Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

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

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I only very recently decided to speak on the Bill. Unfortunately, due to other commitments, I was unable to attend any of the meetings with the Minister—but that will be forthcoming in due course. But here are my initial thoughts on what I have found out so far as, I suppose, a newcomer to pensions.

I agree with all the Bill’s general intentions, but there are some areas where I do not think it has gone far enough and many where pensioners’ security will depend on regulations that we have very little policy guidance on, or reassurance about, in the Bill. I note that the Minister said that we will have illustrative regulations, but we need the shape of the policy and how far in the future those regulations can or cannot go outlined in the Bill. I hope that, once they are written, something can be adduced from them and reflected backwardly.

Collective money purchase schemes seem entirely sensible for well-known reasons that have already been explained. They enable longevity and other risks to be pooled, and they potentially allow a more consistent investment policy. That is the theory, at least, but it has to be recognised, especially in the potential case of smaller schemes, that the pooled advantages can be undermined by too many transfers out, or even the equivalent of a run by older members. What safeguards are there? Can the Minister say whether this will be kept under watch and count as an “event” to trigger the operation of some safeguards or a continuity plan?

It is clear that a person who has the power to take decisions under the scheme, or a trustee, can intervene to indicate that, for example, the fund should be wound up—but what if they do not give such an indication? How is the regulator to know and intervene; is it only through obtaining valuations and making directions under Clause 23, or are there other mechanisms that make sure that the regulator is well informed?

What is the role of the viability statement in this regard? Is it a specific matter to be reported to the regulator, and, if not, why not? Will schemes be expected to have provisions for lock-in periods or redemption windows? The questions now being asked about investment fund redemptions, following the run on the illiquid Woodford funds, are mirrored here—with the slant, as the noble Lord, Lord Sharkey, and others, have pointed out, that the older generation has the whip hand. I agree very much with the noble Baroness, Lady Altmann, that these new schemes are a halfway house. Something is missing, some kind of capital provision or buffer so that when there is trouble, there is something to call on, rather than seeing those still in the scheme left in the lurch by those old enough to do a runner.

Turning to penalties, I found 20 recitations to do with the new collective scheme, when only the small civil penalties under Section 10 of the Pensions Act 1995 can be invoked. Some of these things deserve greater penalties, especially if done repeatedly or deliberately: for example, not taking actuarial advice; not getting valuations; not carrying out a continuity strategy; not properly dealing with the discharge of liabilities and winding up; or not dealing with directions regarding failures. Seriously, should the maximum fines for what could be pretty egregious omissions really be just £5,000 for an individual or £50,000 for companies?

While researching, I looked at the recent fines levied on the regulator’s website. They were all smaller than the Section 10 maximums. I raised an eyebrow at the FCA pension scheme’s fine, but today’s Times says that the £2,000 fine is the highest possible fine for lack of information to members in a chair’s report. Irrespective of what fine the FCA merited, it is another pretty derisory maximum for what could be a serious lack of information provided to members. These fines are lower than the cost of taking advice on whether you have got your report right. What kind of incentive is it to get your report right?

Elsewhere in the Bill, there are new escalating fines for failing to provide information or allow site inspections. Of course, by that stage things will have got pretty serious, but should the escalating concept be widened for repeat offences and more serious matters related to the viability or stability of a scheme? Early warnings are key, before things get to notifiable or dangerous status. Also, can the Pensions Regulator remove persistent repeat offenders on the basis that they are no longer fit and proper persons? We found out from the FCA’s report on the GRG that removing people as fit and proper was not all that easy, because they put lots of other rules around it that were not necessarily infringed. So what is the situation with the Pensions Regulator and that possibility?

Going up in amounts, of course I note the new £1 million fine that the regulator will be able to apply in what are the worst instances of behaviour around deficit matters in defined benefit schemes, or providing false and misleading information. But this is way too small for all circumstances, given the deficits revealed with BHS—Philip Green eventually put back £363 million of the £571 million deficit, which was just about his dividends, but we are still way off—and £2.6 billion for Carillion. Last year, the UK’s direct benefit pension scheme deficit increased by another £60 billion to £260 billion. Companies with deficits are continuing to increase dividends significantly, without pro-rata repayment of deficit. I, too, welcome the initiative the noble Lord, Lord Balfe, is taking on this matter.

Against that background, £1 million looks like an affordable cost of doing business for larger organisations. I consider that it would be relevant to apply fines that match, for example, a multiple of the unpaid deficit, or based on turnover, such as the fines for offending against the GDPR or competition law. Putting employees’ pensions at risk or raiding the public purse via the Pension Protection Fund is egregious behaviour and deserves no less penalty than those other policy areas where larger fines can be levied. There are precedents beyond financial services, which are behind the game on what fines should be for egregious matters.

I realise that there are new criminal offences and there is always nervousness about them, especially by the people who probably never risk being caught by them. We have to try to make them work against the people we need to catch, but we know how difficult it can be to prove mens rea in the collective decision-making of the corporate environment. Frankly, I think that prosecutors and judges can recognise wrongdoing when they see it and so I do not take so strongly as the noble Baroness, Lady Drake, the cautions in this regard.

Finally, I come to the pensions dashboard. Yes, it is a good idea to have somewhere where you can access all your information. I have already done some of the voluntary ones on platforms where I have got pensions—I have filled things in and got things popping out at the other end—but, in the longer term, there are lots of ideas around these things that we are thinking of. There is the nudge effect that such dashboards can have on encouraging more savings into pensions. Commercial platforms enabling you to act on the nudge may well be more successful than just getting a message to save more somewhere. For example, it may turn out that banks are better placed to nudge regularly as people log-in online to banks more frequently, and there is already the open banking experience to model upon.

The noble Baroness, Lady Drake, is right: we have to take great care when we introduce any kind of transactional dashboard. Even before that, whatever the rules say, once there is a dashboard other people will come along with their dashboard, which may not be a qualifying dashboard. So we have to make sure that we can catch scammers and other dashboards where you catch your own data, because they will not fall within the rules of a non-qualifying platform.

You cannot rely on entities being regulated. We have had plenty of experience of highly regulated entities, such as banks, where wrongdoing has not been caught because the activity itself was not regulated. For example, again with GRG, the FCA report says that it was unable to act against bankers because the activity of commercial lending is unregulated. So the only way to catch perpetrators who in some way abuse the concept of dashboards is for dashboard activity—whatever it is in a wider sense—to be regulated in a widely defined way so that regulators can act. It is just too risky to leave wriggle room with matters as precious as people’s pensions.

Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

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

[Baroness Altmann (Con)]

My Lords, I support all three amendments. I have added my name to Amendment 2 —so excellently moved by the noble Lord, Lord Sharkey —which intends that any CDC scheme that is applying for authorisation must have a considered strategy for the long-term intergenerational fairness considerations that we have just discussed. The scheme would need not just buffers—we will talk about buffers in the next group—these would also be required against scheme failure and scheme wind-up. In this case I would prefer to think of these as risk margins, to recognise the long-term risks to remaining members, most particularly if scheme members transfer out. That is the particular aim of my Amendment 7, which would also impose on the scheme, when calculating benefits, a requirement to consider how it will recognise the risks in future years if somebody cashes in the pension today.

The cash equivalent transfer value is not really a benefit under the scheme. If the member is in poor health, for example, they will be selecting against the scheme, because the scheme will assume a certain life expectancy. Some will have less and some more, but if all those who have lower life expectancy transfer out at full value, then clearly the pensions in payment are too high. If they take money when markets are performing well, they may receive more than if they had waited longer and there was a market correction, so the remaining members, again, will bear the cost.

Given that a CDC scheme is designed specifically to pay a pension rather than a lump sum as an alternative, without the same draconian guarantee requirements on employers, to the defined benefit system that we have had traditionally in this country—which as the noble Lord, Lord McKenzie, rightly says, is the gold standard—we would not want this to be at the detriment of defined benefit but rather as an alternative to defined contribution. However, those members who transfer out are not placing their trust in the scheme; they are not saying, “I want my pension to come from the scheme,” and they are leaving the remaining members to bear an extra risk. I remind noble Lords that we have seen this in defined benefit schemes with the minimum funding requirement, and also with the rules around scheme surpluses. In the short term it was judged that an amount in the scheme was sufficient to pay a specific level of pension over the long term and it turned out that that was not the case, because assumptions were incorrect, markets changed or demography changed. Therefore, it is wholly inadequate to assume that whatever is happening today should be reflected, for example, in cash equivalent transfer values.

