Wealth Inequality
Lord Naseby Excerpts(9 years, 10 months ago)
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Lord Naseby (Con)
My Lords, is it not time that some of our leading charities set about solving the problems they were set up to solve rather than getting involved in financial lobbying and somewhat dubious forecasting? Does my noble friend agree that, looking at what the British Red Cross and Médecins Sans Frontières do, they are the blue chips of our charities, and perhaps some of our other large charities could follow the example that they have set?
Lord Newby
My Lords, the advocacy role of Oxfam and other charities is extremely important. The list of proposals in the report we are debating includes issues such as promoting women’s economic equality and women’s rights. Those goals are shared by all international development charities, which do a very useful job in bringing these important issues to wider public attention.
Mutuals’ Redeemable and Deferred Shares Bill [HL]
Lord Naseby Excerpts(10 years ago)
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The Commercial Secretary to the Treasury (Lord Deighton) (Con)
My Lords, I congratulate my noble friend Lord Naseby on securing a prompt date for the Committee stage of this important Bill. The Government are supportive of the key objective of the Bill, which is to provide mutual organisations with a means to raise external capital in a way that preserves the mutual status of those firms. The mutual sector has made the case that current capital constraints are preventing friendly societies and mutual insurers acquiring other businesses that would strengthen the overall offer to members and policyholders, and may also be restricting these organisations from developing new or innovative products, especially if these products require material amounts of regulatory capital to be held. Growth in these areas would potentially be to the benefit of both with-profits policyholders and other members of the mutual.
The Bill therefore addresses access to capital for two mutual sectors: friendly societies and mutual insurers and industrial and provident societies, now known as co-operative and community benefit societies. The Bill provides that the Treasury may make regulations, subject to the affirmative procedure, to the friendly societies and mutual insurers to issue deferred shares and to commit co-operative and community benefit societies to issue redeemable shares. At Second Reading my noble friend Lord Newby noted that the deferred share capital instrument for mutual insurers and friendly societies provides a good way forward, and he committed the Government’s support to this instrument. My noble friend also outlined at Second Reading that the Government would not extend their support to the proposed redeemable share instrument for co-operative and community benefit societies, as these societies already have a means of issuing redeemable shares. I am pleased that my noble friend Lord Naseby has accepted the Government’s support for this more limited Bill.
Government Amendments 1 to 16 achieve three objectives. First, they give effect to the Government’s commitment to support only the deferred share capital instrument for mutual insurers and friendly societies, and therefore remove the parts of the Bill that concern co-operative and community benefit societies issuing redeemable shares. Secondly, to preserve the principle of mutuality, the Bill clarifies that no friendly society or mutual insurer will grant more than one vote per person for every deferred shareholder—and, further, that no deferred shareholder will receive more votes than an ordinary member by virtue of being a deferred shareholder. Thirdly, there are several minor and technical changes to tidy up the Bill and use more appropriate legislative terminology.
Amendment 1 to Clause 1 restricts the scope of the Bill to allow HM Treasury to make regulations providing for deferred shares for friendly societies and mutual insurers. The Bill will no longer provide a means for co-operative and community benefit societies, which were formerly known as industrial and provident societies, to issue redeemable shares. In order to provide for these deferred shares, the regulations may modify the Friendly Societies Act 1992, the Companies Act 2006 and other primary legislation relating to friendly societies or mutual insurers. The Government believe that granting the regulations the power to modify primary legislation still to be enacted is both necessary and proportionate. It is necessary because there will be a period of time before these regulations are made, and in the intervening period there may be changes to existing legislation that affects friendly societies and mutual insurers which may need to be amended. It is also proportionate because it is limited to the Friendly Societies Act 1992, the Companies Act 2006 and other primary legislation relating to friendly societies and mutual insurers.
Amendments 5, 6, 7, 9, 13, 14, 15 and 16 are related consequential amendments. Government Amendments 2 and 3 make minor technical changes. Amendment 2 uses more accurate legislative terminology to clarify that the power to make regulations under the clause is exercisable by statutory instrument. Amendment 3 specifies that the statutory instrument containing regulations under this clause may not be made unless a draft has been laid before and approved by each House of Parliament. The Delegated Powers and Regulatory Reform Committee reported that it regards this delegation or procedure as appropriate.
Amendment 4 introduces a new clause that provides that holders of deferred shares will not receive more than one vote by virtue of owning a deferred share, and will not receive more votes than they would have had if they had been a member. Friendly societies and mutual insurers already have considerable freedom regarding their rules and internal governance. This maintains that freedom, but also provides that holders of deferred shares do not gain any advantage over other members by virtue of being deferred shareholders. This amendment therefore serves to protect the principle of mutuality.
Amendment 8 introduces a provision that where HMT makes a regulation to specify a particular organisation as a mutual insurer, such regulations are subject to the negative procedure. The Delegated Powers and Regulatory Reform Committee confirmed that the negative procedure is sufficient in this regard.
Amendments 10 and 11 are minor and technical changes to provide that the Treasury has the power to commence the Bill by statutory instrument and that the Treasury may make regulations by statutory instrument to commence the Bill rather than by making an order. Amendment 12 is a minor and technical change to amend the title of the Bill more accurately to reflect that the Bill applies to friendly societies and mutual insurers, permits the issue of deferred shares and restricts the voting rights of members to hold those shares. I beg to move.
