Public Authorities (Fraud, Error and Recovery) Bill

Lord Davies of Brixton Excerpts

2nd reading
Thursday 15th May 2025 Lords Chamber

[Lord Davies of Brixton (Lab)]

First, I welcome the noble Baroness, Lady Spielman, to the House, particularly as a fellow spreadsheet lover. The Public Authorities (Fraud, Error and Recovery) Bill—can I call it PAFERB?—has significant implications for privacy, justice and the rights of vulnerable individuals. I welcome parts of the Bill, but there are significant concerns. I apologise to my Front-Bench friends for highlighting the problems and not the many things in the Bill which are to be strongly welcomed.

The concern is that the Bill will introduce an unprecedented system of mass financial surveillance. We should understand that this is something new. It undermines the presumption of innocence that anyone accused should have and it will disproportionately affect people who, by definition, are poor, whether because they have inadequate pensions, are disabled and find it difficult to get a job, or generally struggle to find employment.

Attempts have been made to paint a picture of the fraudster. To me, it is the person on a low income who is struggling to cope with their situation. Perhaps they are not as well organised as Members of this House and live in a state of chaos. That is the person I see being affected by this Bill. Clearly, fraud is wrong, but to paint the Bill as dealing only with bad-thinking people is misleading to the House. Who are the fraudsters? Under Part 2 of this Bill, they are people who are already in financial difficulties. Navigating the welfare system is already challenging. Those entitled to benefits will be only further deterred by the threat of surveillance and potential penalties that will exacerbate their difficulties.

There is a real concern, which I hope we can address in Committee, that the Bill will create a second-tier justice system for people on the poverty line, treating them differently from the rest of the population. We will no doubt be told of the extensive safeguards being put in place. Unfortunately, for those opposed to the principle of snooping, there is a Catch-22 here: the more safeguards you introduce, the more I worry that those safeguards are required and the proposals are problematic. To the extent that the safeguards weaken the effectiveness of the Bill, it raises the question of whether the measures are required at all. More safeguards clearly mean the Bill is less essential.

My first concern relates to the mass financial surveillance—make no mistake, that is what this involves—and the extensive powers being granted to the DWP to assess and monitor the bank accounts of benefit claimants. Such powers amount to what has been described as a “chilling” and “disturbing” level of intrusion, with a surveillance system that treats all claimants as suspects, without any evidence of wrongdoing. Those concerns have been expressed by speakers around the House. My major concern, which we will have to consider in detail—that is why it is so important that we see the codes of practice—is that some of the things that my noble friend said in introducing the Bill are not in the Bill. We need assurances on those issues before we can sign these provisions of the Bill off as acceptable.

The key to this is the lack of the need to demonstrate probable cause, which has been widely criticised by civil liberties groups, including Big Brother Watch. They argue, and I agree, that suspicionless financial surveillance treats all claimants as potential fraudsters, infringing their right to privacy without, I emphasise, having to demonstrate due cause. The concern is that this will set a precedent for further unwarranted state intrusion into individuals’ financial affairs in the future. The Information Commissioner’s Office has come back on the Bill and said that some of its concerns have been addressed, but emphasised the word “some”. It still has concerns about the Bill that we have to address.

My second concern is about direct deduction orders and the extent to which the legislation will allow the DWP to directly deduct funds from individual bank accounts without a presumption of innocence and what I would regard as proper due process. How can we allow an administrative body to exercise punitive powers without appropriate due practice? Decisions to recover funds or impose penalties should be subject to judicial oversight, to prevent miscarriages of justice. We should remember that the great majority of people who will be affected by the removal of the need for judicial oversight are poor, inevitably in difficult financial circumstances and often in a chaotic administrative state. It is bound to lead to hardship.

The Minister said in her introduction that a decision would always be made by a human. I am sorry, but the Bill does not say that. If you read the relevant clause in the Bill, you see that there is no requirement for a human to be involved. Again, this is an issue we must return to in Committee.

My third area of concern is the disqualification from driving and the fact that the Bill gives the Secretary of State power to apply to courts to disqualify individuals from holding a driving licence if they have been given too much in benefits and refused to repay the excess. I cannot conceive how anyone thinks this is anything like a good idea, except in trying to achieve a headline in the Daily Mail. Even in principle, how can the ability to drive a motor vehicle be determined by the debts that someone happens to owe to the state? The right to drive a motor vehicle should not be contingent in that way. It is a fact: either you are safe to drive or you are not safe to drive. That is the only criterion that should apply.

Even in practical terms, justice should always be applied in an even-handed fashion. Taking away a driving licence will have grossly disproportionate effects on different people. Those who rely on a car to get to work—not for work, but to get to work—will be much worse affected than those who can walk to work. People who run their children to school will be affected much more than those who live round the corner from the school. People who live in urban areas with good transport links, such as we have in London, will be much less affected than those who live in remote rural areas. How can it be just that this form of punishment— and it is punishment—should be handed out in such an uneven fashion? It will also inevitably lead to greater poverty and social problems.

The House has to consider this Bill with a precautionary perspective, highlight potential overreach by the Government and identify the risks to individual freedoms and privacy.

Someone asked the question: why have the banks not been asked whether they want these obligations? Well, they have been asked. UK Finance, which represents the financial industry as a whole, has provided us with detailed comments on the Bill—as it did on the previous occasion—from which it is clear that the industry does not want to do this. If it has to do it, and it accepts the right of the Government to make the requirement, it sets out a number of criteria that need to be addressed.

I am running out of time, even though I have more to say on other issues. The point that really strikes home is that the banks have a duty of care towards their account holders. They tell us that reconciling that duty of care with the obligations under the Bill poses considerable difficulties for them. We have to listen to them: they have been asked and they have expressed considerable practical reservations. My objections are based in principle, but they are still raising practical obligations.

