Oral Answers to Questions
Lord Harrington of Watford Excerpts(7 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mary Robinson (Cheadle) (Con)
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
The Government are committed to providing free impartial guidance through Pension Wise to help people make informed and confident decisions about how they use their defined-contribution pension savings in retirement.
Mary Robinson
What further steps is the Department taking, working with other Departments, to ensure that protections are in place for those in receipt of their pensions who may be at risk of falling foul of financial scams in their retirement?
Richard Harrington
I thank my hon. Friend for that really important question. She can be reassured that a cross-Government consultation on further measures to tackle pension scams closed very recently—on 13 February —and it included a proposal to ban all cold calling in relation to pensions. We will announce our next steps once we have considered the responses we have received to the consultation, but I assure her that we will take action as soon as possible.
Louise Haigh (Sheffield, Heeley) (Lab)
Defined Benefit Occupational Pension Schemes
Lord Harrington of Watford Excerpts(7 years, 9 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
Today the Government are publishing a Green Paper “Security and Sustainability in Defined Benefit Pension Schemes”. This paper also forms part of the Government response to the Work and Pensions Select Committee report into defined benefit pension schemes. I would like to thank the Committee for its report.
Defined benefit schemes are an important pillar of the UK economy and our pensions system. In order to generate the funds needed to pay the pensions of retired workers, around £1.5 trillion is invested by nearly 6,000 schemes. The Government are committed to a system that works for employers, schemes and the 11 million people who are in a defined benefit scheme.
While the Government do not believe that there is any systemic issues within the sector, it is clear that experiences differ from scheme to scheme. The Government recognise that recent years have been particularly challenging for some employers providing defined benefit pensions and the trustees responsible for running these schemes.
The Green Paper looks at a range of issues that have been raised by various stakeholders, for example, whether the Pensions Regulator’s powers should be extended to improve member protection. It focuses on four key areas—funding and investment, scheme affordability, member protection and consolidation, so that we can start to build consensus on whether we may want to reform the current system.
The paper relates only to private sector defined benefit schemes and is not concerned with other types of pension provision, such as public service pension schemes or defined contribution schemes.
The Government want to hear from all those with an interest in defined benefit schemes, in particular from scheme members themselves. The consultation will close on 14 May 2017.
[HCWS479]
Pension Schemes Bill [ Lords ] (Fourth sitting)
Lord Harrington of Watford ExcerptsThursday 9th February 2017
(7 years, 9 months ago)
Public Bill CommitteesRead Full debate Pension Schemes Act 2017 View all Pension Schemes Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 9 February 2017 - (9 Feb 2017)
Ian Blackford
It is a pleasure to serve under your chairmanship, Ms Buck. I thank the Committee for its assistance in taking new clauses 11 to 13 earlier than planned.
New clause 11 would help to deal with an issue facing plumbers in Scotland. Plumbing Pensions (UK) Ltd was established in 1975 to provide pensions for the plumbing and heating industry UK-wide. The scheme is managed by a group of trustee directors appointed from nominees of the Association of Plumbing and Heating Contractors in England and Wales, the Scottish and Northern Ireland Plumbing Employers Federation and Unite the union. The scheme has more than 36,000 members and assets in excess of £1.5 billion.
Under section 75 of the Pensions Act 1995, employers may, in certain circumstances, become liable for what is known as a section 75 employer debt. That debt is calculated on a buy-out basis, which tests whether there would be sufficient assets in a scheme to secure all members’ benefits by buying annuity contracts from an insurance company. Legislation specifies that a section 75 employer debt becomes payable when an employer becomes insolvent, winds up, changes its legal status or ceases to have any active members in the scheme. Although we must be mindful that the purpose of those rules is to protect pension benefits, the way they are currently framed creates problems for some stakeholders, and we are sympathetic to SNIPEF’s concerns, which I know it has also raised directly with the Minister.
The solution is not clearcut. There are several options for the Government to consider, but each has complications for pension schemes, employers and scheme members. We urge the Government to balance employers’ interests with the need to protect benefits for scheme members. The previous Pensions Minister, who sits in the House of Lords, indicated that she would look closely at how a solution to this complex issue could be reached. We need the same assurances from the current Minister that the Government will work to find a solution for the industry. They could use the Bill to bring forward such a solution.
SNIPEF aims to achieve an amendment to the section 75 debt legislation. Its main concern is for unincorporated businesses where people risk losing their personal assets, including their homes. It wants the Government to review the actuarial methods that are used to value pension scheme liabilities, as it believes that given the current economic conditions, the calculation of section 75 employer debt on a full annuity buy-out basis is inappropriate and detrimental to non-associated multi-employer schemes.
SNIPEF argues that orphan debt in any non-associated multi-employer scheme should be excluded from the calculation of section 75 employer debt. It also suggests that, provided that schemes are deemed to be prudently funded, the Pension Protection Fund should act as guarantor of last resort for orphan liabilities. SNIPEF believes that any changes in legislation should apply retrospectively to all employers from 2005. It would be helpful to hear the Government’s view on that request.
As I mentioned, SNIPEF recently met the Minister, and it has advised several MPs that he confirmed that those objectives could be incorporated in a Green Paper, but I want to use the opportunity of the Bill to address these matters. We are eager to hear whether the Government intend to include a solution in the Bill, and I look forward to the Minister’s comments.
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
It is appropriate, given the temperature in which we are working, that plumbers are mentioned. I only wish that some of them were in the Public Gallery to make repairs so that hon. Members would not have to wear their coats.
I joke about that, but I accept that this is a serious matter. When it was brought to my attention, it was my duty and pleasure to meet representatives of not just the plumbers but others. The Government are not ignoring the issue. Although some stakeholders have run an effective public campaign, as is their right, it was the job of the Department for Work and Pensions anyway to get to grips with this, despite the fact that MPs have contacted us individually, such as the hon. Member for Ross, Skye and Lochaber—
Richard Harrington
Thank you. I have finally got it. I shall provide tuition for other hon. Members.
This issue is important. For the record, I should remind hon. Members who are not as familiar with it as the hon. Member for Ross, Skye and Lochaber why the employer debt legislation is in place. It is to help ensure that members of salary-related occupational pension schemes receive the pensions they worked for and have been promised when their own employer cannot provide them. I think everyone would agree that that is a noble aim. Were that not a rule, it would have led to even more difficulties.
When I see representatives of those in such positions, I try to think about this key question: if they are not responsible for the debt, who is? Someone has to be responsible for it. As hon. Members will have picked up from the hon. Gentleman’s speech, people who have been working quite properly and, typically in this field, running their own businesses find themselves with—I do not know what the legal term is—a contingent liability that could be called upon. It is not as though they have received an invoice or a demand, or people have been banging on the door to repossess something, but it is understandably on their minds that that could and might happen, which is a serious matter.
Ian Blackford
That is exactly the point. We are talking about often small businesses that have done the right things in making sure their employees are protected and have adequate pension provision, but there is a sword of Damocles hanging over them with the worry and uncertainty, caused purely by this debt, that they may lose their businesses and houses.
Richard Harrington
I accept the hon. Gentleman’s point. We all agree there is a problem. I do not see how anyone could disagree with that. These people are simply in an unfortunate position, but the Government have to decide, “If not this, what?” and “What are the alternatives?” The hon. Gentleman said, as the groups involved have, that the debt should be passed to the Pension Protection Fund, which everyone would agree has been a very successful mechanism. We mentioned the Maxwell case before lunch. The PPF was intended to deal with failing schemes. It is paid for by the levy payer—by all the successful pension schemes—and I am sure they complain because it is a significant amount of money, but everyone would agree that it has been successful.
In this case, we would place an unfair burden on the PPF, because we are not talking about failing schemes. Many of them are successful and proper. That is why I mentioned a contingent liability. If it is your liability— I do not mean yours, Ms Buck, but anyone’s—it is real to you. It is not quite as real as having an invoice or a demand, but it is there all the time. I do not deny that. However, passing the debt to the PPF would place an unfair burden on the PPF and its levy payers.
Like so many issues facing defined-benefit schemes, the problem is complex and finding a solution is difficult. I accept that it is for the Government to address it. That is what we are elected and paid for. But like everything else in government, there is not an instant, easy solution. It is worth highlighting the fact that the Government have already made significant changes to the legislation in response to representations made by some employers. A number of mechanisms have been made available in employer debt regulations whereby only part of the debt or none may be payable. There are eight such mechanisms in legislation. A wide variety of circumstances can arise, because there are a lot of diverse scheme structures. The best example, which has been discussed with the plumbers and those making similar representations, is flexible apportionment arrangements, which permit an employer debt attributable to the departing employer to be shared among the remaining employers. That sounds attractive, but it is part of a triangle of previous employers, remaining employers and the PPF—it is about which of them gets kicked with this liability. Each group is obviously going to be in favour of the others getting it. I say that not to cast any aspersions or to make a value judgment, but it has to go somewhere, and in the end that is for Government to decide. On the face of it, however, that would be such a solution.
New clause 11 calls specifically for a change by regulations to the employer debt legislation in the Pensions Act 1995. It is aimed at providing protection for the owners of unincorporated businesses. Many of the plumbers who have made representations happen to be self-employed because that is the structure of their business, but they are not self-employed and running a large business. They just happen to be a business owner who is self-employed. A mandatory provision to protect one group of employers from their responsibility for an employer debt, for which there may be personal liability, again boils down to that debt needing to be met in some way by others in order to safeguard members’ pensions. It is true to say that such an approach would also conflict with existing employer debt provision that recognises the wide range of employers who participate in occupational pension schemes. It does not differentiate between different types of business structure in relation to employer debt duties.
Secondary legislation, in the form of the 2005 employer debt regulations, already includes a range of mechanisms to facilitate the management of an employer debt when an employer ceases to employ active members of a pension scheme. The regulations operate so that in some circumstances, only part of the debt or no debt may be payable. Those regulations are currently under review. We had a call for evidence about the operation of employer debt legislation in non-associated multi-employer schemes. We needed to call for evidence because there are losers and winners. It is the role of Government to try to assess interests, and some form of judgment has to be made. This area of legislation is extremely complex, and we have to check and consider things carefully.
I reiterate that we are not kicking the can down the road—it is not that we do not want to make a decision. It is a complex issue, and we are looking to consult on specific proposals in the very near future. In any case, a whole range of new proposals might come about in our Green Paper on defined-benefit schemes. If I say the release of that Green Paper is imminent, that could mean anything from tomorrow onwards, but it will be very soon.
Richard Harrington
I think I understand the hon. Gentleman’s intervention; I accept that he did not mean it to become a speech, but I think it did. He knows, because I have told him privately, that it is the Government’s intention to resolve this issue. I have stated many times that I cannot go into what will be in the Green Paper. I also cannot accept that the new clause should be included in the Bill, because we are not ready for it. We do not have a solution; there is no simple solution.
The hon. Gentleman has been involved, not actually in this issue but in many others to do with asset management and financial services, and knows that everything is more complex than it first appears. I have accepted that there is a problem, I have mentioned that there are different entities that have to deal with it, and I have accepted that we have to try to reach a solution—by consensus, I hope. However, I cannot give him that good news today; I have to resist the new clause being added to the Bill.
Craig Mackinlay (South Thanet) (Con)
It is a pleasure to see you in the Chair and to serve under your chairmanship, Ms Buck. The experience of the hon. Member for Ross, Skye and Lochaber comes through very clearly.
I hope I can offer some help to the Committee. I realise that this is a complex area, but the hon. Gentleman’s new clause does not actually encompass the extent of the problem, which goes further. Under the old rules—extra-statutory concession C16 on the winding-up of companies, which was used widely until 2012—a group of directors or owners could wind up a company using a very informal method, but that did not cease their liabilities to that company. That liability extended for 20 years afterwards. That was then formalised under section 1030A of the Corporation Tax Act 2010, which gave a statutory basis to the informal winding up of companies with assets of less than £25,000. That provision is still used very widely. Directors or owners of such companies being wound up under that statutory method could still face 20 years of future liabilities, so although the hon. Gentleman has identified a problem in the system, it does not just apply to unincorporated associations.
The effect of the section 1030A of the 2010 Act, which came into force on 1 March 2012, is that directors and owners of slightly larger companies are going down the route of a formal liquidation, which terminates their liabilities for ever more. However, hundreds—if not thousands—of old, smaller companies using the old extra-statutory concession will still be caught by a section 75 notice. This is a very wide issue that does not apply only to unincorporated associations, so I do not think the hon. Gentleman’s new clause is enough to close down his concerns on future liabilities. Personally, I accept the Minister’s assurances, but I think this is the start of a wider debate as to how those liabilities can be cut down.
In the hon. Gentleman’s new clause 12, there is a problem with determining the proper value of a pension liability. It is not as sharp as just the transfer value that is often given, and we will need in future to be a little bit cleverer in how we actuarially assess pension liabilities.
Alex Cunningham (Stockton North) (Lab)
I beg to move, That the clause be read a Second time.
Welcome to our walk-in fridge, Ms Buck. I had a discussion with the Government Whip, the hon. Member for Winchester.
Richard Harrington
On a point of order, Ms Buck. Actually, I do not know whether it is a point of order or a point of clarification. Before we come to the hon. Gentleman’s new clause, am I correct in saying that new clauses 11, 12 and 13 were all withdrawn?
Craig Mackinlay
As my hon. Friend says quite clearly, the results will speak for themselves. I come back to the principles that I mentioned earlier: the fund has to have good returns and be well run and focused, because it has one function—to deliver good pensions. Again, I do not see that the new clause would achieve any of those principles, and if nothing else, it is unworkable because of the size of funds.
Richard Harrington
I absolutely agree with my hon. Friend; member engagement and involvement sounds very good—it is a laudable objective—but I have been around for nearly 60 years, of which I was in business for nearly 30, and I do not feel qualified to assess an investment strategy. I say that not to insult the vast majority of people, but because, although independent financial advisers and accountants may be able to do that, it is almost impossible for an individual to do so. We have to look at a way of ensuring that the investment strategy is the correct one for the majority of members, and that the regulatory system, the supervisory system and so on are in place. Hon. Members mentioned NEST, which already has more than 4 million members and 230,000 employers. This idea is very interesting but not at all practical.
I remind hon. Members that trustees play a key role in managing assets. They have overall accountability for the investment strategy. They have a legal duty; the hon. Members for Stockton North and for Ross, Skye and Lochaber—I can just about manage to say that now—used the expression “fiduciary duty,” and the trustees have a fiduciary duty to the members.
Laudable as new clause 2 is, pensions legislation already includes requirements for investment decisions to be transparent and in the best interests of members. The Government fully recognise the possible impact of investment decisions on members’ retirement outcomes. Even without the new clause, the Bill will add to those requirements. Clause 12(4)(d) already sets out that regulations made by the Secretary of State
“may include provision about…processes relating to transactions and investment decisions”,
while clause 12(2) states:
“In deciding whether it is satisfied that the systems and processes used in running the scheme are sufficient…the Pensions Regulator must take into account any matters specified in regulations”.
The new amendment would duplicate the provisions for master trust schemes that already exist under the Occupational Pension Schemes (Investment) Regulations 2005. The regulations require trustees of all schemes with 100 or more members to set out a statement of investment principles for their scheme. That statement must be made available to members on request and
“must cover…their policies in relation to…the kinds of investments to be held…the balance between different kinds of investments…risks, including the ways in which risks are to be measured”
and other key issues. The trustees must ensure
“that the statement of investment principles…is reviewed at least every three years…and without delay after any significant change in investment policy.”
Most people who are automatically enrolled into pension schemes are likely to remain in their scheme’s default fund and will not actively engage themselves in the governance of the scheme. That is why legislation makes requirements about governance and oversight of these matters, and why most schemes, including master trust schemes, need to provide a default strategy that covers similar areas.
Finally, multi-employer schemes have a legal duty under the Occupational Pension Schemes (Scheme Administration) Regulations 1996 to make arrangements to encourage members of the scheme or their representatives to report their views on matters that relate to the scheme, including areas about which the new clause proposes that the trustees should consult scheme members.
Ian Blackford
I am listening carefully to the Minister, and I broadly agree with him. Obviously there will be ongoing reviews of investment strategy, which should be communicated to members where appropriate. One way in which that could be done, as a matter of best practice for these schemes, would be for a statement of investment principles to be mailed to members as part of the annual report. That would give more clarity on the direction of travel of the fund’s investments.
Richard Harrington
As usual, the hon. Gentleman makes a very sensible suggestion, which should be considered. However, I believe that everything in the new clause is already included in legislation and that it is therefore unnecessary, so I urge the hon. Member for Stockton North to withdraw it.
Alex Cunningham
Let me first address the point about size and the ability to organise communications in this sort of situation. If Legal & General can do it, so can others.
The Minister described lots of ideas raised today as laudable. Sadly, all the ideas he supports exclude members. He rejects the idea of members being represented among trustees and the idea of member-nominated directors. His position is that everything should be left to professionals and to the marketplace, and that members may not be able to take part in or understand investment decisions. He admitted that he might not understand those decisions, but there are members out there who do, and it would be helpful if at least some of them could represent their fellow members and challenge some of the things that their trustees are doing.
One further point concerns me. An employer may opt for a particular trust but become dissatisfied with it and move. There are a very large number of employers, and I fear that a large number of them are disengaged. I wonder whether they are acting in the best interests of their employees. I will come to that during the debate on a later amendment. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 3
Annual Member Meeting
“(1) The trustees of an authorised Master Trust Scheme must hold an annual meeting open to all members of the scheme.
(2) The Master Trust must take all reasonable steps to make the meeting accessible to all members, this includes making arrangements for—
(a) scheme members to observe the meeting remotely, and
(b) scheme members to submit questions to trust members remotely.”.—(Alex Cunningham.)
This new clause requires Master Trusts to hold an Annual Member Meeting, and sets out ways to ensure members are properly given the opportunity to be involved.
Brought up, and read the First time.
Richard Harrington
Again, I find myself having to disagree, not with the hon. Gentleman’s intention, but that this is a practical solution to what he wants to achieve. The new clause would require the trustees of an authorised master trust—it would not be there if it was not authorised—to hold an annual meeting open to all members, even if they cannot attend in person. It is clear what the hon. Gentleman wants.
As I have said—I know it is a bit of standard response, but I reiterate it—we are doing everything in the Bill to encourage member engagement and communication, especially now that the pension freedoms have been implemented. People must have the ability to assess their choice, and part of that is communication with what goes on. As we know, the Bill works alongside the Occupational and Personal Pension Schemes (Disclosure of Information) Regulations 2013 and the Financial Conduct Authority rules that set out minimum standards for communication. Those ensure that members have access to appropriate information to make decisions about their pension saving, including an annual benefit statement and, for most people, a statutory money purchase illustration, which gives members a projection of their pension in retirement.
Documents relating to the governance of a scheme, such as the trustees’ annual report, the chair’s statement and the statement of investment principles, have to be provided on request. In addition, the Government have committed to ensuring that the pensions industry builds and launches a pensions dashboard, which is very important and would allow members to see their pension rights with different providers across the pension landscape.
Alex Cunningham
I beg to move, That the clause be read a Second time.
I was pleased to table this vital new clause, which attempts to widen access to master trust saving for those whom this Government have left excluded for too long. As it stands, the Bill does little to build on the success of Labour’s auto-enrolment policy and ensure that saving into master trusts is accessible and encouraged for the number of groups that evidence suggests are not saving adequately for their retirement.
I recognise that the Government have announced a review of the operation of auto-enrolment into master trust saving, but its scope is broad, with few specifics in the terms of reference published yesterday. It is vital that the review specifically addresses the question of how we can improve master trust saving among the groups specified in the new clause. That will ensure that the Bill delivers plans that strengthen security and dignity in retirement. The Minister may already be wondering why I am pursuing the new clause when it appears he has the matter in hand. He may have it in hand, but there is merit in naming some of the very specific groups who most need change and in implementing the recommended changes.
It is a testament to the last Labour Government that 10 million additional workers are estimated to be newly saving or saving more as a result of auto-enrolment into master trusts. It has led to an additional £17 billion of pension saving being put away, mostly by low-income workers. Nevertheless, many excluded groups remain, in part due to the actions of this Government, who increased the triggering threshold at which workers were automatically enrolled into a master trust saving scheme. According to the latest Department for Work and Pensions statistics, 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust saving through auto-enrolment. Critically, those groups are over-represented among low earners, the self-employed, those with multiple jobs and carers—the areas we believe that the Government should focus on in their review, as set out in the new clause. I hope they will.
At the end of last year, the Pensions Policy Institute published a report assessing future trends in defined-contribution pension saving. It is worth quoting the following section of the report in full, as it clarifies the current situation. It states that
“the evidence so far suggests that many households will be unable to maintain their current standard of living when they reach retirement. The advent of auto-enrolment has increased the number of workers saving for retirement, with more active savers now in defined contribution (DC) pension schemes rather than defined benefit (DB). This rise in the number of pension savers is a step in the right direction, but DC plans must continue to evolve in order for them to provide savers with an adequate pension.”
The report goes on to find that the median saving of DC scheme members could yield £3,000 a year as an annuity, which is not a lot of money.
More work needs to be done to improve the adequacy of returns on DC savings, including by looking in more depth at costs and charges, as we have tried to do throughout our consideration of the Bill. Nevertheless, the top-up provided from access to master trust saving through the auto-enrolment scheme is a valuable addition to state pension provision, so it is worth while to ensure that as many low-income groups as possible have access to master trust saving.
I will start with how master trust saving for low-income groups could be improved through the Bill. Taking carers first, while those who leave or reduce their hours of employment to care for loved ones are rightly supported through the social security system, it seems unjust that they will probably miss out on the fuller benefits enjoyed by those who are able to save more into occupational pensions as a result of being able to remain in employment, in spite of the fact that carers engage in valuable labour—work that would otherwise have to be picked up by the state. It is my strong belief that the Government should try to improve the retirement prospects of carers, and master trusts, which have been set up to service large numbers of low-income savers, may be an avenue worth exploring. We would include carers as part of a wider review of groups that are excluded from pension saving.
The same is true of the self-employed. I was personally heartened by the amendment tabled by the hon. Member for Amber Valley. After more than a decade of expansion in that part of the labour market, self-employed people now make up 15% of the workforce. Vast numbers of them are at the very bottom end of the income scale, and there is much evidence to suggest that they are not saving as much as those in other sections of the workforce. Research by the Association of Independent Professionals and the Self-Employed found that four in 10 self-employed people do not have a pension. The New Policy Institute found that the self-employed are not only less likely to participate in pension saving but tend to save less as a whole when they do.
Despite that worrying evidence, there are few obvious means by which the self-employed can begin to build up a savings pot in a master trust. That is just one way in which Britain’s entrepreneurs have been let down and ignored. There is no mechanism to manage the enrolment of self-employed people in master trust schemes. Of course, the fact that there is no employer means that, like informal carers, self-employed people’s contributions cannot currently be topped up. I do not believe that it is beyond the bounds of possibility for an expert review to look into that conundrum. The Labour party remains the party of working people, including the self-employed, and we are keen to explore how they might be encouraged to save into defined-contribution master trust schemes to ensure that they have the dignified and secure retirement that we believe everyone has the right to.
Perhaps moving closer to the existing system of saving into master trust schemes, there is also the urgent question of people with multiple jobs. Under the current system, those whose earnings exceed the earnings threshold but result from multiple jobs are unable to access auto-enrolment into a master trust scheme. It seems that the only logic preventing that group from accessing savings is the administrative barrier posed by their having more than one employer. In other words, there is no mechanism either to establish total earnings to trigger access to auto-enrolment, or to determine the sponsoring employer of a person working multiple jobs. Although that issue may seem overwhelming to the Government, we believe that it warrants further attention—especially given the way the labour market is changing, with as many as 3 million people estimated to be working multiple jobs just to make ends meet.
I turn finally to access to master trust savings for low-income savers. Under the auto-enrolment policy developed by the Labour party, working people would have been automatically enrolled into a master trust scheme once their earnings had crossed the trigger level of just over £5,000, the logic being that people would begin to save towards an occupational pension at the same earnings level at which they began to pay national insurance contributions. However, the coalition Government increased the earnings threshold to £10,000, denying millions of low earners the automatic right to save towards a relatively low-cost occupational pension through a master trust.
The last annual review of auto-enrolment into master trust savings concluded that the lower earnings threshold will be £5,876 and the trigger threshold will be frozen at £10,000. Although that freeze will bring a few more workers into the scheme through inflation, we do not believe that that is happening quickly enough. Given the generational crisis that is developing in our pensions system, more needs to be done to include low earners in savings provision and encourage retirement planning.
