Pension Schemes Bill

Debate between Lord German and Lord Bourne of Aberystwyth

Tuesday 27th January 2015 Lords Chamber

[Lord German (LD)]

My Lords, once again I have a few questions for the movers of the amendment as well as the Minister. The sense that I get from the amendment is that bigger is always best and small is not to be preferred. The truth, presumably, lies somewhere in the middle of all that.

There are questions that arise from the amendment. When you have schemes—I presume there are many tens of thousands of them are around, but I do not know how many of them are of the size and scale interpreted by the amendment—it is important to ask what defines sufficient scale, which is the first part of the noble Lord’s amendment. I would like to understand what “sufficient” means. I presume that noble Lords would want to see all pension schemes with good governance, low fees and good outcomes for their members.

So my first question is: what is it that big schemes can provide that smaller ones cannot? I understand from reading Hansard from the other place that one of the suggestions from the movers of this amendment there was that asset management could be moved in-house. I wonder whether that is a sensible provision. Can the Minister tell us whether or not there have been successes with in-house asset management? Is that a given for securing lower costs and a better outcome for the consumer?

I turn to the other pressure that the amendment seeks to apply. The claim is that by forcing schemes to merge, there will be economies of scale. In the capping regime that the Government have undertaken, there must be a league table of high-cost fee pension schemes. Can the Minister say how many bigger and how many smaller providers are in that league table? This will enable us to discover whether or not big is best and whether there are appropriate economies of scale.

I need to test another issue with the movers of this amendment: namely, merging. Merging with whom and how is it to be determined? What the amendment seeks to do is to force pension schemes to merge. I understand that there has already been a significant shift in the number of schemes that have merged; the extent of the direction of travel is extensive. Perhaps the Minister could remind us of the speed with which schemes are merging and growing bigger. But if you force mergers, as with any arranged marriage you need to engage in a partner search. I wonder whether the movers of the amendment can tell us how this partner search is going to take place; who is going to undertake it and who is going to police it—because I think that would be almost impossible.

I remain to be convinced that forcing unwilling, low-cost, good value for money, well governed, smaller pension schemes to merge is the right approach to ensure that the members of the scheme get the best returns. There are alternatives. The fee cap, disclosure, regulation of governance and transparency are all issues that this Government have taken on board and are progressing. I am left with some doubts about whether the forced marriage regime which is being proposed by the noble Lords opposite is the best approach when there are better alternatives.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord McAvoy, for moving this amendment. It would impose an additional duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme.

The principle of promoting scale to drive value for money for scheme members is one that we can all understand. However, the Government believe that introducing further legislation to ensure that the fiduciary duty of trustees includes a duty to consider whether a scheme has sufficient scale is unnecessary and overburdensome.

In response to my noble friend Lord German, I can confirm that there is already a trend towards larger schemes and away from smaller schemes. We contend that trustees’ existing fiduciary duties already require them to act in their members’ best interests, so it would be unusual if they did not consider this point. In addition, trustees must pay particular attention to four key areas. First, they must comply with governance requirements—for example, they must establish and operate internal controls. Secondly, they must have regard to investment governance and decision-making. Thirdly, they must adhere to administration practices—for example, record-keeping. Lastly, they should seek to prevent fraud—for example, theft or pension scams. Specific legislation would place the financial cost of managing a difficult and complex forced consolidation on members. In many cases it would be in direct conflict with scheme rules which may not permit such transfers and mergers.

A further difficulty with this amendment is the complicated underlying process that trustees would be required to undertake to implement its requirements. The noble Baroness, Lady Drake, put her finger on this in Committee when she said that problems could arise around transfers. Trustees would, for example, be required to find a suitable alternative scheme, assess the scheme’s suitability and undertake independent checks. Again, the costs of that would be borne by members; it could be a costly process if they were required to do that in the way this amendment suggests.

Personal Independence Payments

Debate between Lord German and Lord Bourne of Aberystwyth

Thursday 15th January 2015 Lords Chamber

[Lord Bourne of Aberystwyth]

The noble Lord draws attention to the important role that food banks are fulfilling. Food banks have existed for well over a decade throughout western Europe, the USA and Canada. The reasons for using food banks are many and complex, and I pay tribute to what they are doing. As I say, to address some of the concerns we are publicising much more the possibility of early payment of hardship benefit and so on, and we are working with food retailers on food waste.

[Lord German (LD)]

My Lords—

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[Lord German]

My Lords, the loss of a Motability car can mean the loss of independence for a disabled person. Is my noble friend confident that the personal independence payment assessors are prompting claimants as to whether they can walk more than 20 metres safely to an acceptable standard repeatedly and in a reasonable time, which are the crucial criteria put into statute by this House? Unless these criteria are followed, thousands of disabled people will not be eligible for a Motability car and those being retested may lose their car and their independence.

[Lord Bourne of Aberystwyth]

My noble friend raises important issues on the subject of Motability cars. It is worth noting that the Motability payment will continue while it is being reassessed. Those four criteria are looked at very closely. The legislation requires the assessors to consider whether a claimant can carry out each activity reliably. They will do that by means of observation, discussion and medical evidence—often just on the basis of medical evidence. I am satisfied that those criteria are being followed.