Occupational Pension Schemes (Administration, Investment, Charges and Governance) and Pensions Dashboards (Amendment) Regulations 2023

Lord Sharkey Excerpts

Tuesday 28th March 2023 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Viscount Younger of Leckie) (Con)]

My Lords, these draft regulations were laid before the House on 30 January. Good investments are central to well-run pension schemes and decisions made by the trustees of those schemes have a significant impact on growing savers’ pension pots. Subject to approval, these regulations will help occupational defined contribution pension schemes—the so-called DC schemes—make greater use of performance-based fees, which are payable to investment fund managers when they deliver healthy returns on their investments. This will put DC schemes on an even playing field with other institutional investors such as insurers, investment companies, defined benefit pension schemes and overseas investors when it comes to accessing the same range of investment choices that come with fees.

The regulations also place new duties on the trustees of most DC schemes to disclose additional information about their investments. They are designed to ensure that trustees reflect on the investment decisions they make, as part of their ongoing fiduciary duty to create a diversified investment strategy that delivers for savers. These regulations continue the Government’s commitment to ensure that millions of hard-working savers in occupational DC pension schemes are receiving the best possible value. I am satisfied that these regulations are compatible with the European Convention on Human Rights.

Let me take a step back and put this in a bit of context. Over the past decade, there has been a significant increase in the use of illiquid asset classes such as infrastructure, real estate and private equity within institutional investment portfolios globally. Meanwhile, DC schemes in the UK have relied on public markets to generate returns and diversify portfolio risk. Pension scheme trustees’ primary focus must always be on delivering an appropriate return to members. But by investing almost wholly in liquid investments such as publicly listed equity and debt, pension savers can miss out on the potential to achieve better returns from being invested for the long term. This is a particular concern in DC schemes, where decisions which reduce long-term returns will affect member incomes in retirement.

Currently, less than 10% of UK DC investments are estimated to be in illiquid assets. The Pension Charges Survey 2020 evidenced that two-thirds of DC schemes had no direct investment in illiquid assets within their default fund arrangements. This is at a time when the UK DC market is growing in scale and in ambition. DC pension schemes currently hold over £500 billion of assets, a figure that is set to double to £1 trillion by 2030. The Australian DC market, in comparison, invests somewhere in the region of 20% of assets, on average. This includes investment in major UK assets such as the King’s Cross redevelopment project and Manchester, Stansted and East Midlands airports.

The DWP has run several consultations to understand the reasons why DC schemes have largely avoided investing in private markets. The feedback received highlighted concerns that performance fees, typically associated with illiquid assets and levied by fund managers, would put schemes at risk of breaching the existing 75 basis-point regulatory charge cap. While the charge cap has successfully reduced costs, it has arguably led to more focus on costs than on the returns that different asset classes can provide. In January, the Minister for Pensions launched a consultation on proposals for a value-for-money framework, which aims to address this. These regulations continue that value-for-money theme. The essence of what we are trying to do here is to make it easier for DC schemes to access a broader range of investment opportunities that could generate higher return outcomes.

I will now say a bit more about the issues highlighted during the consultation. We listened carefully to earlier concerns raised during the consultation that this change to the cap could weaken existing saver protections, and we have acted on this feedback. Regulation 2 of this instrument sets out the criteria that “specified performance-based fees” must meet to be considered outside the charge cap. These include a requirement that fees must be paid only once returns to the scheme have exceeded a pre-agreed rate or amount agreed by trustees and the fund manager prior to investment.

The criteria include additional safeguards that trustees must also agree in advance, and that performance-based fee structures include mechanisms to guard against excessive risk-taking or fund managers being paid repeatedly for the same level of performance. The regulations provide for the use of high-water marks and fee caps, for instance, which are commonly applied in the investment market to give investors this extra level of protection.

The regulations are purposefully silent on what rate of returns or type of fee structure mechanisms must be applied. This is to allow trustees and fund managers to develop and negotiate terms that are in the best interests of savers. Provided that trustees and their advisers apply these terms, such performance fees will not erode retirement pots because they should arise only when savers have received a favourable return on their investments.

The DWP received positive responses to this change, particularly from larger DC pension schemes which said that the ability to remove these fees from their charge cap calculations will make it easier for them to consider new asset classes. The DWP has published statutory guidance to assist trustees with determining the criteria for performance-based fees that can be considered outside the charge cap. The guidance is very clear that trustees should seek professional advice on their investments where performance-based fees are prevalent.

To ensure transparency to members, performance-based fees incurred are required to be disclosed, and the value to members assessed, in the scheme’s annual chair’s statement. To be clear, these changes place no obligation on schemes to agree to investments that come with performance-based fee arrangements if this is not in their members’ best interest.

With any investment there is no guarantee of higher returns. In accordance with existing legal requirements, trustees must invest in a manner calculated to ensure security, liquidity and profitability, and have regard to the need to diversify investments. This provides that trustees are guided on assessing the risk of portfolios and, with this, managing the risk of lower as well as higher returns.

Regulation 3 of this instrument sets out new duties on DC trustees to include an explanation of their policy on investing in illiquid assets in their statement of investment principles. These explanatory statements, covered in the regulations, include whether investments in illiquid assets are held, the types of illiquid assets and why this policy is of advantage to members. Where investments will not include illiquid assets, trustees are expected to give reasons why, along with whether they have plans to invest in the future.

While some of our bigger DC schemes already provide this information, this is not the approach taken by all. Some master trust schemes also disclose information on the asset classes in which the scheme holds investments, but this is not commonplace and most members are not in receipt of this information. The regulations address this by placing a duty on trustees to disclose the percentage of different classes of assets held in the scheme’s default funds. Asset classes covering liquid and illiquid are prescribed in the regulations.

Greater understanding and accountability of the investment decisions made by trustees on behalf of their members will be key to improving value for members across all schemes. The industry’s response to these new duties was that the regulatory burden is reasonable and proportionate while still retaining the wider benefits these changes will bring. It is worth noting that asset allocation disclosure is already mandatory for Australian pension schemes.

The DWP will work with the Pensions Regulator to ensure that trustees are supported with the new duties. Information contained in chairs’ statements and statements of investment principles are monitored by the Pensions Regulator as part of its wider strategy on regulatory compliance.

We will also look closely to monitor the impact of our changes on investment performance. In addition, Regulation 7 of these regulations requires that a review of these regulatory provisions must be undertaken and published within five years of the regulations coming into force.

These regulations also correct a drafting error at cohort 1(b) of the staging profile in Part 1 of Schedule 2 to the Pensions Dashboards Regulations 2022. The error relates to the staging deadline for master trust schemes that provide money-purchase benefits only. While we are not aware of any schemes being affected by this minor error, it is none the less appropriate to amend the Pensions Dashboards Regulations 2022 to resolve this issue as soon as practically possible. With that, I commend this instrument to the Committee and beg to move.

[Lord Sharkey (LD)]

My Lords, as the Minister has said, this statutory instrument contains seven regulations. The first is to do with timings and commencement. We have no comment on this, except to ask why there will be a delay of 21 days in bringing the correcting dashboard regulation into effect.

Regulation 2 excludes specified performance-based fees from the charge cap, and the Explanatory Memorandum sets out the rationale. In paragraph 10.5, the Explanatory Memorandum speaks of

“sufficient safeguards for schemes and members to protect them from excessive charges”

consequent upon this regulation. This is clearly a critical area. The possibility of excessive charges is an obvious concern and was highlighted in the recent SLSC report on this instrument. Can the Minister set out what these safeguards are and on what basis and by whom they were judged to be satisfactory?

Regulation 3 will require schemes to include an explanation of their policy about investing in illiquid assets in their default statement of investment principles, as the Minister said. The taxonomy of asset classes is explained in detail in paragraph 25 of the statutory guidance and is given in Regulation 4(5). This has eight categories and does not attempt to define “illiquid”. In fact, I could find nothing in the instrument and its accompanying documents that approaches a definition. Of course, it may be that I have overlooked it somewhere; I would be grateful if the Minister could guide me on the matter, point to a definition and perhaps explain how it was arrived it and by whom. The chief purpose of this instrument is to remove barriers to investments in illiquid assets, and it would be rather odd if there were no criteria for assessing whether an asset was to be counted as illiquid.

Regulation 4 also requires trustees or managers to report on specified performance-based fees incurred by the scheme.

Regulation 5 requires such disclosures to be made public. This all seems very sensible, but nowhere is there any sense of an upper bound on these specified performance-based fees. In its report, the SLSC made this point.

Since the EM was produced, the DWP has published extensive statutory guidance—22 pages—which states that the rate or amount of these fees is for the trustees and managers of the scheme with support from their advisers and their fund manager to agree based on the nature of the investment proposed. At first reading, this seems a bit like an invitation to a fleecing. The Government were happy to install the charge cap in the first place. What consideration was given to capping these special performance-based fees? Paragraph 76 of the statutory guidance, “Volatility of returns and performance based fees”, states:

“The 2023 Regulations require that specified performance-based fees structures must include mechanisms that offer protections to pension schemes and their members. This is so fund managers are not taking excessive risk or being paid twice for the same level of performance or for performance which turns out to be impermanent.”


I cannot see where that is spelled out in the instrument as a must, and I would be grateful for the Minister’s help in clarifying the matter.

Regulation 6 corrects an error in the pensions dashboard, and we have no comment on that.

Regulation 7 provides for a review of the impact of Regulations 2 to 5 every five years, which seems sensible. We are particularly interested in seeing whether the modification of the charge gap and the disclosure requirements lead to an increase in investment in illiquid assets. The SLSC made this point in its formal recommendation to the House:

“As the fee changes made by these Regulations aim to encourage pension schemes to increase their investment in illiquid assets, the House may wish to ask the Minister how schemes’ subsequent exposure to an increased risk of lower, as well as higher, returns is to be monitored and how trustees are to be properly guided on assessing the risks to the portfolio.”


Those are very good questions, and I would grateful if the Minister could address them.

Pensions Dashboards (Prohibition of Indemnification) Bill

Lord Sharkey Excerpts

2nd reading
Friday 3rd March 2023 Lords Chamber

[Lord Sharkey (LD)]

My Lords, I can be very brief. We support this Bill and congratulate the honourable Mary Robinson MP on seeing the necessity for it, devising it and seeing its safe passage through the Commons. During that passage, the Bill attracted widespread and enthusiastic support from all sides, including from the Government themselves.

The Bill clearly fixes what could have been an extremely unfortunate loophole, and I confess to some chagrin that we did not spot the loophole at an earlier stage. I had thought that we had been pretty thorough—and lengthy—in our scrutiny. It is surely obvious that we should prevent trustees or fund managers who are fined for breach of the dashboard regulations reimbursing themselves from the funds of which they are trustees or managers. Equivalent prohibitions already exist for other aspects of pensions governance, and we clearly need to add the Bill’s prohibitions to that list.

We would also like to speed the progress of this Bill through this House, ideally unamended, to ensure that the loophole is closed quickly. We want to be able to prevent, for example, reimbursements for fines levied for failures to meet the required target dates for connection to the MaPS dashboard—although, as the noble Baroness, Lady Altmann, just pointed out, that may not be quite so pressing as it was before yesterday.

Having said all that, there are just a few areas in which I would welcome a little more detail from the noble Lord, Lord Young, who has introduced this Bill with his customary clarity and fluency. I understand that for a breach of the dashboard regulations, such as a failure to connect to MaPS on time, TPR can issue a penalty notice of up to £5,000 where the trustee or manager is an individual, or up to £50,000 where the person is a body corporate. These do not seem to me to be very large amounts, especially given the resources available to large pension funds. How were these amounts decided on and why is it thought they will prove an adequate deterrent to noncompliance with the regulations?

I understand that, under the terms of the Bill in Clause 1, the penalty imposed for use of the pension funds to reimburse managers for fines imposed for breach of the regulations would be, on summary conviction, a fine not exceeding the statutory maximum and, if convicted on indictment, a maximum of a two-year prison sentence, a fine or both. What is the level of the statutory maximum fine, is there is a similar limit to the fine levied for conviction on indictment—because that does not does not appear to be clear in the Bill—and could the noble Lord say, for these penalties, as for the penalties for breach of the regulations themselves, how they were arrived at and how they were assessed as providing sufficient punishment for breaching, or disincentive to breach, the regulations? Finally, I ask the noble Lord for reassurance that the extent of the recovery of any funds illegally diverted as reimbursement for fines will be taken into account when deciding the appropriate penalty for that action.

I conclude by once again congratulating Mary Robinson and the noble Lord, Lord Young, on this Bill and wishing it a speedy passage.

Pension Schemes Bill [HL]

Lord Sharkey Excerpts

3rd reading & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords
Wednesday 15th July 2020 Lords Chamber

[Baroness Sherlock (Lab) [V]]

My Lords, I thank the Minister for those remarks and concur with them. We have agreed on so much about this Bill: we support the new CDC pension schemes; we all want to see financial technology harnessed to benefit consumers and to make the financial markets work more efficiently; and we are keen to work constructively with the Government to bring innovations such as the dashboard to fruition.

Where we have differed is on the extent of the protections needed to mitigate the risk of consumer detriment and poor outcomes. We still believe that the weight of evidence is with our arguments, as are reports from various regulators. I hope that by the time the Bill is debated in another place, the reasoning behind our Report amendments on the head start for the public dashboard, on the risks of dashboard transactions and on questions of fairness will find favour.

The pandemic has pushed many consumers into digital engagement far faster than they may naturally have adapted to it. While that has kept our economy and society functioning, it has also exposed some consumers to greater risk of detriment. We might not see any consequential increase in the number scams until later in the year, but that means that the provisions in this Bill will be timely and welcome. More risks will emerge, including new ones as a result of Covid, so I urge Ministers to keep the House informed as regulators scan the landscape and the Financial Ombudsman monitors new kinds of complaint. Although they are not covered in this Bill, we wait with interest to see how the Government will regulate the newly emerging superfunds, given the economic impact of Covid.

Pensions are very long term, and it will take decades for the full effects of public policy decisions by any Government to be seen. That is why it is so desirable that pensions policy be built on the foundations of political consensus, and it is why I am grateful for the significant concessions that have been given during the passage of this Bill.

I pay tribute to my noble friend Lady Drake, whose expertise and determination underpinned our campaign for the Government to commit to a public dashboard and have it operating from the start. I am grateful for support from across the House for that and for all the shared support for moves to secure commitments on governance, including ensuring that dashboard services will be regulated by the FCA. It was great to see cross-party working on climate issues, led by my noble friend Lady Jones of Whitchurch and the noble Baroness, Lady Hayman, result in an agreed position with government and the first ever reference to climate change in domestic pensions legislation. I am grateful to the Minister for yielding to pressure from many quarters for amendments on transfers and on delegated legislation.

This is a better Bill than the one which entered the House, and I give thanks to all who made that possible. I thank my noble friend Lord McKenzie of Luton, but I am sad that it will be my last time sharing the Front Bench with him. He has given so much to this House and to our country in his decades of public service. I look forward to his continued contributions from the Back Benches.

I am a grateful to Dan Harris of our staff team, who has done sterling work on this Bill and is a joy to work with, as are all my colleagues who joined in during our proceedings. I am grateful to House officials and the broadcast teams. I am very grateful to the Bill team and all the officials who have met us repeatedly and patiently answered our many questions. I am grateful, too, to colleagues across the House for intelligent and thoughtful debates. I am grateful also to the Ministers: to the noble Earl, Lord Howe, for his gentle engagement and to the noble Baroness, Lady Stedman-Scott, for her co-operative spirit and her willingness to engage and to concede. This may have been her first Bill; I am sure that it will not be the last. I look forward to joining in and occasionally doing battle yet again.

We did the Committee stage of this Bill before Covid, crammed into the Moses Room with not a hint of social distancing. We did the Report stage in hybrid mode. To be honest, I will never get to love voting on my phone or get used to making passionate speeches to my iPad, but it has shown that this process can work. We have thoroughly scrutinised a vital and highly technical Bill, and we have made it better than it was. That is the job of the House of Lords in a nutshell. I am so glad we can still do it.