As the noble Lord, Lord Vaux, said, it is not just intergenerational fairness; it will select against today’s pensioners, potentially, because if over the next couple of years markets are weak, pensions will need to be reduced more to reflect people who transferred out at what seemed to be fair value two years previously. I hope my noble friend will consider the thrust of these amendments and perhaps look at whether we can introduce some requirements for schemes when members transfer out or when market values are judged to be at a certain level. Can we insert some risk margins that will protect members who rely on this scheme for their lifetime pension in the future?

[Baroness Bowles of Berkhamsted (LD)]

My Lords, like others, I speak in favour of all three amendments. In fact, I signed Amendments 6 and 7 but too late for it to show on the Marshalled List in respect of Amendment 7. I was one of the many noble Lords who mentioned intergenerational fairness, and fairness more generally, at Second Reading because, as has been explained, a significant number of members, particularly older members but not necessarily just them, transfer out after some good times for investments in the investment cycle. That leaves others bearing the brunt of later down cycles, hence the Ponzi analogy. I am actually not quite sure what “fairness among all members” actually means—it is difficult because of, for example, the different longevities between men and women—but I signed Amendment 6 because that was the closest thing to saying, “You’ve got to look widely at everything.”

I have come to the conclusion that the only way in which you can have fairness is to have some kind of buffer, which we will come to later on, or some kind of risk margin as proposed by the noble Baroness, Lady Altmann, or maybe both. In the interests of fairness, those who are transferring out should have to take their share of the risk; otherwise, if you are a good market-watcher you could perhaps spot your moment to make your move, and then that is perhaps unfair on the rest.

I, along with others, think that something must be enabled for these measures to be required. It is nice to know that something is already envisaged for the scheme, but there needs to be something for every scheme. There should at least be a requirement for that, and actually I think there should be a permission for things such as buffers and risk margins, rather than a prohibition.

[Baroness Janke (LD)]

My Lords, I too signed Amendment 2, which my noble friend Lord Sharkey so ably introduced. I will be brief because I think all the arguments have been very well covered. The only thing that I would add is that the importance of transparency in a scheme such as this seems fundamental. I know we are talking about communications and ensuring that members are fully aware of what they are signing up to, both the benefits and the disbenefits later on, but, as part of the arguments that have been put forward in favour of this group of amendments, there is the whole issue of explanation and ensuring that members are fully aware of their position under this type of scheme. I particularly support the idea that in order for a scheme to be registered, the explicit prerequisite is to show what the strategy is to address the whole issue of intergenerational fairness. I know we will be talking about capital buffers later on, but the amendments address the interests of transparency and fairness and the welfare of all members of the scheme, and I support them.

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I recognise noble Lords’ concerns—

[Baroness Bowles of Berkhamsted]

I would like to intervene at this point because a lot has been spoken about. When there is a calculation of the percentage of the value of the assets for an individual transferring out, which is done on various actuarial calculations, will those actuarial calculations be able to take into account long-term market risk so that there is an element of the fact that if you are withdrawing at a time of high markets, you may be getting more, as I said, than would have been your long-term due? If there is no such mechanism, have we learned nothing from mutual funds running on net-asset value, where there are runs and the people who are slowest to move and get their money out are the ones who are trapped with low value? We have invented things such as gating mechanisms to cope with that. There is potentially such a thing as a run on a pension fund, so how will we guard against that?

[Baroness Stedman-Scott]

The noble Baroness is renowned for her forensic abilities. I am advised that we will need to write to her on that particular question. In fact, we are meeting this week, and I hope we can get her an answer that is accurate and share it with other noble Lords, if that is acceptable.

I recognise and share noble Lords’ concerns. I assure your Lordships that the Government are not oblivious to the potential risk in CDC schemes. I hope my explanation has reassured your Lordships that our proposed legislative framework is designed to ensure that both employers and trustees are alive to these threats when designing their CDC schemes, and that the Pensions Regulator is able to undertake appropriate scrutiny both before and after granting authorisation. With that, I urge the noble Lord to withdraw his amendment.

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[Baroness Stedman-Scott]

Noble Lords must forgive me for turning to my friends. This is my first Bill. The answer to that question is no, it should not be.

[Baroness Bowles of Berkhamsted]

Now I am confused. In the previous group, when we were talking in anticipation about buffers and intergenerational fairness, the Minister said that there would be headroom funding. I understood that to be up front, getting the scheme up and running, but the Minister then said that that was going to be spent. I do not think she said what it was going to be spent on, or have I got the wrong end of the stick?

[Baroness Sherlock]

I think this is a language question. The problem that my noble friend Lady Drake raised at Second Reading and which we are trying to raise here is not about a capital buffer to deal with the intergenerational questions of benefits and payments at a time. It was the equivalent in master trust regulations where the sponsoring employer has to put money up front in a safe place so that if things go wrong and the scheme collapses the fallout can be funded without raiding members’ benefits. I think the noble Baroness, Lady Bowles, is describing something slightly different.

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[Baroness Bowles of Berkhamsted]

There is nothing that needs to be added; it has already been said. I just want it to be noted that I, too, support the principle behind the amendment.

[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.

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[Baroness Bowles of Berkhamsted]

My Lords, I should have added my name to this amendment; I apologise for not getting around to it. It is important, as has been explained.

Another question triggered in my mind is: what information relating to the lifetime allowance will be provided for the member? You get information from a defined benefit scheme; you know what you are expected to get—though, as we know from the NHS, you can get into difficulties if, suddenly, you are earning a little too much. If you pay into personal pensions, or whatever they are called nowadays, you get a number for the pounds that you are likely to have as a transfer value, but what will you get here, especially as you will perhaps be at risk? For example, you may think, “Well, I’d quite like to run a personal pension alongside this just in case.” How are you going to calculate whether you are at risk of breaching the lifetime allowance? If you did breach it and then got a tax charge, but then the scheme started to pay you less pension for whatever reason, would you get that tax charge back?

[Lord McKenzie of Luton]

My Lords, I agree entirely with what has been said about the need to communicate and the basis on which to do so. I simply raise that, in 2018, we had extensive discussions on the Financial Guidance and Claims Bill, as it then was. A key point was the lack of full understanding of financial matters of the general public. I have forgotten the statistics, but there was a House of Lords review of financial inclusion, and its conclusions were stark. This is not a reason not to communicate; it is a reason to communicate even more intensively. In how we communicate, we need an understanding of how people might receive these messages and we should not assume they can operate in an environment like this—as many, we know, cannot.

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[Baroness Stedman-Scott]

My Lords, we are committed to protecting members of workplace pension schemes from unfair charges. This is why we introduced a 0.75% cap on charges in the default funds of money purchase schemes used for automatic enrolment. This cap, which received cross-party support, has proved successful, with average charges in schemes used for automatic enrolment reducing by a significant margin. We want to ensure that members of collective money purchase schemes in Great Britain and Northern Ireland can be similarly protected, which is why we are tabling these amendments.

Our response to the consultation on delivering CDC schemes confirmed our intention to implement an annual CDC charge cap set at 0.75% of the value of the whole CDC fund, or an equivalent combination charge. The response also confirmed our intention that the scope of the CDC cap will be the same as the existing charge cap. Unlike the existing charge cap, which applies at member level, our intention is that the CDC charge cap will apply across the whole of the fund. This reflects the collective nature of these schemes and means that the CDC charge cap will apply to all members in the collective money purchase scheme, including pensioner members. Again, this reflects the collective nature of the schemes and the fact that the same fund will provide members with a variable pension income in retirement. We want to ensure that members of CDC schemes also benefit from other existing charge control measures, such as the member-borne commission ban and the early exit charge cap.

