Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 21st November 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I shall speak to Amendment 2, which we have in this group. I say to the noble Lord, Lord Flight, that the intent of our amendment is not to take schemes out of the definition of master trusts but to probe where those boundaries currently are, because there is a lack of clarity in some respects.

Before I touch upon the detail of the amendment, it might be helpful if I set out the context in which we plan to approach Committee. We have already made clear our support for the thrust of the Bill and what it seeks to do, but much of the detail is missing and will depend on regulations, at least some to be informed by further consultation. There are policy gaps, as well as gaps in the operational detail. The impact assessment recites that there is still,

“significant uncertainty over the full impacts of the proposal, as costs will be determined by the details to be set out in subsequent secondary legislation”.

Additional costs for master trusts and for the Pensions Regulator cannot currently be determined, as the charging structure has yet to be finalised.

The Constitution Committee has also commented on the degree of delegation in the Bill. It instances Clause 24(4), which lists 15 matters that regulations must address relating to continuity option 1. It also draws attention to the wide provisions of Clause 39, which would allow 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. We will come back to this extraordinarily wide provision later. 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 which an agile sector might bring forward, but in scrutinising this legislation we need to have the opportunity to test the boundaries of that flexibility. I think it has already been indicated that we will not get a full set of draft regulations before the Bill leaves your Lordships’ House, but perhaps the Minister will set out when we might see the drafts of key regulations, as we have requested, or at least policy notes to expand on their intended coverage. In the meantime, we will proceed with a range of probing amendments to flesh out as much detail as possible.

The purpose of Amendment 2, in my name and that of my noble friend Lady Drake, is to probe why the Bill excludes single-employer occupational schemes from the scope of its provisions and why connected employers are therefore effectively treated as one. As it stands, the Bill would leave single/connected employer arrangements regulated as at present. These arrangements sit alongside the regulation of group personal pension plans, which is within the remit of the FCA, so we will be going from two approaches to three.

We understand the reasons why the existing regulation for trust-based schemes is inadequate, notwithstanding some prospects for improvement under the assurance framework and the 2015 code. It is inadequate to deal with master trusts, which have developed new types of business structures. This can alter the relationship between members, employers, trustees and providers, with some being run on a profit basis but not all, as the noble Lord, Lord Flight, indicated. The scale of some of them is also unprecedented in occupational pensions.

Our probing amendment is designed to give the Government the opportunity to put on record the overall scope of the new regulatory environment to justify how it all fits together and that the boundaries of the system are clear and do not overlap. We accept that the master trust regime is focused on schemes with particular risks, but does there not have to be some consistency across the piece? As it stands, the definition of master trust is potentially very broad. We do not particularly have a problem with that, but it can cover those set up by unregulated businesses as well as those set up by regulated businesses, such as insurance companies or investment managers. It can also cover what are described as “white label” master trusts, which are set up by a pension provider with commercial or non-commercial partners being allowed to brand their sections of the trust. Others may have partnering arrangements with large employers where each employer gets its own section of the master trust but does not make any profit from it. Schemes can include industry-wide schemes and schemes that happen to include two or more unassociated companies and schemes in the university, charitable and religious sectors. So within the master trust definition there are a range of differing situations, and a question arises about whether the line to exclude single unconnected employer arrangements is the appropriate line to draw.

The amendment also seeks, as a probe, to delete the exclusion from the definition of a master trust those schemes which are to be used only by connected employers. I have some questions on that. What is the position where a scheme starts life as a scheme for connected group employers only, but where one of the employers enters into a time-limited joint venture which causes it to cease to be connected? Does it then have to seek approval to operate? What is the position when the joint venture has run its course and the scheme reverts to being used only by employers which are connected? How do the Government justify the juxtaposition of a connected group of employers being outside the scope of the Bill and another connected group of similar size but with just one small associated employer presumably being inside it? This is a very thin distinguishing line. Are there any circumstances currently envisaged where Clause 39 would be used to bring within the scope of the Bill a single-employer occupational pension scheme?

So far as the amendment moved by the noble Lord, Lord Flight, is concerned, it is understood that AVC-only schemes are a type of arrangement that has been developed of late, prompted by the introduction of the Pensions Regulator DC code of practice, which introduced a degree of comprehensive governance and management tests for DB schemes where the only DC benefits are AVCs. It is suggested that the new code can lead to disproportionate costs—hence the plan to remove AVCs from individual DB schemes and corral them in a master trust. As we have heard, the proposition now is to remove them from this Bill’s provisions. Presumably, this implies that the current regulatory regime, as enhanced by the April 2015 changes, would continue to operate. However, in so far as comfort is being taken from the voluntary master trust assurance framework, its future is uncertain. We wonder whether that should be relied upon. In any event, do not such arrangements—that is, AVC-only schemes—exhibit at least some of the risks which this legislation is seeking to address, such as the existence of providers, funders, the profit motive and the promotion of the scheme? In the circumstances, it is difficult to see why they should be outside the Bill, acknowledging that some may have been created specifically to take advantage of the current regime.

We have a similar position in relation to the other group of schemes to which the noble Lord referred. So far as the noble Lord’s amendment about having the power to modify the Bill is concerned, the Bill already provides that power. In fact, we think the power is too broad and do not like it. We look forward to the Minister’s comments.

[Lord Naseby (Con)]

My Lords, I support my noble friend Lord Flight in his amendments, in broad terms. The Minister will recall that at Second Reading, at col. 570, I raised the question of mutuals and the mutual movement. His noble friend on the Front Bench confirmed that since a great many of them were defined benefit pension schemes, they would be outside the scope of the Bill. However, that does not take everybody out. Since that time I have had discussions with the Universities Superannuation Scheme. It is perhaps a bit of an oddball, but it is deeply concerned about the Bill and its effect on it and its members. Its representatives emphasised to me in our meeting that they were very much behind the intention of the Bill—so it is not a question of some organisation trying to undermine the situation.

They made three particular points on why the Universities Superannuation Scheme should not be subject to the Bill. First, there is,

“the comprehensive regulatory regime already in operation for hybrid schemes, which already provides a well-established, ample level of protection for pension savers”.

Secondly,

“the protection already afforded to USS members with Defined Contribution … benefits both under statute and the scheme rules, whereby the DC benefits are underwritten by the whole fund (DB and DC) which means that the only circumstances where DC benefits could not be fully satisfied would be where the whole scheme fund (assets currently circa £49 billion) was depleted in full”.

Lastly, there are,

“the anticipated costs of compliance”—

a common thread that has been raised by noble friends across the House. The cost of compliance is estimated at,

“in the region of £10.5 million in order to satisfy the financial sustainability requirements over 2 years, plus a further £250,000 per annum for compliance with the requirements of the Bill, which would be funded from the scheme assets”.

I hope very much that the Minister will take these points on board. I do not expect a full and complete answer this afternoon, but I would have thought that schemes such as this—there probably are others that have not been brought to noble Lords’ attention—could be dealt with in secondary legislation. It certainly seems to me that they need to be addressed at some point. All I am seeking this afternoon is a reassurance that my noble friend recognises that there are some schemes out there that should not be covered by the Bill but may need to be covered in some form in the regulations. I look forward to his response.

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[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

Clause 1 is critical to the Bill. It sets out the scope for the regime, so I welcome these considered amendments, which give us the opportunity to explore this important clause in detail.

We have taken considerable care in defining master trusts and setting the scope for the new authorisation regime. The guiding principles throughout have been twofold: the first is to ensure that members are protected against the risks that arise in these new structures; the second is to ensure that the extent of any regulation is proportionate.

For example, the definition applies to schemes which are open to more than one employer because the level of engagement and involvement of the employers and scale of such a scheme is likely to be very different from that of a single employer scheme or a scheme in which all the employers are part of the same corporate group. It applies only to schemes which offer money purchase benefits because of the risks that the member bears in relation to such benefits, but we have been careful not to create a loophole for schemes which offer mixed benefits—as we will come on to later.

However, we also need to be mindful of the fact that master trusts are a recent development in a rapidly changing pensions landscape, and the master trust market is evolving all the time. A one-size-fits-all regime may not be proportionate, and we therefore need flexibility to be able to respond to the needs and changes. It is for this reason that Clause 39—which we will come to later in Committee—makes provision allowing for the disapplication of some or all provisions of the Bill for certain schemes.

