Draft Occupational and Personal Pension Schemes (Amendment Etc.) (EU Exit) Regulations 2018 Draft Occupational and Personal Pension Schemes (Amendment etc.) (Northern Ireland) (EU Exit) Regulations 2018

Jack Dromey Excerpts

Wednesday 16th January 2019 General Committees

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Robertson. The statutory instrument, which is not objectionable, makes technical changes to pensions legislation to ensure that retained EU law continues to operate as it has previously, but with us outside the EU.

However, we have to raise certain concerns relating to the prospect of no deal in respect of investing, including whether passporting rights will continue regardless. The biggest impact could be felt at the next stages by those in defined contribution schemes, whose pension is dependent on market value. For some the impact could be very serious indeed.

Aside from the likely chaos and economic damage, the technical implications of no deal for pension fund investing could impact asset values. First, as a member state of the EU, we can operate within the single market, which gives UK investors access to other members states’ financial services via what is known as the passport arrangement. Secondly, that is because services, particularly financial services, are covered by the general agreement on trade in services, which is the first and only set of multilateral rules governing international trade in services, and which is inferior to single market operations. Thirdly, under the GATS, the UK’s financial services sector would lose a number of benefits it currently enjoys under EU law, especially passporting rights, resulting from the financial services single market.

That is why discussions about future trade relationships with the European Union have centred on an equivalence regime, which means terms of trade equivalent to those we enjoy in the single market. Fund managers and banks can get around no deal by establishing and operating an arm in the EU, and many already have. It is likely that the EU will allow investing between the UK and the single market to continue to ensure that there is no significant disruption to the banking and investing sectors of the economy.

Significant issues then arise for asset managers, who manage 98% of our pension assets, in the Brexit negotiations. Those issues include the continued ability to delegate management of European funds to UK managers so that the UK can continue to manage assets for clients and funds from across the EU; a clear timetable for UK withdrawal so that asset managers can plan effectively; and whether the UK Government will maintain broad regulatory equivalence with its EU counterparts in future so that, whatever the ultimate shape of Brexit, investors on both sides can maintain confidence in the asset management regime in the UK.

No deal presents significant risks for all pension fund investors and, more significantly, for defined contribution scheme members who, by the very nature of those arrangements, bear all the risks of investing. Falls in asset value reduce the value of the individual’s investment pot. Those who are in retirement and who are drawing down money from their pots could see them reduced to insufficient levels.

Because financial services are covered by World Trade Organisation rules, technically, continued trading and management of pension assets would cease between the UK and the EU member states, because the UK would become a third country with no passporting rights. A no deal would have a significant impact on relationships with the EU and would raise significant questions about the nature of any future trading relationship for financial services. In those circumstances, we would be relying on the EU to maintain equivalence all through the period post no deal only on the basis of grace and favour, due to the severe impact on the EU member states’ financial services sectors and the fact that their own pension funds use UK asset managers, who manage £2.5 trillion of clients’ money from outside the UK.

UK financial institutions could establish subsidiaries and apply for national licensing in the EU27. The host countries’ authorities would then supervise their EU27 branches in matters of reorganisation and winding up. National licensing schemes are, however, more limited, complex and costly because of the differences between them. Alternatively, the UK could ask the Commission for equivalence treatment. However, the equivalence regime is very limited in its scope and can be withdrawn at any time.

In conclusion, the regulations before us are not in themselves objectionable, but there are some very significant issues raised for pensions more generally, and for defined contribution schemes in particular.

Oral Answers to Questions

Jack Dromey Excerpts

Monday 7th January 2019 Commons Chamber

[Amber Rudd]

I thank my hon. Friend for drawing this case to my attention and for all the work he does with the jobcentre to ensure that his constituents have the right access to universal credit. Work coaches are trained to give additional support where it is needed, whether that is with IT or for people who require a home visit. We estimate that there have been nearly 300,000 home visits in the past year to ensure that people get the tailored support they need.