In conclusion, we recognise that the upcoming 2017 review of auto-enrolment presents the Government with an opportunity to take seriously the problem that certain groups are excluded from master trust savings. The new clause would guarantee that the Government engaged with these vital issues and those groups in the full and proper way. To be clear, we are not trying to force the Government to implement specific policy proposals after the Bill’s passage, although in the view of our colleagues on the Constitution Committee, that would not be out of step with much of the rest of the Bill. We merely wish to place a statutory requirement on the Government fully and properly to consider as part of their planned review what steps could be taken to widen participation for some of the most vulnerable groups.
I have one very specific question about the implementation of the review’s recommendations once it is completed. We talked about this earlier in relation to another matter. Will the Minister have powers under regulations to implement those recommendations, or will we have to wait for another pensions Bill, which is unlikely during this Parliament? The new clause would help to increase the security and dignity of retirement for groups on the lowest incomes. How can the Minister possibly refuse to guarantee that the review will address these important issues and groups?
Richard Harrington
I compliment the hon. Member for Stockton North on his speech. He has quite clearly listened to all the speeches I have made since being appointed to this job. I will point out one or two facts to respectfully disagree with him—and, for once, his style, which I have not done up to now. To make this into a political matter by saying that auto-enrolment was Labour’s idea is not really fair. I may be correct in saying that Lord Turner, who chaired the Pensions Commission, was offered a peerage by three political parties and took one from the Liberal Democrats. The other commissioners were Labour and Conservative. I am not being flippant, but the spirit of our debate has generally not been party political at all.
Alex Cunningham
I accept that—okay, we are making a few political points. It was a Labour Government who brought in auto-enrolment, but this Government have successfully encouraged more and more people to invest more and more, which is a very positive thing. I place that on the record.
Richard Harrington
That is very reasonable. The hon. Gentleman’s general approach—and mine, I hope—has been not to bring party politics into the debate, because we all have exactly the same objectives.
I have one or two further points to make. The hon. Gentleman mentioned women being excluded from auto-enrolment—not by law but in practice—for different reasons. Actually, the number of women being enrolled is very impressive, although I do not have it to hand. I am pleased to say that I do not think that this is a gender equality issue.
The fundamental point is that the issues that the hon. Gentleman mentioned and that his new clause would address were mostly covered by the Secretary of State in yesterday’s announcement about the extent of the auto-enrolment review. That was not timed to happen just before this Committee sitting; it is just how things worked out. The review will look at the self-employed, who are excluded from the current system, which has gone from nought to a lot very quickly, after all. It will also look at people with multiple earnings under the £10,000 mark from different sources. Incidentally, people paid less than that—I cannot remember the exact figure, but it is just under £6,000—are allowed to enrol, and they get help from their employer and the tax system, although at that level they would not necessarily pay tax. All these things are being looked at. The review will be very comprehensive and will go far beyond what the statute calls for. I will be very pleased to look at its results.
The hon. Gentleman asked whether implementing the review’s recommendations would involve another pensions Bill, which he and Her Majesty have decided we will not be having in this Session. I cannot say, because I do not know what the recommendations are, but some things will need primary legislation and others will not.
Unless the hon. Gentleman has an urgent intervention to make, I will conclude. I have listened carefully to what he said and am glad to have included it all in my speeches, and I am glad that it will all be included in the review.
Alex Cunningham
My final intervention is to raise the very specific issue of carers. Will carers be included in the review?
Richard Harrington
The review is generally worded. It could include carers—they are not specifically mentioned, but I believe that it will include them, and I would encourage it to include them. However, to include them as a category would be a little unfair on others who may be in a similar financial position.
The hon. Gentleman’s sentiments are absolutely right, as were most things he said in his speech, but I do not think it is appropriate for the new clause to go into the Bill. It is far too early; we have been doing auto-enrolment for only a short time, and we are doing a comprehensive review. Despite his sentiments, I ask him to withdraw the motion.
Alex Cunningham
I am pleased to have those commitments on the record, particularly those relating to some of the more vulnerable groups. I appreciate that there are other groups apart from carers, as the Minister said, but carers provide a tremendous service that is probably worth billions of pounds to our country every year, so it is important that we have some form of provision for them. The new clause was always going to be a probing clause. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 7
Enrolment in Master Trust scheme: duty on employers
“Before an employer enrols in a Master Trust scheme they must—
(a) take reasonable steps to ensure themselves that the scheme is financially viable;
(b) ensure the scheme is on the list of authorised Master Trust schemes maintained by the Pensions Regulator (section 14); and
(c) take reasonable steps to ensure themselves that the scheme will meet the needs of their employees.”.—(Alex Cunningham.)
This new clause would require employers to conduct basic checks before signing up to the Master Trust scheme.
Brought up, and read the First time.
Alex Cunningham
I am doing that now. We have a clear warning that if a company fails in its fiduciary obligation, litigation may be an option. We know from the FCA report that implicit costs are opaque and likely to be much higher than those that have been explicitly presented. We believe that it will not be long before legal teams from the US alert their operations in the UK of potential opportunities for litigation. I can see the adverts on TV now: “Problems with your pension fund? Have you been subject to high fees and transaction costs that you never knew were there?”
The most important “don’t” must be, “don’t assign a low priority to your employees’ auto-enrolment choices.” The big lesson of the litigation—albeit US litigation—is that employers must assume that they have that fiduciary duty, as do trustees, and that they always need to have auto-enrolment choices on their radar screens. It is a lesson once again that the lack of transparency in the governance process, the administration process, the investment process and the advice process will lead to the detriment of the member.
To ensure that we can help build citizens’ trust in the system, we must have transparency for employers and members. We must have the information in front of the employer choosing the scheme to protect them and their employees. I commend new clause 7 to the Committee.
Richard Harrington
I thank the hon. Gentleman for his contribution with the new clause, but I respectfully give him my opinion that he seems to be fundamentally misunderstanding the whole regulatory system of automatic enrolment. So long as an employer chooses a scheme that meets the criteria—we have been through all the criteria and the whole regulatory and legislative system is behind that—the scheme qualifies for AE. The employer —which may be a he, she or it, if it is incorporated—cannot just decide on any old scheme. There is a significant regulatory hurdle in the Bill.
The employers’ duty is met by scheme choice, because that is what auto-enrolment is. It is not like a defined-benefit type of scheme, where the employer has to ensure that the contributions are enough to be able to pay out what they are contracted to pay out in the scheme documentation. They have to make a reasonable decision based on the whole authorisation regime. I argue that asking for more would be inappropriate and burdensome for employers.
It may help the hon. Gentleman to see my point if he looked at the regulator’s website—he might have done so already—which has comprehensive guidance for employers. Under the new clause, a typical employer would be doing exactly what the hon. Gentleman says is inappropriate: they would basically be doing what their accountant or adviser tells them, because most employers, particularly the small ones, by definition do not have this kind of knowledge. They are not professionals in this area; there are there to run their own business.
I do not understand, whether from a personal or a Government perspective, how asking them to do meaningful checks after they have gone with an approved and regulated scheme would add anything to the process. It is well-meaning, but it is unnecessary and should not be part of the Bill. I sympathise with the intent. The hon. Gentleman is trying to protect members from people acting in a fraudulent way.
Alex Cunningham
Perhaps the Minister can address this very simple question: is he satisfied that employers could not be subject to legal action against them if they end up making a bad choice on behalf of their employees?
Richard Harrington
As I have explained, their choice on auto-enrolment is restricted to choosing a regulated, authorised scheme. I am not a Government lawyer, or any other type of lawyer, although perhaps I should disclose to my chagrin that I did a law degree 40 years ago.
Richard Harrington
I absolutely agree. In fact, such schemes are often criticised for precisely that reason. They are criticised for being too conservative—in the investment sense, not the political sense—and for missing out a lot of good possible investment decisions, and the thought of that being reviewed by every single employer. I mentioned NEST and its 230,000 employers. I cannot believe that it would be fair to place such a regulatory burden on them when they are choosing from an approved list. The whole purpose of the regulation is that the schemes are approved, proper and regulated.
I am trying to see where the hon. Gentleman is coming from. I hope that he can see where the Government and I are coming from, and why I am not of the view that the new clause would be appropriate. I respectfully invite him to withdraw it.
Alex Cunningham
I accept the explanation that the Minister has provided about the employer making a choice from a regulated scheme and the protections included within that. If he is satisfied that employers will not face legal challenge as a result of the choices that they make within a regime where they must choose a scheme on behalf of their employees, and has placed that on record, I am content. I beg to ask leave to withdraw the new clause.
Clause, by leave, withdrawn.
Bill, as amended, to be reported.
Pension Schemes Bill [ Lords ] (Third sitting)
Lord Harrington of Watford Excerpts(7 years, 9 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Alex Cunningham (Stockton North) (Lab)
I beg to move amendment 30, in clause 28, page 20, line 14, after “charges” insert
“, including any caps on these charges,”.
This requires members to be informed about caps on charges.
Good morning, Mr Rosindell. The amendment is straightforward: it would ensure that members are given accurate information, particularly where caps have been placed on the charges alluded to in the clause. As the Secretary of State has yet to determine costs and charges throughout a pension scheme—not just administration but investment and transaction costs—we have yet another delay in ensuring that scheme members are delivered the efficiencies that they deserve. We are also dependent on the Secretary of State bringing forward secondary legislation on the continuity strategy, which means yet more delay.
I am in danger of repeating myself, but scheme members really ought to get more information about the issues that affect their pensions. We have to start somewhere, and I maintain that the Bill remains a good place to do that. As I have said elsewhere, the Government support a cost-collection template in the local government pension scheme, which prompts the question: why do they not use that for master trusts instead of going down the road of yet more consultation?
I know from experience this week that the Minister is unlikely to be sympathetic to the amendment. Assuming that we are in that place again, what consultation is he planning with scheme members on the need for greater transparency and how they think they ought to be informed and given the opportunity to be active rather than passive scheme members?
The Secretary of State said last week:
“We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]
I had hoped that we could go some way to implementing at least some measures to help to fill the communication deficit, but now we will have to wait even longer. Trust members would have a little more confidence in this Government if they took this opportunity to take action on costs and charges and the need to share information about issues such as caps.
I conclude with a final question for the Minister. The review is under way. Is he satisfied that he will have the powers under the Bill or any other piece of legislation to accelerate the drive for greater transparency, or will we have to wait for another pensions Bill, which I understand is unlikely during this Parliament?
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
I can do no better than to echo the sentiments of the Opposition spokesman in welcoming you back to the Chair, Mr Rosindell, which is a pleasure indeed. I wish that I could accept the amendment with such enthusiasm—
Richard Harrington
—but we support the sentiments behind it. As with many things in the Bill, both sides want the same thing; the question is how things are achieved. The explanatory note to the amendment says that it
“requires members to be informed about caps on charges”,
which I understand, but the Government argue that that would duplicate provision elsewhere, so it is unnecessary.
I have said before that the Government agree with the principle that members should be able to see the costs and charges that affect their pension pot. Since April 2015, regulations have required trustees to report information about costs and charges in a chair’s statement, which must be shared with members, so that provision is there. Those regulations impose a charge cap where a scheme is used for automatic enrolment and contributions are invested in a default arrangement, as defined in the charges and governance regulations. To be clear, the cap is an annual one of 0.75%, or an equivalent combination charge, of the value of the member’s rights. That applies to master trusts in exactly the same way as it applies to other pension schemes.
The Government recognise that more needs to be done to increase transparency. We will be making regulations requiring charges and transaction costs for money purchase benefits in occupational pension schemes to be given to members and to be published. We have to get it right, and we are consulting. The hon. Member for Stockton North said that he thinks it is just another consultation, but it will happen this calendar year.
The purpose of the implementation strategy is for the Pensions Regulator to have scrutiny as part of the approval process.
Alex Cunningham
Before the Minister draws to a conclusion, I would be interested to know whether the regulations will outline exactly what chairs will be required to do to report on issues such as the cap.
Alex Cunningham
I will repeat it; we all get distracted at times. Will regulations outline what will be required within a chair’s statement to ensure that such things as caps are properly reported on?
Richard Harrington
I will answer that question in the same way as I have up to now: the consultation is looking at the way to disclose. I cannot give the hon. Gentleman the undertaking he seeks, but I fully expect that to be the case.
In answer to the other question, about whether the results of the consultation will require primary legislation, I can clearly say that they will not require another Bill. As to whether there will be another pensions Bill, the hon. Gentleman obviously has access to information on the Queen’s Speech that I do not have. I certainly do not think it is the position—it may be, but I do not think anyone knows at this stage.
I ask the hon. Gentleman to withdraw his amendment. That is not because I believe it is silly or anything, but because it is not needed. The charges in the scheme will be tethered to any cap that applied, and that information is already available to members.
Alex Cunningham
The Minister teases me a little with the idea that we might have a second pensions Bill this Parliament. I do not think he really believes that will be the case.
I recognise what the Minister has said. The very fact that he believes that the information will be included in regulations is a positive response, and for that I am grateful, but again we are back to the issue raised originally by the Constitution Committee. It said that there was a tremendous reliance by the Government on secondary legislation in the entire Bill.
Richard Harrington
I remind the hon. Gentleman of the affirmative nature of the regulations. That will allow scrutiny and discussion.
Alex Cunningham
Indeed. That is exactly why I am confident that what the Minister is saying will come to pass. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 28 ordered to stand part of the Bill.
Clauses 29 to 31 ordered to stand part of the Bill.
Clause 32
Pause orders
Richard Harrington
I wish to make it clear, without punning too many times on the word “pause”, that we did pause after the intelligent discussion in the other place, so I will go into some detail on why we will not be accepting the amendments, two of which were tabled by the hon. Member for Stockton North and the third by the SNP.
First, amendment 31 would remove an important provision that allows the regulator to issue a pause order, which temporarily prevents benefits from being paid out from a master trust scheme to scheme members. Such an order can be made only in very limited and specific circumstances. I will briefly set out what those are.
Alex Cunningham
I appreciate the Minister allowing me to intervene so quickly. He says that pause orders can be made only in very specific circumstances, which he is about to outline. Will he acknowledge that they could last for up to six months, and perhaps be extended even beyond that?
Richard Harrington
The hon. Gentleman is correct, but of course it is at the discretion of the regulator, which will be dealing with all the circumstances. It could also be a very short period—that is the intention. I hope he agrees that the regulator has to have flexibility to deal with the specific circumstances of a particular case.
The scheme would have to be in a triggering event period, which means that one of the key risk events, which I explained previously, has occurred in relation to the scheme, the obvious one being that the scheme funder has become insolvent. Alternatively, the order could be made in relation to an existing scheme if it has submitted its application for authorisation and the decision on that application is not yet final. To satisfy the criteria, further conditions must be met. The regulator has to be satisfied that if a pause order is not made, there is or is likely to be an immediate risk to the interests of members in the scheme or the assets of the scheme.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
I am listening carefully to the Minister. We all understand the circumstances that would end up with a triggering event and what he describes as the potential insolvency of the scheme funder, but we have all been keen to make sure that in those circumstances the assets of the plan holders are protected. I want to tease out with him that scenario where we believe that the funds are protected. On the basis of the fear and alarm that could be spread when people see that their pensions are not being paid, I have a predilection for making sure that both payments into funds, whether it is a new fund that is created in the short term, or payments out of funds are maintained. There is a threat to confidence in master trusts and auto-enrolment if there is a pause in payments being made. On the basis that it always should be the case that the fund assets are protected, although I understand that there are certain circumstances where the regulator may want to take particular action, we have to be careful to scope out exactly what those circumstances might be.
Richard Harrington
The hon. Gentleman tries to tease things out from me and I am afraid I have to tease him back by saying that it is impossible to state the particular circumstances of every case. I was going to say later, in response to SNP amendment in this group, that no one wants to cause panic among members. There are many triggering events and there will be cases where the regulator might need to issue one of these pause orders, but they will be sorted out hopefully quite quickly; that is the idea. I do not see how, in those circumstances, writing thousands of letters to people would not cause precisely the kind of panic and lack of confidence that we are all trying to prevent.
I will return to that point. As with everything in the Bill, this is not a question of one side making stupid points and the other making sensible points; this is about trying to envisage different circumstances that might arise. It is my duty and my job to make sure that the regulator has flexibility, although I quite understand the hon. Gentleman’s point of view.
Ian Blackford
I absolutely understand and have no reason in principle to believe that the regulator may not have to have such a power. However, I am trying to understand what kind of event might lead to such action taking place if it is the case that plan holders’ assets are protected. Is it to do with any particular costs of administration for delivering all this? I am not clear what kind of event might lead to such action having to be taken.
Richard Harrington
It has been mentioned that, for example, suspicions of fraudulent activity might, in extremis, be such an event. Alternatively, the regulator might not yet be satisfied with respect to the administration of the scheme. The pause order clause is intended to apply in extremis. I am certain that most things will be taken care of in the normal course of things, but we felt that the regulator needed that power in extremis. That does not necessarily mean that the sky has to be falling in. A pause order might be used to concentrate people’s minds on resolving the situation quickly. Nevertheless, the power is there. It can be used
“during a triggering event period…if…the Pensions Regulator is satisfied that making a pause order will help the trustees to carry out the implementation strategy.”
The order is designed for quite particular and limited circumstances. I know that we keep using sledgehammer and nut analogies—on Tuesday I mentioned kernels— but I really believe that if it did trigger the kind of communication that the Opposition referred to, it might cause a major panic, which is something that we have to avoid and that the system exists to resolve.
Alex Cunningham
To extend the nut analogy, for a pensioner who may be losing £40 a week from their pension for up to six months, a pause order is not a tiny nut; it is a large coconut. It has a major impact on their lives.
Richard Harrington
I quite agree, and of course there are checks and balances within the system: the pause order can be exercised only on a determination by the determinations panel, and then there is a higher level of scrutiny. In a small administrative matter, it would be totally irresponsible for the regulator to suddenly decide on a pause order with the exact effect that the hon. Gentleman alludes to, either on pensioners receiving benefits or on people working as normal and paying contributions that come out of their weekly or monthly statements.
I totally agree with the hon. Gentleman’s intent, but I think it is important to look beyond the general definition of a pause order and into the specifics, which I hope I have explained, albeit briefly. I ask him to withdraw the amendment; he makes an important point, but I think we have attended to the detail necessary to ensure that what he fears, and we all fear, does not take place.
As we have heard, amendment 37 is consequential on amendment 36, so I will discuss both SNP amendments together. The hon. Gentleman has stated that he supports them, so at least it will be on the record that the Opposition and the SNP actually agree on this subject. [Interruption.] That was teasing, to use this Committee’s terminology. I withdraw any teasability if I have caused offence.
Critically, amendment 36 would allow the Pensions Regulator to issue a pause order containing a direction that any paused payments into the scheme are to be
“collected and held in a separate fund, until the conclusion of the pause order”,
and amendment 37 would allow the Secretary of State to make regulations about the fund. On the face of it, it seems sensible to have a separate fund set up, but it would be extremely difficult in practice. Employers would have to negotiate with their employees to obtain their permission to take deductions from their pay and pay them into a different entity. That money would not actually be being paid towards a pension scheme; it would have to go to a solicitor’s client account, for example, or to another account that had been set up, instead of to the pension itself. There are tax implications and many other implications. That would cause fear, because people would think, “What is happening to my existing pension money? I am having to pay it into an emergency account.”
Craig Mackinlay (South Thanet) (Con)
On that point, may I ask what the sponsoring employer’s position would be under a pause order? Would the sponsoring employer be in contravention of his auto-enrolment obligations, having been forced to stop paying towards a master trust that is set up or is part of the employees’ contributions arrangements?
What would happen to the employer in terms of his obligations under auto-enrolment? Is it envisaged, if a pause order is in place, that he would have to keep the money within the business until the situation is resolved, and then that money be passed over to the same fund, if it is cleared to continue in operation, or to a new fund that stands in its place?
Richard Harrington
My hon. Friend raises a very good point that we have considered. Having been an employer for many years and supervised payroll systems, I understand that that would be the obvious thing to do: simply hold on to the money. Provided it was kept within a business but earmarked for that, I do not think anyone could say that the employer would be in breach of their legal duties for auto-enrolment.
Of course, then a problem arises. It sounds appallingly administrative and technical, but it is the sort of thing that lawyers make a lot of money out of. If it were paid into a non-pension fund emergency account, which I believe could be an unintended consequence of the honourable amendment tabled by the hon. Member for Ross, Skye and Lochaber, it could mean that the money is not being paid into a pension fund. What happens to its legal status, the tax and everything else? It is very much in extremis and complicated.
I am not regarded within the pensions trade as a great voice for employers, as I think everybody in the House would agree, but this would represent a significant burden for employers. I ask hon. Members to bear in mind that employers will not typically have been responsible for this problem—they will not typically have been responsible for the events leading to the pause order being made. From their point of view, they have simply been complying with their duties under auto-enrolment, as my hon. Friend the Member for South Thanet said.
I do not believe we can place them in a situation where they risk being unable to comply with their legal duties or where compliance becomes a significant burden. As I have said, this is very complicated and the tax and payroll implications are not certain. I think we would all agree that in these rare and very limited circumstances, the solution presented in the Bill is the most simple for employers to comply with. Given the very limited impact on scheme members and the low likelihood of this situation arising, I believe that is the right solution.
Alex Cunningham
The Minister keeps talking about short periods of time when there might be an impact. Has the Department given any consideration to the impact of loss of income on members of the scheme and on the social security system? What would happen to ensure that people affected by the loss of income due to a pause order are compensated by social security in the event of their qualifying for benefits because they no longer have a pension income?
Richard Harrington
The hon. Gentleman makes a very good point about social security implications. I cannot answer that question. I will have to give it some thought and I am happy to correspond with him on that subject. I think it is interesting and, although not directly relevant to this point, it is an important implication.
Hon. Members will be delighted to know that I have just remembered that employers are excused from AE duties during the pause order period. From the hundreds of pages of the Bill it had to get to the front of my mind, and it has. I thank the hon. Gentleman for triggering that recollection. I do think that everything has been taken into consideration. I hope that my explanation has been sufficiently comprehensive for the amendment to be withdrawn.
Ian Blackford
It is a pleasure to see you back in the Chair, Mr Rosindell. I know that, in the interests of brevity, we are considering this slightly the wrong way round, in that I will speak to the amendment that the Minister has already responded to.
We all share the desire to ensure that the plan holders’ funds are protected in both the accumulation and decumulation phases. We are concerned about the impact of a pause order on a member’s savings, as there are no mechanisms in place that allow ongoing contributions to be collected and held on behalf of the saver. I know that the Minister has said that there are issues about where the funds would go and what kind of protection would be given, but those are exactly the kinds of things that we have to resolve in this Committee. It is clear that any additional contributions that savers make at a time of a pause order have to be protected properly, but surely it is within our gift to architect that properly.
It is unacceptable that a member should be penalised, and in effect lose wages in the form of employer contributions, due to events that are out of their control. The Society of Pension Professionals has also said that it will be necessary to ensure that the period of effect of a pause order cannot start before the trustees receive notification of the pause order. That would mean that any contravention could occur only after the trustees are in receipt of the order. The society argues that without that notification, the trustees could be in breach of a pause order through no fault of their own if a direction is not complied with during the period between the date the regulator makes the order and the date the regulator notifies the trustees of it. That could happen, for example, if new members joined the scheme in that period contrary to a direction under clause 32(5)(a). The Government should clarify whether they intend to take action to protect savers.
Richard Harrington
Mr Rosindell, before we end our debates on this clause, I would like to make a point of clarification regarding an error on my part. In previous sittings, when I was referring to the regulations generally, I said that they are subject to the affirmative procedure. However, I made a mistake in referring to clause 28 in that context, because the negative procedure applies there. I apologise for that. Obviously, it was not done on purpose. I hope that Members will forgive me.
Regarding the amendment itself, I have adequately covered the points that have been raised, and I reiterate the Government’s position that we reject the amendment.
Alex Cunningham
It is quite heartening in some ways that we can all make mistakes.
The Minister has talked several times during his response to the amendment about the short period that the pause order will probably apply. I remind him again that that period could be six months, during which a scheme member may not receive their income.
Richard Harrington
I reiterate that that is a maximum period. There will be very few cases of this type and the regulator will be on it every minute of every day; it is not the case that it will be forgotten about for five months and then dealt with in the final month. It is for the Government and the regulator to put in a long stop and to answer the questions, “What if this happens? What if that happens?” and so on. However, I am absolutely certain that if we were to be in front of a Committee such as this one in years to come, I would be amazed if the process took anything like six months.
Alex Cunningham
I certainly understand the Minister’s point of view, but in the event of one of the large master trusts failing—perhaps one that has a million members—in 10 years’ time, a considerable amount of could pass before any resolution could be found. For that reason, we must take some action in this area.