I will speak first to Amendment 15, which will amend the Pensions Act 2014 to ensure that the powers in that Act, under which we are able to provide for a charge cap and other charge control measures, can also be used in the case of collective money purchase schemes in Great Britain. We are amending paragraph 1 of Schedule 18 to that Act, which provides a power to prohibit by regulations certain charges in relevant schemes. This is to make clear that regulations under this power can also be made in relation to collective money purchase schemes. As with the existing default fund charge cap for DC schemes, it is appropriate to use regulations to define the details of the cap and how it will apply. We will of course engage with the regulator and stakeholders in developing these details and will then consult on the draft regulations. We aim to align the application of the CDC charge cap with that of the existing charge as far as possible.

It is entirely appropriate that members of collective money purchase schemes benefit from similar charge control protections that apply to members of individual money purchase schemes. This amendment makes clear that regulations made under the powers in Schedule 18 to the Pensions Act 2014 can provide for controls on the charges borne by members in collective money purchase schemes. The amendment to paragraph 1 of Schedule 18 to the Pensions Act 2014 means that where a scheme which provides CDC benefits has more than one section, each section offering CDC benefits will be treated as a separate scheme for the purposes of the charge cap provisions. This is consistent with other provisions about how sections of schemes offering CDC benefits are to be treated and ensures that sections offering CDC benefits do not cross-subsidise other sections of the scheme.

The amendment to Section 54 of the Pensions Act 2014 means that the first regulations under paragraphs 1 or 3 of Schedule 18 made in relation to CDC schemes will be made by the affirmative resolution procedure. Section 54 already provides for the first regulations under these paragraphs to be made by the affirmative procedure, but regulations have already been made under these paragraphs. We wish to ensure that the first regulations made in relation to charge caps for CDC schemes have the same level of parliamentary scrutiny as those regulations did. Turning briefly to Amendment 16, this makes corresponding changes to Northern Ireland legislation to provide for a charge cap for CDC schemes in Northern Ireland. This will ensure parity of member protection for members of CDC schemes across the UK. I beg to move.

[Baroness Bowles of Berkhamsted]

My Lords, I have no objection to making things the same everywhere, but last time I came across this 0.75% cap I did not ask a question, so I will now. What exactly does it cover? Compared to some SIPP investor platforms and so forth, it seems rather high. Does it cover all the trading charges as well? You can get 0.15% from Vanguard, 0.25% from AJ Bell and up to 0.45% with all your trading charges covered from Hargreaves Lansdown. I could go on. If you go to some of the insurance companies —I will go on—they tend to be greedier, up to 0.3%, but that is far short of 0.75%, so what is this paying for?

[Baroness Altmann]

I shall raise similar points. Will ask my noble friend say how the 0.75% charge cap was arrived at, given that the purpose of the CDC scheme, as I understood it, is to provide members better value than if they had their own defined contribution fund and to benefit from the economies of scale of collective management and administration, which clearly should be much lower per member than an individual defined contribution scheme?

Another point my noble friend mentioned is that that there should be no exit penalty. If that were the case, the issue we were discussing earlier about potentially reducing or applying a risk margin to transfer values would become impossible. Intergenerational fairness, which we were concerned about in our earlier discussions in Committee, may be undermined if there is an express prohibition on what may be called an exit penalty, but which to others is a risk margin or buffer against future market dislocations or changed assumptions.

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Moved by

[Baroness Bowles of Berkhamsted]

17: Clause 107, page 90, line 24, after “person” insert “wilfully, recklessly or unscrupulously”

[Baroness Bowles of Berkhamsted]

My Lords, this important group of amendments deals with the definitions of new criminal offences and new regulatory fines, and with the defences to the criminal offences. I will also speak to my Amendments 18 and 22 as well as to Amendments 23 to 26 in the name of the noble Lord, Lord Hutton.

Amendments 17 and 22 are probing amendments. They would require that, for the criminal offences of avoidance of employer debt and risking accrued scheme benefits, the person has to have behaved wilfully, recklessly or unscrupulously. I want to say a few words about each of those terms, which is where the probing comes in.

I do not think that “wilfully” changes much in the sense of the clauses because later, in subsection (2)(b) of the respective new sections, it is stated that the person intended the actual course of conduct to have such an effect. It could be argued that the wording of the subsections further highlights the necessity for a greater understanding of the consequences but, in my view, the insertion of “wilfully” would make those subsections redundant. My Amendment 18 and Amendment 24, tabled by the noble Lord, Lord Hutton—to which I have put my name—would delete those subsections.

It gets a little more complicated when it comes to considering “recklessly” but it is important to consider that term because, as several noble Lords pointed out at Second Reading, the Government consulted on “wilfully” and “recklessly”. As I see it, “recklessly” does not require the same degree of intent as to outcome, so it broadens the scope. It implies a lack of due diligence or a high degree of negligence. One could perhaps express it almost as wilfully negligent—that is, not bothering to have proper checks in place and caring even less.

These are egregious matters we are considering, when pensions are put at risk either deliberately, without caring or for ulterior motives. To my mind, it would be unthinkable to allow unscrupulous individuals to get off the hook of criminal charges with the defence of “I didn’t know” because they had not made, and had no intention of making, the right kind of checks. “Recklessly” is not the same as “accidentally” or “incidentally”; “recklessly” is “I don’t care” and it should be covered. It should not require that the precise end effect was intended, which is why both subsections (2)(b) in the offences, which say that the person intended the actual course of conduct to have such an effect, need to be deleted because they would negate recklessness as an offence.

Of course, having appropriate checks and procedures in place would be an obvious defence, just as they are in the various “failure to prevent” types of offences that have come into being, such as for bribery and money laundering.

Now I come to probing the third term: “unscrupulously”. This may not be a normal legal term, but everyone knows what it means. It is used in describing the objectives of those whom it is wished to catch. It is used about the new offences—starting at the bottom of page 7 of the Explanatory Notes, which state:

“They will provide additional deterrents for unscrupulous behaviours and will enable the Regulator to punish abuse and wrongdoing within the occupational pensions industry appropriately.”


That is exactly what we want to be able to do: punish unscrupulous behaviours.

Compared with some of our Commonwealth colleagues, we in this country are rather a soft touch. Australia has an offence of unconscionable conduct in commerce. It works under common law and shows that expressions describing bad behaviour do not need to be shunned in legislation. Yes, it is a catch-all phrase, but we should be starting to give it serious thought when it accurately describes the underlying behaviour.

As a little thought experiment, what happens if we apply the three words “wilfully”, “recklessly” and “unscrupulously” to driving fast in a 30mph zone? What would we get? “Wilfully” means that there was an intention to drive faster. “Recklessly” might mean not bothering to look or have regard to surroundings or missing the sign. What might be “unscrupulous”? I have had some fun thinking about this. Here are a few possibilities: blanking out your number plate with a fancy gizmo or having false number plates; getting a friend to remove the 30mph sign; or perhaps making someone else the fall guy, saying that you were not the one driving. These may be wilful acts but while it is questionable whether they are specifically wilful at the time of the actual offence or what the precise intended effect was, they are certainly unscrupulous.

I turn briefly to the amendments in the name of the noble Lord, Lord Hutton. I apologise for going ahead of the mover but there are words in common. In his amendments, “wilfully” and “recklessly” are used in a slightly different place but what I have said about their meaning also applies. There is also the consequence of needing to delete the subsection reciting intent.

Amendments 23 and 25 are applied to deal with the criminal offence and civil fine relating to putting accrued scheme benefits at risk. The wording

“detrimentally affects in a material way”

appears and has caused some concerns, which were referenced at Second Reading. I think that the positioning of the wording works well and support the addition of those words to the fine offence. Obviously, it is possible to merge the noble Lord’s proposal and my own with regard to the criminal offence of risking the accrued scheme benefits.

More broadly, it seems that “wilfully” or “recklessly” could be usefully incorporated into the financial penalty on avoidance of employer debt, so that it was in all four of the new offences, including the two criminal ones and the new fines. Then there would be no playing off about different meanings. But I will listen carefully to the Committee, particularly to see whether the noble Lord, Lord Hutton, has a different nuance to mine.

The other amendments in this group, tabled by the noble Baronesses, Lady Noakes, Lady Neville-Rolfe and Lady Sherlock, relate to defences and call for guidance. I sympathise with the general intent but have some reservations; however, I will speak to them later when we have heard from the movers, as their wording is not interconnected like my amendments and those of the noble Lord, Lord Hutton. I beg to move.

