Occupational Pension Schemes (Master Trusts) Regulations 2018

Lord Kirkwood of Kirkhope Excerpts

Wednesday 18th July 2018 Grand Committee

In two recent cases involving master trusts and the regulator, one failed to ensure that all employee and employer contributions were collected and invested promptly over a period of nearly two and a half years. In the other, the administrators of a master trust failed to report the fact that they had not collected or invested nearly £1 million of pension contributions on behalf of 2,115 members for just short of two years. That is administrative failure over a sustained period. Will the regulator set prescriptive requirements on master trusts covering the auditing of their administrative systems and processes, whether these are delivered in house or by a third-party administrator? In the event that employer and employee contributions are not collected and the employer becomes insolvent between the failure of collection and the discovery of that failure, who will carry the liability for compensating the saver for the lost contributions?

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is always a pleasure to follow the noble Baroness, Lady Drake. She is an expert in these matters and we are fortunate to have her to assist our deliberations. I also support the regulations. Some of us who were involved in the 2017 legislation felt that we were taking risks in that the Government did not properly address the question of gaps. Speaking for myself, these regulations ostensibly fill those gaps. Obviously there is still a degree of uncertainty because the field is new and developing and we are dealing with a specialist set of organisations.

As has been said, the stakes in this important area of public policy are extremely high when it comes to the pension security of the 10 million members of these trusts and the amounts of money that are being invested. I agree with the point made by the noble Baroness, Lady Drake, on the systems and processes that are set out clearly in the regulations. I support the consolidation that has gone into the regulations. I sit at the feet of the noble Lord, Lord Trefgarne, who is dutifully here; he is the chairman of the Secondary Legislation Scrutiny Committee and keeps us at a very high standard. As the Minister said, it is true that we found no difficulty with the regulations. They are very extensive and clear, and an example of the kind of thing that the noble Lord, Lord Trefgarne, and I would like other departments to emulate. Having said that, I think the DWP has been an offender in the past, but it has improved its ways and the evidence is in front of us in these regulations this afternoon.

I worry about the cleanliness of the data, as a former chair of the DC scheme for the General Medical Council’s staff superannuation. We always struggled, even with a really well-run scheme, to keep the data clean, keep the contribution levels accurate, and make sure that the investments were made and the administration carried out. We are operating in this new system at one level removed, if you like, because the employers are separate from the master trust administrators. The regulator will need to focus on making sure that the systems and processes that are eventually put in place, using technology, are sufficient for their purpose. As has been said, people can get seriously prejudiced against through no fault of their own, and without knowing that they are being prejudiced against until it is too late. That is a very important point.

Can the Minister say a word about the codes of conduct that will flow from the regulations? There has been a consultation—which I think I am confident about; I have heard no complaints about that and have no reason to believe that there are any surprises waiting for us in the code of conduct. Can the Minister reassure us that this work is in hand and that it will be available in time and will add the necessary detail to the schemes when they come into play in October this year?

While I am on my feet, it is not directly relevant to these regulations per se, but I think we are all very interested in pursuing the pensions dashboard. There have been rumours—I put it no higher than that, although my spies are everywhere—that the department is struggling to find the time or capacity to deliver on the promises that were made by former Chancellor Osborne all those years back. It is an important part of being able to allow people to assess what kind of living standards they will have in retirement or whether there is any backsliding or suggestion that the priority is being withdrawn from the development work on the pensions dashboard. Although it is not directly relevant to these regulations, I would like an assurance from the Minister that this work is proceeding at full speed and that we can confidently look forward to the dashboard playing a part, eventually, over the 10-year period of the impact assessment to help people understand their pension provision.

I hope that the codes of practice will make clear the practical steps that have to be taken by master trusts to make sure that their members are timeously and regularly advised with proper communications about what is happening to their investments and schemes. That is important in order to keep the connection flowing between the people administering the schemes and the members themselves. These are very important regulations; I think that they are sufficient for their purpose, but there is still some work to do because we are in new territory. We cannot be casual about 10 million people and £16 billion of assets. We must all maintain vigilance over the development of this scheme and we look forward to it being introduced, hopefully in a constructive way, in October this year.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for her very full introduction of these master trust regulations and for the extensive accompanying documentation made available, notwithstanding that it had to compete with tennis at Wimbledon, the World Cup and a decent game of cricket. I join my noble friend Lady Drake and the noble Lord, Lord Kirkwood, in thanking the Pensions Regulator for a briefing that provided us with an update on what is happening in the market and on what the regulator is doing to build capacity for the authorisation process.

I should say at the outset that we are, of course, supportive of the Pension Schemes Act 2017 and of the thrust of these regulations, which flow from it. We particularly support option 2 in the impact assessment, which explains, as has the Minister, the introduction of a new compulsory authorisation regime building on the framework of the voluntary master trust assurance framework.

As has been acknowledged in this short debate and previously, the growth of master trusts is associated with the success—I think “phenomenal” was the word used—of auto-enrolment, with now some 1.1 million employers automatically enrolling 9.4 million eligible workers. As of March 2017, 59% of those auto-enrolled have been enrolled into a master trust. Hitherto the regulatory regime applicable to master trusts—that applicable to DC occupational schemes—was largely designed to address risks of single employer schemes. As the impact assessment sets out, such a regime of itself is inadequate to cater for new types of business structures associated with master trusts, with changes to the relationships between key players, the introduction of the profit motive and coping with multiple employers, not to mention the scale of some of the providers. There is a need for a regulatory regime that encompasses an authorisation process, fit and proper persons requirements, financial sustainability and scheme funder requirements, a continuity strategy and an obligation to notify the regulator of significant events.

As the Minister said, we know that such a regime will hasten the process of consolidation of schemes. Indeed, this has already begun. The Pensions Regulator told us that, from a starting number of 81 schemes, some 45 are expected to go through to submit formal authorisations, although page 26 of the impact assessment refers to 87 being within the definition. Perhaps the Minister can reconcile those two numbers for us.

Some of these regulations came into force on Royal Assent, and the remainder will come into force on 1 October 2018, with the exception of Regulations 23(2)(b)(i) and (ii), which come into force on 1 April 2019. These appear to relate to the application of fraud compensation facilities. Could the Minister explain why there is this different starting date, and can she tell us under which provisions the current consolidations are proceeding? Do some precede the application of the 2017 Act and, if so, what difference does this make? Could she also say how many different master trusts have been recipients of transfers in when others have exited the market, and how these were identified? She will be aware of the discussion which took place during the passage of the Bill, led by my noble friend Lady Drake and supported by the noble Baroness, Lady Altmann, concerning a funder of last resort to manage cases where there is no trust prepared or able to take a transfer. What in these regulations will give reassurance on this point beyond what is in the Act? What is the contingency plan, where records are a shambles—the noble Lord, Lord Kirkwood, referred to those circumstances—and there are insufficient resources? When debated in the Commons, the then Minister explained that the Government were working to establish a panel of white knights. Could we have an update on progress on that?