Lord Naseby (Con)
My Lords, these amendments arise out of the removal of the redeemable element in the original Bill. It was removed by mutual consent, but I hope in due course, on another day, to come back to that dimension of the original Bill. These amendments meet the Delegated Powers and Regulatory Reform Committee’s ninth report of the Session. The comments from the committee were important and helpful.
The key element of the amendments is that they enable the Bill to go forward and allow friendly societies and mutual insurers to move forward in relation to the challenges they meet today. Looking back over two centuries, friendly societies and mutual insurers have provided insurance for life events for millions of ordinary people. They manage funds in excess of £90 billion on behalf of their members and customers and focus on good value and service quality. In addition, many are regional businesses, which is an important element. I had a debate the other week on cottage hospitals—or community hospitals, as some would call them. They are a wonderful vehicle for involving communities, and the vehicle of a friendly society or mutual insurer is a means of establishing that.
I applaud what the Government have done in terms of helping the whole mutual movement, building on the work done by the Major Government in 1992. We have seen progress in a great many areas of social welfare and other areas of mutuality, but there was this hole and these amendments help to fill it. I shall pick out the key elements these amendments will facilitate. They will facilitate an increase in membership of the firms involved. That is extremely helpful. The key point is that they will fuel organic growth and enable the development of new product lines. They will provide funds for firms to go through acquisitions that they may see as giving them an opportunity. I do not think I need to go into any greater detail. I went into considerable detail at Second Reading and the House may return to that on Report or at Third Reading.
Financial Services: Cold Calling
Lord Naseby Excerpts(10 years ago)
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Lord Newby
My Lords, the easiest way to ensure that people do not get that plethora of calls is for them to sign up to the Telephone Preference Service, which will mean that they do not get the bulk of calls coming in. As far as the potential mis-selling of pensions is concerned, the FCA has a very wide remit and toolkit to deal with any potential mis-selling, and I know that it is working very hard in this area.
Lord Naseby (Con)
Is my noble friend aware that there is something wrong with the Telephone Preference Service, in that numerous calls are made to, I suspect, every Member of your Lordships’ House from overseas, and even from the UK, extensively for financial products, and is it not time that Ofcom and the FCA sat down together, with the help of government, to try to tighten up this whole area?
Lord Newby
My Lords, the regulation of cold calling is split between the FCA, the Information Commissioner’s Office and Ofcom. The Nuisance Calls Action Plan was issued by the Government earlier in the year, one of the key parts of which is to bring these components together and to work with equivalent bodies in other parts of the world from where people make cold calls. In addition, a consultation is currently under way, which recommends that it should be much easier in future for the Information Commissioner’s Office to take action and to enforce penalties against people who are breaking the rules.
Mutuals’ Redeemable and Deferred Shares Bill [HL]
Lord Naseby Excerpts(10 years, 1 month ago)
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Lord Naseby (Con)
My Lords, noble Lords may wonder why I have become involved in the mutual world. I have to thank Peter Gray, one-time chief executive and chairman of the Tunbridge Wells Equitable and Friendly Society, who revitalised that society in the 1970s and 1980s, and the Association of Friendly Societies. It was he who inspired me to take a real interest and, as a result, I chaired that organisation from 1992 to 2005.
The other inspiration that has caused this Bill to see the light of day comes from the Chancellor of the Exchequer, the right honourable George Osborne, who somehow persuaded the powers-to-be to make in the Conservative manifesto a commitment to mutuality both in the workplace and in the structure of the mutual financial sector. There are broadly five sectors of the mutual financial world. Building societies, credit unions and co-operatives have all been helped by the Chancellor already. However, two of the five have yet to be helped—namely, mutual insurance companies and friendly societies. Why do they need help? It is simply because, unless they can raise additional capital, they will never be able to expand or develop to their true potential. Indeed, unless they are helped, I suspect that they will either wither on the vine or demutualise. So we have today’s Bill, which has been in gestation now for close on two years, helped by the Treasury—and I pay particular thanks to the right honourable Sajid Javid MP and his successor in looking after this Bill, Andrea Leadsom MP, who have also helped it on its way. I have had consistent help from my noble friend on the Front Bench this afternoon.
The Bill refers to two classes of shares—deferred shares and redeemable shares. One of the key hurdles that I and my team have had to jump was to persuade the regulator that both those vehicles meet the requirements of Solvency II and would therefore be eligible for tier 1 capital, which is absolutely vital for development capital. We have been successful with the deferred shares element, but have not yet persuaded all parties that it is possible for redeemable shares as well. I therefore had to make a decision on whether to go ahead now with just the deferred element of the Bill, which goes a long way to help mutual insurers and friendly societies, or whether to persevere to try to persuade the authorities about redeemable shares. I decided, in the face of having only five months left of this Parliament, to drop the redeemable element. I suspect that my noble friend on the Front Bench will do just that in Committee, in moving certain government amendments.
I want to look at the effect of the Bill. Clause 1 gives powers to the Secretary of State to permit the use of a new class of deferred shares. That is on the assumption that the redeemable element was removed. This will affect industrial and provident societies, friendly societies and mutual insurers. Furthermore, holders of shares must be or will become a member of the Society of Mutual Insurers. To maintain the mutual characteristics of the organisation, they will be entitled to only one vote as a member, regardless of the value or number of shares they hold. They will be entitled to only the level of remuneration payable under the rules of the mutual. Deferred shares may entitle the holder only to repayment of their nominal value on the solvent liquidation of the mutual. This removes any risk of carpet-bagging by those interested solely in demutualisation. The power to make regulations under the Act is exercisable by statutory instrument and must not be made unless a draft of it has been laid before, and approved by, resolution of each House of Parliament—that is, the affirmative procedure.
