select Committee, the DWP suggested that the role of the state was

“to provide clear and accurate information about what pensions will provide so that people will understand how much they can expect at retirement before it is too late to do something about it”.

How does the statement

“before it is too late to do something about it”

equate with the 15 months’ notice that women were given? It was far too late, and the DWP must accept that women were not given appropriate notice, and must put in place mitigation. I might add that it was stated that the lead-in time in the original White Paper in 1993 allowed plenty of time for people to adjust their plans, but people can do so only if they are aware of it.

We also had the DWP public policy statement from March 2002, which stated:

“It is widely accepted that the department has a duty to give information or advice to inform the public about any new policies and developments that may affect them and crucially keep them informed on a continuing basis on their rights and responsibilities. It would be unreasonable for the department not to do this.”

I could not agree more. Where, then, were the letters to the women to inform them of the changes? This was 2002. The DWP has to take responsibility for that failure to communicate and, crucially, for the lack of time that women have had to prepare for an increase in their state pension age. Rather than recognising that women deserved to be communicated with directly, the DWP issued leaflets headlined “Equality in State Pension Age”. Can anybody in this Chamber remember those leaflets? No? I did not think so. I do not recall seeing them.

[Mark Pawsey (Rugby) (Con)]

You’re not a woman!

[Ian Blackford]

It is interesting that a Government Member is actually laughing about this, because that defines what the problem is. There are women who are really struggling, and the Government laugh. You should apologise and you should accept responsibility for this and stop demeaning the women—

[Robert Flello (in the Chair)]

Order. The word “you” refers to the occupant of the Chair.

[Ian Blackford]

I apologise, Mr Flello, but you can understand the anger that the women feel. A Member of Parliament on the Government Benches laughing when we are discussing this important issue is beneath contempt, and the Member should actually stand and apologise to the women who have been affected by this, rather than sitting there smugly as he is.

As I mentioned, it is no surprise that women were unaware of the changes because when the DWP commissioned research in 2004 it highlighted that only 2% of respondents mentioned that they had been notified of changes to the state pension age via a leaflet. Perhaps the hon. Member for Rugby (Mark Pawsey) wants to rise and try to defend that—quite frankly, it is indefensible. It is an insult that the Government at the time thought that changes affecting a woman’s retirement age could be dealt with by a leaflet. That is an abrogation of responsibility and each and every Member who refuses to do something is culpable.

We should all receive an annual statement from the DWP on our expected entitlement, just as we do from private pension providers. Why has that not been happening? Do the Government not know where we all live? [Laughter.] It is a fair question. Why were the women not written to? Why have we not had an answer to that question? Why did it take all the years that it did? The case is not defensible—it is shameful—and the way the Government still refuse to accept responsibility is shameful.

The failure to communicate was highlighted by a DWP publication in 2004 called “Public awareness of State Pension age equalisation”, which found that only 43% of all women affected by the increase in state pensionable age were aware of the impact on them. If the Government accept that women were not informed in a timely manner and therefore did not have time to react, why do the Government not accept their responsibilities?

We also know—you couldn’t make this up—that the Government sent out 17.8 million letters to men and women between May 2003 and November 2006 on automatic state pension forecasts but, wait for it, they did not contain any information about the state pension age. That is quite remarkable. Letters were written, but they were just the wrong letters—they did not have the important information. They said, “To find out more about the state pension age for women, please see ‘Pensions for women: your guide’. See page 10 for details on how you can get a copy of this guide.” That is no way to convey information. The Government should have communicated accurate, clear and transparent information. That was another massive failure to communicate.

At some point, rather than hand wringing, the Government have to take responsibility, because 2.6 million WASPI women have been let down. I am going to wind up because I realise that time is pressing. Research in 2011 by the English Longitudinal Study of Ageing found that by 2008 only 43% of women affected by the change were aware of it. Just think about this: over half of women who were expecting a pension at age 60 were going to be denied that. I cannot imagine the shock when they realised that they were not going to get what they thought was rightfully theirs. It is not the women who are at fault; they have paid in, expecting a pension. It is the Government who have let them down and it is the Government who have a moral and ethical responsibility to do something about it.

[Mr Jim Cunningham (Coventry South) (Lab)]

Will the hon. Gentleman give way?

[Ian Blackford]

I will happily give way.

[Robert Flello (in the Chair)]

Order. May I gently suggest to hon. Members that, while I appreciate that there has been other business in the Chamber, we are on the wind-ups and Members really ought to be here for the debate rather than coming for the wind-ups? I will allow my hon. Friend a very brief intervention on this one occasion, because I am sure he has been in the Chamber previously up until now, but I remind Members that they really need to be in for the entirety of the debate.

[Mr Jim Cunningham]

I will be very brief. I apologise, Mr Flello; I was actually over in the Chamber because there were some important debates there as well and I cannot be in two places at once even if I would like to be. This is a timely debate because next month we will have the Budget. If the Chancellor can find billions for high-speed rail and other issues, surely he can find a couple of billion to give these women a decent life.

[Ian Blackford]

That is a very good point. We can find the money for high-speed rail. We can find, at the drop of a hat, £170 billion or more for Trident renewal. We are even due to debate the renewal of this place. If I were given a choice, I would want to make sure that the WASPI women were compensated and not that £7 billion was spent on reforming this place. That can wait, but the WASPI women need their money and they need it today.

The DWP told the Select Committee on Work and Pensions last year:

“Until 2009, direct communication with people affected by increases in state pension age was very limited.”

The Government must reflect on that and on the fact that women have not been properly informed. The Pensions Minister, in a parliamentary answer to me on 23 November last year, stated:

“The Government has committed not to change the legislation relating to State Pension age for those people who are within 10 years of reaching it. This provides these individuals with the certainty they need to plan for the future. We recognise the importance of ensuring people are aware of any changes to their State Pension age”.

We have put an option to the Government that is affordable and is about doing the right thing. The Government should agree with us. Frankly, I do not want to see any of us back here again. It really is about time that when the Minister rises today, she recognises the wrong that has been done. For the love of God, do something—do the right thing.

[Robert Flello (in the Chair)]

Order. May I remind the Front-Bench speakers that in 90-minute debates it is customary to make 10-minute speeches? I am being more generous because we are not so pushed for time, but 10 minutes is expected and not what we just had. Thank you.

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[The Parliamentary Under-Secretary of State for Welfare Delivery (Caroline Nokes)]

It is a pleasure to serve under your chairmanship, Mr Flello. I congratulate you on having chaired this debate in a fair and exemplary manner, and for allowing those Members who were busy elsewhere in the House this afternoon the opportunity to speak, even if just briefly in an intervention. Important debates have been taking place this afternoon, and important work has been done in Bill Committees.

It is only right that I should take this opportunity to thank the hon. Members for Ross, Skye and Lochaber (Ian Blackford) and for Swansea East (Carolyn Harris) for being here. I know that they have been much occupied with the Under-Secretary of State for Pensions, my hon. Friend the Member for Watford (Richard Harrington) in the Pension Schemes Bill Committee, which explains why I am here instead of him. I thank the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) for opening the debate and hon. Members from all parties—and all parts of the British Isles, with the exception of Northern Ireland—who have contributed. It is most unusual for the hon. Member for Strangford (Jim Shannon) not to be present.

In recent decades, there has been a huge shift in how people spend later life. We are living longer, staying healthier for longer and leading far more active lifestyles, regardless of our age. More and more people are proving that age need not be a barrier to achieving great things. Some of the Olympians whom we sent out to Rio last summer were among the oldest athletes on record. I, for one, celebrate the fact that age increasingly places no bounds on those wishing to achieve new goals, try new things and play an active part in society.

The new state pension was introduced as a key reform to the UK pension system. The Government recognised that the pension system needed to change in response to the demographic and behavioural shifts of recent decades. For most people, we know that work is beneficial. It not only provides an income and a bedrock for saving, giving people greater control over their lives but crucially, the evidence shows that for most people, being in work can be immensely beneficial for both physical and mental health. The social and cultural benefits of remaining in work are sorely under-recognised. This Government’s pensions strategy does not focus only on the benefits to people. We know that the skills, experience and talents that older workers bring to organisations are invaluable. Older workers still have an incredible amount to offer.

