Pensions Dashboards Regulations 2022

Lord Davies of Brixton Excerpts

Tuesday 15th November 2022 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, as I said all those years ago when we were discussing what is now the Pension Schemes Act, I also greatly support the concept of the introduction of pension dashboards. I am probably one of the people the Minister referred to who has that dusty box under the stairs, so I welcome this SI in principle. I have a few questions that I would be grateful if she could answer. Unfortunately, I was unable to attend the briefing that she kindly arranged, so I apologise if some of these questions were dealt with then, but there is probably no harm in the answers being on the record.

First, like the noble Baroness, Lady Drake, I agree that the six-month notice period makes sense. I hear what the Minister said about progress in creating the dashboards, but she has not said when she expects the public to be able to access them. The year is probably broad enough, but it would be interesting to understand when we think these dashboards, or at least the first dashboard, will be available.

The SI enables the establishment of dashboards additional to the MaPS dashboard. Things have obviously moved on a bit since we were discussing the then Pension Schemes Bill, so could the Minister give us some idea of how much genuine interest there has in fact been in creating other dashboards? Is she aware of any being worked on at the moment? There is not very much in this SI to incentivise the creation of private dashboards, nor anything that sets out who would be allowed to do so or how they might generate revenue. I understand that that will be covered by the FCA consultation she referred to. Under this SI, all they will have to do is meet the dashboard requirements.

We had many discussions in previous debates around the use of dashboards for selling advertising, transacting, et cetera. The SI is silent on those matters. I would be interested to know whether the Government’s thinking has evolved since our previous discussions. Perhaps the Minister can let us know. She mentioned in her opening speech the dashboard not allowing transactions, but I think that relates only to the MaPS dashboard. I am not sure whether she intended that to mean private dashboards; perhaps she might clarify that. For example, is there anything that would prevent a large pension provider or a consolidator creating a dashboard and then using it to encourage users to transfer, perhaps from a smaller provider, to its products or services? Does the Minister agree that there might be a conflict of interest, or even a competition issue, in that sort of situation?

That leads on to the use of the data by the dashboard provider. I was not clear from the SI what was allowed in that respect. Regulation 9 seems relevant, but I am not sure I fully understood it. As an example, could a dashboard provider—perhaps a big tech company such as Google or Meta—create a dashboard and use the data it holds or acquires to target advertising for competing products? If that is or will be possible, that would worry me. It would be a really serious fraud risk. We need safeguards over who is allowed to create dashboards and the way that revenue will be generated from them. The SI is silent on that.

I also have some questions on the impact assessment. Some surprisingly big numbers are there, with a wide range of outcomes. The best-estimate case comes out at a convenient figure of £30 million positive, just about breaking even. Am I being slightly cynical to think that has been slightly massaged or managed? The net present values for the first 10 years range from a worst case of £1.016 billion negative to a best case of £1.220 billion positive. Frankly, all that says to me is that there is still a very high level of uncertainty about the actual costs and benefits of the dashboards. It is also true that the bulk of the cost will fall on the industry and the benefits, which are less tangible, will go to members. To what extent is it expected that these costs, which are somewhere in the region of £700 million to £1.6 billion if the impact assessment is to be believed, will be passed on to pension funds? What impact will that have on pensioners? In particular, one has to assume that the cost will be higher as a percentage of funds for smaller funds, as the level of bureaucracy is similar with a smaller amount of money to spread it across, so what impact is expected, particularly on smaller funds and their beneficiaries? Is any support anticipated by the Government?

Related to the impact assessment, despite the expected annual cost being approximately £100 million a year, which is 20 times the statutory guidance level of £5 million, the Government have decided not to include a review clause in this SI. Instead, they have opted for what they call a multi-strand monitoring and evaluation strategy, which is subject only to ministerial review and approval. That is regrettable, and I am not even sure what a multi-strand monitoring and evaluation strategy actually is. Can the Minister put on record what form she expects that multi-strand monitoring and evaluation strategy to take, when and how often it will happen, and what will be reported publicly or to Parliament?