I will not talk about Clauses 2 and 3 because they relate exclusively to redeemables. Clause 4 sets out how regulations may provide for a mutual to issue deferred shares,
“being shares that incorporate a term which prohibits the repayment of any principal to the shareholders save in either or each of the following events … the winding up or dissolution of the … mutual … in circumstances where all sums due from the society or mutual insurer to creditors claiming in the winding up or dissolution are paid in full … the granting of relevant consent by the appropriate authority … The memorandum or rules of any society or constitution of any mutual insurer may exclude or restrict the issue of deferred shares … A society may only issue deferred shares if it is authorised to do so by its memorandum or rules and a mutual insurer may only issue deferred shares if it is authorised to do so by its constitution”.
This means that no shares will be issued until the current members have approved it. However, the key benefit—this is absolutely crucial—is that these shares would, when issued, be classed as tier 1 capital and meet the requirements of Solvency II.
Clause 5 restricts the voting rights of holders of a deferred share and obviously will need amendment to remove “redeemable”. It means that if their only membership is via holding such a share, they may not participate in any decisions concerning amalgamation, transfer of engagements or conversion into a company or, in any case, a proposed transfer or sale of business or property under Section 110 of the Insolvency Act 1986. This is a further safeguard against the motivations for demutualisation.
Clause 6 sets out the proper legal definitions for the various types of mutuals affected by this legislation. Clause 7 is the usual Short Title, commencement and extent.
I would like to spend a few moments explaining why this Bill is so important. It is important because it gives access to new capital, particularly for friendly societies and mutual insurers. First, all mutuals need to be able to play a full part in our economy with diverse corporate ownership. Friendly societies and mutual insurers do not have the ability to raise capital that some co-operatives and building societies do, or indeed public limited companies.
Secondly, without new capital, many mutuals could be driven into inappropriate corporate forms through demutualisation. If more mutuals convert to other corporate forms, consumer choice would be reduced and large numbers of consumers would no longer have non-listed, member-owned options in the financial services marketplace. This both reduces competitive pressure from the operation of different business models in the same market and adds to systemic risk to the economy.
Thirdly, a lack of capital limits mutuals’ growth and the ability to develop new services. The growth rate of a mutual is constrained by its relative inability to add capital through retained earnings.
Fourthly, like all businesses, mutuals need to be able to benefit from the economies of scale available only by growing their business. Mutuals need to gather sufficient capital to serve their members well, extend services to new members, expand their menu of services and achieve economies of scale.
Fifthly, it is important to learn the lessons from the recent financial crisis. If financial services businesses are to build up stronger capital bases, they require the legislative and regulatory agility with which to do so.
Sixthly, there are direct benefits of being able to issue these new shares. Debt, the alternative, is of a lower quality than equity for firms wishing to build their capital base. There is inevitably a limit to the amount of debt that can or should be raised. Mutual shares would therefore present an opportunity for small mutuals to raise funds that they may not be able to do otherwise, and for larger mutuals to raise tier 1 funds that subordinated debt does not provide.
These shares are alternatives to private equity buyout, which shows signs of growing. They are also alternatives to demutualisation, and this is crucial. When one looks back 20 years, the UK mutual insurance sector was the largest in Europe but now accounts for just 2% of mutual insurance premiums in the EU. Mutual insurers in 1994 accounted for 50% of the UK insurance market, and lack of access to capital was largely seen as the key reason for demutualisation. The small size of the market today means that any further demutualisation in the sector could hasten the entire sector’s early demise.
If the Bill goes ahead, mutuals will be able to source external capital without losing their mutual status, and some very specific benefits will follow. They could take part in tactical acquisitions, which will enhance their competitiveness. They could also look at local infrastructure potential. I shall give one example. In 2004, Family Investments friendly society and Brighton Council explored the concept of a city mutual. The idea was that Family Investments would raise a fund from its own capital and via a bond offering to local residents, which in turn would be used by the local council for a range of social housing and employment projects. Your Lordships may remember that on Monday I suggested something very similar for cottage hospitals. In the end, as far as the parties in 2004 were concerned, it was unclear whether the legislative arrangements were in place. This Bill will meet that requirement.
Finally in this area, there are a number of examples in overseas countries of similar mutual shares offerings. Examples from Canada and the Netherlands and across the whole European Union show how mutuals can enlist their members in raising capital through the issuance of new deferred shares. In summary, the benefits offered provide evidence that government support for the Bill would create a viable new opportunity for mutuals to attract new capital and deliver positive outcomes for mutuals and consumers.
The Bill has all-party support. Many colleagues have spoken to me in support of the Bill, and some have been good enough to write, particularly my noble friends Lord Hodgson and Lady Maddock. In the mutual world I have had wonderful support from organisations such as Liverpool Victoria, Royal London, Engage, Family Investments—steered so ably by John Reeve—and particularly Wesleyan Assurance, which is held in such high regard. Add to those the Association of Financial Mutuals, the Association of Friendly Societies and the All-Party Parliamentary Group for Mutuals—chaired by my friend Jonathan Evans MP, who will steer the Bill through the Commons, given the chance—and, above all, Mutuo, with its energetic and knowledgeable director Peter Hunt. I thank them all. I beg to move.