During the passage of the Bill we debated whether it would be appropriate for the member engagement strategy to be included in the application for authorisation. Although resisted at Committee, the Government undertook to ensure that the regulator should take account of communications matters when deciding whether the scheme is run effectively. Perhaps the Minister will outline what is now proposed. She might also say something about what responsibilities might be placed on master trusts concerning communication and engagement with a pensions dashboard. I join the noble Lord, Lord Kirkwood, in probing exactly what is happening on that. Perhaps we can hear what progress is being made.

Universal Credit

Lord Kirkwood of Kirkhope Excerpts

Thursday 5th July 2018 Lords Chamber

[Baroness Buscombe]

My Lords, first, I make it absolutely clear to your Lordships’ House that right from the start, when the report was published, there has been no issue with the factual information that the National Audit Office has used. In collating that information, there has been and continues to be a strong relationship between the National Audit Office, the Department for Work and Pensions and the officials. That is important. It is the interpretation of these facts and the conclusions drawn as a result that the department questions, as I said in the Statement. A lot of it is about context rather than saying that there is any issue with the facts.

We are absolutely clear that, as the report says, the National Audit Office completed its independent review of the universal credit programme after analysing evidence that we collected between August 2017 and April 2018. The issue we have is that we are still not able to judge, and nor is anyone, the full impact of significant policy changes that we have announced and implemented since the Budget last autumn. They include extending advances, which was implemented in January 2018, removing waiting days in February 2018 and the housing benefit run-on. The report makes it clear that it is referencing evidence up to April 2018. On the housing benefit run-on, it was impossible for us to measure the extra two weeks’ additional cash to cover people transferring from the old legacy benefit on to universal credit, which they would not have to repay. Each of these measures will take time to impact on the experience of claimants and stakeholders. Although some of these measures were mentioned in the report, their impact would not have been felt during the evidence-gathering period.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I am absolutely in agreement with the noble Baroness, Lady Sherlock. This is a quite extraordinary state of affairs. I have been following social security since 1986. I have never seen such an explicit letter of correction from such a distinguished public servant as the Comptroller and Auditor-General, Sir Amyas Morse. Two things follow from it. First, I hope the noble Baroness can give the House an assurance that the Secretary of State will take whatever steps are necessary to repair the relationship between the political leadership of the DWP and the Comptroller and Auditor-General’s office. That is essential for the good conduct of the universal credit programme in future, and that work needs to be done.

What I find extraordinary, because I know how much trouble goes into negotiating reports—and this one was signed off on 8 June—is that if the Secretary of State is founding her defence on the fact that she does not think that the NAO knows about the recent changes to waiting days, advance payments and HP run-ons, she is demeaning the value of the historical analysis that is so valuable to the prosecution of public policy. That must be put right too. This is serious territory that needs to be addressed urgently.

[Baroness Buscombe]

My Lords, it is important for me to make clear that my right honourable friend the Secretary of State for Work and Pensions has already apologised, and that apology has been accepted by the House of Commons and the Speaker of the House of Commons. Following Oral Questions on Monday, my right honourable friend was afraid that she had mistakenly used a term that was not an accurate term reflected in the report. My right honourable friend therefore went to see the Speaker. This was entirely independent of the letter produced on Wednesday, so there is no question that my right honourable friend has tried to avoid, evade or do anything untoward. My right honourable friend was very clear that she was mistaken, she was wrong and she was very keen to put that right at the earliest opportunity. Hence, the Speaker accepted that apology yesterday.

The meeting on Monday will of course be extremely important. We accept the facts in the report. We do not deny the facts; we support the facts. In a sense, we are saying, “Please, please, National Audit Office, we want to demonstrate that the impact of the changes undertaken, particularly those made last autumn, is yet to be proven”. She will want to make that absolutely clear.

There is no question but that we will look with care at what has been said in the report. I am sure that we will implement those recommendations that we feel able to from the report.

Automatic Workplace Pension Enrolment

Lord Kirkwood of Kirkhope Excerpts

Monday 25th June 2018 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is a tremendous pleasure, as always, to follow the noble Baroness, Lady Drake. Years ago, as one of the original pensions commissioners, she set the agenda for the United Kingdom and that has been pursued on an all-party basis ever since. I agree with most of the analysis of the noble Lord, Lord McKenzie, so that consensus is still clinging on by its fingertips. I hope that the Minister will reflect carefully on the three intelligent and penetrating speeches that we have had so far. I agree and concur with a lot of the analysis and many of the conclusions.

Like the noble Baroness, Lady Drake, I was slightly disappointed that the pensions review published at the back end of last year did not have a bit more new thinking. I also reflect some of the disappointment felt by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Primarolo, about the lack of urgency about what happens next. So far as I am aware, next to nothing has taken place since December 2017. One would like to think that the urgency of the issue and the changes we are seeing in our labour market—never mind the pensions environment—would have encouraged our new Pensions Minister, who is an able young politician. I was expecting him to blaze a trail using the pensions policy, even if it was by throwing out new ideas, starting new consultations and getting new lines of inquiry started. There has been a deafening silence since December 2017, which is unfortunate.

We need to concentrate on some of the issues that the pensions review raised. I agree with the noble Lord, Lord McKenzie, on underprovision, the trigger level and the overall landscape, but in particular we should focus on the unemployed. The noble Baroness, Lady Primarolo, concentrated on the excellent TUC evidence on women and the gender issues that hide behind some of this important policy creation. They are all very important.

I was glad to see that the chosen subject for this evening directly references the proposed timetable. To aim to get things in place and properly changed by the mid-2020s is far too unambitious. Of course we need to be careful about planning changes in good time. Planning needs to be done and we need to be careful and study how the increased contributions in 2018-19 will affect the success of the policy, because it has been successful so far. But there is a difference between 2019 and 2025, and consultations can be carried out in six weeks. There is a yearning that the Government will be Maintaining the Momentum—a wonderful title—as that cannot easily be done by anyone else.

A number of things are available to the Government to introduce the nudges, the policy developments and the progress that needs to be made through the new single financial guidance body. Financial guidance is an integral part of developing auto-enrolment, because financial education is still deficient and people still do not realise the consequences of undersaving. The progress we should be making on the pensions dashboard is important; perhaps the Minister could say something about the progress that has been made on that. Some issues are emerging, such as some of the split small pension pots for low-income households, which is slightly concerning.