Finally, this Bill on fraud and error is currently silent on the errors made by the DWP—I reflect here the remarks made to me by my noble friend Lady Lister of Burtersett, who regrets not being here today. She points out that in 2023-24, almost 700,000 new universal credit official error overpayment debts were entered into the DWP’s debt manager system. Research from the Public Law Project indicates that the DWP’s default approach is to recover all official error overpayments on universal credit, with relief dependent on individuals being able to request inaccessible discretionary measures. The Bill provides an opportunity to correct this unfairness, and my noble friend plans to table an amendment in Committee that would alter the test for the recovery of universal credit official error overpayments so that they could be recovered only where the claimant could reasonably have been expected to realise that there was an overpayment.

To conclude, there is much to welcome in this Bill. Public money should be used appropriately, but, ultimately, the measures have to be exercised with greater compassion than we have seen so far.

--- Later in debate ---

[Baroness Sherlock (Lab)]

I have heard accounts of people saying that disabled people will worry that DWP will know that they go to Pret and therefore cannot really need the money, et cetera, so it is important to make it clear that DWP will not have access to their bank accounts through this EVM.

DWP knows the bank accounts into which benefits are paid, so DWP will tell the banks to look specifically at the bank accounts into which those benefits are paid. It will tell them specifically the criteria they are looking for, and all they are being asked to provide is enough information to identify accounts which may, on the face of it, be in breach. Then, that information will be used along with other information that DWP holds, and it will be examined by—to reassure the right reverend Prelate the Bishop of Lichfield—a human being, who will make a decision on whether to investigate. There could be a number of outcomes. The outcome could be that the person may have had, for example, more money in their account than the benefit allows, but for one of the many acceptable reasons. There could be a perfectly good reason. The person may have made a genuine error, and that will be dealt with in a different way, or in some cases there may be evidence of fraud, and that might move into a fraud investigation.

I accept that some noble Lords may not think this proportionate. We believe it is proportionate, with those safeguards wrapped around it, but I want to be clear that we are arguing about the same thing, not about different understandings of what is going on at the time.

[Lord Davies of Brixton (Lab)]

My noble friend referred to an acceptable reason. Who ultimately decides what constitutes acceptability?

[Baroness Sherlock (Lab)]

This may be a matter that we might more usefully explore in Committee, but I shall give my noble friend a simple example. There are certain compensation payments that are not taken into account in terms of eligibility for benefits. They are excluded from the capital limits. So it may be that somebody has received a compensation payment. There is guidance about circumstances in which people may have money in their account. The point is that cases will be looked at individually before they are pursued. There is a requirement on fraud investigators to look at all information and chase down all avenues of information, so they will do that and make an appropriate decision.

Just to be clear, on benefits in scope, the initial use of the power is focused on three benefits: universal credit, employment support allowance and pension credit. The reason why is that that is where the highest levels of fraud are at the moment. The noble Lord, Lord Palmer, will have noticed that carer’s allowance is not on the list for the EVM. The two types of fraud and error we are targeting initially—breaches of capital and the living abroad rules—are significant drivers of fraud and error in those benefits. For universal credit, nearly £1 billion was overpaid last year as a result of capital-related fraud. Once fully rolled out, that measure alone will save £500 million a year. The state pension is expressly out of scope and cannot be added even by regulations, and that is sensible given that the rate of state pension overpayment is just 0.1%.

Somebody asked me whether we plan to add any other benefits. The answer is no. We cannot rule them out because fraud may change in the future and different benefits may be subject to different levels of fraud.

A number of noble Lords, including the noble Lord, Lord Vaux, the right reverend Prelate the Bishop of Lichfield and the noble Baroness, Lady Stedman-Scott, raised the use of AI and automated decision-making. To be clear, we are not introducing any new use of automated-decision making in the Bill, so no such new use will happen as a result of it. The DWP and the PSFA will always look at all available information before making key decisions about the next steps in fraud investigations or inquiries into error. Fraud and error decisions that affect benefit entitlement will be taken by a DWP colleague, and any signals of potential fraud or error will be looked at comprehensively.

Given the arguments made by those who think we are not going far enough, and by those who think we are going too far, we appear to be Goldilocks in this. I think we have got the balance right now. Goldilocks is not always right, I accept that, but I think we have landed in the right place because of the safeguards the Bill includes to ensure that its measures are effective and proportionate. Those safeguards provide protection but also accountability and transparency.

I will not go back over all the different kinds of oversight, but on the appointment process, I assure the House that the process for the independent people who will oversee EVM and the PSFA’s measures will be carried out under the guidance of the Commissioner for Public Appointments and will abide by the Governance Code on Public Appointments throughout.

I am grateful for my noble friend Lady Alexander’s compliments. I would suggest that she herself apply, but she might not qualify for the independence threshold entirely, as one might hope.

I shall say a brief word on safeguards. The Bill includes new rights of review and appeal. The DWP will still provide routes for mandatory reconsideration of decisions relating to overpayment investigations, followed by the opportunity to appeal to the First-tier Tribunal. For direct deduction orders, again, there are new routes for representation and review, followed by appeal to the First-tier Tribunal, while the court’s decision in relation to a disqualification order can be appealed on a point of law.

On driving licences, I take the point made by my noble friend Lord Sikka: why driving licences and not membership of a political party? I hate to break it him, but it is just possible that not being allowed to join a political party does not have the same deterrent effect as losing a driving licence—not for us, obviously, but we are not typical, although it is touch and go. I assure the House that this measure has been used for a long time in the Child Maintenance Service. As the noble Baroness, Lady Stedman-Scott, said, its effectiveness is shown in that it almost never needs to be used.

As a final reminder, this is about debt recovery. It is about people who, by definition, are not on benefits and not in paid employment. The reality is that if you owe DWP money and you are on benefits, the DWP can already deduct it from your benefits, and if you get a wage packet the DWP can deduct it from your wages. However, if you are none of those things—if you are privately wealthy, self-employed or paid through a company—and you owe the DWP money, the department does not have the same ability to go after that money as it does for those who are on benefits or in PAYE. The Bill gives the department the opportunity to use measures such as deduction orders and other tools to try to bring people to the table. If someone comes to the table to have a conversation, we will begin to arrange a payment plan. The other measures are there only if people refuse to engage and simply will not come along and do what they ought to do.