It is also true that the living standards of pensioners have risen significantly, but we must remember that not all pensioners are in the same position. More than 1 million pensioners rely solely on the state for their income. That is why we introduced the triple lock in 2011 and have committed to continuing it over this Parliament. As well as guaranteeing increases to the state pension, we have fundamentally reformed it. Under our reforms, people will have a much better idea of what their pension will be, bringing more certainty and clarity where previously there was confusion. That design is integral to the Government’s ambition to provide a better foundation on which people can plan and build for a secure retirement. We want to make life easier and more comfortable for people in retirement.

[Ian Blackford]

How can people plan and build for retirement with 15 months’ notice of an increase in their retirement age?

[Caroline Nokes]

The hon. Gentleman will of course know that I am referring to the new state pension. That is exactly why we are introducing it, so that people have more certainty and clarity than previously. As well as being simpler, the new state pension will give more to many of those traditionally less well served in the past. By 2030, around three quarters of new pensioners will get a higher state pension than if the old system had continued. More than 3 million women will get around £550 more each year. It is estimated that women reaching state pension age in 2016-17 will receive more state pension on average over their lifetime than women ever have before. We have also created new pension freedoms that mean that savers have more control over their money and can use it in ways that suit them. In the new pensions marketplace, we are helping people make the right decisions for them through things such as Pension Wise, which provides free, impartial information.

I am pleased that Members from all parties agree that it is right that we have equalised the state pension age for men and women. It is part of the DWP’s wider objective of eliminating gender inequalities in social security provision.

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[Caroline Nokes]

I draw the hon. Lady’s attention to the specific title of the debate, which I believe I am covering: “That this House has considered the effect of state pension changes”. I have dealt with the new state pension thoroughly, and I hope that we will all acknowledge that we have indeed had a significant change with the introduction of the new state pension.

[Ian Blackford]

On a point of order, Mr Flello. I suggest, with regret, that we have not actually discussed the motion in front of us today. Unless the Minister does that in the short time that she has available, when we come to the appropriate point in the debate I will have no option but to move that we have not considered this matter.

[Robert Flello (in the Chair)]

I am not totally convinced that that was a point of order. Let us see how the debate continues.

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[Caroline Nokes]

Sixteen minutes, then.

In addition, independent research by the Institute for Fiscal Studies has shown that employment rates for women aged 60 and 61 have increased as a direct result of the changes in state pension age.

[Ian Blackford]

I must respectfully ask the Minister whether she has any idea of the disrespect that she is showing to the WASPI women by refusing to directly address the point that we are discussing. It has been pointed out that women have not been given effective notice. What are the Government going to do about it?

[Caroline Nokes]

I thank the hon. Gentleman for making another intervention, but he will be aware that I have 15 minutes in which to come to that point, and I have really only just begun.

The Government recognise the particular barriers that women face to remaining in the workplace and we have been quite clear that more action is needed to address them. For instance, we know that women with more children tend to take longer career breaks, which can impact on their retirement income. We also know that giving women the opportunities they need to continue working in later life, whether in a full-time or part-time role, is the best way in which we can help mitigate some of that impact, while of course making provision for those who may be unable to work or may have difficulty working. It is interesting to note that someone who draws on their pension pot at 65 instead of 55 and continues to receive average earnings for those extra years of working could increase their pension pot by half as much again. That is why we plan to do everything we can to change attitudes towards employing older female workers.

On a recent visit to the jobcentre in Eastbourne, I was struck by something that was said to me by a work coach who I met there. It was her view that women aged over 50 and seeking work were the most optimistic of the people she worked with and tried to place into jobs. It was that cohort who were the most open-minded and enthusiastic about trying new roles and learning new skills. My hon. Friend—and, indeed, neighbour—the Member for Eastleigh (Mims Davies), who is no longer in her place, raised absolutely that point. Actually, older women have the most flexibility and, as work coaches have said to me, the most open-minded attitude to trying new roles and being prepared to take on new challenges regardless of age. That is immensely encouraging. It tells me that what the Government are doing through the fuller working lives strategy, which the hon. Member for Newcastle upon Tyne Central mentioned earlier and which was published last week, is the right course of action.

I have seen at first hand the value that offering older workers a new opportunity can have; it can truly transform their lives. I am proud of the commitment that I have witnessed from work coaches up and down the country. The hon. Lady might also recognise that the claimant count in Newcastle, which she referenced earlier, is down by 28% since 2010. The female employment rate in the UK now stands at 69.9%—a near-record high.

[Ian Blackford]

On a point of order, Mr Flello. May I ask for your guidance on whether what we are hearing from the Government is indeed in order, given the subject of this debate?

[Robert Flello (in the Chair)]

Again, I do not think that that is a point of order; it is a matter for the debate.

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[Caroline Nokes]

I reassure that the hon. Lady that I will come to that point.

The fuller working lives strategy adopts a very new approach: it is led by employers, who rightly see themselves as the ones who understand the business case and can drive change. Specifically to support older claimants, the Department for Work and Pensions has introduced older claimant champions from April 2015 across each of its seven Jobcentre Plus groups. It plans to roll the initiative out to each of the 34 districts. These champions will work with work coaches and employers to raise the profile of that age group and highlight the benefits of employing older jobseekers. In addition, the Government Equalities Office continues to work with the Women’s Business Council to tackle the outdated assumptions that some employers make about women, particularly mothers.

In “Building our Industrial Strategy”, our Green Paper published last month, the Government set out how we will test ambitious new approaches to encourage lifelong learning to help adults who want to upskill or move around the labour market during their career. However, we recognise that some women may wish to continue to work and are unable to do so, so we continue to spend £90 billion a year on working-age benefits in this country. The welfare system provides a safety net for those of working age, and there are a range of benefits tailored to individual circumstances. The system is designed to deal with the problems, such as unemployment, disability and coping with caring responsibilities, that affect those who are unable to work and are therefore in most need as they approach their state pension age.

[Ian Blackford]

I suggest to the Minister that she should stop wasting everybody’s time and concede that she is not going to do anything, so that the WASPI women can get on with legal action and take the Government to court.

[Caroline Nokes]

I am sorry that the hon. Gentleman has become so frustrated. He will be conscious that I could still fill another nine or 10 minutes or so. There are some very important points that I would like to make and I am sure that people will want to hear them. If he continues to chunter—[Interruption.]

Pension Schemes Bill [ Lords ] (Second sitting)

Ian Blackford Excerpts

Tuesday 7th February 2017 Public Bill Committees

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

It is a pleasure to serve under your chairmanship today, Ms Buck. This morning seems a long time ago, but when we adjourned I had just risen to confirm to the hon. Member for Ross, Skye and Lochaber that members’ savings are not at risk. The hon. Member for Stockton North might have given the impression of mixing up members’ savings and the funders of the scheme. Though I am sure he knows this, I want to be clear. There are various protections around the savings invested—in trust law, in occupational pensions law and through the regulation of investment managers.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a pleasure to serve under your chairmanship, Ms Buck. When the Minister rose at the end of this morning’s sitting, I had actually concluded, so I will now resume my seat.

[Richard Harrington]

The hon. Member for Stockton North made various points, and I would like to briefly rebut them. I have already made my first point, in response to the hon. Member for Ross, Skye and Lochaber. The Bill adds to the protections by prohibiting increased or additional charges that could be levied on members for the cost of winding up or transfer during a triggering event period, so members’ savings are safe. As was discussed extensively in the other place, the clause addresses the situation where the scheme does not have sufficient funds to pay for the transfer of accrued rights or the wind-up of the scheme during a triggering event period. The Bill provides that a master trust scheme must have resources available to pay for those costs.

The hon. Member for Stockton North asked me a clear question: how frequently will the Pensions Regulator monitor this? To be clear, the supervisory measures allowed for in clauses 14 to 20 state clearly that the regulator is under a duty to authorise these schemes. That is a new approach for the regulator, which will be working with all the master trusts, both before and after authorisation. The regulatory regime is therefore an active process, which rightly focuses the most attention on the highest risk schemes, while maintaining regular contact with all master trusts in the market. It is based on a case management approach, which is not random or ad hoc because it is underpinned by the existing reporting and regulatory framework and activities. Those in turn are strengthened by the new supervisory return and significant events negotiation requirements, which the hon. Gentleman will be familiar with.