Turning to the specific amendments, my noble friend Lord Flight seeks to exclude from the definition “AVC only” and “relevant centralised” schemes. I have sympathy with his intentions. Many defined benefit schemes offer AVCs for historic reasons and could be considered to be DB schemes to all intents and purposes, but schemes such as this could be excluded from regulation under our powers under Clause 39, and we prefer to use this power rather than to create a list of exemptions in the Bill, allowing time for more detailed consultation with industry about the diverse types of scheme that currently exist.

I put it on record that our intent is to propose such a carve-out. That is: we intend to consult on regulations under Clause 39(1)(b) to disapply some or all of the provisions of the regime for a mixed benefit master trust scheme, where the only money purchase benefits are those related to additional voluntary contributions of non-money purchase members, but we will also be considering carefully the need to avoid creating any avoidance loopholes as we go through that process.

In relation to the relevant centralised schemes, I am concerned that my noble friend’s amendment may go too far. The definition to which he refers is not confined to industry-wide or not-for-profit schemes, and although there may be a case for excluding some such schemes, I am wary of creating a loophole.

Our aim is to protect members from the risks that are particular to master trusts, and these may equally arise in industry-wide schemes. Similarly, although it is true that most master trusts are run for profit, and that this gives rise to certain risks which the regime seeks to protect, it is not this feature alone which determines the nature of master trusts.

I am grateful for the amendment tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake. As the noble Lord said, it is a probing amendment to investigate the boundaries of the definition. The amendment would change the definition of master trusts in the Bill and extend it to all schemes which offer money purchase benefits, including those which are used by only a single employer or employers connected to each other.

On the noble Lord’s question of how and when we plan to consult on draft regulations, and indeed on the question asked by the noble Lord, Lord Kirkwood, we have worked with the industry and the regulator to establish the key criteria for master trust authorisation. We intend to continue these discussions to develop more detailed policy and secondary legislation. We will follow the published government principles to ensure that consultation is an ongoing process, using the most appropriate forms of communication. The timing of that formal consultation on draft regulations will depend on a number of factors. We anticipate that the initial consultation to inform the regulations may take place in autumn 2017. I hope that that gives the noble Lord, Lord Kirkwood, some reassurance about the process.

The amendment would extend the scope of the definition and the authorisation regime considerably and would do so in a way that would be disproportionate. To take the example of the scheme starting as a single group employer picking up a non-associated one and moving back and forth, if the scheme is intended to be used for more than one unconnected employer, it is within the scope of the regime. If it starts with only connected employers but takes on an unconnected employer, it will fall within the regime at the point that it takes on the unconnected employer.

[Lord McKenzie of Luton]

Will the noble Lord help me on that point while it is on my mind? If you take on an associated entity and therefore have to join the scheme, what happens if you have a joint venture and that joint venture comes to an end? Are you perpetually in and out of the scheme? How does that work?

[Lord Freud]

In practice, one has to be fairly formal about the definition. The noble Lord has drawn up an example of a potential revolving door which I suspect may be in the black swan category. I will take that point away. I need not write to him on it because we will have a chance to come back to it, or I will make sure that we do. He describes a very volatile situation, but I suspect the very existence of a precise regime will tend to stop people doing that kind of thing unnecessarily, or without a very good reason.

On the question of bringing into the regulations schemes that have only one employer, we are currently considering whether some schemes offering decumulation-only benefits have the same rules as some master trusts. Any use of the powers to deal with this issue will clearly be subject to the affirmative procedure. My noble friend Lady Altmann asked whether PPF could be extended; an amendment has been tabled—I think it is Amendment 18—to explore this issue, and we will deal with it when we reach that point.

Much of our debate at Second Reading indicated that there is general acknowledgement that further regulation of master trusts is both desirable and necessary. Master trusts have developed in part in response to the success of the automatic enrolment programme emerging as a different kind of beast to the traditional structures that have existed in the occupational pensions sphere.

There is much to recommend master trusts as the schemes of choice for employers and members. They can drive value for money due to competition in the market and the economies of scale and offer a neat solution for smaller employers, for whom setting up an individual pension scheme for employees would be impractical and burdensome. But these very qualities also give rise to new risks that are not present in single employer defined contribution schemes in the same way. In a single employer scheme, the employer is typically far more closely involved in the running of the scheme and tends to have a more active relationship with the trustees. With master trusts used for automatic enrolment, employer involvement is generally limited to paying over the employer contribution. The different dynamics that exist in master trusts give rise to the need for a different approach to ensure that members are properly protected. These issues do not arise in the same way in single employer or connected employer schemes, and it is for this reason that we have been careful to confine the definition to multi-employer schemes in which the employers are not all connected.

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[Lord Freud]

At the moment, these schemes would not be within the master trusts legislation. I cannot give a full answer now because I am not sure what other protections there may be for people in this situation, but we will have a chance to come back to this issue again and again and I shall make sure that we have a dialogue on this point later, as we consider the Bill in Committee.

This Bill addresses the risks that arise in master trusts. It is important to remember that these risks are specific to this particular type of structure, and it is therefore important that the definition reflects those structures and does not go wider. This ensures that the regulation in the Bill is a proportionate response to the issues arising. I hope that with these explanations and assurances particularly on the process of consultation, noble Lords are reassured, and I ask them not to press their amendments.

[Lord McKenzie of Luton]

In relation to the use of Clause 39 for carve-outs, is it envisaged that that will be done on a broad scheme basis or on an individual scheme basis? How will it work in practice? Will it be a carve-out for a defined type of scheme, as in the AVC scheme referred to, or could it be more specific?

[Lord Freud]

We will come on to discussing Clause 39 later, but I think that it will be fairly specific—sorry, no, I think that it will not be specific. It will be general types.

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Moved by

[Lord McKenzie of Luton]

7: Clause 3, page 2, line 33, at end insert “under all of the provisions of Part 1”

[Lord McKenzie of Luton]

My Lords, in moving Amendment 7 I shall also speak to Amendments 8 and 78. Amendment 7 would require that, for a master trust scheme to be operated, it must be authorised under all the provisions of Part 1. Part 1 covers provisions relating to authorisation, supervision, triggering events, continuity options, pause orders and withdrawal of authorisation—in others words, the totality of the Bill’s requirements apart from Part 2, which deals with administration charges.

We have already touched on the reason for the amendment with our reference to the Constitution Committee. In its letter of 11 November to the Minister, the noble Lord, Lord Freud, it drew specific attention to Clause 39, which we just debated, pointing out that it could be used not only to extend the master trust regime to schemes to which it might otherwise not apply, but to prevent a regime applying in whole or in part to schemes to which, according to the terms of the Bill, it would otherwise apply. We would counter this by deleting the authority of Clause 39(1)(b) with Amendment 78. As I said, we would require all the Bill’s provisions to apply if someone is to be authorised to operate a master trust.

Clause 39, as we have debated, is an extraordinarily wide power to allot to the Secretary of State, notwithstanding the proposed use of the affirmative resolution procedure. I suggest it is incumbent on the Minister to do much more to justify these powers. In what circumstances will it be envisaged that the provisions would be disapplied? We identified some areas, but which provisions do the Government have in mind? This gives the opportunity to disapply some or all of the provisions. Some might be taken out of the scheme entirely—AVCs, for example—but how would they be partially disapplied? Further, if the provisions are to be ignored, what authority might there be to make alternative arrangements? What other regulatory procedures would kick in? This legislation is important to protect the savings of millions of people. However, much still needs to be developed.

Amendment 8 would require that a scheme’s policies relating to systems and processes be added to the list of matters to be included as part of the application. While we acknowledge that the Secretary of State can, by regulation, add to the list of matters that have to be addressed as part of the application, it seems odd not to include in the Bill information regarding matters about which the Pensions Regulator should be satisfied pre-authorisation.

Amendment 8 would also require the application to set out the extent to which it proposes to adopt the master trust assurance framework. This is a probing amendment. As an at least interim response to the acknowledged poor standards of governance administration, in 2014 the Pensions Regulator and the ICAEW developed a master trust assurance framework to help improve governance for DC schemes. This is a voluntary framework that has been adopted by only a minority of master trust schemes to date—some 11 out of a current total of 84. It involves commissioning an independent reporting accountant to assess the design and operational effectiveness of the control procedures in place. As we know, there are two types of report: type 1 checks the design of a scheme’s control procedures; type 2 checks the operational effectiveness over a reporting year.