--- Later in debate ---

[Lord Davies of Brixton (Lab)]

I am annoying the Whip. Does my noble friend have a response to the point I raised on behalf of my noble friend Lady Lister about the position of people who reasonably assume that the money received in error was rightfully theirs?

[Baroness Sherlock (Lab)]

I have a wodge of answers to questions asked by a lot of noble Lords, and I am afraid time has run out. But to be clear, we need to not ally fraud and error. This is just a data pull. If data comes from the banks to the DWP, it will be used with other data to make an individual assessment of someone’s position and appropriate decisions will be made at that point about how to deal with it. It may be an overpayment, a genuine mistake, an act of fraud, or there may be no problem. Cases will be looked at individually.

This Bill delivers on our manifesto commitment. It is expected to save £1.5 billion over the next five years as part of wider action at the DWP to save a total of £9.6 billion. The Bill will bring in new powers for the PSFA to tackle fraud and it will deliver the biggest upgrade to the DWP’s counterfraud powers in over 14 years. We believe it is proportionate and demonstrates that we will take action against those who willingly defraud our public services, providing the right tools so that we can step up to prevent, detect and deter criminal activity. I very much look forward to working with so many noble Lords across the House—it says here—during the passage of this important Bill. I look forward to seeing many of them in Committee. I beg to move.

Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2025

Lord Davies of Brixton Excerpts

Wednesday 23rd April 2025 Grand Committee

Moved by

[Lord Davies of Brixton]

That the Grand Committee takes note of the Pension Protection Fund and Occupational Pension Schemes (Levy Ceiling) Order 2025, laid before the House on 3 February (SI 2025/103).

Relevant document: 18th Report from the Secondary Legislation Scrutiny Committee

[Lord Davies of Brixton (Lab)]

My Lords, this order is routine and has little practical impact on the PPF. It sets the potential cap on the levy, but the levy as is currently payable is only a small percentage of the cap, so in itself it is of no significance. However, having the order before us provides an opportunity to discuss the operation of what is becoming, a bit under the radar, one of the country’s biggest financial institutions, and one that is receiving increasing comment.

Those among us who feel a sense of déjà vu are right, as we had a similar debate almost exactly two years ago. There is an important difference, of course, in that the Front Benches have swapped places. I will not touch on the Financial Assistance Scheme—FAS—although it is worth saying that many of the same points will apply. But that will be a debate for another day.

The issues being discussed in the context of the Pension Protection Fund include the practical problem with the legislation preventing a zero levy. There is the issue of the Government’s general policies to increase productive investment by the pension universe as a whole. There is the issue, which has been raised, of fund consolidation and whether the PPF is a suitable vehicle for that. There are also the limits on the benefits that the PPF can pay. Noble Lords will be glad to know that I will not deal with the first three, although it is worth flagging them up. I will say a bit about the legislation, but my focus will be on the limit to the benefits payable to members of the PPF and what, if anything, could be done about it.

We have to thank the PPF for its extremely helpful briefing note. I do not think that anyone is here from the PPF, but one can always watch online nowadays, so I hope they are watching us. I emphasise that the briefing note was helpful and showed that the PPF was aware of and alive to the issues that I am raising, which is good to know. Having read through the fund’s annual report in preparation for this debate, I welcome its commitment to DEI policies and the requirements of climate change. It is worth putting that on record, because it is doing a great job.

In a sense, this debate is a taster for the forthcoming debates we will have on the pensions Bill. Perhaps the Minister can give us a slight hint about when and, as importantly, where we will get that Bill. But the one thing that we are almost certain to see in the Bill— because the Pensions Minister has said so—is some legislation on the calculation of the levy. I think the Minister has gone as far as is possible to say that that will be in the Bill.

However, there are other issues that can be raised in the context of the Bill. I give due warning: I think that there will be scope in the Bill to discuss the issue I am raising today—that of the increases in benefits for members of the PPF. We have not seen the Bill yet, including its Long Title and what will be in scope, but, given the issues that have already been mentioned as likely to be in the Bill, I think that it will provide an appropriate and important arena in which to discuss what I am going to raise in relation to benefit increases.

I shall make a point on the regulations and the zero levy. As I say, the Minister, Torsten Bell MP, has gone as far as he can. He mentioned the Government’s intention to allow the PPF greater flexibility in reducing the levy that it collects on pension schemes, particularly when it is not needed, but he went on to highlight the PPF’s critical role as a safety net for pension savers—on the one hand, seeking to avoid unnecessary levies on pension schemes, but, at the same time, with the intention of allowing pension scheme employers to invest, supporting savers in growth but recognising the need to maintain a secure PPF. He also drew attention to the PPF’s strong financial position. Can the Minister here tell us anything more specific about the proposals to introduce the regulations?

I move on to the PPF’s finances. I have here something in quotation marks; I think I am quoting the Minister. It says that the PPF is in “robust financial health”. In all the information that the PPF provides us with—it is a lot of information—there is a wonderful fan chart showing the future progress of the funding levels and its perception that, as things stand, those levels will continue to increase. It is already strong, and the prospects are that it is going to continue to increase over the coming 10 to 15 years.

So, an issue is bound to arise—people always raise it when they see that a pension fund has what people tend to refer to as a surplus; that is a questionable concept but people refer to surplus—which is that, if a surplus is there, people are always pretty keen to spend it on all sorts of things rather than on the prime purpose of any pension arrangement, which is obviously to provide benefits for the members. It is notable— I checked this in the annual report and accounts of the PPF—that it never actually uses “surplus” in this context. It quotes the Government’s use of the word, but the fund itself refers not to surpluses but to its reserves. That is a much more appropriate way of thinking about this. “Surplus” implies that you do not really need it, but a reserve is there for the purposes of the fund and to protect members’ benefits. It is much better to talk in terms of reserves rather than of surpluses.

It is worth recalling that, two years ago, when we last discussed this issue, we had just had the departmental review of the Pension Protection Fund, done jointly by officials of the department and the PPF. This was a particular recommendation:

“That the DWP and the PPF work together to understand the implications of the PPF’s funding position in light of expected future developments in the population of Defined Benefit (DB) pension schemes and plan well ahead for any legislative changes that might be needed; for example, to address what happens to any funding which is surplus to requirements”.