The Secondary Legislation Scrutiny Committee’s report makes it clear that

“the system has not been fully worked out yet and will remain under development for some time.”

Can the Minister give us some insight about what further developments are still to come, what further SIs she expects to bring to us and when, and whether they might cover some of the matters that I have mentioned?

[Lord Davies of Brixton (Lab)]

My Lords, I am happy to take part in this debate. I need publicly to declare an interest as a fellow of the Institute of Actuaries, albeit non-practising. A dashboard is a very good thing, and we want to see it introduced. In truth, my perfect pension system would be one in which you never have to think about it until you retire, and we could dispense with dashboards, but we are not in that space, we have to have a dashboard, and this is the dashboard we have.

As I say, I welcome it. I was involved 25 years ago in discussions about an early progenitor of what we have. At that time it was just too difficult, but with the development of digital capabilities, it has now become a practical reality, and I look forward to it becoming a useful tool for people as they plan for their retirement. Noble Lords can probably tell from my tone of voice that I am heading towards a “but”, but I want to do that emphasising my gratitude for all the work that has been done by the department, the officials and the Pensions Dashboards Programme, as we call it now, although I rather wish they had not adopted the word “ecosystem”.

The regulations before us have to be judged in terms of what the objectives are. What are we having a dashboard for? The starting point was to connect people with their pensions. There was a lack of connection and the figures we have had of the orphan pots are truly staggering and concerning, so any step towards avoiding that problem is to be welcomed. Obviously, people want to know what they have got in those pots. That is straightforward and should be done.

Then we move on to a further stage, of people’s likely income in retirement. This is where things start to get sticky, because the point of telling people that likely income in retirement is as a “prompt for necessary action”—which I think are the words used on the PDP website. The Minister, whom I should have thanked for her detailed and helpful introduction, used the term “informed decisions”—so that people can take decisions commensurate with their retirement aims. I think the model people have in mind is that you look at your pension statement, you think that it is not enough, so you start saving more money. In that sense, it is inevitably and inherently a sales tool. That is one of the problems we face in setting up a dashboard that works in people’s interests.

A point that I have made consistently in discussions about a dashboard is that it has to have the state pension there, but an equally valid—in my view, more important—conclusion that you can draw from your pension statement, if you think your pension is not good enough, is “Well, I’ve got to start campaigning for a better state pension”.

I am going to look in particular, on the basis of that, at what Schedule 3 calls the “value data”. The regulations lead via the 2013 regulations to AS TM1 from the FRC. That is Actuarial Standard Technical Memorandum 1 from the Financial Reporting Council. A new version of that will come into effect from 1 October next year. I picked that up at the very useful meeting that we had with Ministers, but the first DAP for the larger schemes is supposed to be from 31 August 2023, or it could be earlier, which is before we have the new technical memorandum. The whole point of achieving this technical memorandum—it is spelled out in the work that has been undertaken—is that the previous version was not good enough for the dashboard statements. We had to have the new technical memorandum because the old one simply did not work. People could do it on all sorts of bases. You would have a consolidated statement with several figures which could all be calculated on a different basis and were not comparable. So we came up with this new technical memorandum which requires schemes to do it on a standardised basis.

I think it is important when you do that to understand what you are really getting. Is this really an estimate of people’s likely retirement income? I think we need to hesitate before encouraging people to place too much confidence in that understanding of what these figures will be. They will be figures calculated on the basis of a single, predefined set of assumptions. The technical memorandum is well within the bounds of plausibility. It is not necessarily the technical memorandum I would have come up with if I had had to decide, but I cannot point to it and say it is nonsense or misleading. However, it is important to understand that it is only one among a range of possible views of the future, and we are misleading people if we give them any idea that this is what is going to happen. I think it is fair to say that the figure you are presented with is probably the least likely figure of all possible outcomes.