The Minister also said that the regulator needs flexibility. Well, that does not offer any financial flexibility to the scheme member. The hon. Member for Ross, Skye and Lochaber—I nearly messed up as well and I should not mess up that constituency name, should I?—repeated the point I made in my original speech. If the pot is protected and is safe, why on earth can the benefits not still be paid out to the member in these circumstances? The Minister spoke about checks and balances, but checks and balances do not deliver income for the person who depends very specifically on what is probably a small amount of income. I have talked about the impact that that could have on the social security system.
Therefore, because resolution could take up to six months and it could be a major master trust that is affected, with the impact felt by many people, I intend to press the amendment.
Richard Harrington
It is absolutely true that the pause order can be extended, but the regulator closely supervises the scheme in this period. If the hon. Gentleman accepts that the role of the regulator in this matter is, in effect, to take it over, it is very hard to envisage this taking longer and longer. I certainly cannot see it happening with no one even bothering to communicate with the members, even in the case of a disaster happening, such as the hon. Gentleman mentioned, which I obviously do not think will happen, to the administrators of such a scheme. We have given the matter considerable thought and I ask him to withdraw his amendment.
Richard Harrington
Clause 34 provides for a prohibition relating to member charges during a triggering event period. Trustees must not increase charges above the level set out in the implementation strategy, introduce new charges on members or impose charges as a consequence of a member leaving or deciding to leave the scheme during a triggering period.
Regulations under clause 34 will set out how the charge levels in the implementation strategy are to be calculated. The Government intend that those levels will reflect what members paid towards the normal running of the scheme before the event happened. The charge levels will be calculated by looking back at previous charges in the scheme, and controls will be built in to protect against cases in which schemes increase charges shortly before a triggering event, so a scheme would not be able to get away with that one before the extra scrutiny.
The effect of these measures is that members will not pay any more during a triggering event period than when the scheme was operating normally. That will protect the members; even though a scheme itself is likely to incur additional costs, the money to pay them will not come from members’ pension pots. I hope that everyone will agree that that is most important. It will preserve the value of members’ rights during a triggering event.
The clause also restricts the charges that can be imposed by a master trust, proposed by trustees or employers, to receive members under the continuity option 1. Such a receiving scheme—a new scheme—will be prevented from increasing charges above the levels set out in a statement that it will give the regulator before the transfer happens, or from imposing new charges to meet the costs incurred by the transferring scheme. That means that members can join another scheme and continue to save in another pension without their pot being depleted to pay for costs incurred as a result of that happening. The clause keeps normality of charges and prevents schemes from taking advantage of a triggering event, and protect members’ pots and maintains their value.
Alex Cunningham
I wish to ask a couple of question on clause 34 as I again return to the theme of transparency. The Minister outlined the purpose of the clause, and we welcome the protection of members from administration charges beyond those set out in the implementation strategy during a triggering event period. The clause makes clear the responsibilities of both trusts transferring members out and those receiving them.
The Minister listened carefully to my previous contributions on costs. With regard to this clause, I would like a better understanding of what those administration costs actually cover. Do they cover investment transactions, for example? Assuming that they do, will the Minister confirm that subsections (1)(c) and (2)(a) afford members protection from additional transaction costs as a result of the transfer of their funds out of a master trust and into a new one?
Richard Harrington
I thank the hon. Gentleman for his constructive comments. I can do no better than remind him of what I have already said: our whole purpose is to ensure that everything remains the same so far as all charges are concerned. He is right about the regulations and the devil being in the detail. That is precisely because we do not want the kinds of loopholes that could exist. If I may mix metaphors briefly, we do not want a chink of light that people can drive a coach and horses through. It is clear that—to be a bit pompous and draw on my O-level Latin from 1973—ceteris paribus, they have to remain as they were.
Question put and agreed to.
Clause 34, as amended, accordingly ordered to stand part of the Bill.
Clauses 35 to 38 ordered to stand part of the Bill.
Schedule 2 agreed to.
Clause 39 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 40
Interpretation of Part 1
Amendments made: 19, in clause 40, page 28, line 15, at end insert—
“‘pension scheme’ has the meaning given by section 1(5) of the Pension Schemes Act 1993;”.
This amendment defines “pension scheme” where it is used in Part 1 without further qualification. The definition in section 1(5) of the Pension Schemes Act 1993 catches both personal and occupational pension schemes.
Amendment 20, in clause 40, page 28, line 35, at end insert “, and—
‘(2A) The reference in section 11(3) to activities that relate directly to Master Trust schemes is, in its application to a Master Trust scheme which provides money purchase benefits in conjunction with other benefits, to be read as a reference to activities that relate directly to the scheme as a whole.’”.—(Richard Harrington.)
Where a Master Trust scheme is a “mixed benefits” scheme (providing money purchase benefits and other benefits), clause 1(2) provides for Part 1 to apply only to the “money purchase benefits” aspect of the scheme. This produces an unintended effect for clause 11(3), as it would require the scheme funder’s activities to relate only to the money purchase benefits aspect of each of the Master Trust schemes referred to which is a mixed benefit scheme. This amendment prevents that effect from arising, by saying that even for mixed benefit schemes, a “scheme” in clause 11(3) means the scheme as a whole.
Clause 40, as amended, ordered to stand part of the Bill.
Clause 41
Regulations modifying application of Part 1
Question proposed, That the clause stand part of the Bill.
Alex Cunningham
The clause allows the Secretary of State to adjust the range of pension schemes to which part 1 of the Bill applies, either to extend the regime or to disapply it in whole or in part. As it stands, the clause is an extraordinarily wide provision. This almost turns on its head the normal approach, which is to determine policy first and then to legislate. We accept the importance of having flexibility to deal with the changing models that an agile sector might bring forward, but in scrutinising this legislation we need to have the opportunity to test the boundaries of that flexibility.
It appears that we will not now get further details of the regulations before the Bill leaves the House, despite what the Constitution Committee has said to the Government. As I mentioned earlier, that is a real shame. I therefore have a few questions for the Minister. The Minister in the other place suggested that the clause would be used to disapply some or all of the provisions for a mixed-benefit master scheme. Given the amendments tabled in this place in relation to mixed-benefit schemes, can the Government outline how exactly this clause will be used? Which schemes will be carved out of the regulation, to borrow a phrase from the Minister?
I know that additional voluntary contributions and non-associated multi-employer schemes were raised in the other place, but can the Government also confirm whether they plan to carve out schemes on an individual scheme basis or exclude them on a broad scheme basis through the application of more general principles?
Richard Harrington
I thank the hon. Gentleman for his comments, which I will answer. The overall principle is to allow the flexibility that accepts that master trusts, which have grown tremendously over the past couple of years, do not fit into a one-size-fits-all formula. It is certainly not a case of saying this is the scheme’s rule; it is basically optional whether someone is in it or not, because it can be carved out. I know that the hon. Gentleman understands that and respects the principle. Again, it comes down to how it will be applied. We want to make it specific. We have had some useful consultations with master trusts and others on this subject. The regulations will give us the flexibility to ensure that we can deal with the existing situation and see what examples have been thrown up. More importantly, there will be the flexibility to change. The clause makes provisions to modify part 1 where it applies.
We have tried hard in a complex area to ensure that all relevant master trusts are in the scope of the authorisation regime. That is the point of the part of the Bill that we have been discussing up to now. As I have said, things change and the industry moves quickly. That is why we are calling for a type of flexibility that would not on the face of it seem necessary because the Bill regulates master trusts, which we all agree is the right thing to do—there is no question about that. The industry has shown that it is very flexible and can change. The provisions will be designed so that the regulations can be disapplied if they are not relevant. We intend to ensure that the whole system for authorisation, which we have discussed at length, applies in a proportionate way.
The scope of the power was discussed extensively in the other place. We have made it clear—this is the critical point, if the hon. Gentleman will bear with me—that we intend to continue discussions with the industry and also with the regulator to develop secondary legislation. It is not as though civil servants, however good they are, have sat in a room and just designed regulations. We have asked for time after the Bill to make sure they reflect the way in which the industry has developed. The passage of the Bill, from concept to now, could be near equivalent to the time that master trusts have grown in the first place. I hope that the hon. Gentleman will bear with me. We have indicated that we intend to consult on regulations under clause 41(1)(b) in relation to mixed master trust schemes, where the only money purchase benefits are those related to the additional voluntary contributions. It is technical and much of it is common sense, but it has to be done right, otherwise there will be unintended consequences of institutions and members of schemes being caught when it is perfectly well dealt with elsewhere. I know that the hon. Gentleman would not want that to happen.
Another example would be the provisions in clause 41 for regulations
“which provide for two or more pension schemes to be treated as a single Master Trust”.
Again, that is in certain circumstances. Those circumstances would be common control, common rules or schemes provided by the same service provider. It is easy to say that common sense will prevail, but we need the flexibility to ensure that the framework is there for those specific, albeit exceptional, cases.
I believe strongly in the clause and think it necessary that the significant regulatory powers included in it have the potential to alter the scope of the regime. Members will want to debate and approve the making of such regulations. That is why, as I have mentioned several times—albeit once incorrectly—that these are subject to the affirmative procedure; they will not be done on new year’s eve at five minutes to twelve without anybody noticing. The purpose is not to hide this from Parliament or anybody else, but to ensure that we get this important provision in the Bill absolutely right.
Question put and agreed to.
Clause 41 accordingly ordered to stand part of the Bill.
Clause 42
Power to override contract terms
Question proposed, That the clause stand part of the Bill.
Alex Cunningham
On Second Reading, the Secretary of State, in answer to the hon. Member for Tonbridge and Malling (Tom Tugendhat), nailed his colours to the mast on transparency and pension freedoms, not that we have seen much of the former displayed in recent days. He said:
“Transparency is a key area. Hidden costs and charges often erode savers’ pensions. We are committed to giving members sight of all the costs that affect their pension savings. He asks for more detail. We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system. Greater transparency is clearly one of the steps forward. I completely agree with him on that.”
I agree completely with the Secretary of State on that. He also said that he was determined
“to remove some of the barriers that might prevent people from accessing pension freedoms”.
He said:
“The Financial Conduct Authority and the Pensions Regulator indicate that significant numbers of people have pensions to which an early exit charge is applicable. The Bill amends the Pensions Act 2014 to allow us to make regulations to restrict charges or impose governance requirements on pension schemes. We intend to use that power alongside existing powers to make regulations to introduce a cap that will prevent early exit charges from creating a barrier for members of occupational pension schemes who are eligible to access their pension savings.”
We remain disappointed that this grand commitment to transparency has not yet found its way into the Bill, but we are reassured that the Government seek to protect scheme members from prohibitive costs and exit charges.
The Secretary of State said that he had consulted the industry on the issue.
“The measures proposed in the Bill have been developed in constructive consultation with the industry and other stakeholders, so we have confidence that they are proportionate to the specific risks in master trusts and will provide that necessary protection.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]
In the light of that statement, we seek assurance from the Minister that legislation proposed in subsection (2) allowing breach of contract in that way will not leave the Government open to challenge from the industry, something that would cause unnecessary upheaval for both schemes and members. With that in mind, will the Government tell us what consultation took place with providers and advisers and confirm that they are content that this part of the Bill is not open to challenge? If a legal case is brought against a master trust for breach of contract, is the Minister satisfied that it will have a defence under the clause?
Finally, what consideration have the Government given to the interests of members who, in the event of a legal challenge, will be unable to draw down money from their pots?
Richard Harrington
As hon. Members will be aware, what we are now discussing is not restricted only to master trusts; the rest of our discussions today have been. It is a bit of a change. We are now talking about all occupational pension schemes.
The clause will cap exit charges and member-borne commission, which is the sort of thing we all want. Like most of the measures in the Bill, it relates to what we all accept is a problem; in this case it is exit charges—where they come from, who pays them, how they are calculated and so on. The hon. Gentleman refers to protecting members, which I perfectly understand, but that is the point of the legislation. I say that in case anybody reading about the Bill in Hansard or elsewhere thought that the Opposition were trying to protect members and the Government were not. The intention of the Bill is to protect members. I have laboured that point—I hope that the hon. Gentleman will excuse the pun on his party’s name—because it is fundamental.
The clause amends the existing legislation—the Pensions Act 2014—to allow regulations to be made that enable a term of a relevant contract on charges to be overridden if that contract conflicts with a provision in those regulations. I emphasise that the power will allow for a contract to be overridden only if it conflicts with a provision in the regulations, which will ensure that relevant contracts are consistent with regulations and will provide certainty to the parties involved.
At this point it might be helpful if I clarified that the clause is distinct from previous clauses in the Bill that refer to charges, which all relate to the proposed master trust authorisation scheme. The discussions on charges and capping before now were specific, whereas this discussion is general. We intend to use the clause alongside existing powers in the 2014 Act to make regulations clearly to cap or ban early exit charges. Those charges are any administration charges paid by a member for leaving their pension scheme early when they are eligible to access pension freedoms, which in the past they would not have faced at their normal retiring date.
I mentioned early exit charges before in a different context. Cynical commentators might say that providers impose those charges to take advantage of a situation—a kind of last hurrah—because they know they are going to lose the value of a pension. The industry’s converse argument, which I have some sympathy with, is that they calculate the value of a pension over a period of years, and early exit means that value may then be x years minus 10. That is not a ridiculous argument, but the Bill makes it clear that the Government do not have much sympathy for it.
As has been mentioned, the Financial Conduct Authority will make rules to ensure that the cap or ban on early exit charges in personal and workplace pension schemes, which they regulate, will comes into effect on 31 March 2017. That has already been approved by Parliament through amendments to the Financial Services and Markets Act 2000, which broadly allows for a contract to be overridden. The consultations we undertook on early exit charges and member-borne commission showed that the charges generally arise in contracts between trustees or managers of certain occupational pension schemes and those who provide administration services to the scheme.
Our existing powers in schedule 18 to the Pensions Act 2014 enable us to make regulations that override any provision of a relevant scheme where it conflicts with a provision in those regulations. For example, we have used that power in relation to the appointment of service providers in the scheme administration regulations. The reason we are taking this new power is that the existing power does not extend to the contracts under which these charges arise. That is why clause 42 contains a power to allow the overriding of a term of a relevant contract that conflicts with a provision of the regulations under schedule 18. What is a relevant contract? It is defined as one between a trustee or a manager of a pension scheme and someone providing services to the scheme.
The regulations that we intend to make will apply to charges imposed from the date the regulations come into force, even where these arise under existing contracts. We expect the regulations to come into force in October this year, so it is not a long difference. It is a difference for legislation reasons, but on the scale of things it is not a lot.
Richard Harrington
If the hon. Gentleman would bear with me, I will answer the question asked by the hon. Member for Stockton North before giving way, unless it is really urgent.
Ian Blackford
My point is in relation to new clause 8, which I have tabled. I want to be clear that the Minister is saying that there will be no exit charges for anyone exiting a master trust, whether a new saver or someone who is currently in a master trust plan. If the answer is in the affirmative, I would be happy not to press new clause 8, because it would be superfluous.
Richard Harrington
I will come to that point in a minute, if I may first respond to the question from the hon. Member for Stockton North—I am not ignoring what the hon. Gentleman has just said, but I think that the answer will become apparent.
There was public consultation in 2015 that concluded in August. Since then we have had various discussions with providers and other industry bodies; we are really trying to get everyone involved. Again, we do not want to be unfair to one side or to create loopholes that should have been anticipated. I think that the hon. Member for Stockton North will accept that this area is complex.
Alex Cunningham
I appreciate the Minister’s answer to my question. I also asked for the Government to confirm that the people they have consulted are content that this part of the Bill is not open to legal challenge.
Richard Harrington
It is very hard to talk about legal challenge because the legal profession in the United Kingdom has provided that itself in many cases where legal challenge was not intended by the Government. All that I can say is that we do not expect legal challenge on this issue.
Legislation introduced to challenge capping contract schemes has already been passed, so it is creating parity. I hope that I am not misleading anyone by saying that we do not expect that. We have done our due diligence and no one thinks that there will be a legal challenge, but I am afraid that I cannot give the hon. Gentleman a categorical assurance, because that is what the legal system exists for. I am sure that very clever counsel might read this one day and think, “Ah, ha! I’ve thought of something.” There is nothing that we know of.
Alex Cunningham
With those considerable caveats, I assume the same applies to any legal case brought against a master trust for breach of contract and that they would have a defence under this clause.
Richard Harrington
If I may, I will answer the question from the hon. Member for Ross, Skye and Lochaber concerning new clause 8 and the point about no exit charges from a master trust. I confirm that when a master trust is closing the scheme cannot levy a charge for leaving. I believe that responds to his question, unless I misunderstood it.
Ian Blackford
No, I do not think it does. To be absolutely specific: in any circumstances of any exit of an individual from the master trust there would be no exit fee. If the Minister is responding to that statement in the affirmative, I would happily withdraw new clause 8, if that is permissible.
Richard Harrington
When the master trust is closing it cannot levy a charge. That is as clear as I can be. Perhaps we can discuss the point in more detail. I am not trying to mislead the hon. Gentleman and he knows that, I hope.
The pensions market is continuously evolving and modernising and that extends to charging practices. It may be necessary to alter the charges requirements at pace to reflect any changes in the pensions market that may disadvantage members. I revert to the point I made to the hon. Member for Stockton North: that is the purpose of the whole exercise; we are doing it for that reason. That is why we intend to consult on the draft regulations later this year. I am aware that people outside the House, and sometimes hon. Members, groan when a further consultation is announced, as though the Government are doing it to kick the can down the road. I can assure them that that is not the case. We intend to get it right and public consultation is very important.
The regulations would also be subject to parliamentary scrutiny, as I have explained, through the negative procedure. The Delegated Powers and Regulatory Reform Committee was content with that approach because it would allow future legislation to be amended quickly to provide the member protection that the hon. Gentleman and I both want.
Before I conclude on this clause, I will address the point made by the hon. Member for Ross, Skye and Lochaber. I have learned the name of his constituency now and look forward to visiting. He was satisfied by my answer to his earlier question but he wants to know what happens if the master trust is not closing. In that case, the normal exit charge protections apply; there is no difference. I believe that is a clear answer to his question.
Alex Cunningham
There is one area that the Minister has not addressed. As he said, we are all here to champion the member, but Opposition Members might just go a bit further in some of those protections. I did pose the question about elected members and what consideration the Government had given to the interests of members in the event of a legal challenge who would not be able to draw down their benefits.
Richard Harrington
I have already made it clear that the Government do not expect legal challenges. It is a bit of a circular argument but in the legislation the regulator exists to protect members, so I cannot accept his point on this matter.
Question put and agreed to.
Clause 42 accordingly ordered to stand part of the Bill.
Clauses 43 to 45 ordered to stand part of the Bill.
Clause 46
Short title
Amendment made: 21, in clause 46, page 31, line 3, leave out subsection (2)
This amendment removes the privilege amendment inserted by the Lords.—(Richard Harrington.)
Clause 46, as amended, ordered to stand part of the Bill.
New Clause 1
Membership of Master Trust Schemes: Member Trustees
‘(1) By a date to be set by the Secretary of State in regulations, approved Master Trust Schemes must ensure that at least half of the trustees of the scheme are Member Trustees.
(2) Member Trustees must be individuals who are—
(a) members of the Master trust scheme; and
(b) not members of senior management of a company that is enrolled in the Master Trust scheme.
(3) Member Trustees must be appointed by a process in which—
(a) any member of the scheme who meets the condition in subsection is to apply to be a Member Trustee;
(b) all the active members of the scheme, or an organisation which adequately represents the active members, are eligible to participate in the selection of the Member Trustees, and
(c) all the deferred members of the scheme, or an organisation which adequately represents the deferred members, are eligible to participate in the selection of the Member Trustees.
(4) Member Trustees should be given sufficient time off by their employer to fulfil their duties.
(5) For the purpose of this clause “senior management”, in relation to an organisation, means the persons who play significant roles in—
(a) the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or
(b) the actual managing or organising of the whole or a substantial part of those activities.’—(Alex Cunningham.)
This new clause ensures that where named individuals hold the position of Trustee in a Master Trust, at least half of those Trustees must be Member Trustees. “Member Trustees” are members of the trust themselves and must not hold a senior management position in an organisation which participates in the Trust.
Brought up, and read the First time.
Alex Cunningham
New clauses 1 and 6 take me back to my central theme for the Bill, which is putting members first by introducing member-nominated trustees and directors for master trusts, or member governance of their money. I remind the Committee that all the investment risk lies with the members and not with the sponsor or the provider; they should therefore have representation at the decision-making level.
The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees, or MNTs. If the scheme’s sole trustee is a company including the employer, rather than individuals, scheme members will have the right to nominate directors of that company, who will be member-nominated directors, or MNDs. In those circumstances, my references to MNTs apply equally to MNDs. Member-nominated trustees of pension schemes have been a part of UK pensions since the emergence of occupational pension plans in the middle of the last century.
Under the Pensions Act 1995, following the Goode report, a rule was introduced that a third of trustees had to be nominated, although companies could opt out of that rule. The Goode report came out of a series of scandals and corporate collapses in the late 1980s and early 1990s that led to losses to occupational pension funds. In particular, Robert Maxwell, the proprietor of the Mirror Group Newspapers, was subsequently exposed as having stolen millions of pounds from his employees’ pension schemes. In the Pensions Act 2004, the rule was made compulsory. The Secretary of State has the power to raise the threshold from one third to one half, and Labour is committed to implementing that. Many pension funds already have one half of trustees nominated, even though the law requires less.
Given the steady growth in numbers and the formalisation and establishment of member trustees in our pension system, the Association of Member Nominated Trustees emerged in September 2010 to provide support for member trustees. It is adamant that master trusts must be obliged to have member representation on their boards. It is no surprise that master trusts are lobbying against that, but they are mostly profit-making entities, so it is in their own best interest that they have member representation in order to win the confidence of scheme members.
After the Robert Maxwell scandal, the Government legislated to ensure member representation on pension scheme trust boards because they recognised that that would be a powerful way to prevent unscrupulous scheme sponsors from repeating Maxwell’s behaviour. That argument is no less relevant to master trusts. Defined-contribution schemes managed by master trusts owe fiduciary and other duties to their beneficiaries, and trustees are required to act in the best interests of their members. Trust-based schemes are subject to trust law and regulated largely by the Pensions Regulator. If the scheme’s sole trustee is a company rather than individuals, scheme members would have the right to nominate directors of that company.
Ensuring effective governance for pension schemes remains a challenge. While trust-based schemes benefit from a clear governing body in the form of the trustees, there is a clear absence of member-nominated trustees in the majority of master trusts. Improved governance must include MNTs, packaged with improved training and facility time to dedicate time to the job. Master trusts and independent governance committees lack scheme member input into the investment process, and they need an overhaul. Since the pot belongs to the member and the scheme-sponsoring employers bear no investment risk, there is an argument to be made that governance by scheme members should prevail in number terms over employers.
While some companies choose to operate a trust-based defined-contribution scheme, most new auto-enrolled members will not be saving into one; instead, the vast majority will be saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare. With one or two exceptions, we are not aware of any master trust or independent governance committee that has taken the step of putting in a member or finding a mechanism for electing members or appointing members to governance boards.
The benefits of member representation in the trust-based world have been examined. One benefit is the increased diversity that MNTs can bring. Having a member perspective adds diversity, and diversity prevents the risk of group-think within boards. That is because of a range of different member perspectives, experiences and areas of interest. It is also comforting for members to feel that they have some stake in the management and stewardship of a pension scheme. Ian Pittaway, chair of the Association of Professional Pension Trustees, said:
“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits or a death-in-service case or something like that. Every board I chair is enriched by having members on it and it would be a very sad day if we sat there with just professionals running the scheme in a very arm’s-length way.”
The AMNT’s 700 members are trustees of about 500 pension schemes with collective assets worth approximately £700 billion. It stated:
“We believe that member representation is crucial in the governance of Master Trusts. It will give greater assurance that these trusts operate, and are seen to operate, in the members’ interests and that the scheme members can have confidence in them. The importance of giving members representation on the trustee board has been borne out by research by The Pensions Regulator and Share Action, which demonstrate that diversity is a key benefit of the trustee model. This view is widely supported in the pensions industry.”
In the DB world, as long as a scheme was well governed and well administered, the member would end up with a reasonable replacement ratio. In the DC world, however, a member’s outcome depends on a host of factors that are beyond members’ control. Most members do not have a say in which scheme they are enrolled into, and even if they believe a scheme is not the best possible fit for them, they are unlikely to be able to transfer without losing their employer contributions. A worrying feature of the UK is that people who bear the risk are not freely able to exercise choice.
Better member representation could help to reassure members that they are enrolled in schemes that are well governed by boards that have their best interests at heart. That would also help solve the thorny issue of getting people to save more. The figures for auto-enrolment show low levels of contributions, and we need members to feel willing to increase their contributions.