The hon. Gentleman seemed to imply that the Government have not made any provision to pick up the pieces if a scheme fails. I maintain that that is not the case. The triggering event regime outlined in the Bill means that the regulator will be closely involved with how the scheme proceeds to resolve its difficulty or close—it has to do one of the two. The regulator already has powers that can be used to support a failing scheme. A good example is the power to appoint a trustee to get into a scheme and act as a trustee—so it can impose a trustee on a scheme and help to sort it out.

The hon. Gentleman also suggested that if the risk is so minimal, the clause does no harm as a back-up measure. He used the sledgehammer and nut analogy, which I think Lord Freud used in the House of Lords, so it is a cross-party analogy. If it is a nut, it might be a small nut, but what is going to happen to the nut? That is not said in a very Hansard-like way, but I think we know what it means. I would say that that underestimates the impact of having an unspecified government intervention of this nature.

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[Richard Harrington]

I apologise if I put words into the hon. Gentleman’s mouth. It is currently unspecified; I agree it could be specified with compensation. The core point and, excuse the pun, the kernel of the nut is that it would still be a Government scheme, with moral hazard.

Secondly, the hon. Gentleman has probably heard significant players in the master trust industry voice serious concerns to us about clause 9. They believe that it could give rise to a rush to exit the market by otherwise successful schemes thinking, for example, that, not unusually in this field, they would have to pay a significant levy over not very much. The hon. Gentleman’s points are all valid in their way but Government have to make a judgment. That is why there is a respectable disagreement over clause 9. We have all thought about it carefully.

I believe the Bill strikes a delicate balance between prevention and self-regulation and Government intervention —something that is very hard to do. The clause would disrupt that balance and confuse the regulatory approach. I do not believe that it is a harmless catch-all. I accept the point, as shown by the banking crisis, Equitable Life and other incidents, that such things happen—I would not say it was because it was a Labour Government during the banking crisis or another Government with Equitable Life that those issues arose. It is not possible to give absolute guarantees, but we can reduce risk to the lowest possible level and that is what the Bill aims to do.

In our view, the risk level is already very low for this type of master trust scheme. That is backed up by the Pensions Regulator’s current information about the very small number of schemes that are in trouble. That will be published but is not quite ready. To create a Government-backed scheme would perversely create a moral hazard, as I have explained.

[Ian Blackford]

I am trying to find a helpful way out of this because I can understand why there is a disagreement. We can all accept that the risk we are talking about is to the master trust itself, not to the underlying assets; that is understood. I can understand the Government’s position on giving a commitment to this, but might there not be another approach? The Pensions Regulator would take the responsibility after a triggering event and it would have the power to step in. We have the power for the regulator to appoint a trustee; perhaps the regulator might have powers in extreme cases to intervene in the short term to ensure that there is a smooth transition. I know that is not directly within the clause but there might be another way to effect this where we can give guarantees.

[Richard Harrington]

I thank the hon. Gentleman for his positive intervention. The regulator has a huge number of powers, and the Bill gives a lot of powers that I think would prevent the problem he is talking about.

The hon. Member for Stockton North is forgetting— I understand why—the general rule that the fraud compensation scheme, which applies in many fields, does and will apply to master trusts. I therefore reject his point about fraud. I am not saying fraud could not happen, but there is already a mechanism in place to deal with that.

In our view, therefore, the risk level is already very low. We are against creating a Government-backed scheme because we think it would create a moral hazard. Schemes are currently working to ensure their systems are robust and we do not want them to feel comfortable that there is an entity that will always bail them out. That would not give comfort to scheme members. Indeed, for the Government to say we feel the risk is large enough to warrant a funder of last resort would create uncertainty—in effect, creating the very problem that the Opposition honourably are saying they are trying to avoid.

Question put, That the clause stand part of the Bill.

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[Alex Cunningham]

I am delighted to serve under your chairmanship, Ms Buck, albeit with a frog in my throat. Our concern with this clause regards the strict nature of requiring a master trust to be a separate legal entity, which could have numerous consequences across the board. Since the contents of the Bill have become known, I have tried to meet as many parties and groups as possible that have an interest in the Bill, to hear their perspectives, thoughts and concerns. This clause came up often. I note that the Minister has tabled amendments to it, which I welcome as a first step towards recognising that the original clause was not fit for purpose.

Amendment 3 widens the definition of the two legal characteristics that a scheme funder must meet in order for a master trust to be authorised by the Pensions Regulator. It gives the Secretary of State greater discretion in exempting a scheme from the second requirement. However, the amendment does not make clear what policy considerations will apply to how that discretion is applied. Will the Minister confirm that insurance companies regulated by the Financial Conduct Authority with master trusts will be exempt from the second requirement, giving members access to the full resources of the insurance company, which will carry full liability for costs in the event of a master trust scheme failure? Our amendment 26 seeks to clarify just that—namely, that if an organisation is already regulated by the Financial Conduct Authority, which is incredibly thorough with its regulation, it does not need to register as a separate legal entity as well.

As the Minister said, my colleagues in the Lords raised concerns about the clause, proposing instead that the scheme funder be approved by the Pensions Regulator, but that was rejected with the argument that it would be more difficult for the regulator to obtain transparency on the financial position of the funder and its financial arrangements with the master trust. Instead, colleagues tabled a motion requiring the scheme funder to be constituted and to carry out its activities in a manner that enables its financial position, and the financial arrangements between it and the master trust, to be transparent to the regulator. However, that was withdrawn on the assurance that the Government would be considering that later in the legislative stages.

So here we are, with an amendment from both the Opposition and the Government on how to ensure that we are not unnecessarily enforcing regulation on companies that are already bound by strict regulation elsewhere. The difference here is that the Government’s amendment is on the vague side. The second requirement for the scheme funder that the Government have proposed is that it carries out only activities that relate directly to master trust schemes of which it is a scheme funder or prospective scheme funder. The line in amendment 3 following on from the second requirement gives the Secretary of State the power to

“make regulations providing for exceptions from the second requirement.”

That needs more detail and clarity. What possible exceptions do the Government have in mind? Has the Minister yet considered what these exceptions may be?

We need stability, and to provide stability for the numerous businesses and companies that rely on us to provide effective laws governing their livelihoods and, particularly in relation to master trusts, the livelihoods of millions of people in this country. This is not largely a matter that we disagree on—I think we share the same aims—but I want to be able to provide more assurance to the companies watching today that we will not seek to bear down on them with extra costs and paperwork when they are already abiding by regulation from the Financial Conduct Authority.

Although the Government’s amendment does not give me enough specifics about the type of exceptions that they would give the Secretary of State the power to decide, I welcome their approach and their acknowledgement that it is counterproductive to place extra requirements on companies that already follow the rules diligently. We had a particular concern that forcing a restructuring on master trust schemes could weaken the position of the funder, which is especially important when one considers the debate on the issue of the funder of last resort. We need larger companies to be in a position to pick up failing master trusts, and should ensure that they are well equipped to do that.

I welcome the amendment from the Scottish National party Members, which would also allow exceptions to the requirement that a scheme funder carries out only activities directly relating to the scheme for which it is a funder. I am optimistic that we will leave here today having made positive progress on this matter, as we largely seem to agree on the principle of exceptions.

Amendment 26 would except insurers that operate under stringent Financial Conduct Authority regulation. Where insurers with master trusts operate under both sets of regulation, it must be ensured that unnecessary duplication or overlapping of the requirements is avoided. In particular, insurers should not have to reserve even more additional funds to meet the requirements set out for master trusts, as they already hold the resources needed for this purpose under other regulatory regimes. Members of master trust schemes used for automatic enrolment should meet high solvency and reporting standards, but these organisations have already met standards set under other frameworks, such as that of the FCA. We believe that it is not necessary to expect large companies with significant capital to be required to hold additional capital on top of that in order to meet the new obligations in the Bill.

Can the Minister provide assurance right now that insurance companies that are already under strict regulation by the Financial Conduct Authority will be exempt from the separate legal entity clause, and will he provide clarity on when we can expect to see the Secretary of State’s regulations? The scheme funder requirements in the Bill will bring no additional benefit to the many people in master trust schemes operated by insurers, which are already well protected. Additional requirements on FCA-regulated insurance companies will lead to significant additional costs. I hope that the Government can address my concerns, and that they will outline exactly what regulations the Secretary of State will look to implement.