A lot of work needs to be done, but more than anything else we want to see more commitment to making progress faster. It is not about being precipitate but about moving faster and getting some plans that we can all look at and intelligently cross-examine. None of that seems to be happening at the moment. If the Minister is determined to hold on to the all-party consensus—I know that she is—she will need to address some of these things with some urgency and satisfy us that everything that can be done is being done. This is an absolutely crucial part of future public policy for the United Kingdom. I know that she cares about it and that the new Minister cares about it as well. I just wish that we had some more tangible demonstration that the Government are thinking about it and coming forward with the kind of ideas that we all look forward to studying in the immediate future.

Universal Credit

Lord Kirkwood of Kirkhope Excerpts

Monday 23rd April 2018 Lords Chamber

[Baroness Buscombe]

I thank the noble Baroness for her question; I know that she has great interest in this area. As I have said before, we are continually working to improve the work capability assessment. As a result of our Budget announcements last autumn, it is now possible for people to have a 100% advance on their universal credit while they are waiting for that assessment. I emphasise that those with severe disability do not now have to go through further work capability assessments. I assure the noble Baroness that we are constantly looking at this, working to improve the training of our work coaches and all the professionals involved in work capability assessments, to make sure that we minimise the number of people for whom we fall short in terms of support and protection.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, coming back to the rollout of universal credit, surely the Minister’s department’s priority in the short term should be to improve the quality of services available to vulnerable applicants for universal credit at a local level. Will she commit to working with her local authority colleagues to establish a more widespread network of multi-agency hubs, which have proved so effective in getting people from disadvantaged families through the transition process? Does she agree that multi-agency hubs are a much better form of support than food banks?

[Baroness Buscombe]

My Lords, it is right to say that our focus is not necessarily on multi-agency hubs but on proper signposting by our work coaches to make sure that, working with local authorities, we protect those vulnerable groups. A particular example is prison leavers. We have made sure that they can now have up to 100% advances on their universal credit the moment they leave prison. Vulnerable groups are at the forefront of our minds.

Universal Credit: Free School Meals

Lord Kirkwood of Kirkhope Excerpts

Wednesday 14th March 2018 Lords Chamber

Asked by

[Lord Kirkwood of Kirkhope]

To ask Her Majesty’s Government what assessment they have made of the effect on Universal Credit work incentives of the recently announced proposals for passporting family entitlement to free school meals.

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

My Lords, the Department for Work and Pensions has been working closely with the Department for Education to support the delivery of their eligibility criteria for free school meals for universal credit claimants in England. When the Social Security Advisory Committee, which is independent of government, looked at this issue in 2012, it found that there was no rigorous research evidence to show that the provision of passported benefits acted as a work disincentive.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I am grateful for that Answer. I would like to remind the Minister of the policy promise that was made in a White Paper back in 2010 when universal credit was first introduced, and I want to put to her a question that relates to a statement made in the foreword by the then Secretary of State:

“Universal Credit will mean that people will be consistently and transparently better off for each hour they work and every pound they earn”.


Does the Minister accept that, under the proposals which are being brought forward, that proposition will no longer always be true?

[Baroness Buscombe]

The simple answer to the noble Lord is no: I do not accept that. I think it is important to dispel straightaway any potential misunderstanding of what we are doing to safeguard the free school meals system for the future. The Government’s purpose here is to ensure that the programme continues to reach the most disadvantaged households in a way that is consistent, simple and fair. As the rollout of universal credit continues, it is no longer fair to retain the temporary measure, which we always said was temporary, that allows all households in receipt of universal credit to access free school meals. That said, the new rules will ensure that the provision of meals continues to be targeted where it is needed most, with 50,000 more children expected to benefit by 2022 as compared with the previous benefits system.

Social Security Benefits Up-rating Order 2018

Lord Kirkwood of Kirkhope Excerpts

Tuesday 27th February 2018 Grand Committee

I would be very grateful if the Minister could touch on those points and, if she cannot because of time constraints today, I will be more than happy for her to write to me explaining exactly what the Government’s strategy is here.

[Lord Kirkwood of Kirkhope (LD)]

It is a pleasure to follow the noble Baroness, Lady Primarolo, who did some excellent work on child poverty when she was a Treasury Minister, and I agree with everything she has said. I am pleased to join with the noble Baroness, Lady Lister, in that my reason for being here is that my public last year discovered that I was not here either. So here I am—but I am escaping the hour and a half of the consideration of the Secondary Legislation Scrutiny Committee by being here, and I have more friends in this Committee than I have upstairs.

I have not had a chance to say this, but I am very pleased to welcome the Minister to the Dispatch Box; I was dismayed by the wholesale shift of the ministerial team at the DWP recently—the only bright spot was that she survived. But I make a serious as well as a flippant point. With a change of that scale at a stage like this, in the middle of all sorts of huge policy changes, and—I am going to mention it once, because every meeting is allowed to mention it only once—the EU withdrawal process, it is very difficult to be confident that any Minister, no matter how engaged and diligent, can really grasp the full complexities of this subject area. It makes my heart sink when I think about exactly what the chances are facing the department, but I am pleased that the Minister is here. I know that she will make a contribution and listen carefully to today’s debate.

I award the DWP employee of the month prize to Mr Ben Pugh who at paragraph 7.7 of the draft Explanatory Memorandum to the statutory instrument came up with this marvellous sentence, which I shall keep as a special uprating debate moment:

“These amounts will therefore be increased by 3.0085%—the difference between £159.55 and £164.35 as a percentage of £159.55, taking account of the rounding of the new full rate to the nearest 5p”.


I think the paperwork we are presented with in consideration of these orders is becoming less useful. The noble Baroness, Lady Lister, asked a couple of really pertinent questions which would be much more relevant to understanding where we have been and where we are going, in terms not just of the spend that we have seen in the past but the affordability of what is going on, and a comparison. Anybody who has a Twitter account can see that the Resolution Foundation is drop-dead marvellous at putting these things in graphs—it makes them so much clearer and so much starker. Admittedly, the Government’s opening statement concentrated on the welcome additions to the pensions, the disability premium and all the rest, at 3%. I think they are right to do that and it is very welcome, but when you look at some of the disparities in the other spendings and you factor in the cuts, caps and freezes, some of these situations are much easier to understand if seen visually.

This is not making the Government’s job any easier but I make a plea that in future, we have an intelligent discussion about affordability, even if it is one of the little round tables that we often have and the Minister is kind enough to arrange. That is what I am driving at, because I am very nervous. In terms of the demographic change, I do not think we can afford the triple lock. I am not saying that it is my party’s policy to abolish it but if I have my way, it will be, because after 2020 the thing becomes impossible to sustain if you look at the economic picture over 20 years.