[Lord Sharkey (LD) [V]]

My Lords, I thank the Minister for introducing the very important new amendments concerning transfer rights. In Committee, the noble Baroness, Lady Altmann, and I attempted to do, perhaps rather clumsily, what they do rather elegantly. We live in a time when scams are increasing, people are desperate for any return, online propositions are everywhere and can seem very tempting, and your money—occasionally all your money—is easy and quick to lose. These amendments will not solve those problems, but they will prove a valuable addition to the guidance armoury and to the better protection of consumers, and I welcome them.

My noble friend Lady Janke led the debate from these Benches with real insight and conviction. It is a pity that she cannot be with us today as the Bill concludes its passage through the House. She has asked me to thank, on her behalf, all the Members who have taken part in what has been a constructive and congenial process. She has particularly asked me to congratulate the Minister and her officials on their apparently unlimited patience, their evident willingness to listen and their responsiveness. I join my noble friend Lady Janke in her remarks, especially as concerns the Minister’s patience and forbearance. The Minister’s character determined the character of our discussions. I also thank all Members who joined in those discussions, especially my noble friend Lady Bowles and the noble Baronesses, Lady Drake, Lady Sherlock and Lady Altmann. Their expertise was evident throughout and greatly added to the value of the debate. I believe that, collectively, we have made a good Bill better.

[Lord Naseby (Con)]

My Lords, I declare an interest as a trustee of the Parliamentary Contributory Pension Fund. I place on record that I have spoken on this Bill, I have tracked all stages of it and I pay a major tribute to my noble friend on the Front Bench, in particular for her care and attention regarding the less obvious aspects of a major Bill like this. If this is her first Bill as Minister, she has made an extraordinarily good start.

Pension Schemes Bill [HL]

Lord Sharkey Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

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

My Lords, perhaps I may start by addressing the government amendments. I recognise that in Committee and in subsequent meetings, some noble Lords expressed concern over the regulation-making powers in Part 1 and how they might be used. I have considered those arguments carefully and am persuaded that your Lordships are, in many instances, right. Following your Lordships’ helpful comments, I am now persuaded that it would be more appropriate to make certain regulation-making powers subject to the affirmative procedure on all usages. I recognise that CDC schemes are a totally new form of pension provision in the UK and it is right that Parliament is, as a matter of course, able to debate changes to key parts of the regulatory framework surrounding them.

Your Lordships will recall that Clauses 11 to 17 set out the authorisation framework that all CDC schemes must meet. I know that the House was concerned by the delegated powers in respect of these clauses, as they provide for the core foundations of the authorisation regime. I am pleased, therefore, to announce that those delegated powers which were subject to the affirmative procedure only on first use will now be subject to the affirmative procedure on each use. In addition, the transfer-related regulations for CDC schemes, introduced by Clause 25, will now always be subject to the affirmative procedure rather than the negative procedure.

The relevant provisions contain two powers to amend the timeframes set out in primary legislation which govern when action must be taken by trustees once a transfer out of the scheme has been requested. First, there is a power to extend the time in which trustees must facilitate a request to transfer out of a CDC scheme to a period longer than the specified six months. Secondly, there is a power to amend the three-week “cooling-off” period, during which trustees may not facilitate the requested transfer unless they receive written instruction from the member to do so. Given the importance a decision to transfer out of a CDC scheme may have for a member, it is right that regulations in respect of the timeframes for related action are debated in Parliament under the affirmative procedure as a matter of course.

Amendments 35 to 38 make changes to Clause 47 to make it clearer that this power is not as wide as it may have appeared on first reading. I understand noble Lords’ concern about this clause: it contains a Henry VIII power and as such it should be as clear as possible when and for what purpose it can be used.

Our amendments make it very clear that the power can be used only to provide for non-employer established schemes, such as master trusts, and other non-connected multi-employer CDC schemes as and when concrete scheme designs come to light over the next few years. Noble Lords may recall that the Work and Pensions Select Committee in its report on CDC schemes called for our legislation to be extended to provide for CDC master trusts at the earliest opportunity, and organisations from commercial pension providers to trade unions and even the Church of England have made similar requests.

However, there are clear administrative differences between a scheme with one closely involved employer and a master trust with many more distant employers. The authorisation and supervision legislation will therefore need to be tailored to reflect the risks posed by such schemes and providers so that members and participating employers are to be adequately protected.

This is what Clause 47 seeks to do. It is intended to allow us to make the necessary changes via regulations in a timely fashion so that master trusts and other non-connected multi-employer CDC schemes can be up and running as soon as possible, and employers and employees can benefit at the earliest opportunity. Without this clause, it is likely that the extension of CDC provision to master trusts and other non-connected multi-employer models would be delayed.

However, I assure noble Lords that any such changes required would be considered carefully and consulted on thoroughly before being brought before the House to ensure that they covered the right ground. Such changes would also be subject to the affirmative procedure, which would give the House opportunity to scrutinise the regulations.

The amendments before the House are intended to address concerns in key areas— authorisation, transfers and the provisions relating to the future expansion of CDC—and I am grateful for the informed and thoughtful comments that have led us to this point. The points that I have made also apply to the corresponding Northern Ireland provisions in Part 2 of the Bill. I hope that noble Lords are reassured by the amendments. I beg to move.

[Lord Sharkey (LD) [V]]

My Lords, I shall speak briefly to government Amendments 1, 3 to 7, 9 to 12 and 14 to 31, as well as to my related Amendment 2. First, I thank the Minister and her team for their close engagement with us on the Bill and their time, patience and occasional willingness to change their minds.

The government amendments are a good example of mind-changing. As the Minister said, they remove the instances in Part 1 of first-use-only affirmative procedures; that is a very good thing. The DPRRC’s report on the Bill in February this year was concerned about the use of these procedures. It pointed out that the powers in the regulations remain exactly the same on subsequent use. In Committee, I strongly urged the Government to remove this type of procedure; I very much welcome the fact that they have now done this. All the subsequent uses of the negative procedure have been withdrawn by these amendments.

However, one negative procedure remains: what is left of Clause 11(8) in line 18 on page 7. This is the subject of my probing Amendment 2. Subsection (8), as amended by government Amendment 3, prescribes the negative resolution procedure for regulations under Clause 11(2)(e). Subsection (2)(e) seems a little opaque. It seems to allow the Secretary of State to add persons or categories to those whose fitness and propriety TPR must assess. On 22 June, the Government confirmed to me in writing that this was the case. They believed that this was largely an operational matter and that the negative procedure provided

“appropriate scrutiny as well as opportunity for debate if desired”.

This is a mischaracterisation of the negative procedure, which in practice barely merits the label “scrutiny” at all. Possibly because I did not ask them to, the Government did not address why subsection (2)(e) was necessary at all or give examples of what kind of persons or categories of persons are envisaged in subsection (2)(e) and what role they may play in the schemes themselves. Any additional involvement of these persons or categories of persons may give them significant influence over the conduct of the schemes.

It is obviously desirable to have these new entrants assessed for fitness and propriety. The issue here is the Secretary of State’s decision to add persons or categories to the list without constraint, restriction or proper scrutiny. I would be grateful if the Minister could address these points when she replies.

[Baroness Altmann (Con) [V]]

My Lords, I very much welcome the Government’s amendments to this Bill and congratulate my noble friend on her initial speech, in which she so clearly explained what the Government intend to do. I also congratulate her on the way in which she has engaged with Members across the House and, together with the Bill team, has listened to the concerns expressed at previous stages of this Bill. I particularly welcome the change from the originally proposed first-use-only affirmative procedure and the comments made by my noble friend on the importance of, for example, the cooling-off period before pension transfers occur.

I must admit that I also support Amendment 2 in the name of the noble Lord, Lord Sharkey. I share his concerns and would welcome an explanation, such as he has requested from my noble friend when she comes to respond, of why only this area—assessment of whether somebody is fit and proper to run a CDC scheme—should be left to the negative resolution procedure and be wholly at the discretion of the Secretary of State without what we would normally consider to be appropriate parliamentary scrutiny in this important area. The CDC framework is completely new for this country. I therefore think that colleagues across the House who have expressed the same concerns are right in suggesting that it is important that we have as much scrutiny as possible.

I have an amendment in this group—Amendment 13—regarding the accuracy of pensions data that needs to be submitted to a CDC scheme. I will not move it at this stage; I will come back to this subject during debate on a later group with my other amendments.

I welcome the current government proposals and hope that my noble friend will listen to some of the concerns expressed. I look forward to hearing contributions from other noble Lords and colleagues as we go forward in this debate.

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[Lord Naseby]

I think the amendments have been extremely well aired and I await the response from my noble friend on the Front Bench.

[Lord Sharkey [V]]

My Lords, I will restrict my remarks to Amendment 32, which is in my name and the names of the noble Lord, Lord Vaux of Harrowden, and my noble friend Lady Bowles. I thank them for their support. In Committee, we spent a long time discussing intergenerational fairness in CDC schemes. We did this partly because we knew from the Government’s excellent briefing note that concern about intergenerational fairness was raised by many respondents to the consultation and because it seemed clear that the risk to intergenerational fairness was an almost inevitable feature of such schemes.

We pressed the Government to legislate the requirement for intergenerational fairness into the schemes. We knew that the Government themselves were deeply concerned about the issue and seemed to be choosing mechanisms for intergenerational fairness over benefit stability; but as I remarked at the time, it was hard to tell how they might work, since the mechanisms for bringing this about were not yet explicit and no real assessment of effect was possible.

In her response, the Minister made it clear that she shared our commitment to ensuring intergenerational fairness and that the mechanisms for achieving it would be introduced, after extensive consultation, by regulations under Clause 18. This will be long after the Bill has become an Act, and leaves open the question of how we will assess the success or otherwise of these mechanisms. It also leaves open the question of how the assessment of any such mechanisms will be communicated to members and potential members of the scheme.

Our Amendment 32 proposes a way of addressing these issues. It provides that, whenever TPR issues a notice requiring a scheme to submit a supervisory return, the notice must include a requirement that the trustees

“make an assessment of the extent to which the scheme is operating in a manner fair to all members.”

The amendment speaks of fairness. Intergenerational fairness is a critical subset of fairness, but there are other kinds of fairness, too. For example, there is gender fairness, and single versus married status and the fairness implicit in that, or not. The amendment makes no attempt to define fairness; it relies on the trustees to do that, as they should in the normal operation of the scheme. Their definitions and assessments will help members of all classes, and potential members, understand the working of their scheme and the success of the trustees in operating it fairly in the interests of all members.

As I mentioned in Committee, AJ Bell noted that the DWP leaves little doubt that it will not allow schemes to be skewed in favour of one cohort of members over another. I am sure that is the intention, but AJ Bell also noted that fairness could make outcomes in CDCs less predictable and raises the spectre of pension cuts. It goes on to say:

“The DWP itself notes any reductions in benefits will not be well received, and so clear communication of this – not just upfront but on an ongoing basis – will be absolutely essential.”


Our amendment will bring some communication and transparency to the balancing required to produce, and to the consequences of producing, fairness across all member cohorts.

In Committee, the Minister explained how the proposed headroom mechanism for the Royal Mail scheme would be fairer than a capital buffer. All classes of members and potential members of the scheme need to know how well this headroom mechanism or other mechanisms generated by Clause 18 are working. Our amendment will require the trustees to explain these things and to assess their success in managing the scheme fairly for all members.

Given the acknowledged risks to fairness inherent in the scheme, and that Parliament’s opportunity to influence the mechanisms that might arise in regulation will be as small as usual, it is vital that scheme trustees are open and transparent about their success in producing fair outcomes for all members. That is what our amendment would help bring about, and I intend to test the opinion of the House.

[Baroness Sherlock [V]]

My Lords, I say at the outset that Labour supports Part 1 of the Bill and the move to create CMP schemes, provided, of course, that they are not used as a means of downgrading good DB schemes. The two amendments in this group deal with different concerns that have been expressed about CMP schemes. Amendment 32 acknowledges that there may be a divergence of interests between different sets of members in a scheme of this kind. It does not prescribe any particular action but it does require trustees to surface the issue and to assess the extent to which the scheme is fair to all members.

--- Later in debate ---

Moved by

[Lord Sharkey]

32: Clause 27, page 18, line 10, leave out “The notice” and insert “Any such notice must include the requirement that trustees make an assessment of the extent to which the scheme is operating in a manner fair to all members and”
Member’s explanatory statement
This amendment would require any notice from the Secretary of State to CDC scheme trustees to include a requirement to report on the fairness to members of the operation of the scheme.

[Lord Sharkey [V]]

My Lords, I wish to test the opinion of the House on Amendment 32.

--- Later in debate ---

I support the Government’s cautious approach. I welcome it and I think that it is the right way to go forward for the time being.

[Lord Sharkey [V]]

My Lords, I shall speak to Amendments 72 and 74 in this group. Neither amendment in any way alters any of the important climate change amendments in the group, except in one respect: they require the Government to make something happen.

What the amendments would do is very straightforward: they would simply impose a binding legal obligation on the trustees or managers of an occupational pension scheme of a prescribed description with a view to securing effective governance of the scheme with respect to the effects of climate change. They would also impose an obligation to include, in particular, the risks arising from steps taken because of climate change, whether by the Government or otherwise, and opportunities relating to climate change.

All those things are word for word in the Bill except that they are all governed by the word “may”. Our amendments would replace the two references to “may” with “must”. As the Bill stands, the Government are not actually obliged to do any of those things, or indeed anything at all, in this clause. The word “may” in subsections (1) and (2) is permissive, not directive—a point made by my noble friend Lady Bowles and me in Committee.

The Minister kindly wrote to us all in response on 5 March. She confirmed that the Government intend to take action and were wholly committed to legislating for effective governance of occupational pension schemes with respect to climate change. She concluded by saying:

“Changing the legislation to ‘must’ would therefore make no practical difference, because as a Government we are committed to making regulations under new sections 41A, 41B and 41C introduced by the Government’s amendment.”


This argument works both ways, of course. What can be the basis of the Government’s objection to “must” if they are committed to doing it anyway? What possible reservations, hesitations or changes of mind are being contemplated here? What can be wrong with having legal certainty that what has been promised will actually happen?

There is a parallel in this Bill to our discussions on the MaPS pensions dashboard. The Committee asked why the provision for MaPS to provide a public dashboard was only a “may”, not a “must”. In reply, the noble Earl, Lord Howe, confirmed that the Government were absolutely committed to MaPS providing a qualifying dashboard service. Several Members, including the noble Baronesses, Lady Drake and Lady Sherlock, noted that the Government being committed to MaPS producing a dashboard is not the same thing as saying that they will ensure that there is a MaPS dashboard. The noble Baroness, Lady Drake, made the point that a little amendment—“may” to “must”—would capture the Government’s assurances

“so that the next Secretary of State does not change their mind.”—[Official Report, 26/2/20; col. GC 186.]

This argument clearly convinced the Government. They have now introduced their own amendments to make a MaPS dashboard a “must” rather than a “may”. I know that we are all very pleased about that.

Can the Government accept the same logic here? If it was right to change “may” to “must” for a pensions dashboard, why is it not right to do the same thing for climate change? I look forward to the Minister’s eager acceptance of the precedent and these amendments.

[Baroness Sherlock [V]]

My Lords, I am grateful to all noble Lords who raised climate issues in relation to pension schemes during our proceedings, especially those involved in the cross-party talks led by the noble Baroness, Lady Hayman, and my noble friend Lady Jones of Whitchurch. I also thank the Minister for listening and moving on from the broad government amendments brought forward in Committee.

This Bill has been on a journey. When it was first published there was no reference to climate change at all. Indeed, from having been given advice from the Library, I understand that climate change has never been included in domestic pensions legislation before in this country, so we are making history here today.

The Labour Benches had two priorities on this: first, to provide clarity on climate risk by ensuring that the Paris Agreement is referenced; and secondly, to ensure that trustees and managers take international climate treaties into account when making decisions. The word “account” is clearly significant. It recalls the Court of Appeal judgment that found that the Government had failed to take into account the Paris Agreement when permitting the Heathrow expansion. That was a good example of the need to make sure that positive action on the international level to combat climate change is not forgotten when Ministers make domestic policy decisions.