Member representation may face some resistance. For a master trust with 20,000 clients and 900,000 members, running an election could be challenging. Some master trusts, however, have had success with elections. The Pensions Trust, which started life as a DB master trust but has now expanded into DC, has a board made up of 50% member-nominated trustees and 50% employer-nominated trustees. Those representatives are elected from the pool of companies that use the trust. The AMNT believes that employer support is necessary to enable member trustees to fulfil their roles with appropriate time off. There are clear issues with governance in both trust-based and contract-based DC workplace pensions. In the past the Office of Fair Trading has highlighted a lack of member engagement, along with higher charges and a lack of review, as the main challenges for the DC schemes. As auto-enrolment is extended to smaller employers, the need to address those challenges is becoming more pressing.
We need a clear route into better member representation. Most in the sector agree in principle that it can only be beneficial to the DC landscape. The Bill has nothing on a mandatory requirement for MNTs, but seems like a logical place in which to include them. To place an emphasis on member representation and perhaps change some of the barriers to an effective system, therefore, the Government should act now.
Some say that as larger master trusts cater for thousands of employees, the vast majority of them would not be represented on the trustee board. Others say that democracy is too expensive, but the scale of the master trusts should not be a barrier. USS, the universities superannuation scheme, has more than 250,000 members and nearly 400 employers. The plumbers and mechanical services (UK) industry pension scheme has more than 36,000 members and more than 400 employers. RPMI has more than 500,000 members and more than 100 employers. All those have member-nominated directors nominated by representatives of the members and pensioners of the schemes. If schemes on that scale can do it, so can master trusts.
Richard Harrington
I would like to make the point that, in the trustee system that has evolved, trustees have a duty to act in the best interests of all members, as the hon. Gentleman stated. I certainly agree that one of the strengths of the trust-based system for occupational pensions is that there are different sorts of trustees. I have been a trustee of a pension scheme myself, so I accept that argument.
The hon. Gentleman’s mention of Robert Maxwell and that scheme is very relevant to my life now, because many of my constituents in Watford call themselves the Maxwell pensioners. Most of the system of regulation, including this Bill, came about because of that and other examples.
I respectfully remind the hon. Gentleman that in many of the cases that the Pensions Regulator has dealt with, there have been plenty of member trustees, and they have been ignored, not listened to, not felt to be relevant or just bamboozled, so it is not a perfect system anyway. As he knows, the whole reason for the Bill is that master trusts, which are hugely complex, have evolved over a very short period in a very sophisticated way. They are not the same as individual trust-based pension schemes, which is why we need this extra legislation.
Alex Cunningham
I accept the Minister’s explanation that member trustees are being ignored, or that their views are simply being set aside, but I would suggest that is why we need proper procedures in place, whether for master trusts or other pension schemes, to ensure that member trustees are given the proper training and understanding and the time to do their job to the best of their ability, so that they are not ignored.
Richard Harrington
I agree. That relates to a general regulatory issue, as well as the specific ones we are talking about today. I remind the hon. Gentleman that master trusts are subject to scheme administration regulations, which require that schemes used by multiple employers must have three trustees. The majority of those trustees have to be independent of anyone who provides services to the scheme. We are not just saying, “Forget member trustees; they should all be representatives of the scheme.” All trustees, whoever they are, have got the same fiduciary duty to all members. I am sure that the hon. Gentleman is aware of that, but I think that is very relevant in resisting his new clauses. It is very important that all trustees know that, and I believe they do.
Although master trusts are exempt from the existing requirements for member-nominated trustees, they are subject to all other regulatory obligations. As I said, the scheme administration regulations ensure that the majority of trustees are non-affiliated trustees. The authorisation criteria in the Bill subject all trustees to a fit and proper person tests assessed by the regulator. Facts to be considered in that test include how the people running the scheme are connected with other companies or people.
The new clause appears very attractive on the surface, because it appears that it is just saying, “Members are great and can stop all bad things from happening. They need to be represented, and the way to do that is by making sure they are directors or trustees.” I would not want the hon. Gentleman to think that we are against member-nominated trustees, because we are not, or that we think that member-nominated directors are inappropriate in master trust schemes. He mentioned the universities superannuation scheme, which is very complex and sophisticated, and certain things work for it. I have met staff of that scheme. I believe that the Bill will address the points he made.
I hope that hon. Members are sufficiently reassured that we are ensuring that trustees act in the best interests of members. I have explained why the Government are of the view that the new clause is unnecessary, and I respectfully urge the hon. Gentleman to withdraw it.
Alex Cunningham
The Minister appeared to agree in part of his speech that member-nominated trustees are a good idea, even if he feels that in many cases their views have been ignored in the past. He has left me a little confused as to whether he supports member trustees, though certainly not in the context of master trusts. Well, I do, and I referred in my speech to organisations that also support the idea of empowering members and ensuring that they have the time and training to fulfil that role. Therefore, I will not withdraw the new clause and will press it to a vote.
Pension Schemes Bill [ Lords ] (Second sitting)
Lord Harrington of Watford Excerpts(7 years, 9 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
It is a pleasure to serve under your chairmanship today, Ms Buck. This morning seems a long time ago, but when we adjourned I had just risen to confirm to the hon. Member for Ross, Skye and Lochaber that members’ savings are not at risk. The hon. Member for Stockton North might have given the impression of mixing up members’ savings and the funders of the scheme. Though I am sure he knows this, I want to be clear. There are various protections around the savings invested—in trust law, in occupational pensions law and through the regulation of investment managers.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
It is a pleasure to serve under your chairmanship, Ms Buck. When the Minister rose at the end of this morning’s sitting, I had actually concluded, so I will now resume my seat.
Richard Harrington
The hon. Member for Stockton North made various points, and I would like to briefly rebut them. I have already made my first point, in response to the hon. Member for Ross, Skye and Lochaber. The Bill adds to the protections by prohibiting increased or additional charges that could be levied on members for the cost of winding up or transfer during a triggering event period, so members’ savings are safe. As was discussed extensively in the other place, the clause addresses the situation where the scheme does not have sufficient funds to pay for the transfer of accrued rights or the wind-up of the scheme during a triggering event period. The Bill provides that a master trust scheme must have resources available to pay for those costs.
The hon. Member for Stockton North asked me a clear question: how frequently will the Pensions Regulator monitor this? To be clear, the supervisory measures allowed for in clauses 14 to 20 state clearly that the regulator is under a duty to authorise these schemes. That is a new approach for the regulator, which will be working with all the master trusts, both before and after authorisation. The regulatory regime is therefore an active process, which rightly focuses the most attention on the highest risk schemes, while maintaining regular contact with all master trusts in the market. It is based on a case management approach, which is not random or ad hoc because it is underpinned by the existing reporting and regulatory framework and activities. Those in turn are strengthened by the new supervisory return and significant events negotiation requirements, which the hon. Gentleman will be familiar with.
The hon. Gentleman seemed to imply that the Government have not made any provision to pick up the pieces if a scheme fails. I maintain that that is not the case. The triggering event regime outlined in the Bill means that the regulator will be closely involved with how the scheme proceeds to resolve its difficulty or close—it has to do one of the two. The regulator already has powers that can be used to support a failing scheme. A good example is the power to appoint a trustee to get into a scheme and act as a trustee—so it can impose a trustee on a scheme and help to sort it out.
The hon. Gentleman also suggested that if the risk is so minimal, the clause does no harm as a back-up measure. He used the sledgehammer and nut analogy, which I think Lord Freud used in the House of Lords, so it is a cross-party analogy. If it is a nut, it might be a small nut, but what is going to happen to the nut? That is not said in a very Hansard-like way, but I think we know what it means. I would say that that underestimates the impact of having an unspecified government intervention of this nature.
Alex Cunningham (Stockton North) (Lab)
I accept the point the Minister is outlining, but the possibility remains. We know what our financial industries are like. We have seen failure after failure in pension schemes, in the markets and the banks. What happens in the event of a major fraud in a master trust and there is nobody left to pick up the pieces?
Richard Harrington
I will deal with that point a little later. First, let me explain why having unspecified Government intervention is not good.
First, such intervention gives rise to moral hazard. Elsewhere in pensions and regulatory regimes where lifeboats exist, there are measures against moral hazard. We do not want a situation where people can be reckless because they know they can rely on the Government, and setting up ways to get out of their obligations because they know that the Government will pick up the pieces.
Alex Cunningham
The Minister has used the word “unspecified” several times, but he has the opportunity in regulations to consult the industry on how it would set up a funder of last resort. That is what we want. We do not expect him to say, “Right, the Government will underwrite this.” We are saying that there should be a consultation exercise to ensure that a funder of last resort can be put in place so that this very small nut that needs to be cracked can be dealt with.
Richard Harrington
I apologise if I put words into the hon. Gentleman’s mouth. It is currently unspecified; I agree it could be specified with compensation. The core point and, excuse the pun, the kernel of the nut is that it would still be a Government scheme, with moral hazard.
Secondly, the hon. Gentleman has probably heard significant players in the master trust industry voice serious concerns to us about clause 9. They believe that it could give rise to a rush to exit the market by otherwise successful schemes thinking, for example, that, not unusually in this field, they would have to pay a significant levy over not very much. The hon. Gentleman’s points are all valid in their way but Government have to make a judgment. That is why there is a respectable disagreement over clause 9. We have all thought about it carefully.
I believe the Bill strikes a delicate balance between prevention and self-regulation and Government intervention —something that is very hard to do. The clause would disrupt that balance and confuse the regulatory approach. I do not believe that it is a harmless catch-all. I accept the point, as shown by the banking crisis, Equitable Life and other incidents, that such things happen—I would not say it was because it was a Labour Government during the banking crisis or another Government with Equitable Life that those issues arose. It is not possible to give absolute guarantees, but we can reduce risk to the lowest possible level and that is what the Bill aims to do.
In our view, the risk level is already very low for this type of master trust scheme. That is backed up by the Pensions Regulator’s current information about the very small number of schemes that are in trouble. That will be published but is not quite ready. To create a Government-backed scheme would perversely create a moral hazard, as I have explained.
Ian Blackford
I am trying to find a helpful way out of this because I can understand why there is a disagreement. We can all accept that the risk we are talking about is to the master trust itself, not to the underlying assets; that is understood. I can understand the Government’s position on giving a commitment to this, but might there not be another approach? The Pensions Regulator would take the responsibility after a triggering event and it would have the power to step in. We have the power for the regulator to appoint a trustee; perhaps the regulator might have powers in extreme cases to intervene in the short term to ensure that there is a smooth transition. I know that is not directly within the clause but there might be another way to effect this where we can give guarantees.
Richard Harrington
I thank the hon. Gentleman for his positive intervention. The regulator has a huge number of powers, and the Bill gives a lot of powers that I think would prevent the problem he is talking about.
The hon. Member for Stockton North is forgetting— I understand why—the general rule that the fraud compensation scheme, which applies in many fields, does and will apply to master trusts. I therefore reject his point about fraud. I am not saying fraud could not happen, but there is already a mechanism in place to deal with that.
In our view, therefore, the risk level is already very low. We are against creating a Government-backed scheme because we think it would create a moral hazard. Schemes are currently working to ensure their systems are robust and we do not want them to feel comfortable that there is an entity that will always bail them out. That would not give comfort to scheme members. Indeed, for the Government to say we feel the risk is large enough to warrant a funder of last resort would create uncertainty—in effect, creating the very problem that the Opposition honourably are saying they are trying to avoid.
Question put, That the clause stand part of the Bill.
Richard Harrington
Clause 10 requires the scheme strategist of a master trust to prepare and maintain a scheme business plan as part of the financial sustainability criterion that I mentioned. Through the business plan, the regulator will be able to monitor the adequacy of the financial resources available to the scheme. The plan is submitted to the Pensions Regulator with the application for authorisation, and is thereafter reviewed and, if appropriate, revised annually and following any significant change, in agreement with the key parties involved in operating the scheme. The clause also contains a power that enables the Secretary of State to prescribe further detailed requirements in regulations.
The scheme strategist is the person responsible for making business decisions relating to the commercial activities of the scheme and is therefore best placed, we believe, to prepare and maintain the business plan. In some cases, they may also be the scheme funder or a trustee. The scheme’s future viability may depend on its success in competing with other providers. In the early days, as with the setting up of a business, it is likely to pay out more in expenses than it generates in income, so it needs to plan how it will meet those costs and satisfy the regulator.
The business plan will mitigate the risk of a master trust failing because of inadequate financing or planning. It will be one of the main sources of information on which the regulator will base its assessment of the scheme’s financial sustainability. For instance, it will provide key information on the reasonableness of the assumptions underpinning the scheme’s business strategy; the adequacy of the financial resources available; and the adequacy and security of the financial resources required to cover the costs that would arise in the event of scheme failure, such as winding-up costs and the cost of securing the transfer of members to another scheme without increasing the administration charge to members.
The detailed requirements will be set out in secondary legislation. That will enable the Secretary of State to consult the regulator and other key stakeholders to ensure that the business plan contains relevant information and also builds on best practice. The plan and any supporting information or documents must be submitted by the scheme strategists together with the application for authorisation and, thereafter, within three months of any revisions or changes and at the regulator’s request. Many master trusts have business plans in place to provide that kind of information. They are intended to support risk-focused financial supervision, so that the regulator can identify and intervene in schemes that are at risk as a result of inadequate financial planning. I urge that clause 10 should stand part of the Bill.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Scheme funder requirements
Richard Harrington
I beg to move amendment 3, in clause 11, page 7, line 7, leave out subsections (2) and (3) and insert—
“(2) The first requirement is that the scheme funder is a body corporate or a partnership that is a legal person under the law by which it governed.
(3) The second requirement is that the scheme funder only carries out activities that relate directly to Master Trust schemes in relation to which it is a scheme funder or prospective scheme funder.
(3A) The Secretary of State may make regulations providing for exceptions from the second requirement.
(3B) The regulations may include provision excepting a scheme funder from the second requirement—
(a) where the scheme funder meets additional requirements specified in the regulations (such as requirements relating to a scheme funder’s financial position, its financial arrangements with the Master Trust scheme in question or its business activities);
(b) where the scheme funder applies to the Regulator and provides the Regulator with information specified in the regulations, or such other information as the Regulator may require in order to satisfy the Regulator that the Master Trust scheme is financially sustainable.”.
This amendment gives a power to the Secretary of State to make regulations providing for exceptions to the requirement that a scheme funder must only carry out activities directly relating to the Master Trust scheme (or schemes) for which it is a scheme funder.
The Chair
With this it will be convenient to discuss the following:
Amendment 26, in clause 11, page 7, line 7, at end insert—
“(i) This should not apply to insurance companies regulated by the Financial Conduct Authority”.
This amendment would not require Master Trusts to be separate legal entities from any business where that business is regulation by the Financial Conduct Authority.
Amendment 34, in clause 11, page 7, line 11, leave out subsection (b) and insert—
“(b) either the only activities carried out by the body corporate or partnership are activities that relate directly to the Master Trust scheme, or if the body corporate or partnership carries out activities other than those defined as “restricted activities”.”
This amendment allows for exceptions to the requirement that a scheme funder must only carry out activities directly relating to the Master Trust Scheme for which it is a Scheme Funder.
Government amendment 4.
Amendment 35, in clause 11, page 7, line 21, at end insert—
“(7) The Secretary of State may by regulation define “restricted activities”, these regulations must set out activities that a scheme funder cannot engage in to minimise risk of losses or liabilities which might deplete or divert its financial resources.”
This amendment makes provision for the Secretary of State to define “restricted activities” by regulation, including a list of specific activities restricted, in order minimise risk of loss by Master Trust Scheme Funders.
Richard Harrington
Clause 11 requires a scheme funder to be a legal person who carries out only activities that directly relate to the master trust. The policy intention is to ensure that the financial position of scheme funders, and their financial arrangements with master trusts, are transparent and clear to the regulator. That will enable the regulator to make an assessment of the scheme’s financial sustainability when deciding whether to authorise the master trust, and will support the regulator’s ongoing financial supervision of the scheme, post-authorisation.
In debate in the other place, and in representations received from stakeholders, the concern was raised that the scheme funder requirements would lead to costly corporate restructuring and so might undermine the supporting of master trusts through the other lines of business that some master trust providers carry out. The Government amendments would make two changes to the scheme funder requirements in clause 11 that we believe address this issue. The first would allow an entity to be a scheme funder and, therefore, carry out activities in relation to more than one master trust, and also carry out activities, such as due diligence, where it is considering becoming the scheme funder of a new master trust scheme. The second would provide a power for the Secretary of State to create exceptions to the requirement for the scheme funder’s activities to be limited to the master trust. Scheme funders who meet the requirements that are to be prescribed in regulations will be able to carry out activities unrelated to master trusts—for example, providing shared services to other schemes.
We hope that this easement will minimise disruption to existing corporate structures and shared service arrangements. In addition, enabling scheme funders to carry out activities in relation to more than one master trust may facilitate consolidation in the market by making it easier for a scheme funder to rescue a failing master trust.
The first regulations made under the power under clause 11(3A) are to be subject to the affirmative procedure; subsequent regulations will be subject to the negative procedure. That is obviously to provide the necessary scrutiny in the first instance after the consultation. Given the importance of scheme funders to the financial sustainability of master trusts, and the potential impact on scheme funders of the requirements in clause 11, we recognise that the regulations first exercising the power to set out exceptions to the requirement should be subject to parliamentary scrutiny and debate.
Ian Blackford
The Minister’s amendment of 31 January —Government amendment 3—gives the Secretary of State power to make regulations providing for exceptions to the requirement that a scheme funder must carry out only activities directly relating to the master trust. We do not know what conditions will attach to the exceptions, or even if the Secretary of State will exercise that power. An indication of the Government’s intentions would be helpful. However, the indication that there will be some discretion is positive. I would welcome clarification from the Government on how and when the regulatory powers outlined in the amendment will apply, and in what circumstances they might be used.
Will the Government confirm whether they plan to consult with the insurance industry before defining “information” and “additional requirements”? Zurich has said that the approach taken by the shadow Pensions Minister in amendment 26 and the SNP’s amendment give greater certainty, which would be preferable. As far as Labour’s amendment 26 is concerned, we share the concerns about the unnecessary duplication of requirements for insurers, which already operate under stringent regulatory standards. Our amendments 34 and 35 would have a similar effect to amendment 26, as they state that the requirement need not apply to firms whose activities are already restricted by virtue of existing regulation.
The Prudential Regulation Authority’s rules mean that insurers’ activities are restricted. This will mean that the activities of the scheme funder not directly related to the master trust are transparent and do not threaten the solvency and sustainability of the master trust. Amendment 35 makes provision for the Secretary of State to define “restricted activities” in regulations, including through a list of specific activities restricted in order to minimise risk of loss by master trust scheme funders.
Richard Harrington
This is a very good and laudable example of Government and Opposition Members trying to achieve the same objective. I have already heard many of the arguments used today by the Opposition; the Association of British Insurers and others have made similar arguments. As I have often said before, this is not black and white. It is not as though one argument makes absolute sense and the other is absolutely stupid; that is not the case at all. The argument is legitimate. We have had to think about this following representations, and following the Lords debate. However, I do not think that the amendments would achieve the level of transparency needed for the regulator’s financial assessment of the scheme.
Amendment 26 would disapply the requirement on an FCA-regulated insurance company that is also a scheme funder of the trust to set up a legal entity. The amendment would hamper the regulator’s assessment of the final sustainability of the scheme. The matters overseen by the FCA in relation to the prudential and financial conduct of the insurance provider are not the only aim behind the clause; they are aims, but not the only aims, and are not the only aspect that the regulator needs to take into account in the assessment.
The hon. Member for Stockton North asked me to clarify quite a few points. He asked whether the FCA-regulated companies will be exempt. They will be exempt if they meet the prescribed requirements in the regulations. He asked how we will get to the regulations. We will consult on them; we are not simply going to make them up. They are not something that the Secretary of State will dream up in his office. I promise that they will be comprehensive. The intent is to ensure that there is no duplication of regulation; that is why we have created the extra flexibility of the Secretary of State’s discretion.
Alex Cunningham
I beg to move amendment 27, in clause 12, page 7, line 43, at end insert—
“() A minimum requirement of annual reporting of administration, fund management costs and transaction costs for each asset class, drawdown product and for active and passive asset management strategies.”.
This amendment would introduce annual reporting requirements for Master Trusts.
In his speech to the TUC last week, the Minister spoke about the consensus there may be in Parliament about pensions policy. In some areas, he is right, but he and I know that we are in very different positions on matters such as the future of the state pension and how it can be applied to different people in different circumstances—the Women Against State Pension Inequality Campaign has been mentioned in that context. One area where the Minister and I agree and which affects the Bill and clause 12 is the need for maximum transparency in the pensions market, revealing to members of pension schemes, including master trusts, exactly what fees they are being charged and for what. In his speech to the TUC, the Minister said:
“We have to get transparency. It’s not an option to do nothing. I’d like to thank the many people in this room that have worked for it.”
The amendment would give the Minister and his Government the opportunity to demonstrate that consensus does exist, to prove their credentials on transparency and to ensure that members of master trusts have access to an annual report of administration, fund management costs and transaction costs, so that they can see exactly how the fees are broken down and what they are actually paying for. It would also help to satisfy the Financial Conduct Authority’s desire to reveal all costs, which it believes will result in competition and potentially better performance for members.
No Member of this House would go into a marketplace to buy anything without seeing the cost clearly displayed, whether that be a large white goods item or just a new shirt or blouse. Similarly, we must ensure that each member who is auto-enrolled into a master trust can establish what each investment choice and drawdown product costs. Anything short of that betrays millions of citizens. We have a duty to ensure that a reporting line is opened between the master trust and its members if we are to achieve what Opposition Members and, I believe, the Minister want to achieve.
I know there may be some resistance from those in the industry to some of those ideas, even though most have tried to convince me over the past few months that I have been shadow Pensions Minister that they are open to greater transparency, are trying to deliver on it and will do so much better in the coming months. However, I think we need to help them by laying down a marker in the Bill that will set a standard of the Government’s expectation.
In the upper Chamber debate, Lord Freud said
“We clearly need to ensure that trustees of occupational schemes and the independent governance committees of workplace personal pension providers have complete, consistent and standardised cost and charges information before they can report it to members; at this point, they do not… We want pension scheme members to have sight of all ?costs and charges, regardless of how they are incurred, and to give members the confidence that there are no other hidden costs and charges.”—[Official Report, House of Lords, 19 December 2016; Vol. 777, c. 1527.]
There is that consensus again. I could not have put it better myself, although the noble Lord could have done more to make it a reality in the Bill.
Rather than wait for the final outcome of the consultation exercise on pension fund cost collection promised by the Secretary of State, the amendment would being master trusts into line with those in the Netherlands, where there is a statutory requirement for trustees to report to their members on three cost headings: administration, investment management and transactions. We need data that enable clear analysis of costs incurred and can be applied ex post to the gross returns delivered by workplace pensions. Then we can get to the real gross return that has been generated on the assets and assess how much of that real gross return has slipped from the saver to the financial services sector. By understanding that slippage in its entirety, we can begin to understand what money has been paid for whatever value has been generated.
Some good things are already happening in the pensions world, but much more needs to be done to progress the transparency agenda. The only area of asset management that is ready to be analysed is the funds used by the local government pension scheme. They are about to be analysed by the scheme advisory board, to ensure they are delivering best value for sponsors and members alike. The architecture to get the data, analyse it and present it is being discussed with a view to being built, and will form a platform from which other projects, including the value-for-money analysis needed for all workplace pensions, can be delivered.
I believe the Minister is a fan of this work too, so I hope that he and his Government recognise that the easiest and most efficient way to ensure that data for master trusts are collected is to adopt the LGPS cost template. After all, it has been sanctioned by the Department for Communities and Local Government and the data points agreed with Investment Association members, who in the main will be the same suppliers of asset management to the LGPS.
What an opportunity we have before us to herald the day that every person auto-enrolled into a master trust is given the opportunity to understand what pension system they are going into, how much it costs and how much they will get—even if in a defined-contribution scheme that is more estimation than fact. To do otherwise than give them that advantage is a clear breach of fiduciary duty owed to scheme members. We are all aware that the average size of a pot for a person in a master trust is very small, but the principle of driving best value is probably all the more important.
I asked for a simple example of what changes in costs could mean for a member of a pension scheme, and the Unison guide—perhaps I should declare that I am a member of Unison—to defined-contribution costs provided the following example. A total annual contribution of £10,000 might be made up of £4,000 of personal contribution, £4,000 of matched contribution by the corporate sponsor and £2,000 of tax top-up. If we make that level of contribution constant over 40 years, use a 5% gross performance figure, which is the market rate of return over the longer term, and vary the costs of the industry from 0% to 2%, then at nil percentage cost the final size of the pension pot is £1,268,000. At 0.75% costs, the final size of the pension pot is £1,051,000. At 2% costs, the final size of the pension pot is £777,000. That is a huge difference.