The point has been made to us that, other things being equal, accreditation will increasingly become a commercial imperative for providers so they can demonstrate that their scheme is well run. We agree with the Government that simply making the assurance framework compulsory is not a full response to the risk that such master trust schemes engender. In contrast to the Bill, it does not cover, for example, the financial stability of the provider and capital adequacy. Although it is not an alternative to the legislation, a question arises as to the future of the framework. This is particularly pertinent, as it appears that the regulations which will enable most of the Bill to come into force are some way off—possibly two years. Can the Minister give us the Government’s view on what should happen in the interim? We urge them to set out some analysis of the key areas of consistency between what the Bill requires, in so far as it can be determined, and the assurance framework, and to encourage schemes which have not obtained assurance to do so.

The FCA states that master trusts are expected to obtain independent master trust assurance to demonstrate the meeting of standards of governance and administration that meet the DC code and DC regulatory guidance. Clear indications from the Government are vital now so that schemes under the Pensions Regulator and the ICAEW can know where they stand. I am aware that the noble Lord, Lord Flight, has an amendment still to come. I will withhold my comments on that until we have heard from him. I beg to move.

[Lord Flight]

My Lords, I support Amendment 8. It is disappointing that reference to the master trust assurance framework was not already in the Bill, particularly given that the accreditation procedure confirms the rigour in the administrative procedures within the master trust. It is right that that should be added.

My Amendment 9 is a probing amendment to ask whether a continuity strategy not be the ongoing responsibility of the trustees rather than something which the regulator determines.

[Lord Young of Cookham (Con)]

My Lords, this group of amendments relates to the nature of the authorisation regime, the requirement to meet the criteria, the information provided in the application and the regulation-making powers to vary the scope of the regime in respect of specified characteristics.

Amendment 7, tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, would modify the central tenet of the authorisation regime: the prohibition on a person operating a master trust scheme unless the scheme is authorised. It would amend Clause 3(1) so that it read:

“A person may not operate a Master Trust scheme unless the scheme is authorised under all of the provisions of Part 1”.

The prohibition on operating a master trust scheme has been drafted so that a person may not operate a master trust unless it is authorised and that, to become authorised, the master trust must satisfy the Pensions Regulator that it meets the authorisation criteria. As is set out in the Bill, these are that the persons involved are fit and proper, that the scheme is financially sustainable, that the scheme funder meets certain requirements, that the scheme has sufficient systems and processes to run the scheme and that the scheme has an adequate continuity strategy.

All the criteria must be met in order for the master trust to be authorised. They must continue to be met on an ongoing basis, with the Pensions Regulator having the power to withdraw authorisation if it ceases to be satisfied that all the criteria are met. It is these criteria that are relevant for determining whether a master trust should be authorised. For that reason, I am happy to be able to reassure the noble Lord that all the authorisation criteria must be met for the scheme to be authorised and for the master trust to be allowed to operate. I hope that he will agree that the amendment is not necessary.

[Lord McKenzie of Luton]

I would be delighted to agree that the amendment was unnecessary, but Clause 39 is about the Secretary of State making regulations,

“applying some or all of the provisions of this Part”,

and in particular,

“disapplying some or all of those provisions to Master Trust schemes that have the characteristics set out in the regulations”.

This is the point that we are getting at: if you are in, you should be in in respect of all the provisions. What alternative situations are envisaged in which just some of them might apply?

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[Lord Young of Cookham]

If I may respond briefly to the first point made by the noble Lord, Lord Kirkwood, we are rolling out auto-enrolment, where employers have to enrol employees into a policy. Very substantial sums of money are in the process of being invested and it is crucial that there should be public confidence in the regime. I accept entirely what he said about the responsibility of trustees but we want to go beyond that and have a statutory framework in which people can have confidence that their master trust, which is getting their money and the employer’s money, is robust, has been approved and ticks all the boxes that we have outlined in earlier clauses. This is not to take away from the responsibilities of trustees but to give an added bonus of public endorsement and confidence in an area of public policy.

[Lord McKenzie of Luton]

I thank the Minister for his detailed reply to the amendments. In relation to the amendment tabled by the noble Lord, Lord Flight, we, too, would not be able to support it. The continuity strategy is very important. It sets out how members’ interests are to be protected if a triggering event occurs. Crucially, it sets out levels of administration charges which apply, and it must be approved by each of the scheme funders. It is a fundamental part. As for ignoring the trustees, the trustees themselves have to start the process to apply for authority, so they are covered in that respect.

I note what the Minister and the noble Lord, Lord Kirkwood, said about the institute’s framework. I am not sure I need to declare an interest as a retired member of the institute. It is a long time since I did any meaningful work in that regard.

My noble friend Lady Drake properly probed the Minister’s response to misapplying parts of these provisions. I think we want to go away and think long and hard about getting some more information on that. Basically, the Minister is saying that they would not apply this unless they were certain there was a satisfactory alternative in place. That is fine as a matter of principle but we would like to understand a bit better what likely alternative arrangements would be in place for the sorts of disapplications we would seek to engender by this. I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

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Moved by

[Lord McKenzie of Luton]

10: Clause 4, page 3, line 15, at end insert—
“( ) the scheme’s member engagement strategy.”

[Lord McKenzie of Luton]

My Lords, I shall speak also to the other amendments in this group, Amendments 25, 31, 36, 41, 43 and 44. Amendment 10 adds to the matters which must be part of the application for authorisation of a scheme’s member engagement strategy. Understanding members’ views and needs is essential to designing investment strategies and to the assessment of value for members. It is, or ought to be, an essential component of designing a pension scheme and something which is integral to its creation and continuance. Amendment 25 is a parallel amendment. It requires that the Pensions Regulator should also be satisfied that the scheme has set up a communication strategy defining how it will communicate with members. Indeed, as the DC guide sets out:

“Good member communications, provided at the right time and in the right format, are vital if members are to engage and make decisions that lead to good outcomes in retirement”.

The strategy should cover not only style and approach but key content, and the code expects all communications sent to members to be clear, relevant and in plain English. Preferred methods of communication should be checked with members. Some will be more technologically savvy than others. A strategy should also cover the need for ongoing communications throughout membership to help members prepare for choices at retirement.

We know that pensions can seem complex and confusing to some and that the recent growth in schemes has largely been due to auto-enrolment, which has harnessed the power of inertia, the need not to make a choice. But at retirement, or earlier, new flexibilities now offer an increased range of choices which encourage the reverse of inertia, making effective communications more important. The risks of not communicating effectively on pensions are all around us: the growth of scams—albeit there is, belatedly perhaps, some good news due from the Government this week; confusion over the new state pension; and a failure to communicate properly changes to the state pension age, hence the WASPI campaign.

The Pensions Regulator should have the opportunity to review the systems and processes related to communications just as much as the features and functionality of the proposed IT system.

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I apologise for the length of that contribution. I hope that I have explained why the Government are of the view that, while it is important for all pension schemes to communicate effectively with their members, these specific amendments would not be appropriate for inclusion in the Bill, and I hope that the noble Lord will consider withdrawing his amendment.

[Lord McKenzie of Luton]

My Lords, I start by thanking all noble Lords who have spoken in this debate, most of whom have supported the amendments. My noble friend Lord Monks made reference to good practice for master trusts. He also asked about the pensions dashboard, but I do not know whether we have any further information on that. The noble Lord, Lord Stoneham, set down the three key reasons why he supported member engagement: the risk lies with the employee; there should not be sole reliance on the regulator; and some schemes, such as L&G, are already doing it. The noble Baroness, Lady Altmann, raised an interesting point, probably relating to an earlier debate, about the big injustice for low earners because of how the tax system works. That is something that we ought to return to before the Bill leaves this House, and we should be grateful for that intervention.

I thank the Minister for a very full reply. I would certainly like to go away and read the record on what he referred to as the balance that is struck in these provisions. That is an important point. I was slightly concerned about what he said in relation to Amendment 36. The implication seemed to be that you had to protect scheme members from this knowledge because they might go and do something adverse. There was a smack of paternalism there, but let me read the provisions in the round because we may well wish to return to that. I am certainly grateful for the offer to reflect on Amendment 44 and the nature of the process that will apply to the resolution. Having said all that, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

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[Lord Flight]

My Lords, this is a very simple amendment. The use of the word “the” assumes that a fee will apply and that, effectively, this legislation is laying that down. Should not it be best left to the Secretary of State or the regulator to determine whether or not a fee will apply? Hence, I suggest that “any” is substituted for “the”.