Our priorities are reflected in Amendments 73 and 79, but because we have secured cross-party consensus with the Government, they are also reflected in the government amendments in this group, especially Amendments 75 and 76. I will be interested to hear the Minister’s reply to the questions from the noble Baroness, Lady Hayman, about whether these refer also to the physical impacts of climate change and the impact of steps taken to transition towards a low-carbon economy, and for clarification that Amendment 76 includes the UK’s net-zero target.

However, as my noble friend Lady Jones said, we are only at the beginning of a journey to net zero. Divesting pension funds away from fossil fuels is a big challenge. The Government and the industry need to go further and quicker, with aligning investment strategies with domestic and international targets being the ultimate goal. For this Bill, we have reached a good place with broad cross-party support. I look forward to the Minister’s reply.

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[Lord Vaux of Harrowden [V]]

My Lords, I have added my name to Amendment 63 in the name of the noble Baroness, Lady Sherlock. This amendment is very simple. It seeks to ensure a period of a year from the establishment of the publicly operated dashboard before competing commercial dashboards are allowed to operate. This may seem a small point, but it is quite important. Dashboards are a new concept and will include large amounts of sensitive and complex data from many sources. We do not yet know how they will used, whether the current design concepts are suitable in practice and whether changes will need to be made to ensure that they operate well and safely. Therefore, it must make sense for the system to be tried out in one place, with proper controls, and reviewed and reported upon, before we open it up to the commercial world. This period of a year will allow us to see how a dashboard is used and whether any unforeseen problems and consequences arise.

I am grateful to the ABI for its commentary on the amendments to this Bill, but I am afraid that I disagree with it on this matter. The ABI is right that making dashboards as accessible as possible is desirable, but that must be done in a way that ensures that unforeseen consequences are avoided. As I mentioned in an earlier debate today, a bad dashboard is worse than no dashboard. A year’s grace period to ensure that what the noble Lord, Lord Young, called the plumbing is working well, and to make any tweaks, seems a common-sense safeguard.

[Lord Sharkey [V]]

My Lords, I have put my name to Amendment 63 because it is vital to allow the MaPS dashboard the best possible chance of reaching a wide public and establishing MaPS as a trusted and independent operator. This amendment would provide the MaPS dashboard with a head start of about 12 months. Without that, I doubt that MaPS would be able to do any of those things very successfully. I doubt that it could establish a wide customer base. If it is competing from the start with rival commercial organisations and their dashboards, those rival dashboards, whose eventual presence I would welcome, would be provided by organisations that have more resources than MaPS does, more consumer-facing expertise and more experience and skill in communications with consumers. Many would also have a very large existing consumer contact base, firmly established brands and loyalty, whereas MaPS would find it very hard to establish itself as a distinct, recognised and trusted independent operator in the clamour of a vigorous competitive marketplace. You need market share, visibility and actual customer experience to do that. That is probably impossible for MaPS in a very busy, very fragmented and possibly very confusing marketplace.

To make the MaPS dashboard work, we need lots of people to know about it and lots of people to use it. If we are to generate trust, we must provide high levels of consumer satisfaction and embed the notion and value of independence in the MaPS brand. The only way to do this is to allow MaPS a head start, to properly fund its launch and its communication campaigns, and to give it time to use what it learns in its first year. That would enable it to offer a very high level of service by the time that the huge marketing expertise of its well-funded and contact-rich competitors arrives on the scene. That is why I support Amendment 63.

[Baroness Neville-Rolfe [V]]

I welcome my noble friend Lord Young’s probing amendments on verification and timing, and I look forward to hearing from the Minister. I was very struck by the summing-up on the previous amendment by my noble friend the Deputy Leader of the House, who showed just how strong the Bill is on consumer protection and to what lengths the Government have gone to meet the House’s concerns. But others have just tried to use the Bill to bring in yet more burdensome measures.

For me, Amendment 63 takes the biscuit, because the Government have agreed to bring in a Money and Pensions Service dashboard so that there is a government, public-funded version that includes people’s various pension pots and the old-age pension. The proponents of this amendment are then trying to exclude the trail-blazing commercial version, which was behind the Bill in the first place and is designed to help savers, building on the good practice that exists out there in the best pension funds and elsewhere. The amendment would lead to a delay of a year for those dashboards, yet they will all be properly regulated and monitored and MaPS would be in the lead. Competition from others will be an incentive to quality and speed, helping to identify the bugs that the noble Baroness, Lady Drake, who knows so much about pensions, referred to.

I cannot support this amendment. It is worrying that the Government are losing on a series of inappropriate amendments because noble Lords are not coming to the House to speak and listen, but can vote from their garden benches.

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[Lord Sharkey [V]]

My Lords, I strongly support my noble friend’s analysis of the one-size-fits-all regulatory threat to open schemes. I also strongly support the proposed remedy, which would ensure proper consideration of the essential differences between open and closed schemes, is proportionate and is not unduly prescriptive. I hope the Minister will respond positively.

[Baroness Sherlock [V]]

My Lords, we all believe that trustees of DB schemes should have a clearly defined funding and investment strategy for insuring pensions in the long term. However, if that is pursued in a way driven by the need to protect members in closed maturing DB schemes, then schemes with strong covenants open to new entrants risk being swept up in an approach that is wrong for them. As closed DB schemes increasingly mature, the regulator will expect them to de-risk and reduce their deficits. However, if that approach is applied in a blanket form it will force some open schemes to de-risk prematurely, putting pressure on employers and, in the railway scheme with its shared-cost basis, on employees too. Given all the concerns expressed, will the Minister accept this amendment?

Pension Schemes Bill [HL]

Lord Sharkey Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Lord Balfe (Con)]

My Lords, I apologise for not being here at Second Reading or at the beginning on Monday. The first absence was because I was in hospital; on Monday, I was also speaking in the other debate and so I was hopping between the two.

I have two amendments down, of which Amendment 84 is the first. It is in no way against the sentiment of the noble Lord, Lord Vaux—I obviously did not know that his amendment was going down. Amendment 84 constitutes 50% of a Private Member’s Bill that I tabled at the beginning of this Session—it is a straight take from that. I declare my interest as the president of the British Airline Pilots Association.

My amendment aims to deal with the problem that a lot of trade unionists perceive and has been expressed already—the Philip Green, BHS and Carillion problem. People who have worked very hard and built up pension entitlements see employers favouring dividends to shareholders over looking after the pension scheme that they have agreed to run for the people working for the company. In what one might call a rather crude way, because I did not know where to draw the line, I thought that the simplest thing would be to say that all dividends should be passed by the regulator.

Of course, we then come up against the fact that a number of trustee boards are effectively controlled by the companies. I therefore also put in that the Pensions Regulator would have an independent role anyway, because it would have to approve the dividends. Even if the trustees said, “We think that this is a jolly good thing”, the regulator might then say, “Yes, we agree”, or “No, we do not”. The Pensions Regulator would have a second look at it.

I will be the first to admit that this is not the most skilfully drafted amendment to set the world on fire, but it was put down for the purposes of generating a debate about a problem that needs addressing. That problem is the one already mentioned, of BHS and Carillion; in other words, the problem of irresponsible companies dealing—as many of those working for them would see it—in improper ways with the pension schemes.

There is a bit of danger that people—not in this Room, I am sure, but in society—will say, “Oh, the pension scheme doesn’t matter”. The pension scheme is the forgone wages of the workers; it is not something ethereal or charitable, or an extra on top. This is money that the company has agreed to pay to workers in return for the number of years that they work. It is their money, and companies should not be allowed to behave recklessly with it. That is what is behind this amendment.

As such, I commend it for noble Lords’ consideration, although I would be extremely surprised if the Minister were to get up and say, “Oh yes, that’s what we want”, and accepts it all.

[Lord Sharkey (LD)]

I would be surprised as well.

My Lords, I support the thinking behind both these amendments. I congratulate the noble Lords, Lord Vaux and Lord Balfe, on the excellent way in which they have been introduced. Both amendments allow timely discussion of what is a large, widespread and probably growing problem.

After the publication of TPR’s annual funding review in March 2019, the Investment & Pensions Europe magazine reported that TPR had

“vowed to engage with a number of schemes this year if recovery periods were considered to be ‘unacceptably long’, and warned trustee boards to expect communications in the coming months. … Consultancy firm Hymans Robertson estimated that one in five FTSE 350 companies with DB schemes were at risk of intervention from TPR.”

That is an alarmingly large number.

To understand what TPR means by “communications”, it helps to look at what TPR in its annual funding review states as the three key principles behind its expectations. The first is:

“Where dividends and other shareholder distributions exceed DRCs, we expect a strong funding target and recovery plans to be relatively short.”


The second is:

“If the employer is … weak”


or tending to weak,

“we expect DRCs to be larger than shareholder distributions unless the recovery plan is short and the funding target is strong.”

The third is:

“If the employer is weak and unable to support the scheme, we expect … shareholder distributions to have ceased.”


These are all fine principles—in principle. The real question is how, or whether, they are in fact working. How many FTSE 350 companies has TPR intervened on in the last 12 months, and on how many occasions has it advised against or prevented shareholder distributions? Perhaps the Minister could give us an assessment of TPR’s success in applying its three key principles.

Both amendments in this group offer a simpler and different approach to restrictions on shareholder distributions, but in contrasting strengths. Both have the merit, it seems to me, of making responsible behaviour by employers more likely, and that is no small thing if there are 70 FTSE 350 companies out there needing effective intervention to protect employees’ pension rights. I look forward to the Minister’s response.

[Lord Flight (Con)]

My Lords, I think we all understand the reason for these two amendments; whether one of these two or another amendment is to deal with the situation, it needs to be dealt with. I am slightly surprised that neither amendment would actually stop the payment of dividends. I think there is an argument that, where the finances obviously mean that a dividend cannot be afforded, the company should not be allowed to make a dividend payment. I am not sure that Amendment 27 or Amendment 84 addresses the issue as well as it might be addressed. The Government might have another look at what they want to achieve, which should be stopping payments of dividends where they cannot be afforded.

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[Baroness Neville-Rolfe]

I would also like to be involved in the further talks. We have to try to find a way of dealing with big risks between recovery plans without gungeing up the system for the regulator so that it cannot focus on what matters rather than on what does not matter with the bureaucracy overtaking the objective.

[Lord Sharkey]

I also want to be invited. A critical feature of the discussion is the effectiveness of TPR. When we have the meeting—to which almost everybody seems to be invited—it would be very helpful to have a detailed discussion on what assessment the Government have made of the performance of TPR against its three key principles, certainly in the past year and perhaps slightly longer. I know the Minister gave an example of TPR being effective, but that was one example and I would like to see more data on why we should have faith in TPR’s ability to police this scheme or any scheme.

[Baroness Stedman-Scott]

We will pass a piece of paper around, and if noble Lords will write their names on it, we will make sure they are all invited.

I am sorry if I am repeating myself. I am well aware of the expertise of noble Lords in this Room who work in the industry. It is highly regarded and highly respected. The message in the points that noble Lords are making is received. We will meet to talk about them in more depth. That will give officials more time to reflect on the very detailed questions that noble Lords have asked, collect data, answer some of the exam questions and try to come to a place where we all understand and agree on what we are trying to do. We take it in that spirit. In that spirit, I ask the noble Lord to withdraw his amendment.

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[Baroness Stedman-Scott]

As I understand it, we have to consult before we can make that decision.

[Lord Sharkey]

Could I join in on this? We are talking about Amendment 73, which would insert new Section 41A on “Climate change risk”. Its first proposed subsection says “Regulations may impose requirements”; it does not specify any requirements in that part because, as the Minister rightly says, they are all to be consulted on later. But it is odd that it should say “may” and not “must” since it talks about imposing requirements. In practice it means that the Government need not do anything at all, which is unfortunate.

Exactly the same comment applies to new Section 41C, headed “Sections 41A and 41B: compliance”. It begins “Regulations may make provision” and underneath that is a long list of things that will eventually turn out to be regulations and will be consulted on. I understand that “may” is appropriate there but, as it stands, the Government do not have to do anything at all about this as long as the word “may” remains as it is in both those initial paragraphs. I re-emphasise the point made by my noble friend Lady Bowles: leaving the provision of an appeal mechanism to “may” might not be a very good idea.

[Baroness Stedman-Scott]

I do not know whether the noble Lord has put his name on the list to meet, but it looks as though I am able to offer him a meeting on the consultation first, if that is helpful, to try to get to where he wants to be.

Going back to the point raised by my noble friend Lady Altmann about schemes not having a website, schemes are not required to set up a website to publish their statement of investment principles or other documents. The information must be published on a publicly available website in a manner which allows for the content to be indexed by internet search engines. This can include a social media site, a blogging platform or a repository offered by a search engine provider, as long as trustees have ensured that the document is public and can be indexed. The Government are not in the business of endorsing publishing tools, but Facebook, WordPress and Google Docs allow for free publication.

Coming on to my noble friend Lady Altmann’s point about what is meant by a large scheme, following the passage of the Bill, we will consult extensively in the summer on what schemes should be in scope and how the scope will increase over time. My noble friend also said that the Pensions Regulator is not doing anything about breaches of ESG legislation. The chief executive of the Pensions Regulator has written to DWP to confirm that it is taking action. The regulator has engaged with the findings of the UK Sustainable Investment and Finance Association on the poor state of compliance among some pension schemes and will follow up on breaches of compliance.

My noble friend Lady Altmann also said that pension schemes should be required to align their portfolios with the Paris Agreement to reach net zero by 2050. The Government’s amendment and subsequent regulations will focus on schemes’ governance of climate risk and disclosure of that risk. We do not wish to direct pension schemes to align their investments with the Paris Agreement targets, and the legislation does not allow us to do so. Nevertheless, Paris alignment reporting could be useful as a measure of climate-related risk to the scheme. We will consult over the longer term on whether it is a useful assessment of a scheme’s exposure and risk.

I have already come clean to the noble Baroness, Lady Hayman, on whom to credit for the speedy inclusion of the amendments. She also raised a point about taking account of members’ views. The Law Commission has found that pension schemes have a fiduciary duty to take account of all financially material risks, including environmental risks. We have legislated to require all schemes with 100 members to publish their policies on financially material environmental risks, including climate change, and defined contribution schemes will be required to report annually on how they manage those risks from October 2020.

Trustees do not have a duty to take account of members’ ethical concerns but are free to do so when they believe a majority of members who express a view share those concerns and when doing so would not result in significant member detriment. The noble Baroness, Lady Hayman, asked why we will not legislate for personal pension schemes. Personal pension schemes are regulated by the Financial Conduct Authority, not the Pensions Regulator. To place requirements on personal pension providers through this legislation would create a patchwork of overlapping regulatory oversight under which providers would have to respond to two separate regulators on the same activity. The FCA is currently considering how best to enhance climate-related disclosures by workplace personal pension schemes, building on its existing rules framework and enforcement powers. I will write on the number of members of personal pension schemes.

The noble Baroness, Lady Hayman, asked whether dashboards will include pension schemes’ environmental, social and governance policies. We are very interested in how dashboards can support and increase engagement, including whether information on areas such as ESG, which trustees are required to cover as part of their disclosure obligations, may be incorporated into the dashboards. This is to be informed by user testing and may evolve over time.

The noble Baroness, Lady Bennett, quoted the Minister for Pensions, who wrote,

“pension schemes ought to be thinking about the assets which help … drive new investment in important sectors of the economy … which deliver the sustainable employment, communities and environments which all of us wish to enjoy.”

How will we meet this if the scheme does not know members’ wishes? The Government have been very clear that the purpose of a pension scheme trust is to deliver an appropriate return to its beneficiaries. The context of the Minister’s quote makes this clear and that it is possible to deliver this while having a beneficial effect on the communities in which they invest. The noble Baroness also talked about the implementation and chair statements being published. Schemes are already required to publish their chair’s statement and implementation statement. We are working closely with the regulator to develop a central index that can also be applied to the implementation statement and the chair’s statement.