The FCA’s “Asset Management Market Study Interim Report” said:
“The evidence suggests there is weak price competition in a number of areas of the asset management industry. This has a material impact on the investment returns of investors through their payments for asset management services.”
The example I just gave probably demonstrates that. One of the FCA’s conclusions was that there should be a requirement for increased transparency and standardisation of costs and charges information for institutional investors. The Minister’s affirmative one-word answer to my question on the Floor of the House about whether the Government had agreed to implement the FCA’s recommendations in full was very welcome. Today, we have the opportunity to deliver in part some of what is desired through the Bill.
It is a fundamental market failure that no pension fund can currently understand its cost basis. It follows that if there is no understanding of costs, the investment strategy cannot be fully evaluated. Members cannot make the accurate choices needed to improve their investment performance without that knowledge. If a member is incurring costs above 0.75%, we know that will have a considerable impact on the value of pension pots both in accumulation and in decumulation. That is why we must ensure that reporting to members includes the accumulation and drawdown phases.
Since the Government introduced the drawdown option in their new pension freedoms, all the attention has been on whether members will be wise with their money. No real attention has been paid to the costs associated with the option, and probably even less attention to the potential long-term effects of a decision to access a lump sum at a much earlier stage in a person’s life. The aim is to keep options open and increase income through investment growth, but if investments do not go the way the member would hope, or if their pension pot is depleted by opaque charges, the income will be reduced all the more in the longer term. The risk and the responsibility rest with the member. Charges for ongoing administration and investment management will be deducted from their account, which is all the more reason transparency and low charges are important. Members of this House should therefore see that the efficient management of members’ funds is critical in ensuring that we do not create a pension crisis that our citizens are forced to endure in their retirement.
I will turn to the FCA’s excellent interim report in a bit more detail. The UK’s asset management industry is massive: it manages £6.9 trillion of assets. I am not sure whether a trillion is a billion billions? I think it is a billion billions.
Richard Harrington
I am not an expert, but I think it is different in the United States from here—like most things.
Alex Cunningham
The Minister tempts me, but I will move on. The UK’s asset management industry manages more than £1 trillion for individual investors in the UK and £3 trillion on behalf of UK pension funds and other institutional investors that is invested by that management industry. The service offered to investors comprises a search for return, risk management and administration, although it is the investor who bears virtually all the risk.
More than three quarters of UK households with occupational or personal pensions use such services, including the more than 10.2 million people saving for their retirement through pension schemes. Very few of us are not touched by this sector, although most people have probably never heard of it; more important, they will have little idea how much of their hard-earned cash goes into the industry. The FCA’s report confirms that asset management firms
“have consistently earned substantial profits…with an average profit of 36%. These margins are even higher if the profit sharing element of staff remuneration is included.”
Ian Blackford
I will be brief. I want to pick up that issue of active versus passive fund management, because if anyone thinks that an active fund manager will not have higher costs than a passive fund manager, I am afraid that they have betrayed that they know nothing about the fund management industry. Put simply, anyone engaged in active fund management will have to deploy research and fund management skills; someone investing as a passive fund manager is exactly that, a passive fund manager.
Richard Harrington
Itching though I am to rebut some of the general points on transparency, I will do my best to stick to the amendment. As a point of clarification, however, the bit of the FCA review that the hon. Members for Stockton North and for Ross, Skye and Lochaber mentioned in fact makes the point not that active fund managers have more costs, but that over a period of time there is not much difference in returns. That is a totally different matter, but I think that was the point intended—I, too, read the report.
A final matter, given your instructions, Ms Buck, is to point out to the Committee that 1 trillion is 1 million million. A keen if somewhat nerdish Government Member—I am not sure who—came up with that information, of which I was not aware. I hope that the Opposition spokesperson will at least look at Hansard to see what 1 trillion is, since he missed all that.
I will not rebut the general transparency point, although I am itching to do so. However, I confirm to the Committee that I do in fact read The Guardian. That was the allegation made by the hon. Member for Stockton North. I will, however, refer only to the transparency bit of the amendment.
The amendment would insert a new subsection making it clear that regulations about the processes used to run the scheme may include a provision regarding a minimum requirement of annual reporting of administration, fund management and transaction costs. On the face of it, that takes into consideration a lot of the transparency points made by the Investment Association one way and the various lobby groups to which we have all spoken the other way—as the hon. Gentleman mentioned. The Government are taking action on that. The FCA report is an interim one and lots of things are in process. I am committed to transparency, but the question is what is relevant to the Bill.
The objective of the clause is to ensure that schemes are run effectively. It contains powers to make regulations that will specify what aspects of the scheme’s systems and processes the regulator must take into account in deciding whether they are sufficient to ensure that the scheme is run effectively. Examples of what such regulations may cover are listed in the Bill. The list already includes processes relating to transactions and investment decisions. We have been clear that the examples given are not exhaustive and that regulations may include other matters relevant to systems and processes. A guiding principle in setting the scope for the authorisation regime has been ensuring that master trust regulation is proportionate.
I should point out that existing legislative requirements already require trustees of occupational pension schemes offering money purchase benefits, including master trust schemes, to make an annual statement. The hon. Gentleman did not mention that: they are already required to make an annual statement regarding governance, which is known as the chair’s statement. It is appended to the scheme’s annual report and accounts.
The Government have an obligation under section 113 of the Pension Schemes Act 1993, as amended, to make regulations requiring transaction costs and administration charges of money purchase schemes to be published. We intend to consult, because the subject is very complex, and we are not, as the hon. Gentleman asserted, kicking it down the line. It is not that the Department for Work and Pensions does not want to do it. We intend to consult this year about how this information is published and proactively reported to pension scheme members.
Alex Cunningham
The challenge from the hon. Member for Ross, Skye and Lochaber is one I need to take back to those who advise me, to get an even greater understanding. I thought we would hear a few words of support from him on transparency, on which the Minister and I certainly agree.
I appreciate the Minister’s response. As he says, this is quite complex. I do not believe for one minute that the Government do not want to carry out the consultation exercise, but people out there in the industry are very keen that the Government get on with this, as are members. Members are keen to understand the costs and what they will be told about what their investments are costing them. I will reflect on the Minister’s answers in full, but in the light of what he said, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
Clause 13
Continuity strategy requirement
Question proposed, That the clause stand part of the Bill.
Richard Harrington
As I explained, there are criteria that a master trust must meet to be authorised by the regulator, one of which is that the scheme has an adequate continuity strategy. The clause sets out the requirements for that continuity strategy. It must set out how the interests of scheme members will be protected if the scheme experiences a triggering event—that is, an event that could put the scheme’s future at risk.
The aim behind the clause and the related measures is to ensure continuity of pension saving for the members of the scheme when that scheme experiences an event that could put its future at risk. That also benefits employers using the scheme, particularly those using it to meet their automatic enrolment legal obligations. An adequate continuity strategy would demonstrate that careful consideration had been given to what the scheme would do if it were at risk of failing. That should make the closure of master trusts more orderly and managed, which is good for members and employers. We all agree that chaotic and unplanned closures would likely be detrimental to them.
The reasons for and circumstances that could lead to a master trust failing may be different from more traditional occupational schemes. The risks for members and employers are different. That is of particular significance because master trusts tend to have a relatively high number of employers and members, and therefore tend to be less engaged than when an employer has a single scheme for their own employees.
That means that winding up a master trust may involve a lot of work and take a lot of time, and be complicated, difficult and expensive. Regulations under the clause will set out what the strategy should include and what actions the scheme will take to manage and protect the assets. The Government believe it essential that master trusts have adequate continuity strategies.
Nigel Mills (Amber Valley) (Con)
I have a quick question. Subsection (9) says that the strategy must be sent to the regulator within three months of being revised. Given that that must mean the strategy has been revised and finalised, why would we not want the regulator to get sight of it much quicker, in case there is something in it we are concerned about?
Richard Harrington
I believe the three months was reached after discussion with the regulator, taking the worst case into consideration. That is a long stop—it would generally be quicker than that—but it came out of discussions with the regulator.
We believe it is essential that master trusts have those continuity strategies and I hope clause 13 will stand part of the Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
List of authorised schemes
Question proposed, That the clause stand part of the Bill.
Richard Harrington
I am confused. I am proposing that clauses 14 to 20 stand part. Is that correct?
Richard Harrington
I am sorry, I just wanted to make sure. I thought that was the case.
The clauses make provision for a new supervisory regime for master trust schemes. One of the great strengths of the authorisation regime is that its requirements are ongoing. An authorised master trust will have to ensure that the Pensions Regulator remains satisfied, and is not just satisfied at the beginning, that it continues to meet the authorisation criteria to continue operating in the market. The clauses ensure that the regulator receives and can request the information it will need to be satisfied that the authorised schemes continue to meet the authorisation criteria, and it can withdraw the authorisation if that ceases to be the case. I believe they are very sensible clauses.
Clause 14 requires the regulator to maintain and publish a list of authorised master trust schemes. This provision will help employers looking for a scheme for automatic enrolment purposes and ensure that there is transparency about which master trusts have achieved authorisation. Clause 15 requires the trustees and scheme funders of authorised master trusts to send the scheme accounts and the scheme funder’s annual accounts to the regulator annually. This information is necessary for the regulator’s ongoing financial supervision of the scheme. We believe that it will play a key role in the regulator’s consideration of the reasonableness and accuracy of the estimates set out in the business plan, which I mentioned before, and about the running costs, sources of income and profit and loss in relation to the master trust’s activities.
The clause will also require each master trust scheme funder to provide its accounts to the regulator on an annual basis. Those accounts are also required as part of the authorisation application at the beginning, but the clause ensures that they have to do it on an ongoing basis. Taken together, that will enable the regulator to risk-assess the solvency of scheme funders and the strength and enforceability of their commitment to providing funds for the master trust.
Nigel Mills
I have another boring techie question, I am afraid. The clause specifies that the scheme funder’s accounts must be provided within nine months of the end of the financial year, but for the actual master trust scheme accounts it says
“no later than two months after they are obtained by the trustees.”
Is there some other provision that creates a backstop date when the trustees have to get those accounts or could we be waiting, in theory, forever to get the actual accounts for the scheme? I guess there must be a provision somewhere.
Richard Harrington
If I may, I will return to that point. I am a little confused by it, although I am not saying that my hon. Friend is trying to confuse me. If I may, I will continue in full flow and will do my best to answer it by the end of my comments or apologise to him.
The measure will enable the regulator’s assessment of the financial sustainability of the master trust to take that information into account, to the extent that it effects the financial position of the scheme. The combination of the information from the scheme accounts, the scheme funder’s accounts, the business plan and supporting documents will support the regulator’s ongoing financial supervision of a master trust.
Clause 16 provides that the regulator may, by notice in writing, require the trustees of an authorised master trust scheme to submit a supervisory return. The Government recognise that the requirement means additional work for trustees. Therefore, the clause provides that a supervisory return can be requested only once in any 12-month period at most, and that trustees are given at least 28 days to compile and submit the return. It may be appropriate for the Government to specify the information that can be requested through such a return. The clause allows the Secretary of State to make regulations to that effect.
Clause 17 provides that the regulator must be notified in writing if significant events occur in relation to an authorised master trust scheme. Those events will be defined through regulations. I will briefly explain what the Government intend to capture by the term “significant events” and give an example.
We intend that the list of significant events will capture events that could affect the ability of an authorised master trust scheme to continue meeting the authorisation criteria. I should like to be clear that the occurrence of a significant event in a master trust scheme will not necessarily have an impact on the ability of that scheme to meet the authorisation criteria, but it may have such an effect. For example, the scheme may have a change of trustee. As the fitness and propriety of a trustee is linked to the authorisation criteria, the regulator must be informed of such a change so that the new trustee may be assessed against the relevant standards—the regulator may well do that, and that would not affect the scheme’s authorisation status. Equally, there could be an impact. The clause sets out who will be subject to the reporting duty, and again the regulator can issue a civil penalty for failure to comply.
On clauses 18 and 19, for the first time, the regulator will have the function of authorising a pension scheme before the scheme can operate in the market, as I mentioned. The implications of the decisions that the regulator will have to make are major, and we must be satisfied that we have given the regulator the tools it requires to ensure that such decisions are fully informed. It is therefore important for the Bill to make provisions that allow the regulator to gather the information it needs about the master trust schemes. The clauses will ensure that the regulator can use all the information-gathering powers effectively in relation to master trusts and the new authorisation regime.
Clause 20 gives the regulator the ability to withdraw a scheme’s authorisation if it stops being satisfied that it meets the authorisation criteria. The clause is fundamental to the Bill; without it, there would be no consequence for a scheme that becomes authorised and then lets standards slip, or if events occur that materially impact whether the regulator remains satisfied that the authorisation criteria have been met.
The regulator seeks to support and assist those involved in running pension schemes before it comes to sanction them, but if a scheme no longer satisfies the regulator, the regulator must have the power to withdraw authorisation from the scheme. We will come to discuss the consequences of a decision to deauthorise a master trust scheme in due course, because such provisions are made later in the Bill. The clause simply provides a necessary power so that the regulator can make such a decision. Without that, the authorisation regime would be reduced to little more than a one-off check at the beginning and would not work to protect the interests of master trust pension schemes.
I will think about the point made by hon. Friend the Member for Amber Valley and either write to him overnight or bring a response to the next sitting. I apologise, but my mind has been on these matters and I will have to think about his point, which was a very good one.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clauses 15 to 20 ordered to stand part of the Bill.
Clause 21
Triggering event: duties of trustees
Question proposed, That the clause stand part of the Bill.
Richard Harrington
Clauses 21 and 22 are the first in a series that extends what happens when a master trust experiences a triggering event, which I mentioned earlier. To remind members of the Committee, a triggering event could put a master trust scheme at future risk. The aim of the next series of clauses is to increase the level of oversight by the regulator during the triggering event period and to mitigate the risk to members and employers.
The provisions also intend to cover the way in which the situation is resolved, ensuring that it is supportive of a member’s continued saving in a pension scheme and of an employer’s automatic enrolment duties. The measures take account of the fact that there is likely to be a lower level of employer engagement in or influence over the running of the scheme, and the complexity of addressing the situation when there are multiple employers who also have automatic enrolment duties to fulfil.
Craig Mackinlay
I seek just one clarification from the Minister. Earlier today we agreed to Government amendment 3, which defined a scheme funder as
“a body corporate or a partnership that is a legal person”.
However, item 5 in the table of triggering events listed in clause 22(6) interprets a scheme funder slightly differently, as
“a person or body of a kind that meets requirements prescribed under…the Pensions Act 2004”.
I am concerned that we have agreed to an amendment that exempts individual persons, but there seems to be a slightly different interpretation of what the scheme funder is in the table of triggering events. It may just be an oversight, but some clarification would be helpful.
Richard Harrington
I will get back to my hon. Friend on that very technical point, but I do not believe that there is any intention for the definition to be different.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22 ordered to stand part of the Bill.
Clause 23
Notification requirements
Alex Cunningham
I beg to move amendment 28, in clause 23, page 16, line 19, after “employers” insert “and members”.
This amendment would mean that members must be told of any triggering events, not just the employers.
Alex Cunningham
I will continue to champion the members of master trusts this afternoon. The amendment would simply ensure that when triggering events happen, and if and when they are resolved, information on them flows right through the communication chain. As I said when I spoke on member engagement, it is important to understand that we need to put the member at the heart of the process. If members find out only at second hand about such events, which affect their hard-earned cash, it is bound to result in lower levels of trust—never mind all the anxiety and everything that goes with it. I pose the question: how would hon. Members feel if no one told them that there was an issue with their pension pot? I know that is rare for Members of Parliament, but if they had a separate pension pot and were not given that information, would they not be concerned? They would not be best chuffed, and they would want to know why they were not being informed.
Trust is vital, and it is at very low levels both in financial services and, more importantly, in us who make the law. How can we look our constituents in the eye if they ask us, “Why did you not put me first? It’s my money. It’s my retirement at risk”? There are those who claim that there are problems with reaching vast numbers of people, but this is the 21st century and it is not necessary to fell trees to make paper to send out hundreds of thousands of letters. It is a simple of chain of events, and if it can go to employers I believe it should also go to members.
Richard Harrington
Amendment 28 would require the trustees of a master trust that experiences a triggering event to notify all the members that the event has occurred and of other matters to be set out in regulations. The explanatory note to amendment 29 says that the intent is to require trustees to notify members once the regulator is satisfied that the triggering event has been resolved, but the effect of the amendment is a bit wider. It would require the trustees to inform members of the regulator’s decision—in other words, whether it is satisfied that the event had been resolved or not.
Clause 23 requires key people associated with the master trust to notify the Pensions Regulator if the scheme experiences a triggering event. Clause 26 sets out the framework for a scheme pursuing continuity option 2—in other words, the trustees aim to resolve the triggering event. The resolution is the important part of it. Once the trustees believe they have resolved the event, they submit evidence to that effect to the regulator. Having considered the evidence, the regulator notifies the trustees of whether it is satisfied that the event has been resolved. Our aim is for events to be resolved where possible. The scheme can then continue and members can keep saving in it. We have not required the trustees to notify members.
As the hon. Gentleman said, at the point that the triggering event happens, the trustees may be in discussions with the regulator and may not have reached a conclusion about whether the scheme will continue to operate or whether it will be wound up.
Alex Cunningham
I accept that the triggering is the actual start of the process, and that there may well be discussions. At what point does the Minister think the members ought to be told that a triggering event has in fact taken place and that their scheme is in some doubt?
Richard Harrington
To rebut that point—I emphasised the words “resolve” and “resolution”—we believe that the majority of triggering events will end up with a very satisfactory resolution. Remember, many members do not take an active decision to join; they join through their employer. They are not actively engaged in the scheme; their employer is the conduit, so providing incomplete information to members would cause undue distress and risk unintended consequences, such as members opting out of the scheme and stopping saving in a pension, when a resolution to the triggering event could very easily be agreed with the trustees or, indeed, opposed by the regulator.
If a scheme resolves its triggering event and continues to operate, I do not see why members should see any change. It is exactly the same for them: their pension saving will not be disrupted. I would not want them to be unduly alarmed or confused. The intervention of the regulator during the triggering event period, and the additional controls that are put in place during that period, will help to ensure the scheme gets back on track.
If the scheme is going to wind up—I believe this is the relevant point—members will be informed well ahead of anything directly impacting on them, and will be given the information and options.
Alex Cunningham
If the members are going to be told about the wind-up, where in the regulations is the requirement for the master trust to inform them?
Richard Harrington
The regulations have not yet been published, but the hon. Gentleman makes a valid point.
The aim behind these clauses is to ensure that members continue to save into a pension because they do not believe that the sky is falling in—the entire system is intended to ensure that that is not the case. To that end, members are not informed at such an early stage as is proposed in amendment 28, because of the adverse implications that could have and the absence of any practical advantage for members. What advantage would that provide to members, given that the matter will be resolved? There does not appear to be an obvious benefit.
However, I recognise how important it is that members are informed well ahead of something happening that might have a direct impact on them and—I think this is the core of the hon. Gentleman’s point—disrupt their pension saving. I am confident that the measures included in the Bill, and those proposed for inclusion in regulations, will achieve that outcome. I therefore ask the hon. Gentleman to withdraw his amendment.
Alex Cunningham
I am particularly interested to know what proposals there might be in regulations to ensure that the member is told, whether at the winding-up stage or when it first has an impact on them, and how that will be defined. I hope that the Minister will respond to that point before I sit down. I accept that it is particularly important that members are engaged throughout the process. Unfortunately, the Minister does not agree with me on that point. I believe that there is no more key a person in this chain than the member, but I accept that they should be informed when it is a significant thing affecting their lives. The Minister might like to intervene to explain what proposal there will be in regulations to ensure that members are informed when there is a material impact on their pension pot. Otherwise, at this stage I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 23 ordered to stand part of the Bill.
Clause 24
Continuity options
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The clause sets out the two continuity options that must be pursued by the trustees when there has been a triggering event. Option 1 requires the scheme to transfer out all members’ accrued rights and benefits and then wind up. Option 2 is for the scheme to resolve the triggering event to the satisfaction of the Pensions Regulator. Trustees will have a choice under the regulator’s authority, and once the regulator has decided to withdraw authorisation, that is final, or there is a notification that the scheme is not authorised and then they have to pursue continuity option 1.
Our aim is that members should continue to save despite the master trust of which they are a member experiencing a triggering event. Therefore, where the scheme is able to resolve its issues, it should do so. However, where the issue could lead to the failure and closure of the scheme, the members should be transferred out, under the auspices of the regulator, hopefully to continue to save with as little disruption as possible.
If authorisation is withdrawn or refused by the regulator, or there is a notification that the scheme is not authorised, members will have to be transferred out and the scheme wound up. Irrespective of the option, we want the process to be as smooth and as managed as possible. The mismanagement of an issue or an unmanaged closure of a scheme would be bad for members and could be detrimental to confidence and lead to members opting out of pension saving, which is the last thing we all want.
Where a master trust experiences an event that could lead to its failure, there needs to be greater planning and control and more safeguards for members and employers. It is important that the scheme has done detailed planning so that what happens following a triggering event is thought through and organised and the process is orderly and managed. That should help to ensure ongoing automatic enrolment without disruption.
Richard Harrington
I beg to move amendment 5, in clause 25, page 17, line 21, leave out “Master Trust” and insert “pension”.
This amendment and amendment 8 enable trustees pursuing continuity option 1 to propose a transfer of members’ accrued rights and benefits to a pension scheme that is not a Master Trust scheme, as long as the alternative scheme has characteristics specified in regulations, and any additional requirements in the regulations are met.
Richard Harrington
The amendments, which apply to clauses 25 and 34, continue with the continuity options. These apply when the trustees of a master trust are pursuing option 1. Clause 25 sets out the framework for continuity option 1. This is where the scheme transfers out all the members’ accrued rights and benefits, and winds up. The amendments would allow regulations to be made in future that would let the trustees in this situation choose a scheme that is not a master trust to receive their members’ rights and benefits.
The receiving scheme would have to have characteristics set out in the regulations. The non-master trust receiving scheme would be made subject to exactly the same restrictions on increasing or introducing the new charges as those to which master trust receiving schemes are subject. The amendments would enable the type of schemes that can be receiving schemes to be widened where a master trust is going to wind up and has to transfer all its members out.
In that situation, although members have the opportunity to make their own choice about where their accrued rights and benefits go, where they do not make a choice there needs to be provision for their rights and benefits to be transferred into a suitable pension scheme. At present that is restricted to another master trust. These measures permit this to be opened up by providing a regulation-making power to include other pension schemes, should that be appropriate. It may well not be appropriate, but in some cases it will be. Such schemes could include personal pensions and pension schemes that provide decumulation options, such as drawdown. This means we will be able to react appropriately to future innovations and developments in the pensions market. Indeed, the rise of master trusts shows how quickly markets change. This may be of particular use where members were using a decumulation option, as it leaves open the possibility that members could make use of new decumulation products in future.
Allowing other types of pension schemes to receive transferred members, as long as they meet specified requirements, could increase the options available to trustees, introduce extra flexibility and widen the market for potential schemes. This might be useful if trustees found that they were struggling to find somewhere appropriate for their members’ rights, which might particularly benefit members using decumulation options. Being able to increase the options in future might help reduce the risk that trustees of failing master trusts might not be able to find another master trust to take their members on.
As these amendments will mean that it is possible to widen the options available to the trustees of a master trust that was closing, and as that would be for the benefit of members, I commend them to the Committee.
Alex Cunningham
We give a general welcome to the amendments, some of which have been tabled in response to issues raised by my colleagues in the other place. The amendments are intended principally to ensure that scheme members are protected in the event of a winding up, and we certainly welcome that. We also wish to ensure that a master trust winding up does not disincentivise savers or negatively affect their rights and benefits.
Government amendment 5 means that if there is a triggering event and a master trust has to wind up and transfer members and their benefits, this can now be to a scheme other than another master trust scheme. This change, which has been made since the Bill left the House of Lords, invites three questions to which the answers are not clear. First, in the event of a failing master trust winding up, what conditions and regulatory standards must a receiving scheme that is not a master trust meet before the Pensions Regulator will authorise the transfer of members and their assets to it? Secondly, how will the concept of scheme funder in the Bill be applied to a receiving scheme that is not a master trust?