[Lord McKenzie of Luton]

My Lords, we have Amendments 12 and 82 in this group. We are happy to support the amendment of the noble Lord, Lord Flight, on this occasion.

Amendment 12 requires a new clause to be inserted in the Bill requiring the Secretary of State to report to Parliament on the sufficiency of resources available to the Pensions Regulator for the purposes of the Bill. I think we can anticipate the specifics of the reply to that formulation but I stress that this is about trying to get something on the record today about resources, rather than it necessarily being dealt with on the basis of a clause in the Bill. We know from the impact assessment that there will be additional costs to business from funding the Pensions Regulator and an ongoing levy charge. However, like so much of this Bill, we have no further detail.

The Pensions Regulator has a very significant role in the new era of master trusts and it is vital that the regulator is resourced to play its part in full. When fully commenced, the Pensions Regulator will be responsible for applications for authorisation; judgments about fit and proper persons; decisions as to whether a scheme is financially sustainable, with all the calculations that that entails; a sound business strategy with sufficient financial resources; taking a view on whether the systems and processes used in running the scheme are sufficient to ensure that it is run effectively; and determining whether a master trust has an adequate continuity strategy. On an ongoing basis, the Pensions Regulator is the recipient of supervisory returns and scheme accounts, and must deal with significant events—whatever that may be, and we are going to come on to that—issue penalty notices where appropriate and withdraw authorisation where criteria are no longer met. Further, the Pensions Regulator has an important role as a consequence of a triggering event and winding-up. Not all these responsibilities will bite immediately. It looks as though it could be two years before the commencement of all the Bill takes effect. However, there are responsibilities before that under the transitional provisions of Schedule 2.

Currently, of course, the Pensions Regulator has a role in relation to master trusts, but it is more limited than that provided for in this legislation. The extent of resources required depends upon the volume of master trusts, now and in the future. Although aggregate amounts are expected to increase—that is both members and investments, largely through auto-enrolment—there is the prospect at least of some providers exiting the market. Clearly the workload of the Pensions Regulator is likely to be front-end loaded as the authorisation of existing master trusts is completed and the role becomes more one of supervision. Notwithstanding that, there is much detail still to be settled and we are entitled to seek comfort on the capability of the Pensions Regulator to play what is a central role in the new regime.

On funding, is it proposed that fees and levies will provide the totality of additional resources needed to meet the requirements of the Bill? What assessment has been made of any recruitment needs given the expanded role? In particular, what, if any, changes are considered necessary to the skills set of the Pensions Regulator employees and what planning is under way to meet this? This is inevitably a probing amendment, but one to focus on the operational position of the Pensions Regulator given the important additional tasks of the organisation, which we support, based on the Bill.

Amendment 82 reinforces the Government’s commitment in the impact assessment dated October 2016. This recites that the level of uncertainty currently is too great to provide a meaningful estimate of the net cost to business of the introduction of the authorisation and supervision regime. However, it promises a full assessment at the secondary legislation stage. Our amendment causes this to be before triggering the bringing into force of the main provisions of the Bill. We seek some further clarification on timing, as presumably all the secondary legislation will not arrive at the same time. Are we going to get the impact assessment piecemeal? The purpose of these amendments is to make sure that we get the information about the overall impact of these provisions.

[Lord Flight]

My Lords, should Amendment 12 be in the Act? Generally the Government and the Secretary of State have responsibility to see that something like TPR is funded and it is not solely a master trust issue. I question whether this should be in the Bill.

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I would like to conclude by saying that I absolutely agree with the points that noble Lords are making through these proposed amendments. The regulator must have the resources it requires to ensure that the authorisation regime is successful and the Government must ensure that the impacts of the regime are considered with appropriate scrutiny. With that assurance, I hope that my noble friend will see fit to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his response. I should say to the noble Lord, Lord Flight, that I accept that having this in the Bill in those terms would not be appropriate. The purpose of the amendment is to try to have a debate around the issue and thus have something on the record. I accept entirely the proposition around annual business planning and the assurance given that there is a need and recognition that the Pensions Regulator must be properly resourced to carry out these important functions.

Although there is an impact assessment, it is quite thin. It takes up lots of paper but it is thin in terms of the numbers that were on some of the schedules. The Minister has reiterated what was in that report about how there will be a further impact assessment at the secondary legislation stage. What precisely does that mean? Is it that when the regulations are in place and have been agreed there will be a comprehensive review, or that it is going be done piecemeal as each of the components of these regulations is put in place? If we tot up the number of regulations in the Bill—I have not done it—I am sure that they will run into the several tens. How is that actually going to work and when would the secondary legislation be laid for these purposes? Will there be an aggregate impact assessment at that stage?

[Lord Freud]

One of the things I have committed to do is to go back and think about how we make these regulations in the context of the noble Lord’s own suggestion of perhaps looking at the balance between the affirmative and negative procedures. In that context, the exact way in which the Government decide to present the regulations would clearly change. Regulations made under the negative procedure tend to be less of a set piece, while affirmative regulations do tend to be more of a set piece for obvious reasons. The answer to the noble Lord’s question will depend on our reflections on what we do with his proposition.

--- Later in debate ---

[Lord McKenzie of Luton]

I am grateful to the noble Lord.

[Lord Flight]

My Lords, I am interested to note that my amendment has resulted in a clear statement by the Government that a fee will be charged and that it will be provided for in the Bill. I beg leave to withdraw the amendment.

Work Capability Assessments

Lord McKenzie of Luton Excerpts

Tuesday 8th November 2016 Lords Chamber

[Lord Freud]

We do not yet have a formalised programme. We are in the middle of a consultation, as the noble Baroness knows. We will take the results of the consultation very seriously, come to the appropriate conclusions and develop the policies and the means of implementation.

[Lord McKenzie of Luton (Lab)]

My Lords, is any part of the consultation to consider the appropriateness of maintaining cuts to the employment and support allowance, which, as the Minister will know, is denying some £30 a week to thousands of the most vulnerable households in the country?

[Lord Freud]

We announced earlier this year that there would be no more welfare savings but we would go through with those that had already been announced. The job of the Government is to implement what has been announced, but there will be no more. This Green Paper looks at how we can have a better system of managing health issues with getting people into work. We have got half a million more disabled people into work in the last three years, and we need to keep that trajectory going.

Pensions: Women’s State Pension Age

Lord McKenzie of Luton Excerpts

Wednesday 2nd November 2016 Lords Chamber

[Lord Freud]

One of the odd things about this is that we are providing equality between men and women. Men have had to retire at 65 for many decades and we are bringing women’s retirement age to the same level. Women actually have longer in retirement, even after 65, because they still live longer. One of the reasons is that we are being blessed by greater longevity. In the period since 1995, men are living longer by four years and women by three years.

[Lord McKenzie of Luton (Lab)]

My Lords, we know that the Government have a poor record of communicating changes to pension arrangements, despite what the Minister has said, as evidenced of course by the confusion over the introduction of the single state pension. The issue here as touched on by my noble friend is not that there was no communication about state pension age changes, but that there was not effective communication. That is why there is a proper sense of injustice articulated by the WASPI campaign, and why it argues for the promised transitional provisions now to be offered up by the Government. I ask the Minister again, despite what he has said: will the Government reconsider this matter?

[Lord Freud]

I can only repeat that we have made it clear—and the Pensions Minister went as firmly on the record as he could—that there will be no further moves in this area.

Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

2nd reading (Hansard): House of Lords
Tuesday 1st November 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for introducing this Bill. It is a necessary measure, if too long in the coming. As we have heard, Part 1 introduces an authorisation framework and supervision regime for master trusts; that is, multi-employer DC pension schemes which operate on a trust basis. As trust-based schemes they have hitherto been subject to laws that have traditionally been designed and applied to a single employer model, as the Minister explained, although in some respects they share characteristics with group personal pension plans. As the impact assessment reminds us, some of the fundamental dynamics of occupational pensions are not present in the case of master trusts, which would typically involve the employer having an ongoing interest in the scheme and its alignment to the future of the employer.

We know that some master trusts operate on a scale that is unprecedented in occupational pensions and most are run on a profit basis. However, they are not subject to the same regulation that is placed on contract-based workplace pensions. There is no requirement for a licence to operate and limited barriers to entry. There is also no requirement for specialised trustees and no infrastructure in place to support the wind-up of a failed trust. Given that the savings and pensions of millions of employees and their employer contributions are at risk, this position cannot be allowed to continue. So we are strongly supportive of the thrust of this Bill and concur with its rationale and the need to protect members from suffering financial detriment, the imperative of promoting good governance and a level playing-field for those in the sector and, crucially, the promotion of sustainability and confidence in pensions more generally.

