Pension Schemes Bill [HL]

Debate between Lord Young of Cookham and Lord Flight

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

[Lord Flight]

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

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

[Lord Young of Cookham (Con)]

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

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

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

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

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

Pension Protection Fund

Debate between Lord Young of Cookham and Lord Flight

Tuesday 13th September 2016 Lords Chamber

[Lord Young of Cookham]

I am grateful to the noble Lord for his welcome. I think my career is on a downward spiral rather than an upward one. On British Home Stores, that pension scheme is now in the assessment period so far as the PPF is concerned. It is confident that, should BHS fall into the PPF, it has the resources to meet those obligations. On the very substantial figure that the noble Lord mentioned, that is a snapshot of all the liabilities of the defined benefit pension schemes were they all to have to buy annuities at the present moment. Of course, that is a volatile figure. When interest rates go down, the deficit goes up; should interest rates go up, the deficit would go down and in many cases disappear. One must look at this in the long term, with the volatility of the economic cycle taken into account. A pension fund is, after all, a long-term investment.

[Lord Flight (Con)]

My Lords, does the Minister agree that, at present, the reported scale of pension fund deficits is hugely exaggerated because we have artificially low gilt yields rendering a discount rate of 3% or 3.5%, whereas typically investment fund returns are of the order of 5%? That is misleading. I hope the Government will consider introducing some measures to address this issue.

[Lord Young of Cookham]

My noble friend is absolutely right that when gilt yields fall, the deficits go up. There is an international accounting standard, to which we are obliged to adhere, that indicates how the deficits are to be valued. As I said, they are volatile; should interest rates go up, the deficits would go down. But I am grateful to my noble friend for putting it in that broader context.