Royal Bank of Scotland
Debate between Lord Browne of Ladyton and Lord Bates(6 years, 5 months ago)
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Lord Bates
My noble friend is absolutely right. There is a sense here of forgetting the history of what the situation was in 2008 and the incredible damage that was done to our economy—which we are still having to clear up so many years later. That is the reality of the situation. When the National Audit Office looked into how we would do this, the first sale was done on an accelerated book-build process, and it recognised that it offered value for money in the circumstances. However, the fact is that we are in these circumstances as a result of the realities of what happened in 2008, and we should not forget that.
Lord Browne of Ladyton (Lab)
My Lords, on the “Today” programme this morning the Economic Secretary, John Glen, when seeking to justify not waiting for a better price, on that specific point said that the Government’s judgment was that, looking at the market conditions, there would be no better price in the foreseeable future. What precisely are those market conditions that he referred to, which are not referred to in the Minister’s answer, that the Government estimate will keep this bank’s price depressed?
Lord Bates
These are matters which we take independent advice on; that is why UK Government Investments is there. It tracks what is happening in the market on a daily basis. I have already mentioned some of the things which are happening. Earlier this month there was a large settlement with the Department of Justice, of £3.6 billion; UKGI also recognised that in April, the bank turned in its first profit in 10 years. Those factors were weighed together, along with the fact that there are very few windows during the course of the year when we can dispose of assets, because of potential conflicts of interest.
Pensions Bill
Debate between Lord Browne of Ladyton and Lord Bates(10 years, 9 months ago)
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Lord Bates
My Lords, this has been a useful debate with lots of high-quality and thoughtful interventions. I will try to follow that standard by putting some remarks on the noble Lord’s amendments on the record, and also on my noble friend Lord Freud’s Amendment 70.
As your Lordships will be aware, we launched our recent consultation on charging in October 2013, following on from the Office of Fair Trading’s September 2013 market study into defined contribution workplace pensions. That study raised concerns, which the Government share, about the weakness in the buyer side of the market—a point made powerfully by the noble Baroness, Lady Donaghy, in recounting those examples—the complexity of the product and a lack of transparency, which hinders consumers’ abilities to compare schemes. My noble friend Lord Lawson, a distinguished economist, mentioned the principal agent problem, which has at its heart, in an economic context, asymmetry of information. Transparency must therefore be part of the play which somehow levels the playing field between one side and the other.
Our consultation sought views on how the total cost of scheme membership, including transaction costs, might be captured, reported and managed. My noble friend Lord German rightly said that perhaps it was not an “either/or” solution, but more of an “and” solution. That was reflected in the consultation’s remit, which presented not just one idea but alternative measures to improve the transparency and disclosure charges, as referred to by my noble friend Lord Lawson with regard to his proposed new schedule: a cap on charges on default funds of defined contribution workplace pension schemes, a point made powerfully by the noble Lord, Lord Browne; a ban on active-member discounts and commission; and an extension of the ban on consultancy charges to all schemes used for automatic enrolment. Quite a wide-ranging consultation was launched.
By November last year we had 160 written responses from the evidence received. We will be publishing our response to this consultation shortly. In fact, Steve Webb, the Minister for Pensions, will be updating the other place on his response to the issue of a cap on charges on Thursday this week. I know how the machinery of government works; that does not quite deliver what we want before us in Grand Committee as we consider the amendment. But that information will be in the public domain, and I am sure will be a source of debate for others to draw upon on Report. I will offer some reassurances in the interim.
Lord Browne of Ladyton
Before the Minister moves off that point, I am conscious that if the FT report of Friday 17 January was based on information that should not have been in the public domain, the Minister will be constrained in what he can say. Those of us who have been in that position understand that. However, does the expected update from the Pensions Minister, Steve Webb, relate to the very consultation that has been reported in the FT as being postponed—I think it says shelved for at least a year—potentially indefinitely? Is the Minister prepared to address the specific piece of evidence which suggests that officials briefed members of the industry that that was the case—last week, it is said, which presumably was the week before last?
Lord Bates
The noble Lord was a very experienced Minister and a much more senior one than I will ever be.
Lord Bates
My Lords, ensuring that schemes deliver good value for, and are run in the best interests of, their members is a primary concern for this Government, so we welcome this discussion, which was set out with great insight and clarity by the noble Baroness, Lady Drake. We agree that the issues highlighted by these amendments—scale, fiduciary duties and conflicts of interest—are important ones to consider. However, we do not agree that simply encouraging the creation of large, trust-based schemes is the right approach to ensuring good value for members.
We are interested in testing how far scale can help schemes to deliver better quality and lower charges for members. Last year we published a call for evidence on defined contribution quality standards, in which we sought evidence about how a scheme’s size can influence outcomes for members. As noble Lords are no doubt aware, the issue of scale is not straightforward, and most responses to our call for evidence saw benefits to members in both large and small schemes. We are currently considering the responses to the call for evidence alongside the recommendations of the Office of Fair Trading, and will respond in due course.