The Office for Budget Responsibility Welfare Trends Report was very instructive about the fragility, if I can put it that way, of the basis of universal credit. At the end of the day this will be a £60,000 million spend, covering 7.7 million households across the country. If the OBR cannot say one way or the other whether this is going to work properly—it is a very interesting report if that is what it is saying—that has to be taken into account in considering these orders, because we are setting the policy for the next few years. It is something we need to think more carefully about. We need to try to get better value for the spend we are making in these orders.

One of my most recent visits to universal credit—it is something I am thinking more clearly about and organising some extra visits, with the Minister’s help—led me to think about our ability to support families, not just with money but with signposting and warm handovers. There is a big difference between the two, but that can and should develop so that we are not just offering people a guarantee of 3% or whatever it is. We need to get better value for money by, for example, liberating the ability of people who are recently retired and are still relatively healthy: the longevity bonus, if you like. We need to take a community approach and offer them some incentives, to operate alongside families with chaotic lifestyles.

We need a long-term plan. Before the end of 2020, I would like us to structure a social protection system that is open about what percentage of the national wealth should be devoted to it. Then, if the economy goes up, we all enjoy the benefits; if it goes down, I think people would be prepared to accept that that is the way the world works. That is much fairer than imposing cuts, caps and freezes between now and 2019-20. The evidence indicates that low-income households will be assessed in a much harsher context than I have seen in my time in public life. I am older than I look and I have been round the block, but, seriously, come 2020, that will be the result if the benefit freeze is allowed to continue. The evidence is clear. My two colleagues earlier referred to their takes on this issue. We have the IFS, the Joseph Rowntree Foundation and the End Child Poverty coalition. The United Kingdom is blessed with an experienced and trusted research community that can be relied upon to carry out this work.

Of course, no one has the ability to foretell the future but all the indicators suggest that this situation will get a whole lot worse before it gets better. I do not think that it is sensible merely to tackle this from year to year and stick with policies crafted when inflation was 1%. It is now 3% and we are told that local authorities are contemplating putting up council tax by 6%. That just will not work. The End Child Poverty campaign has said that the poverty premium is now £1,700 a year for some households in some parts of the United Kingdom. That is a much higher figure than I have ever seen, so this is all pointing in the wrong direction. It is not safe to leave this freeze in place without thinking very carefully about where it is going and what we are going to do at the end of it. My honest opinion is that public opinion will not put up with the consequences of the current policy if it continues to 2020 and 2022.

I know that the Minister will think about this issue sensitively and carefully and will use her influence as one of the most senior Ministers in the DWP to twist people’s arms. I hope that she will kick down the door of the Treasury to try to inject a bit more realism with regard to what the department is facing. If she does not, the consequences will be picked up by low-income households and children living in poverty, as we heard earlier. They do not deserve that. We as legislators should pay more attention to putting these things right before they get too out of hand.

[Lord Jones (Lab)]

My Lords, I thank the Minister for her exposition, which was, as ever, very precise, and welcome my noble friend on the Opposition Front Bench. I also welcome both these orders. The triple lock is welcomed by millions of people. Looking at the complexity of these two orders and at the long list of the Committee’s business today, I might be forgiven for expressing the personal view that perhaps they should have been taken on the Floor of the House. We have discussed a huge range of benefits in a short period of time. We have had a short debate, yet the issues are huge, the moneys are mighty and they all relate to the citizenry—our people. All of us want better things for the people of our nation.

In Part 2, the DLA is increased by £2.50 a week. That is surely welcome, but will the Minister say why the increase could not have been bigger, given the difficult times that are experienced by so many people, who are just getting by or not even getting by? Part 2 also refers to bereavement benefits and the bereavement support payment. The latter is not to be increased. Will the Minister, in the fullness of time, say why not? Surely that is worthy of an increase.

--- Later in debate ---

[Baroness Buscombe]

This has been a really lively and interesting debate. It is right that I emphasise that these orders are not about the benefit freeze and a fair number of other issues raised by noble Lords. However, having said that, I shall attempt to do my best to reply to noble Lords.

I have some news, also, for the noble Lord, Lord Kirkwood. He was here last year. Indeed, there are some similarities in his speech. I have to say that some aspects of it I have enormous sympathy with, so I shall come to that, and I welcome his contribution to this debate.

I shall cut straight to the issues of benefit freeze. It is not a cut—it is a freeze—and it is part of a package of welfare reforms designed to incentivise work, which we know is the best route out of poverty. I want to talk about the things that we have done that are really positive, because I fear that if one listened just to noble Lords opposite one would have a sense that somehow everything is going completely wrong—but that simply is not the case. However—and I shall come to this again in a few minutes—the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Sherlock, touched on the issue of affordability, which is a really tough and prescient one. Indeed, it has exercised my mind and thoughts since I arrived at the Department for Work and Pensions, given the huge sums of money that we are spending on welfare. We are spending more on pensions alone than we are spending on education and defence put together—£100 billion a year out of a total government budget of £750 billion. That is a huge proportion. Yes, there are some really difficult choices; it is all about choices—so are we making the right ones? We believe that we are, but we will have disagreements, of course. Indeed, there will be disagreements not only across the House but in another place as well, which is entirely laudable. But as the noble Lord, Lord Kirkwood, said, all of us need to keep thinking in terms of the future sustainability of the welfare system which really looks after those who are most in need.

The benefit freeze is part of a package of welfare reforms that are designed to incentivise work, which is the best route out of poverty. We have brought in 30 hours a week of free childcare for working families in England, cut income tax for 30 million people and provided the lowest earners with their fastest pay rise in 20 years through the national living wage. So yes, that is one choice that that we have made, but we have to support those who are earning and those on low wages to the best of our ability. We see that welfare reform is working. The employment rate is at a near record high and there are fewer households where no one is in work than at any time since comparable records began. However, I will say, 14.5% of all households in the UK are still workless, which is far too many.

The noble Baroness, Lady Lister, referenced the Resolution Foundation saying that inequality is projected to rise to record levels in the coming years. We simply do not believe that that is the case. There are choices. We have to make difficult choices and believe that we should focus our spending on those who need it most.

On the question raised by the noble Baroness, Lady Lister, of the burden falling on the poorest, Her Majesty’s Treasury published a cumulative distributional analysis alongside the Budget in November 2017, showing the impacts on household income of tax, welfare and public expenditure changes implemented or planned to be implemented since the 2010 general election. This analysis shows that the state is highly redistributive. On average, the 10% of households with the lowest incomes receive more than four times as much support in spending as they contribute in tax, while the 10% of households with the highest incomes contribute more than five times as much in tax as they receive in spending.