[Jack Dromey (Birmingham, Erdington) (Lab)]

Nearly half a million senior citizens living abroad, who have paid in all their life, currently enjoy the guarantee that their state pension will be uprated annually. The same is true for pension entitlement built up working in another European Union state. With 81 days to go until Brexit, does the Minister recognise that the Government’s total mishandling of Brexit means that we might crash out with a no-deal Brexit, and that in those circumstances it would be not just our jobs and economy that would be put at risk but the security and dignity of a whole generation of pensioners?

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

The Government have a cross-departmental strategy on Brexit. The reality is that the policy for overseas pensioners has continued since the second world war, was endorsed by the previous Labour Government and is continued by this Government.

Oral Answers to Questions

Jack Dromey Excerpts

Monday 19th November 2018 Commons Chamber

[Guy Opperman]

It was a delight to visit The People’s Pension with my hon. Friend, to see the hundreds of local staff who are doing such a fantastic job and the work that the company is doing as a great local employer, to receive a Crawley Town football shirt—I must confess that I have not yet worn it—and to support a great local business.

[Jack Dromey (Birmingham, Erdington) (Lab)]

Auto-enrolment was a landmark achievement, a creation of the last Labour Government. I welcome the progress that has been made, but does the Minister agree that the threshold is too high—37% of female workers, 33% of workers with a disability, and 28% of black, Asian and ethnic-minority workers do not enjoy auto-enrolment—and that it cannot be right for workers under the age of 22 to be excluded?

[Guy Opperman]

I think that the hon. Gentleman will accept that while auto-enrolment has been a cross-party success story, it was this Government who actually introduced it. The issue that he raises was comprehensively addressed by the 2017 auto-enrolment review, which was conducted by three independent support organisations, and the key points that he raises are being addressed in the current AE review.

Oral Answers to Questions

Jack Dromey Excerpts

Monday 15th October 2018 Commons Chamber

[Guy Opperman]

That is part of the feasibility study and something that we are looking at on an ongoing basis, but I am happy to discuss this in more detail with the hon. Gentleman.

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is nothing short of astonishing that the Secretary of State sought to pull the plug on the groundbreaking cross-party pensions dashboard, designed to help workers know what they have saved and what they have to save to ensure a decent income in retirement, and all easily accessible in one place. Will the Minister now ensure an obligation on providers to supply the necessary information to the pensions dashboard, and can we be confident that the Secretary of State, whose capacity to get it wrong knows no bounds, will not make a renewed attempt to thwart the pensions dashboard?

[Guy Opperman]

Is it not rich that the Labour party, which never came up with or implemented a pensions dashboard, is criticising us, who are doing exactly that? Let me make it acutely clear that this is a party that works together, and that my right hon. Friend the Secretary of State and I, and all the members of the DWP team, are completely behind the pensions dashboard.

Defined-benefit Pension Schemes

Jack Dromey Excerpts

Tuesday 10th July 2018 Westminster Hall

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. First, I congratulate my hon. Friend the Member for Crewe and Nantwich (Laura Smith). She is a great champion of her constituency, and Bentley workers will be proud of her for bringing their cause to Parliament today.

I dealt 40 years ago with Rolls-Royce—the Mulliner Park Ward factory in Hythe Road on the Park Royal estate. The craftsmen were outstanding. They were the salt of the earth. They were highly skilled, producing cars that were quite remarkable. Since the move to Crewe, it has been generally a successful company, but right now, 1,200 members of the DB fund face an absolutely unacceptable threat to their future pension entitlements. These people have a minimum service of 16 years and a maximum of 47 years. I share their sense of anger at what is happening.

Former employees of Rolls-Royce Motors, which was then sold to Volkswagen, now face serious financial hardship in retirement. They will potentially lose tens of thousands of pounds. Although the Crewe site has received billions in investment, the DB fund has moved from surplus to deficit in the time of its ownership by Volkswagen. Volkswagen remains the parent company, with ultimate responsibility. Would it treat its employees in Wolfsburg in that way? I very much doubt it.

Negotiations continue at Bentley. I urge the company to move, and to move substantially, at the next stages, because the levels achieved thus far through the negotiations go nowhere near the losses that many will suffer. In particular, young workers in the scheme will suffer very badly indeed.

