Pension Schemes Bill

Lord McAvoy Excerpts

Tuesday 27th January 2015 Lords Chamber

Moved by

[Lord McAvoy]

10: Before Clause 67, insert the following new Clause—
“Scale of pension schemes
(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.
(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.
(3) The Pensions Regulator shall have the power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.
(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.
(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.”

[Lord McAvoy (Lab)]

My Lords, Amendment 10 would ensure that the fiduciary duty of pension scheme trustees should include a duty to consider whether the scheme had sufficient scale to deliver good value for members. It is the same amendment that we proposed in Committee but, having reflected on the Minister’s answers, we believe that this is so important an issue that we want to return to it.

The Minister said in Committee that,

“although … the market is driving things in the direction of scale, it is the case that managers and trustees should be considering this as part of their duties”.—[Official Report, 7/1/15; col. 393.]

He also said that the framework was already there to enable mergers and scaling up, and indeed they are happening. However, it is crucial to us on this side of the House, whether the issue is governance and transparency or the way in which duties are imposed on trustees, that we should always be looking to get best value and protect the interests of the public throughout this process. Strengthening the arm of the Pensions Regulator will help to achieve that scale.

It is our view—and that of the Pensions Regulator, which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes, and we want a process in place to try to reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful, but would give powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pension industry that scaling up will have to happen, and that in doing so costs would be reduced and there would be a better outcome for savers, I hope and believe that the Government will wish to support the amendment. I beg to move.

[Lord German (LD)]

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

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

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

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

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

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

--- Later in debate ---

[Lord McAvoy]

I thank the Minister for his response. However, I have struggled a wee bit to align some of the comments made by the Minister and by his loyal and noble friend Lord German. We have been accused of saying that bigger is beautiful, but no, we did not, and of saying that bigger is best, but no, we have not said that. The Minister has used the word “sledgehammer” to describe this minor, moderate amendment, and it is just not true. The noble Lord, Lord German, referred to a “forced marriage”. The only forced marriage I see is, more appropriately, across the Benches here and it is heading for a rocky end in divorce and mayhem and not on good terms either.

I repeat what the amendment would do. It would ensure that:

“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.

The only duty is to consider. It is not a forced marriage, it is not bigger is best, it is not big is beautiful, and it is not a sledgehammer. I am losing track of all the various adjectives used here to describe this little amendment. We think it is a reasonable duty to give them to make sure they at least consider it. No force of any kind is envisaged at all. The Minister is not an extreme person but I am disappointed that he has perhaps been waylaid by his loyal and noble friend into using some extreme language which does not fit the amendment. However, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.