Thirdly, an essential provision in the Bill to protect master trust scheme members from bearing the costs of sorting out a scheme failure is in clause 34, which places a prohibition on increasing members’ charges during a triggering event, including wind-up and transfer. The prohibition is binding on both the transferring and receiving master trust scheme. Can the Minister give a categorical assurance that the prohibition on increasing member charges will, in the light of the amendment, apply to any receiving scheme in a triggering event? If the receiving scheme is not a trust-based scheme, which regulator will police adherence to that prohibition? Where is the line of vision in the Bill to show that all receiving schemes, master trusts or otherwise will be bound by the prohibition on increasing members’ charges?
We remain somewhat concerned that the Government have chosen to pursue their aim by introducing broad powers for the Secretary of State to make regulations in amendments 8, 10 and 12. We do not believe that approach provides a strong enough guarantee to scheme members that their benefits will not be eroded through the course of the transfer. Can the Minister guarantee to scheme members that that will never be the case? If he can, why not place such a guarantee in primary legislation? If he cannot, why not?
Richard Harrington
I have listened carefully to the hon. Gentleman’s points. This goes back to the core question of whether things should be in primary or secondary legislation and why. I repeat the argument, which I think is very reasonable, that part of the Bill is providing flexibility for the way things will change in the future. Whichever party happens to be in power, primary legislation is very difficult and takes a long period. The industry moves far more quickly. I know I keep repeating the same answer, but that flexibility is very much the principle of the whole Bill.
There is a difference in principle between us, but I hope the hon. Gentleman will agree that I have tried to be pragmatic with the arrangements, which provide the necessary practicality. I cannot therefore give him the undertakings that I would like to, because of the flexibility within the Bill, but I am convinced that this system will provide the most protection for members. As he knows, a lot of thought has gone into this. It is not a question of dispute based on an irresistible force and an immovable object; we have come up with a suitable compromise.
Alex Cunningham
I recognise the constraints and difficulties of trying to develop regulations on the hoof, as I was perhaps requesting of the Minister. If members started to understand this area, they would be really worried about it and want to understand it more, but I accept the Minister’s explanation.
Amendment 5 agreed to.
Amendments made: 6, in clause 25, page 17, line 23, leave out “subsection” and insert “subsections (1A)(b) and”.
This amendment is consequential on amendments 5 and 8.
Amendment 7, in clause 25, page 17, line 24, after “the” insert “Master Trust”.
This amendment is consequential on amendments 5 and 8.
Amendment 8, in clause 25, page 17, line 27, at end insert—
‘(1A) Each pension scheme proposed under subsection (1)(a) must be—
(a) a Master Trust scheme, or
(b) in such circumstances as may be specified in regulations made by the Secretary of State, a pension scheme that has characteristics specified in regulations made by the Secretary of State (“an alternative scheme”).”.
See Member’s explanatory statement for amendment 5.
Amendment 9, in clause 25, page 17, line 28, leave out “The notification” insert “Notification under subsection (1)(b)”.
This amendment is consequential on amendments 5 and 8.
Amendment 10, in clause 25, page 17, line 33, leave out subsection (3) and insert—
“(3) The Secretary of State—
(a) must make regulations about how continuity option 1 is to be pursued, in a case where a proposed transfer is to a Master Trust scheme;
(b) may make regulations about how continuity option 1 is to be pursued, in a case where a proposed transfer is to an alternative scheme;
(c) may make regulations for the purpose of otherwise giving effect to continuity option 1, in either case.”.
This amendment confers power on the Secretary of State to make regulations about how continuity option 1 is to be pursued, where a proposed transfer of members’ rights and benefits is to a pension scheme that is not a Master Trust scheme.
Amendment 11, in clause 25, page 18, line 29, leave out “receiving”.
This technical amendment removes an unnecessary word from clause 25(4)(l).
Amendment 12, in clause 25, page 18, line 37, at end insert—
“(4A) Regulations under subsection (3)(b) may include—
(a) any provision mentioned in subsection (4);
(b) provision deeming any member whose accrued rights or benefits are to be transferred to an alternative scheme to have entered into an agreement with a person of a description specified in the regulations.”.
This amendment makes it clear that regulations about how continuity option 1 is to be pursued in a case where a proposed transfer is to pension scheme that is not a Master Trust scheme may include any of the provision mentioned in clause 25(4) and also provision deeming a member to have entered into an agreement with a person (such as the provider under the new scheme).
Amendment 13, in clause 25, page 18, line 46, leave out “subsection” and insert “subsections (1A)(b) and”.—(Richard Harrington.)
This amendment makes regulations under the new subsection (1A)(b) (specifying alternative types of pension schemes to which transfers can be proposed) subject to the affirmative resolution procedure. (Regulations under the new paragraph (b) of subsection (3) (about bulk transfers to schemes other than Master Trust schemes) will also be subject to the affirmative procedure.)
Clause 25, as amended, ordered to stand part of the Bill.
Clause 26
Continuity option 2: resolving triggering event
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The clause sets out the framework where a scheme pursues continuity option 2, which we have not mentioned in detail. The clause places a series of requirements on schemes and the regulator to ensure that a triggering event is resolved to the regulator’s satisfaction. Subsections (2) and (3) set out that once the trustees consider that they have resolved a triggering event, they must notify the Pensions Regulator, setting out how they consider that has been achieved. Subsection (4) provides for the time period for the notification to be prescribed in regulations. Subsection (5) requires the regulator, having considered a notification, to notify the trustees of whether it is satisfied that the event has been resolved.
Our aim is to ensure that where trustees decide to try to resolve a triggering event, they have the opportunity to do so, so that the scheme can continue and its members can continue to save in the scheme with as little disruption as possible. However, following a triggering event, the trustees must set out a comprehensive and detailed implementation strategy containing the steps that they plan to take. We consider a scheme that has had a triggering event to have increased risk—that really is part of the definition of a triggering event—so such schemes need greater and more in-depth planning, safeguards for members and employers, and greater protection for members. However, we want members to continue to save and employers to continue to comply with their legal automatic enrolment minimum obligations, and for there to be general confidence in the master trust market.
We do not want to restrict how trustees resolve a triggering event, but we want to encourage and facilitate the continuity of pension saving by members. The best way to achieve that is for schemes to have the freedom to resolve their specific issues in the most appropriate way, but under the supervision of the regulator. There has to be an external check that triggering events have been properly resolved, because otherwise we could not assure the protection of members’ savings, and the regulator provides that. We consider that to be the best way of ensuring the continuity and security that we want. We believe that the clause provides the framework for doing that, so I ask the Committee to support it.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Steve Brine.)
Pension Schemes Bill [ Lords ] (First sitting)
Lord Harrington of Watford Excerpts(7 years, 9 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Nigel Mills
I am grateful to the hon. Gentleman, and I can see the attraction of that. Given that we have effectively auto-enrolled millions of people into master trusts, I am not sure I would support a delay in the regulations coming into effect. We need the powers in the Bill available to ensure that the people we have strongly encouraged into the schemes have all the protections we think they ought to have. I suspect that the review of auto-enrolment will be long, and in some ways it will probably be difficult to work out the right balance to strike in increasing the level of savings without encouraging people to leave the schemes completely. I am not sure that waiting for a resolution of that issue would be a sensible idea.
May I raise another technical point about when a master trust scheme ends up with a large proportion of self-employed members, up to 10%, 20% or whatever percentage of the scheme? Will it have to change its regulatory position and move from being an occupational pension scheme to a personal pension scheme or some other sort? I accept that there is a lot of regulation of such schemes, which may not be the end of the world, but perhaps the Minister will set out how the Government are tackling the big self-employed pension gap, where many fewer people save much smaller amounts and end up with much smaller pension pots as they approach retirement. As our employment markets change, that will be a significant challenge for us as we try to make pensions effective for everyone in the country. I look forward to the Minister’s remarks.
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
It is a pleasure to serve under your chairmanship, Mr Rosindell. I thank you for the clarification of the rules concerning hot beverages, with which I am happy to comply.
The attitude that the Opposition, the Scottish National party and all of us have taken towards the Bill is to discuss it widely among ourselves and to agree as much as we can, which is positive. Our disagreements are honourable, and no one is playing politics or at opposition for the sake of it. I wanted to make that clear, Mr Rosindell, because I have served on Bill Committees, as I am sure you have, where that has not been the case.
The Opposition amendments and those of my hon. Friend the Member for Amber Valley were tabled in the correct spirit. We had considered all the points in advance of the Bill being introduced and therefore in advance of the House of Lords proceedings and Second Reading in the Commons. Master trusts have been around for a long time, but they have grown exponentially in number over the past two years. The legislation is therefore a response not to a fundamental problem with master trusts, but to their exponential growth, pushed by auto-enrolment, and the industry seeing them as an area with a less stringent regulatory regime than other parts of the pension system. For example, insurance companies and personal pensions are regulated by the FCA under long-standing rules, and the non-master trust system is very different, because those trusts have one clear sponsoring employer and there are lots of rules and regulations under the Pensions Regulator.
The legislation is therefore meant to fill a gap. We are not filling the gap because of a disaster or problems that have arisen; we are trying to see what problems might arise. That has been the scope of discussions between the Government, Opposition and individuals, which has included some positive opposition in the other place. I hope that that will be true for most of our proceedings.
Opposition amendments 22 and 23 and the amendment of my hon. Friend the Member for Amber Valley seek to change the Bill’s definition of a master trust. Amendment 22 would extend the definition to all schemes that offer money purchase benefits, which would include schemes used only by a single employer or by employers connected to each other. The proposal would extend the scope of the definition significantly and, therefore, of the authorisation regime disproportionately.
As the debate in the other place indicated, there is general acknowledgment that further regulation of master trusts is desirable and necessary. As I explained in my opening remarks, master trusts have developed into structures that are often very different from traditional occupational pension schemes offered by single employers or the more traditional group of connected corporate employers. They offer compelling benefits to employers and members. They spur competition in the market and allow for economies of scale, providing value for money. They are also an efficient solution for smaller employers for whom setting up an individual pension scheme for employees would be difficult, onerous, impractical and expensive.
We accept, however, that those qualities also bring about new risks. As I explained, those risks are less likely to be present in single employer or connected corporate defined contribution schemes. The authorisation regime is intended to address those risks. For example, in a single employer scheme—a traditional trust scheme—the employer is usually closely involved in the running of the scheme and has an active relationship with the trustees. In a master trust, the employer’s participation is often largely limited to paying the employer contribution, which is probably the most important part. I do not take that lightly, but the responsibility for the running and administration of the trust is clearly different from a single trust for a single employer. Additionally, in a single employer scheme, the employers determine the terms of the scheme, whereas in a master trust it is done for them, with the person or organisation setting up the scheme doing it.
Those differences highlight why the purpose of the Bill is to require authorisation and provide member protection in respect of master trusts. The risks are specific to this kind of scheme and it is therefore important that the definition reflects such schemes and does not extend beyond them. The clause establishes the proper scope of the Bill and ensures that its regulation is proportionate to the issues arising.
Amendment 23 was clearly explained by the hon. Member for Stockton North. It would amend clause 1(2), which provides that the Bill’s provisions apply to a master trust scheme only in so far as it provides money purchase benefits. That would mean that the provisions of the Bill would apply in relation to the scheme as a whole, and not just in relation to the parts of it that apply to money purchase benefits. Most master trusts will only provide money purchase benefits—that is the purpose of the vast majority of them—but it is fair to say that a number will provide money purchase and non-money purchase benefits. I agree with him that master trusts can do that legally and properly. It is not the norm but some do.
As I have already set out, the authorisation regime is intended specifically to address certain risks that apply to members in master trusts that relate to the structure and funding of such schemes. In particular, the Bill is focused on the risk around money purchase benefits, and we have been open about that. In answer to the hon. Gentleman, the Bill is focused in that way because there is already extensive regulation in relation to occupational pension schemes providing non-money purchase benefits—regulation already exists. Applying the authorisation regime to them would create duplication of regulation. He warned us about duplication, but the amendment would create duplication of regulation and add unnecessary costs and burdens to the running of those schemes, with little purpose in terms of protecting members, so far as we can see.
In addition, authorisation requirements are intentionally targeted at the risks relating to money purchase benefits. Conflict and confusion might arise if those requirements are applied across the board. For example, the provisions requiring the transfer of member benefits and wind-up of a scheme might have a detrimental impact on members if applied in relation to non-money purchase benefits. It is important that the members of schemes with mixed benefits have the same standard of protection as members of schemes that only have money purchase benefits. That is why the authorisation regime applies to the money purchase aspect of such schemes. Extending authorisation to types of benefits for which it is not designed and where the risks do not arise in the same way would not be appropriate.
To answer a question asked by the hon. Member for Stockton North, I can confirm that the Government intend to include decumulation schemes—the decumulation products that he mentioned in his speech—in clause 41.
Alex Cunningham
I am particularly keen to understand further what the Minister means by the same protections being in place for non-money purchase benefits as for money purchase benefits.
Richard Harrington
As I explained before, the two are covered by separate regulation and separate rules. I do not see how combining the two together under the same regime would help to give protection.
Julian Knight (Solihull) (Con)
Is not the truth that the two types of regulation will slot alongside each other? There will be a symbiotic relationship between money purchase and defined benefit.
Richard Harrington
My hon. Friend makes a good point. That is very common in other systems of regulation, sometimes to the chagrin of employers and people involved, but for many companies in other financial fields there are different systems of regulation for the different products they offer. That is not uncommon. As to what we must avoid, the hon. Member for Stockton North will accept that Governments must try to think how things work in practice, which is not to say that he has not considered it. However, we must have workshops of interested parties and consult widely. How things work in practice is important.
The end product for all hon. Members is predominantly consumer protection—the Bill is a consumer protection Bill. We have different views, but we are discussing the extent of consumer protection provided. I and my officials have considered Opposition amendments respectfully. They are not spurious and have been thought through. In fact, many were quite properly put to us—it is a democratic system—by groups such as the Association of British Insurers. They are not created out of thin air. However, we have had to think about whether in practice they will add to consumer protection. That is the test. Alternatively, will they just increase the regulatory burden? We have also been lobbied about that—again, quite legitimately—by those concerned. It is the Government’s job to try to come up with something in the middle.
My hon. Friend the Member for Amber Valley, who tabled amendment 32, discussed self-employed people, and attempted to ensure that I have in fact read the Bill. I do not think I should have the arrogance to stand here if I had not, but it is perfectly proper that he should ask. I certainly accept that my hon. Friend, given his years of experience and attention to detail, has read it. I shall try to answer his general and specific points.
On the question of the role of self-employed people, not just in the master trust schemes but generally, my hon. Friend is correct to identify that the number of self-employed people has grown exponentially in the past 10 to 20 years, even more than in the days of the Turner commission, of which Baroness Drake was a member. She has been most helpful with the Bill. I acknowledge her role and that of Lord McKenzie in helping both the Opposition and the Government very constructively.
The commission perceived self-employed people as those with their own business, who, by implication, would have an accountant or, at least, an adviser or someone similar. My hon. Friend was saying that, with the big growth in self-employment over the period, the people in question are typically not very high earners. Like him, I make no comment as to whether they should be self-employed—the fact is that legally they are. They do not have an accountant and the things necessary for someone who is running a business and employing people despite being self-employed. They are at the moment outwith the auto-enrolment scheme. I know we are here to discuss that from a regulatory point of view but, as politicians, we also want those people to have pensions, because the House agrees that that is a good thing.
I want to answer the hon. Member, who is going to be cross with me again, for Loch—
Richard Harrington
Have a little patience—I was going to say the hon. Member for Ross, Skye and Lochaber. Watford is much easier to pronounce, but I accept that he has a wonderful constituency that is very lucky to have him representing it. I have got it now.
The hon. Gentleman’s point was about why the review is different in timing and scope to the Bill. The main reason is statutory. We were obliged by statute to have the review in 2017, which means it cannot report until the end of 2017. In fact, 2017 is too early because we do not have enough figures to see people’s behaviour or habits since auto-enrolment came in. We are doing the review—it is being announced and will report—but we could not consider holding up this regulation until it came out.
Alex Cunningham
I share the Minister’s sentiment on our approach to this Bill and welcome the discussions we have had offline. Our main arguments about pensions are on other areas of policy, and certainly not this one.
I will briefly comment on the speech by the hon. Member for Amber Valley. There are ways to address the issues of auto-enrolment for the self-employed. Many people in the industry have shown me models, most of which Her Majesty’s Revenue and Customs would have a role in delivering. The Minister accepted that the hon. Gentleman’s amendment was not spurious; when we get to new clause 4, he and his colleagues might see the need to support it and bring it into the Bill to avoid any further delay in addressing the needs of such groups.
The Minister has addressed the points thoroughly, but anomalies remain. I referred to one group of connected employers outside the scope of the Bill, yet a similar group with just one associated employer would be included. We need more consideration from the Government on that. I am also concerned about the protection for members in single employer schemes. All the responsibility seems to lie with the employer. Where is the protection for the member? I have already alluded to the reliance on secondary legislation. I am concerned that there has to be secondary legislation.
Richard Harrington
I forgot to mention the hon. Gentleman’s point about secondary legislation; if I may, I would like to use this opportunity to do so. I apologise for forgetting it; it was in my head, but other things were as well. There is a lot of secondary legislation in the Bill, because we want two things. First, we want to consult extensively with the industry, following publication of the Bill, on certain technical matters to do with how things will work. Secondly—this is very relevant—we have seen how things have changed in the past couple of years; master trusts have basically morphed from one thing to another. I am not saying that there is anything wrong with that; that is how industries develop, particularly in the area of financial services, which is very fast-moving. We want to retain the flexibility to change nuanced things as the industry changes, so that we are not finding further loopholes that we have to wait years for primary legislation to address. As hon. Members will be aware, the protections built into the regulations include the fact that in the first instance they will be affirmative, so there will be plenty of time for them to be discussed properly and correctly.
Alex Cunningham
I accept that explanation from the Minister. There are other areas destined for secondary legislation that we will seek to put into primary legislation and that it is probably more important to press him on. He has a tough job—the money purchase benefits and non-money purchase benefits in particular need further consideration—but I accept where he is coming from. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Richard Harrington
I beg to move amendment 1, in clause 1, page 1, line 17, leave out “and” and insert “to”.
This amendment is consequential on amendment 20.
Richard Harrington
Amendments 1 and 20 will prevent what would have been an unintended effect of the Bill, for which I apologise. I am grateful to the other place for its scrutiny of the Bill, and particularly to Lord McKenzie—I have complimented him so many times in this sitting that I shall take my gratitude to him as read for the rest of our proceedings, but I really must thank him for bringing this matter to our attention. The amendments, which we indicated in the other place that we would table, will fix the issue that he pointed out. Without them, where a scheme has a mix of money purchase benefits and non-money purchase benefits, a funder would not be able to conduct activities in relation to the non-money purchase benefits. That was clearly not our intention, but it was the effect of the interaction of clauses 1(2) and 11. Amendments 1 and 20 will amend clauses 1 and 40 respectively to fix that.
Clause 1(2) provides that where a master trust scheme provides both money purchase benefits and non-money purchase benefits, the Bill’s provisions will apply only to the money purchase benefits. Clause 11 requires the scheme funder to be set up as a separate legal entity that is defined, broadly, as a legal person whose only activities are in relation to the master trust. As a result of clause 1(2), for a scheme with mixed benefits, the reference to the master trust in clause 11 would cover only the money purchase elements, which could mean that schemes or scheme funders would have to be restructured for reasons that we did not intend.
Amendment 20 will therefore add a further exception to the principle that the provisions of the Bill apply only to money purchase benefits, in addition to those already provided by clause 40, which we will consider later. The reference in clause 11(3) to the master trust will relate to the scheme as a whole, not just to the money purchase benefits. That will ensure that the scheme funder can engage in activities in relation to any part of the scheme.
Amendment 1 will make a minor consequential amendment to clause 1(2) to reflect the amendment to clause 40. The combined effect of the amendments will be to ensure that clause 11(3) works as intended for mixed benefits schemes.
Alex Cunningham
I inadvertently addressed the amendment in my first speech. We accept and welcome Government amendment 20, but we have not forgotten the issues that I raised earlier.
Amendment 1 agreed to.
Clause 1, as amended, ordered to stand part of the Bill.
Clause 2
Relevant public service pension schemes
Question proposed, That the clause stand part of the Bill.
Richard Harrington
Clause 2 defines a relevant public service pension scheme for the purpose of clause 1, which excludes relevant public service pension schemes from the definition of master trust. Clause 2 flows from clause 1.
The reasons that we require an authorisation regime in respect of master trusts include: the risks stemming from remoteness from the employer, which is one of the points I mentioned about the difference between an ordinary single employer trust and a master trust; potential for conflicts of interest; and the ease of set-up. The type of public service pension schemes that fall within that definition already have specific requirements and arrangements that mitigate those risks. For that reason, they are not included within the scope of the master trust authorisation regime.
Question put and agreed to.
Clause 2 accordingly ordered to stand part of the Bill.
Clause 3
Prohibition on operating a scheme unless authorised
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The success of auto-enrolment, which various Government and Opposition Members have already discussed, means that more people are saving into a private pension, and as I have explained, many of those are saving into master trust pension schemes. Master trust schemes are regulated by the Pensions Regulator and occupational pensions legislation. However, as I explained, that legislation was developed mainly with single employer pension schemes in mind. Master trust schemes have different structures and dynamics, so the Bill introduces a new authorisation regime for them. The market has grown very quickly, and we now have to respond to ensure that that part of the pension market develops in the right way.
The authorisation regime has been designed to address the specific risks that arise in master trust structures. The criteria for becoming authorised were developed in discussion with the industry, and the risks that they address include the kinds of risks that the FCA regulation addresses with regard to group personal pension schemes, which I mentioned before. At the moment, master trusts are outwith that kind of regulation, but master trust schemes have some similarities with those schemes.
The requirement to become authorised creates a barrier to entry to the master trust market, so rather than us waiting for things to go wrong, the interests of scheme members will be protected in a proactive manner, because new master trust schemes will be prohibited from taking on members until they have satisfied the regulator that they meet essential quality standards. Existing schemes will have to become authorised to continue operating in the market. New schemes will have to be newly authorised.
Introducing a requirement for authorisation is a proportionate response to the rapid development of master trusts, given the types of risks inherent in the structure of the schemes. Clause 3 prohibits a person—a “person” being an entity—from operating a master trust scheme, unless that scheme is authorised by the regulator, and so is the core and foundation of the whole authorisation regime.
The clause also sets out the consequences of breaking the prohibition. It is important that those consequences are clear and firm. If the regulator becomes aware that a scheme is operating without authorisation, clause 3 requires it to issue a notice to the trustees of that scheme, explaining that the scheme is not authorised. Such a notification—I am sure we will discuss the effects of this later—is a triggering event that requires the scheme’s trustees to transfer the scheme’s members out and wind up the scheme. The risk of being shut down by the regulator is a strong deterrent that will ensure that the authorisation regime is taken seriously. The clause also gives the regulator the power to issue a civil penalty if the prohibition has been broken. This will act as an additional deterrent to anyone who may seek to operate a master trust scheme without authorisation.
Craig Mackinlay (South Thanet) (Con)
I am delighted to serve under your chairmanship, Mr Rosindell. I will probably say something more about my opposition to member trustees, which would be a step very much in the wrong direction, and I fear that the amendment tabled by the hon. Member for Stockton North would do that, but in a different way.
I agree entirely that the regulations under clause 12 will be subject to the Secretary of State’s involvement in laying out those regulations in due course, and under clause 13 the continuity strategy—what that might mean and what regulations we may expect are fairly well laid out—but I am afraid that, to my mind, “member engagement strategy” is wording that is rather too loose. If we encouraged such a strategy, I would like to see in any amendment what that might involve and an expectation of what we may see in regulations from the Secretary of State. I would not want a perfectly good scheme to fail because of an interpretation that might mean lots of different things to different people. My member engagement strategy might be rather different from that of the hon. Gentleman, so I will not support the amendment.
Richard Harrington
I would like to make a general point, which the hon. Member for Ross, Skye and Lochaber also made and which was agreed by everyone: we are all in favour of more people getting involved in their pension scheme. For many years, it became clear, particularly under defined-benefit schemes, that people had other things to think about for most of their life and that they thought their employer would take care of their pension, whether in the public sector or in a defined-benefit scheme. It was not that they could not care less, but they thought that as long as they paid their bit they did not have much to worry about.
The general point—it is not specifically a regulatory point for the Bill—is that the general policy of this Government, the previous one and, I am sure, all future Governments will be to make people far more aware of their pensions because they are predominantly defined- contribution schemes. People must know and be able to calculate their pension, but perhaps the old boring statement sent out every so often is not the way to do that. We hope that apps and other systems will mean people are a lot more aware of it.
The general point of people being a lot more knowledgeable about their pension arrangements is taken as read and my responsibility and role is to help to promote that through communications, advertising, technological changes and so on. However, that is separate from the regulatory point. It underlines what everyone in this room really wants.