Lord Naseby
My Lords, I thank all noble Lords who have listened to the debate and I want to pay particular tribute to Her Majesty’s Opposition for the support that they gave me during the early stages of the Bill and then right through until today. I will refer to the noble Lord, Lord Kennedy, as my noble friend because he has worked very closely with me on this, and I wish to give him my thanks and appreciation for all the trouble he has taken. Finally, I have to say to my noble friend to whom I have already referred that he is an extremely patient and persistent man. Without that attribute, this Bill would not be before the House today. It remains for me to hope that it will get a fair wind, that people will be conscious of the time limit of five months, and that the processes in both this House and another place—which I know only too well—ensure that this really worthwhile piece of legislation can see the light of day and be put on to the statute book. Without further ado, I hope that the Bill will be given a Second Reading.
Queen’s Speech
Lord Naseby Excerpts(10 years, 5 months ago)
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Lord Naseby (Con)
My Lords, first, I compliment her Majesty’s Treasury on what it has achieved for our economy; secondly, I compliment those associated with welfare reform, in particular, my noble friend Lord Freud, on what his department has achieved.
I wish I could say that I complimented her Majesty’s Foreign and Commonwealth Office, but I regret that I am not in a position to do so. I did not support our actions in Libya or our manoeuvrings in Egypt. I was totally against our policy in Syria, and wrote to the Prime Minister accordingly. All those actions have just destabilised that part of the world—and, worse, caused thousands of deaths and millions of refugees. The Syria war was from the start nothing to do with democracy; it was the fourth Sunni-Shia internal war. If we really want peace there, Her Majesty’s Government have to find a means of talking to and working with Mr Putin and Russia.
It will not surprise your Lordships that I want to say a few words about Sri Lanka. I have been involved with that country for more than 50 years, and I think I know its ins and outs pretty well. I am the elected leader of the all-party group. I do not support any particular ethnic group, political party or Government. I have no business interests there—but I do fervently support the ordinary people in Sri Lanka and I wish to ask a few questions of Her Majesty’s Government.
First, Sri Lanka—a former colony, a founder member of the Commonwealth and one of the few countries that supported the United Kingdom over the Falklands situation—finds today that we, the United Kingdom, are exceedingly unhelpful to it. Why is it that we are so anti the democratically elected Government? Why can we not work with them? Why at every turn must we just listen to the vociferous diaspora, which is usually led by former Tamil Tigers? Why do we not understand that the Tigers were terrorists who murdered every moderate Tamil leader they could find, along with two presidents and thousands of other Sri Lankans—all in the cause of a separate state called Eelam. It was rather similar to Pol Pot.
Can we not understand that after 28 years of fruitless negotiations, it was necessary for a new, democratically elected Government to act to destroy the Tigers? Yes, that meant a bloody war, as the Tigers refused to surrender. However, I know that that Government tried hard to minimise casualties. Why do we refuse to publish the dispatches from our own defence attaché, who was an objective assessor? Why do we think that the Sri Lankan army, which we helped to train, is so different from our own Army? After all, there were allegations against our Army in Iraq, as there were against the Sri Lankan army. I think that in both cases they were highly suspect. Certainly in the case of Iraq, they proved to be bogus.
Do I think that there should be an inquiry into the final days of the war? Yes, I do, but it should be a military inquiry, because all the argument is basically about gunfire et cetera. A retired general should conduct it, perhaps from Australia. There is a wonderful Sri Lankan, Sir Desmond de Silva, who has done splendid work in Northern Ireland. There would need to be a gunnery officer, probably from the UK, and obviously somebody from the UN.
It is claimed that the whole issue is about human rights, but I will take just one aspect. I saw the head of the ICRC in Boossa camp and asked him, “Have you, the International Committee of the Red Cross, ever come across terror as defined internationally?”. The answer I got was, “No, I have not and nor have my staff”. How is it, then, that this new group called Freedom from Torture can come up and say that it is rife?
I make a plea that we should work diplomatically with Sri Lanka. That may mean a slightly less subservient approach to the Tamil diaspora and the media around the world. It will mean that the reconciliation, which is already happening, will be speeded up. In what way? They have been very brave in bringing forward trilingualism, which is quite an achievement. Thousands of Tamils have gone back from all over the world to Sri Lanka and settled down quite peacefully. There is total freedom of movement in the country and while there is a lot of criticism of the press, there is actually more freedom of the press in Sri Lanka than in Singapore. Certainly, the LLRC inquiry is slow—but not half as slow as Chilcot has been.
I finish on this note. Over the weekend, I sat and listened to the words of President Obama. He said that we,
“waged war so that we might know peace”.
Why is it any different in Sri Lanka, where so many thousands of young men and women across all ethnic groups gave their lives to rid their country of terrorism?
National Savings and Investments
Lord Naseby Excerpts(10 years, 10 months ago)
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Lord Naseby
To ask Her Majesty’s Government what assessment they have made of the impact of the introduction of a new computer system at National Savings and Investments.
Lord Newby (LD)
My Lords, National Savings and Investments has been moving customer accounts and investments to a new banking system. That follows a major review which concluded that upgrades were necessary to modernise and simplify NS&I products. It will enable products to be managed online, by telephone or post and ensure long-term customer satisfaction. NS&I recognises that a small number of customers may be frustrated, as is often the case during any such period of change, and has taken measures to ensure that customers understand the reasons for its actions.
