Occupational Pension Schemes (Administration, Investment, Charges and Governance) (Amendment) Regulations 2021

Lord Davies of Brixton Excerpts

Monday 6th September 2021 Grand Committee

However, charges and member value remain important, and the governance around such a policy is key. The Government need to create the environment to allow that virtuous alignment, but not to transgress into appropriating the long-term private savings of many millions of people. It is those with a fiduciary duty who should decide which particular investments are in the interests of their scheme members. Any assurance from the Minister about the intent behind the 4 August letter on “Investment Big Bang” would be reassuring in that context.

[Lord Davies of Brixton (Lab)]

My Lords, I thank my noble friend very much for her remarks. She has obviously been much more deeply involved than I have been. I have come to these regulations pretty fresh, but a number of points strike me about them, and I would be grateful for the Minister’s comments.

It is important to appreciate that we are only talking about the default schemes. To get a feel for the significance of this impact, we need some idea of how significant default schemes are. My understanding, having seen figures, is that virtually everyone joins the default schemes, but this applies only to the default arrangements within a scheme. Does that mean that those people who for whatever reason choose the non-default arrangements are left uninformed about these important arrangements? Surely value for money is just as important? I accept that they are very difficult to judge, but value for money applies as much to the non-default arrangements as to the default ones.

The other exclusion from the regulations is that of small, self-administered schemes and EPPs. The notes are a bit weak on justifying that exclusion. There was probably more debate during the course of the consultation, but the comment is made that most small businesses do not run their own schemes. Well, “most” implies that some do run their own schemes. Will they be left to drift? Why do they not fall within the remit of this protection for members?

Regarding small schemes, I never believe very round figures, and £100 million is an extremely round figure. The table in the Explanatory Memorandum had the number of schemes in different sizes. The issue comes up of why, if we are going for £5 billion, why not to go for £5 billion? I think that I am echoing my noble friend’s question. Another question lies behind that. Is this really just a way of getting rid of small schemes? Are we establishing a bureaucratic mechanism that will make small schemes think that it is just not worth the candle? Which of those small schemes that we are envisaging will say: “We are prepared to go through this process, we believe that we are providing value for money, and we want to continue?” Which are the schemes that this regulatory structure is being introduced to cater for? Would it not be more straightforward just to say “£5 billion is it” and that you want to get rid of small schemes?

On the policing of the process, the question of who selects the three comparators is being asked. Is there some scope there for gaming the system? What protection do we have on which schemes get selected as comparators? Advisers could have 10 comparator schemes that were not really suitable. Will the Pensions Regulator have the power directly to prevent the choice of inappropriate comparators? It may be explained somewhere, but I can see nothing explaining how the choice of comparators will be policed.

It comes back to the question of what is perceived by the Government and/or the regulator as the endgame here. Is this a one-off, and we will continue with this situation, or is this just one step in a longer term process of eliminating smaller schemes and ending up with a relatively limited number of mega-schemes catering for this particular market? I am not convinced that this is necessarily in the members’ favour. It would be good to have an idea of whether this is part of a longer process, whether there is an endgame here and this is just one move on the chessboard, with other complicated moves coming up later, or whether it is just there on its own terms?

Then there is the more important question. In setting up this structure and this process, how meaningful is the information that is going to be provided to members? Is this the sort of information that members are looking for? Is it the sort of information they will understand? Has there been any research into the value and effect of providing this information for members? We also need a bit more clarity, which perhaps the Minister cannot give. I believe the Pensions Regulator could be clearer as to what exactly it will do if the trustees produce a report saying that they are not providing value for money, in effect—I am sure they will dress it up in particular words—but in practice are not going to do anything about it. We need greater clarity on what steps the regulator will then take in response. It is all very well having the information that a scheme is not providing good value for money, but the regulator needs to be clear in exactly what it will do in response to that situation.