Just as an aside, it is also important that this will be a government-endorsed figure. Make no mistake: the ordinary person seeing this on their pension statement, knowing that this dashboard has been legislated for by the Government, will see an implicit government guarantee for that figure. There is no way of avoiding that. That is what will happen. Government Ministers can say for all they are worth, “No, we are just facilitating this; it is not our figure”. If, over time, these figures turn out to be woefully positive, the Government will be held to account. A similar disaster happened with endowment mortgages, and we saw what happened there. People believe the figures they are given, are gravely disappointed when they do not appear and look for reimbursement.

Universal Credit

Lord Davies of Brixton Excerpts

Thursday 9th September 2021 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, it is good to see the Minister again; we have spent a lot of time together this week.

We have to give credit to the Government for having had the sense and the compassion to introduce the £20 uplift in the first place, so equally we must now condemn them now that they want to take it away. It goes without argument that we should have a proper assessment of the impact of withdrawing the uplift. Indeed, we have several clear assessments and measured judgments of the impact—just not from the Government. We have the assessment of reputable organisations including the Joseph Rowntree Foundation and Citizens Advice, and they have made the position clear. I also had the privilege of attending a meeting of the All-Party Parliamentary Group on Universal Credit earlier this week. We heard from a wide range of organisations, including the Trussell Trust, which has been mentioned, but also, crucially, from individuals who were able to enlighten us about their real experiences and their fears of what faces them after the cut in their benefits.

We are recovering from the pandemic, but much more slowly than we hoped and expected earlier in the year, not least with the expected increases in unemployment and the consequent poverty and financial difficulties. It is also worth mentioning the loss of the economic stimulus that will arise because of the withdrawal of the uplift; that money is being taken out of local economies across the country.

My question to the Minister is simple: given the overwhelming weight of opinion and evidence, from and on behalf of those in receipt of universal credit, how can the Government in all conscience proceed with this action?

Universal Credit: People with Mental Health Problems

Lord Davies of Brixton Excerpts

Wednesday 8th September 2021 Lords Chamber

Asked by

[Lord Davies of Brixton]

To ask Her Majesty’s Government what assessment they have made of (1) the report by the Money and Mental Health Policy Institute Set Up To Fail: Making it Easier to Get Help with Universal Credit, published on 26 May, and (2) any barriers to people with mental health problems receiving support for the management of their Universal Credit accounts.

[Lord Davies of Brixton (Lab)]

My Lords, one in four of us will experience a problem with our mental health at some stage in our lives, and we know that concurrent financial problems almost always make the problem worse. In particular, experiencing a mental health problem makes it much harder for people to manage their universal benefit account, which is, of course, the background to this debate.

This is a circular problem. If we can improve the support that people with mental health problems receive in handling their finances, we not only help the individuals themselves but creditors and, not least, the National Health Service. We must therefore welcome the Money and Mental Health Policy Institute’s report, Set Up to Fail. Based on detailed research, it is compelling reading. My question, therefore, is: what will the Government do in response?

I am not going to talk about the rights and wrongs of universal benefit today; there will be other opportunities. I shall just concentrate on what we need to do to help people through the current system. But even in a reformed system, the same problems would need to be considered.

The challenge is that people with a range of mental health problems, such as low energy levels, memory loss or difficulties in dealing with complex situations, find it hard to manage their universal benefit account. Claimants report significant mental distress when faced with requirements such as preparing for work, responding to messages and attending appointments, which can be problematic to complete when you are on your own, or simply feeling helpless when dealing with complex situations. Again, we have the circle of cause and effect.

Any failure to navigate the system can have devastating consequences. Sanctions, deductions or lost entitlements mean that people cannot meet their basic living costs, which can further aggravate mental health problems and delay recovery. Faced with these challenges, people with mental health problems are bound to rely on support from family or friends—so-called third parties: typically, but not only, their spouse. From the institute’s survey, we know that more than half of the people affected have needed help from family or friends to manage their account, and more than one in four always or often need such help.