So, the departmental review uses “surplus”, which, as I have explained, I do not like, but it was asking what we are going to do about this level of reserves: is it the correct level of reserves or are there other ways in which this money could be implied?

The problem, of course, is that the legislation does not say anything at all about those resources. Given the PPF’s understandable policy of building up a substantial buffer, we have to give that issue some attention, particularly as the PPF’s figures show that buffer increasing year by year, as I said.

What could you do with it? I have seen one suggestion that it could go back to the employers, but I cannot see how that is practical. In a sense, it can go back to the employers by reducing the amount of the levy—that is for the PPF—but there is no way in which the actual cash could go back because many of the employers who paid it are no longer here and we are now in a different world compared to when the levy was being paid, up to 20 years ago. I do not think it is an option to make cash payments back to employers. The extent to which, by reducing the levy, employers have more cash in their hands is a separate issue.

It would be equally wrong, or even worse, for it to go to the Government, but that is what would happen as things stand. This is a fund, and if it ever ran out of people to pay—way in the future, of course, because we are already anticipating that benefits already in payment will still be in payment in 2100, so it is a long term—even the prospect of that money ultimately going to the Government is just wrong and it should be rejected explicitly. From my perspective, the obvious place where that money could be used is to improve the benefits for members.

There are, obviously, two ways in which members’ benefits can be increased. First, there is the 10% haircut, which is applied to members who join from deferment. Of course, those who are already receiving pensions from age, retirement or ill health get 100%, but the deferred suffer this blunt 10% haircut, which was introduced as part of the deal when the legislation was introduced. It is a real live issue: do we still need to apply that 10% haircut? You have a retention on insurance policies to reduce the premiums and to discourage people from making claims. I do not think that really applies. We have already got the levy down to minimal amounts, so we do not need it for that reason, and the idea that employers will behave recklessly in order that their ex-employees can get 100% rather than 90% benefits does not need to be taken seriously. The need for the haircut has clearly gone. It is there, but it is not needed. That is the first thing that you could do.

The second thing, and the one that perhaps gets most discussion, is providing better protection against inflation. That is the central issue that I am talking about. There is a very important distinction between what can be done under existing legislation and what would require additional legislation. That falls quite neatly into benefits accrued post 1997, where the fund has the power to make some discretionary increases. It has never exercised it, but it now says in its annual reports that it is an issue that it considers. It has always reached the conclusion that it will not make the increases, but it has the power. For pre-1997 benefits it has no right to make any increases and to do so would require legislation, which is where we come back to the pensions Bill. I very much hope that the provisions in the pensions Bill will at the very least give the PPF equivalent power to make discretionary increases for pre-1997 benefits, as it has the power to do for post-1997 benefits.

Until four or five years ago, the PPF operated in a period of relatively low inflation, so the issue did not bite so much—goodness me, I have spoken for 15 minutes already—but then we had three or four years of high rates of inflation. This had a significant impact on members’ benefits and a particularly severe impact on members with pre-1997 accruals, who got no increases. Their benefits have fallen in value by something like 40%. Benefits accrued after 1997 do get increases, but, because of the 2.5% cap on increases, the reduction they have suffered is significantly less but still material—in excess of a 20% cut. That is a reduction for ever; there is no way in which those reductions are made up subsequently, unless the PPF board were so to decide.

--- Later in debate ---

[Baroness Drake (Lab)]

My Lords, I refer to my interest as a trustee of a defined benefit pension scheme. I thank my noble friend Lord Davies for facilitating this debate.

Two of the restrictions placed on the PPF by the Pensions Act 2004 are, first, the levy ceiling and, secondly, that any increase in the actual levy is limited to a 25% increase year on year. If the PPF sets a zero levy one year, it can never subsequently raise it because 25% of zero remains zero. Although the order that we are taking note of today increases the ceiling, in reality, the levy has been systematically falling as the PPF’s position has strengthened. That 25% limit, however, inhibits setting a very low levy: if economic circumstances change, it will take longer to raise that levy back to a material level.

The Government have said that they will consider legislative changes to make it easier to set a zero levy; I hope that the Minister can confirm that that is still the disposition of the Government. However, given the stronger funding position of the PPF and the prospect of the Government removing the 25% limit, the PPF board halved its £100 million levy estimate for 2025-26 to £45 million—its lowest ever. That is the point I want to take up in the rest of my contribution.

In its foreword to its levy policy statement, which sets out the £45 million, the PPF states:

“The likelihood of the PPF encountering significant funding problems in the future … is low and is expected to continue to reduce over time … if funding problems did arise, these could be resolved over a multi-year period with our investment returns likely to be the most significant contributor”.


Taking into account that level of confidence in the funding level and investment returns, and taking into account the £13.2 billion funding surplus—

[Lord Davies of Brixton (Lab)]

Reserves.

[Baroness Drake (Lab)]

Yes, reserves. Taking into account that and the levy reduction, it triggers the need to reflect that it is equally important to have regard to what is a fair striking of the balance between levy payer and member interests. This is the issue that I want to pause on, because it is something that the Government should reflect on—particularly regarding, as others have mentioned, the PPF indexation rules as they apply to compensation for service pre 1997.

As my noble friend Lord Davies set out, the Act sets the annual increase for PPF compensation in payment for pensionable service accrued after April 1997; that is set at the CPI and capped at 2.5%. However, that is the limit of the PPF’s power, which means that, for pension benefits accrued for service pre 1997, compensation payment does not increase at all—it just does not. No matter what the year or the economic circumstances, there are no means of increasing the compensation payments for pension benefits accrued prior to 1997. Over the period of retirement, particularly given recent high inflation, the rules on pre-1997 service compensation have had a significant, even acute, financial impact on those affected.