Sadly, what is happening at Bentley is a symbol of the wider problem of decline in DB schemes. The percentage of DB pension schemes open to new members fell from 43% in 2006 to 13% in 2015. The number of DB schemes in the UK will shrink to less than a fifth of current levels over the next quarter of a century, according to predictions by Hymans Robertson.

In a very positive speech by the Pensions Minister to the Trades Union Congress conference on pensions, he argued—I think he was right—that DB provision was working well and employers should seek to continue their responsibilities to their employees by maintaining good DB schemes. Would that more employers heeded that advice.

It is absolutely wrong for wealthy companies, with well-funded DB schemes, which many of them have, to look to close those and move to DC pensions purely to transfer the risk from the employer to the employee. That is all the more wrong when we look at the data released in June, which showed that among FTSE 100 companies, DB pension schemes have reached 100% funding and, among all private sector DB pensions, they are 98% funded. Clearly, the majority of DB schemes remain healthy and sustainable. Companies should look to do the best by their workers, and the best pension for their workers is a DB pension. They should, therefore, continue to accept their responsibilities and, I stress again, not simply transfer them on to the backs of their employees.

There are wider consequences to the decline of DB. The erosion of good, well-funded DB schemes has left few workers with a solid final salary pension scheme guaranteed to provide them with an income until they die. The UK has the fourth highest share of pensioner household income received from private pensions and other forms of capital, such as home ownership. As the prevalence of DB schemes and the rate of home ownership fall rapidly, however, the next generation will face considerable financial challenges, including in retirement.

Auto-enrolment has been introduced in parallel to what has happened to DB. It was a triumph by a Labour Government, and I warmly welcome the continuity of policy under this Government. Auto-enrolment has seen 9.7 million more people in pension schemes, saving for retirement. While that move has been immensely positive, it has meant more workers saving into DC schemes. We do not want to see that posed against good DB schemes—on the contrary.

A Pensions Policy Institute report in 2016 found that the median saving of DC scheme members could yield only £3,000 a year as an annuity, which is not a lot of money to live on in retirement. The contrast between historical, good DB schemes and many of the current DC schemes is stark indeed. More work needs to be done, therefore, to improve the adequacy of returns on DC savings, including by looking in more depth at costs and charges.

Collective defined-contribution schemes are an important alternative to the current DC world. While not as secure as traditional DB, CDC provides workers with the opportunity to share the risk associated with their pension investments, as well as the ambition of an income in retirement, which DC can never do. Royal Mail and the Communication Workers Union—to their great credit—have been working to form an agreement, which would be the first CDC scheme in the UK. That would forge a new and exciting pathway to a better pension for Royal Mail’s 142,000 workers.

We look forward to continuing to work with the Pensions Minister and the Government on the passage of the necessary secondary legislation, to enable CDC schemes to be formed, and to work with Royal Mail and the CWU to ensure the best possible scheme for their workers is put in place as quickly as possible. That is a landmark development. It opens up immense opportunities at the next stages. We will encourage many employers—including on a sectoral basis—to take that path. I stress again, if DC is not as good as DB, CDC is a damn sight better than ordinary DC schemes, but—the evidence overwhelmingly shows—still not as good as good DB schemes. We therefore do not want one to be posed against the other. This is a new option and alternative, developed in particular circumstances, which we think others will follow at the next stages.

If responsibility falls on employers, there is also a responsibility on Government. I agree with the tone of this debate and some of the comments made. The DB White Paper is a step in the right direction—no doubt—in seeking to live up to the challenge of protecting good DB schemes, and ensuring they continue to thrive and maintain their members’ benefits.

I welcome a number of the proposals in the White Paper, such as criminal sanctions for directors neglecting pensions schemes. However, my hon. Friend the Member for Crewe and Nantwich was right to question precisely how that would work for potential incomes, given unforeseen circumstances. I welcome the proposals for stronger powers for the Pensions Regulator, with which we had a constructive meeting here last week. I welcome the proposals for clearer standards on scheme funding and for scheme consolidation. I think the hon. Member for Solihull (Julian Knight) is right that consolidation and, therefore, economies of scale, offer significant prospects at the next stages. I welcome the moves towards cost transparency.