On the regulatory point in the amendments tabled by the hon. Member for Stockton North, I share his view of the theoretical constituents in the Price Bailey report. I do not think many of my constituents have £55,000 a year either, but the report makes some good points. We are here to discuss the amendments specifically. You are being patient, Mr Rosindell, but I wanted to make that more general point.
Richard Harrington
My hon. Friend makes a good point and I agree with him. It is important, though, that the regulator has enough information to be able to assess whether schemes have adequate systems and processes. The regulator can require the information; it needs to make the assessment. It is in the interests of any applicant to give the regulator the information it requires to make the assessment. The regulator is very active in this: it is two way, not just one way. The regulator may require different things from very big schemes that are well established than from small, newer schemes. That is what regulators do, and they have to have that discretion.
It should also be noted that clause 4 contains a regulation-making power to allow the Secretary of State—that is, the Government—to set out further information that is to be included in an application. That is why we gave a specific commitment to use the regulations under clause 12 to ensure that those matters are taken into account when considering a system’s application for authorisation. If you will allow, Mr Rosindell, I would like to repeat that commitment. The Bill allows the regulator to take into account the systems and processes relating to communications and engagement when assessing the adequacy of a scheme’s systems and processes more broadly.
Alex Cunningham
I am concerned that auto-enrolled into pension schemes are millions of people who have no communications whatever from the organisations handling their money. What is the Minister saying the regulations cover that will ensure those people are communicated with?
Richard Harrington
That is up to the regulator. If the hon. Gentleman bears with me, I will get to that particular point. If he is not then satisfied, I will willingly give way.
Member engagement is a challenge in pensions both legally—that is, what should people know?—and in terms of getting them engaged in a general sense. It would be unacceptable to have a hugely expensive exercise writing tens of thousands of letters that may or may not be read, but which would confuse people. However, we accept that it is important that the members get the right communications.
A situation such as the hon. Gentleman mentioned, in which members get absolutely nothing, which the regulator would find unacceptable, would not be at all acceptable for two reasons. The first is the general point that I mentioned about getting people engaged and understanding their pension and everything that goes with it. We have all received these communications. Probably, the hon. Member for Ross, Skye and Lochaber will have always looked at his pension statements, but a lot of us have received them—very comprehensive ones, in many cases—and just put them at the bottom of the desk drawer, in the hope of reading them sometime. I hope that the hon. Gentleman is not offended by that comment; it was meant to be complimentary.
Ian Blackford
I shudder to think that the Minister would ever offend me, at least willingly. The regulator has a very important role to play—I think we all understand that—but there is also the fact that the trustees are responsible to the scheme members, and it is important that we ensure that trustees recognise the responsibilities they have. No one is talking about bringing in a cumbersome system that will be costly. This is about ensuring that the members have that relationship with the trustees. It is important that the trustees are answerable to the scheme members, not least because of the profit-making capability that some trusts have.
Richard Harrington
The hon. Gentleman is right, and this is not just a question of communication as in a formality—communication if there is a problem. We will be speaking to those points later. This is a point about communication and making sure that people know what they have, in the same way as a bank communicates, now mainly by the internet, so that people—
Richard Harrington
I will finish answering the previous intervention and then of course I will happily give way. The two points about communications are correct, and after the hon. Lady has intervened, I will do my best to go into the other point.
Carolyn Harris
The Minister, in a private conversation, said that I would find it difficult to mention this subject, but he has kindly given me an opening. We have to learn lessons from the experience of the WASPI women—the Women Against State Pension Inequality Campaign—and we cannot go forward and experience the same inability to engage as we are experiencing now, so this scheme must ensure that communication is sufficient to attract all people.
Richard Harrington
I smile, but not out of disrespect for the hon. Lady—quite the contrary. I knew that she would manage to bring in her favourite subject and I am grateful for the indulgence of the Chair in not declaring it out of scope, because she makes a relevant point. I nearly said “you”, Mr Rosindell. You would probably make it as well, if you were invited to speak on the subject.
The communication point that the hon. Lady raises has to do with the state pension. Generally, things have moved on dramatically—not just from a regulatory point of view, but with communication generally. We just have to look at the state pension side—before you rule us out of scope, Mr Rosindell. Millions of people look on the internet every year to see what the position is with their state pension. The same will apply—to bring us within scope—to private pensions. The younger generation of people do not just wait for something to come. They are aware the whole time; they see the information on their pay packet. My younger son started work after graduation in September. They sign up for the pension, it is explained and they are interested. They think it is years away, obviously, but they are interested. That is why I do not take the communication point lightly, and I will do my best now to talk in more detail about it.
We have mentioned the automatic enrolment review. That is critical—this is not just a way of sidetracking the point—because it will consider how individuals engage with their workplace pension scheme and how that can be developed so that members are better able to understand and maximise their savings. That is probably the most relevant change that we have to try to bring about—we as a Government are going to do this, but I am sure that any Government would—to get people really involved. We have appointed an external advisory board, including members that represent consumer interests as well as pension provider representation. We will lay a report before Parliament before the end of 2017. The relevant point, to bring us back to the Bill—you have been very patient, Mr Rosindell—is that it will take into account these findings. We will take them into account when considering the regulations under clause 12—that is the relevant clause—which I referred to a moment ago.
Nigel Mills
I did try to warn the Minister about this sort of question. The very first line of this clause says:
“The trustees of a Master Trust scheme may apply to the Pensions Regulator for authorisation.”
Will he explain why that does not say “must apply”? We do not envisage any master trusts that are not obliged to register. Is it because they can form themselves, and before they start operating they have to apply, or does he expect them to be formed only after they have been authorised?
Richard Harrington
Master trusts may apply. Exactly. My hon. Friend’s point is correct, but if they wish to be in a master trust in the market, they must apply. If they do not, they may say, “We’ve looked at this regulation, we call ourselves a master trust now, which we are, but the regulatory hurdles are not for us so we’ll leave the market.” We had to leave the flexibility in, and maybe many will. I do not know. Maybe entities will say, “It’s not for us, we are going to do it another way,” given the regulations, an extra burden of regulation or a different type of regulation, but if they are to be a master trust—if they are to continue as one—the “may” effectively becomes a “must”, because they have to apply and regulate. We had to leave the possibility in. It may not happen, but I think some of the smaller ones will find that it is not for them. I hope I have answered that question satisfactorily. I hope, too, that I have said enough to reassure the Committee. The Government sympathise with the intention of the amendment. We take member engagement seriously. There is no simple answer.
The Bill is about protecting those people saving in master trust schemes by addressing the key risks that arise in this type of scheme. While member engagement is important, I do not believe that the Opposition have made an effective case that these issues constitute a key risk that needs to be addressed through setting out explicit requirements in primary legislation. That is the critical point. We will consider the area further as we go through the AE review, and we will develop and consult on the regulations under clause 12. As I have explained generally on the regulations, there will be time for both Houses to go through them. On that basis, I kindly invite the hon. Member for Stockton North to withdraw his amendment.
Richard Harrington
The clause allows the trustees of a master trust scheme to apply to the Pensions Regulator for authorisation and sets out details about the content of applications and the application process. The clause provides that an application must include certain key information: the scheme’s latest accounts, the latest accounts of each scheme funder, the scheme’s business plan and the scheme’s continuity strategy. That information must be provided so that the regulator can assess whether it is satisfied that the scheme meets the authorisation criteria, which we will discuss when we deal with later clauses. The clause also allows the regulator to take any other information into account when considering an application.
As I have said, the master trusts market is still developing and we believe that it will develop further as it responds to the new requirements in the Bill, so the clause allows the Secretary of State to make regulations setting out further information that must be included in an application so that changes can be accounted for and the application process remains robust. The Government also intend to charge schemes a one-off application fee, which will be payable to the regulator at the point of application. It might be necessary to vary that fee, depending on factors such as the number of schemes that apply for authorisation and the resources required to process applications, so the clause allows the Secretary of State to retain flexibility by specifying that detail in regulations.
There must be a clause to allow applications for authorisation to be made, so I ask the Committee to support the clause.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Clause 5
Decision on application
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The clause sets out the procedure that the regulator must follow when it receives an application for authorisation from a master trust scheme. I draw the Committee’s attention to the precise wording of subsection (1), which states that the regulator
“must decide whether it is satisfied that the scheme meets the authorisation criteria.”
That is important, because it places the emphasis on the scheme seeking authorisation to demonstrate that it meets the required standards. If the regulator is not satisfied that it does, it will not grant authorisation.
It is important to ensure that a well run, high-quality scheme is not unduly held up by the requirement to become authorised, so the clause requires the regulator to make a decision on an application within six months of receiving it. That is important in other areas of regulation; I know from my constituency work that many other industries complain that regulators take too long and hold them up when they want to comply. The six months is therefore a very good thing.
The clause is vital because it introduces the authorisation criteria. They are: first, that the persons involved in the scheme are fit and proper persons; secondly, that the scheme is financially sustainable; thirdly, that each scheme funder meets certain requirements; fourthly, that the systems and processes used in running the scheme are sufficient to ensure it is run effectively; and finally, that the scheme has an adequate continuity strategy. As I said previously, the criteria were designed to address the key risks for these types of scheme. They relate to the risks that members of other types of pension scheme are already protected from. The criteria are set out in further detail later in the Bill, and I am happy to discuss them when we come to those clauses.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Referral to Tribunal of refusal to grant authorisation
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The clause provides for the appeal rights if the Pensions Regulator refuses to grant authorisation, which I mentioned in the context of the previous clause, to a master trust scheme. The decision to refuse an application for authorisation, and thus to prevent a master trust scheme from operating in the market, is clearly a decision that the regulator cannot take lightly. It is right that the people who are directly affected by such a decision have recourse to appeal against it, should they wish to do so.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Fit and proper persons requirement
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The clause introduces the first of the five authorisation criteria that I mentioned previously. It means that, when authorising a master trust scheme, the Pensions Regulator must be satisfied that those involved in the scheme are fit and proper persons. The structure of the master trust scheme means that it is no longer the members’ employers who set up the scheme or appoint the trustees. That changes the key relationship and the influences on the running of the scheme. Some master trusts are set up as a commercial enterprise and resemble something more akin to a conventional financial services product, but without being subject to the same regulatory requirements. It is therefore only right that we introduce the requirement of being fit and proper—fitness and propriety—in respect of those setting up and running master trusts.
The clause lists the key people whom the regulator must assess as fit and proper to act in their capacity in relation to the scheme. They include the trustees, the scheme funder and the scheme strategist. That list can be extended under regulations. Again, we do not want a situation in which an entity can create another entity without our being able to opine on whether they are fit and proper people to do it.
The clause also gives the regulator the power to assess a person who promotes or markets the scheme. Regulations can specify further individuals acting in a particular capacity whom the regulator may assess to determine whether they are fit and proper for that role.
Craig Mackinlay
On the point about the person who promotes or markets the scheme, a lone employer or an employer thinking about his options, whether it be the National Employers Saving Trust or another master trust, may ask his independent financial adviser to consider which scheme is suitable for his business. How would the Pensions Regulator get involved with subsection(3)(a)—
“a person who promotes or markets the scheme”?
The subsection includes the word “may”. I am concerned that we may be putting regulatory requirements on IFAs who are already duly authorised under the FCA and may be caught under this clause. Was that the Minister’s intention?
Richard Harrington
No, I confirm that that was not the Minister’s intention at all. As we get through the regulations for this Bill, it is precisely that kind of case that we need to take into consideration, and there may be others. An IFA, of course, would be regulated and deemed to be a fit and proper person by the FCA. I am not very familiar with those rules, because they are outside my area of responsibility, but I think that they are pretty stringent and that they might be directly comparable to those under the Pensions Regulator. However, it is a fair point. In fact, most companies in the position to which my hon. Friend refers usually have to go to a professional adviser to be able to make that decision, because they have neither the time nor the experience to make the decision themselves, unless they are a very large company with suitable employees.
The regulation-making powers are needed to respond to developments in the market where the structures of master trusts might evolve to include other functions. There is a regulation-making power that enables regulations to specify matters that the regulator must take into account when assessing whether someone is a fit and proper person. As with other provisions in the Bill, we intend to work closely with industry, regulators and Her Majesty’s Revenue and Customs in developing these regulations, as well as conducting formal consultation.
The clause also gives the regulator a discretion to take into account other matters as it considers appropriate when carrying out the fit and proper person test, including matters related to a person connected to the person being assessed. That will give the regulator the flexibility to ensure that it can be fully satisfied that the criteria for a fit and proper person have been met and not avoided on technicalities.
The fit and proper person criteria are a key part of the new regime for master trusts. They relate to the competence and propriety of those responsible for the pension savings of thousands workers.
Nigel Mills
Will the Minister confirm that he expects this to be a high bar; that he wants people to be able to show that they are knowledgeable, competent and have the training to be a trustee and run a pension scheme, and not just that they can pass a check that they have no criminal convictions for fraud? They have to show positively that they can run these pension schemes well, not just that there is no historical evidence that they cannot.
Richard Harrington
I can absolutely confirm that for my hon. Friend. I hope that he will agree that the fit and proper person test is quite well established across different regulatory regimes. By definition, it has to allow a certain subjectivity, because otherwise it becomes the low-level box-ticking that he fears. Having discussed this with the Pensions Regulator—both the chief executive and other people—I know that this would never happen under its regime. I hope that most people would not regard the fit and proper person test as the kind of thing to which my hon. Friend refers, but he makes a sensible point.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Financial sustainability requirement
Ian Blackford
I beg to move amendment 33, in clause 8, page 5, line 39, after “scheme” insert “or scheme funder”.
The financial sustainability of the scheme funder must be taken into account when assessing a Master Trust scheme’s financial sustainability.
Amendment 33, which stands in my name and that of my hon. Friend the Member for Paisley and Renfrewshire South, seeks to ensure that the financial stability of the scheme fund is taken into account when the regulator is assessing the financial stability of the scheme funder. A number of insurance companies have told us that they already hold a very significant amount of capital under the European regulatory framework for insurance solvency. In this case, it seems unnecessary for insurers to be required to hold separate or additional capital on top of this in order to meet their new obligations as master trust providers under the Bill.
It would be helpful to know more from the Government on the restrictions on the use of member funds to meet costs, which need to be more clearly defined. We have also heard from the Association of Pension Lawyers, which has called for clarity on the policy intentions behind the clause and for the detail to be fleshed out. It would be appropriate for the Government to take the opportunity to do that today.
Richard Harrington
The amendment proposes a change in the requirements for the financial sustainability of the master trust in clause 8. The clause, in conjunction with other provisions in the Bill, requires that the Pensions Regulator must be satisfied that the master trust has sufficient financial resources. The amendment proposes that it is the scheme or scheme funder that must have those resources, rather than the master trust. I absolutely sympathise with what I think is the intent behind the amendment—security for members—but I differ with the hon. Gentleman because I believe that the clause already achieves that end. The amendment is therefore unnecessary. I will explain why.
Clause 8 already sets out the two elements of the financial sustainability requirement: schemes must have a sound business strategy and sufficient financial resources to meet both their operating costs and costs following a triggering event, such as those of winding up in the event of scheme closure. The financial sustainability requirement is intended to mitigate the risk of a master trust being set up with inadequate planning and insufficient financial resources—that is its whole purpose. When the regulator assesses whether the scheme meets the requirement, it must take into account certain matters that will be specified in regulations, and our intention is that the regulations will include how the resources to cover the costs mentioned by the hon. Gentleman must be held. The scheme therefore includes a scheme funder.
We are considering options for the regulations and will consult on them. Among those we will want to explore are holding the resources in escrow or as a guarantee, or other robust financial commitments. What the regulator will expect will differ greatly depending on the size of the company, varying from a massive multinational undertaking to a comparatively small one. It might involve a solicitor’s client account or an escrow system. We want to consult on the options to get them absolutely right.
Also, we can use the regulations to specify whether the resources could be held either by the scheme or elsewhere, such as with the funder. However, if they are held elsewhere, our intention is that there must be clear commitment and availability of the funds in a range of circumstances. We would not want the money to be held by the funder rather than by the scheme if there were not sufficient protections or commitments in the event of the funder’s insolvency; the money must be readily available to do the job in whatever circumstances. There are different circumstances and that is the kind of item that regulators consider in other areas of financial regulation.
It is absolutely fair to say that the key risk for members is the financial sustainability of the scheme, so we have focused the requirement on the scheme, but the Bill and the regulation-making powers enable a variety of ways for the scheme to meet the requirements. That approach will allow us to take account of the variety of arrangements already in place in the market, and enable future innovation.
The key outcome we want to achieve, and therefore what we have reflected in the Bill, is that it is the scheme that must have the resources available to it. The scheme’s business plan and accounts and the scheme funder’s accounts will form the basis of the regulator’s assessment. The scheme funder’s accounts will provide the regulator with information about the funder’s solvency and the security of any commitment to provide funds to the scheme.
The clause also provides the Secretary of State with a power to prescribe matters that the regulator must take into account when assessing the scheme’s financial sustainability. Such matters may include, for example, the risk of the scheme funder’s insolvency; whether the scheme funder is subject to any prudential capital requirements imposed by a different regulator, which we have discussed for insurance companies and other types of company; and the terms and repayment periods of any loan funding relied on to meet the scheme’s running costs.
To conclude, clause 8 requires the regulator to be satisfied that the master trust has sufficient resources to meet the financial sustainability requirement. The scheme funder’s financial position and its financial arrangements with the master trust will form a key part of the regulator’s assessment. I therefore urge the hon. Gentleman to withdraw his amendment.
Ian Blackford
I will not detain the Committee longer than absolutely necessary. I am relatively satisfied with the Minister’s response, particularly in the light of ongoing consultation, and on that basis I will not press the amendment to a vote just now. However, there are obviously some remaining concerns about insurance companies, particularly under the obligations, and I would like those to be highlighted today. We will move on for now. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 ordered to stand part of the Bill.
Clause 9
Scheme funder of last resort
Question proposed, That the clause stand part of the Bill.
Richard Harrington
The clause was introduced by the Opposition in the other place. It is intended to require the Government to make provision for a scheme funder of last resort, which would take effect if a master trust had insufficient resources to meet the costs of complying with duties arising from a triggering event and the costs of continuing to run the scheme for a further prescribed period.
Since the clause’s introduction, I have reflected a lot on how it would work. I have had formal and informal discussions with Members of the other place and have met officials, in the presence of the Opposition spokesman, the hon. Member for Stockton North, to discuss this subject. I have concluded that it is unnecessary to place such an additional requirement on the Government, and I will do my best to persuade the Committee of that view.
I think that we all agree that the Bill’s primary purpose is, quite simply, to bring in safeguards and controls for employers and employees who have opted to save through a master trust pension scheme. The Bill includes new powers for the Pensions Regulator, which will be responsible for the effective operation of a new authorisation and monitoring regime for master trusts. Schemes that do not meet or maintain the specified standards simply will not be allowed to operate. We have just discussed two of the authorisation criteria; as I explained, clause 7 sets out the requirements that those involved in a scheme must meet to be considered fit and proper persons, and clause 8 describes the financial sustainability requirements that will apply to master trusts. The remaining criteria—the business plan requirement, the scheme funder requirements, the systems and processes requirements and the continuity strategy requirement—are dealt with by clauses 10 to 13.
The Bill’s later clauses define the events that, when experienced by a scheme, will trigger a series of specified actions and additional requirements that must be undertaken by the scheme and the regulator. The nature of such events may mean that a scheme is operating under increased risk. Those additional requirements will ensure that increased scrutiny and controls are put in place until the new risk has been dealt with and nullified, or the scheme is wound up in an orderly manner and the interests of employers and members are successfully transferred out to a new scheme.
In addition to the new regulatory framework, the regulator is working closely with individual master trust schemes. That work provides us with insight into the scale of current risk, which the clause has been designed to guard against, and may be followed by the publication of new supporting data by the regulator. In addition, the indications are that market forces are operating effectively prior to the new regulatory regime coming into force. For example, some master trusts have left the market and transferred their members without issue.
As I have explained in previous debates, it is very attractive for existing successful master trusts—the vast majority of them—to take on members from smaller master trusts that might appear to be failing in their administration, since that allows them to add members without adding very much to their costs. I realise that is commercial rather than structural, but I believe that will happen, as it has in other regulated areas of financial services. New, larger schemes are also now entering the market. Such schemes are on a sound financial footing and will actively seek to increase their market share. All that further supports our belief that the risk of scheme members being left stranded is absolutely minimal.
Hon. Members might continue to be concerned that, were a master trust to fail, the members of that scheme might be left stranded. I perfectly understand their thinking, but we consider the risk to be negligible. However, we recognise that we cannot completely rule it out, which is also recognised by the pensions industry. We are currently working with the Pensions and Lifetime Savings Association, which is exploring establishing a panel of “white knights.” That panel would aim to guarantee that, if a master trust was required by the regulator to leave the market, the affected master trust scheme members would be transferred to a new scheme. That happens all the time in other regulated fields of the financial services market.
I believe, after consideration, that as drafted clause 9 does not work as intended. If I may expand on that, a couple of illustrations might help. The clause does not contain a power, such as a regulation-making power, enabling the Secretary of State to make further provisions relating to the scheme. That would include provisions relating to the scheme’s procedure and operations. The clause provides that the Secretary of State should consider only the resources held by a master trust and not the scheme funder.
Given the imprecise nature of the clause, I am concerned that it could lead to perverse behaviour, with schemes shifting funds about, knowing that the taxpayer will pick up the bill. We are also concerned that, given the clause’s lack of clarity regarding funding of a Government-backed scheme of last resort, stable master trust schemes might be concerned that they are at risk of paying for failing master trusts and, as a result, opt to leave the market. For the reasons outlined, I call for the clause not to stand part of the Bill.
Alex Cunningham
I had hoped that I would not need to prepare a speech on this matter, other than to welcome clause 9, but I am disappointed that we find ourselves defending a new clause added to the Bill by our colleagues in the other place, particularly as the Minister has opted to take it out altogether, with limited alternative provision to protect the members of master trusts who are failed by their trustees.
I am grateful to the Minister for the time he has taken to discuss these matters one to one with me and with colleagues in the other place. There remains tremendous uncertainty about exactly what happens if the worst comes to the worst and there is no organisation to pick up the pieces, whether that be a small trust that fails to make the grade under the legislation, or a large trust that could fail in years to come.
The Minister referred to his panel of “white knights.” I was trying to envisage a group of white knights on large chargers heading through the City to help people out.
Richard Harrington
I should reiterate that it is not my panel of white knights; it is that of the Pensions and Lifetime Savings Association, which is a large and well respected trade body, as the hon. Gentleman certainly knows.
Alex Cunningham
I accept that correction. I am sure the Minister would look grand dressed as a white knight. The fact is that no white knight actually exists.
The clause has a key purpose to protect the pensions pots of ordinary people from being raided in the event of a master trust failing. That is something that would certainly not be the fault of the workers up and down the country who are faithfully paying into a pot; a pot that, although welcome at retirement, is likely to be relatively small. If the Government succeed in removing the clause from the Bill, they will be responsible for not providing a safety net if a master trust fails and workers end up losing their hard-earned cash.
It is not enough for the Government to argue that a failing scheme will always be successfully transferred. They instead must ensure that a funder of last resort is identified in the Bill. The Government argue that there is no need for a funder of last resort because the procedures laid out in the Bill will prevent it from reaching that far. Industry experts across the board insist that a funder of last resort or equivalent is needed. The chair of the Standard Life master trust has called for the Government to be the funder of last resort
“because it’s their policy foul-ups that have allowed the proliferation of unsustainable master trusts”.
I do not know if there has been a foul-up or not. I believe that the growth in master trusts and in auto-enrolment is actually a very positive thing. The chair also commented that Government funding was unlikely and that a levy on the employers should be imposed instead, as it is the employers who have chosen the master trust and therefore they should bear more risk. That could make them think twice about getting involved with less than honourable trusts.
Pension Schemes Bill [Lords]
Lord Harrington of Watford ExcerptsMonday 30th January 2017
(7 years, 9 months ago)
Commons ChamberRead Full debate Pension Schemes Act 2017 View all Pension Schemes Act 2017 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 87(a) Amendment for Third Reading (PDF, 49KB) - (9 Jan 2017)
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
I should point out to you, Mr Deputy Speaker, that your predecessor in the Chair, the hon. Member for North East Derbyshire (Natascha Engel), was very robust in her attempts to reduce the content of Members’ speeches to that which is relevant to the Bill. I will do my best to continue with that tradition.
I was expecting some excellent contributions to this debate and I have not been disappointed. I thank hon. Members on both sides of the House for the general spirit of consensus on the basics of the Bill. A number of hon. Members raised issues that go beyond the authorisation of master trust pension schemes and administration charges, the two issues covered in the Bill, and I am itching to rebut them. However, I realise, Mr Deputy Speaker, that I would be deemed to be out of order as they are out of the scope of the Bill, so I shall not do that. The Government were criticised by Opposition Members on the grounds that the Bill’s scope was not wide enough. I will address two points in particular.