Finally on the point raised by the noble Baroness, Lady Bennett, about pension schemes being required to go beyond climate change to consider sustainability more broadly, trustees already have clarity that they should take account of financially material social and environmental risk in investment policies. This includes, for example, considering violations of human rights laws and destructive environmental practices. In practice, most trustees do not actively manage investments and cannot make stock selections, but the Government have set the requirement for a clear policy which will be published and shared with those managing the investments. As I have said before, the Government do not tell pension schemes how to invest. Seeking to do that would force trustees to chose between acting in the best interests of members and following government directions.

I hope I have answered all noble Lords’ questions and therefore urge the noble Baroness to withdraw her amendment and urge noble Lords to support the amendments standing in my name.

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Moved by

[Lord Sharkey]

29: Clause 112, page 99, line 7, leave out “£50,000” and insert “£1 million”

[Lord Sharkey]

My Lords, I shall be very brief. Amendments 29, 30 and 32 in my name are all probing. Their purpose is to allow discussion of the reasoning behind the choice of penalties written into Clauses 112 and 115. In each case, I would be interested to know two things: what comparisons, if any, did the Government make in deciding on the penalty amounts, and what was done to assess the likely effectiveness of these amounts? In other words, are the upper limits really large enough to influence behaviour, and what has convinced the Government that they are?

At Second Reading, I noted that the Government seem uncertain about the merit of the £1 million upper limit contained in new Section 88A, inserted into the Pensions Act 2004 by Clause 115. Subsection (2) of new Section 88A is where this £1 million is set, but the very next subsection allows for secondary legislation to change this upwards without limit. As far as I can tell, this power to adjust upwards by regulation does not apply to the penalty upper limits in Clause 112, and I think that that deserves an explanation. Why are the Government confident that they will not need to change upwards the lesser penalties in Clause 112 but feel that they might have to do so for the major penalty in Clause 115? Surely it is not wise to allow unlimited power to raise penalty levels by regulation.

The Government implicitly acknowledge that that is the case by setting limits on the face of the Bill. Then they do a reverse ferret by giving themselves unlimited discretion to revise upwards in one case. I can see why the Government might lack confidence in the proposed £1 million limit, given the resources of those upon whom the penalty might fall, but surely it would be better to have in the Bill a limit that we think might work, or at least a limit on how far the initial amount may be raised or a proportional system, as proposed by the amendment of my noble friend Lady Bowles.

In any event, it would be very helpful to know how the Government alighted on all these upper bounds, especially the £1 million limit, and especially as they all seem intuitively to be rather on the low side. I look forward to the Minister’s response. I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I support all the amendments in this group—Amendment 31 is my own. The broad principle is not to let the fines simply be a cost of doing business for the wealthy and especially large companies. Inevitably, large fines give rise to concern among those who would be the bottom end of any range of fines, with respect both to the seriousness of their offence and their resources. It is clear that proportionality is key—proportionality both to the severity of the offence and the resources of the offender. The fine must also be a sufficient deterrent, not just a cost of doing business.

It does not seem to be customary to recite proportionality in legislation, as it is presumed. For my part, I would not see it as damaging to include wording on proportionality, and anyway it would always be part of any appeal. That is why, in Amendment 31, I changed the new Section 88A fine from “£1 million” to

“twice the employer’s pension deficit or 4% of the employer’s annual global turnover (whichever is greater)”.

The fines may not be these amounts; they are the maximums. These fines can be for egregious matters that put pension funds at risk—and, therefore, the livelihood and well-being of pensioners and future pensioners—and potentially impose on taxpayers. They are fines for being a social pestilence.

I thought that the size of the deficit was relevant—maybe I should have made it three times the size, because my inspiration was US-style triple damages that can apply for monstrous offences. I have made it clear that I think doing bad things to pensions is pretty monstrous.

Turnover-linked criteria are also not new. They are in use in the UK, having been recently introduced for the Information Commissioner; that is what I have copied. They have, of course, been in play for some time for competition offences. The Information Commissioner penalties also have a numerical option, although again that is not limited to the turnover side of the penalty. I left out the number in my amendment to emphasis the proportionality point, but I would have no problem adding in the amendment of my noble friend Lord Sharkey so that we have a numerical measure in there as well.

It would seem from something that was said to me—in one of the meetings, I think—that the £1 million fine level was inspired by “similar fine provisions” by the FCA. Well, I can suggest several responses to that. First, the FCA may be the one out of line with modern thinking, the fine having been set a while ago. Also, it has perhaps been undermined because it always has to do consultations and, strangely, has to consult those who might be fined. But, as a matter of consultation, I note that the ABI has supported my amendment.

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[Baroness Stedman-Scott]

I thank the noble Baroness for this homework. I will ensure it is delivered to her and that it is accurate.

[Lord Sharkey]

My Lords, in her explanation of the £1 million upper limit, the Minister relied to some extent on the consultation outcomes from 2018. I am curious about who was consulted. Was the ABI a consultee? She will have heard earlier in this debate the ABI’s rather enthusiastic approval of an increase in the £1 million limit, so it would be interesting to know whether the ABI has done a reverse ferret or whether it was not included in the first place.

Secondly, if the Minister is confident in her arguments for the £1 million penalty, as she clearly is, then I find it very strange that in the next section of the Bill it says, “If we don’t like that, we can increase it to anything we like via regulation”. That shows a startling lack of confidence in the £1 million. It is quite wrong to give unlimited discretion via regulation to raise the fine to any amount at all. It is unsatisfactory that this provision exists within the Bill. I am sure that we will want to discuss this further, preferably before Report, and if not, certainly on Report. In the meantime, I beg leave to withdraw the amendment.

Amendment 29 withdrawn.

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Assuming the Bill reaches the statute book later this year, why should it take more than another 12 months to get the service up and running by MaPS? Will the Government, if they are minded not to accept my amendment, propose an amendment of their own on Report with an earlier date?

[Lord Sharkey]

My Lords, I strongly support the amendments in this group and have signed Amendment 70 in the name of the noble Lord, Lord Young. I signed it because I was extremely puzzled by the use of “may” in this context. I had thought that the Government had publicly committed to establishing a public, free-to-use dashboard under the aegis of MaPS. Can the Minister say whether that commitment stands? If it does, surely “must” has to replace “may”, as suggested by the amendment?

[Baroness Sherlock]

My Lords, my noble friend Lady Drake has made a compelling case for the importance of this issue as well as giving us a helpful strategic overview of the state of the long-term savings industry and the impact of this dashboard on it. Done right, a dashboard could in time offer a useful service to savers. It would offer a chance to locate lost pots, to view in one place all the different bits of pension, state and private, and to make a realistic assessment whether someone is saving enough for retirement. But equally, the risks are huge, particularly given the scale if, as my noble friend said, data for more than 22 million people are to be channelled through this platform.

This becomes a public good only if it is designed and delivered in the right way, with transparency and all the necessary safeguards. As my noble friend Lady Drake said at Second Reading,

“public good cannot be traded off against commercial interests.”—[Official Report, 28/1/20; col. 1367.]

Labour would prefer this to be a public service, but if the Government are determined to go down the road of commercial dashboards, it is clearly essential that there be one “public good dashboard” owned, controlled and governed by a public body. My noble friend has given us a frankly staggering list of organisations supporting this that are right at the heart of the industry, including the CEO of the Pensions Regulator, who told the Work and Pensions Select Committee on 26 June 2019 that

“there must be the public dashboard”.

It is really very simple: the public should not be required to use a commercially owned dashboard to access their own data, especially in a market so susceptible to consumer detriment.

It is quite extraordinary that there is nothing in the Bill saying that there should be a public dashboard, when I think everybody had assumed this was going to happen. The Minister said at Second Reading

“MaPS committed to providing a dashboard in its 2019-20 business plan.”—[Official Report, 28/1/20; col. 1414.]

However, a Minister telling us that an NDPB has plans to do something is not the same as legislating that it must happen, so our amendments simply require that there be a public good dashboard.

The MaPS business plan said:

“It is envisaged that there will be multiple dashboards connected to the infrastructure, but also that there is merit in a consumer facing dashboard provided by a non-commercial and impartial organisation. The Money and Pensions Service, as part of its business as usual function to provide impartial information and guidance, will begin the development of a noncommercial consumer facing dashboard.”


There is not exactly a sense of urgency there; it contrasts quite markedly with what the noble Lord, Lord Young, has described as the ABI champing at the bit to get going and hoping to have it done by last year, or at the very latest this year.

That is the second point. Even if Ministers seek to assure us that MaPS is committed to producing a public dashboard, we want to know that it will be up and running before any commercial dashboards are allowed to start operating. That is what Amendment 48 is designed to ensure. I cannot see why this should be controversial. If Ministers are confident that MaPS is on target, no doubt they will accept the amendments from the noble Lord, Lord Young, and reassure the Committee that a good public dashboard will be set up. Would it not be obviously sensible to have that up and running to test the architecture and infrastructure before allowing private companies to set their own up dashboards, with the additional risks that will bring?

I suppose it is possible that Ministers are not confident that MaPS will have its public dashboard running any time soon. They could easily dispel that thought by accepting the amendments from the noble Lord, Lord Young, or indeed ours. I believe MaPS has said only that it hopes to be one of the first. The state’s recent track record with large-scale IT projects, as those of us covering DWP know to our cost, has not been fantastic. If multiple dashboards are to be allowed to be set up all at once, and if MaPS is to take its time in doing it, there could potentially be a considerable period in which consumers will be able to access their data only through a commercial dashboard. That does not seem to be in line with what we understood the Government intended to do.

Our amendments are simply designed to ensure three things: that there is a dashboard which is publicly owned, controlled and governed; that it is free to use and does not display advertising; and that if Ministers are to go down the route of commercial dashboards, they do not do so until the public dashboard has been operating for at least a year, and the Secretary of State has been able to report to Parliament on its structure and effectiveness.

I would like to ask the Minister some specific questions. They are really easy—not A-level questions but low-grade SATs questions, which I have no doubt should be in her brief somewhere. I shall read them really slowly. First, when does DWP expect the MaPS dashboard to be up and running? Secondly, when does it expect the first commercial dashboard to be up and running? Sorry, I was looking at the wrong Minister. Thirdly, how many dashboards do the Government think we will have? How many do they know of that are being tested or in the pipeline? Fourthly—this is a biggie—will commercial dashboards be allowed to charge consumers for using them? Fifthly, and this may be at GCSE standard, I understand that alongside any dashboard developed by MaPS, a liability model will need to be developed. We do not have any guarantee that the liability model will be ready before commercial dashboards become available, even if the MaPS dashboard is not ready. Is there any way that there could be a gap between people using commercial dashboards and the liability model being ready? That matters because, of course, if detriment is created then we need to know how it is to be managed and where responsibility lies.

I remain very worried about what the Government may be creating without considering all the implications, and its unintended as well as intended consequences. I look forward to the Minister’s reply to our amendments and to those tabled by the noble Lord, Lord Young. I hope the Government can reassure us that they will in fact be committed to having a high-quality, public good dashboard established before the industry is allowed to get into a free-for-all.

Pension Schemes Bill [HL]

Lord Sharkey Excerpts

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

Moved by

[Lord Sharkey]

2: Clause 9, page 5, line 37, at end insert—
“( ) that the scheme provides for intergenerational fairness among its members, specifically in connection with the amount of benefits paid to pensioners, proposed adjustments to annual benefits and cash equivalent values provided to members wishing to transfer out of the scheme.”

--- Later in debate ---

[Lord Sharkey (LD)]

My Lords, this is a probing amendment to allow discussion of the intergenerational fairness of CDC schemes. The Government’s excellent policy brief notes say on page 9 that concern about intergenerational fairness was raised by many respondents to their consultation on collective money purchase schemes. They then say explicitly that they recognise that younger members in CDC schemes

“may get less value from flat-rate contributions … if they decide to”

leave the scheme and transform their credits into a cash equivalent. The Royal Mail CDC scheme proposed here is such a flat-rate contribution scheme.

The Government clearly accept the possibility of less favourable treatment of the young, but both the likely scale of this or proposals for its mitigation are not an obvious feature of the Bill or its associated documents. The Government say that they will ensure that

“both benefits in accrual and pensions in payment”

must be adjusted

“to preserve the collective nature”

of the scheme. They go on to talk about sharing the current effects of investment being out and under-performance. This seems a little vague in a vital area. The details will presumably surface in an unamendable SI generated by Clause 18(4), to which we will return later. It also seems not to address the question directly. The question really resolves into this: “What protection or protective mechanism is there for young members against older members expensively cashing in?” An alternative way of putting this is to say what detriment younger members could suffer, or what limit will be put on such suffering, under the scheme. This is surely vital information for anyone trying to understand the likely risks and returns.

The situation here is that many of those consulted raised concerns about intergenerational fairness and the Government admit that it is a possibility. The Government have chosen to press ahead without either quantification of the possible disbenefits to younger members or a clear mechanism for reducing or limiting any disbenefits. This is not only unsatisfactory in its own right; it runs counter to the Government’s repeated acknowledgement that communicating the key elements of the scheme clearly and understandably is vital to its success.

There is a connection, of course, between intergenerational fairness and capital buffers. We will debate capital buffers later but it is worth noting the actual connection here. In an analysis in late 2018 of the DWP’s proposal for the CDC scheme, AJ Bell noted:

“It’s clear from the DWP’s preference not to allow so-called ‘capital buffers’—where funds are built up in reserve to make payouts more predictable—and the proposed removal of any trustee discretion in adjusting benefit levels that concerns about intergenerational fairness in CDC are front-and-centre of ministerial minds.”


It went on:

“And by suggesting any outperformance or underperformance should be reflected in the benefits paid to all members—including those already receiving their pensions—the DWP leaves us in little doubt it will not allow schemes to be skewed in favour of one cohort of members over another. This fairness will, however, potentially make outcomes in CDC less predictable and raises the spectre of pension cuts should investments consistently underperform over … time. The DWP itself notes any reductions in benefits will not be well received, and so clear communication of this—not just upfront but on an ongoing basis —will be absolutely essential.”


We will turn to that later in our discussions. AJ Bell concluded:

“Simply referring disgruntled members to a complex set of scheme rules they signed up to blindly years ago won’t be good enough. Getting these communications right will arguably be the biggest challenger for employers who choose to go down the CDC route.”


The Government, in their Royal Mail CDC proposals, choose mechanisms for intergenerational fairness over benefit stability. This may well be entirely the right choice but it is very hard to tell, since the mechanism for bringing about this fairness is not explicit and no quantification is yet possible. Equally, it is not clear what benefit variations are likely without the smoothing potential of a capital buffer. More clarity is surely needed before employees are asked to sign up to buffers, or no buffers, and on the optimum position. Is the choice really between intergenerational fairness and stability? Is that not a false dichotomy and is there not a middle position combining elements of both, which is likely to be more appealing than the Government’s decision in this Bill not to allow capital buffers as an aid to benefit stability?

Our amendment tries to push the Government a little into being more explicit and much clearer. It adds one further condition to the list of authorisation criteria in Clause 9(3): that

“the scheme provides for intergenerational fairness among its members”

in specified areas.

The objective of the amendment is, of course, to allow discussion of the whole issue of intergenerational fairness, but also to suggest a non-prescriptive way of ensuring that the issue is properly and explicitly addressed in scheme design and to allow discussion of the right balance between intergenerational fairness and benefit stability.

I very much look forward to Members’ contributions and the Minister’s reply. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to support Amendments 2 and 7 and speak to my Amendment 6.

Intergenerational fairness is probably the single biggest issue that is generally raised about CDC schemes. The noble Lord, Lord Sharkey, has set the case out well. As an extreme example, if returns were zero or negative but the trustees wished to continue paying the target level of benefits to existing pensioners, the scheme would become in effect a Ponzi scheme, with payments to existing pensioners wholly dependent on a steady stream of new joiners. That is an extreme example, and to call CDCs Ponzi schemes, as some commentators have done, is overstating the situation. However, at a less extreme level, if we look at what is currently happening in the Netherlands, schemes have recently been able to avoid, temporarily, making cuts in benefits by the Government temporarily lowering the minimum funding requirement. While this has avoided immediate pension cuts, primarily for political reasons, it quite clearly pushes the risk on to the younger generation as benefits are paid out at a higher rate than they should be. That is a real and live example of how intergenerational unfairness can and does arise in CDC schemes. It is therefore essential that this enabling Bill deals explicitly with this issue. CDC schemes will fail if such unfairness is allowed to occur or is seen to be a risk.