[Ian Blackford]

The Minister’s amendment of 31 January —Government amendment 3—gives the Secretary of State power to make regulations providing for exceptions to the requirement that a scheme funder must carry out only activities directly relating to the master trust. We do not know what conditions will attach to the exceptions, or even if the Secretary of State will exercise that power. An indication of the Government’s intentions would be helpful. However, the indication that there will be some discretion is positive. I would welcome clarification from the Government on how and when the regulatory powers outlined in the amendment will apply, and in what circumstances they might be used.

Will the Government confirm whether they plan to consult with the insurance industry before defining “information” and “additional requirements”? Zurich has said that the approach taken by the shadow Pensions Minister in amendment 26 and the SNP’s amendment give greater certainty, which would be preferable. As far as Labour’s amendment 26 is concerned, we share the concerns about the unnecessary duplication of requirements for insurers, which already operate under stringent regulatory standards. Our amendments 34 and 35 would have a similar effect to amendment 26, as they state that the requirement need not apply to firms whose activities are already restricted by virtue of existing regulation.

The Prudential Regulation Authority’s rules mean that insurers’ activities are restricted. This will mean that the activities of the scheme funder not directly related to the master trust are transparent and do not threaten the solvency and sustainability of the master trust. Amendment 35 makes provision for the Secretary of State to define “restricted activities” in regulations, including through a list of specific activities restricted in order to minimise risk of loss by master trust scheme funders.

[Richard Harrington]

This is a very good and laudable example of Government and Opposition Members trying to achieve the same objective. I have already heard many of the arguments used today by the Opposition; the Association of British Insurers and others have made similar arguments. As I have often said before, this is not black and white. It is not as though one argument makes absolute sense and the other is absolutely stupid; that is not the case at all. The argument is legitimate. We have had to think about this following representations, and following the Lords debate. However, I do not think that the amendments would achieve the level of transparency needed for the regulator’s financial assessment of the scheme.

Amendment 26 would disapply the requirement on an FCA-regulated insurance company that is also a scheme funder of the trust to set up a legal entity. The amendment would hamper the regulator’s assessment of the final sustainability of the scheme. The matters overseen by the FCA in relation to the prudential and financial conduct of the insurance provider are not the only aim behind the clause; they are aims, but not the only aims, and are not the only aspect that the regulator needs to take into account in the assessment.

The hon. Member for Stockton North asked me to clarify quite a few points. He asked whether the FCA-regulated companies will be exempt. They will be exempt if they meet the prescribed requirements in the regulations. He asked how we will get to the regulations. We will consult on them; we are not simply going to make them up. They are not something that the Secretary of State will dream up in his office. I promise that they will be comprehensive. The intent is to ensure that there is no duplication of regulation; that is why we have created the extra flexibility of the Secretary of State’s discretion.

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and the costs of active investments are significantly higher than those of passive investments. Charges for active investments have also remained stable, unlike charges for passive investments.

[Ian Blackford]

On a point of order, Ms Buck. We are all keen to get through the Bill. I am sitting here listening to the hon. Gentleman and wondering what relevance what he says has to the amendment. Quite frankly, it seems to have very little relevance.

[The Chair]

That is a matter for the Opposition spokesman.

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[Alex Cunningham]

Although I am grateful to the hon. Gentleman for his intervention, it is perhaps a typical response from a Conservative politician: just leave everything to the market. In my opinion, we should not leave everything to the market.

When offering investment funds to employers and members, master trusts need to prove the value of the investment post-charges and that active strategies are no more costly than passive. They should remember that the transaction cost issue, badly delivered in 2013, is up for review in 2017 and forms part of the auto-enrolment review.

The People’s Pension, the not-for-profit master trust launched by construction sector financial provider, B&CE, with 1.7 million members, is NEST’s closest private sector rival.

[Ian Blackford]

Could the hon. Gentleman recap and clarify what he just said—that active fund management is no more expensive than passive fund management?

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[The Chair]

Before I call any other Members or the Minister, let me say that I am minded not to have a broad debate on stand part, because we have already covered a lot of the ground. Perhaps the Minister in particular will reflect on that before he speaks.

[Ian Blackford]

I will be brief. I want to pick up that issue of active versus passive fund management, because if anyone thinks that an active fund manager will not have higher costs than a passive fund manager, I am afraid that they have betrayed that they know nothing about the fund management industry. Put simply, anyone engaged in active fund management will have to deploy research and fund management skills; someone investing as a passive fund manager is exactly that, a passive fund manager.

[Richard Harrington]

Itching though I am to rebut some of the general points on transparency, I will do my best to stick to the amendment. As a point of clarification, however, the bit of the FCA review that the hon. Members for Stockton North and for Ross, Skye and Lochaber mentioned in fact makes the point not that active fund managers have more costs, but that over a period of time there is not much difference in returns. That is a totally different matter, but I think that was the point intended—I, too, read the report.

A final matter, given your instructions, Ms Buck, is to point out to the Committee that 1 trillion is 1 million million. A keen if somewhat nerdish Government Member—I am not sure who—came up with that information, of which I was not aware. I hope that the Opposition spokesperson will at least look at Hansard to see what 1 trillion is, since he missed all that.

I will not rebut the general transparency point, although I am itching to do so. However, I confirm to the Committee that I do in fact read The Guardian. That was the allegation made by the hon. Member for Stockton North. I will, however, refer only to the transparency bit of the amendment.

The amendment would insert a new subsection making it clear that regulations about the processes used to run the scheme may include a provision regarding a minimum requirement of annual reporting of administration, fund management and transaction costs. On the face of it, that takes into consideration a lot of the transparency points made by the Investment Association one way and the various lobby groups to which we have all spoken the other way—as the hon. Gentleman mentioned. The Government are taking action on that. The FCA report is an interim one and lots of things are in process. I am committed to transparency, but the question is what is relevant to the Bill.

The objective of the clause is to ensure that schemes are run effectively. It contains powers to make regulations that will specify what aspects of the scheme’s systems and processes the regulator must take into account in deciding whether they are sufficient to ensure that the scheme is run effectively. Examples of what such regulations may cover are listed in the Bill. The list already includes processes relating to transactions and investment decisions. We have been clear that the examples given are not exhaustive and that regulations may include other matters relevant to systems and processes. A guiding principle in setting the scope for the authorisation regime has been ensuring that master trust regulation is proportionate.

I should point out that existing legislative requirements already require trustees of occupational pension schemes offering money purchase benefits, including master trust schemes, to make an annual statement. The hon. Gentleman did not mention that: they are already required to make an annual statement regarding governance, which is known as the chair’s statement. It is appended to the scheme’s annual report and accounts.

The Government have an obligation under section 113 of the Pension Schemes Act 1993, as amended, to make regulations requiring transaction costs and administration charges of money purchase schemes to be published. We intend to consult, because the subject is very complex, and we are not, as the hon. Gentleman asserted, kicking it down the line. It is not that the Department for Work and Pensions does not want to do it. We intend to consult this year about how this information is published and proactively reported to pension scheme members.

Pension Schemes Bill [ Lords ] (First sitting)

Ian Blackford Excerpts

Tuesday 7th February 2017 Public Bill Committees

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to serve under your chairmanship, Mr Rosindell, and to follow the shadow Minister. My remarks will be in a similar spirit to his, trying to probe the Government on how exactly they see master trusts being used, how they see the pensions landscape and how the two will mesh.

Amendment 32, which stands in my name, relates to how we deal with self-employed people who may end up in a master trust. That starts out as a technical question—as the Minister may know, I like to ask technical questions of legislation to see whether he has read it all and can trace it all through, because these things can be chased around. Under the definition in the Bill, a master trust must be an occupational pension scheme, which takes us back to the Pension Schemes Act 1993. An occupational pension scheme has to provide benefits in respect of earners with a qualifying service in an employment—such schemes do not provide benefits to earners who are self-employed in that situation. Therefore, on a high-level reading, if a scheme is providing benefits for people who are self-employed, technically it should not be an occupational pension scheme.

I assume that the answer to that particularly technical point will be that if in a master trust there are 5 million people who are employed and there are 10,000 who are self-employed, it does not get suddenly blasted out of being an occupational pension scheme and out of the regulations and drop back into the personal pension scheme regulations. I assume that the National Employment Savings Trust, which I think already markets itself to the self-employed, will not somehow have a change in its regulatory position by serving a few self-employed people.