[Baroness Neville-Rolfe]

My Lords, I refer to my entry in the register of interests and shall speak to Amendments 19 to 21, which are grouped with those of the noble Baroness, Lady Bowles. My amendments are also in the name of my noble friend Lady Noakes, who sadly cannot be in her place today. We are concerned that the powers in Clause 107 may be drawn too widely. This is a concern shared by a number of those involved in the pensions sector—indeed, it was touched on by the noble Baroness, Lady Drake, a great expert in pensions matters, at Second Reading.

In the same debate my noble friend the Minister helpfully said that the intention of the clause was,

“to punish those who wilfully or recklessly harm their pension scheme”.—[Official Report, 28/1/20; col. 1353.]

In the light of that, it seems that the criminal offence is really aimed at parties whose conduct is extreme and lies outside the range of ordinary reasonable conduct. If so, we believe that the thought could be captured better by applying the offence only where,

“no reasonable person having regard to all of their duties and all relevant circumstances”,

would have acted as they did. The change from “reasonable excuse” to “no reasonable person”, as in Amendment 19, may not sound like much of a change; however, I assure noble Lords that it is important. I am advised that a substantial body of case law makes it clear that the two are very different. The former potentially creates a fine objective judgment, while the latter recognises that there is a range of conduct that can be seen as reasonable. Our Amendment 20 proposes for consideration today a list of factors that could be taken into account by the courts.

Finally, Amendment 21 proposes an exemption, drawing on an idea in the Pensions Act 2004. It would provide a system of binding comfort that could be given by the regulator or the Pension Protection Fund. Given the gravity of the criminal offences those involved in the pension world will potentially face as a result of the Bill, there seems to be a strong case for examining this. We want good, honest people to be involved in the sector and not deterred from any involvement. These amendments deal with new Section 58A of the Pensions Act 2004, but obviously if the argument were accepted by the Government, a similar change would be needed to new Section 58B.

In responding to these amendments, would the Minister —I think it will be the deputy Leader—give more detail and further examples of the harms we are trying to remedy in this part of the Bill? Much mention was made at Second Reading of BHS and Carillion, but these companies had unique factors that went way beyond pensions. The impact assessment assumes up to five cases every year. Is there other evidence in recent years that justifies criminal penalties and these estimates?

In closing, I shall make a wider point. We need to get this legislation right, and we have been trying to do that today, because the costs of getting it wrong, and the inevitable legal costs, will fall on pension schemes and therefore leave less for the very pensioners we are trying to help with the Bill. The new criminal offences appear to cover not only the employer but trustees, advisers, third parties and possibly the regulator. They could embrace routine debt funding necessary for a viable business, or changes to investment strategy designed by trustees to improve their fund. The perverse effect of getting the arrangements wrong—this is a theme I always return to—could be cost and delay, which might be problematic in a tight financial situation and push more businesses into the Pension Protection Fund, which is exactly what we all want to avoid. It could also deter trustees from taking on the responsibility for pension funds. My noble friend Lord Eccles, who I am sorry to see is not in his place, made this point in relation to the wider regulation-making power in Clause 51, although I very much understand the difficulties that my noble friend faces in this area.

[Lord Hutton of Furness]

My Lords, I shall speak to my Amendments 23, 24, 25 and 26. It was clear at Second Reading and has been again today that most Members of your Lordships’ House accept the need for this new criminal offence: I certainly do. Recent events have confirmed that there is a gap in the law and we should try to fill it—that is our responsibility. However, when it comes to the creation of new criminal offences, there are always some important questions to be clear about, from the beginning. Who are we aiming this new criminal offence at? Have we got that right, and are we clear, in the way the offence has been drafted, that we are catching or bringing within the net of this new offence those people and those people alone?

We need to be clear who can prosecute. It is interesting to look at the origins of this offence, and the way it came about in the consultations. It is clear in the Green Paper and the White Paper that the Government, rightly, had in mind that the Pensions Regulator would be the prosecuting authority. That is not the case in the Bill, where we have the rather unsatisfactory state of affairs that not just the Pensions Regulator but the Secretary of State and the Director of Public Prosecutions can prosecute. As I said at Second Reading, that does not clearly set out where the prosecuting authority lies, which is why I support Amendment 35, tabled by my noble friend Lady Sherlock.

There is a parallel here with other offences. This is a new offence, complicated in nature and unclear in its precise scope. When Parliament is creating new offences such as this, it has a responsibility to the general population—and, in this case, to those concerned with the governance of pension schemes—to help them understand what is covered by this new legislation and what actions people need to take to make sure they stay on the right side of the law. Amendment 35 would help us clarify some of those issues.

There is a general problem with the way this clause has been drafted, which has been a familiar theme of the comments of the noble Baronesses, Lady Neville-Rolfe and Lady Bowles. I support much of what they said. I am concerned that this offence, in its current form, is drafted too widely. When it was envisaged, and the Government did their consultation, it was going to be an offence to catch the behaviour of unscrupulous employers or directors of companies. That is the origin of this offence. We do not need to go into the detail of the case, but we all know what we are talking about.

It is clear, from a cursory reading of this clause, that this offence would cover more than just employers and company directors. It could cover scheme trustees, actuaries or advisers, or pretty much anyone in a position to give advice on the management of a pension scheme. I genuinely doubt that was the intention of the Government when they consulted on this clause. They have made this provision too broad in scope. They should have another look at the way that this clause has been drafted.

They should definitely have another look at who the prosecuting authority should be. Generally, in our system, it is very unusual for the Secretary of State to be able to bring a criminal prosecution against another person. There may be one or two examples I am not aware of, but I am sure the Minister is well advised about how many situations there are in which the Secretary of State has such a power. Generally, it is best to leave criminal prosecutions in the hands of criminal prosecutors. With the best will in the world, and the high regard I have for the Secretary of State, she is not a criminal prosecutor. I would not want her to be in the position of being advised to bring a prosecution. I would like the Minister to set out how that process would work within the department. It would be unusual. As a Secretary of State, I was never advised to bring a criminal prosecution. Particularly if the DPP and the Pensions Regulator both decided not to bring a charge, it would be extraordinary for the Secretary of State to be able to carry on with a criminal prosecution none the less.

The third question about criminal offences is pertinent to this offence. What is the penalty for the wrongdoing that we have in mind? To go back again to the Green and White Papers, the origin of this offence was the behaviour of unscrupulous employers, who deliberately put at risk scheme members being able to acquire their scheme benefits. By its very nature, that is a serious offence and the draft statute we are discussing has a sentence of up to seven years’ imprisonment for such an offence. Bring that on. That is an appropriate statutory offence.

What I do not understand about this offence, in what would be new Section 58B(9)(b) of the statute, is that it could be tried either way. It could be tried on indictment, where the statutory sentence of imprisonment would kick in, or it could be tried on a summary conviction. But by its very nature a summary trial implies that an offence is not as serious as a charge that can be brought before a jury in a Crown Court. For the life of me, I cannot understand why this offence has mutated into a serious and a less serious offence at the same time. That is incomprehensible to me. This is a serious offence that should be tried on indictment by an appropriate criminal prosecutor.

I am afraid that in my humble view this clause needs a complete rethink. It is too wide of the mark and obtuse in what it is covering, and the sentencing arrangements are indecipherable; they are an inherent set of contradictions. This should be an offence triable on indictment only, period, because we are talking about serious offences.

The noble Baronesses, Lady Neville-Rolfe and Lady Bowles, both referred to the wording used to describe this offence. I have simply tried to bring into the Bill the wording that the Government themselves consulted on when the offence was being talked about and conceived. It was about wilful or reckless behaviour; in fact, I think the Government used the phrase “grossly reckless behaviour” in their consultation. In the way that this offence has been drafted, I absolutely accept that the Government are trying to ensure that the offence is based on wilful or reckless behaviour, but there is almost an obligation on the Government when they have consulted on a particular offence to stick as closely as possible to how that consultation was done, developed and extended, and to bring forward legislation that as closely as possible represents that offence in any new legislation. I think there is a way that the Government could do that. My amendment is one simple way of doing it, although there may be a better way. I think it is incumbent on the Government to try as far as possible to stick to what they consulted on, but there is a very real danger that this clause will not do that. I hope the Minister will be able to offer me and other Members of the Committee some reassurance that the Government might be willing to have another think about the nature of this new offence.