People needing help with their universal benefit are not asking for much; they just want a benefits system that is accessible and empowers them to get support from loved ones when they need it. I spoke to Gary, who told me that he just wanted a little help and some sympathy. He has worked all his life, but now he and his family rely on universal benefit. With his depression, he struggles to cope with everyday life, including managing his universal benefit account. He has help from his wife, but he finds they face a wall of complications.

Based on the lived experience of people in the survey, we know that getting third-party help with managing their universal benefit is confusing and challenging. Third-party help needs explicit consent, which requires claimants to set out precisely what information they want to be shared and what tasks they would like assistance to resolve. The fundamental problem is that the system for giving this consent requires people to undertake the same tasks that led them to need help in the first place. If people in receipt of universal benefit cannot navigate the main system, they are unlikely to be able to navigate the procedures required for accessing help and support. It could all be so much easier.

Without straightforward systems for delegating consent to another person, people find it a struggle to get the assistance they need, compounding the risk of harmful financial and mental health consequences. Almost half of the people in the survey who had relied on help with their universal benefit management had used informal workarounds, such as sharing their usernames and passwords to get the support they wanted. This is risky in itself and should not be necessary. Third-party support should be more straightforward to use, while maximising the control of the people in receipt of the benefit.

I know that some noble Lords are concerned about changes that would increase opportunities for economic coercion, but this is a problem for everyone with universal benefit. The institute argues that giving people more choice and flexibility over what aspects of the account they share with another person and for how long would increase the protection that people can exercise over their account.

The report recognises that the DWP has committed to look at how the consent procedures could be improved, but with the pandemic leading to worse mental health, unemployment forecast to rise and many of those transferring likely to have additional needs, delivering third-party support that lets people get the help they need must be an urgent priority for the Government.

What exactly needs to be done? From the report, we know that those affected want the process to get third-party support to be easier to understand and navigate. Too often, people who need third-party support are not aware of how to arrange it. The institute’s report sets out relatively simple steps for the Government that would make it easier for people to get the support from others to manage their account. This can make a big difference in reducing the stress and difficulty that too many people with mental health problems face when navigating the system. It is not rocket science. First, there are some relatively simple changes that make it easier to designate where help can be provided and who can provide it. Ideas include clearer, more consistent prompts on what information is required when navigating the computer application and drop-down menus clarifying what information claimants wish to share and for how long.

Then there are changes to facilitate how the designated third parties can provide the necessary help both quickly and efficiently. Suggestions in the report include developing a system of view-only access for authorised third parties, which would allow claimants to share specific screens with a friend or family member; introducing a system of duplicate notifications to authorised third parties, alerting both the claimant and their third party about new messages or tasks within their account; and improving the current appointeeship system, which grants great power to third parties. It would be better to make this more proportionate and tailored to the specific tasks and challenges that individuals face while managing their universal benefit.

What is the Government’s assessment of the barriers that people with mental health problems face in the management of their universal benefit accounts and, in particular, the excellent report by the Money and Mental Health Policy Institute, Set Up To Fail? I look forward to the Minister’s reply. Will she agree to meet with the institute to discuss these issues and its valuable work?

Pensions Regulator (Employer Resources Test) Regulations 2021

Lord Davies of Brixton Excerpts

Monday 6th September 2021 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, it seems like quite a long time ago that we were last in this Room. In fact, I think the last time I spoke in this Room was in the discussion on pension schemes, so it is nice to see a lot of old faces. There is a nice feeling of déjà vu about it. These regulations are reassuringly brief, so I will try to keep my comments equally brief, if I can.

First, I was a bit confused by the name of this, which refers to an employer resources test, that test being profit before tax. Profit before tax is not a measure of a company’s resources. It is a backward-looking measure of a company’s profitability. I question the comments in the Explanatory Memorandum that

“profit before tax … is less subjective than other options”.