However, there are concerns about the White Paper, for example, the reluctance, at this stage, to build on voluntary clearance and corporate takeovers. We recently had the scandal of the hostile takeover of GKN by Melrose. The issue of 50-50 member nominated trustees should have been in the White Paper, but it was not. It remains a strong ambition of the Labour party. We hoped to see stronger commitments to mandatory cost transparency for trustees in DB schemes. Another concern was the review of the Pension Regulator’s valuation procedure and some of the problems that emerged, for example, over the rather conservative interpretation in the universities, which made it more difficult to reach a settlement in that dispute.

There is much in the White Paper that is good and that we welcome. We have ambitions, however, at the next stages. Employers and Government have responsibilities. The most reliable route to a secure and sustainable retirement remains a DB pension. I say to Bentley, workers are the beating heart of any company. Bentley and other wealthy and prestigious companies need to look again at how they treat workers, who are essential to the success of their companies, and investigate every possible route to keeping their DB pension scheme open. That is why I strongly urge Bentley to think again. Bentley—of all companies—should be ashamed of itself for behaving this way in relation to its workers’ pensions.

Draft Occupational Pension Schemes (Master Trusts) Regulations 2018

Jack Dromey Excerpts

Tuesday 10th July 2018 General Committees

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Paisley. The priority of every pension scheme should be to provide security and dignity in retirement, with everyone—employers and employees—contributing towards an income in retirement. I am proud of the achievements of a Labour Government in establishing the concept of auto-enrolment, and I also welcome the continuity of approach. As a consequence, as the Minister has said, 9.7 million people are saving towards their pension—something that would not otherwise have happened.

Having said that, for all the progress made, we are a long way from finishing the job. That the Government are moving towards the development of a regulatory framework for auto-enrolment is welcome, but it is not before time. The lack of one has left people’s savings at risk for too long.

We have three key priorities that legislation does not adequately address. The first is transparency: members must know what choices they are making and how much they cost, including all investment chain costs. The second relates to the scale and size of a pension fund’s assets alongside improved governance of the pension system. The third is the need to improve governance, create and support more member trustees, and ensure effective engagement with them.

We badly need simplicity in the system. Members must know, in simple terms, what their workplace pension scheme is, so that they can make the most of what they invest. We must ensure that every person who is auto-enrolled is given the opportunity to understand what pension system they are going into, how much it costs and how much they will get, even if that is more estimation than fact in a defined contribution scheme. They must know how much each investment choice and transaction costs. Only then will they be able to make an informed decision.

Pension fund providers, and others involved in fund management, often try to dissemble or obfuscate when asked direct questions on costs. Such evasive answers reduce trust in providers. Members cannot make the accurate choices needed to improve their investment performance without knowing the cost. That is why we believe that the next stage is for the Department for Work and Pensions to create statutory guidance that requires all DC schemes to use the Financial Conduct Authority’s cost-collection template, which is due to be published in September. Trustees and managers of the schemes would then be able to get to the root data for the first time. If that template is not used, the Government will not be able to meet the objectives they set trustees.

Although we support the draft regulations, because there is no effective regulation of master trusts, the Government’s approach falls short of what is necessary to create the scale required to improve pension outcomes. It would have been better for primary legislation, in particular the 2017 Act, to state directly that if a fund cannot deliver value for money because it does not have the investment scale, it should merge, as in the Australian system, rather than indirectly push up costs for smaller master trusts through that regulation.

It is instructive that in the defined benefit world, the Government are persuaded of the argument that scale delivers better value for the local government pension scheme, through asset pooling, and for the DWP, in the form of the proposed super funds. Why not have a value-for-money regulatory system or an efficiency target whereby master trusts would merge if it is not met?

On the crucial issue of the governance of master trusts, improved governance must mean a trustee status with a package of improved training and dedicated facility time to do the job. Master trusts and independent governance committees lack scheme member input into the investment process. To be frank, they require a drastic overhaul. The voice of scheme members should always be heard.

Although some companies choose to operate a trust-based defined contribution scheme, most new auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. Under such schemes, member representation on governance boards is far more rare.