The PPF provided some information on the costs of improving compensation rules in a published letter in December 2024, in response to requests from the Commons Work and Pensions Select Committee. Unlike my noble friend, I shall, if I may, refer to some figures. Using those figures, if the Government allowed the PPF to apply prospectively CPI capped at 2.5% to pre-service compensation payments, it would increase liabilities by £2 billion, reducing the reserves from £13.2 billion to £11 billion but still keeping a 150% funding level even if that was done. However, for an ad hoc increase to the pre-1997 compensation payment, recognising that period of higher inflation we have been through, the figures would be significantly lower than those I have quoted.

As the noble Baroness, Lady Altmann, said, the rules set in 2004 were set cautiously because nobody was really clear on the level of schemes that would fall into the PPF. There was a lot questioning about the sustainability of the PPF; it is a compliment to the PPF that it has proved it is sustainable. So some of the rules were set very cautiously, but the PPF is now in a strong financial position, with some £32.2 billion of assets: £19 billion in liabilities and reserves of £13.2 billion. The risk of future claims has fallen, either because, as the noble Baroness, Lady Altmann, pointed out, there is a big shift to buyout, or because the funding of schemes is much stronger. The risks are falling correspondingly: the annual levy has declined from £648 million in 2023 to £45 million in 2025-26, with further reductions anticipated.

Not only has the levy in quantum declined hugely; the levy has also declined as a proportion of the PPF’s funding mix. Roughly one-third of the funding comes from the assets transferred to the PPF from those members’ pension schemes. Similarly, another third comes from the investment returned on assets, and 11% comes from assets recovered by the PPF on behalf of those schemes. Less than a quarter—23%—of the funding comes from the levy, and that is going to fall. However, the benefits of the PPF’s strong funding are deployed more to move the levy towards zero, and consideration is being given to abolishing the industry-funded PPF administration levy. This inevitably raises the question of fair balance between levy payer and member interest, particularly for pre-1997 service, as it is quite tough that there is no facility to improve those compensation payments and they never increase.

Like others, I absolutely support the Government’s priority to deliver growth, driving employer investment in their businesses. I also recognise that the PPF liabilities are captured in the whole of government accounts, which obviously introduces a sensitivity. I am not disregarding those issues, but I note that the PPF’s own three-year strategy has set a goal of working with government to progress a review of the indexing of compensation. There is a growing concern, given the level of funding and reserves, about the fact that, at the moment, service accrued pre 1997 can never be increased. It is something that starts to tilt a fair balance between levy payer and member interest. Although I recognise that these things are not easy, will the Government give further consideration to a fair striking of balance of interests?

--- Later in debate ---

I thank noble Lords for the opportunity to respond to this wide-ranging debate on issues affecting our system. The Government are determined to make our pension system work as well as it can as part of our mission to shape the pension system to serve the interests of savers and pensioners, ensuring decent, secure retirement incomes for all. I hope that is a goal we can all get behind.

[Lord Davies of Brixton (Lab)]

I will not tire the patience of the Committee by giving the half of my speech that I had to drop when I introduced the debate. I shall just thank my noble friend the Minister for her reply. It was what had to be expected, and I understand the situation. We look forward to continuing these discussions in the pensions Bill, whenever it comes.

Motion agreed.

National Insurance Pension Underpayments

Lord Davies of Brixton Excerpts

Thursday 13th March 2025 Lords Chamber

Asked by

[Lord Davies of Brixton]

To ask His Majesty’s Government what steps they are taking to reduce the number of underpayments of National Insurance pension where entitlement to that pension is based on a spouse’s National Insurance record, and the underpayment is caused by “official error” by the Department for Work and Pensions.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, everyone should receive the state pension payments to which they are entitled. This Government understand the importance of putting right any errors. DWP became aware of issues with historic state pension underpayments in 2020 and took immediate action to investigate and correct the problem. A legal entitlements and administrative practices exercise—LEAP—began in January 2021, and DWP completed the vast majority of cases by December 2024 as planned. The exercise has now closed.

[Lord Davies of Brixton (Lab)]

I thank my noble friend for her Answer and welcome the good news. The problem is that this is only one aspect of the sheer complexity of state pension entitlement for spouses’ pensions. Because of the history, that largely affects women. Does my noble friend agree that the department should perhaps be doing more to inform people so they can find their way through the maze of entitlement?

[Baroness Sherlock (Lab)]

My noble friend raises a really important point. There is a lot of complexity, particularly in the old basic state pension. With the new state pension, your entitlement depends on your own national insurance contributions in the majority of cases, so in future it gets a lot more straightforward. Most people claim their new state pension online, so getting it is mostly automated. However, under the old state pension, if you did not have enough pension in your own right, you could inherit it from a civil partner or a spouse, or a divorced partner or a late spouse. That has led to all kinds of complexities. We are making sure that before someone reaches state pension age, the Pension Service writes to them to tell them what they have to do to claim their state pension. As part of that process, they have to give us the details that enable us to work out if they are still carrying forward any entitlements from partners’ contributions as well as their own.

So, we are really committed to making sure there is clear, accurate, accessible information out there about the state pension. There is lots of it online, on GOV.UK. There is even a tool called “Your partner’s National Insurance record and your State Pension”, which, while not imaginative, is a pretty clear description of what it does. If anyone would rather not go online, they can ring the Pension Service, which will talk them through it. We are really determined to help people get this right.

Pension Review: Phase 2

Lord Davies of Brixton Excerpts

Wednesday 18th December 2024 Lords Chamber

Asked by

[Lord Davies of Brixton]

To ask His Majesty’s Government whether they have paused phase 2 of their pension review, and if so, why.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, this Government are committed to enabling tomorrow’s pensioners to have security in retirement, which is why we announced the landmark pensions review days after coming into office in July. The first phase will boost investment and economic growth, with two consultations live since November, and we are committed to a second phase focused on retirement adequacy, of which we will provide further details in due course.

[Lord Davies of Brixton (Lab)]

I very much welcome my noble friend the Minister’s reply, but of course she will be aware of how this works. Last weekend there was a series of stories in the national press, from the FT to the Sun, suggesting that the second phase had been put on hold, presumably to provide some assurance to those who are concerned about the high costs of employment. The problem is that without an urgent definition of an adequate pension on a clear and evidence-based basis, much of the debate that we can have on pensions is facile and empty of content. You cannot know which way to go unless you know where you are going. Does the Minister agree?