Notoriously, profit before tax can be made to be whatever one wants it to be. A cash-flow measure would be an altogether less subjective, more objective measure. Profit before tax also does not, as the noble Baroness, Lady Drake, has said, take account of other forms of leakage of resources out of the company, be they dividends, share buybacks or massive capital expenditure. It is perfectly possible for a company to be highly profitable and highly indebted at the same time and therefore to have very low levels of employer resources.

I was a bit confused by the title, and would therefore like to add my name, as it were, to the question asked by the noble Baroness, Lady Janke, about why the Government did not go down the holistic route of looking at multiple measures that give a full picture of the employer resources rather than this one very narrow picture which is only a backward snapshot.

I have two other questions that relate to the discussions we had at the time of the Pension Schemes Bill. This instrument is obviously relevant to the subject of dividends that companies with deficits pay. The noble Baroness will remember that we had quite a lot of discussions about that back then. Indeed, the Minister at the time agreed that the Government would keep the question of dividend payments by companies in deficit under review.

I have two questions. First, can the Minister explain what assessment the Government have made of the impact that these regulations might have on the ability of companies to pay dividends? There has been some speculation in the press that it might significantly depress the payment of dividends by companies, something which on the whole is a good thing, but there could be situations where that could be a negative. Secondly, I would welcome confirmation from the Minister that the Government are still keeping under review the question of payment of dividends by companies that have deficits, as they promised.

[Lord Davies of Brixton (Lab)]

I am glad that it was an accountant who made the comment that profits can be whatever you want them to be, which was my concern. However, I am struggling to grasp what role this is playing. In some ways, I suspect that we could overengineer the definition of “resources” and make it very complicated. There are strong arguments for keeping it as simple as possible so that the regulator can take a holistic view. This is what I understood the process to be. My guess is that the regulations will enable the regulator to do what we always thought it could do in the first place, and it tripped over some regulatory legal point. There are strong arguments in favour of keeping it simple and leaving it essentially to the judgment of the regulator.

Whenever I mention the regulator, I have to add my qualification that of course it does not represent scheme members in any way. It does not have the accumulated knowledge of unions and employers who actually do the business of agreeing pension schemes. I have questions about the Pensions Regulator but the ideal should be a Pensions Regulator that knows the field and can apply the test proportionately.

I have one specific question. I have no idea what this means. Regulation 4(8) says that

“the Regulator must take into account all relevant information in its possession”.

Well, yes, it is not going to take into account information that is not in its possession. However, it goes on to use the word “verification”. I am not sure what “verification” is doing in that paragraph.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for her explanation of the reasoning and intent behind the employer resources test, and all noble Lords who have spoken. I too welcome a move to strengthen the power of the Pensions Regulator. We should say that most employers with DB schemes act professionally and responsibly and maintain good relations with their scheme trustees. However, the Pension Schemes Act 2021, from which these regulations flow, rightly gave the Pensions Regulator stronger powers to deal with the small number of circumstances where parties decide to evade their obligations to their pension schemes or behave recklessly. The test is whether these measures will enable the regulator’s approach to be clearer, quicker and tougher. This is what we are exploring today, so I hope that the Minister can help to reassure us on that point.

I will not go back over what the regulations do, but as we have heard, employer resources will be assessed through normalised annual profit before tax, with non-recurring or exceptional items removed. The Minister explained how that would happen: you would take NAPBT, the regulator would then look at the impact on NAPBT caused by the act or the failure to act, produce an adjusted NAPBT and then decide whether to issue a contribution notice. It would compare the two and then argue that the reduction was material in relation to the estimated Section 75 debt.

The case for the test must be that it removes the evidential challenges and uncertainties in forecasting how the employer might or might not perform in the future— absent the act or failure to act—and therefore presumably would provide a quicker measure of assessing the employer’s ability to support the scheme and reveal whether a reduction in resources was material.