[Baroness Bowles of Berkhamsted]

My Lords, I am sorry to rise again but I did warn the Committee. I agree that it is necessary to look again at the precise wording. I do not think that “recklessly” is covered, and it should be. It may well be a solution to remove trustees from the scope.

I want to address the concerns I have about defining “reasonable excuses”. Sometimes you can end up forcing unintended interpretations that can work both ways, either giving loopholes to bad behaviour or unintentionally limiting the scope of excuses. That means, if you like, it can work for the prosecution or the defence, but it means you do not get what you thought you had got. If anything is specified or picked out as an example, it needs to be clear that it may not be binding in all circumstances and that the examples are not an exhaustive list, so that if something else is brought forward as a defence it is legitimate for it to be considered.

There are certainly regulators that have fallen into the trap of too many guidelines. The FRC was criticised in the Kingman report for the detrimental effect on reporting and audit of too many guidelines, resulting in boilerplate recitations rather than thoughtfulness. In this subject, we are also interested in thoughtfulness and people thinking about what they are doing. We debated the FCA report into GRG in the Chamber on 27 June last year, and the FRC gave a line-by-line report of how its published interpretation of “fit and proper” had greatly narrowed what in my personal experience was always held out to be a wide-in-scope basic test. It was even described to me by some people as our version of “unconscionable conduct” in that bad conduct would not be fit and proper and that was the way in which we went about getting bad behaviour. However, in the GRG case and the report from the FRC we found that not to be the truth because of the guidelines and training that were put around those words. So what we do here needs to be done with care.

Concerning Amendments 19 and 20, it should not be a reasonable excuse to do something just because someone else has or might have done it. That is an excuse for a race to the bottom and to disengage from responsibility. It is reasonable to have regard to market practice but the competitive urge to do what others do or to push it a bit further has to be resisted—such behaviour was among the causes of the financial crisis.

I fully accept that there are difficult matters to balance for business; these are in part explored in later amendments relating to dividends. Perhaps the law has not been clear enough so far about what are the right priorities; in the past, pensions have been put at the bottom of the pile, with deficits paid down slowly and surpluses raided and holidays taken rather more eagerly, with a lax attitude when the company is generally well capitalised. That has been the wrong message. I believe it is now the right time to clarify that obligations rank ahead of options in the balance of legitimate interests and call on capital.

[Baroness Sherlock]

My Lords, I will speak to Amendment 35 in my name and respond to the debate on the other amendments. In doing so, I remind the Committee of an historic remunerated interest as the former senior independent director of the Financial Ombudsman Service.

At the outset, I say that we on these Benches place a high priority on ensuring that the regulator has the powers and sanctions that it needs to tackle bad behaviour in the operation of pension schemes. I agree with the noble Baroness, Lady Bowles: conduct that puts at risk the assets that people have worked for all their lives is serious behaviour indeed. It can have a dramatic effect on the lives of millions of people and push them, in the end, into a retirement based in penury rather than the security that they could have reasonably expected. Of course, allied to that is a public policy interest: it may discourage people from saving if they do not feel that the vehicles are secure and that their money will be safe. So we welcome the introduction of the new offences and the focus on preventing bad behaviour and stepping in before the consequences get too serious or, even, the situation becomes irrecoverable.

In the Committee, at Second Reading and outside, I have heard some concerns about the Bill’s drafting, especially around what reasonable behaviour is and what conduct causes material detriment. The noble Baroness, Lady Bowles, expressed that point well. I accept that there is a balance at stake here and that the drafting must strike a balance. It is right to expect those charged with managing or overseeing pension funds to do so with appropriate skill and knowledge, and with care and integrity. However, I am also conscious that the Government would not want inadvertently to discourage good, capable people from, for example, serving as pension scheme trustees if they feared the unforeseen consequences of making reasonable judgments in good faith; nor would they want to foster unhelpful levels or types of risk aversion.

There is a need to have more clarity, for Parliament and the sector, as to how these provisions will operate in practice. Reading the impact assessment, it seems clear that the Government expect the criminal offences in particular to catch hardly anybody. It is based on one person a year being convicted, so the clear expectation in the minds of those drafting this is to have a nod that a safety net will go out—unless I have misunderstood, in which case please correct me.

Amendments 17 and 22 propose the formulation “wilfully, recklessly or unscrupulously”. I do not need to revisit this but I would be interested to know whether the Minister agrees with the noble Baroness, Lady Bowles, in her probing approach on what that phrase means. Also, why did Ministers decide not to go with “wilfully” or “recklessly”? What did they think was changing between that and the formulation that they used in the Bill in the end?

The amendments tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, are interesting. I hear that the noble Baroness, Lady Neville-Rolfe, regards the current reasonable test as being too low. Many people would regard the test that no reasonable person would do something as very high indeed. I wonder whether the Minister has a sense of how easy it would be for anyone to be convicted on a test of that nature. That is the judgment.

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[Earl Howe]

It will be made clear—in practice, if anything—but the Secretary of State will reserve the power for the rarest of occasions, I imagine, in the circumstances that I outlined. The normal course would be for the traditional prosecuting authorities to act. Only where the Secretary of State sees an egregious example of someone likely to get away without prosecution for reasons beyond the control of the prosecuting authorities will he or she step in. I cannot generalise about the circumstances. That power is there, as in the other Acts that I mentioned, very much as a long-stop provision.

Amendment 35, in the name of the noble Baroness, Lady Sherlock, proposes a new clause requiring the Pensions Regulator to publish guidance on how it intends to use the new criminal offences. We think this amendment is unnecessary. The Pensions Regulator already has a general prosecution policy in place which sets out the matters it considers when using its prosecution powers. The Pensions Regulator intends to issue further specific guidance explaining its approach to prosecuting the new offences under Part 3 of the Bill.

I fear there is also a practical difficulty, because it is unclear how the amendment could be implemented. The amendment would require the Pensions Regulator to publish guidance pertaining to the new offences at the point of Royal Assent. The problem with that is that the provisions in Part 3, which include the new criminal offences, are subject to changes up to the point of Royal Assent and it would be unwise to pre-empt the will of Parliament by preparing guidance based on draft provisions. It is expected that, following Royal Assent, the regulator will consult on the contents of the guidance for the new offences and expects to publish this guidance prior to commencement. It is clearly important that the industry’s views are sought on what is contained in the guidance, and the timing requirement proposed in this amendment would mean the regulator would consult before the offences are finally settled.

A further reason the amendment is unnecessary—indeed, I would say inappropriate—is due to the inclusion of the phrase

“guidance … concerning the operation of law”.

This phrase has a very specific meaning, and implies that the intention behind the amendment is that it will be for the Pensions Regulator to determine how the legislation should be interpreted. This is of course a matter for the courts, which will make the decision as to whether an offence has been committed in a particular case. Therefore, while the regulator’s guidance will provide assistance as to how the regulator intends to use the new criminal offences, it will not be definitive; nor could it or should it be, since something deemed to be reasonable in one case, for example, may not be reasonable in another. I should mention, for completeness, that there are a number of technical issues with all these amendments which could cause confusion. I shall not go into them here, but I can explain the details to noble Lords if necessary, outside the Committee.

My noble friend Lady Neville-Rolfe asked what kind of estimate we make of the number of people who might go to prison under these criminal offences. Clearly, irresponsible treatment of pension schemes is rare; however, it is important that where we have wilful or reckless behaviour, appropriate sanctions are available. The Pensions Regulator has successfully brought 16 convictions over the past two and a half years—it is of course for the courts to decide who gets convicted and what the penalty should be. I hope it is widely accepted that the Pensions Regulator must meet a higher threshold before a criminal prosecution can be commenced. As the Pensions Regulator has already commented, it would use these new powers only in the right circumstances.

The noble Lord, Lord Hutton, asked a further question about the words “any person” and what other legislation uses that phrase. It is the norm for criminal offences across the statute book to be drafted as applying to “any person” and I can give him examples—I would be happy to write to him.