We are in a new landscape. We have lost something that we had believed to be established as a clear fiduciary principle, namely member-nominated trustees. Most members do not have a say over which scheme they are enrolled into, and even if they believe a scheme is not the best possible fit, they are unlikely to be able to transfer without losing their employer contributions. The big difference between DB and DC is that employers choose the schemes. If someone wants to get their employers’ contributions, they have to go with their choice of scheme.

Better member representation would help to reassure members that they are enrolled in schemes that are well governed by boards that have their best interests at heart. The Association of Member Nominated Trustees believes that it needs employer support, which could come in the form of secondment release from day jobs, and that without such support it will be hard to get people to sign up to the ever-increasing workload and demands of being a trustee.

Workplace pensions must be low cost, with transparent and comparable explicit and implicit fees. There must be an efficiency drive to ensure that every penny in a pension fund is accounted for and used for growing the members’ pot at the lowest possible cost. They must be well governed, with the scheme members at the heart of the process, by well-trained and supported member-nominated trustees. There must be an improved fiduciary duty for members to ensure that they are active investors who use their property rights to improve the performance of the companies they own.

To conclude, we sought in the Pension Schemes Bill Committee to make certain improvements along the lines that I have laid out, and it was a matter of regret that the Government refused to accept them. As a result, many of the people who matter most—the workers saving through auto-enrolment—will not have the means to enjoy retirement in quite the way they had hoped. Although the proposed secondary legislation is unobjectionable and we will not vote against it, the simple fact is that there remain fundamental flaws in the UK pension scheme that, notwithstanding the progress that has been made, particularly on auto-enrolment, lead to too many workers being denied a decent pension. Although the proposed legislation is a step in the right direction, it does not go far enough in fixing them. We urge the Government to move further and faster at the next stages.

Oral Answers to Questions

Jack Dromey Excerpts

Monday 2nd July 2018 Commons Chamber

[Guy Opperman]

It is always good to hear the dinosaur that is my friend from the north-east, the hon. Member for Jarrow (Mr Hepburn). He was in government between 1997 and 2010 when he could have changed the law and did not. The reality of the situation is that the richest 1% have never paid more tax than at present and that corporation tax reductions create jobs, as has been comprehensively proved. He, I am afraid, has no grasp of the facts as they now are.

[Jack Dromey (Birmingham, Erdington) (Lab)]

rose—

[Mr Speaker]

I say gently to the hon. Gentleman that we have time for a short question, but not at this point for a preamble, I am afraid. A short question will be fine—30 seconds.

[Jack Dromey]

Women born in the 1950s are the victims of a monumental pensions injustice. Christine is 62 and cannot retire until she is 66. Her husband has died, and she now has to do three cleaning jobs to make ends meet. At the very least, will the Government follow the lead of the Labour Mayor for Greater Manchester and introduce free bus travel for the women affected? They deserve better.

[Guy Opperman]

I merely repeat the point that I made previously: between 1997 and 2010, there was a Labour Government. Not only did they support this policy, but they expanded it through the Pensions Act 2008, which, as the hon. Gentleman knows full well, raised the state pension age.

Oral Answers to Questions

Jack Dromey Excerpts

Monday 21st May 2018 Commons Chamber

[Mr Speaker]

Of course, balls in court are always preferable to balls out of court. I am sure that that is a point with which the hon. Member for Stirling (Stephen Kerr) will be well familiar.

[Jack Dromey (Birmingham, Erdington) (Lab)]

The Secretary of State has said that the pensions regulator had concerns about Carillion pension scheme deficits in 2014 but failed to act. The Government went on letting contracts to Carillion, despite repeated profit warnings, and failed to act. Do the Government recognise that the consequences of their failure to act include the biggest-ever hit on the Pension Protection Fund—£800 million—and many thousands of pensioners losing out on their pensions?

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

It was a Labour Government who created the Pensions Regulator in 2004, and I think we can all agree that there are lessons to be learned from Carillion and other recent high-profile cases. However, there are two options. We either try to discredit an organisation and run it down or—this is my choice—support the regulator, give it the further powers that we set out in detail in the defined benefit pension schemes White Paper and stress that the vast majority of employers do right by their employees.