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.

Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021

Lord Davies of Brixton Excerpts

Monday 5th July 2021 Grand Committee

[Lord Davies of Brixton (Lab) [V]]

My Lords, I am in favour of these regulations and I take this opportunity to thank and congratulate the Minister and her colleagues, to whom she has given much of the credit, on the work they have done on climate change. I will pass on the opportunity to say something more generally about the Government’s record on the issue, but here we are on the right track. This is not the end of the journey, of course, because there is always further to go.

Today, it is appropriate to pay tribute to all the work that was done in the Lords during the passage of the Pensions Scheme Bill. I was frustrated in my wish to take part, but no matter. The level of expertise as well as of concern about the issue was outstanding. I have thought of naming names, but having gone back and reread the debates it was interesting that there was clearly a collective effort in the House and behind the scenes. Those who took part know who they are, not least those taking part in today’s debate, and they are owed a sincere vote of thanks.

The adoption of these requirements is one element in a wider push to ensure that the effects of climate change become routinely considered in business and investment decisions. The adoption of these recommendations would also help a range of institutions better demonstrate responsibility and foresight in their consideration of climate issues. That will lead to smarter and more efficient allocation of capital and help smooth the transition to a more sustainable, low-carbon economy.

We must therefore welcome the recent move by the FCA to consult on a climate-related financial disclosure regime for asset managers, life insurers, and, not least in this context, FCA-regulated pension providers. That will be consistent with the recommendations of the task force on climate-related financial disclosure. The FCA states that its proposals aim to increase transparency and enable clients and consumers to make considered choices while remaining proportionate for firms. These proposals will need to be considered carefully as the term “proportionate” can hide a multitude of problems, but let us see.

One issue that arose during the passage of the Bill was the Government’s claim that their intention was to ensure effective governance of climate change risk but not to direct trustees’ or managers’ investments. The Minister reiterated that point in her remarks. This was specifically with reference to the proposed requirement that the governance of schemes align with the Paris Agreement’s objective of global warming of well under 2 degrees Celsius. During those debates, the Minister expressed the view that this could be tantamount to directing schemes’ investment, which the Government had ruled out. I have some difficulty here because my understanding is that progress towards the Paris target is now legally binding, not a matter of personal preference. The distinction being made is, in practice, without a difference. Ultimately this is going to affect investment decisions, or we will fail in the objective of combating climate change.

Another issue that arose in the debates on climate change during the passage of the Bill was use of the words “may” and “must”. I am pleased to report that in the regulations “must” is in the lead with 50 occurrences compared with 30 for “may”, but I am unclear what this means in practice. As a rough generalisation, it appears that “may” is used more in the context of enforcement, which means that discretion of some sort is being exercised by the appropriate regulator. It would be good if we had the possibility—at an appropriate stage, not now—for interested parties to discuss how this discretion will be exercised, which bodies will have enforcement taken against them, which will not, and what criteria are to be applied in making that choice.

Lastly, this is just to demonstrate that I am paying attention. Can the Minister assure us that the loss of a hyphen in the term “ear-marked scheme” between where that is defined in the Occupational Pension Schemes (Requirement to obtain Audited Accounts and a Statement from the Auditor) Regulations 1996 and these regulations is of no significance?

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2021

Lord Davies of Brixton Excerpts

Thursday 25th February 2021 Lords Chamber

[Lord Davies of Brixton (Lab) [V]]

My Lords, I thank the Minister for her detailed introduction. It is a pleasure to follow the noble Baroness, Lady Gardner of Parkes, because, back in the day, we were both members of the Greater London Council—long lamented by me.