Lord Naseby (Con)
My Lords, will the Minister explain why the NS&I cannot be like every other investment house and send to investors, without asking, a half-yearly statement which lists their holdings and the value of those holdings, plus such transactions as have taken place in the previous six months, and eventually produce a total value of all their holdings?
Lord Newby
My Lords, I think the correct analogy with NS&I is with a bank or building society, where common practice—this is what NS&I is moving towards—is that people get a statement on the anniversary of when they took out savings and that customers are able to look online for a comprehensive statement of all their various policies and holdings.
Banking: Co-operative Bank
Lord Naseby Excerpts(11 years ago)
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Lord Newby
My Lords, I think the merger with the Britannia Building Society was one of the material causes of this problem. I cannot comment on what the regulator may have said. Generally, where banks of all sorts have sought to make large acquisitions and they have then gone wrong, the principal responsibility for due diligence rests with the management of the bank involved in the takeover. The role played by the regulator, whatever its scale, does not detract from the fact that responsibility for major corporate decisions of that kind lies primarily with management.
Lord Naseby (Con)
Will my noble friend confirm for all of us who believe in mutuality and are sorry that the Co-op Bank has got into its current situation—I believe that mutuality is supported by both sides of the House—that when the new owners have got the bank onto a stable footing and making a profit they will possibly return it to mutuality?
Lord Newby
Well, my Lords, that is possible but, as noble Lords know, the sad truth is that the process has tended to be something of a one-way street with regard to mutuality. When mutuals have ceased to be mutuals, they have tended to cease to be mutuals for good. Still, one can always hope. I should also have mentioned the raft of provisions in the banking reform Bill to bring building society legislation up to date and make it easier for them to compete in the marketplace.
Financial Conduct Authority
Lord Naseby Excerpts(11 years, 1 month ago)
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Lord Naseby
To ask Her Majesty’s Government whether the Financial Conduct Authority has the authority to assess and monitor consumer finance products and anticipate their compliance with the law and the likelihood of their mis-selling.
Lord Newby (LD)
My Lords, the Government have granted the Financial Conduct Authority a product intervention power to protect consumers. This power allows the regulator to mandate, restrict or ban certain features of a financial product, restrict a product’s sale to certain groups of consumers or ban a product outright. This power will extend to consumer finance products when the Financial Conduct Authority takes on responsibility for regulating consumer credit next April.
Lord Naseby (Con)
My Lords, that announcement is very welcome, although the delay to next April is one that I do not particularly welcome. Does the Minister recall that the FSA under its watch allowed PPI to happen, costing the banks that mis-sold it well over £1 billion and allowed CPP to sell credit card identity insurance, costing millions of pounds? Although this new body is set up, is it not worrying that the Consumer Panel has yet to meet? Can we have an assurance that practitioners of retail financial services will be on that panel, not least because the retail distribution review is now in force and there will be increasing numbers—millions of our citizens—investing in financial products without taking third party advice?
Lord Newby
My Lords, I am sure that the FCA is well aware of the need to have a Consumer Panel that is as broadly based as possible. It is important to recognise that the FCA now has significant new powers: the product intervention power, the ability to ban products and powers to disclose details of warning notices, for example, as well as a power to take formal action against misleading financial promotions and disclose the fact that it has done so. It has more teeth, and all the evidence so far shows that it intends to use them.
Public Service Pensions Bill
Lord Naseby Excerpts(11 years, 10 months ago)
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Lord Naseby
“(1) Schedule 6 to the Constitutional Reform and Governance Act 2010 (parliamentary and other pensions) is amended as follows.
(2) In paragraph 19, for sub-paragraph (3) substitute—
“(3) Sub-paragraph (2) does not apply if either—
(a) the trustees of the Fund consent to the new scheme making the provision, and the person making the new scheme is satisfied that the consent requirement is met, or(b) the provision provides for a person’s normal pension age or deferred pension age to change in consequence of a change in state pension age in respect of service after the provision comes into force, but not affecting that person’s right (including a contingent right) or entitlement to or in respect of a pension or future pension payable from the Fund which has accrued in respect of service where that age does not change in consequence of a change in state pension age.”(3) In paragraph 19, at the end insert—
“(8) In this paragraph—
(a) “normal pension age”, in relation to a person and a scheme, means the earliest age at which a person with relevant service is entitled to receive benefits (without actuarial adjustment) on leaving that service (and disregarding any special provision as to early payment of benefits on the grounds of ill-health or otherwise),(b) “deferred pension age”, in relation to a person and a scheme, means the earliest age at which a person with relevant service is entitled to receive benefits under the scheme (without actuarial adjustment) after leaving that service at a time before normal pension age (and disregarding any special provision as to early payment of benefits on the grounds of ill-health or otherwise), and(c) “state pension age”, in relation to a person, means the person’s pensionable age as specified from time to time in Schedule 4 to the Pensions Act 1995.””
Lord Naseby
My Lords, in moving the amendment, I must declare an interest as a trustee of the Parliamentary Contributory Pension Fund and as its only active pensioner within the membership of the fund.