It is not hard to foresee that the landscape might change, and it is pretty clear that we would quite like the landscape to change quite dramatically. We have a big problem with the lack of pension provision among people who are self-employed and, sadly, that problem is going the wrong way. Auto-enrolment has enrolled millions more employed people than ever before in a pension, but over the course of this century the number of people who are self-employed and actively in a pension scheme has decreased from about 1.2 million in 2002-03 to 380,000—and that is as the number of people who are self-employed has risen to more than 3.5 million. That is going completely the wrong way. Far more people are self-employed, yet far fewer of them are saving in a pension. That is not a healthy situation for them and their prospects in retirement, and it is not a particularly healthy position for us, considering how people will be able to look after themselves when they reach that age.

It is pretty clear that we need to find solutions that encourage more self-employed people to save into a pension and to take the various tax advantages that that provides. Hopefully, when the Government conduct their auto-enrolment review later in the year, one issue they will look at is whether we can extend, tweak or amend auto-enrolment to get to those many millions of people who are self-employed. Let us be honest: probably quite a large number of them would like to be employed or think they are employed—or perhaps we think they are legally, in substance, employed, yet their non-employer is somehow tweaking the rules to treat them as self-employed. How do we get those people to realise that pension savings is important to them? How do we get them into a simple scheme that is easy to administer?

It looks like auto-enrolment master trusts are the obvious vehicle that could cope with the scale of several million more people, who are probably generally on relatively low earnings, joining a pension scheme. They have the infrastructure and it is not hard to see how self-employed people could self-manage such schemes via online portals. It looks like, as a matter of policy, we would quite like to encourage all the big master trusts out there to start taking people who are self-employed. I suspect we would like to find a way.

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

The hon. Gentleman is making some important points that I fully subscribe to. As much as I welcome the Bill and its overall thrust, is this not perhaps a little bit of a missed opportunity? We could have made sure that the review of auto-enrolment came alongside it, which would have informed our present debate on how we deal with self-employed people, and indeed those under the earnings threshold. We want people to be investing in pensions for the long term.

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[Richard Harrington]

My hon. Friend makes a good point. That is very common in other systems of regulation, sometimes to the chagrin of employers and people involved, but for many companies in other financial fields there are different systems of regulation for the different products they offer. That is not uncommon. As to what we must avoid, the hon. Member for Stockton North will accept that Governments must try to think how things work in practice, which is not to say that he has not considered it. However, we must have workshops of interested parties and consult widely. How things work in practice is important.

The end product for all hon. Members is predominantly consumer protection—the Bill is a consumer protection Bill. We have different views, but we are discussing the extent of consumer protection provided. I and my officials have considered Opposition amendments respectfully. They are not spurious and have been thought through. In fact, many were quite properly put to us—it is a democratic system—by groups such as the Association of British Insurers. They are not created out of thin air. However, we have had to think about whether in practice they will add to consumer protection. That is the test. Alternatively, will they just increase the regulatory burden? We have also been lobbied about that—again, quite legitimately—by those concerned. It is the Government’s job to try to come up with something in the middle.

My hon. Friend the Member for Amber Valley, who tabled amendment 32, discussed self-employed people, and attempted to ensure that I have in fact read the Bill. I do not think I should have the arrogance to stand here if I had not, but it is perfectly proper that he should ask. I certainly accept that my hon. Friend, given his years of experience and attention to detail, has read it. I shall try to answer his general and specific points.

On the question of the role of self-employed people, not just in the master trust schemes but generally, my hon. Friend is correct to identify that the number of self-employed people has grown exponentially in the past 10 to 20 years, even more than in the days of the Turner commission, of which Baroness Drake was a member. She has been most helpful with the Bill. I acknowledge her role and that of Lord McKenzie in helping both the Opposition and the Government very constructively.

The commission perceived self-employed people as those with their own business, who, by implication, would have an accountant or, at least, an adviser or someone similar. My hon. Friend was saying that, with the big growth in self-employment over the period, the people in question are typically not very high earners. Like him, I make no comment as to whether they should be self-employed—the fact is that legally they are. They do not have an accountant and the things necessary for someone who is running a business and employing people despite being self-employed. They are at the moment outwith the auto-enrolment scheme. I know we are here to discuss that from a regulatory point of view but, as politicians, we also want those people to have pensions, because the House agrees that that is a good thing.

I want to answer the hon. Member, who is going to be cross with me again, for Loch—

[Ian Blackford]

Ross, Skye and Lochaber.

[Richard Harrington]

Have a little patience—I was going to say the hon. Member for Ross, Skye and Lochaber. Watford is much easier to pronounce, but I accept that he has a wonderful constituency that is very lucky to have him representing it. I have got it now.

The hon. Gentleman’s point was about why the review is different in timing and scope to the Bill. The main reason is statutory. We were obliged by statute to have the review in 2017, which means it cannot report until the end of 2017. In fact, 2017 is too early because we do not have enough figures to see people’s behaviour or habits since auto-enrolment came in. We are doing the review—it is being announced and will report—but we could not consider holding up this regulation until it came out.

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[Alex Cunningham]

The mantra for this Bill should be: “Members at the centre of everything we do.” Communication and engagement is vital for trust in the system. It is good for business and good for members. Effective communication and engagement is an essential component in helping to implement improvement. Across all industries, transparency has never been more important to a successful business model, regardless of size. When it comes to employee engagement, this particular business practice is proven to be essential on a global scale, and what is seen as an essential tool for all manner of other business and industry areas, I see as equally essential for the pensions industry.

My noble Friend Lord McKenzie of Luton in the other House put the case very clearly and compellingly for master trusts to be required to have a full and effective member engagement strategy as part of the qualifying requirements for authorisation by the Pensions Regulator to operate as a master trust. In response to my noble Friend on Report, Lord Young of Cookham, replying on behalf of the Government, said:

“I can also confirm that the Government would intend—subject, of course, to consultation—to use the regulations under Clause 11 to ensure that the regulator specifically considers a scheme’s systems and processes in relation to these important communication matters when deciding whether the scheme is run effectively.”—[Official Report, House of Lords, 19 December 2016; Vol. 777, c. 1487.]

He went on to speak of wider communications, including how the review of auto-enrolment would include the engagement of individuals with workplace pension savings.

In an earlier written statement to the Commons, the Minister said that the review would include

“how engagement with individuals can be improved so that savers have a stronger sense of personal ownership and are better enabled to maximise savings.”—[Official Report, 12 December 2016; Vol. 618, c. 38WS.]

That is all very grand, but there were no new clauses or amendments addressing the issue specifically when the Bill left the Lords, nor since. We could save time and add value to the communications process by requiring a member engagement strategy in the Bill.

Some will say that most people have no real interest in pensions, and that we could be placing all manner of costs on the industry for the few who do take pensions seriously. We should never discount the few who may be interested. Recent research by the accounting firm Price Bailey has revealed some interesting statistics in its 2016 report on public interest and awareness of workplace pension scheme arrangements and retirement options. A sample of 2,000 stakeholders were interviewed across the English regions, with a good split between male and female respondents, white-collar and blue-collar occupations and income bands. Nearly 75% of those interviewed had a total household income, before taxes, of £55,000 a year or less. I wish the people in my constituency had an average income of £55,000 a year. It is encouraging to note that only one person in nine—11%—said that they were not interested in pensions. That seems to lay the lie.

It is also encouraging that more than half—55%— of pension scheme members said that they take an active, regular interest in their pension savings and retirement planning, and I do not think we will be very surprised that within the 55 to 65 age bracket the proportion rises to about two thirds, with some 66% of people taking a real interest in their pension—I wonder why. The highest levels of engagement were among males, those with higher incomes—more than £55,000 a year—those in white-collar occupations and active scheme members.

Labour Members believe that the role of trustees is crucial in providing retirement education and helping to raise levels of member engagement. Regular communication, whether written, online or in person, is key to achieving that, with different techniques for different audiences. It is important that employers consider that when communicating with current and potential scheme members. We urge master trust employers and trustees to consider carefully their strategy for scheme member engagement. It should be made a legal requirement for them to produce and execute such a strategy. Putting some thought and effort into that now will undoubtedly prove beneficial to scheme members in the long run, and it need not be a tremendous financial burden on the industry, given that we are in a digital age. Nowadays, there is no excuse for failing to communicate effectively. Using social media to communicate means expanding a multi-channel communication strategy to encompass new channels. It used to be the counter, the telephone and, later, the website, but now we have the Twitter hashtag and the Facebook page—just some of the channels open for communication today.