I support Amendment 2, which requires schemes to provide for intergenerational fairness among members as a prerequisite for gaining authorisation. I also support Amendment 7, which introduces the concept of intergenerational fairness when transfer values are calculated.

Amendment 6 is very simple. It requires that the scheme must have rules to ensure fairness among all members when setting benefits. I have deliberately left that quite wide. I have not referred only to intergenerational fairness because I would like also to cover fairness within generations. For example, in the event that someone makes a transfer out of the scheme, it could impact intergenerationally and also intragenerationally if the transfer valuation is too high.

Royal Mail kindly contacted me before this debate to explain that its proposed scheme has intergenerational safeguards in place, which is good to hear. However, this Bill relates not just to the Royal Mail scheme, but to other schemes in future. Just because Royal Mail may comply does not remove the need to ensure that fairness is very clearly built into the legislation. It is a critical issue.

It is probably arguable whether Amendment 6 is required if Amendment 2 is accepted, although I see no downside, and considerable merit, in making explicit that a scheme must have rules to ensure fairness when the rate or amount of benefits is determined, along with the other rules already set out in Clause 18.

As an aside, any changes made in this part will need to be reflected in the Northern Ireland part.

The Government have recognised the concerns around intergenerational fairness inherent in CDC schemes, so I hope that the Minister will consider these amendments seriously. This is too important a risk not to be dealt with in the Bill.

--- Later in debate ---

[Lord Sharkey]

My Lords, I am grateful for the Minister’s explanation and for her invitation to discuss the issue further. I will definitely take her up on that.

At Second Reading, I talked a lot about the huge reliance in the Bill on secondary legislation and the difficulty that it presents for Parliament to assess such things as intergenerational fairness provisions, as we simply do not know the detail of the mechanism. The Minister explained that it is envisaged that legislation under Clause 18, which means secondary legislation, will set out how intergenerational fairness will be built into the schemes. I am sure that that is everyone’s intention but it will be by secondary legislation and, realistically speaking, Parliament itself will not have an opportunity to make changes to secondary legislation. It would be much better in the case of intergenerational fairness, and when it comes to buffers, to have this in the Bill, given that I think all of us in this Room acknowledge the tremendous importance of getting this matter right. Getting it right via secondary legislation is entirely possible, of course, but it rather excludes us and Parliament from a detailed examination of what this vital mechanism is. I urge the Minister to think about trying to accelerate the process of defining the mechanism so that we get a chance to look at it before we have finished our proceedings on the Bill. Having said all that, I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

--- Later in debate ---

[Baroness Stedman-Scott]

I thank my noble friend for her intervention. My understanding is that CDC schemes are obviously new and will not carry any legacy data issues, which should lower the initial risk. The focus will be on not cleaning old data but establishing strong processes for loading, managing and maintaining data, with regular checks to ensure that quality is maintained. If that does not answer my noble friend’s point in the way she would like we can deal with it when we meet later in the week, if that is acceptable.

I appreciate the importance of good systems and processes. However, the proposed addition to the illustrative list is unnecessary, as we already envisage that appropriate requirements relating to the accuracy of member data and record keeping will be included in regulations. Schedule 5 of the illustrative CDC regulations provides an early indication of our thinking in respect of member records. However, we will consult to ensure that what is included in the regulations is appropriate and that sufficient scrutiny is applied. We also want to ensure that any requirements are proportionate.

In conclusion, I hope that my statements today and the illustrative regulations deliver sufficient reassurance of our commitment to ensuring that CDC schemes are financially sustainable and that systems and processes for member data are sufficient and effective. With that, I ask the noble Lord to withdraw his amendment.

[Lord Sharkey]

I should like to ask one or two questions about the buffer concept. It seemed to me that a lot of what was being described was the equivalent of a buffer in some ways, but it was not entirely clear how it would be produced, brought forward and exercised. It was not entirely clear to me whether the members of any proposed CDC scheme would be given a choice or say in whether the scheme should go ahead without buffers, as the RM scheme will, or whether it should include buffers. It seems to me that there is merit in consulting the workforce about which they prefer.

In paragraph 1.3 of the consultation response the Government said:

“We do not want to preclude or legislate against buffers in CDC schemes—there are perfectly good reasons why employers and workforces may wish to provide for a scheme that mitigates volatility in this way, and we agree that a buffered scheme could be appropriate in some circumstances.”


Those circumstances might very well include avoiding frequent and disconcerting changes in benefits but also the provision of wind-up or restructuring costs, even if that does somewhat impact intergenerational fairness. My request is for clarity about this cloud of assets or obligations that might substitute in some way for capital. I am not clear about how that will happen. It would be good idea to make sure that in any future schemes the workforce is consulted about whether or not they prefer a buffer.

[Baroness Sherlock (Lab)]

May I, too, seek clarification? I was not entirely sure what the Minister was saying about where the money could come from for a buffer. I think I understood her to say that the regulator would not approve a scheme unless the sustainability criteria had been met and that they could be met only if an adequate amount of money was placed in, for example, escrow. Is she saying that a scheme would be approved only if the regulator was satisfied that enough money had been provided up front by the sponsoring employer to fund the continuity options in the event of a triggering event? If so, why does she not simply accept this amendment? That is all it says.

--- Later in debate ---

[Baroness Stedman-Scott]

Let me try to be helpful and to placate noble Lords on this: money needed to wind up should come from the employer. A scheme would not be authorised if it did not have this financial sustainability from the employer. Is that helpful?

[Lord Sharkey]

But the scheme does not include a buffer and I am still not clear about the money. If it is going to come from the employer, where does it say that they have to do that? All we are talking about is a notion of fairness, but people may disagree about what that means.

[Baroness Stedman-Scott]

I think the original question was around the consultation we are going to do on this. This will be resolved in the consultation.

--- Later in debate ---

Moved by

[Lord Sharkey]

8: Clause 18, page 11, line 34, leave out subsection (4)

[Lord Sharkey]

My Lords, I shall speak also to Amendment 14 as well as to my clause stand part Motion.

Amendment 18 is a probing amendment whose purpose is to enable discussion of the powers given to the Secretary of State to make regulations altering various key aspects of the scheme. Clauses 18(4) to (8) set out what those powers are. The Government’s policy brief discusses Clause 18(4), and it is worth quoting what it says:

“Concern has been expressed that the Government could therefore use regulations to make changes to the basic principles underpinning a CDC scheme’s financial model, potentially leaving it financially unviable.”


It goes on:

“Concern has also been expressed that changes to the regulations under this clause could have the effect of re-designing an existing collective money purchase scheme—potentially years down the line—by overriding what the scheme rules say about the methods and assumptions to be used in calculating benefits. If this happened, it could undermine the actuarial modelling on which the initial design was based and change the deal offered to members when joining the scheme. It can also affect the intergenerational balance of the scheme.”


The Government’s response to this very serious set of concerns is in three parts, none of which seems to be particularly compelling. The first is to deny that any of this is the purpose of the power to make regulations, but Mandy Rice-Davies would have known to how to respond to that. The second is to say that the Government will expect Parliament to reject any attempt by a future Government to use them in such a way, but these powers will be exercised by secondary legislation so how will Parliament stop or modify that? What precedents can the Minister point to there? The third response by the Government in support of these powers is that they will consult before using them. None of these arguments strikes me as particularly convincing. The powers granted are enormously wide and unconstrained. Their existence would certainly not add to confidence in the stability of the scheme.

There is surely a more proportionate way of doing what is required. The Government say that without these powers, there is a risk that they would not be able to stop schemes operating on principles that run contrary to the basic principles underlying the provisions in this part of the Bill. If that is the case, surely it would be simpler and proportionate to set out in the Bill these basic principles and that compliance with them as a condition of the scheme’s authorisation. I look forward to the Minister’s response to that proposal. If the Government insist on proceeding with these wide and unconstrained delegated powers, I am sure that the House will want to return to the issue later in our discussions.

I turn to Amendment 14. The Government’s policy brief describes Clause 47 as allowing the Secretary of State to make regulations using the affirmative procedure to remove the restriction on CDC schemes for single employers or connected employers. This would open CDC schemes to multiple employers and master trusts. The DPRRC and the Constitution Committee have both examined the powers in the clause, and the Constitution Committee agrees with the DPRRC that the power granted in it is inappropriate. It notes that the clause is skeletal and contains a broad Henry VIII power. In paragraph 28 of its report on the Bill, the DPRRC states:

“The fact that the Bill currently prohibits multiple-employer collective money purchase schemes suggests that such schemes may give rise to significantly different regulatory issues from those presented by single employer … schemes which are currently allowed under the Bill. This is … supported by the fact that clause 47(3) to (5) gives the Secretary of State such wide powers to make changes to the provisions that govern single employer schemes”.


In the very next paragraph of its report, the committee says:

“Given this background, we consider it is inappropriate to leave the provisions for regulating multiple-employer collective money purchase scheme to subordinate legislation; and, therefore, that the delegation of powers by clause 47 is inappropriate”.


Subsection (5), the subject of my amendment, is a naked Henry VIII power, including as it does the delegated powers to

“(a) modify a provision of this Part, or any other enactment, as it applies to relevant schemes; (b) amend, repeal or revoke a provision of this Part or any other enactment.”

This kind of unfettered licence to amend, repeal or revoke primary legislation by statutory instrument has always been unattractive to this House. My amendment proposes to remove subsection (5) but I ask the Minister to consider withdrawing the whole clause. As the DPRRC and the Constitution Committee have said, if we want to legislate for multiple employer CDC schemes then it should be via primary legislation, not via the use of secondary legislation and Henry VIII powers.

I have also given notice of my intention to oppose the Motion that Clause 51 stands part of the Bill. I have done this so that we may ask the Government about their use of delegated legislation in Part 1. Clause 51 contains very wide-ranging powers, which

“may be used … to make different provision for different purposes; … to make provision in relation to all or only some of the purposes for which it may be used … confer a discretion on a person … make consequential, supplementary or incidental provision … make transitional, transitory or saving provision”.

The last two are probably okay—they seem boilerplate, to have common-sense meanings and to be properly restricted—but the first three powers are very wide. What exactly is it to confer discretion on a person? What does that allow in practice and what limitations are there to it? It is rather attractive but, I would be grateful if the Minister could explicitly answer those three questions when she replies, as well as explaining why the first two very wide powers are needed at all.

The Government have attempted some kind of explanation of Clause 51 on page 13 of their policy briefing note. It states:

“Clause 51 … (2) allows the regulations made under Part 1 to make different provisions for different purposes.”


That is not an explanation; it simply repeats the text of the Bill. I take it that what is meant is that the regulation-making powers set out in Part 1, in their proper context and given their proper purpose, may be amended to encompass different purposes in any way the Government might choose. Why is that necessary? The Government try to explain by way of example. They say:

“This will allow us to make different regulations to provide for different CDC scheme structures if necessary. They cite by way of example Clause 51(2) would allow us to introduce a different regulatory framework for the way in which multi-employer CDCs must calculate and adjust benefit values compared to single-employer CDC schemes should that prove necessary.”


This power already explicitly exists in Clause 47(3) to (5), which we have already discussed. As we have noted, both the Constitution Committee and the DPRRC thought these powers inappropriate. If they were inappropriate in Clause 47, they are no less inappropriate in Clause 51.

--- Later in debate ---

[Baroness Stedman-Scott]

I thank the noble Lord for that important point, which we will certainly consider.

[Lord Sharkey]

Before I come to the meat of the matter, may I ask what it means to “confer discretion” on a person?

[Baroness Stedman-Scott]

It would be very helpful if the noble Lord would repeat that for my officials.

[Lord Sharkey]

I am delighted to repeat it. What does it mean to “confer discretion” on a person?

[Baroness Stedman-Scott]

As I understand it, it means to delegate powers.

[Lord Sharkey]

If that is what it means, and I am sure it does, then we are giving the absolute, unrestricted authority for delegation of any power to anybody at all. That seems to me to be slightly wider than is normal.

I shall move on. I will have to read tomorrow’s Hansard very carefully to understand exactly what the Minister said, but there were several points that struck me as really quite controversial. One of those is about Clause 51. The Minister said, and she is obviously entirely correct, that you cannot set up a multi-employer CDC scheme by regulation if you remove Clause 51. Yes, that was the point of my amendment: it seemed wrong to introduce multi-employer CDC schemes by regulation. That is also exactly what the DPRRC said. It is wrong, or inappropriate, to do it that way: that was the whole point of my amendment. I do not think it is a substantive response to that to say, “Well, if we accept it, we cannot do it.” That was the point of the amendment.

I thought I also heard the Minister say that one of my amendments—I cannot now remember which—would adversely affect the ability to reduce intergenerational fairness because it would remove a delegated power. I am not at all certain, having thought about it, that it would have that effect, but in any case we have already heard very strong arguments for intergenerational fairness mechanisms being in the Bill. I did not hear in the Minister’s reply a lengthy argument against the view of the DPRRC that the powers in Clause 47 are inappropriate. I understand their absence is inconvenient, but it does not address the central argument put forward by the DPRRC that it is inappropriate to create these new schemes entirely by regulation.

To make a general comment about the framework Bill, a lot of what is going on seems to be effectively cutting Parliament out of meaningful participation in critical aspects of scheme design. I understand that there is a need for a strong element of a framework Bill when you are dealing with these kinds of pensions, but it seems wrong to deploy them so widely that Parliament itself is effectively cut out of the process. Parliament is cut out. No matter how many times we mention secondary legislation in this debate, it is clearly the case that we cannot amend and do not reject secondary legislation. It is difficult to see exactly what our participation in secondary legislation would amount to. Having said all that, I beg leave to withdraw the amendment.

Amendment 8 withdrawn.

--- Later in debate ---

[Baroness Stedman-Scott]

I thank noble Lords for raising these amendments that relate to events which can occur in an authorised CDC scheme and which must be notified to the Pensions Regulator. The amendment in the names of the noble Lords, Lord Hutton and Lord McKenzie, would require the trustees of an authorised CDC scheme to notify the regulator where a person assumed a role that was subject to the fit and proper persons assessment. This notification would be required within two weeks of the change. The regulator would be required to assess whether the new person met the fit and proper persons requirement. Where it was not satisfied, the amendment would require it to consider withdrawing authorisation from the scheme.

The fit and proper persons requirement is set out in Clause 11 and is one of the authorisation criteria. The aim is to ensure that only suitable people are involved with a CDC scheme in order to protect the interests of members. It is also worth noting that the Bill already includes a power in Clause 30 for the regulator to withdraw a scheme’s authorisation if it is not satisfied that the authorisation criteria are met. The regulator will need to be satisfied that this is the case on an ongoing basis, including that the fit and proper persons requirement continues to be met. Some events would still warrant consideration by the Pensions Regulator because they could affect the ability of an authorised CDC scheme to continue to meet the authorisation criteria.

Clause 28 covers such “significant events”, which must be notified

“as soon as reasonably practicable”

to the Pensions Regulator. The draft illustrative regulations that we shared with noble Lords, and which have been placed in the House Library, provide an indicative list of potential significant events. Noble Lords may be reassured to know that the event in their amendment is contained in the illustrative regulations. We will work with the Pensions Regulator and others to develop the CDC significant events; we will also consult on the draft regulations in due course.

Amendment 11, tabled by the noble Lord, Lord Sharkey, would mean that the decision of any employer or relevant former employer

“to withdraw from the scheme”

would automatically be considered a triggering event. It may be helpful to point out that the triggering events listed in Clause 31 are already intended to capture withdrawal events that pose a significant risk to the future of a CDC scheme. For example, the withdrawal by the employer from a single employer-established CDC scheme or the largest employer in a connected employer scheme may trigger the winding up of a scheme. The withdrawal may also have arisen as a result of employer insolvency. In this scenario, it is clear that such a decision could risk destabilising the scheme. As such, it should be treated as a triggering event and be subject to greater scrutiny and oversight by the Pensions Regulator to ensure that the trustees are taking all necessary steps to address the issue and protect members.