The amendment relates to Clause 31—Parliamentary and other pension schemes: pension age. The clause amends Schedule 6 to the Constitutional Reform and Governance Act 2010, to which I shall hereafter refer as CRAG, by inserting a new paragraph 29A, “Pension age”, into that schedule. It is an enabling measure, not a requirement, as was made clear in the Commons. It enables IPSA, in relation to MPs and the officeholders within its remit, and the Minister for the Civil Service, in relation to the ministerial scheme, to introduce for future benefits a provision whereby “normal pension age” within these schemes will rise automatically with changes in the state pension age.
The PCPF trustees take no issue with the measure itself. As statutory consultees under CRAG, it will be for the trustees another day to debate with IPSA/the MCS the detail as to how such a provision may be implemented for the future. However, we are concerned that the drafting creates ambiguity in the legislation governing the PCPF such that it potentially undermines existing protections afforded to PCPF members in a way that we doubt Parliament intends.
It is important to understand the background. The legislative framework of the PCPF was overhauled by CRAG and is governed by that Act. There was extensive debate at the time of the passage of CRAG about the need to ensure that the accrued rights of PCPF members were appropriately protected in legislation. That was particularly important given that the setting of MPs’ future pension provision was by that Act being transferred to an independent body in IPSA. The legislation appropriately prescribed the boundaries of its powers.
Those boundaries, set out in Schedule 6 to CRAG, were described as follows:
“My aim is to ensure that the statutory safeguards afforded to members of other occupational pension schemes broadly apply to the parliamentary scheme. As with statutory protection for pension schemes elsewhere, amendment 74”—
the government amendment—
“would put a double lock on any provision adversely changing accrued pension rights. It would first be necessary for the trustees to consent to the scheme making such provision and, secondly, each member would have to give his or her informed consent to any changes to accrued rights”.—[Official Report, Commons, 2/3/10; col. 854.]
The details of those boundaries can be found in paragraph 19, “Protection of accrued rights” and paragraph 20, “Meaning of accrued right”, in Schedule 6 to CRAG. These provide, at paragraph 19(2), that:
“The new scheme must not make any provision in relation to an accrued right which puts (or might put) a person in a worse position than the person would have been in apart from the provision”.
Paragraph 20(2) says that the term “accrued right” means,
“a right (including a contingent right) or entitlement to or in respect of a pension or future pension payable out of the Fund”—
the PCPF—
“which has accrued in respect of service before the provision comes into force”.
The protection does not apply if the PCPF trustees consent to the making of the provision and informed individual member consent requirements are met.
Our concern, as PCPF trustees, is that the clause as drafted risks going beyond the narrow scope to which the Government referred. It is important that this does not happen because the structure of the clause means that it disapplies the accrued rights protection in CRAG and the so-called “double lock” enshrined in CRAG would not exist at all. At its most simple, the difficulty with the clause is that it will import language into CRAG that is inconsistent with the drafting that is there already. With inconsistency comes ambiguity and that risks undermining the double lock that currently exists. The clause fails, for instance, to speak of the removal of the protection as applying only in respect of service after it comes into force, this being the critical aspect of the existing CRAG protection.
I have two questions for my noble friend on the Front Bench. First, what comfort can he provide that the carve-out will not undermine the existing CRAG protections other than to introduce an enabling provision to allow IPSA or the MCS, as appropriate, to tie future service benefits to an NPA that uprates in line with changes to SPA? Secondly, can he confirm that the wording in Clause 31,
“(as well as other benefits)”,
does not extend the application of the carve-out to any benefits other than relevant accrued benefits? I realise that the second question has some technical dimension to it, to which I shall briefly refer. It arises from the wording currently in Clause 31 by way of proposed new paragraph 29A(1) to Schedule 6 of CRAG. It provides that the carve-out from accrued rights protections, to enable the introduction of an NPA that uprates automatically with changes to SPA, is limited. It will apply only to “relevant accrued benefits”. Defined at the proposed new paragraph 29A(3)(d) to Schedule 6 to CRAG, they are benefits accrued after the coming into force of that SPA link—that is, future service benefits. However, the Bill refers to the carve-out applying to,
“relevant accrued benefits (as well as other benefits)”.
The concern is that the additional words in parenthesis could be read as suggesting that the carve-out applies to all benefits, not just to “relevant accrued benefits”.
Having proposed this quite complicated amendment, I hope that nevertheless the Minister will be able to clarify the position and indeed give comfort to me and the other trustees. I beg to move.
Lord Stewartby
My Lords, I support my noble friend, who has explained this technical area very skilfully. Like him, I have to declare an interest as a member of the parliamentary fund and I was a trustee for several years. The great advantage of that is that one does not come to the details of this sort of provision completely unsighted. However, it is a very complicated Bill. As the noble Lord, Lord Eatwell, mentioned, it contains a lot of areas of uncertainty. The same point about ambiguity in drafting was made by my noble friend Lord Naseby. All I want to do is help support the case made by my noble friend and underline every point at which accrued rights are involved. That is a very sensitive area. When the Bill is finally tidied up, special efforts must be made to ensure that accrued rights are dealt with as if they were sacrosanct. I believe they are, but that must be what happens in practice. With those few words, I support my noble friend and hope that the Committee will be sympathetic to the case he put so clearly.
Lord Newby
My Lords, the noble Lords, Lord Naseby and Lord Stewartby, are concerned that Clause 31 as currently drafted creates ambiguity and could have a wider interpretation than is intended. I will seek to put their minds at rest and in doing so answer the two questions raised by the noble Lord, Lord Naseby.