Real engagement, however, is something else. It is about figuring out where people are already having conversations about which an organisation needs to be aware. It is about bringing information and dialogue to places where people want that dialogue to happen—their Facebook groups, their Twitter streams and the master trust intranet networks. Good communication and engagement over members’ money and pension drawdown are prerequisites for a successful master trust.

Our amendments seek to ensure that as part of the defined-contribution code of practice, there is a requirement for the authorisation process principally to ensure that the application to the Pensions Regulator includes a member engagement strategy and a communication strategy. The Pensions Regulator’s code of practice for DC pension schemes, published in July 2016, sets out the standards that pension trustees need to meet to comply with legislation. The code, which applies to all schemes offering money purchase benefits, is supported by a series of “how to” guides that provide more detail about how trustees can meet the standards in practice.

The Pensions Regulator has also produced a tool to help trustees to assess their scheme against the standards in the code so that they can identify areas requiring improvement. The DC code sets out a number of areas in which an understanding of members is key, particularly those of gauging members’ views to inform the design of investment strategies and the assessment of value for members. The regulator suggests:

“Member nominated trustees in particular may be able to provide feedback, as might union representatives, other employee representatives or existing staff forums.”

It is because of the valuable role that scheme members can play that we have tabled the amendments on scheme member trustees. We need to improve the Bill to make it more scheme member-friendly. The members are, after all, our main concern. I will return to member trustees later. It seems only sensible to require the master trust to demonstrate its engagement and communication strategies to the Pensions Regulator, who has an obligation to ensure that the trust complies with the DC code of conduct.

The Bill sets out a requirement for the latest accounts, business plan and continuity strategy, yet it has nothing on issues that would ensure that the scheme met the required standards on member engagement and communication. There is no point authorising a master trust if it has poor communication and engagement with its members. The chances of members engaging with the issues that affect them can be greatly improved by communicating with them in the most effective way. That is the thrust of our amendments. We need to see members at the very heart of the process.

Master trusts will grow over time to cover millions of members and billions of pounds of assets under management. They will underpin the very success of the auto-enrolment policy and rebuild a long-term pension-saving system. The principle of an obligation on master trusts to have a clear strategy for engaging with scheme members should not be left to ministerial discretion or future consultation. We want to ensure that master trusts are at the leading edge of communication and engagement, and hope that the Minister will not just remain open to the idea, but will do something about it in this Bill. I look forward to his comments.

[Ian Blackford]

It is a pleasure to serve under your chairmanship, Mr Rosindell. I will be brief. Those of us who want to encourage pension saving, as we all do in this room, should encourage as much member engagement as is possible. That is the right thing to do to ensure that we have as much transparency as possible. It is perhaps relevant not just to this amendment, but to others, that the issue of members being trustees is important. We must recognise that we are talking about assets belonging to the plan holders and take into account the fact that a number of master trusts are also profit making. It is important that that process of transparency is open to members of the scheme and that there is full engagement by members, with members being part of the board of trustees and having effective training. We happily support that.

[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.

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[Richard Harrington]

That is up to the regulator. If the hon. Gentleman bears with me, I will get to that particular point. If he is not then satisfied, I will willingly give way.

Member engagement is a challenge in pensions both legally—that is, what should people know?—and in terms of getting them engaged in a general sense. It would be unacceptable to have a hugely expensive exercise writing tens of thousands of letters that may or may not be read, but which would confuse people. However, we accept that it is important that the members get the right communications.

A situation such as the hon. Gentleman mentioned, in which members get absolutely nothing, which the regulator would find unacceptable, would not be at all acceptable for two reasons. The first is the general point that I mentioned about getting people engaged and understanding their pension and everything that goes with it. We have all received these communications. Probably, the hon. Member for Ross, Skye and Lochaber will have always looked at his pension statements, but a lot of us have received them—very comprehensive ones, in many cases—and just put them at the bottom of the desk drawer, in the hope of reading them sometime. I hope that the hon. Gentleman is not offended by that comment; it was meant to be complimentary.

[Ian Blackford]

I shudder to think that the Minister would ever offend me, at least willingly. The regulator has a very important role to play—I think we all understand that—but there is also the fact that the trustees are responsible to the scheme members, and it is important that we ensure that trustees recognise the responsibilities they have. No one is talking about bringing in a cumbersome system that will be costly. This is about ensuring that the members have that relationship with the trustees. It is important that the trustees are answerable to the scheme members, not least because of the profit-making capability that some trusts have.

[Richard Harrington]

The hon. Gentleman is right, and this is not just a question of communication as in a formality—communication if there is a problem. We will be speaking to those points later. This is a point about communication and making sure that people know what they have, in the same way as a bank communicates, now mainly by the internet, so that people—

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[Richard Harrington]

I can absolutely confirm that for my hon. Friend. I hope that he will agree that the fit and proper person test is quite well established across different regulatory regimes. By definition, it has to allow a certain subjectivity, because otherwise it becomes the low-level box-ticking that he fears. Having discussed this with the Pensions Regulator—both the chief executive and other people—I know that this would never happen under its regime. I hope that most people would not regard the fit and proper person test as the kind of thing to which my hon. Friend refers, but he makes a sensible point.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clause 8

Financial sustainability requirement

[Ian Blackford]

I beg to move amendment 33, in clause 8, page 5, line 39, after “scheme” insert “or scheme funder”.

The financial sustainability of the scheme funder must be taken into account when assessing a Master Trust scheme’s financial sustainability.

Amendment 33, which stands in my name and that of my hon. Friend the Member for Paisley and Renfrewshire South, seeks to ensure that the financial stability of the scheme fund is taken into account when the regulator is assessing the financial stability of the scheme funder. A number of insurance companies have told us that they already hold a very significant amount of capital under the European regulatory framework for insurance solvency. In this case, it seems unnecessary for insurers to be required to hold separate or additional capital on top of this in order to meet their new obligations as master trust providers under the Bill.

It would be helpful to know more from the Government on the restrictions on the use of member funds to meet costs, which need to be more clearly defined. We have also heard from the Association of Pension Lawyers, which has called for clarity on the policy intentions behind the clause and for the detail to be fleshed out. It would be appropriate for the Government to take the opportunity to do that today.

--- Later in debate ---

[Ian Blackford]

I will not detain the Committee longer than absolutely necessary. I am relatively satisfied with the Minister’s response, particularly in the light of ongoing consultation, and on that basis I will not press the amendment to a vote just now. However, there are obviously some remaining concerns about insurance companies, particularly under the obligations, and I would like those to be highlighted today. We will move on for now. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 8 ordered to stand part of the Bill.

Clause 9

Scheme funder of last resort

Question proposed, That the clause stand part of the Bill.

[Richard Harrington]

The clause was introduced by the Opposition in the other place. It is intended to require the Government to make provision for a scheme funder of last resort, which would take effect if a master trust had insufficient resources to meet the costs of complying with duties arising from a triggering event and the costs of continuing to run the scheme for a further prescribed period.

Since the clause’s introduction, I have reflected a lot on how it would work. I have had formal and informal discussions with Members of the other place and have met officials, in the presence of the Opposition spokesman, the hon. Member for Stockton North, to discuss this subject. I have concluded that it is unnecessary to place such an additional requirement on the Government, and I will do my best to persuade the Committee of that view.

I think that we all agree that the Bill’s primary purpose is, quite simply, to bring in safeguards and controls for employers and employees who have opted to save through a master trust pension scheme. The Bill includes new powers for the Pensions Regulator, which will be responsible for the effective operation of a new authorisation and monitoring regime for master trusts. Schemes that do not meet or maintain the specified standards simply will not be allowed to operate. We have just discussed two of the authorisation criteria; as I explained, clause 7 sets out the requirements that those involved in a scheme must meet to be considered fit and proper persons, and clause 8 describes the financial sustainability requirements that will apply to master trusts. The remaining criteria—the business plan requirement, the scheme funder requirements, the systems and processes requirements and the continuity strategy requirement—are dealt with by clauses 10 to 13.