We welcome the new powers for the Pensions Regulator to intervene where a master trust is at risk of failing. Unfortunately, despite what the Minister has said, too much has been happening in the pensions arena in recent times that has served to damage confidence in savings and pensions. Just two weeks ago we heard of the mis-selling of what should have been enhanced annuities. We have had the U-turn on the secondary annuities market after savers were encouraged to contemplate the sale of their annuities and then to have it denied—a crass piece of policy-making. There are the lingering problems of the BHS pension scheme and the adequacy of the powers of the regulator and the willingness to use them. There is a continuing sense of grievance among women in the Women Against State Pension Inequality campaign, despite what the Minister has said, who believe that they were given inadequate notice of their state pension entitlement changes. There was the acknowledged poor communication surrounding the introduction of the single state pension, the unforeseen barriers to exercising the new “freedoms”, which in part will be fixed by this Bill, and suggestions that not enough people are reaching the guidance service which as we know is now to be recast.

However, we are encouraged to be optimistic by the new Minister, Richard Harrington, who is apparently fostering a more collaborative approach between the DWP and the Treasury. In a recent speech he mused that he would do better than his two predecessors because key Ministers in the Treasury happen to be his good friends. I do not know whether the noble Lord, Lord Freud, is a chum as well, and perhaps he might let us know. So we look forward to the forthcoming Green Paper and ask the Minister how forthcoming he expects it to be. I think the answer will be “the winter”, whenever that is.

All of this emphasises the need to make progress on the regulation of master trusts, especially given the growth in their membership. We are told that by January of this year there were expected to be more than 4 million members of master trusts with auto-enrolment assets under management of some £8.5 billion in 84 schemes. Some of these have achieved accreditation under the master trust assurance regime developed with the Institute of Chartered Accountants in England and Wales but these are in the minority. Zurich has told us that accreditation is rapidly becoming a commercial reality to demonstrate a well-run scheme and it points out that there is an overlap with some of the provisions in the Bill. How do the Government plan to resolve this? Of course, the growth of such schemes is directly linked to the success of auto-enrolment, with some 6.5 million—I think the Minister said that the figure is now 6.7 million—employees currently enrolled

I am bound to say that an example of good pension policy-making started under a Labour Government, being evidenced based, with independent analysis and political consensus—an approach that would have stood more recent policy pronouncements in good stead. However, although the numbers to be auto-enrolled look set to grow, in July this year some 5.9 million employees were considered ineligible for auto-enrolment—an exclusion attributable in part to the coalition’s raising of the income threshold. The review in 2017 is an opportunity to address these matters, particularly issues with mini-jobs, income thresholds and the self-employed.

The Bill outlines a strong framework for the regime, but there is still much left to secondary legislation. Most of these regulations are to proceed by way of the negative parliamentary procedure. We will use the Committee stage to probe the detailed intent of some of these regulation-making powers and we ask the Minister, acknowledging that some depend on further consultation, to provide us with a note of when we might see the drafts, or at least policy statements, to outline their intention. I fear from what the Minister said earlier that we could wait some time for that.

Responsibility for the regulation of master trusts will be placed with the Pensions Regulator, not the FCA. As the ABI pointed out, this involves a significant change in the role of the regulator, with extensive powers and obligations being made available, including dealing with authorisation, determining fit and proper persons, judging financial sustainability and capital adequacy, deciding on adequacy of systems, having the power to initiate triggering events, and more. We will examine these powers and responsibilities in terms of what is provided, as well as where there may be gaps, to see whether they need be strengthened.

Will the Minister say what assessment has been made of the capacity and resources of the Pension Regulator to cope with all of this, particularly at the point of introduction, where all existing schemes need to seek authorisation? What fee structure is envisaged?

The Bill provides that scheme funders must be constituted as a separate legal entity—seemingly not necessarily resident in the UK; Panama, perhaps—if fit and proper persons and only carrying on activities related to the master trust scheme. The Minister may be aware of the point raised by Zurich about scheme funders having established other workplace pensions and the benefits of using shared systems. How does he respond to this? Will such shared arrangements have to be unpicked to gain authorisation? What would the position be if the scheme funder were to become insolvent? Can a restriction be placed on the level of dividends or profits of the scheme funder?

Under Schedule 1 to the Bill, the regulator can make a pause order such that during a triggering event period no new members can be admitted to the scheme and no further contributions or payments made. Will the Minister say what the consequences of this pause are for employers and workers who have current obligations under auto-enrolment? Is there a pause in their respective obligations?

A master trust scheme is defined in the Bill to apply where “two or more employers” are involved in a scheme, but it effectively counts employers that are connected as one. Perhaps the Minister would expand on the rationale for this and confirm which regulatory regime applies in these circumstances. Will such connected arrangements be run on a profit basis?

While the Bill contains a lot about the role of the Pensions Regulator, it says little about the position of members. ShareAction points out that there is a significant gap around member communication—for example, relating to the notification of triggering events—silence on the trustees providing transparency on where savers’ money is invested, no right to be given standard information on charges, where money is being invested and how ownership rights are being exercised. Will the Minister say what has happened to their consultation—closed, I believe, nearly a year ago—looking at transparency from a member’s perspective where investment has been undertaken? Will the Government encourage employer and member panels along the lines of the NEST arrangements?

We should expect some consolidation in the marketplace both before and after the Bill comes into effect. This is no bad thing. It is expected that some will seek to pre-empt the requirements in the Bill, and we need to be assured that this is not achieved to the detriment of members. On the face of it, as the Minister has explained, giving the Bill retrospective effect to 20 October appears to provide the necessary protection to ensure that member pots cannot be accessed to fund the wind-up. Can the Minister confirm that?

It is suggested that smaller master trusts in particular, faced with extra capital requirements and/or increased governance, will likely depart. Does, or should, the regulator have the power to intervene to direct a consolidation of schemes to assist such smaller schemes?

As we have heard, this Bill is not just about master trust regulation. Clause 40 purports to enable a cap on early exit charges in occupational pension schemes and to ban member-borne commission charges. The cap on early exit charges has already been implemented for contract-based schemes given the clear evidence that exit charges were preventing consumers accessing their pension savings flexibly. A fair and consistent approach is now proposed across all defined contribution pensions, and I understand that the noble Baroness, Lady Altmann, launched a consultation to that effect in May. We support the intent. Perhaps the Minister will update us on how the Government propose to proceed. We similarly support the banning of member-borne commissions and ask for an update on transaction costs. Both these issues serve to highlight the need to be vigilant in ensuring that members’ funds are protected in an environment where for the most part there is an imbalance of economic power and advantage.

The authorisation and supervision regime for master trusts will help protect the savings and pensions of millions of individuals. It will contribute to building confidence for people to save, to deny the scammers and to help sustain our pension system. Although we have to look at the detail, the regime should provide the basis of a consensus and we look forward to working with the Minister and his predecessor to see it delivered.

Improving Lives: Green Paper

Lord McKenzie of Luton Excerpts

Monday 31st October 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I start by thanking the Minister for repeating the Statement, although it is a Statement that is, frankly, thinner than we would have hoped.

We support the ambition to halve the disability employment gap, the clear pathway to its attainment, and the proposition that we have debated on endless occasions that there should be work for those who can, support for those who could and care for those who cannot. That has characterised labour market approaches from several Governments over recent times. I found on my shelf a booklet entitled Improving Health and Work: Changing Lives, from 2008, at about the time the Minister was an adviser to the then Labour Government. We have a shared ambition and recognition of those issues. The challenge is to convert the intent into policy and the policy into action that can be delivered. That needs resourcing. I do not think the Minister said much about the cost of his proposals; it would be good if he could give us an indication.

There was a suggestion that too many people were taken off the books, as I think was the expression, in 2010, but that does not give proper credit to the work undertaken at that time. There was a gradual realisation of the importance of the Waddell and Burton thesis, which characterised much of the work of the Labour Government, the coalition Government and this Government.

So far as the welfare measures are concerned, we have not seen the detail, but we can see the innate merit of a personalised support package for disabled people. As for community partners, can we know the basis on which they are likely to be allocated across jobcentres? I think the figure was 200 of them; I guess they would be spread fairly thinly across those centres. The Minister said there is to be a consultation on further reforms to the WCA. Can we hear a little more about the thrust of this consultation and what it will entail?