The noble Baroness, Lady Primarolo, asked whether we will lift the freeze on working tax credits, child tax credits and child benefit. I respond by simply saying that the Treasury is responsible for these benefits and it announced the 2018-19 rates at the same time as the Budget in November 2017. The noble Baroness talked a lot about children and families. We are committed to supporting families and tackling the root causes of child poverty and disadvantage. If you are a child growing up in a household where no one is in work you are almost twice as likely to fail at all stages of your education than if you lived in a working family. Children in households where no one is in employment are five times more likely to be in poverty than those in households where all the adults work. Nearly three-quarters of children from families where no one has been in employment moved out of poverty when their parents entered full-time work. That is why we are supporting parents to find and stay in work.

We have made the childcare element of universal credit more generous. Parents on universal credit can now claim back up to 85% of eligible childcare costs, compared with 70% in working tax credit, a change that is benefiting 500,000 working families. This Government are investing record amounts in childcare. By 2019-20 we will be spending more than £6 billion per year to support working families in this way. For families who face additional, complex barriers to finding work, we set out our framework for action when we published our strategy, Improving Lives: Helping Workless Families in April. I can tell noble Lords that we are doing a huge amount of work on this in the department. As I said earlier, the number of households where no one is working is actually at a record low: it is 954,000 households lower than it was in 2010, which means 608,000 fewer children in such households than seven years ago. We believe we are on the right trajectory. On a before-housing-costs basis, there are now 200,000 fewer children living in absolute poverty than in 2010.

I want to confirm for the noble Baroness, Lady Primarolo, that inflation is not at 4%; it is actually at 3%. Indeed, that is something that I double-checked with our researchers at the department. The noble Baroness, Lady Lister, asked for figures on the poverty rate since 2010 and the impact of the benefit freeze. We do not actually have those figures but the benefit freeze is part of a package of welfare reforms designed to incentivise work and support working families, including, as I have said, increasing the national living wage, reducing income tax and, of course, the rollout of UC. I will write to the noble Baroness with those figures.

[Lord Kirkwood of Kirkhope]

Is there any programme to evaluate the work-incentive point? Of course it is a perfectly obvious point and it may be working, but the only place where the data can be found is in the department. Is the department doing any work that will evaluate whether the powerful work incentive point that she has just made is actually making a positive difference?

[Baroness Buscombe]

Yes. Work is being done and I am very conscious of the fact that we should be talking more about that. We have been saying that work pays— I prefer to say that work transforms lives. The noble Lord is right. We need to do more to articulate our belief and the reasons why we are confident that we are right and that work transforms lives. It relates hugely to outcomes. It is not a simple, overnight back of the envelope matter, but we are working on it.

The noble Baroness, Lady Primarolo, asked about targets for child poverty. The income-related targets set out in the Child Poverty Act 2010 have been replaced by two new statutory measures of parental worklessness and children’s educational attainment. This will drive continued action on the areas that can make the biggest difference to children’s outcomes now and in the future. The noble Baroness also asked whether the Government would lift the freeze on working tax credits. The answer is that the Treasury is responsible for working tax credits.

The noble Lord, Lord Kirkwood, made his point with feeling, and I can only say that we are working hard and thinking about our policies going forward. The huge question is affordability. We are spending £95 billion—that is, ninety-five thousand million pounds—a year on benefits for people of working age. For how long is that sustainable? Our department accounts for 25% of the whole of the Government’s budget, which in terms of expenditure is now the size of Chile or similar, I understand. The noble Baroness, Lady Lister, referred to some overseas organisation, saying that we are behind the curve in terms of our expenditure. I simply do not recognise that, in terms of how much other countries are spending or of the choices that they have made. For example, are they paying the similar amount of 0.7% of their national income, which is what we are paying, on overseas aid?

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2018

Lord Kirkwood of Kirkhope Excerpts

Tuesday 27th February 2018 Grand Committee

I finally turn to what the evidence shows. All the changes are deregulatory and positive for employers, but minimal, are not expected to have a material impact and will also mitigate NEST scheme inefficiencies. The changes should give NEST the freedom to continue to serve its employers and members in a straightforward and efficient manner and also bring NEST into line with the rest of the pensions industry. I commend these instruments to the Committee and beg to move.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is getting later in the afternoon and there are some important debates following this, so I will be very brief on these two orders. The Minister is quite right to declare that the auto-enrolment provisions have been successful. She is also right to say that this year there are two, if not more, big changes and reforms in the existing system as it relates to small employers and to 3% contributions for employees and employers. We wish these changes well. These orders are perfectly sensible in promoting the agenda. She is also right to say that Maintaining the Momentum is a less than appropriate name for any kind of government report at the moment, but it was a good solid document and it gave confidence that there is a real prospect of delivering this scheme and building on the progress that has been made. Speaking for myself, I wish it well. I agree that the new opportunities for women in future are a signal and ambitious plan that we hope works in the way that the Minister set out, so I am very happy with the automatic enrolment order.

I have one or two pedantic questions about the NEST order. I spend a lot of time looking at secondary legislation. Paragraph 8(1) of the Explanatory Memorandum states:

“The Department for Work and Pensions consulted on the National Employment Saving Trust (Amendment) Order from 7 November 2017 to 27 November 2017”.


According to my arithmetic, that is a 20-day consultation. The next sentence is shorter: “It received five responses”. It occurs to me that one may be a consequence of the other. I understood that government consultations had to be slightly longer than that. Of course, it is a technical matter, I understand that, and the stakeholders involved might not be that numerous, but if it received five responses it is a bit rich to claim that, “the majority of the respondents were in favour” of the consultation as set out. Is that 3:2 or 4:1? I am being slightly facetious, but it is an important issue and consultation is an important part of getting these statutory instruments correct.

Coming to the substance, I think that the noble Baroness’s four recommended changes are entirely sensible. I am particularly interested in the revisions for research, because I have been involved as a trustee of schemes in the past and it is a struggle to keep the data up to date. Will the research function assist the trustee in being able to ensure that the data is as clean as it can be? Sometimes with some of these schemes, particularly involving bulk transfers, the data gets out of date—the members change their addresses, their occupations and their other personal details.

I did not know that there was no ability to carry out research as a trustee, but I think that making it explicit is a very good idea. Contractual enrolment is absolutely sensible, and removing empty schemes and accounts makes perfect sense as well. I think that NEST is also a success, as far as it has gone, so more power to its hand. I hope that both these orders work, and I will be watching developments, as I am sure everyone will be, in this important area of auto-enrolment over the rest of 2018 as these significant events come to pass.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the noble Baroness for her introduction of these two orders. I shall start with that relating to auto-enrolment. As the noble Baroness and the noble Lord, Lord Kirkwood, said, auto-enrolment has, by any measure, been an important policy success. It was founded on the independent work of the Pensions Commission, legislated for by a Labour Government, first implemented by the coalition Government and sustained by the current Conservative Administration. The broad consensus and robust analytical underpinning has been key to its success thus far, along with a design and implementation approach that encompassed government, regulators, employers, payroll firms, intermediaries and the pensions industry. This does not mean that there has always been an identity of view across parties or that the job is complete. It is not.