Not every withdrawal of an employer, however, may pose such a significant threat to the scheme. For example, the impact of a small connected employer deciding to withdraw from a CDC scheme may be minimal on the viability and sustainability of the scheme; it may not warrant a decision to wind up the scheme as a whole. Such an event would be more appropriately dealt with as a significant event. We intend that such events should still be reflected in the continuity strategy, so that the regulator is aware that this risk has been considered and planned for.

We propose that regulations would provide for such events to be a significant event, which would need to be notified to the regulator. Such a notification will allow the regulator to engage with the trustees to ascertain the impact on the scheme’s viability and continuity, and whether this should lead to a formal triggering event or other regulatory action. This approach allows the regulator to retain appropriate oversight of withdrawal decisions and resulting actions, while providing some flexibility and proportionality in approach where the withdrawal of the employer is not expected to impact significantly on the scheme. I am also pleased to advise the Committee that the regulator will engage with the scheme to look at the options before withdrawing authorisation. For the reasons I have set out, I urge the noble Lord to withdraw his amendment.

[Lord Sharkey]

I thank the Minister for her comprehensive explanation of why it may not be necessary to add what I proposed. However, I am uncertain on one thing about triggering events. It concerns the fifth of the triggering events which we have been talking about. I could not find anywhere in the Bill what the trustees must do in the event of an Item 5 triggering event apart from notifying the Pensions Regulator that such an event had occurred. I acknowledge that I may have simply missed it but I would be grateful if the Minister could say what the trustees are supposed to do after an Item 5 triggering event. What actually gets triggered?

[Baroness Stedman-Scott]

I thank the noble Lord for his question. I am advised that we will write to him with the answer.

Pension Schemes Bill [HL]

Lord Sharkey Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Lord Sharkey (LD)]

My Lords, for the sake of transparency, I should record that one of my children works for the Money and Pensions Service and that I have not had, nor will I have, any discussions about any of the matters covered by the Bill with her—or, probably, about anything else.

We welcome the Bill and the Minister’s openness and willingness to engage. We congratulate the Government on their engagement with stakeholders; we especially congratulate the Royal Mail and the CWU on their successful advocacy for CDC schemes. We think it a good thing that the Bill makes general provision for these schemes, rather than for only a bespoke Royal Mail scheme. However, we have some serious reservations about the approach taken by the Bill in several key areas. In large part, especially in Part 1, this is actually a skeleton Bill. Let me take CDCs or, as the Bill now calls them, CMPB schemes. As I said, we support the general idea enthusiastically but have serious concerns about how the Bill sets things out.

Our greatest concern is the number and scope of the powers to make regulations given to the Secretary of State. Part 1 runs to 41 pages. In these 41 pages, I counted 39 separate instances of giving the Secretary of State powers to make delegated legislation. I recognise that pensions legislation is often necessarily complex and that secondary legislation plays a vital role. But it is very difficult to have a realistic view of the Bill’s effects or scrutinise it effectively if we have no detail at all of this secondary legislation. Perhaps the Minister can explain why it has not been possible to provide drafts of these regulations. After all, the Bill was first presented to Parliament last October.

I also draw the Minister’s attention to the apparently random use of affirmative and negative procedures for the regulation-making powers. Can she give the House guidance on the principles underlying the choice of procedure? In particular, can she explain why, on numerous occasions, the first use of a regulatory power is subject to the affirmative procedure but all subsequent uses of the same power are subject only to the negative procedure?

Some of these powers are very wide. For example, Clause 28(3) on page 18 seems to allow the Secretary of State to define significant events entirely as he pleases. In Clause 18, on the calculation of benefits, subsection (4) seems to give power to change the very substance of any CMPB scheme. Is this to do with the need to safeguard intergenerational fairness within the scheme? If not, what is it for, how is intergenerational fairness to be protected and why does such provision not appear to be in the Bill? What is to prevent transfers out of the older members with large sums, to the clear detriment of their younger colleagues who remain? Does not the absence of a requirement for a capital buffer make this situation even worse, as the ABI’s excellent briefing note suggests?

In the context of powers given to make regulations, I would highlight subsections (6) and (7) of Clause 36, which appear to give the Minister unlimited discretion on how schemes may be restructured in the case of continuity option 1, while Clause 47(5) appears to be a fully-grown, entirely naked Henry VIII power. I am sure that the House will want to consider this provision carefully. Finally on delegated powers, we will want to discuss Clause 51, especially subsection (2), which again seems to confer unfettered power. We will also want to discuss Clause 31, dealing with triggering events, especially as it might concern eventually the withdrawal of a significant employer from a multi-employer scheme.

I am sorry if all this has sounded rather negative, as I am sure it has. Perhaps I should conclude my remarks on Part 1 by saying again that we enthusiastically support the idea of a CMPB scheme. We are, however, very concerned about the number and scope of the delegated powers that Part 1 contains and the absence of any drafts. I am grateful to the Minister for his commitment to provide the House with notes on what all these SIs hope to achieve, but that is not the same as being able to scrutinise draft legislation. I hope that we will have the opportunity to meet between now and Committee to discuss these issues further.

Part 3 deals with the Pensions Regulator, who I see was busy this morning exercising its powers by fining its fellow regulator, the FCA—only £2,000. We welcome the increase in the scope and strength of the regulator’s powers. My only general comment is to wonder whether the proposed penalties are sufficiently large to provide effective deterrence and to change behaviour. Clause 112, in inserting new Section 77A into the Pensions Act 2004, specifies a maximum penalty of £50,000 for failure to comply with Sections 72 to 75 of that Act. How was this limit arrived at? I think I heard the Minister explain that it was to parallel a limit elsewhere. What consultation or modelling took place to determine whether it would have effect?

In Clause 115, there is a new £1 million upper bound on penalties related to Section 88 of the Pensions Act 2004. The same clause, as the Minister remarked, gives the Secretary of State the power by regulation to increase this amount. No new upper bound is specified in the Bill. Is it wise to give such unlimited and potentially draconian powers to the Secretary of State? In any case, the House will want to know how the original limit of £1 million was set and what consultation or modelling took place. The provision to raise the £1 million limit without restriction and without further scrutiny not only seems rather dangerous but suggests a clear lack of confidence that the original limit will work. I can see why that might be so, given the resources of some of those on whom the penalty may fall, but surely it would be better to have in the Bill an original limit that we thought might work. We will want to come back to this in Committee, but I would be grateful for the Minister’s thoughts on the matter.

I also note that the noble Lord, Lord Balfe, who I do not think is in his place, has a Private Member’s Bill which proposes among other things to require the consent of pensions trustees before dividends are paid. I hope we may see amendments in Committee that allow us to discuss what may be an interesting proposal.

I now turn to Part 4, dealing with the pensions dashboards. I note that there is an obvious and obviously increasing need to provide better information and guidance about pensions, particularly pension draw-downs. This need has grown substantially since we last discussed it in the Chamber during the passage of the Financial Guidance and Claims Bill. Since then, FCA data suggests that over 645,000 pensions have been accessed, with only 15% believed to have had a Pension Wise appointment before accessing their benefits. More than half of the pensions accessed by savers for the first time between April 2018 and March 2019 saw the saver withdraw the maximum amount. This has all the hallmarks of a not-so-slow motion disaster, and the best remedy is more information, more advice and more guidance.

We agree that the pensions dashboard is a very important part of this, especially since auto-enrolment has brought an additional 10 million people into saving for a pension and, alarmingly, one in five adults admits to having lost track of a pension pot. The latest PPI research indicates that £19 billion has gone astray in this way. The dashboard, or dashboards, will help relocate this huge amount.

The question in my mind is whether it should be “dashboard” singular or “dashboards” plural. Should it be a dashboard provided only by MaPS, or should it be many dashboards, provided by MaPS and other qualified organisations? On the assumption that there will be very tight restrictions on how dashboard information is presented, and that future projections will not be allowed much variation, I see the merit in multiple dashboards. It seems to me that the key argument is one of reach. Allowing many dashboards will get more people to take notice and use dashboards. Restricting dashboards to MaPS risks a much smaller take-up. This has an analogue in Pension Wise, a superb service taken up historically by far too few people.

But there is more to helping the consumer than the dashboard. The increase in scams and unwise transfers connected to pension draw-downs is of urgent and increasing concern. Last week, the Times reported that the FCA had written to financial advisers warning against unsafe recommendations of transfers out of DB schemes, and last Saturday the front-page headline in the FT read:

“FCA urged to probe pension … advice”


with the sub-heading

“fears over fresh mis-selling scandal”.

The article noted that the regulator planned to write to 1,841 financial advisers about “potential harm” in their DB transfer advice. That is 76% of all advisory firms.

Noble Lords may remember that I, the noble Lord, Lord McKenzie, the noble Earl, Lord Kinnoull, and the noble Baroness, Lady Altmann, proposed a simple default guidance draw-down mechanism, Amendment 24, during Report stage of the Financial Guidance and Claims Bill. The House passed this amendment by a majority of 80 or so. The Commons substituted its own version, which we accepted, perhaps a little reluctantly. This Commons version is now Sections 18 and 19 of the Act. They delegate the design of a “nudge” to the FCA, the industry, the DWP and MaPS.

As a result, there are now in the field two pilot tests. Both have the aim of delivering a nudge to guidance at the point at which someone wishes to access their pension pot, with a view to making receiving guidance a social norm. The trials will run for three months or so, and MaPS has said that it will publish a report on the outcome in spring 2020. This is quite a long time from October 2017, when we passed Amendment 24. Could I encourage the Minister to see whether this process could be accelerated? Government definitions of spring have been known to extend to July, sometimes in the same year.

More importantly, can the Minister say how the results of the trial will be judged? I do not mean one trial against the other; what absolute levels of take-up or behavioural change will be considered large enough to trigger a full-scale national rollout? I note that the Long Title to this Bill is simply to

“Make provision about pension schemes.”

This seems to me to allow scope for the reintroduction of Amendment 24 if the trials fail to produce the right result. This is certainly something we will want to consider as the Bill proceeds.

Again, we very much support the intentions of this Bill. I stress again how important we think it is that we see the draft regulations for Part 1 before Committee.

Financial Guidance and Claims Bill [HL]

Lord Sharkey Excerpts

Ping Pong (Hansard): House of Lords
Tuesday 1st May 2018 Lords Chamber

Moved by

[Lord Sharkey]

That this House do agree with Amendment 2A.

2A: Line 10, after second “time” insert “, and not less than once every two years,”

[Lord Sharkey (LD)]

My Lords, my amendment to Commons Amendment 2 deals with the issue of cold calling spoken to by the Minister a moment ago. Your Lordships will recall that as the Bill has progressed, we have discussed cold calling extensively. There was almost universal acknowledgement of widespread abuse, of invitation to commit fraud and of an unwarranted and all too frequent intrusion into people’s lives. I will not rehearse at this late stage all the details of the evils inflicted on us all, and particularly on the elderly and the vulnerable, by unscrupulous cold calling. The House clearly recognised an omnipresent when it saw one: we voted decisively to address the problem via this Bill.

In the Bill we sent to the Commons, we included, as the Minister has said, a provision to oblige the SFGB to,

“have regard to the effect of cold-calling on consumer protection”,

and to,

“make and publish an annual assessment of any consumer detriment”.

We also required the SFGB, where it found consumer detriment, to advise the Secretary of State,

“to institute bans on … cold-calling and the commercial use of any data obtained by … cold-calling”.

The Bill now comes back to us slightly modified and in many ways improved, but in one critical way, significantly weakened. Amendment 2(7)(b) requires the SFGB,

“to consider the effect of unsolicited direct marketing on consumers of financial products and services, and … from time to time to publish an assessment of whether unsolicited direct marketing is, or may be, having a detrimental effect on consumers”.

The final part of the Government’s amendment obliges the SFGB to advise the Secretary of State to “make regulations” to remedy any defect.

There are two very significant differences between this and the original formulation. The latter cut off the revenue chain for cold callers operating from outside the UK by banning the use of data obtained unlawfully. This is absent from Amendment 2. I will return to this issue later when I discuss Government Amendment 10 and, in passing, Amendment 21. Here, I want only to deal with the Government’s use of the words “from time to time”—words which the Minister herself has highlighted. The full text states that the SFGB,

“from time to time … publish an assessment of whether unsolicited direct marketing is, or may be, having a detrimental effect on consumers”.

The question here is: what is the force of the phrase “from time to time”? What obligation does it really put upon the SFGB? What would count as “from time to time”? For example, would once in five years satisfy? Would once every 10 years satisfy? This is an extremely weak requirement, so vague as to have no force at all. The phrase “from time to time” does not in practice place any definable obligation on the SFGB. This is not only unsatisfactory; it is also not what this House voted for. We voted for an annual assessment.

There may of course be arguments—the Minister has deployed some of them—against annual assessments: for example, that, in its first year of existence, the SFGB may well have other very urgent priorities. I understand that, and that is why my proposed amendment simply adds the words,

“and not less than once every two years”.

This seems to me a moderate response that is necessary to prevent a vital part of our agreed curbs on cold calling being rendered ineffective by Amendment 2. I very much look forward to the Minister’s response.

The Minister told us several times during the Bill’s progress through our House—with real passion—that she abhorred cold calling. I hope that she can find a way to reassure us that the Government’s proposed amendment does in fact have meaning and force. Of course, she could do that by accepting Amendment 2A.

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I hope I have been able to reassure noble Lords that we have taken the measures as far as we feel expedient, sensible and flexible, allowing the body and the considerable degree and body of expertise within it to proceed, working with the Bill as amended thus far. On that basis, I hope that the noble Lord, Lord Sharkey, will feel able not to press his Amendments 2A and 10A. I will also address the questions raised relating to Amendment 21A under group 5.

[Lord Sharkey]

I thank the Minister for that response. I should say at this point that it has been a pleasure to work with her and her team throughout the lifetime of the Bill. I agree with her assessment and that of the noble Lord, Lord McKenzie, that we have made significant progress on improving the Bill as it has been before this House and the other place.

I am reassured by what the Minister said. I remain slightly sceptical about whether “from time to time” has the kind of force that she suggests—but she suggested it so forcefully that I feel able to be reassured. I am slightly—but only slightly—less reassured about the prohibition on international cold calling. I was worried when I heard Nigeria listed as one of the co-operating countries in the new universal ban on cold calling. It does not appear to be working quite as well as we might have expected. However, I take the Minister’s point about the new regulations that will enable us to clamp down.

I will finish by emphasising a point made by the noble Baroness, Lady Altmann. We need a kind of sales approach to this. We need to make certain that the regulator focuses on the people selling products to examine whether they have legitimately got their leads. That seems to be the key thing that the regulator needs to do. I wonder whether the ICO is equipped to do that; it certainly has no history of doing it and it needs to proceed on a rather fast learning curve. I beg leave to withdraw the amendment.

Motion on Amendment 2A (as an amendment to Amendment 2) withdrawn.

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[Lord McKenzie of Luton]

My Lords, if it is time to say our thank yous, I will add mine to those of all noble Lords who have participated in these debates. There have been robust exchanges on what was initially quite a narrow Bill, but its coverage has been expanded, quite appropriately. I certainly thank the Bill team. I know that, on our side, we have probably put them through some misery with our questions from time to time, but when we have had the opportunity to touch base in that way, it has been really helpful to the passage of the Bill in this place. I wish the Bill well on its passage into legislation.

[Lord Sharkey]

I associate myself with the comments of the noble Lord, Lord McKenzie, and the other noble Lords who have spoken. Not only has the Bill been significantly improved but, oddly, I think we have managed to enjoy the process as we have gone through it—perhaps it is not odd at all. I thank the Minister and her officials.

Amendment 21A (as an amendment to Amendment 21) not moved.