It is clear that the majority of employers want to do right by their scheme. However, we must ensure that there are sufficient safeguards to protect members’ pensions from the minority who are prepared to put them at risk. If the category of persons whose conduct is within the scope of the offences as set out in Clause 107 were to be narrowed in the way that some of the amendments propose, we believe that the deterrent provided by the offences would be weakened, as indeed would the safeguards built into them. In contrast, making the scope of the activities caught by the offences wider, as separately proposed by other amendments, not only risks removing a key consideration of the level of impact of the conduct but also reduces safeguards. The Government have therefore sought to strike a balance to ensure that members’ benefits are protected while taking into account impacts on business.

I apologise again for speaking at such length, but I hope that the comments I have made will allow noble Lords to feel comfortable in not pressing their amendments.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his comprehensive reply. I had intended to probe especially around the words “wilful” and “reckless”; I had a little add-on for fun. When I first thought of putting those words in after “person”, I rapidly came to the conclusion myself—I think the noble Baroness, Lady Stedman-Scott, was there—that in the end they did not make any difference. However, I am not actually sure that that is quite true with regard to the offence of the avoidance of employer debt. New subsection (2)(b) states

“the person intended the act or course of conduct to have such an effect”

but that has to be applied to the examples that might be targeted given by the Minister. In the case of sale of the employer and a parental guarantee not being replaced, that might be done through negligence rather than intent and then it would not be caught because the words “ought to have known” do not appear in the new Section 58A offence, although they do in the new Section 58B offence. So the Government have caught recklessness in new Section 58B but not in new Section 58A. Maybe the words “ought to have known” or something like them could be put there.

[Earl Howe]

It might be helpful to the noble Baroness if I clarify. New Section 58A is intended to capture the concept of wilfulness and new Section 58B the concept of recklessness.

[Baroness Bowles of Berkhamsted]

I see. I do not see why we could not have them caught in both. Anyway, we have debated this long enough. I thank the Minister for his replies, and I beg leave to withdraw the amendment.

Amendment 17 withdrawn.

Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

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

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I signed the amendment of the noble Lord, Lord Vaux, and agree entirely with the principle of both these amendments. I was particularly drawn to the notion of having a threshold and notification, as provided by the amendment of the noble Lord, Lord Vaux. He circulated it for comment and therefore I signed it after some negotiations with him.

Put simply, if the deficit is large and the effort to close it is too small—smaller than the dividend—the payment of the dividend becomes a notifiable event. The sequel to that would surely be what the noble Lord, Lord Flight, has just pointed out: that it be looked at and perhaps in certain cases, though not all if there are other things that could be taken into account, the dividend payment be stopped. The point is that it is brought to the regulator’s notice, rather than the regulator potentially having to look at an awful lot of dividends and payments being made. Indeed, how will the regulator even find out about them? The amendment of the noble Lord, Lord Vaux, solves that little loop of how the regulator gets to know about them and has a reasonable number to look at rather than being overwhelmed.

In our negotiations, we tried to find a formula to keep the momentum going to close the gap, even within the five years, as a lot can go wrong in that period. I got as far as something like “the ratio of the dividend to deficit not being greater than the reciprocal of the remaining years and not conveniently commutative”. I concluded that, if I carried on in that way, I would have to put in a job application to Dominic Cummings.

More seriously—I refer here to the helpful meeting I had with the Minister and officials yesterday—I want to see some specific push in the Bill for the regulator to be tougher, including in setting the contribution schedule for paying down the deficits. As has already been explained by other noble Lords, TPR has come forward with a set of principles, but maybe it needs something to back them up and get them over the line in enforcing them.

In the meeting yesterday, it was pointed out that more powers are being given to the regulator in the Bill and that regulations will be forthcoming. That is well and good, but something has to make sure that the regulator is urged to use those powers and to be strong, especially in standing up to larger and more forceful companies and individuals. We know that the record there is not necessarily all that good. The policy impetus needs to come from government and Parliament; otherwise, there may be more power but no enforced policy shift.

We also know that boards will take advice on these kinds of matters and be told what the market norms are, or at least what other companies have done. If the dial is to be shifted, the advice has to be shifted. The way to ensure that advice is shifted is for there to be an indication of the policy in the Bill, because an adviser cannot go against that in their duty to advise the companies.

It was very good to hear that the new offences that we discussed on Monday—which seems a long time ago now—are wide enough to embrace advisers, but you have to get at what their duty is to those they are advising. There are lots of reasons to have something in the Bill to make sure that the principles already outlined by TPR have that backing to be enforced and have that effect. As I said on Monday, it should not be normal to accept overly long continuation of deficits just because a company is well capitalised.

There can be many claims on and reasons for that extra capitalisation—there may be lots of tentative reasons why they need it. There might be plans to spend it to buy another company. All kinds of things could be going on, and what looks like a good capital margin could actually be shoring up many other things as well as the pension deficit. What is the excuse to the Pensions Regulator? What excuse might be given to other sources? Some of the clever analysts may work out what is going on; the ordinary investor and the ordinary pensioner is unlikely to do so. Therefore, I support the principle of both the amendments: something should go in the Bill to push or shore up the Pensions Regulator in its actions.

[Baroness Altmann (Con)]

My Lords, I rise briefly—I have added my name to one of the amendments—to support the concept that has been so well explained already by noble Lords and to echo the warnings that this is a very important time in our defined benefit pension system, as we still have employers attached to schemes and, in some cases, members contributing. Some schemes are still not completely closed. Once a scheme has closed to new members, it will not be too long before it closes to new accruals and it will effectively be in run-off. While there are still employers with an interest in the scheme and before we get to the period, which will come in the next 10 years or so, when there is no economic interest between the employer and the scheme and it is seen merely as a major liability—with more and more companies looking for ways to get around the deficits—now is the time to be collecting as much money as possible.

Obviously, one does not want to damage the ongoing viability of the employer, but there needs to be more recognition of the fact that the pension scheme is a debtor of the company—not all companies see it in that way—and the choice between dividend payment and deficit funding should not be just between the interest of shareholders and the interest of pension scheme members. The pension deficit has people’s lives attached, so there is a higher importance here.

When one looks at the provisions of the Companies Act 2006, in particular with reference to Amendment 84, Section 830 says that a company should not be permitted to pay out a dividend if it has not made sufficient profit to cover its costs or if there are losses in the company. What is not explicit, but is made explicit in the amendment, which was originally part of my noble friend Lord Balfe’s Private Member’s Bill, is that the accounting measure of the pension deficit does not reflect the actuarial reality as estimated by a scheme actuary, or perhaps by trustees, of the true scale of the obligation—in other words, potential losses—that the company faces. Therefore, redefining the accounting measure and taking account of the actuarial measure would put the payment of dividend on a different plane. That is to be reflected in Section 830A, which would be added after Section 830, in terms of justification for payment of a dividend that might otherwise look viable.

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[Baroness Stedman-Scott]

Of course.

[Baroness Bowles of Berkhamsted]

The point made by the noble Baroness, Lady Drake, is similar to the point that I was going to make. Some of the answers the Minister gave, in particular to my questions, were good and comprehensive, but they rely on having an appropriate plan in place. The point is that there are times when the appropriate plan is no longer appropriate, and at that point it all falls apart. I think what the Minister has said is that in regulations there will be things that will allay some of our fears, but it would be nice to have something about that in the Bill, because otherwise we are taking it on trust. It is not that we inherently mistrust the Minister or her officials. Of course there have been previous framework provisions that have been remarkably empty of policy, but that does not make it correct. The Government and this Parliament make policy. Regulators do not make policy; they shy away from it. There is no greater making of policy than putting it in the Bill.

[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.

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[Baroness Bowles of Berkhamsted]

I am sorry to interrupt but this is specifically on the government amendments. Like others, I welcome what is there and I hear the Minister referring to the matter as urgent and important. I just come up against a block when I see that it says “Regulations may impose”. Why can we not have “must” if there is an intention that these things are to be done? From the particular point of view of justice, in new Sections 41C and 41D, the reference to what would be your right of appeal to a tribunal still comes under “may”. I know that it is a standard formulation but it really does not appear to be right, because nothing is actually promised when it says “may”. Why can we not have “must”, and certainly have “must” when it comes to defences and reference to tribunals?