[Baroness Sherlock (Lab)]

I think I can agree with the last statement firmly. I will try to avoid being facile and empty of content; I cannot make permanent promises, but I will do my best. I understand the point my noble friend is making, but I can perhaps offer him some reassurance. The pensions review is going to be conducted in two phases, and it matters that they are structured in the right way. The first phase, which was launched by the Chancellor in July, is aiming to boost investment, so it offers a win-win. It will boost investment for the country and provide better saver outcomes, alongside economic growth.

Phase 1 launched two significant consultations: one about DC schemes and the other about the Local Government Pension Scheme. It is right that we focus on delivering the first phase before moving on to phase 2. But the second phase, my noble friend will be glad to know, will focus on pensions adequacy and further measures to improve outcomes for pensioners. I take his point about the need to be clear about what adequacy means, and I will take that back. The scope of the second phase will be announced in due course, but I will take that comment back to my colleagues as that is being developed.

Women’s State Pension Age Communication: PHSO Report

Lord Davies of Brixton Excerpts

Tuesday 17th December 2024 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, I would like to talk to the noble Viscount outside to understand exactly what he is asking about AI. If he can clarify the question, I will be very happy to write to him with an answer.

[Lord Davies of Brixton (Lab)]

My Lords, could I—

[Baroness Anderson of Stoke-on-Trent (Lab)]

I apologise to the noble Lord, but he was not present at the start of the Statement, so he cannot participate.

Social Security Advisory Committee: Winter Fuel Payment

Lord Davies of Brixton Excerpts

Thursday 14th November 2024 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, the situation is different in different parts of the country. In Scotland, it is complicated by the fact that this is the first year it is devolved, so we have had to legislate in a different way to enable us to do that for Scotland but not for elsewhere in the UK. The Government have sought to make sure, by writing, across the piece, to 12 million pensioners, that we are directly engaging and that people are as aware as possible. There are also campaigns going on with partners in local government and voluntary organisations, as well as a media campaign on radio, television and social media. I will certainly check, go back and review that, and if I have any concerns that it is not being done appropriately in some parts of the United Kingdom, I will very happily come back to the noble Lord.

[Lord Davies of Brixton (Lab)]

As my noble friend says—I will get it right this time—we now have the letter from the Secretary of State. I am sorry to have to press her on this, but the Government consistently fail to answer the first question raised by the committee. I asked the same question in a Written Question during the recess and, again, it was not answered. The committee wants to know,

“the offsetting cost of different levels of additional Pension Credit take-up”.

I too asked that question, and saying that the OBR has signed off the figures is not an answer.

[Baroness Sherlock (Lab)]

My Lords, I understand that the OBR listed certified costings if nobody claimed pension credit, and costings on the assumption, which was also our assumption, that there would be a five percentage-point increase in that. It seems to me that that gives the entire range, and between that, presumably one could do the sums. I think that that does answer the question.

State Pension: Age Increase

Lord Davies of Brixton Excerpts

Thursday 14th November 2024 Lords Chamber

Asked by

[Lord Davies of Brixton]

To ask His Majesty’s Government what preparations they are making to inform people born on or after 6 April 1960 about the increase in their state pension age from 66 to 67 which will be implemented over the period 6 April 2026 to 5 April 2028.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, the Government recognise that information about the state pension age is crucial to retirement planning and are committed to communicating planned state pension age changes effectively. The department undertakes a range of activities, including awareness campaigns, digital tools such as “Check your State Pension age” and sending personalised letters. We are developing our strategy to communicate information and assessing the most effective ways to raise awareness about state pension age changes.

[Lord Davies of Brixton (Lab)]

I thank my noble friend for her Answer. I remain concerned that we are only 17 months away from when people discover that they are not able to retire at the date that they thought they would. We know where this ends up: a finding of maladministration by the ombudsman and mass discontent. I urge the noble Lord, the noble Minister, the Baroness, to make sure that a mass campaign is initiated soon. Many people have an aversion to opening brown envelopes; we need this to be highlighted in the press for the next 17 months.

[Baroness Sherlock (Lab)]

My Lords, I answer to anything really. The Government have already used an array of methods to communicate state pension age changes, including leaflets, advertising campaigns, digital tools and directly writing to everybody affected. Between December 2016 and May 2018, DWP wrote to all those in the group my noble friend is talking about—that is, those born between 6 April 1960 and 5 April 1961, which includes me—who have state pension ages between 66 and 67. In 2016, DWP launched a tool “Check your State Pension age” on GOV.UK and also “Check your State Pension forecast”. More than 31 million digital forecasts have been done plus another 1.5 million paper forecasts. I think it is working. The 2021 Planning and Preparing for Later Life survey talked to exactly those people and found that, of those with a pension age between 66 and 67, 94% either correctly identified their state pension age or overestimated it.

Pension Credit

Lord Davies of Brixton Excerpts

Monday 4th November 2024 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, the Government want all eligible pensioners to apply for pension credit. The Government have written to pensioners providing advice about claiming pension credit following the change to the winter fuel payment, alongside a range of other creative media campaigns. We are engaging directly with pensioners as well as with stakeholders, including devolved Governments, councils and charities, in a joint effort to raise awareness through our combined networks and channels.

[Lord Davies of Brixton (Lab)]

My Lords—

[Baroness Stedman-Scott (Con)]

I say to the noble Lord: feel free. Having run a pension credit campaign, I can understand what the Minister is undertaking. Do the Government intend to guarantee that the DWP has the capacity to deal with what could well be a rapid uptake of applications for pension credit—with all the extra administration needed to process the claims —after this Government’s shameful decision to deprive pensioners who need it most of their winter fuel payment?