The noble Baroness referred to the big year 2018, which indeed has some important matters to consider but, as the earnings triggers and qualifying bands analysis for 2018-19 sets out, as at the end of November last year more than 9 million people have been successfully auto-enrolled and more than 900,000 employers—possibly now a million—have met their auto-enrolment duties. By the time the staging process is complete, the government analysis estimates that around 10 million people will be newly saving or saving more.

However, we know that just as the staging process is being completed, we are entering the year when the first phased increase in minimum contributions is to take place, leading eventually to 8% minimum contributions. Notwithstanding this, the Automatic Enrolment Review 2017 refers us to the Pensions Commission work that estimated that 8% of relevant earnings, together with the state pension, would deliver about half the level of income needed for an adequate retirement income. That is, around 12 million individuals will still be under-saving for retirement and, of these, 87%—10.4 million—earn more than £25,000 a year, so 13% earn less. While the 2017 review sets out a package of reforms to address this, it does not propose to see these completed until the mid-2020s. This package will include lowering the age threshold from 22 to 18 for young people, removing the lower earnings limit to help those with lower earnings and multiple jobs, as well as seeking to improve the retirement outcomes of the self-employed. These are worthy ambitions, but why do we have to wait for so long? Why is the current review concluding that the lower limit of the qualified earnings band should be raised, while arguing for it to be removed? Are the Government to find time for a full debate on this 2017 review in fairly short order? The review came out in December and it is very important. We ought to have the opportunity to debate it in Parliament.

--- Later in debate ---

[Baroness Buscombe]

I thank the noble Lords, Lord Kirkwood and Lord McKenzie, for their contributions to this debate and for their incisive questions. I also thank the noble Lord, Lord Kirkwood, for saying that the whole concept of automatic enrolment and the process through to its delivery and implementation has been successful. As the noble Lord, Lord McKenzie, said, this came about through a considerable amount of consensus. We hope that the changes—albeit fairly minor—that we have made to NEST will work well. Certainly for us, the whole process has been a huge success, and we hope that it will also work well into the future.

One reason why we have brought forward this order on NEST is that it is important to keep tidying up the legislation to ensure that certain requirements make sense—for example, in relation to research, as the noble Lord, Lord Kirkwood, said. He asked a question which I asked of officials while I was learning about this issue in recent weeks. Why were there only five responses to a small consultation? The truth is that of the five responses, four said, “Thank you so much for asking us but we really have no comment”. The fifth was a little bit negative, and that was it.

[Lord Kirkwood of Kirkhope]

Not a bad score.

[Baroness Buscombe]

I am glad that the noble Lord has said so. I take that as a very good sign that we are doing the right thing. Let us hope that it continues. We will ensure that we keep tidying up where necessary to keep this whole process—the implementation, the work of NEST and the work of developing auto-enrolment—as simple as possible while retaining an important balance between what is fair for the employer and what makes sense for us in communicating changes and developments in the whole programme.

The noble Lord, Lord McKenzie, asked some questions about automatic enrolment and the review proposal, including why we are not doing anything until the 2020s. Our review proposal is a comprehensive and balanced package, recognising that costs will be shared between individuals, families and businesses, who need time to plan for change. Over the coming year, we will work to build a renewed consensus to deliver the detailed design and implementation of our proposals. We need to learn from the implementation of the contribution increases, starting from this April. The support of employers and their advisers has been key to the success of automatic enrolment. We recognise the importance of giving them and savers sufficient time to plan for further changes. Our ambition is to implement changes to the automatic enrolment framework in the mid-2020s, subject to discussions with stakeholders around the detail of the design, learning from the contributions increases in 2018 and 2019, and finding ways to make the changes affordable, followed by formal consultation with a view to introducing legislation in due course.

The noble Lord, Lord McKenzie, asked about the timing of the implementation. It is important to put on the record that through the 2017 review we have set a clear direction to build a more robust and inclusive savings culture, specifically supporting younger generations with the opportunity to save for a more secure retirement.

The noble Lord, Lord Kirkwood, raised the issue of women. Increased gender parity is something that we are very pleased about, and it is making such a difference. Automatic enrolment was designed specifically to help groups who historically have been less likely to save, such as women and lower earners. The decision to freeze the trigger again for 2018-19 is estimated to bring an additional 100,000 individuals into workplace pension saving, of whom 72% are expected to be women. The gender gap in private sector pension participation has now been closed. In 2012, 65% of women employed full-time in the private sector did not have a workplace pension. As of 2016 this had fallen to 31%. I hope noble Lords will agree that that is real progress.

The noble Lord, Lord McKenzie, asked about net pay arrangements versus relief at source. Pensions taxation policy is a matter for Her Majesty’s Treasury—that sounds as if I am proposing a get-out clause. We continue to work with the Treasury and officials on this matter but a straightforward or proportionate fix has not yet been identified. However, alongside further work on the automatic enrolment changes outlined in the recent automatic enrolment review, the Government will examine the processes for payment of pensions tax relief for individuals to explore the current difference in treatment and ensure that we can make the most of any new opportunities that emerge, balancing simplicity, fairness and practicality, while engaging with stakeholders to seek their views.

I was asked why NEST needs to offer contractual enrolment. Contractual enrolment was raised in a response to the DWP call for evidence on the policy framework underpinning NEST, NEST: Evolving for the Future. Contractual enrolment is where workers are enrolled with their consent into a pension scheme under a contract and by reference to the rules of the scheme. By contrast, automatic enrolment is where workers are enrolled automatically into a qualifying scheme in accordance with the Pensions Act 2008. Contractual enrolment often covers groups of workers who do not qualify for automatic enrolment, such as those earning less than £10,000 per year or those aged under 22.

The majority of respondents who mentioned it in the call for evidence thought that any qualifying scheme should be open to all of a participating employer’s workers, including those who are contractually enrolled into it, as is normal in the industry. The Government expect that this change could ease administrative burdens on some employers who are already using NEST, and could result in small increases in the number of workers benefiting from workplace saving and an employer contribution. This change is minor and technical in nature and supports the delivery of the service of general economic interest defined in the approval granted to NEST.

The noble Lord also asked about empty accounts. Very briefly, it is just an issue of churn. Some people fall out of the system; more come in. We wanted to make sure that we tidied up the process. In fact, we are reducing the number of schemes, which will make it easier to administer. It is not anything that we feel we should be particularly concerned about, it is just a general issue of churn.