The Bill’s later clauses define the events that, when experienced by a scheme, will trigger a series of specified actions and additional requirements that must be undertaken by the scheme and the regulator. The nature of such events may mean that a scheme is operating under increased risk. Those additional requirements will ensure that increased scrutiny and controls are put in place until the new risk has been dealt with and nullified, or the scheme is wound up in an orderly manner and the interests of employers and members are successfully transferred out to a new scheme.

In addition to the new regulatory framework, the regulator is working closely with individual master trust schemes. That work provides us with insight into the scale of current risk, which the clause has been designed to guard against, and may be followed by the publication of new supporting data by the regulator. In addition, the indications are that market forces are operating effectively prior to the new regulatory regime coming into force. For example, some master trusts have left the market and transferred their members without issue.

As I have explained in previous debates, it is very attractive for existing successful master trusts—the vast majority of them—to take on members from smaller master trusts that might appear to be failing in their administration, since that allows them to add members without adding very much to their costs. I realise that is commercial rather than structural, but I believe that will happen, as it has in other regulated areas of financial services. New, larger schemes are also now entering the market. Such schemes are on a sound financial footing and will actively seek to increase their market share. All that further supports our belief that the risk of scheme members being left stranded is absolutely minimal.

Hon. Members might continue to be concerned that, were a master trust to fail, the members of that scheme might be left stranded. I perfectly understand their thinking, but we consider the risk to be negligible. However, we recognise that we cannot completely rule it out, which is also recognised by the pensions industry. We are currently working with the Pensions and Lifetime Savings Association, which is exploring establishing a panel of “white knights.” That panel would aim to guarantee that, if a master trust was required by the regulator to leave the market, the affected master trust scheme members would be transferred to a new scheme. That happens all the time in other regulated fields of the financial services market.

I believe, after consideration, that as drafted clause 9 does not work as intended. If I may expand on that, a couple of illustrations might help. The clause does not contain a power, such as a regulation-making power, enabling the Secretary of State to make further provisions relating to the scheme. That would include provisions relating to the scheme’s procedure and operations. The clause provides that the Secretary of State should consider only the resources held by a master trust and not the scheme funder.

Given the imprecise nature of the clause, I am concerned that it could lead to perverse behaviour, with schemes shifting funds about, knowing that the taxpayer will pick up the bill. We are also concerned that, given the clause’s lack of clarity regarding funding of a Government-backed scheme of last resort, stable master trust schemes might be concerned that they are at risk of paying for failing master trusts and, as a result, opt to leave the market. For the reasons outlined, I call for the clause not to stand part of the Bill.

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[Alex Cunningham]

My hon. Friend is correct. People want to know that everything is 100% safe. I know that the Minister said that we can never guarantee 100% safety, but we are talking about some of our society’s most financially vulnerable people who are investing relatively small amounts of money in their master trust. They are not going to get a tremendous pension—nothing like what a Member of Parliament receives—but they want to know that their small pot will actually mean something for them. That is why we must have those protections.

We were talking about regularly monitored business. How regular—every three months, every two years, every five years?—and what type of monitoring? Can the Government say for certain that, by the time the regulator has identified a problem with record management, it will still be within the timeframe to resolve the issue without a funder of last resort?

The Government argue that the Bill already achieves what clause 9 is trying to achieve, but I must question the real reason why they do not want it in the Bill. If they support the idea of master trusts having regulations in place to avoid a disastrous situation if one failed, why will they not just support the clause? If they are so sure that it would never reach the stage of needing a funder of last resort, what is their opposition to including the clause just to ensure that, in a worst-case scenario when things do not go to plan, there is extra protection in place? Unless, of course, they are ideologically opposed to the concept of a funder of last resort. It would be a safety net; a guarantee from the Government that they will need to do everything in their power to protect workers’ retirement funds. If that is the case, I am disappointed that the Government do not believe that it is their duty to step in when business fails and that they would leave innocent people paying the price.

One argument that the Government Lords kept repeating was that, in the event of regulatory failure and a trust not having the means to finance a wind-up, it will not be members that will have to pay the price, but the Government have yet to tell us who it will be. When a number of master trusts and pension experts are calling for there to be a funder of last resort, why are the Government not listening? We have heard a lot of words in the other place and here today, but we have seen not action. Verbal assurance is not good enough when we are talking about people’s livelihoods in older age. We need action and robust legislation to ensure that we take every precaution. In the absence of greater clarity about the Government’s insistence that the Bill already addresses areas raised in this debate, it is vital that clause 9 is not removed. We should be covering every base in order to say confidently that we have taken every possible measure to protect members’ money 100%.

[Ian Blackford]

I think we all understand that the pension pots themselves are not at risk from the mechanisms we are talking about; it is about the funding of the master trusts. My appeal to the Government is that we have to find a solution to this that will give trust to those who are investing, so that they know that the master trusts themselves will be secure, whether that is from the definition of a funder of last resort, or from particular powers that the regulator has to make sure that, in the event of a trust failure, those assets can be managed in the interests of the fund holder. There is an element of risk—albeit a relatively small one—and we have to try to see whether we can close that down. In the absence of another solution, the Government should think about this clause remaining part of the Bill for now.

Pension Schemes Bill [Lords]

Ian Blackford Excerpts

2nd reading: House of Commons
Monday 30th January 2017 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a pleasure to follow the hon. Member for Amber Valley (Nigel Mills), who has made some good points about the importance of advice and about the decumulation phase. I hope that we will have an opportunity to come back to those matters at a later stage.

I welcome the Government’s initiative in bringing forward the Bill. A desire to create trust in pensions savings should unite us across the House. We want all workers to be able to attain a standard of living that will be consistent in allowing them to save while in work in order to have dignity in retirement, secure in the knowledge that a regular income from a state pension and a workplace pension will allow them to enjoy their retirement without financial worry and without living in pensioner poverty. In our view, pensions savings are the best way for most workers to achieve that dignity in retirement. We need to deliver the appropriate level of protection for savers, and the Bill is an important step forward in that regard, albeit one that could be enhanced through constructive amendments in Committee.

Given the growth in master trusts and the desire to ensure that we protect savers’ interests, the Bill is overdue in some regards. Auto-enrolment has led to a significant increase in the use of master trusts. The impact assessment published this month informs us that some 200,000 savers were in master trusts in 2010, increasing to 4 million by 2015. According to estimates from the Pensions Regulator, that may now have risen to 4.3 million savers with around £8.1 billion of assets in master trusts. When we take into account the Government estimate that 10 million workers will be in auto-enrolment schemes by 2018 and that they will be saving as much as £17 billion by 2019-20, with the vast bulk of them in master trusts, the need for robust, effective protection is clear.

The master trust market has grown rapidly, with as many as 84 such trusts in operation today. While there are a small number of larger trusts, it is clearly a fragmented market, with risk of failure in certain cases. Indeed, the Work and Pensions Committee called for stronger regulation in March 2016 when it concluded that:

“Gaps in pension law and regulation have allowed potentially unstable trusts onto the market. Should one of these trusts collapse, there is a real danger that ordinary scheme members could lose retirement savings. There is a risk that faith in auto-enrolment as a whole will be undermined.”

That is a stark warning and underscores the requirement to take this Bill forward. We need to regulate to remove the prospect of inadequately resourced schemes collapsing and to offer protection against scammers entering the marketplace. The warning signs are already there. Two small schemes have already collapsed, affecting 7,500 members. It is currently extremely easy for anyone to set up a master trust and accept savers’ funds, and there is no established mechanism for responding to the collapse of a master trust.

The rules of many schemes currently allow the use of members’ funds to wind up a scheme should it collapse. That is simply not acceptable. As a consequence of the Bill, there will be a requirement for master trusts to be approved, requiring minimum standards of trustees and obliging schemes to prove access to capital that can be used in case of wind-up. There has been widespread support for the need for such a Bill. The Pensions Regulator welcomed the announcement of new powers to regulate master trusts and said:

“We have been calling for a significantly higher bar regarding authorisation and supervision, and we are pleased that today’s announcement proposes to give us the power to implement these safeguards.”

The ABI has said:

“We have previously called for tighter regulation of Master Trusts, and are supportive of the proposed direction set out in the Bill.”