Everyone has pointed out that auto-enrolment has been a success, but it is important to understand that it is still a work in process. A series of well-recognised problems need to be addressed: the exclusions, low contribution rates—there is universal agreement that they should be higher; the only issue is when—and small pots, which is relevant here. Unfortunately, there is nothing in the supporting analysis to say what the impact of changing the earnings limits will be on the number of small pots. We know that there will be millions of them; what is the impact of changing the earnings limits on the future number of small pots? This is germane to the future of the scheme.

There are also some interesting figures in the supporting analysis. I found it a bit counterintuitive that the 8,000 people being brought in by freezing the trigger helps older people, more of whom are brought in by this change than younger people. This points out that we are running out of time: it is important to get the future of the scheme sorted out because these people do not have any time. We are not planning a scheme for people entering the workforce; this is a scheme for people approaching to retirement. The fact that freezing the limit helps older rather than younger people emphasises that point. Deferring it means that they have even less time to sort out their inadequate pensions.

Thirdly, I ask the Minister about the implications of the judgment in the Uber case, the key point in which was that these people are eligible workers and, hence, will be covered by the auto-enrolment requirement. Have the Government explored the implications of the judgment for pensions and, in particular, issues such as back claims for contributions that should have been paid and the fact that people in the area of employment covered by the Uber judgment have fluctuating earnings, almost by definition? Again, this has important implications for small pots and people moving in and out of the earnings limits. Have the Government considered the implications here?

[The Deputy Speaker (Lord Faulkner of Worcester) (Lab)]

My Lords, I am not able to call the noble Lord, Lord Bhatia, because he was not on the call when the Minister made her opening speech.

Social Security Benefits Up-rating Order 2021

Lord Davies of Brixton Excerpts

Wednesday 10th February 2021 Grand Committee

[Lord Davies of Brixton (Lab) [V]]

My Lords, I associate myself totally with the remarks of the noble Lord, Lord Dodds, about universal credit and legacy benefits, but I want to say a bit more about the triple lock. I welcome the Government’s continued commitment to the triple lock and, without trying to pre-empt what will be in the Budget, it would be good to have an assurance that the triple lock will work again in the coming year. Can we have a firm commitment?

It is worth pointing out, as always when we talk about the triple lock, that it applies only to the basic state pension and the new state pension. It does not apply to the additional pensions, which some of us still think of as SERPS, it does not apply to deferred retirement additions and it does not apply to the graduated state pension. It would be interesting to have some idea of what proportion of the state pension actually gets the full triple lock and what proportion has had to make do with the very low figure of the CPI this year.

I have a further question about the TV licence. The Government’s approach on this has, of course, been shameful. However, I have heard some suggestion that what has happened to the TV licence has had the perverse effect, as some of us have said, of increasing government expenditure because it has encouraged a noticeable uptake of pension credit. Perhaps the Minister could indicate what net effect it is now having. I am very much in favour of anyone entitled to pension credit claiming it, but if the Government’s idea was to restrain expenditure, how successful have they been?

Pension Schemes Bill [HL]

Lord Davies of Brixton Excerpts

Consideration of Commons amendments & Ping Pong (Hansard) & Ping Pong (Hansard): House of Lords
Tuesday 19th January 2021 Lords Chamber

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

I call the noble Lord, Lord Davies of Brixton.

[Lord Davies of Brixton (Lab)]

My Lords, I draw the attention of the House to my entry in the register of interests.

I need to ask the indulgence of the House because I accept that it is unusual for a Member who has not contributed at any previous stage of a Bill to intervene at this stage. However, I was not a Member of the House then, and so I was unable to take part. It will be recalled that the Bill was introduced almost exactly a year ago, and it is almost exactly a year ago that I was first aware that I would be joining your Lordships. I watched the entire progress of the Pensions Bill—with only slight exaggeration—like a child locked out of a sweet shop. I so much wanted to take part in the debate and discussions. I am not suggesting for one moment that the incredible work by my noble friends on the Bill has not been effective; I just would have liked to have been with them.