I hope I can reassure the noble Lord that the clause as drafted does not provide for a wide power to amend accrued rights under the relevant schemes. The power provided for in the clause is actually very narrow and the disregard for the accrued rights protections in CRAG applies only to this very narrow provision. The power simply allows those responsible for the schemes to amend them to create a link between normal pension age under the scheme and state pension age, which would apply to benefits accrued from the point the amendment takes place. That is to say, once that link is in place any increase in state pension age will increase the normal pension age, but only for those benefits accrued after the creation of the link. That is the key point. The clause does not allow for changes to the indexation arrangements for deferred members, sweeping changes to the death in service benefits or removal of the final salary link. All these areas will continue to have the same level of protection under Schedule 6 as now.
I believe that the phrase,
“(as well as other benefits)”,
in the clause is of considerable concern, as the noble Lord, Lord Naseby, said. I should like to put on the record the Government’s view that this phrase does not open the door to a wider interpretation of the benefits that could be subject to the state pension age link as a consequence of this clause. It is important to include this phrase, so it is clear that the clause does not reduce the power the scheme already had to change the normal pension age for benefits that accrue after the change. However, it is also clear from the current drafting of the clause that the only accrued benefits that come within the new power are “relevant” accrued benefits, as defined in new paragraph 29A(3)(d). I hope therefore that the noble Lord will find sufficient comfort in what I have said to be able to withdraw his amendment.
Lord Naseby
I am most grateful to my noble friend for listening to the propositions and concerns that we had. I think his answers were very helpful. Certainly, I would like to study his reply very carefully after Committee stage, and if necessary return on Report, but I hope that will not be necessary. At this stage, I beg leave to withdraw the amendment.
Public Service Pensions Bill
Lord Naseby Excerpts(11 years, 11 months ago)
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Lord Newby
My Lords, this Bill offers a rare opportunity to introduce primary legislation that pulls together a new common UK legal framework for public service pensions, and it is right and necessary that we do so. We must have public service pensions legislation that is fit for purpose and ensures that those who commit their careers to delivering our valued public services continue to receive guaranteed benefits in retirement that are among the very best available.
However, we also have an obligation to ensure that these generous arrangements are provided on a fair, transparent and sustainable basis. This Bill is based on the recommendations of the independent Public Service Pensions Commission, which was chaired by the noble Lord, Lord Hutton of Furness, who I am delighted will be taking part in the debate today.
In June 2010, the noble Lord accepted an invitation from the Government to conduct a fundamental structural review of public sector pension provision and to make recommendations on pension provisions that would be affordable in the long term, fair to both the public service workforce and the taxpayer and consistent with the fiscal challenges ahead, while protecting accrued rights. This Bill fulfils the Government’s commitment to bring forward fundamental changes to public service pensions based squarely on his recommendations.
I thank the noble Lord, Lord Hutton, for his significant role in bringing about these important reforms. His recommendations mark an important milestone in the history of public service pension provision, and we are extremely grateful to him for having undertaken this somewhat thankless task. I must also thank those in the other place for their work on the Bill to date.
As was made clear on Report in the Commons by my ministerial colleague the Economic Secretary there are some areas in this Bill that we are reflecting on further, following representations made in another place. For example, we are looking at the best way to reflect our commitment to member representation on scheme boards and at how personalised information is provided. As for the powers that would allow scheme managers to make retrospective changes to schemes, I am aware that this is an issue about which many feel uncomfortable and that the Delegated Powers Committee has also expressed concerns. The Government are considering their response to the Committee’s report, and we will return to that matter.
As we begin our consideration of the Bill, we must not underestimate the importance of what it is trying to achieve. We are in a world where people are living longer. While this is obviously an extremely important and welcome trend, we must face the consequence of this improvement on the costs of providing public service pensions. As well as looking at how to keep the increasing costs under control, we must also consider the fairness of the arrangements. I hope and believe that the Bill gets this important balance right.
The Bill is in one respect rather curious, in that many features of public sector pension schemes are not covered in detail. They will be set out in detailed scheme rules which will eventually come before Parliament in the form of negative resolution statutory instruments. What the Bill does is provide an overarching framework for all public service pensions schemes. This is not a new approach. The Bill before us today supersedes the Superannuation Act 1972, which followed the same principle. The reason for this is simple: detailed pension schemes are extremely complicated, will vary between different parts of the public sector and will need in some respects to change over time. They are much better suited to secondary legislation.
This inevitably means that many of the most important aspects of the schemes—for example, the accrual rates and the revaluation rates—are not in the Bill. The key principles which underpin public sector pensions and the way in which pensions schemes will be determined are, however, covered by the Bill, and I should like to turn to some of its principal provisions. However, I stress at the outset that the Government intend that public service pensions continue to set a high-quality benchmark and one to which many in the private sector could usefully aim.
The Government intend that public sector pensions should continue to be based on defined benefits. For many years, these have been based on an individual’s final salary. This has had a degree of inequity in that, per pound contributed to the scheme, those on high final salaries have received a greater return in terms of the pension that they have received. This Bill proposes that members’ benefits should be calculated on a fairer basis; namely, on an individual’s career-average earnings. By following this approach, low earners will no longer be expected to subsidise the benefits of higher earners.