[Jack Dromey]

The DB White Paper proposes criminal charges for directors who neglect their duties. Would Carillion’s directors go to jail under the proposed changes to the law? If not, why not?

[Guy Opperman]

I look forward to working with the hon. Gentleman as we steer the DB White Paper into legislation, but the legislation is looking at the future—it is not necessarily retrospective.

Oral Answers to Questions

Jack Dromey Excerpts

Monday 26th March 2018 Commons Chamber

[Ms McVey]

The regulator is independent, and that is what it does: look at pension schemes. We have, through the White Paper, strengthened the regulator’s powers and now for the first time brought forward criminal sanctions should any director or employer bring into harm wilfully and neglectfully the workers’ pension scheme.

[Jack Dromey (Birmingham, Erdington) (Lab)]

The catastrophic collapse of Carillion saw thousands of workers pay the price, including with their pensions. It was a monumental failure of governance and by Government, who knew Carillion was sinking into difficulties and went on awarding contracts despite profit warnings. The Secretary of State has said before the Select Committee that the Pensions Regulator knew about the mounting problems in 2014; were the Government alerted and did they choose to ignore those warnings, or did the regulator chose to ignore them and fail to alert the Government?

[Ms McVey]

The regulator and assessors are now looking into a whole series of issues. Fundamentally, one of them has to be how Carillion’s books went from being a healthy balance-sheet to, a year later, not being a healthy balance-sheet. The auditors and accountants who had signed those books are now being thoroughly examined to establish what happened there before the regulator would have had to look into things, so a lot of investigations are going on.

--- Later in debate ---

[Mr Speaker]

No time for preamble, I am afraid, as we have a lot to get through and we are running late. A short sentence—Jack Dromey.

[Jack Dromey (Birmingham, Erdington) (Lab)]

The Port Talbot shift supervisor wept as he told the story of how he had been conned out of his pension, and that 20 people on his shift had followed his lead. The ban on pensions cold-calling is welcome, but will the Minister go further to ensure that it is for the Financial Conduct Authority, not just the Information Commissioner, to play a role in enforcement, so that those who act disreputably using information obtained through cold-calling are struck off and can never practise again?

[Guy Opperman]

I will answer this question in detail tomorrow, when I have more time. Anyone considering transferring their pension should speak to the Pensions Advisory Service.

Draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2018 Draft National Employment Savings Trust (Amendment) Order 2018

Jack Dromey Excerpts

Tuesday 6th March 2018 General Committees

[Jack Dromey (Birmingham, Erdington) (Lab)]

The Minister will forgive me if I say what I said in a debate in Westminster Hall this week: auto enrolment was the creation of a Labour Government, but this continuity in public policy is very welcome and is supported across the House. The proposals are entirely unobjectionable and we will not oppose the two orders.

As is appropriate on occasions such as this, I will briefly set out some issues and ambitions for the next stage. First, auto enrolment does not cover the self-employed or workers in the gig economy. Female workers with disabilities and black and minority ethnic workers are over-represented among low earners, the self-employed, those with multiple jobs and carers. Self-employment and bogus self-employment are becoming increasingly prominent in the modern economy, so tackling the issue at the next stages will be of the highest importance.

Secondly, the advent of auto enrolment has increased the number of workers saving for retirement. More active savers are now in defined contribution pension schemes, rather than defined benefit schemes. While having a greater number of savers is a positive move, we do not want to threaten good DB schemes.

Thirdly, the rise in the number of pension savers is a step in the right direction, but DC plans must continue to evolve to provide savers with an adequate pension. A report by the Pensions Policy Institute in 2016 found that the median saving of DC scheme members could yield only £3,000 a year as an annuity, which is not a lot of money. Eight per cent should not be the summit of our ambitions and the sooner the age threshold is reduced, the better.

In conclusion—and fourthly—more workers having access to a pension pot is welcome, but the public’s awareness and knowledge of their pensions needs to increase at the same time. As one of the proposals put forward, and referred to by the Minister, carrying out research is welcome as, in different ways and on different fronts, these are issues that need to be addressed at the next stages. Having made those points for the record, we will not oppose the orders.