So far as health is concerned, we had a revolution announced—a new era: there will be some joint working between the Department of Health and the DWP. Of course, that is to be welcomed. The idea of ingraining the concepts of work and health in training is something that again we can see the merits of and would support. We certainly would need to understand the basis of any review of SSP and the fit note, which has had a patchy existence since it was changed from the sick note, but the underlying concept that it should focus on what can be done, rather than on what cannot, is right and something we would support.

The Minister asserted that universal credit always makes work pay. Would he care to write to us on that proposition with the evidence, taking account of the work of the Resolution Foundation and its recent pronouncements on it, and the cuts to the work allowance? Universal credit started life with a very clear ambition to do exactly what the Minister said. Successive cuts to the programme have certainly impaired that ambition and that outcome. We should be clear on the basis of the Government’s assertion that work will always pay.

Finally, the Disability Confident business leaders’ group seems a worthwhile development. We need to understand how it would be funded and the extent to which individuals would engage.

We see in the Statement a good deal of consultation, further work and quite proper engagement with a range of people, particularly disabled people themselves and their carers, but that is a long way from having a clear, funded policy to make a real difference to the lives of the people we are talking about today.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, I, too, thank the Minister for repeating the Statement. We on these Benches are pleased to finally see this Green Paper. It has been delayed time and again and many of us were wondering whether it would ever see the light of day.

Reducing the disability employment gap is a worthy aim. There are many people with disabilities whose skills and talents are not utilised. Working with employers to ensure that they recognise the benefits to their businesses of employing disabled people is vital for both the health and well-being of those disabled people who are able to work, and for our economy as a whole.

The move to reform the work capability assessment is an overdue step in the right direction. However, at its heart the structure of the WCA remains fatally flawed. This is in part because of a failure to assess what types of jobs may be available to claimants, and whether they can find such jobs within their skill set and in their local area. I therefore ask the Minister whether, in reforming the system, he will look to create a process that assesses not just whether a claimant is fit to look for a job but whether the jobs available are fit for the claimant.

I also impress upon the Minister the importance of conducting a fundamental overhaul of the system. Tweaking at the edges is unhelpful. Sick and disabled people have little confidence in the WCA, rendering it unworkable. This is particularly important given the incredible mental pressure that the lack of trust in the system puts on claimants, many of whom already suffer from mental ill health. I suggest the Minister seeks to restore confidence as a priority.

On the Government’s plans for helping those disabled people who can work back into work, we welcome the creation of a business leaders group. However, will the Minister look at rewarding the best practice of businesses that are good employers of people with disabilities? For example, Liberal Democrats have proposed that those employers who meet a strengthened version of the two-tick system for mindful employers of employees with mental health conditions are able speedily to access funding, such as Access to Work. It is important that those employers who have a good track record are given a facilitated route to employing more people who may need additional support.

Finally, will the Minister explain why a proper analysis of the failings of personal independence payments is not included in the Green Paper? This has affected people’s ability to lead independent working lives. Will the Government look again at the demands of many in this House, not least my noble friend Lady Thomas of Winchester, on the 50-metre rule and its inappropriateness in assessing mobility? The impact of disability varies greatly between rural and urban areas, and PIP as a supposedly personalised benefit should assess these barriers.

All in all, the Green Paper is welcome, but until the Government address these myriad other problems we will still fall well short of providing the support that people with disabilities should be able to expect.

Fit for Work Scheme

Lord McKenzie of Luton Excerpts

Wednesday 19th October 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, this has been an informed but brief debate and we should be grateful to the noble Lord, Lord Luce, who rightly prompted us to seek an update on the Fit for Work scheme, which has now been under way for more than a year. The particular focus of the noble Lord—and of others—was on chronic pain, for the reasons he outlined. The noble Lord also, in common with a number of other contributors, made the point forcefully that the service is as yet not well known.

The service has a direct link to the work of Dame Carol Black, and in particular to the analysis that she undertook, together with David Frost, that looked at sickness absence in the UK. Its focus on the period when people first became vulnerable to disconnection from the labour market was an important development and a component of emerging strands of policy that spanned Governments. Introduction of the service followed a series of pilots between April and June 2010 which looked at different ways of supporting employees in ill health to stay in or return to work after a period of sickness absence. These pilots grew out of Dame Carol’s review of the health of Britain’s working-age population, which showed the staggering annual economic cost of ill health in working days lost and worklessness to be over £100 billion.

Over recent years, the understanding of the relationship between work and health has changed and indeed improved. We have moved away from the notion that it is always in the best interests of someone with a health condition to be absent from the workplace. Being in work is good for health, and worklessness leads to poorer health—including mental health, a point noted by the noble Lord, Lord Fink. Hence the need to promote the benefits of work to health for individuals, employers and healthcare professionals, a proposition most strongly advanced by Waddell and Burton.

However, there is a need to go further. Bringing the expertise of health professionals directly to bear in support of individuals who are off sick or in danger of being so is something which we support. This is what the Fit for Work service is seeking to do. It is an early intervention, involving a referral after four weeks of sickness—although the noble Baroness, Lady Walmsley, made an interesting point about the relevance of that—for an assessment from a GP or, if not, potentially from an employer. That assessment should lead to a return to work plan. So far, so good, but we need to take stock to see how it is all working out in practice. I have some questions, some of which overlap those presented by other noble Lords. In England the service is contracted to Health Management Ltd. Can the Minister say something about the qualifications of the individuals allowed to deliver these services? What range of qualifications does this cover and what review of quality is being undertaken?

It is understood that the contract is for five years, at an initial value of something like £132 million, although this may have been increased. Can the Minister say how many Fit for Work interventions it is expected this would cover, and can we have an update on how many referrals have been made to date? Can the Minister say what level of referrals was anticipated when the contract was entered into?

Press comment, as others have noted, has suggested there is some confusion about the interpretation over the referral guidelines, at least so far as GPs are concerned. Is the Minister aware of this and can he say what the problem is? A DWP study apparently suggested GPs are likely to refer some 36% of their eligible case load to the service, but referral rates in practice vary. Why is this? The process involves at least the first assessment being undertaken by phone rather than face to face, and the nature of the assessment is determined by the occupational health professional. How many assessments are undertaken face to face and how many by phone? It is understood that a re-referral cannot be made within 12 months of a previous one where a return to work plan has been agreed. What is the position where an assessment is under way? Is it an iterative process, with potentially several telephone calls and meetings until a return to work plan is agreed? What is the experience of eligible employees who refuse consent for a referral? What information does the service hold on the outcome of return to work plans, in particular on whether they lead to long-term, sustainable, positive outcomes? The right reverend Prelate the Bishop of Derby offered an interesting parallel with asset-based community development and the potential that offers the Fit for Work service.

The Question of the noble Lord, Lord Luce, specifically refers to long-term, chronic pain, but of course the service is also available to those with a mental health condition. Can the Minister give us an update on the levels of referral for such individuals? Are such assessments always undertaken on a face-to-face basis, at least initially? It has also been reported that the Fit for Work service is less well used by SMEs, a point that a number of noble Lords made. Is this the Government’s understanding, and what amendments might be made to the service to address that?

The Fit for Work service notwithstanding, major challenges exist. As the Work Foundation report due to launch next week sets out, managing a long-term health condition while also working is a challenge. People who experience multiple long-term health conditions have poorer outcomes from a range of employment-related conditions, which is perhaps not surprising. The Work Foundation reports that one in three current employees has at least one long-term health condition and that 42% report that their health affects their work. This, together with the stigma of discrimination associated with poor health, is argued to be a major contributor to the gap in employment outcomes.

We know that mental illness has a substantial and highly detrimental impact on employment outcomes when it occurs on its own, but an even greater impact when it occurs alongside a physical health condition. Nevertheless, it seems clear that for many people with multiple, long-term health conditions, work is a positive part of their lives. The question is what the Fit for Work service contributes to helping them remain in work. More needs to be done, as noble Lords have said, to enhance awareness of what it can do.

Pensions Act 2014 (Consequential Amendments) Order 2016

Lord McKenzie of Luton Excerpts

Thursday 8th September 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I shall follow the usual incisive contribution of my noble friend Lady Drake and the contribution of the noble Lord, Lord Kirkwood of Kirkhope, in thanking the Minister for his introduction of this order. It is quite like old times. I also take the opportunity to thank the officials who spent a bit of time yesterday with us trying to unlock for us some of the intricacies of these provisions which, although small in terms of drafting, are quite complicated.