On the scope of auto-enrolment, we will announce shortly a statutory review in 2017. It is my intention to make that review wider than the limited definition within the Bill. That will report by the end of the year. It is not in the Bill, which regulates master trusts, but it has not been ignored by the Government and it will not be.
Mr Deputy Speaker (Mr Lindsay Hoyle)
I think I do need to help you, Mr Harrington. We all said Members would get one hit and then they would have to get to the Bill. Both Front Benchers have had one hit. Now we can really get into the meat of the Bill.
Richard Harrington
I congratulate you, Mr Deputy Speaker, on continuing so well the leadership and robustness started by your predecessor in the Chair. I apologise for any offence caused to the Chair. I actually thought I was speaking within the scope of the Bill, but I will of course be led by the Chair and move on to the substance of the Bill.
As I said, the points raised in the debate by Members on both sides of the House have been broadly complimentary. The whole purpose of the Bill is for the Government to be able to respond very quickly to the phenomenal and exponential growth in master trusts over the past two years. That growth was not predicted by the Opposition, who take credit for auto-enrolment—in fact, there was cross-party consensus—and it was not predicted by either the coalition Government or this Government. It happened very quickly and I believe the Government are doing the right thing by responding quickly. I do not accept that the Government have acted too slowly.
I was very glad to receive the support of the shadow Secretary of State, and she made a very relevant point when she explained her view about the expansion of master trusts. We are not allowed to mention the “w” word, as the hon. Member for Bootle (Peter Dowd) calls it from a sedentary position, because that would be outside the scope of the Bill. The regulation has been very considered. Both Labour Front-Bench spokesmen and the SNP spokesman commented on the large amount of secondary legislation. The reason is very clear: we want to consult very quickly with industry and responsible parties on the detail, but this process will not take a long time. We have to get the detail absolutely right, because this is a one-off chance to regulate. There will be a chance for scrutiny by both Houses, because in the first instance the regulations will be subject to affirmative procedure.
Many Government Members, including my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), spoke about transparency. We take this very seriously and we are consulting on it. It is not in the Bill, but it is in the spirit of the Bill, because the regulator will be provided with many powers that will help to enforce transparency and members’ rights, which have been discussed.
Alex Cunningham
On the specific point of transparency, why is it necessary to start consulting people when we should simply be saying, “We want to know what all the costs are in the entire investment chain”?
Richard Harrington
I must explain to the shadow spokesman that we believe in democracy, and part of that is consulting to get it right. We believe this is very important; it has gone on long enough; it needs to be done right. I am sure that the hon. Gentleman did not mean that the Government should just decide what to do without consulting on this hugely complex area within the industry. When it comes to the regulations, let me repeat that we will consult on all of them. I apologise to the hon. Gentleman if consulting is not correct, but we have to get this absolutely right.
Alex Cunningham
I certainly agree with consulting, but will the consultation extend to the members of the master trusts and not just the people who manage the members’ money?
Richard Harrington
I believe in full transparency and disclosure, but this is a very complex issue. Brevity of disclosure is sometimes clearer to people, helping them to understand all the costs and charges within their pension, rather than giving them 10, 12 or 14 pages. I would like to move on.
One point was made eloquently by both the hon. Member for Ross, Skye and Lochaber (Ian Blackford) and my hon. Friend the Member for Gloucester (Richard Graham) on the question of whether the Pensions Regulator will be properly resourced to carry out the new duty. I can confirm that we have already had extensive talks with the Pensions Regulator, and that it is the Government’s fundamental view that we cannot enact a Bill such as this which deals with improving and expanding on the response without giving the regulator the proper resources that it needs.
I am pleased to say that many Members of all parties have explained that master trusts are an important part of the pensions industry. The Government are filling a gap between personal pensions and insurance-based pensions that are regulated on the one side, and on the other side the evolution of the trust system, for which there is ample pensions law and regulations. There is a significant gap in the market. We are pleased that master trusts have expanded in the way they have, but they need some regulation and attention because companies have been moving into this area simply because there is that gap in regulation. That does not mean that such trusts are a bad thing, and I am delighted to report that we are carrying out this Bill from a position of little failure. This is not a Government responding to catastrophe or calamity when people have lost money; what has happened has been successful, but we need to provide the correct regulatory framework for it.
I can do no better than conclude my speech by citing my hon. Friend the Member for Gloucester, who said that the Bill was simple and important and that everybody should support it. For that reason, I commend the Bill to the House and support its Second Reading.
Question put and agreed to.
Bill accordingly read a Second time.
Pension Schemes Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Pension Schemes Bill [Lords]:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 21 February 2017.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration or to other proceedings up to and including Third Reading.
Other proceedings
(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Mark Spencer.)
Question agreed to.
Pension Schemes Bill [Lords] (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pension Schemes Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:
(1) any expenditure incurred under or by virtue of the Act by the Secretary of State; and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mark Spencer.)
Question agreed to.
Pension Schemes Bill [Lords] (Ways And Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pension Schemes Bill [Lords], it is expedient to authorise:
(1) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting expenditure arising under any Act resulting from the Pension Schemes Bill [Lords] or any other Act; and
(2) the payment of sums into the Consolidated Fund.—(Mark Spencer.)
Question agreed to.
Digital Equipment Ltd: Pension Scheme
Lord Harrington of Watford Excerpts(7 years, 10 months ago)
Westminster HallRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
It is a pleasure to serve under your chairmanship, Mr McCabe. I congratulate the hon. Member for Ayr, Carrick and Cumnock (Corri Wilson) on securing this debate and am grateful for everybody’s contributions. I quite understand that the hon. Member for Ross, Skye and Lochaber (Ian Blackford), who is the SNP’s spokesman on this issue, is probably on Front-Bench duty in the Chamber at the moment. I always listen to him very carefully, as I did to the hon. Member for Aberdeen North (Kirsty Blackman), who eloquently stood in for him.
This debate is about making retrospective changes to pension legislation. Doing so, we contend, would have significant financial implications for the schemes involved. I read in preparing for this debate the information provided by the HPPA, which has been used by Opposition Members. It is a very well argued paper, but I must say that I picked up one inconsistency in it. The briefing paper says, as indeed Opposition Members who have spoken do, that the effects of making these changes retrospectively would be minimal. As far as I can see, a few schemes would fit into this, but I see no evidence from any of the figures that the effects would be minimal.
I intend to do some further work and would be grateful for further data, to assess what the actual cost would be. I have not seen anything in the information provided. That is not a criticism of the general information at all; these things are just very difficult to work out. Of course, expressions such as “minimal” or “a lot” can mean different things to different people. I am not trying any political tricks or pretending something is the case that is not, but I do not know, for example, what it would cost Hewlett Packard to make this change.
The Government have a broad principle in legislation, which I think is generally fair, of not imposing such retrospective changes, because of uncertainty. There is no doubt that this kind of change—this is not the only one we are lobbied about—will place unexpected and significant costs on employers. We all know that in the defined benefit world, schemes and businesses are at risk at all times because of pensions. It is part of our whole policy, and of the policy of Governments of any political party, to try to bring some stability to defined benefit schemes, which involves considering the interests of employees and pensioners and of the sponsoring employers. However, I accept that Hewlett Packard is a very substantial company—a point made clear by all speakers.
Dr Philippa Whitford
That is one of the points—Hewlett Packard could carry this on its shoulders an awful lot more easily than individual pensioners. Frankly, it is individual pensioners who are facing retrospective changes. They think they are signing up to and investing in a secure retirement, but when they get there, they find that it has disappeared.
Richard Harrington
I fully accept that point. However, what matters to individual pensioners is quite clearly the amount of money that matters to them, but as far as a company is concerned—be it Hewlett Packard, which I accept is very substantial, or a small company—it may be a very significant amount of money. If there were to be legislation, it would have to cover all of them, to be reasonable. No Government could select one company and not another one because it is one of the world’s biggest companies, but I take the hon. Lady’s point.
Normally it is not appropriate or right for Ministers to talk about individual companies’ schemes, so I will try to circumvent that as much as I can. I have listened carefully to what has been said. I listen very carefully to what the hon. Member for Stockton North (Alex Cunningham), Her Majesty’s loyal Opposition spokesman on pensions, says, as indeed I do to the SNP’s spokesperson. Like the hon. Member for Stockton North, I was not aware of this issue until it was brought to my attention quite recently. I therefore cannot say that I have considered this for weeks or months, but it is important. I will come on to the Green Paper in a moment.
I strongly believe, as I am sure hon. Members in this Parliament or indeed any others do, that employers should stand by their pension promises unless there is very good reason not to and that schemes should have to act within the law. It has been accepted in this debate that the legal position is clear: pensions accrued after 1997 have a level of inflation protection, and pensions accrued pre-1997 have indexation requirements only in relation to certain contracting-out arrangements, but not generally. In fact, the hon. Member for Ayr, Carrick and Cumnock confirmed that the company had broken no law.
The argument seems to be that the company has a moral responsibility, but that it is for Government to change the law if the company will not accept that. My hon. Friend the Member for Worthing West (Sir Peter Bottomley) is not in his place; he explained perfectly well why. As he said, it is very legitimate for institutional shareholders, which may include trade unions or pension funds—everything is very circular in pensions, with them owning a lot of shares in it—to use pressure on Hewlett Packard.
The hon. Member for Stockton North represents the former seat of Harold Macmillan. I just read his biography. I look forward to the day when Harold Macmillan’s successor one nation Conservatives take the constituency back, but the hon. Gentleman is doing an excellent job in the interregnum. He said that the fact that the Government spend significant amounts of money with Hewlett Packard could be used as a point of pressure. I cannot really comment on that. I do not have anything in my office, to the best of knowledge and belief, from Hewlett Packard, but I know that the Government have strict rules about things they can and cannot use as investment criteria.
Alex Cunningham
Harold Macmillan was in fact the last Conservative to represent any part of my constituency, until he was sacked by the people of Stockton. He was a man who believed in playing fair, and that is what we want here: we want Hewlett Packard to play fair. What opportunities does the Minister have to contact the company and say, “Look, you can do it in Europe. Why can’t you do it in the UK as well?”?
Richard Harrington
I thank the hon. Gentleman for that intervention and his comments about Harold Macmillan. He asks what pressure the Government can put on Hewlett Packard. In preparing for this debate, I have not received Hewlett Packard’s position. There is no record of any information that I have had. I look forward to receiving a report from the meeting that hon. Members are having with Hewlett Packard. I would be happy for those who attend the meeting to come and discuss it with me as a result. I suspect that the people at the company will say, “Look, we comply with the law,” and in fairness to them, they do. To use a European comparison is really saying, “Well, in Europe they comply with the law.” I am sure that their policy is, “We comply with the law wherever we are in the world.” That is what any company of that magnitude would say.
Dr Philippa Whitford
Is that not, therefore, why this issue should go into the Green Paper and we should consider tightening up that loophole in our law? It is not just Hewlett Packard; it is 3M, Chevron, Unisys—it is other big multinational companies who know that here they do not have to do that for the pre-97. As we heard, 90% of them do, but there is obviously a cohort of companies that are just not bothering so we have to tighten it up.
Richard Harrington
I agree with the hon. Lady that the company’s obligation appears to be a moral obligation—that point has been made clearly. The Government’s obligation is to pass laws that have to take everybody’s views into consideration. As I have learnt, because it has dominated my life since last July, with pensions and defined-benefits schemes, particularly on the private side, there are the interests of employers and the interests of employees and pensioners. As Governments of all political complexions—all three, if we include the coalition—have done, the Government have had to find ways to take consideration in from the others. I will come to the Green Paper a bit later on.
Kirsty Blackman
I fear that we might end up going round in circles about whether or not it would be affordable for lots of companies to do this, without having the data. I appreciate the Minister’s commitment to look at obtaining more data about how this might work, or the potential costs, and would appreciate it if he would consider sharing those data once he has gathered them, so that we are all in a position to understand the costs.
Richard Harrington
I think that is very reasonable. As I said, I am not trying to hide any data—nobody is—because I am sure that the HPPA would have included them in its paper, had it known. I suppose that in the end, they can just be estimates because we do not actually know for the moment what companies fit into this category. From speaking to people since I became aware of this issue, I believe it is true that one of Hewlett Packard’s predecessors—I cannot remember if it was Digital or Compaq—did increase the pension rates most years to some criteria for inflation, although I do not know exactly what criteria.
As I said, I have not come across any views that Hewlett Packard has broken the law, but I will say that many things that companies do are beyond the law in many ways. They have policies on this and policies on that, and many of them have moral, socially responsible policies in many areas. That is the sort of thing that boards of companies decide. They do not just have to comply with the law—that is the minimum. Obviously everybody, individuals and corporates alike, has to comply with the law. In a way, that is why we are all here in this building.
I want to make progress, although Mr McCabe has kindly allowed ample time for interventions if there are any. We believe that the Government retrospectively changing the legislative requirements on indexation would be inappropriate and would have a significant impact on the schemes of employers involved. The legislation introduced in 1995, by Harold Macmillan’s successors in a Conservative Government, was introduced to provide a limited level of inflation protection. The then Government were conscious of this balance between protection against inflation and the ability of the schemes, and the employers who stand behind them, to afford such protection. Of course, the financial deficits in defined-benefit schemes are very much a topic of conversation in this House and in the press—particularly the trade press—and are something that will be discussed in the Green Paper.
I am not a great believer in providing people with straws to clutch on to. Many politicians across the House do so in politics, and probably the reason for my lack of progress, compared to certain people of my age in all political parties, is that I try to be as candid as possible. I do not want to give a straw to clutch on to, but I do think that hon. Members have to remember that costs of business are also a factor to consider. Hewlett Packard, Compaq and Digital before them have been regarded as good employers; they employ a lot of people in this country and help to generate the prosperity of this country.
I accept the point made by the Opposition spokesman, the hon. Member for Stockton North, that there are people in Hewlett Packard who earn big money—it is all relative—but that is also true about footballers and many other people. It is not the actual position—I know that it makes a good comparison in a speech, but the fact is that the quantum of pension fund commitments that Hewlett Packard took on amount to many, many millions of pounds. The company knew that when it was acquiring the business. I am sure that if it felt that was far too much, it would not have done so. It would have calculated the cost and taken it into account.
I had better make some progress now, Mr McCabe, because time is running out.
Alex Cunningham
I accept everything the Minister is saying, but will he, following this debate, write to the company telling it that we have had this debate and ask it to consider its position?
Richard Harrington
I am happy to meet the hon. Gentleman and other hon. Members here after their meeting with the company so that we can formulate some kind of opinion on it. This is not to take away from the standing of this debate, but rather than send a letter as a result of this debate, it would be more appropriate to meet after you have met with the company. I am sorry, I did not mean you, Mr McCabe; I meant the hon. Gentleman. I got carried away, such is the excitement of this issue.
The pensioners with a pre-1997 defined-benefit occupational pension that was contracted out of the additional state pension could be receiving some inflation protection on that pension from the state, because their pension entitlement includes a guaranteed minimum pension, or GMP. I understand from officials that that applies to many of the Digital Equipment pensioners. When the additional state pension was introduced in 1978, employers were allowed to contract their employees out of its provision in return for the employer and employee paying lower national insurance contributions. In order to contract out, the employer had to promise to pay a pension that was at least as good as the additional state pension that had been given up, in effect guaranteeing a pension payment that was as a minimum equal to the state pension—hence the name.
The state pension, through a complex calculation that I agree is difficult to understand, provides for some indexation of the GMP for those individuals who reached state pension age before April 2016. Those who reach state pension age from 6 April 2016 will benefit from transitional arrangements in the new state pension. The majority of people who were contracted out will do better over their lifetime than under the old arrangements. In short, although the members may not be receiving the full inflation protection as part of their scheme rules, as demanded by their representatives and Members here today, they are likely to receive some mitigation and protection due to GMP arrangements. As I said, my understanding is that that applies to some Digital Equipment pensioners.
I can only repeat that the Government have no plans to impose retrospective changes on pension schemes, but as the hon. Member for Stockton North and other hon. Members have stated, there will be a Green Paper shortly. I said that would happen in the spring; I hope that that will be in spring in the south of England rather than in parts of Scotland, based on my experience of very nice, if rather cold, spring holidays elsewhere. The Green Paper will look at many aspects of defined benefit schemes, including methods of valuation of schemes, index-linking criteria and the consolidation of pension schemes, among others.
I do not want Members to think that we have plans specifically to impose retrospective changes on pension schemes such as the one we are discussing, but many aspects of pension rules will be considered in the Green Paper, and I believe that will include several issues that are relevant to this matter. Obviously I cannot go into more detail because the Green Paper is an official document, but it will look generally at defined benefit schemes. There are a lot of different factors, some of which are genuine complaints and difficulties on behalf of employers, and some of which are fundamental things about protecting pensioners and prospective pensioners—people working and paying into schemes now. Obvious related examples include the rules of the pension regulator, which, although not relevant today, certainly are relevant to defined benefit schemes.
Today’s debate and the preparation work for it—the briefings and other things that I was provided with, including from the House of Commons Library and the Hewlett Packard Pension Association—have led to a lot of thinking on my behalf about this matter, and I thank hon. Members for raising it. I look forward to hearing Hewlett Packard’s response and I am very happy to meet with it, after that stage, to discuss the situation.
Oral Answers to Questions
Lord Harrington of Watford Excerpts(7 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Henry Smith (Crawley) (Con)
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
Mr Speaker, were I allowed to wish you a happy new year, you can be assured that I would do so.
Pension Wise provides guidance to people aged 50 and over with a defined contribution pension pot on their options under the pension flexibilities. We are consulting on a single financial guidance body to provide debt advice and guidance on money and pensions.
Henry Smith
In thanking the Minister for his reply, I cannot resist wishing him, and indeed the whole House, a happy new year. Can he tell me what information the Government are providing to let people know about their entitlement to the state pension?
Richard Harrington
I thank my hon. Friend for his salutations and for his question. The Department for Work and Pensions continues to run a multi-channel communication campaign that includes radio, press and social media to raise awareness of the new state pension. As well as directing people to information on gov.uk and working with stakeholders to deliver key information, our priority has been to provide personalised information to individuals so that they know how much state pension they are likely to get, and from when. Since February 2016, the online Check your State Pension service has had more than 2.1 million views.
Alison McGovern (Wirral South) (Lab)
The Minister’s warm words will do nothing to reassure the women in my constituency for whom the Government’s advice on pensions has a terrible reputation because of the injustices highlighted by the Women Against State Pension Inequality campaign. The one thing the Government could do to persuade the public to believe their pronouncements on pension entitlements would be to give justice to the WASPI women by looking again at the 2011 changes.
Richard Harrington
The hon. Lady will be aware, because the WASPI women have been discussed in the House and I have discussed this matter personally with her on many occasions, that the changes affecting them were in the Pensions Act 1995, and that a lot of time and resources were devoted to informing them of the situation, including millions of letters being sent out from 2011.
Ian Blackford (Ross, Skye and Lochaber) (SNP)
A happy new year to you and everyone in the House, Mr Speaker, and particularly to the WASPI women. I hope that they have a better year this year.
The leaflet entitled “Ways to save in 2017” recently published by the Treasury mentioned the junior ISA, the help to buy ISA, premium bonds, cash and stocks and shares ISAs and the new lifetime ISA, but it completely omitted to mention pensions. That is an absolute disgrace, and it confirms my fears that the Government have downgraded the role of pensions and are using the gimmick of ISAs to distract attention from pensionable savings. Does the Minister agree that pensionable saving is the best form of saving for retirement? Will he establish a pensions and savings commission to ensure that dignity in retirement is promoted and protected?
Richard Harrington
I must totally disagree with the hon. Gentleman’s analysis of the importance that the Government place on pensions. A lot of effort goes into communicating with people, on television and elsewhere, about auto-enrolment. The auto-enrolment of so many people has been one of the great successes of this Government and of the coalition, and I hope that that continues.
Alex Cunningham (Stockton North) (Lab)
I know that the Minister agrees with me on the need for greater transparency in the pensions world, particularly around costs. He will therefore be keen to address the widespread criticism of the Government’s failing to act to ensure that people get the best possible returns. The Financial Conduct Authority’s interim report in November highlighted a number of failures in the asset management industry relating to the transparency of costs and charges applied to pension investments, stating that “weak price competition” was having a “material impact” on investment returns. Labour is committed to implementing all the FCA’s recommendations. Are the Government?
Stella Creasy (Walthamstow) (Lab/Co-op)
Nicky Morgan (Loughborough) (Con)
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
I would be delighted to have a meeting with my right hon. Friend and her constituent.
Tom Elliott (Fermanagh and South Tyrone) (UUP)
Richard Harrington
As the hon. Gentleman will be aware, the Government have given £1.1 billion of transitional relief for WASPI women. The issue has been discussed in this House very many times and the Government have no plans to do anything further in that respect.
Nigel Mills (Amber Valley) (Con)
Matt Warman (Boston and Skegness) (Con)
Seasonal agricultural workers have benefited from auto-enrolment into pensions, but many accrue only very small pension pots. What can the Government do to ensure that the bureaucratic burden does not fall disproportionately on the employers of these vital workers?
Richard Harrington
My hon. Friend brings up a very good point. The Government have to find a balance between wanting as many people as possible to have pensions, and economic sense when there is an impact on employers. My officials have discussed the issue with the National Farmers Union. We understand it and it will be looked into in the course of the 2017 review.
Mike Gapes (Ilford South) (Lab/Co-op)
Automatic Enrolment: Review
Lord Harrington of Watford Excerpts(7 years, 11 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)
I am pleased to confirm both the scope of the automatic enrolment review and the proposed automatic enrolment thresholds for the next financial year.
Automatic enrolment has been a great success to date with almost 7 million people enrolled by more than 293,000 employers. It will give around 11 million people the opportunity to save into a workplace pension and we expect this to lead to around 10 million people newly saving or saving more by 2018, generating around £17 billion a year more in workplace pension saving by 2019-20.
Analysis cited in DWP’s annual automatic enrolment evaluation report today shows that nearly £82 billion was saved into workplace pensions last year by employees who were eligible for automatic enrolment.
Automatic Enrolment Review
It is important to continue to build on this success, and I am keen to ensure that there is joint consensus from across industry as we move to the next stage of this policy.
The main focus of the review will be to ensure that automatic enrolment continues to meet the needs of individual savers. In doing this we will look at the existing coverage of the policy and consider the needs of those not currently benefiting from automatic enrolment, for example employees with multiple jobs who do not meet the criteria for automatic enrolment in any of their jobs. We will also examine the automatic enrolment thresholds namely, the trigger and the qualifying earning bands required by legislation (section 14 of the Pensions Act 2008) and the age criteria for automatic enrolment. I would also like to use the review to consider how the growing group of self-employed people can be helped to save for their retirement.
The review will be an opportunity to consider whether the technical operation of the policy is working as intended. In doing this we will consider whether there may be any policies which disproportionately affect different categories of employers or could be further simplified.
The review will also include the requirements set in legislation relating to the statutory review of the alternative quality requirements for defined benefits schemes (section 23A of the Pensions Act 2008) and for the certification requirements for money purchase schemes (section 28 of Pensions Act 2008).
An examination of the level of the charge cap, which was intended to take place in 2017, will also be incorporated within this review. This will assess whether the level of the cap should be changed and whether some or all transactions costs should be covered by the cap.
In the early part of 2017 we will be engaging with stakeholders from across industry on these issues. Towards the end of 2017 we will publish a report setting out policy recommendations.
The review will be an opportunity to strengthen the evidence around appropriate future contributions into workplace pensions. It will also consider how engagement with individuals can be improved so that savers have a stronger sense of personal ownership and are better enabled to maximise savings. We do not expect to make policy decisions on these areas during 2017.
The automatic enrolment review work will be led by a DWP team and supported by an external advisory group. This group, which will be chaired by and made up of experts from within the pensions industry, and those representing member interests and employers, will provide insight and a challenge function to help shape proposals. In early 2017 we will announce membership and the terms of reference for this group.
Annual Thresholds review
The annual review of the automatic enrolment earnings thresholds has also now been completed.
It is intended to lay an order before Parliament in the new year which will include the following, for 2017-18: £45,000 for the upper limit of the qualifying earnings band; £5,876 for the lower limit of the qualifying earnings band.
The automatic enrolment earnings trigger will be frozen at £10,000.
I will place a copy of the analysis (review of the automatic enrolment earnings trigger and qualifying earnings band for 2017-18: supporting analysis) supporting the proposed revised thresholds in the House Library. These papers will be available later today on www.gov.uk website.
[HCWS339]