It is also worth mentioning, since the House places some stress on being a repository of expertise, that on Clause 123 I can claim considerable expertise because I am a fellow of the Institute and Faculty of Actuaries. In the course of my actuarial work I was a scheme actuary and I produced valuations, and that is what this clause is about. Since this is the first time that I have had a chance to speak when I have not been subject to a three-minute time limit, I am tempted to speak for a long time about scheme valuations, but I will spare your Lordships that.

Before I get to the substance, I thank the Minister. As I say, I have watched the debates, and I pay tribute to the way in which the Bill has been handled. I highlight that the introduction of what I still think of as collective DC is an excellent move forward and of considerable importance, as is—although of course there is more to be done—the work that has been done on the dashboard.

Turning to the amendments, I strongly support what is proposed here. The issue is the valuation of open defined benefit pension schemes. Real concern has been expressed by employers and trade unions representing their members about such schemes that the changes foreshadowed in the regulatory regime by the legislation will not work for such schemes, and the result will be higher costs and lower benefits. I am glad to see that a response has been made on the behalf of the Pensions Regulator, assuring us that it is not saying, “Don’t worry, just trust us with it all”, and making various commitments about how open defined benefit schemes will be handled. Well, why not put such assurances into the legislation? I certainly hope they will be included in the regulations.

At this point, it is worth acquainting the House with some evidence that the Institute and Faculty of Actuaries has presented on this clause. It said:

“Any employer that has left their DB scheme open to new entrants to date is highly likely to have done so as a conscious choice, and usually with strong support from members and associated trade unions. The risks inherent in DB are typically well understood not only by the employers but also by the scheme’s members, and their trade union representatives. These schemes should therefore not necessarily be treated the same, or need the same level of security, as closed schemes. In our view it is critically important that viable and successful open schemes are not caused to close through adverse legislative change or guidance from The Pensions Regulator.”


I fully endorse what the institute says there and what has been said by previous speakers, with which I concur. What is notable about what the institute said in that statement is that it emphasises how pension schemes emerged from the employment relationship. One thing that really worries me about leaving it to the regulator is that there is not a single person on the board of the Pensions Regulator who has any experience of employment or industrial relations, or at least not significant enough for them to put it in their biographical details.

I have one final point. This debate is about open schemes, as others have mentioned. I do not want anyone to think that the situation is that there is no more debate to be had about closed schemes. The noble Baroness, Lady Altmann, mentioned the issue of closed schemes. I concur with what has been said there, and that we have to get that right as well; there is more debate to be had on that issue. It is not just about open schemes. So there will be a continuing debate, but I hope the Minister will be able to give us some reassurance about the treatment of open schemes.

[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

I call the noble Baroness, Lady Janke, whose name was left off the list inadvertently.

Arcadia Pension Fund

Lord Davies of Brixton Excerpts

Tuesday 8th December 2020 Lords Chamber

[Baroness Stedman-Scott (Con)]

There is no government liability, as the Pension Protection Fund is funded by the assets taken into it from schemes, topped up by a levy on eligible schemes. The PPF plans for the long term and, as at 31 March 2020, it had a healthy reserve of more than £6 billion.

[Lord Davies of Brixton (Lab)]

The Minister correctly highlights the role of the Pension Protection Fund, and the employees of Arcadia can take some comfort from that. The problem is that the protection afforded by the fund is incomplete. To lose your job is bad enough; to lose part of your pension as well piles injury on injury. Can the Minister tell us what consideration is being given to improving the level of protection provided by the PPF?

[Baroness Stedman-Scott (Con)]

First, the noble Lord makes a good point about people losing their jobs, and I want to give absolute comfort to the whole House that the Department for Work and Pensions, through the rapid response team, stands ready to do all it can to help people in this very difficult time. On the second part of his question, we are doing as much as we can at the moment to help companies—through the Pensions Regulator and the Pension Protection Fund—to protect their assets and ensure that trustees act honourably in their duties.