I hope that I have been able to answer all noble Lords’ questions. If I have failed in any way, I would be very happy to write. The long downward trend in pension saving has reversed. The number of workers saving into a workplace pension scheme has increased to almost 9.3 million. In practice, the changes will be delivered largely by the payroll and advisory communities, which have worked hard to support the introduction of automatic enrolment, providing a range of products to help employers comply with their automatic enrolment duties. NEST is playing its vital part in this success story and we need it to continue to do so.

Family Relationships (Impact Assessment and Targets) Bill [HL]

Lord Kirkwood of Kirkhope Excerpts

2nd reading (Hansard): House of Lords
Friday 23rd February 2018 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Blencathra; his ministerial experience is of great value to the House and I look forward to studying his speech in more detail in the Official Report. I am delighted to be here. My idea in coming was to support the noble Lord, Lord Farmer, in his consistent and long-established quest to make improvements in this important area of public policy. He has done an enormous amount of work behind the scenes, and this Bill is part of that. He is right to say that he should be pleased with the turnout that he has got this morning; the House will value his continuing work in this important area. I do not think anybody is going to say anything critical about this Bill, except that maybe we should have more of it, and faster.

I have a small niggle, however, on the Long Title of the Bill in that it refers to the Secretary of State. The Secretary of State is referred to all through the Bill. I assume this is the Secretary of State for Work and Pensions, but there is an ambiguity there and, if we get to Committee stage on this important Bill, I will move an amendment to clarify that point—that is also to demonstrate to noble Lords that I have read the Bill.

[Lord Skelmersdale (Con)]

It is my understanding that—this has always been the case, for as long as I have been in this place—a reference in legislation to a Secretary of State means any Secretary of State at any time.

[Lord Kirkwood of Kirkhope]

That is fantastically good news for the noble Lord, Lord Farmer, and the rest of us.

[Lord Farmer]

My Lords, I just agree with that.

[Lord Kirkwood of Kirkhope]

So, we are all agreed about that. I am now looking at new departments and new Secretaries of State with enthusiasm and I am glad the point has been clarified; I will go home a happier man.

Family impact assessments are a very valuable tool and we should be developing them. As this Bill makes quite clear, they allow for some perspective and anticipatory thinking at the policy-making level. I can see the effect of this; I serve on the Secondary Legislation Scrutiny Committee and government departments are now getting much cleverer about impact assessments supporting, in terms of statutory instruments, the primary legislation that spawns the orders. What we should be doing here, and what I think the noble Lord, Lord Farmer, is trying to do, is to change the culture in departments so that they are always thinking about how this will work through the policy development. If they are doing that right at the beginning, it makes it much easier to get the policy right.

I think that departments—from an opposition point of view, this might be an unusual thing to say—should be braver about talking about the real costs of some of this policy. I was looking recently at some of the predictions and forecasts—we can never be sure that they will happen that way—and, frankly, in the next 20 years, when you look at the demographic change that this country is facing and all the other problems such as climate change, the resources available to do this family support work will get harder and harder to find. In telling the unvarnished truth, nobody wants to frighten anybody about all this, although some of the forecasts are really quite depressing, but we have to be realistic.

[Lord Framlingham (Con)]

I agree very much with what the noble Lord is saying, and I am following his speech with great interest. He is talking now about costs, but does he not think it is worth considering that, if the family stay together more, the likely result of that is an enormous cost saving, both in money and other ways?

--- Later in debate ---

[Lord Kirkwood of Kirkhope]

That is a helpful intervention, because I absolutely agree with that. Family impact assessments are an important tool in getting to that point. That was the point I was going to make.

We need to look not only to local authorities—as the noble Lord, Lord Blencathra, and the noble Baroness, Lady Massey, mentioned—but to try to capture some soft support systems in neighbourhoods and communities in future. That is new for me; I look to the noble Baroness, Lady Stroud, when I say this, but I have always kept a bit of distance from the agenda that she has been very positively promoting in her own way, because I always had a suspicion that Conservative Governments and Conservative Chancellors in the past have sometimes used it as a way of saying that we do not really need to keep up the benefit expenditure. I am in favour of individual entitlements to benefits, and when you look at the cuts, freezes and caps, that has not been made any easier. But even I—if I can put it that way—am now thinking that we really need to look at some of these symptoms that the Centre for Social Justice and others have been looking at, as additional methods of support. We can make it more cost-effective if we have more effective family policy, and I think that this Bill does that, particularly in setting up objectives and targets, looking at reporting and being transparent and honest about that reporting.

I have a couple of points to contribute to the debate. The DWP has an enormous amount of data. The quest of the noble Lord, Lord Farmer, could be assisted considerably if some of the really clever people in the research department there thought about how to cut across and tabulate some of the real-time information. There is a minefield—no, not a minefield, a mine. What am I trying to say?

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

A mine of information?

[Lord Kirkwood of Kirkhope]

Ministers have their uses. There is a mine of information in the DWP, and Ministers should go back and ask whether some assistance can be given to this kind of policy programme. The data needs to be made available to local authorities, although you obviously have to be careful about data protection. There are rules about that, but you should be testing them to the limit of what is useful if that makes a difference to identifying some of the anticipated problem families. Big data is now so clever that you could begin to get, not algorithms but almost algorithms, which would anticipate where the problems were. You could make available the priorities in terms of the spatial dimension in deprived areas; and professionals in the department, and in local authorities, could start to be provided with data on circumstances that would help them to anticipate where future problems would arise. In support of family impact assessments, the department should do a little bit of work to see whether any help could be provided in that direction.

I spent a very interesting morning at the universal credit centre in Dover, where I observed two applications. I am saying this against myself—I was really looking for problems that I could come back and attack the DWP about, but they both went swimmingly well. It was clear that the job coaches were signposting people who had individual problems. That is what they should be doing, but they could be doing more of it. The noble Lord, Lord Farmer, rightly said that policy is pointed at individuals. Universal credit is actually pointed at households. The claimant commitment could go as far as saying to people coming on to universal credit for the first time that, if anyone who has signed up to it sees problems arising in their household that might lead to family breakdown, they could phone. The “Ghostbusters” number should be that of the universal credit coach who could hold the ring and say, “Let’s see what we can do”. I know that they have only got a certain amount of time available and they are not looking for things to do. However, in the course of these interactions with people coming on to universal credit, we might start to look at family problems a bit more broadly. That is a good place to start the discussion.

Finally, I say to the noble Lord, Lord Farmer, that if this does not work, we should think about getting more robust about enforcing it. If the DWP cannot do it, it should go to the Cabinet Office or to somebody who has control of all the Secretaries of State, now that I hear they are all in play—I hope that includes the Treasury. In the course of discussing the Bill, I hope that this House will send a clear signal to central government that we are not going to allow the family test failure to happen again on this Bill. If they do not get it right, we will come back looking for more and we will not be long in doing it. I support the Bill and encourage the noble Lord, Lord Farmer, whom I thank for the opportunity for this debate. I will stand shoulder to shoulder with him in his future work in this important area.