The Bill links normal pension age to state pension age for most members. This will automatically track changes in longevity and protect the taxpayer from the associated cost risks. Historically, improvements in longevity have not been well managed, and the failure to do so in a timely manner has represented the single biggest risk to the future affordability of these pension schemes. The establishment of the link between public sector and the normal state pension age addresses this problem. As an exception to the link, a normal pension age is set at 60 for firefighters, police officers and members of the armed services in recognition of the unique characteristics of those public servants’ work. We want to be sure that these normal pension age provisions remain appropriate, which is why the Government intend to review the provisions as and when the state pension age changes. This will ensure that a consistent approach to pension age policy is taken across government as a whole.
Of course, normal pension age does not represent the age members must work until; rather, it is a point on which to base the calculations. Members can choose to retire earlier or later if they wish and, should they decide to do so, a fair adjustment will be applied to their benefits. The same principle applies in other pension arrangements—it is built into annuity rates, for example—and it is right that it applies to public service pension arrangements, too.
In addition to the longevity link, the Bill includes provision for an employer cost cap which will provide additional protection against unforeseen changes in the cost of public pensions. If the cost of a scheme rises, the scheme rules must set out a process for agreeing how they can be brought back under control. The cap may well in practice not be breached, but if it is, the Bill provides for a clear way of dealing with what could otherwise be an unacceptably high cost to taxpayers. In effect, the employer contribution to the scheme is being fixed within specified margins. Any change beyond those will result in benefits or member contributions being adjusted to bring costs back under control. Details have been made available in the House Library regarding the practical application of the cap and the Government’s intentions around the valuation procedures to be followed in the new schemes. These are new and important elements of the Government’s policy, and I hope that these papers provide useful clarification to the House.
As I said earlier, I emphasise that this Bill is not just about fairness to taxpayers; it is also about fairness to scheme members. This is why we propose transitional arrangements for members of most schemes who have less time than others to adjust their retirement plans. Those who were 10 years from their current normal pension age on 1 April this year may continue to accrue benefits on their existing terms; their pensions will be unaffected by the Bill—
Lord Naseby
I apologise for making an intervention, and I must declare an interest as a trustee of the Parliamentary Contributory Pension Fund, but I would like to tell my noble friend that in Committee I shall be moving an amendment to Clause 31, concerning the rights of the members of the PCPF and their appropriate protection in legislation. The Bill, as currently drafted, casts doubt in that it could be read as enabling IPSA, in relation to MPs’ future pension provision, to break the link between members’ accrued benefits and their final salaries. I wish to place that on the record.
My understanding is that we are going to have the Committee stage pretty soon after we come back. I hope very much that my noble friend and I can have a discussion on that amendment before we come to the Floor of the House.
Lord Newby
My Lords, I am very happy to have an early discussion with my noble friend and look forward to debating any amendment that he may wish to bring forward.
As I was saying, we want public pension recipients to be reassured that, as a result of the provisions set out here, the new schemes will be administered and governed as effectively as possible. The new open scheme arrangements will ensure greater accountability and transparency through a common approach, an approach that will be independently overseen by the Pensions Regulator. The Bill builds on the regulator’s existing role and powers in relation to public service schemes and, as far as is appropriate, mirrors the existing approach to other occupational pension schemes. The regulator’s new powers will help public service pension schemes deliver good standards of administration and governance, ensuring that scheme costs and risks are understood and managed effectively.
All these changes demonstrate that the end of the current benefit arrangements and the creation of these fairer, more sustainable pension schemes are the right and proper way forward. It is right that public service pensions continue to set a good-quality benchmark for the private sector, and a race to the bottom in terms of pension quality must be avoided.
A consistent approach across schemes regarding consultation processes and the application of financial directions from the Government will also mean that members see unprecedented certainty about how their pensions are handled. It will no longer be the case that a member in one scheme can look over to another public service workforce and marvel at the myriad different quirks and anomalies within the scheme rules. There is some scope for variation to suit the needs of each workforce but, as the noble Lord, Lord Hutton of Furness, recommended, this is a common framework which brings all these schemes together under one legislative umbrella.
We have said that we hope and expect that the new schemes that will be drawn up under this Bill framework will last for at least 25 years. Of course, no Parliament can bind its successors, but we have included in the Bill enhanced consultation procedures, both with those who would be affected by any significant changes and with Parliament, to ensure that there is a high hurdle to be cleared before any such changes could be made.
The approach we are following will apply across all public service pension schemes, including smaller public body arrangements. We are aiming to reform the pensions in those bodies by spring 2018, and there will be no exceptions. This is why I am pleased that the Northern Ireland Government have indicated their intention to maintain parity with the changes set out in this Bill when they bring forward their legislation. Likewise, I hope our colleagues in Scotland and Wales will follow suit for the handful of schemes where competence for pension legislation sits outside Westminster.
Finally, we have also taken the opportunity of the Bill to reconsider whether certain generous historical entitlements remain appropriate in the modern age. The Great Offices of State pension arrangements, which apply to the Prime Minister, the Lord Chancellor and the Speaker of the House of Commons, give unusually generous pensions to these office holders. The scheme will now be closed to new office holders. Future holders of these positions will be entitled to a scheme that is the equivalent of those available to Ministers, thus ending this historical anomaly.
In conclusion, I believe that the package of measures contained in the Bill will fulfil the legitimate and worthy aim of bringing about long-term structural changes that are in the best interests of members, employers and other taxpayers. This is sound, reforming legislation, which I hope will continue to command cross-party support. We must, however, get the detail—