Financial Guidance and Claims Bill [HL]

Lord Sharkey Excerpts

Report: 2nd sitting (Hansard): House of Lords
Tuesday 31st October 2017 Lords Chamber

The advantage with our amendment, in contrast to where the Government are, is that the breathing space, whose time has come, will happen within 12 months. Even though the Government have moved with what some people would call spectacular speed in the last few weeks, with this they will be able to say they have satisfied the commitment in their manifesto and done something that the country wants. I beg to move.

[Lord Sharkey (LD)]

My Lords, we on these Benches very strongly support the amendment, for which the noble Lord, Lord Stevenson, has made such a detailed, eloquent and powerful case. The notion of a breathing space or debt respite scheme has attracted a lot of support both in this Chamber and outside.

The Minister herself has acknowledged the merits of such a scheme. She said at Second Reading:

“A breathing space scheme could help people affected by serious debt by stopping creditor enforcement and freezing further interest and charges on unpaid debt”.—[Official Report, 5/7/17; col. 943.]


There is really no need for the conditional “could” in that assessment. The evidence from the existing scheme in Scotland makes it clear that such a scheme does help people affected by serious debt—and help is very definitely needed.

Last week, the FCA published its detailed study of the financial lives of UK adults. This is a truly remarkable and detailed study and an exceptionally useful piece of work, and I congratulate the FCA on producing it. But it is also a truly worrying piece of work. Among its many findings was the fact that in the case of 400,000 adults who were behind on payments and had contacted their provider, their provider did not encourage seeking free debt advice. Another 300,000 adults in the same position reported that their provider did not allow time to pay. Worst of all, for 100,000 adults in arrears, their providers were unsympathetic, did not encourage seeking free debt advice and did not allow more time to pay.

A debt respite scheme would certainly help the debtor, but Scotland shows that it would also help the creditor, who would recover more of the debt. This is a win-win situation. Both sides gain. The case for a debt respite scheme is clear and compelling. That is why, no doubt, the commitment to such a scheme was contained in the Conservatives’ 2017 general election manifesto. But the Minister seemed to feel, when we discussed this at earlier stages, that the issue was so complex that delay was necessary. She said in Committee:

“The Government’s manifesto … proposed the introduction of a statutory breathing space scheme and statutory debt repayment plan. This is an important and complex issue. It requires thorough preparation and consultation on details, such as who could be eligible, which debts could be in scope and how someone could enter into a breathing space”.—[Official Report, 19/7/17; col. 1683.]


All this is quite right, of course, and includes the important and unresolved question of whether rent and utilities arrears should be included in any such scheme. In that context, it is worth repeating what the noble Lord, Lord Stevenson, mentioned a few moments ago: a debt respite scheme already has the backing of at least part of the utilities sector, Water UK.

But focusing on these undoubtedly important questions avoids the simple question of when. It ignores the fact that primary legislation can establish the framework and leave the details to secondary legislation. However, the noble Lord, Lord Young, said last Friday in this Chamber:

“The legislative programme for this Session is already at full capacity and there is no scope for additional measures”.—[Official Report, 27/10/17; col. 1148.]


So, if the question is when there will be a legislative vehicle that will allow the construction of a breathing space, the noble Lord, Lord Stevenson, has provided the answer. The answer is this Bill and this amendment. I hope that the Minister will see its obvious merit and be able to accept it as an obvious way of making progress without further delay.

[Baroness Altmann (Con)]

My Lords, I too have added my name to the amendment, which I hope my noble friend will be minded seriously to consider and, if necessary, bring back at a later stage still. There is clearly widespread support across the House and indeed the country for such a scheme. There is also rising concern about the level of consumer debt within the economy as a whole. We know that more and more people are falling into debt, having perhaps been enticed into borrowing at teaser loan rates that have then risen. We also know that the trend in interest rates may well start to go up, which again would cause significant difficulties for those who have taken on perhaps unwise levels of debt. In practical terms, just giving this breathing space, which I know the Government support, could help to manage a situation that has gone beyond manageable for many vulnerable people. I hope that noble Lords across the House will support this, and indeed that my noble friends on the Front Bench will be able to as well.

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Moved by

[Lord Sharkey]

24: Clause 3, page 3, line 15, at end insert—
“( ) In Schedule 3 to the Pensions Schemes Act 2015 (pensions guidance), after paragraph 6(3) insert—“(3A) In determining what provision to include in the rules, the FCA must include a requirement for the trustees or managers of a relevant pension scheme to ask members of the scheme or survivors of members of the scheme at the point at which they require access to or individual transfer of their pension assets, if they have received the information and guidance available under section 3 of the Financial Guidance and Claims Act 2017 (specific requirements as to the pensions guidance function); and if they have not received such information and guidance the FCA may require the relevant trustee or manager to provide access to such information and guidance before proceeding.””

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[Lord Sharkey]

My Lords, I am grateful to the noble Baroness, Lady Altmann, the noble Lord, Lord McKenzie of Luton, and the noble Earl, Lord Kinnoull, for adding their names to Amendment 24. It may look rather complicated, but it addresses a simple problem and proposes a simple partial remedy. When it comes to pension pot access or transfer, the problem with our current financial information and guidance system is not the quality of the information or advice, but the very low level of take-up. In Committee, we spoke about the quality of the information and guidance and noted the exceptionally high levels of user satisfaction with the Pension Wise service, recorded in the first wave of the service evaluation survey published in October 2016. It was very pleasing to see the same exceptionally high levels recorded again in the second wave of evaluation data published last week. It is clear that the information and guidance provided is of real help to pension holders. That is not the issue: what is the issue are the exceptionally low levels of take-up. The FCA reports that, of those over the age of 55 planning to retire in the next two years, only 10% had used TPAS and only 7% had used Pension Wise. I know that these figures are contested, but even if they were out by an unthinkable 50%—as I am sure they are not—then take-up would still be dangerously and unacceptably low. The simple fact is that too many people will be making decisions about their pension assets without information or guidance.

The amendment is aimed at doing something about that. It is designed to be a nudge, rather than any kind of probably unenforceable or counterproductive compulsion. It amends the Pension Scheme Act 2015 in order to amend FSMA 2000. One way or the other, almost every financial amendment ends up amending that Act. The amendment would require the FCA to change its rules to make possible the provision of last-minute information and guidance to those who have not already had it and who are about to access or transfer their pension assets. The FCA would be required to write into its rule book a requirement for trustees or pension managers to ask members, or their survivors, at the point at which they require access to or transfer of their pension assets, if they have received the information and guidance mentioned in Section 3 of this Act. If they say no, the FCA may require the trustee or manager to provide access to such information and guidance before proceeding.

This is a “may”, not a “must”, because the universal application of this requirement would obviously be unduly burdensome and, anyway, unnecessary. The FCA knows very well which categories of consumer are most at risk and can restrict the requirement to take action to those cases. Adopting the amendment would mean that people accessing their pension funds could be given a final nudge. There is no compulsion; simply the provision of a last-minute opportunity to see for the first time—for those who have not seen it already—the excellent information and advice available to them, if the FCA judges them to belong to a category that is particularly at risk. There is no compulsion, just a chance to look at valuable information and guidance before making an important and irrevocable decision.

We know that levels of financial education and financial self-confidence in this country are very low indeed and that levels of ignorance and misunderstanding are very high. We know that the take-up of the services provided by TPAS and Pension Wise is far too low. It is entirely right that we take every opportunity to rectify that situation and that we should have a go at doing this when people are at the point of making a critically important decision about their pension assets. This amendment would provide a last chance for reassessment for those who need it most, when they need it most. I beg to move.

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[Baroness Buscombe]

My Lords, the amendment relates to the specific pensions guidance requirements set out in Clause 3 that the single financial guidance body must provide as part of its general pensions guidance function. The amendment seeks to increase the take-up of this particular guidance by members of the public when they wish to access or transfer their pension.

I am grateful for the opportunity to reference the Pension Wise service, which is currently delivering the guidance described in Clause 3. The Pension Wise service evaluation, published last week, shows that the service is incredibly well regarded by its customers, with customer satisfaction at 94%—a figure referred to by several noble Lords.

The amendment is driven in part by figures that suggest that Pension Wise is not reaching enough people. However, our contention, as my noble friend Lord Young set out in Committee, is that assessing take-up volumes is far from straightforward and that the picture is much better than the figures published by the FCA would suggest. In fact, I recently met with Pension Wise and it was very clear to me that a huge number of people are accessing guidance just on the website.

As noble Lords said, the amendment is driven also by the FCA’s recent interim report on the retirement outcomes review. The report raised some issues, which noble Lords have referred to, and the FCA has proposed a number of remedies. These include additional protections and measures to promote competition for consumers who buy draw-down without taking advice.

The FCA is actively engaging with government, regulators, industry and consumer bodies before it delivers its final report in the first half of 2018. We should take decisions about how to proceed in the light of the fullest information possible. This will ensure that we make interventions that go to the heart of addressing any weakness in the system and ensure people make informed choices for their circumstances.

The amendment would oblige the FCA to make rules requiring pension providers to ask individuals with personal or stakeholder pensions whether they have had the specific pensions guidance set out in Clause 3 when they require access to, or individual transfer of, their pension assets. Beginning with individuals requiring access, it would be helpful if I take a moment to remind noble Lords about the retirement risk warning rules, which are in force today and will continue to be in force when the new body is established.

The FCA already requires that when a person has decided in principle to access their personal or stakeholder pension pot, and before the action is concluded, the pension provider must ask the individual whether they have received pensions guidance or regulated advice. If the person says that they have not or if they are unsure, the FCA requires that the firm must explain that the decision is an important one and encourage the individual to use pensions guidance or to take regulated advice. If the person says that they have had their pensions guidance or regulated advice, or if they insist on proceeding, the FCA requires the firm to give the individual appropriate risk warnings.

These warnings must be relevant to the chosen method of access and, where the pot is over £10,000, the provider must ascertain information about the individual’s circumstances to tailor the warnings. Risk factors that should be covered where relevant are: the individual’s health; loss of guarantees; whether the person has a partner or dependants; inflation; whether the person has shopped around; sustainability of income in retirement; tax implications; charges, if a person intends to invest their pension savings; impact on means-tested benefits; debt; and investment scams.

These retirement risk warnings are in addition to other FCA rules that require pension providers to tell people with personal or stakeholder pensions: first, that free and impartial guidance is available from Pension Wise to help them understand their pension options; secondly, how to access the guidance through the internet, over the phone or face to face; and, thirdly, that they should seek guidance and consider taking independent advice to help them decide which option is most suitable for them.

Pension providers must include this information with the wake-up packs that people are sent when they approach retirement or, importantly, when they contact them about accessing their pension—I always smile when I reference the fact that the packs are called “wake-up” when they are for those approaching retirement.

It may also be helpful to remind the House that the FCA also requires pension providers to include the Money Advice Service booklet, Your Pension: It’s Time to Choose, or materially the same information in wake-up packs sent to members with personal or stakeholder pensions. This provides information and guidance on pension options and where to go for more help, including Pension Wise and the Pensions Advisory Service. Again, I say to noble Lords that I was amazed and hugely encouraged by the extraordinary expertise and experience that exists within those organisations, particularly when I visited the Pensions Advisory Service, where there are people with 30 or 40 years’ experience in the financial services industry giving advice to people over the phone—over the counter, as it were—and on their websites and by email. The booklet also covers essential information about tax, the importance of shopping around and avoiding scams. I hope that noble Lords will agree that this existing regime already provides individuals with important information and strong encouragement to take advantage of guidance and advice before accessing a pension pot.

I now turn to individuals requiring a transfer of their pension. Noble Lords will be aware that many transfers have the express aim of accessing the pension freedoms, and they are protected by the measures I have just spoken about. A large proportion of other transfers from one registered scheme to another can be a routine decision to consolidate pension pots to keep financial affairs simple. This can often deliver better value for members, and adding friction to what is essentially an administrative process could directly inhibit member engagement with their pension.

It is also the case that there are existing requirements in relation to transfers from one registered pension scheme to another. In a transfer situation, the Government are keen that members with valuable guarantees are aware that they have them and of the implications of giving them up. Where an individual has safeguarded benefits—for example, a guaranteed annuity rate—the current provider would need to determine the value of those benefits. If that value is more than £30,000, the individual must have received regulated advice from an authorised financial adviser before the transfer can go ahead.

From April 2018, pension providers must give members with guaranteed annuity rates and similar guarantees more personalised information. This should detail the guarantees they hold and their value, and must be sent at the point they risk giving them up, when they seek a transfer or request access to their pension. There is also a legal obligation for trustees to act in members’ best interests, and the FCA requires that providers treat customers fairly. As well as highlighting guarantees, many pension providers encourage members to think about the implications of transferring, particularly in relation to exit fees and charges.

To sum up, pension providers are consistently cited by around half of the people who contact Pension Wise as the place they first heard of the service. Pension Wise is working with pension providers to ensure that signposting is as effective as possible and with employers locally and nationally to encourage take-up of the service. This includes a major pilot project with Tesco, where Pension Wise appointments are delivered in the workplace. This is in addition to national advertising of the Pension Wise service through a variety of media channels, which has been used since the service was launched in 2015. That has clearly contributed to increased awareness of the service, borne out by the significant increase in the number of people using it.

I appreciate the sentiment behind the amendment and agree that more people should take advantage of the excellent service that Pension Wise provides. However, I do not agree that the amendment is the way to achieve it. It is essentially a reimagining of existing obligations that the FCA already places on providers. As I have explained, the FCA has already made rules, in force now, which place strict requirements on providers when engaging with an individual about accessing their pension.

My noble friend Lady Altmann said that this would be a major step forward, but the rules are already in place. There is no problem with the Treasury—this was referenced by the noble Viscount, Lord Thurso. We already have the rules in place. Take-up of Pension Wise guidance is increasing and bringing together all the offers in this area under one roof. The single financial guidance body will make it easier for people to take advantage of the excellent services available.

For the benefit of noble Lords who have just joined us in the Chamber, this is supposed to be a framework Bill to set up the single financial guidance body—without too many additional powers or burdens placed upon it over and above those which are necessary to take this forward. I trust that, with this reassurance, the noble Lord will feel able to withdraw his amendment.

[Lord Sharkey]

I thank all noble Lords who have spoken in the debate. I note the support for the amendment from all sides of the House. I note also that the Government seem to rely in their argument on essentially unsubstantiated claims for the performance of Pension Wise in reaching people. The low level of take-up is the problem we are addressing. No matter what current and elaborate arrangements the Minister may tell us are in place, they are not working.

The amendment sets out at no cost—no downside—a simple proposal. It intervenes at an absolutely critical point in the pension process, as people begin to access or transfer their pension assets. We do not claim that it will prevent all bad or suboptimal decisions but we believe that giving people this last chance for information and advice is sensible, prudent and fair-minded, particularly for the most vulnerable people and those most at risk. It is clear—again, given the low take-up figures for the information and advice services—that this is needed. I do see the point of doing all we can to help people make good decisions about their future financial well-being, especially at this critical point in their lives. I would like to test the opinion of the House.

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Moved by

[Lord Sharkey]

29A: After Clause 12, after subsection (2) insert—
“( ) The FCA must make general rules requiring specified authorised persons to refer persons of a specified description for financial guidance.( ) The rules must specify the manner and circumstances in which the duty to refer applies.”

[Lord Sharkey]

I will speak very briefly to Amendment 29A in this group. I am very grateful for the support of the noble Baroness, Lady Altmann, the noble Lord, Lord McKenzie of Luton, and the noble Earl, Lord Kinnoull, who have added their names to it.

As the Minister said, the amendment would add to government Amendment 29, the case for which she put eloquently and convincingly. If I may paraphrase, Amendment 29 deals essentially with the provision of information about the availability of financial guidance. It is an amendment about signposting, as I think the Minister said. Subsection (1) requires the FCA to,

“make general rules requiring specified authorised persons to provide information about the availability of financial guidance”,

to persons whose descriptions are “specified in the rules”. Actually, the wording says that such information must be provided to the,

“descriptions of persons specified in the rules”.

I am not sure that you can provide information to a description of a person—but the intent is clear even if the wording is rather odd.