Personal Independence Payments

Lord Kirkwood of Kirkhope Excerpts

Tuesday 23rd January 2018 Lords Chamber

[Baroness Buscombe]

My Lords, I shall respond robustly to what the noble Baroness opposite has just said by making it absolutely clear that this Government have been far more generous in supporting people with mental health conditions than the previous Labour Government, who put off any changes to disability support, particularly in relation to mental health conditions, until after the general election of 2010, which by then was too late.

This is not a policy change. We are going back to the heart of the policy intent and relates to those in psychological distress. We have accepted the Stevenson/Farmer recommendations, which shows that we are committed to supporting claimants with disabilities. We are also working with a range of disability charities to implement the judgment in the best way. We will look at appeals, to which the noble Baroness opposite made reference, but we want to make sure that we get the process right. We have already spoken with the charity Mind on how we implement the judgment. The Minister for Disabled People, Health and Work in another place talked only yesterday with a disability charity consortium to discuss the decision and to hear its views on implementation. We will reach out to claimants and look at every one of them.

To be clear, we are spending over £50 billion on disabilities. We are entirely committed to this issue—indeed, it is one of the Prime Minister’s top priorities. I can confirm that this was never a cost-saving measure. The judge in the case made references to cost saving but we do not agree with that. Indeed, we have focused on being more generous through the introduction of PIP and, as a result of the judgment, we will rightly become even more generous in supporting people with mental health conditions.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, perhaps I may ask the Minister about the process. I fail to understand why, in March 2017, the Government did not have recourse to the power available to them under the Social Security Administration Act 1998 to suspend the implementation of adverse legal judgments pending further and better particulars. If they had taken that route they would have had recourse to the SSAC and a proper consultation, which would have prevented this adverse outcome from the High Court. Will the Minister learn from this and give an assurance that in such future circumstances, the Government will use the unique power the DWP has to prevent getting egg all over their face and causing adverse circumstances for many claimants who do not deserve that kind of treatment?

[Baroness Buscombe]

I hear what the noble Lord is saying. This is one of the reasons why the immediate response of my colleague the Minister for Disabled People—and indeed the Secretary of State—was not only to decide not to question the judgment but to do everything we can to help claimants. That is why we have already had early meetings with stakeholders and organisations who can help us think through how to ensure that we do not make mistakes going forward. It is important to say that the 2017 amending regulations did not represent a policy change. The distinction was based on the considered advice of highly qualified medical advisers, and the activities considered in PIP are used as a proxy for assessing a claimant’s overall level of need in daily life, which is what we were focusing on.

Financial Assistance Scheme (Increased Cap for Long Service) Regulations 2018

Lord Kirkwood of Kirkhope Excerpts

Monday 22nd January 2018 Lords Chamber

I also congratulate the Pension Protection Fund on taking over the administration and on its robust management of the Financial Assistance Scheme and, indeed, of the Pension Protection Fund itself. Given the news of the Carillion situation, this is a timely reminder of how important our system of pension protection and insurance for failed pension schemes is, compared to the dreadful situation that existed in this country not that long ago. We just had the 10th anniversary of the extension of the Financial Assistance Scheme to mirror the PPF. I support these regulations.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Altmann, who has devoted her lifetime to working in this area. It is much to the benefit of the House that she is able to contribute to these debates. I agree with much of what has just been said, both by her and by the noble Lord, Lord McKenzie.

These regulations are welcome as far as they go. I agree strongly with the parity position the Government have taken between the PPF and the Financial Assistance Scheme. That makes me ask why there has been this delay in getting this statutory instrument brought forward, because last year we dealt with the PPF in a similar set of regulations, and I cannot understand why the two sets of regulations were not done at once. That might sound nit-picking, but it is symptomatic of the way the Financial Assistance Scheme can be treated as a poor relation of the PPF rather than as having full parity.

I declare an interest, although it is with a small “i”, because I am a member of the Secondary Legislation Scrutiny Committee, which looked at these regulations quite carefully. We got some assistance from the DWP, for which we are grateful, and the responses now appear in appendix 3 of the committee’s 15th report. A number of questions were raised when the committee looked at this issue. The noble Lord, Lord McKenzie, mentioned it, but although the Hampshire case has been going on for a long while and is now in the Court of Appeal and subject to the European Court of Justice, it has a bearing on this. We are entitled, at the very least, to an update on where the Government are. I know that the matter has been referred by the Court of Appeal for some further advice to the court in Europe, but the implications for these regulations would be quite direct and could be dramatic. It is therefore only right that the House should ask for what further update is available to the Minister this evening.

I will also ask some questions about the administrative costs. It is music to my ears that the costs of the IT system that is being introduced have been cut by nearly half—except I wish I believed that that happened in the real world. If we are talking about 290 continuing members—it is essential financial support for them—and the total cost of the scheme is £1.2 million a year for the next eight years or thereabouts, the Scotsman in me thinks, “Is there not a cheaper way of doing this?”. We are spending a lot of administrative money which might be made available to the 290 members currently in receipt of support from the FAS.

With the help of some clever actuaries—who do exist, and can come up with creative solutions—I wonder whether, in a closed scheme, some of the liabilities that the FAS has taken on could not be capitalised to the advantage of the members of the scheme. I see the noble Baroness, Lady Altmann, who I call my noble friend, having a long look down her nose at that suggestion. That may conceivably not be possible but my point is that we have a lot of administrative work in taking these liabilities seriously, as we should. But does common sense not give us an opportunity to look at a cleaner, long-term way? It might mean a payment up front to deal with it but we could then close the book on a full and final settlement, which would be to everyone’s advantage.

The proposal is that the DWP will have to bring in these uprating orders for the FAS of plus 3%, or whatever it is, for the next eight to 10 years. I do not understand why they are not valorised in some way to CPI. I know that some elements of it are but it seems something of an administrative sledgehammer to crack a nut to go through regulations to do this, when it is obvious that it is in parallel with the PPF scheme. We all know what is going on. Why is it not automatic and set at a rate that everybody understands, to prevent us having to do this in future?

Finally, on a powerful point made by the noble Lord, Lord McKenzie, in my experience, when there are requests for information on which some of these calculations are made, the data that some pension trustees produce are dodgy if not fake. The Government need to be careful that they address that problem properly because, if they do not, inaccurate calculations are being made in a way that could prejudice the members of the scheme, who are not in a financially advantageous position. It is in everyone’s interest to make sure that they get what is due to them. Having said all that, I am happy to join others in supporting these regulations.