[Baroness Stedman-Scott]

In answer to the noble Baroness, subject to the passage of the Bill we will consult extensively this summer on the content of new regulations, which will likely include the content of these new requirements and the timing thereof. When we lay regulations and when they come into force will depend upon the outcome of the consultation, but we will respond to that within a year of its launch.

[Baroness Bowles of Berkhamsted]

That still does not mean that something will definitely happen then. I understand that the regulations’ shape depends upon the consultation but they should be regulations that do something, with a promise that we are going to have them—that there will be some, not that there “may”.

[Baroness Stedman-Scott]

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

--- Later in debate ---

[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.

[Baroness Sherlock]

My Lords, these amendments offer a good opportunity to explore whether the penalties in the Bill are of the right kind and scale. I hope the Minister will take this opportunity to set out the thinking behind the decisions that the Government have reached. I read the DWP policy brief for the Bill; it says that, in developing the new sanctions, the main priority had been getting the right balance between increased deterrents and protection for members, minimising any negative impacts on industry, and ensuring that the new sanctions are in line with the wider statute book. So one of the questions is: has it done that?

The first question, raised by the noble Lord, Lord Sharkey, is: are the penalties set at the right place and why are they set at that place? What is the argument —why £50,000 and not £100,000? Why £l million and not £10 million or £50 million? Was this done to mirror provisions elsewhere? If so, which ones? If not, what work—what modelling—was done to lead Ministers to believe that they have landed in the right place?

Interestingly, the policy brief then says that the DWP considered the level when establishing the new penalty of up to £1 million. It says that the level had to be proportionate for local individuals and businesses of different wealth levels and appropriate for a wide range of behaviours, provide a stronger deterrent than the current regime and work alongside the new criminal offences for non-compliance, under which an unlimited fine can be issued. I need the Minister to help me here because this is not my area of expertise: if the maximum fine is £1 million, why does the maximum fine have to take account of a wide range of behaviours and wealth of individuals or businesses? Presumably, the maximum fine applies only to the people at the top of the scale, either those who have the most money or have done the worst thing. How does that balance work in setting a maximum fine? There may be a really good reason—maybe you have to be proportionate; I do not know—but could she explain it to me?

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

33: After Clause 115, insert the following new Clause—
“Report for the purposes of the Company Directors Disqualification Act 1986
(1) The Pensions Regulator must make a report to the Secretary of State under this section if the circumstances in subsection (2) apply.(2) The circumstances in this subsection are where—(a) a person has been convicted of an offence under this Act or another offence related to a pension scheme,(b) it appears to the Pensions Regulator that a person has committed an offence under this Act or another offence related to a pension scheme, or(c) a person is fined under section 88A of the Pensions Act 2004.(3) In the report under subsection (1) the Pensions Regulator must—(a) identify the person,(b) identify, where the person is a corporate body, any person who was a director of it at the time any offence was committed or appears to have been committed,(c) report on any facts which appear to the Pensions Regulator to be relevant to the Secretary of State for the purpose of making a decision under section 8(1) of the Company Directors Disqualification Act 1986, and(d) state whether the Pensions Regulator considers that, having regard to the need for public confidence in the system of pensions regulation, it would be expedient in the public interest for any person so identified to be the subject of a disqualification order.(4) But the Pensions Regulator is not to be required to make a report to the Secretary of State in respect of a person if—(a) that person is a director who is the subject of a disqualification order under section 2 of the Company Directors Disqualification Act 1986 in respect of a criminal offence, or(b) in the case of a fine under section 88A of the Pensions Act 2004, it appears to the Pensions Regulator that no public interest would be served in making a disqualification order against that person.”

[Baroness Bowles of Berkhamsted]

My Lords, this amendment aims to utilise an existing provision in the Company Directors Disqualification Act 1986. Section 8(1) of that Act was broadened in 2015 so that the Secretary of State for BEIS may, in the public interest, apply to the court for a disqualification order. It used to be the case that Section 8(1) was activated by a report after certain specific investigations, one of which was an investigation by the FCA. The change in 2015 recognised that the reports did not need to be so restrictive. What I propose follows the theme of the original procedure and suggests that when there has been a serious offence committed regarding pensions, the Pensions Regulator should make a report to the Secretary of State for BEIS for the purposes of the Company Directors Disqualification Act.

The Pensions Regulator would be required to identify the person, or, if a body corporate, the directors at the time when the offence was committed, and,

“state whether the Pensions Regulator considers that, having regard to the need for public confidence in the system of pensions regulation, it would be expedient in the public interest for … a disqualification order.”

It would then be up to the Secretary of State to decide whether to refer it to the court for disqualification. The fact that I have had to explain what this is all about to others outside the Committee, and that it is already envisaged or in law, indicates that it needs a nudge to make it active and that the regulator needs to be empowered and encouraged to make reports.

My proposed new clause is constructed so that all offences can trigger such a report from the Pensions Regulator, whether criminal offences or fines. But under its subsection (4), the Pensions Regulator has discretion not to make a report if a disqualification is already proceeding, which is possible in the event of a criminal offence being decided against an individual, or if the offence is a fine rather than a criminal offence. These new provisions would be particularly relevant when a company has been found guilty. It would mean that the actions of the directors would be investigated. Again, I note that the ABI has indicated support for this amendment.

The inspiration for the amendment comes from the fact that there are certain financial instances or breaches of competition law where the directors are always investigated. Pensions is a significant social issue on which hearing from the relevant regulator should also be a matter of course. There is no automatic disqualification or even an automatic reference to the court—that is up to the Secretary of State—but at least for a criminal matter there would always be a report concerning the circumstances and an added incentive for board scrutiny of matters relating to pensions. I beg to move.

[Baroness Sherlock]

My Lords, I can add little to that careful explanation of the amendment; I know a lot more than I did five minutes ago. However, as the Minister responds, perhaps she could tell us a little more about what happens both now and when the Bill becomes law: that is, what the TPR does when someone has committed an offence, what is its understanding of to whom this should be reported, in what circumstances, and how its enforcement team works with the supervision team and with the FCA’s enforcement supervision arrangements. That is not directly the point which the noble Baroness, Lady Bowles, was making but I very much endorse her approach, which is to put the importance of pensions on a par with the importance of threats in other parts of the economy. That is interesting, and I am interested in the Government’s response to it.

[Baroness Stedman-Scott]

I thank the noble Baroness, Lady Bowles, for tabling this amendment, which would require the Pensions Regulator to provide a report to the Secretary of State for the purposes of the Company Directors Disqualification Act 1986. Director disqualification is within the remit of the Insolvency Service, which has the powers, resources and expertise to disqualify directors. As such, the Pensions Regulator does not have the power to disqualify directors, as this would be unnecessary, costly and inefficient. However, the Pensions Regulator is already able to share information with the Insolvency Service if it meets the “gateway” criteria as outlined in its restricted information regime under Section 82 of the Pensions Act 2004. The regulator can use this gateway in circumstances where the sharing of information is with a view to instigating director disqualification proceedings.

As such, the regulator is already able to share information with the Insolvency Service where it has identified persistent wrongdoing by a director or where it has already taken regulatory action. Under Section 8 of the Company Directors Disqualification Act 1986, the Insolvency Service is then able to apply to the court for a disqualification order on behalf of the Secretary of State, based on investigative material provided by other agencies or departments. Whether or not the Insolvency Service takes action to disqualify a director on the basis of information provided by others, such as the Pensions Regulator, will depend upon its assessment of the case in question. The Pensions Regulator and the Insolvency Service regularly engage with each other to discuss areas of joint interest. They continue to monitor the effectiveness of the disclosure process and are taking steps to streamline it when necessary. This will help to ensure that the organisations are able to work together to achieve successful outcomes and better protect the public.

In summary, the amendment is looking to introduce a process which is already in place. The Pensions Regulator and the Insolvency Service continue to work closely together to streamline this disclosure process and ensure that both organisations have a good working knowledge of each other’s remits. On that basis, I urge the noble Baroness to withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for that explanation. I think that there are two provisions within the Company Directors Disqualification Act: the ones with the Insolvency Service tend to be based around purely financial mechanisms. I will carefully read the response in Hansard to see whether it covers everything that I envisaged it should. I am a little suspicious that it does not; there would otherwise not be the provision of Section 8(1) and its very careful amendment in 2015. As the Committee might expect, I have had some communication with QCs who deal with these kinds of issues. If it is covered, I am happy; if not, I would like to see whether we can tighten it up. With that, I beg leave to withdraw my amendment.