We note the Minister has confirmed at least in one respect the judgment of his predecessor, concerning compatibility with the European Convention on Human Rights. I state from the outset that we do not seek to challenge these provisions, although we add our concerns to that expressed by the Secondary Legislation Scrutiny Committee, that overlooking an appeals mechanism within three months of a new pension scheme starting does not inspire confidence. My noble friend Lady Drake has rightly chided the Government in stronger terms, and the noble Lord, Lord Kirkwood, made the point that two omissions are two too many.

As we have heard, the order seeks to address two distinct issues. First, it extends the automatic adjustment of certain benefits where a recipient or their family are in receipt of another benefit which is uprated. In particular, it ensures that the definition of benefit income includes the state pension under the Pensions Act 2014—that is, the new state pension—and that definitions of alteration include those transitional provisions of the new state pension which have to be uprated by no less than the increase in prices. That includes protected payments, certain increments inherited from a deceased spouse or civil partner, and certain other deferred amounts inherited under the state pension. Secondly, as the noble Lord explained, there are appeal rights to secure certain national insurance credits.

On the first issue, the automatic adjustment would apply only to income-related benefits including income support, JSA, ESA, pension credit and universal credit. The Explanatory Note to the order sets out the limited circumstances where the state pension will form part of the benefit income of a person claiming a working-age benefit. Its application is asserted to be—perhaps the Minister will confirm this—for pension credit awards and potentially for so-called “mixed” couples, where there is currently a choice of pension credit or the working-age benefit. We are told that this choice is to be phased out. Perhaps the Minister will also confirm the timing and mechanism for this to happen.

To the extent that income support, JSA and ESA are to be replaced by universal credit, the Government anticipate that these arrangements in due course will apply to universal credit and pension credit only. This raises a number of questions. First, there is the timetable for universal credit. It is understood that the most recent plans—pre the resignation of IDS—were for universal credit to be rolled out for all new claimants between 2016 and June 2018, with gateway areas becoming full service areas. This was to be followed by migration of current claims of legacy benefits to be completed in 2021. Is this still the plan?

How does the Minister respond to the article in Tuesday’s Times, which refers to the involvement of GCHQ in alerting No. 10 to security flaws in the programme, with significant numbers of claimants facing significant issues? Can the Minister assure us that, now IDS is out of the way, the reported chaos under every stone has been dealt with? Quite apart from this order, however, we should find time to debate this fully.

So far as pension uprating is concerned, Sections 150, 150A and 151A make reference variously to uprating by not less than earnings or prices. My noble friend Lady Drake pressed this issue. There is of course no specific reference to the triple lock in these statutory provisions, although it can be catered for within the drafting formulation. I press the Minister, as has my noble friend, to confirm the Government’s position on this matter, particularly in light of his predecessor’s recent comments. Will the triple lock continue to be applied, as now, at least until the end of this Parliament?

We have been told that Article 3 amends an omission of a consequential amendment arising from the 2014 Pensions Act, and this omission being included in the right of appeal for decisions concerning awards for credits made under Part 8 of the State Pension Regulations 2015. We are told that any credit decisions under these provisions in respect of the tax year 2016-17 will need to be reconsidered once the law has changed. My noble friend, again, pressed on that matter. As my noble friend said, these could relate to decisions on credits for spouses and civil partners of members of HM Forces, people caring for a child under 12, foster carers and people approaching pensionable age. These are important provisions.

The Explanatory Note suggests that this omission will have very little effect because it concerns only one class of credits—post-April 2016 class 3 credits to cover gaps in the records of those accompanying HM Forces, as spouses or civil partners, in a posting outside the UK. This seems to be on the basis that generally decisions on tax credits for 2016-17 will be relevant only in determining the new state pension for those reaching state pension age for 2017-18, by which time the problem will have been fixed. The exception appears to be spouses and civil partners of HM Forces personnel, where credit from 1975-76 can be relevant to pension awards for 2016-17. Can the Minister confirm that that is correct and that is why it is of limited effect?

Can the Minister say generally whether the appeals rights apply only to those credits which have to be claimed and not those applied automatically? I think he did that in his presentation, but I ask: if that is the case, what is the remedy, should the latter be subject to error? Is this a matter of administrative adjustment?

The Explanatory Note seems to be suggesting that, notwithstanding that there is no current right of appeal in certain circumstances, HMRC can in the interim undertake a reconsideration, which would be the first stage of an appeal should the right to one exist. Again, I think that that is what the Minister said, but perhaps he would confirm that.

The issue of National Insurance credits takes us back to an earlier debate about generally improving take-up of these credits, which are not awarded automatically—again a point pressed by my noble friend Lady Drake. In resisting a reporting process to Parliament on a take-up strategy, the noble Lord said that,

“we intend to review these systems to identify what efficiencies can be put in place to make the system of national insurance credits as simple as possible”.—[Official Report, 18/12/13; col. 353.]

Would the noble Lord please now offer us an update?

[Lord Freud]

My Lords, I thank noble Lords for their contributions, which made it rather a more interesting debate than I had anticipated. I will go straight into the questions that were raised rather than reprising the content.

There have been two omissions. One was something that has actually potentially affected people; we are getting that first one back in time. We take this seriously. It is not the first time that I have had to grovel somewhat about redoing regulations; I suspect that some noble Lords on the other Benches have had similar experiences.

[Lord Freud]

Never! So, clearly we need to take this seriously. In this case, however, the impacts have not been great. On how the feedback works, we have an established complaints and resolution procedure—and it is particularly valuable doing it this way because, as the noble Lord said, the numbers are small—whereby people can either write or phone in. We will catch these and assess what is happening.

I say to the noble Baroness, Lady Drake, that I described in my speech a process that, so far, no one has tried to appeal. If they do, there is a workaround, so in practice there will be no gap at all for people. The minimum guarantee for the pension credit standard will continue to be uprated, at least by earnings every year. I am in a position, I think, to confirm to noble Lords that the triple lock is in place through this Parliament, as has been said several times in the past.

On the question raised by the noble Baroness, Lady Drake, about credit decisions, the oversight affects all decisions on credits—which includes grandparents—made under the powers in the Pensions Act 2014 from 6 April 2016 to when the law is changed. The specific decisions affected relate to credits for spouses and civil partners of members of Her Majesty’s Forces, child benefit recipients, people caring for a child under 12, foster carers and people approaching pensionable age—and, as I mentioned, it includes grandparents. I am afraid that we do not have data on the numbers. There are around 400,000 eligible for carer’s credit and, in August, there were 10,900 recipients. There are 200,000 service spouses eligible and, since April, we have had 1,850 applicants.

The noble Lord, Lord McKenzie, enjoys reading newspaper articles on universal credit. I can confirm that there was a most imaginative use of the present tense in the Times—all references to spies are pretty historical by now. We have been working with GCHQ all the way through to make sure that universal credit is secure. It has monitored and is content with the system; that is something that has been of immense value to us as we have developed the system.

We made an announcement in July on the timetable. We now envisage universal credit being completed by March 2022 instead of March 2021, but nine months of that difference is contingency.

The noble Lord, Lord McKenzie, asked about credit applications. Decisions on credit applications made in respect of 2016-17 will be relevant in determining the new state pension entitlement only of people reaching state pension age from 2017-18, as this will be the first cohort for which 2016-17 will be a relevant tax year. What he was asking was therefore correct.

On his question about a review, we carried out a review and found that the main issue was lack of information. This is being addressed in the new state pension awareness campaign. I think I have covered most of the questions, but I will go over them carefully afterwards and I will write to noble Lords.

[Lord McKenzie of Luton]

Before the noble Lord sits down, I imagine he has a note from the Box ready, so perhaps I could ask him to comment on the right of appeal in respect of credits where they are awarded automatically. From what he said, I think the right of appeal applies to credits that have to be claimed. If there is an error in the application of automatic credits, what is the remedy and how is it applied?

[Lord Freud]

I will confirm this in writing, but my impression is that there is a right of appeal in these circumstances. It may be that there was no gap in the legislation. I will confirm that, but that is my starting position for 10.