The Pension and Lifetime Savings Association welcomed the Bill as

“essential to protect savers and ensure that only good Master Trusts operate in the market.”

I concur with all those remarks.

Some of the Bill’s requirements may have unintended consequences and require further attention. As the Bill represents a significant change in the role of the Pensions Regulator, the Government must ensure that the regulator is adequately resourced to deliver accordingly. Addressing some of the following concerns could go some way to getting the Bill watertight and satisfying the concerns of many stakeholders. My first point relates to clause 8. If a scheme funder is an FCA and PRA-authorised insurer, the ABI contends that it will already have to comply with solvency II and therefore the regulations under clause 8 should not apply as they would be onerous and costly. The Government should clarify whether they have assessed that potential impact and whether the additional regulation adds a further safeguard, making the provision necessary.

Clause 9 requires the Pensions Regulator to be satisfied that a master trust has sufficient financial resources to meet the costs of setting up and running the scheme and to protect members in the event of wind up. A master trust must therefore hold capital equivalent to six to 24 months’ worth of running costs. However, it is argued that there is little clarity over how that provision would be applied. The TUC argues that there is an assumption that other master trusts would have an appetite to absorb a collapsed rival’s book of business, but that may not always be the case, particularly if costs are involved. Some savers are more attractive to providers than others. In the absence of greater clarity over the robustness of the proposed capital regime, the TUC contends that clause 9 should be retained. It was accepted in the Lords and provides that the Secretary of State can

“make provision for a funder of last resort, to manage any cases where the Master Trust has insufficient resources to meet the cost of complying with subsection (3)(b)”

after a triggering event. I would support that as a principle.

On clause 10, concerns have been expressed about the additional costs that master trusts could face, such as those offered by insurers due to duplicated regulation enforced by the Pensions Regulator. The ABI has said that that would be to the detriment of existing scheme members, as these schemes already operate under stringent FCA and PRA regulation.

The key issue raised by the ABI is the definition of a “scheme funder” in clause 10. Concerns centre on the fact that the Government state that the clause is intended better to enable the Pensions Regulator to assess the financial sustainability of the scheme by increasing transparency on the assets, liabilities, costs and income of the master trust. The ABI is concerned that the clause does not meet the policy intent of providing transparency because, as a separate legal entity, master trusts can still transfer risk to other entities.

That issue was raised in the Lords, and the ABI continues to ask that, in order to protect the benefits to scheme members and minimise costs, the requirements under clause 10 should not apply where the scheme funder is an FCA and PRA-authorised insurer. There is also a need for greater transparency on fee charging, which needs to encompass transaction costs as well as any ongoing administration fees.

It is welcome that the Government are placing a 1% cap on exit fees for current members and no exit fee for new members. We know that large fees have been charged on exit in the past, and it is clear that we need to protect savers, although if new members are to be excluded from exit fees why should it be permissible for exit fees to remain in place for existing plan holders?

Under clause 12, at least one third of trustees of single-employer workplace pension schemes have to be member-nominated. There is no such obligation on master trusts. The Bill presents an opportunity to explore member involvement, and I hope we can pick up that topic in Committee.

Clause 32 creates a new power enabling the Pensions Regulator to make a pause order requiring certain activities to be paused once a master trust has experienced a triggering event. That includes accepting new members, making payments, accepting contributions and discharging benefits. There is concern about the impact of a pause order on a member’s savings, as there are no mechanisms in place to allow ongoing contributions to be collected and held on behalf of a saver. It is unacceptable that a member should be penalised and, in effect, lose wages in the form of employer contributions due to events out of their control. The Government should clarify whether they intend to take action to protect savers in that area.

We look forward to clarification from the Government on those issues, and we will work in the next stages, where necessary, to improve the Bill. This is therefore a pressing matter and, on behalf of the Scottish National party, I signal our intent to work with the Government to deliver a Bill of which we can all be proud.

The Bill, however, is a missed opportunity to undertake much-needed major reform of the pensions system, rather than patchwork attempts to plug holes in the system. We need a fundamental overhaul of the pensions system, and the UK Government need to introduce more ambitious plans on pension reform. We are disappointed not to have a Bill that looks at the issues with the state pension, particularly the need to address state pension age inequality for the WASPI women.

Madam Deputy Speaker, I take your comments about the WASPI women but, given that the SNP was traduced by the Chair of the Select Committee on Work and Pensions, I make the point that the SNP has raised the issue of the WASPI women at least 44 times in this House and has commissioned independent research. It is completely disingenuous for anyone to suggest that the SNP has refused to support the campaign. A reasoned amendment to kill the Bill was suggested. However, that would help no one and would only remove the Bill’s helpful regulation provisions relating to master trusts.

[Frank Field]

I am grateful to the hon. Gentleman for giving way. The plan was not to kill the Bill but just to hold it up for a bit so that we could hopefully highlight the position of WASPI pensioners, for soon they will all be retired and the horror will have been completed. We have no other weapon against the Government, because they have made it plain that they are going to sit out this issue. The Scottish nationalists were not prepared to form an alliance with those of us who want to block the Bill in order to actually raise this issue and perhaps implement the recommendation of a previous Select Committee report.

--- Later in debate ---

[Madam Deputy Speaker]

I also appreciate that he is not going to be speaking in tonight’s debate, but I just want to say that it is a very narrow Bill about something very specific and this is not the forum for discussing all that. People might be very disappointed that we are not debating transport policy, but we are not; we are debating master trusts, so I ask the hon. Member for Ross, Skye and Lochaber (Ian Blackford) to keep just to that. I know he is trying to skim over things, but if he could skim away from other issues and get back to the main point, we would all be very grateful to him.

[Ian Blackford]

I will endeavour to skim away, Madam Deputy Speaker. You made the point that this is a narrow Bill, which is exactly why it would have been impossible to amend it to take account of the WASPI case. The right hon. Gentleman should know that an attempt to kill the Bill would have done exactly that, and we do not solve the problem faced by WASPI women by defeating this Bill, which is so necessary to protect pension savers. Frankly, he should be thoroughly ashamed of himself; he does no justice for the WASPI women with his campaign and the remarks he is making.

Let me conclude the remarks I was making. The sheer fact that the Cridland review is currently looking at the state pension age, without looking at the existing problems, limits the ability to learn and develop a more progressive outlook, which could safeguard dignity in retirement for pensioners. Generally, the threat of pensions scams and transfers from pensions to high-risk schemes needs to be urgently addressed. [Interruption.] I have got to the bits I am not allowed to say any more. [Laughter.]

We reiterate our call for the establishment of an independent pension and savings commission to look holistically at pension reform, focusing on existing inequalities and paving the way for a fair, universal pensions system. The entire pensions landscape is in need of fundamental reform, particularly with a pressing need now to review and enhance auto-enrolment. The Government are set to review auto-enrolment this year, but reports seem to suggest there may not be substantial changes from the review, and with many missing out on auto-enrolment we need to ensure that this policy is moved forward. Although 7 million workers have been auto-enrolled, a further 6 million workers have missed out. The Pensions Policy Institute revealed that 3.3 million of the people excluded from auto-enrolment had been excluded because they earned less than £10,000 a year. It also found that three quarters of the employees earning less than the auto-enrolment trigger were women.

We believe that lowering or removing the auto-enrolment trigger would significantly increase the number of people saving through auto-enrolment and in master trusts. It would also go some way to alleviating some of the historical inequalities women face, whereby their occupational pension savings are already well below those of men. There are clear disadvantages here, particularly for part-time and the low-paid workers. For example, somebody earning £10,000 per annum will not benefit from the 8% contribution; they will benefit by only 3.4% because over half the earnings are excluded. Although self-employed workers are growing vastly in number, they have fewer incentives to save. If the Government were to review auto-enrolment sufficiently, they could consider moving to a flat rate of pension tax relief and allowing self-employed people to deduct pension contributions from profits to end the disparity.

Looking at the age at which auto-enrolment is triggered could also be more progressive. Just on 26 January, Zurich Insurance called on the Government to take

“a steady approach to increasing minimum auto-enrolment contributions above 8%”.

While there is an acceptance that the levels need to rise, it must be done in a way whereby workers do not opt out.

In conclusion, I welcome this Bill. It contains much we can support and we will work constructively with the Government to enhance it further. I hope that when the Minister winds up he will join with us in that spirit of consensus.