Subsection (2) allows the FCA to decide when a duty to provide the information set out in subsection (1) actually applies. We agree with those provisions, but we believe that they should be extended beyond simple signposting. They should be extended to allow the FCA to require persons of a specified description to be referred for financial guidance and so that the FCA has the power to decide in what circumstances and how this duty of referral should apply.

The government amendment deals only with information about the availability of guidance; our amendment has the power to refer for guidance. In both cases the powers are given to the FCA, which has unfettered discretion in deciding how, when and to whom these powers are to be applied, both as to providers and as to customers of these providers. There is no requirement in either case that the FCA acts universally across providers and across customers. Both Amendments 29 and 29A, taken together, require the FCA to make rules requiring the provision of information about the availability of financial guidance and rules requiring specified providers to refer specified customers for financial guidance. How all this might happen is left to the FCA to decide.

The first part—the government part—is a requirement to signpost. The second part—our part—is a requirement to refer. It seems sensible to have both weapons in the armoury. Signposting is a good idea in principle, even if it has a somewhat chequered and contested success rate or even effective compliance rate. Successful reference for guidance is, we know, likely to produce an effect. All the Pension Wise service evaluation data, which we have discussed several times in this House, shows that to be the case. In both cases—signposting and referral—the FCA may, at its discretion, decide which providers and which customers should signpost or refer, or be signposted or be referred.

It has been a constant theme in our debates on the Bill that in this country people are not financially well educated and do not have confidence in their own ability to handle financial matters, and that dangerous financial ignorance and misunderstandings are widespread. Amendments 29 and 29A, taken together, will allow the FCA to make decisive interventions about signposting and referral among groups it sees as most needing this kind of help. I had hoped that the Minister would see that her amendment was complemented and strengthened by ours and would be able to accept it in the spirit in which it was offered. Having listened carefully to the Minister, I now sense that that may be unlikely.

[Baroness Drake]

My Lords, obviously, I welcomed government Amendment 29, because it addresses an issue that I raised in Committee. However, I am also persuaded by the arguments used in Amendment 29A, which gives to the FCA the discretion to define the circumstances in which providers would be required to refer people to the impartial single financial guidance body—a reference probably driven by the characteristics of a vulnerable group at risk of making a poor decision. The FCA would define those circumstances. Because under this amendment it can and does, it would not create a blizzard effect of referrals for financial guidance which overreaches the function of the new body, nor need it undermine the new body’s ability to focus on those most in need of guidance. This amendment clearly gives the FCA the duty and the statutory authority to nudge or default people into impartial financial guidance in those circumstances which the FCA specifies. In specifying the circumstances, it will have consulted with the single financial guidance body.

The recent FCA Financial Lives Survey identified that 50% of adults—25.6 million people—are financially vulnerable on one or more characteristics. The single financial guidance body cannot possibly solve a systemic problem of that scale, nor should we take the risk of trying to overload it so that it cannot effectively discharge its key remit. But it can make a material difference by improving the financial capability of those most in need of support. However, to do that, those most in need of support need to use the guidance, and this amendment would give the FCA the complementary authority to enable those most in need of the guidance to be referred to it.

I know that it is possible to list a whole series of regulatory requirements on information and disclosure but the ever-increasing evidence is that they simply do not work when it comes to protecting vulnerable consumers. They need more—they need guidance or other levels of protection.

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[Baroness Buscombe]

I have already spoken in detail on Amendment 29A, so I am possibly at risk of repeating everything that I have said. However, I would ask the noble Lord, Lord Hunt of Chesterton, to refer to Hansard, where he will see that since 19 July we have been discussing the very issue about which he is concerned.

The truth is that we are setting up a single financial guidance body which we hope will be even better than the bodies that already exist when it comes to improving people’s financial capability and giving them regulated advice and guidance. That is the purpose of the Bill. I hope that I have persuaded noble Lords that Amendment 29A is not necessary and that the noble Lord will be happy to withdraw it.

[Lord Sharkey]

My Lords, I entirely agree with the noble Lord, Lord McKenzie of Luton, that it would be better to have Amendment 29A on the face of the Bill. I think that it is a perfect complement to the elegantly crafted Amendment 29. However, I hear what the Minister says and I beg leave to withdraw.

Amendment 29A withdrawn.

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Moved by

[Lord Sharkey]

42: After Clause 17, insert the following new Clause—
“Ban on unsolicited real-time direct approaches by, on behalf of, or for the benefit of companies carrying out claims management services and a ban on the use by claims management companies of data obtained by such methods
(1) The FCA must, within the period of six months beginning with the day on which this Act comes into force, introduce bans on—(a) unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise, by, on behalf of, or for the benefit of companies carrying out claims management services or their agents or representatives, (b) the use for any purpose of any data by companies carrying out claims management services, their agents or representatives where they cannot demonstrate to the satisfaction of the FCA that this data does not arise from any unsolicited real-time direct approach to members of the public carried out by whatever means, digital or otherwise.(2) The FCA must fix the appropriate penalties for breaches of subsection (1)(a) and (b) above.”

[Lord Sharkey]

My Lords, Amendment 42 is in my name and those of the noble Baroness, Lady Altmann, and the noble Earl, Lord Kinnoull. Given our extensive discussions of cold calling at every stage of the Bill, I can be brief.

This amendment would require the FCA to ban cold calling for claims management companies. Critically, it would also ban the use by these companies of any data obtained by cold calling. Together, these provisions would make cold calling for CMCs illegal and cut off the revenue stream to cold callers, by preventing CMCs using their data. The amendment would also allow the FCA to set the appropriate penalties for any breach of either of these bans. The bans would come into effect with the passing of this Bill—in other words, fairly soon. I will not rehearse here the manifest evils and dangers of cold calling, either in general or for CMCs in particular, but I will just mention that the disgraceful whiplash and holiday sickness scams are a prime and continuing example of why cold calling for CMCs remains an active and current problem. There will inevitably be another scam along any time soon.

We discussed all this at some length last Tuesday, when the House showed the strength of its dislike and disapproval of cold calling, not for the first time and from all sides. The House voted by a large majority last Tuesday to enable a ban on all types of cold calling where consumer detriment could be shown. During the debate that led up to that vote, the Minister pointed out that our proposed mechanism for banning cold calling involved quite a lengthy process. She went on to make a generous offer to do something about cold calling for CMCs faster than our amendments would allow. The Minister said:

“I have asked officials to consider the evidence for implementing a cold-calling ban in relation to claims management activities, and I am pleased to say that the Government are working through the detail of a ban on cold calling by claims management companies”.


She also proposed to bring forward a government amendment in the other place to meet the concerns of the House. Towards the end of her speech on the issue, the Minister said:

“To reiterate, the Government agree with the spirit of these amendments and will bring forward legislation in this Bill, in the other place, in relation to cold calling for claims management activities”.—[Official Report, 24/10/17; cols. 861-63.]

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[Baroness Buscombe]

That is quite an interesting one: any gun should be locked in a cabinet. The amendment tabled by the noble Lord, Lord Sharkey, my noble friend Lady Altmann and the noble Earl, Lord Kinnoull, seeks to ban “unsolicited direct approaches” such as phone calls,

“by, on behalf of, or for the benefit of companies”,

providing claims management services. It also seeks to prevent these companies using data obtained through the use of such methods.

I have spoken previously about the significant steps taken by the Government to address these issues. We have increased the amount that regulators can fine those breaching direct-marketing rules. We have forced companies to display their number when calling you. As we have previously discussed in your Lordships’ House, cold calling is already illegal in certain circumstances, such as where a person has registered with the Telephone Preference Service or has already withdrawn consent.

The Information Commissioner’s Office enforces restrictions on unsolicited direct marketing. The Data Protection Act 1998 requires organisations to process data fairly and lawfully. Organisations must: first, have legitimate grounds for collecting and using personal data; secondly, not use the data in ways that have unjustified adverse effects on the individuals concerned; and, thirdly, handle people’s personal data only in ways they would reasonably expect. A serious contravention of the data protection principles could result in a monetary penalty notice being issued by the Information Commissioner. Depending on the circumstances, this could include a CMC which sought to use data that it had originally obtained through unlawful means.

However, we have listened carefully to the views of your Lordships’ House and fully agree that more needs to be done to tackle the prevalence of nuisance calls across the UK. As I previously explained, there are complex issues to work through, including those relating to EU directives. But I can reassure your Lordships’ House that the Government are working through the details of a cold-calling ban in relation to the claims management industry. To that end, I am pleased to say that I revisit the offer made in your Lordships’ House last week and repeat that the Government intend to bring forward an amendment in the other place to meet the concerns of this House. This amendment will look to ensure that the onus is no longer on the consumer to opt out of marketing calls.

Unfortunately, the amendment tabled by noble Lords would give the FCA a duty it cannot enforce under its current regime. I assure noble Lords that the Government are committed to tackling this issue properly and will consult with the FCA, the CMRU and the ICO to ensure that the government amendment addresses these issues in the most effective way. But if Amendment 42 were accepted, it would not achieve its aim. For these reasons, I urge the noble Lord to withdraw the amendment.

[Lord Sharkey]

My Lords, I thank all noble Lords who have spoken in this brief debate, but especially the Minister for what she has just said to the House. There is only one possible response to what she said, which is to say thank you and to withdraw the amendment.

Amendment 42 withdrawn.

Financial Guidance and Claims Bill [HL]

Lord Sharkey Excerpts

Report: 1st sitting: House of Lords
Tuesday 24th October 2017 Lords Chamber

Moved by

[Lord Sharkey]

1: Clause 2, page 2, line 12, at end insert—
“( ) the consumer protection function;”

[Lord Sharkey (LD)]

My Lords, in moving Amendment 1 I will also speak—eventually—to Amendments 2 and 7. They form a linked package of consumer protection measures enabled by, and consequential upon, Amendment 1. I am grateful to the noble Lord, Lord McKenzie of Luton, the noble Baroness, Lady Altmann, and the noble Earl, Lord Kinnoull, for adding their names to the amendments and for their support for them. Amendment 1 simply adds consumer protection to the functions of the SFGB. The notion of consumer protection is implicit in the other functions set out in the Bill, but the amendment gives it statutory life. In doing this, it allows a broader definition of the reach of the SFGB. It widens its remit to something closer to the real-world situation for consumers and enables it to deal more comprehensively with the dangers and risks that consumers face.

Pensions guidance, debt advice and money guidance are all aimed at doing this, of course, but there are related areas where intervention would be of direct benefit: cold calling is one. One effect of Amendment 1 would be to allow cold calling to be dealt with in the Bill. We have discussed cold calling many times during the passage of the Bill and on many other occasions in this House. On several occasions I have described it as an omnipresent menace—and no one has disagreed. It is clear that there is a firm and widely held dislike of and dissatisfaction with cold calling, extending well beyond this Chamber. It is not only a thoroughgoing social nuisance; it is often a threat, directly and comprehensively, to consumers’ financial well-being. It is often an invitation—or more exactly, an inducement —to criminal activity.

The figures are remarkable and very alarming. There are now 2.6 million cold calls every month; that number has increased by 180% in the last 10 months. I noted that the Minister, when presented with these figures—and even larger ones—at an earlier stage in the debate, prayed in aid the ICO and the FCA. I am afraid that whatever the ICO is doing, and whatever the noble Baroness hopes the FCA might do at some unspecified time in the future, the problem is not only terrifyingly large but continuing to grow very rapidly.

On the fourth day of Committee, the noble Earl, Lord Kinnoull, made a very telling intervention; I am sure he will not mind me repeating it here. He quoted a Which? report from November 2016, which he described as detailing,

“the full horror of nuisance calls in the UK”.—[Official Report, 13/9/17; col. 2491.]

The report found that in 17 of the 18 cities surveyed, more than a third of all private phone calls were nuisance calls, and four in 10 people in the Scottish sample were intimidated by these calls. It is not easy to intimidate people in Scotland. In the same debate, the noble Earl, Lord Listowel, pointed out and emphasised the fact that many old people are particularly vulnerable to cold callers.

Then there is the successor to the whiplash scandal: the absolutely huge, and rising, number of claims for alleged holiday sickness. In July and August 2016 alone, one operator took 750,000 British, 800,000 German and 375,000 Scandinavian customers to Spain. The Scandinavians lodged 39 claims; the Germans lodged 114; but the British lodged around 4,000 claims for holiday sickness—essentially, food poisoning. That kind of thing not only costs our travel industry a huge amount and raises prices for everyone but directly encourages criminal acts on a large scale. As the noble Lord, Lord Deben, said in Committee, this a huge industry which,

“encourages fraud and leads people to do things which they would never have done without this pressure”.—[Official Report, 13/9/17; col. 2489.]

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[Lord Mackay of Clashfern (Con)]

I would like to ask whether the “direct approaches” referred to in proposed subsection (3E) need to relate to financial matters.

[Lord Sharkey]

That would fall within the ambit of the consumer protection function of the SFGB.

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[Baroness Buscombe]

I am very grateful to my noble friend for clarifying that point.

[Lord Sharkey]

My Lords, I am grateful to all noble Lords who have spoken in this debate. I am particularly grateful to the Minister for her close engagement with the matters in these amendments and for her willingness to discuss the issues involved both inside and outside the Chamber. However, I am afraid that the Minister’s objections to Amendment 1 did not have much conviction or force at all, not even when supported by the noble Lord, Lord Faulks. The simple fact is that the SFGB should obviously be in the business of consumer protection. Its remit should allow it to consider, for example, the effect on consumers’ financial well-being of cold calling for financial services. That is what Amendment 1 does, thereby allowing the consequential Amendment 2 to tackle financial harm caused by cold calling. I was grateful for the Minister’s proposals to ban cold calling for CMCs via a Commons amendment, which clearly could be done. However, Amendment 42, which is only a week away, would do exactly the same thing. Why do we have to go round to the other place to do what this Bill would do if Amendment 42 were accepted? I look forward to the Government’s support for Amendment 42 as a means of saving time in the Commons.

I was also grateful for the commitment to publish—I think I heard it correctly—draft legislation on a pensions cold-calling ban. I am sorry that the train of the noble Baroness, Lady Altmann, is due to arrive in only two minutes. However, I think I heard the Minister say that she would publish this in early 2018, which is government-speak for probably June. But I note that there was no indication at all of the timetable for such a Bill, and I refer the House again to the remarks made by my noble friend Lord Kirkwood when it comes to the probability of such a Bill. I am afraid that I did not feel the objections aimed at Amendment 7, though extremely extensive in length, were at all compelling. They were full of “shoulds”, “expects” and “mays”, when in fact “must” is better, which is what the amendment does.

With these amendments we have an opportunity to increase significantly the financial protection of consumers —particularly vulnerable and financially stretched consumers. We can, with this Bill and these amendments, bring about bans on cold calling—not just for pensions, but also for CMCs and DMCs if there is evidence of consumer detriment, as there clearly is. We have argued about preventing cold calling for a very long time, during which the problem has become significantly worse. These amendments would finally address the problem and would address it for whatever creative cold-calling scam comes next off the cold-calling scam production line. These are simple, effective and linked measures which will reduce nuisance, reduce harm and significantly increase the protection of consumers. I would like to test the opinion of the House.

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Moved by

[Lord Sharkey]

2: Clause 2, page 2, line 18, at end insert—
“(3A) In exercising its functions the single financial guidance body must have regard to the effect of cold-calling on consumer protection and must make and publish an annual assessment of any consumer detriment.(3B) If the single financial guidance body considers that there are products or services where a ban on cold-calling would be conducive to its functions it must advise the Secretary of State to institute bans on such cold-calling and the commercial use of any data obtained by such cold-calling.(3C) On receipt of advice from the single financial guidance body under subsection (3B), the Secretary of State may by regulations made by statutory instrument introduce a ban on cold-calling and the commercial use of any data obtained by such cold-calling as recommended by the single financial guidance body.(3D) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.(3E) For the purposes of this section “cold-calling” refers to unsolicited real-time direct approaches to members of the public carried out by whatever means, digital or otherwise.”

[Lord Sharkey]

I wish to test the opinion of the House.