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I was so with the noble Lord for the first 20 seconds—all the way. I am grateful for his congratulations to the department, and I shall take them back to my colleagues, who are doing a brilliant job on this front. We have written to around 12 million pensioners about the change to the winter fuel allowance, so a lot of work has been done out there to encourage people to apply—and it is having an effect. We have seen a 152% increase in pension credit claims received by the DWP in the eight weeks following the announcement on the winter fuel payment compared to the eight weeks before, and that will be updated towards the end of the month.

On the costs at the end, obviously, a lot of these claims have to be processed and we will not know for some time down the road. However, it is very clear that the DWP wants everybody who is eligible to do so to claim pension credit. As I have said before, if we end up with more people claiming the money to which they are entitled, that is a good thing. Pensioners deserve the money to which they are entitled.

[Lord Davies of Brixton (Lab)]

My Lords, I apologise to the House and to the noble Baroness, Lady Stedman-Scott, for jumping in too quickly. My noble friend the Minister gave the figure of 500 additional staff in an Answer to a Written Question from me earlier in the Session. What was not clear from her reply was when the 500 extra staff would be in post and fully trained to provide the service required to achieve the take-up of pension credit that we all want to see.

Women’s State Pension Age: PHSO Report

Lord Davies of Brixton Excerpts

Monday 28th October 2024 Lords Chamber

[Baroness Sherlock (Lab)]

My Lords, if I could persuade—with some trepidation—the noble and learned Baroness to share the details with me, I would be very happy to look into that.

[Lord Davies of Brixton (Lab)]

My Lords, the ombudsman made it clear that these women suffered from maladministration and that they are entitled to redress. I ask my noble friend to recognise the case for urgency, particularly because the delay is leaving the people affected prey to scammers, who are offering to assist them in making claims. This issue needs to be resolved as quickly as practical.

[Baroness Sherlock (Lab)]

My Lords, I am grateful to my noble friend for raising that last point. To be absolutely clear, because there has been no response to the report, there is no compensation scheme. Anyone claiming to offer it is scamming and nobody should touch it—please can that message go out loud and clear. I understand my noble friend’s general point, and I know he will understand the position that this Government are in. At the risk of boring myself, never mind the House, all I can do is repeat that the Government are looking very closely at the findings of the ombudsman and will respond as soon as is practicable.

Pensions Regulator Defined Benefit Funding Code of Practice 2024

Lord Davies of Brixton Excerpts

Monday 21st October 2024 Grand Committee

Moved by

[Lord Davies of Brixton]

That the Grand Committee takes note of the draft Pensions Regulator’s Defined Benefit Funding Code of Practice 2024, laid before the House on 29 July.

Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee

[Lord Davies of Brixton (Lab)]

I always appreciate a challenge, and I was quite interested to note that our Whips have got the idea that this debate will last half an hour, but I will not take up the whole 30 minutes.

First, I have to declare an interest: I am a fellow of the Institute and Faculty of Actuaries, or IFoA as it is now. Many members of the institute provide advice on funding of defined benefit or DB schemes, and they will be significantly affected by the code that is before us. However, I add with some emphasis that I no longer practise as an actuary, hence nothing of what I say must be regarded as constituting actuarial advice. It might sound like actuarial advice, but I assure those here that it is not; noble Lords have to get their own advice rather than take it from me. Nevertheless, I speak from experience as a scheme actuary who has undertaken scheme valuations including, in the past, under the Pensions Regulator or previous iterations.

We are talking about the regulator’s defined benefit code of practice—the code—issued under Part 3 of the Pensions Act 2004. I very much welcome the opportunity to make a few remarks about the code and to ask my noble friend the Minister some questions.

TPR has been producing codes of practice on funding going back to 2006, but it is worth pointing out that it first consulted on this iteration of the funding code more than four years ago, in March 2020, with a second attempt in December 2022. This version was published for consultation in March this year, so its final form comes after years of waiting and four Prime Ministers; the whole Covid epidemic; a significant shift in the financial position of many defined benefit schemes, with increased investment returns in particular; considerable discussion about how these funds should be invested in the light of the Mansion House reforms under the last Government; the pension review under this Government; and, not least, an increased appreciation of the risks to defined benefit schemes from climate change. So much has happened and the code has, in effect, had to hit a moving target. Unfortunately, I would argue that even this version has not really caught up with developments and events.

The new code, together with the Occupational Pension Schemes (Funding and Investment Strategy and Amendment) Regulations 2024, which we discussed in this Room last March and which came into force in April, gives trustees and advisers most of the tools and processes to follow for DB funding valuations with a valuation date on or after 22 September 2024. There has been a bit of time-shifting going on here, but it is not a concern. It is clear that there will be specific areas of the code where further clarification is required, which will be found out only in practice.

I will not repeat everything I said in March, but I want to emphasise my main point. I was talking about the regulations, but it applies to the code as well:

“The regulations are patently too prescriptive. The details that they require are not directed at the objective of protecting members’ benefits but are about establishing a system where box-ticking will take priority over the longer term and broader interests of scheme members”.—[Official Report, 26/3/24; col. GC 165.]


This version may well be better than earlier drafts but, given that the code is already in effect in practice, it should be understood that it is only one stage of the longer-term reassessment that is required, given the continued pace of developments in this sphere. We should not be under the delusion that this constitutes a job done.

There are positives that I want to recognise. The DWP tells us that the draft code has been revised to strike a balance between setting clear funding standards and maintaining flexibility for scheme-specific approaches. The move to a more principle-based rather than prescriptive approach to areas such as the low dependency investment allocation and assessment of the covenant is helpful and gives the trustees some flexibility. Other commentators have welcomed the redefinition of what constitutes significant maturity; clarification of what happens when the valuation is based on notional investment rather than actual investment; greater clarity on how to assess the employer covenant; and—this is particularly important—what applies when there are surplus assets. It is to be welcomed that the final version includes a section for open schemes, collating the guidance that is relevant to them across the code.

Nevertheless, the code remains a work in progress. The IFoA has said:

“The totality of the changes being introduced by the new code remain complex”,


and that there are still a few more steps on the journey to take. It says that it hopes

“the regulator will adopt a pragmatic approach when considering the first valuations under the new regime, due to the short implementation period for the final rules”,

emphasising the point that this is a work in progress.