Universal Credit: Rent Arrears

Lord McKenzie of Luton Excerpts

Wednesday 13th July 2016 Lords Chamber

Asked by

[Lord McKenzie of Luton]

To ask Her Majesty’s Government how they will address the causes of the increase in the number of council tenants in receipt of Universal Credit who are in rent arrears.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

I appreciate the concern with this. The reality is that there are a lot of factors at play and universal credit is not the sole issue. Many people are coming into universal credit with pre-existing arrears. Safeguards are in place for claimants, including advances, budgeting support and alternative payment arrangement. Research shows that over time claimants successfully reduce their arrears. I have commissioned work from the department to help understand the true level and causes of these arrears.

[Lord McKenzie of Luton (Lab)]

I thank the Minister for his reply. He will be aware of the survey conducted by the National Federation of ALMOs and ARCH which details the shocking build-up of rent arrears by council tenants. Of those covered by the survey, 79% in receipt of universal credit were in arrears and only half of those previously had been in arrears. Despite what the noble Lord says, it seems that the rollout of universal credit is causing a build-up of debt among social tenants, creating financial hardship and reportedly driving some into the arms of loan sharks. That is not surprising, given the long processing times and the recently introduced imposition of a further seven-day waiting period before the benefit can kick in—an imposition opposed by the Social Security Advisory Committee. As the rollout of universal credit is to widen, does the Minister agree that these arrangements have to be reviewed urgently, from the point of view of both landlords and tenants, and the seven-day waiting period scrapped?

[Lord Freud]

The best evidence I have got at the moment is a gateway review, which shows that a rather high figure—48%—of the singles on UC have got arrears, but, interestingly, half of them were pre-existing arrears. That compares with 31%—so it is higher—but the interesting thing is how quickly it comes down. In the second wave—that is, three months later—it comes right down to very close to the JSA figure. There is a lot of complexity here; it is not straightforward at all. I am looking at it with some urgency.

Personal Independence Payment

Lord McKenzie of Luton Excerpts

Monday 6th June 2016 Lords Chamber

Asked by

[Lord McKenzie of Luton]

To ask Her Majesty’s Government whether they have any plans to amend the Personal Independence Payment mobility criteria.

[The Minister of State, Department for Work and Pensions (Baroness Altmann) (Con)]

My Lords, there are no plans to amend the mobility criteria in personal independence payment. The Government consulted extensively when designing the criteria, including a specific consultation on the “moving around” activity. The criteria provide a more consistent assessment for claimants with both physical and non-physical impairments, and there are now 22,000 more people on the Motability scheme than before PIP was introduced.

[Lord McKenzie of Luton (Lab)]

My Lords, I note the Minister’s reply. As she will recognise, this Question arises from a debate that was led by the noble Baroness, Lady Thomas of Winchester, about a month ago. That was about the qualifying criteria for the enhanced mobility component under PIP—particularly that those who could reliably walk no more than just 20 metres will not qualify, losing £35 a week and vital support to live independent lives. When the Minister responded to that debate, she asserted that claimants who cannot walk up to 50 metres would be guaranteed the enhanced rate. I think there has been some pulling back from that position, which is regrettable. Given that the Minister was clearly content to enunciate the policy relating to 50 metres, will she not now actively join others in seeking the reinstatement of the 50-metre benchmark as a research base measure of significant mobility impairment?

[Baroness Altmann]

My Lords, I have issued a correction of the response to the Official Report. It is indeed possible for those who are unable reliably to walk more than 20 metres to get the enhanced rate, but there is no generally accepted measurement of distance that will be recognised as appropriate. The aim of the enhanced rate is, and always was under DLA, to help people who are either unable or virtually unable to walk. Under PIP, the test is widened so that it is not just those who are unable or virtually unable to walk, but those who have barriers to mobility and who find it difficult to get around. These issues need to be addressed on a case-by-case basis. They are expertly assessed. Indeed, we engaged directly with the noble Baroness, Lady Thomas, subsequent to that debate as we want to get this right.

Personal Independence Payment: Mobility Criterion

Lord McKenzie of Luton Excerpts

Wednesday 4th May 2016 Lords Chamber

[Baroness Doocey (LD)]

My Lords, my noble friend Lady Thomas of Winchester has been a tireless advocate for disabled people, using her skills, knowledge and empathy to try to influence government’s attitude to disabled people, their independence and their well-being. However, the 20-metre rule has little to do either with well-being or independence; it is a crude measure to save money. Once again, the Treasury’s guns are trained on those of working age.

Ministers must know, when they reflect privately, that it is short-sighted in the extreme to take away from disabled people who are at an age where it is hoped they could get paid work the very thing that might help get them to and from work. The Motability scheme is well known and understood by its users, and hinges on providing their independence. The Access to Work scheme is a much more limited scheme than Motability and will never be considered a substitute by the people who matter in this—the end-users. What money is saved by snatching cars away from disabled people will almost certainly be lost again in reduced tax revenues as people slip away from employment through no fault of their own. The Government have said that they are sticking with 20 metres because there is “no consensus” around an alternative distance. Other government departments use 50 metres, so it is not that there is a lack of consensus but that the DWP refuses to join the consensus.

As a former local councillor, I know only too well the problems that used to be associated with blue badge parking discs. Yet when the regulations around eligibility and enforcement were tightened up by the coalition Government, the key criterion that they chose to maintain was that a person should be unable to walk more than 50 metres. The Minister must recognise the sense of having some symmetry in the rules about who has special parking rights because of their lack of mobility and who is entitled to some help with having a car in the first instance—also because of their lack of mobility. Do the Government seriously suppose that a person capable of walking only 25 metres, for example, can access public transport with ease? The suggestion beggars belief.

The 20-metre rule is an appalling change, which will be keenly felt in the lives of the hundreds of thousands of people whom it will affect. My noble friend has given the House a clear opportunity to send a strong message to the Government that they must think again. I hope that noble Lords on all sides of the House will make sure that that message is loud and clear.

[Lord McKenzie of Luton (Lab)]

My Lords, I congratulate the noble Baroness, Lady Thomas, on securing this debate tonight. As others have said, she is tenacious on this issue. I have been on the receiving end of some of that at former times when I was a Minister, so I know it is for real. The issue that has been raised tonight was debated intensely when we considered the Welfare Reform Bill in 2012. The usual voices have been heard again tonight. We had an extensive debate around the nature of disability in the social and medical model and there were concerns that the approach to PIP would become very much a tick-box exercise. That has proved to be the case.

As other noble Lords said, the 50-metre threshold is used in the DLA and in ESA. The criteria are not necessarily directed in the same manner, but it is a tried and tested threshold. The Government at the time prayed in aid for the 20-metre rule that they had had discussions with people, eventually. If that is the Government’s justification, it is impossible for them now to argue against having urgent discussions with those same people to address the problems that are clearly emerging from the application of what has turned out to be a pernicious rule.

This Motion has our wholehearted support. My noble friend will reinforce that in a moment, but I congratulate the noble Baroness, Lady Thomas: this is a real issue and she should stick at it.

--- Later in debate ---

[Baroness Altmann]

I thank the noble Lord, and I stress again that we were always aware that there would be people who would lose their Motability cars when we changed from a system that relied on lifetime awards and did not assess people’s current circumstances, to one that does. If someone’s is going through a PIP assessment whose circumstances have changed—who previously was not seen face to face, perhaps, and who had a lifetime award—and they are judged no longer to be unable, or almost unable, to walk, they will therefore not be entitled to the enhanced rate component and will lose their car. We knew that that was a result, but that is part of the process.

When making his Statement to Parliament, the Secretary of State said:

“I want to start a new conversation with disabled people”,—[Official Report, Commons, 21/3/16; col. 1269.]

and disability organisations. So I say once again that we are listening; our door is open. We have recently changed the rules, for example, for terminally ill claimants to ensure they no longer have to wait 28 days to receive the enhanced rates of PIP if they transfer from DLA. We are also revisiting our approach to award reviews to make better use of the evidence we already have, so that claimants do not have to give us the same information again if their circumstances have not changed. We are listening to the views of noble Lords; we want their views and those of disability groups; we value the expertise of noble Lords in this House and I say again that we are happy to meet the organisations.

[Lord McKenzie of Luton]

Before the Minister sits down, can we just revert to the discussion about the 20-metre and 50-metre rule, and whether it is a rule or not? As I understand it, she was saying that it is possible for somebody who can walk more than 20 metres to qualify for the highest mobility component. Of the total number of people who qualify, how many qualify on that basis and how many qualify because the 20-metre rule operates?