We would have concerns about compelling schemes to merge in the way that this amendment suggests. Determining what is in all members’ best interests would be extremely challenging for the Pensions Regulator, which simply would not have the capacity or information needed to scrutinise every small scheme and consider whether it should close or merge. There could also be European Court of Human Rights issues in relation to property rights because to force a scheme merger could lead to some members losing out.
Turning to the idea that all schemes should be trust-based, in our call for evidence we set out the importance of ensuring that schemes are governed in members’ interests; of course, we recognise the vital role that trustees play in achieving this. However, we disagree that simply imposing a trust-based structure on all schemes is the way forward. Neither the presence of trustees nor fiduciary duties are a panacea for poor governance. This is shown in the findings of the OFT, which identified governance weaknesses in trust-based schemes of different sizes. The Law Commission’s current consultation on fiduciary duties notes that legal duties are,
“insufficient to ensure good outcomes for members”.
In addition, the amendment suggests that in scheme governance, trustees’ decisions should take precedence over an employer’s decisions in any circumstances. This does not provide any opportunity to balance interests, and would apply even if the trustees’ decisions are unreasonable. Such a broad requirement could lead to significant financial difficulties for employers, which would not be in anyone’s interests.
The amendment moved by the noble Baroness, Lady Drake, highlights the importance of identifying and avoiding conflicts of interest. The Government agree that this is an important area; in our call for evidence we suggested that all schemes should have a governance body that must be able to act freely in members’ interests. The noble Baroness referred to the Australian scheme, as did the noble Lord, Lord Browne. She was very dutiful in reading it over Christmas. I suggest that she would find the Australian pension code less onerous to read if she was reading it in Australia, but she was probably shivering here with the rest of us.
The Australian regulator’s new power is interesting but it is not translatable to the UK pension system. Following the Cooper review, which has been referred to, the Australian pensions regulator—APRA—has been given new powers to drive schemes to merge.
We are interested in this approach and will monitor how it is used and how effective it is, but it should be remembered that the Australian pensions landscape is significantly different from our own. It is our understanding that the APRA does not intend to use the power to target all small schemes but to focus, for example, on cases where there is a link between underperformance and an absence of scale.
The noble Lord, Lord Browne, argued that you need to drive up scale in order to increase consolidation, which has an effect on charges and therefore brings a benefit to members. Scale is not necessarily a determinant of value: bigger schemes are not always better. Consolidation is already happening. For example, in 2012 around half the active members of private occupational defined contribution schemes were in schemes with 10,000 or more members; in 2000 this figure was one in eight. The number of active members in small and medium-sized private occupational defined contribution schemes decreased from 0.3 million to 0.1 million between 2000 and 2012—a reflection of the greater regulatory requirements and burdens that are placed upon scheme managers, as well as the challenge of finding trustees who will undertake the work.
Finally, turning to the comment made by the noble Baroness, Lady Drake, about independent governance committees and whether they would have a fiduciary duty to members, the OFT has recommended a model of independent governance committees to address a number of problems that stem from weaknesses in the buyer side of the market. As part of the consultation on fiduciary duties, the Law Commission has asked about the duties that should apply to members of independent governance committees. Its tentative view is that members should be subject to legal duties to act in the interests of members. We are working with regulators and stakeholders on requirements for independent governance committees, and will respond in due course.
This has been a helpful discussion but I hope that my responses will enable the noble Baroness, Lady Drake, to consider withdrawing her amendment.
Lord Browne of Ladyton
Perhaps I might engage with the Minister on the issue of whether or not larger pension schemes provide better returns to their members. I do not intend to delay the Committee long on this issue but I have before me a page and a half of significant research that challenges the assertion made by the Minister. I will say only this: recent NAPF research shows that a person in a larger scheme will get a 28% larger pension pot than a person in a smaller scheme. Indeed, research from Australia supports the assertion that fund size has a positive impact on the performance of not-for-profit superannuation funds there. I shall arrange for the Minister to have access to this research but I could not let that assertion remain unchallenged.
Lord Browne of Ladyton
My Lords, I speak to government Amendments 68 and 69, and to Amendment 68ZA, for what that is now worth, and Amendment 68ZB in the name of my noble friend Lady Sherlock and myself. As the Minister pointed out, Amendment 68ZA is now unnecessary in the light of government Amendment 68.
We welcome the government amendments in this group. As the Minister explained, they have been tabled in response to some of the recommendations made by the DPRRC. I am pleased to see that the Government have come to accept the DPRRC’s recommendation that Clause 17 powers relating to the effect of pensioners postponing or suspending state pensions should be affirmative; that was the purpose of our Amendment 68ZA.
Amendment 68ZB is purely a probing amendment, and has been remarkably successful in drawing from the Minister an extensive explanation of the regulation-making power under Clause 42, and why the Government felt that it was appropriate that it should proceed by the negative resolution procedure. I am extremely grateful to the Minister for that detailed explanation and, in the light of his full explanation, which is now on the record, I will not press that amendment.