My major concern remains that here we have 100 pages of detailed instructions and rules, albeit with quite a lot of repetition, not just on how to undertake a valuation under the terms of the legislation for a defined benefit scheme but about how such a fund should operate, particularly in the field of investment. It passed through my mind to go through the document quoting the minutiae that is dealt with—for example, telling us that we have to use a Macaulay duration calculation. I have resisted that temptation—I do not wish to delay people too much—but I have no doubt that the requirements, while well intentioned, are excessive. Although there are references to proportionality, what will happen in practice is that the code will suffer from what is described as procedural drift, where individuals become overreliant on routine processes, potentially leading to reduced understanding of the overall decision: failure to see the wood for the trees.

The underlying belief, as far as I can tell, is that detailed prescriptions and requirements are better than general principles. I do not know what evidence there is for such a belief. Is it true that detailed prescriptions and reporting requirements along the lines set out in the code make it any more likely that members will receive their benefits? I doubt it. As an overriding principle, given the inherent uncertainty about any attempt to forecast the future, there is no reason to believe that making an algorithm more complex improves the outcome.

One problem that concerns me, which I raised in the debate in March, is how the code reacts with Technical Actuarial Standard 300: Pensions. TAS is set by the Financial Reporting Council and lays down how any actuary in the UK should undertake technical actuarial work required by legislation to support decisions on funding, contribution requirements and benefit levels. I have the latest version here; it came into effect in April. The point is that the actuary who undertakes the valuation at the request of the trustees must comply with the professional standard. However, we are in the peculiar position where the code makes no reference to TAS, and TAS refers only by implication to the requirements of the code in an appendix.

It is a matter of concern that the 18 pages of TAS, only four of which refer to scheme funding, make more sense than the 100 pages in the code. What exactly in the code achieves anything that is not already achieved by those four pages in TAS 300? We are told that in its review of TAS 300, the Financial Reporting Council has deferred consideration of the provisions on funding and financing until the new legislation on funding and TPR’s revised code of practice are in place. I am not convinced that this will work. There must be a real question about who is responsible for setting technical standards on funding DB schemes—the Financial Reporting Council or the Pensions Regulator. Judging by the record, my vote goes to the Financial Reporting Council.

Having made that general point, to which I will no doubt return in future, I have three specific questions about how the code will deal with continuing developments in DB pensions. First, there must be a question of whether the code deals with whatever comes out of the first stage of the pensions review. We have been told that the first stage is due to report in the next few months and will consider further measures to support the pensions Bill. It will take account of the need to prioritise gilt market stability, liquidity and diversity. The objective, we are told, is to boost investment, increase saver returns and tackle waste in the pensions system. The problem is that this objective is not reflected adequately in the code. How and when will these issues be reconciled? How will what comes out of the pensions review be reconciled with what has been established in the code?

The second question arises from the improved state of DB funding, which has led to more schemes being run on—continuing rather than moving quickly to buyout. Because schemes will be running on and must, under the code, have the objective of being fully funded, this raises a question: when schemes move into surplus, what rules apply to that surplus? In discussions that people have initiated since we have seen the improvement in scheme funding, it has been suggested that schemes with a material surplus may invest in a greater allocation to growth assets. This aligns with the policies I have just referred to—of both the previous and the new Governments—which emphasise investing for UK growth. That objective is not adequately reflected in the code. In addition to the issue of investing surplus, there are other possible results of improved financial conditions for DB schemes. Not least of them is the possibility of improvements in members’ benefits, either through trustees exercising the discretionary powers that many of them have or through rule changes.

In the same way, some people are talking about the possibility of powers being used to refund sponsoring employers or to use the surplus in the scheme to cover the cost of accruing benefits. Unfortunately, the Pensions Regulator appears to have given insufficient thinking to such developments and to how its powers will be exercised when confronted with such issues. The code does touch on the issue, talking about covenant leakage but in a way that is clearly inadequate when faced with the challenges that will arise from these moves. Will the Government press the Pensions Regulator to give the issues that arise from the potential existence of scheme surplus further thought and more adequate thinking? I have already complained that the code is too complex. I am not suggesting that this should be in the code, which is complex enough, but it is an area to which the Pensions Regulator has to give considerably more thought, so that we know where it is coming from when confronted with these issues.

The third issue, which I will cover swiftly as we will debate it again on Thursday, is the impact of climate change. The code touches briefly on the issue, in paragraph 23 of the application module, but it is an issue on which the Pensions Regulator has to take much more of a lead. Will the Government encourage the regulator to pursue what needs to be done to enable schemes to confront the challenge of the greater risks that face the financial system, including defined benefits schemes, as a result of global warming?

--- Later in debate ---

I think I am probably running out of time as I am getting a nod from the Whip. I am sure I have missed questions, and I apologise for having done that. I am grateful to all noble Lords for taking the time to discuss something in this depth, with such technical competence and in such detail. I hope I have been able to inform and reassure the Committee about the code and our wider strategy. I look forward to us continuing this debate in years to come. We all want to make sure that members who have saved long and hard for their pension get the benefits they have been promised and to which they are entitled. I hope this will be a contribution to that process.

[Lord Davies of Brixton (Lab)]

I thank the Minister for her long and detailed response. I think I need to use the formula used by Ministers: “I will read the entry in Hansard”. There was so much information in it, for which I thank her. I also thank noble Lords who came for the debate on Russian sanctions; I hope they found it informative to hear about pensions.

The phrase that had particular resonance with me was that used by the noble Baroness, Lady Altmann: “spurious accuracy”. When I was a trainee actuary, we were told specifically that making calculations more complex and difficult did not make them any better. Trying to forecast the future is difficult enough. Making complex calculations does not improve the outcome for members.

My major point is that current developments in pensions will require the code to be kept under review in any event, whether they are an increasing appreciation of the risks of climate change or the development of pension scheme surpluses. I welcome the remark about that. These changes accumulate and I hope that the Minister will enjoy further debates and discussions. I look forward, in particular, to the pensions Bill. Not many people say that, but I think we will have some interesting debates.

Motion agreed.