Amendment 33 withdrawn.

Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Baroness Altmann]

I thank my noble friend. Of course, he is absolutely right but the point of the dashboard is that much younger people can plan their future pension income. The current procedure is to encourage people to log on to the state pension checker, where they can verify their future predicted state pension income so that, as they get into their 50s and closer to retirement, they will be able to make more meaningful financial planning. However, as my noble friend Lord Young pointed out, there are significant security concerns with the current gateway system that allows you to find out what your state pension is. Therefore, if we want the state pension to be on the dashboard, we will need a certain level of security.

The aims of the amendments are correct. We want to be able to see the state pension and a comprehensive list of pensions, but I caution against trying to go more broadly. I also caution against commercial dashboards which might use their own IT systems that lock people out of checking their pensions on other providers’ systems and which try to encourage people to merge their pensions. Indeed, we have seen that the systems of some pension providers do not always flag up the guarantees that can be very valuable for individuals. If people are being not advised but merely guided, or if it is merely information and they are not aware of the guarantees, they could lose out and have no comeback.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I was not intending to speak to these amendments, but it has been quite an interesting debate to listen to. In some ways, I have changed my mind during the course of the debate. I found the notion of having everything all in one place, as put forward by the noble Lords, Lord Young and Lord Flight, an interesting idea. Of course, it can already be done, but for historic reasons—because I have been self-employed for most of my life, as has my husband, and we have quite a lot of pension schemes around—I am well versed on various different platforms. Yes, I do a lot of mystery shopping, as I call it, on these things. I have loaded up information and practised telling lies as well—putting in overvaluations of my house or saying what other things I have—to see how a platform projects what my income will be, so it is difficult to get right. I wonder about the house valuations that people might be tempted to put in, because there is a tendency to be optimistic when it comes to that.

In this last week, I was looking at one platform, thinking, “Where is the sell-all button for absolutely everything?” I could not do it; I had to go through several times, so I very much take the point made by the noble Baroness, Lady Drake, that you will take the path of least resistance when there is something that you think is urgent. If I can fall for that kind of wanting something to be there, others will too, but when I went through everything and had to think, “Do I really want to sell that or don’t I?”, I made different decisions from those I might have made if I had had a sell-all, transfer-all button. Given that I like to think that I know a thing or two about these things, I would rather err on the side of caution, as the noble Baroness, Lady Drake, pointed out. I do not want to interfere with people’s freedoms, but it has to be good to have a certain number of hurdles to give people a pause to think.

I tend to agree that equity release will have to be a big part of the future, and I wonder whether some of the people already taking out lump sums are thinking that way as well. Perhaps that is safer left until we can more broadly investigate what is going on there and make a rather safer and better environment, though I acknowledge that that there have been improvements that I have not tested yet.

[Baroness Sherlock (Lab)]

My Lords, I will speak to the three amendments in my name in this group and respond to the others. Amendment 39 in my name, and that of my noble friend Lady Drake, would, as she indicated, prevent the powers granted under the relevant sections of this Bill from being used to extend dashboards into becoming transactional. My first question, therefore, is whether that is necessary: will transactions be permitted? The noble Earl, Lord Howe, said last Wednesday:

“We also intend all dashboards to start with a limited functionality until we better understand how individuals interact with their information. ”—[Official Report, 26/2/20; col. GC 183.]


Does that rule out transaction? I think not specifically. The excellent policy brief from the DWP says this:

“Dashboards will present simple information, without the ability to carry out transactions.”


That seems really clear: no transactions. A bit later on, however, it says:

“In future we expect that dashboards should be able to provide a greater level of functionality and information.”


So here is the rub: does functionality include transactions? Will the Minister tell the Committee plainly: is it the Government’s intention ever to allow transactions at any point on the dashboards? If not, then let us make that clear on the face of the Bill. If they do, then, as my noble friend Lady Drake said, they should have to come back to Parliament and seek further authorisation before going down that road. The reason is simple: we are being asked to authorise the establishment of a service that will be based on the compulsory release of data about the assets of some 22 million people, with no clarity about what is being created.

In the debate on the last group of amendments last week, my noble friend Lady Drake offered the Committee a short list of some of the matters not yet resolved. The Minister—the noble Earl, Lord Howe—said:

“It is not that the policy is not settled but that the implementation of the policy is not settled.”—[Official Report, 26/2/20; col. GC 190.]


Obviously, it depends where one thinks policy stops and implementation begins. If the policy is, “Have at least one dashboard with some pension information on it”, I acknowledge that the policy is settled. If it is much beyond that, we are into murkier water.

Let me add my shortlist of a few things we do not yet know. We do not know how many dashboards there will be. We do not know who will run them. We do not know what information will be provided on them or in what form. We do not know what uses of the information will be permitted. We do not know how the whole system will be governed and regulated. We do not know where liability will lie for each of the links in the chain. Without that, we do not know how complaints about failure and compensation for detriment arising at each point will be handled. We do not even know who will get to make rules for the dashboards, because the regulations provide for that to be literally anyone.

There are so many points in the information and action chain where something could go wrong: data loss or leakage; errors in data being supplied to the dashboard, by either the state, TPR-regulated schemes or FCA-regulated firms; compliance failures in displaying it inappropriately; transactions on or off screen, regulated or unregulated, where the consumer ends up with a poorer outcome than should have been the case.

Last week, the Minister defended the proposed delegated powers, saying to my friend Lady Drake that they were needed to provide momentum to the process of co-operation that would be required to develop the dashboard infrastructure. But the Constitution Committee addresses that specifically in its comments on Part 4 and the use of broad regulation-making powers. It said:

“There is a need for some of these powers in order to commence the work on pensions dashboards and facilitate the sharing of data to make them function. However, the rest of the powers could have been omitted until the policy had been prepared and sample regulations produced for consideration as part of a future bill. We have observed previously that ‘Skeleton bills inhibit parliamentary scrutiny and we find it difficult to envisage any circumstances in which their use is acceptable. The Government must provide an exceptional justification for them’”.


Can the Minister tell us what the exceptional justification is?

The case for not allowing regulations to be made under the Bill to allow transactions is overwhelming. Having thought about it over the weekend, I now think it is even stronger than when we tabled the amendments, because the debate in Committee last week surfaced more information about the Government’s plans for dashboards. We have learned that they are committed to MaPS providing a dashboard service, but we also learned that they are open to anyone who can meet the criteria running a qualifying dashboard and that they have no idea how many people that will be.

We learned that the Government think that having multiple dashboards running right from the launch would actively be a good idea because they think it would increase reach, and we learned that they are relaxed about commercial dashboards being there first and MaPS coming in, if necessary, some time later. If MaPS took a long time to get a dashboard up and running, which is not impossible, there could be years in which the only way the consumer could view the data on her own pension, the release of which the Government had mandated, would be on a commercial dashboard. I asked the Minister last week if the Government think that it is a good thing to have a public dashboard, and if so why. I ask him that again now. If he thinks it is a good thing, why are the Government relaxed about there potentially being a period of years when there is no public dashboard yet the mandated data has been released? I should be interested to hear the answer to that.

Also last week, the Minister said that accessing the information on dashboards will remain free. That is good news, but it means that, as my noble friend Lady Drake said, we need to understand the charging model of commercial dashboards. If they cannot charge you to look at it, why would they do it unless they can make money at it some other way? We need to understand what those other ways are. I do not know; I can only speculate. Are they hoping to find a way to monetise the access to data that the dashboard gives? Would that be allowed? Will they want to use the dashboard to show a consumer her various assets and encourage her to consider a more efficient way of organising them? For example, “Look, it is all spread over here. Would it not be tidier if you brought it all over in this fund over here, which—oh look?—my firm happens to run?” That way, the firm might stand to make money either from transactions or from the scheme itself. What about through advertising? Perhaps when a user logs on to her dashboard, up pops an advert that either encourages her to engage with a firm or asks, “Have you thought about equity release? Would not that be a better way of going about what you do?” Or even, as my noble friend said, there could be careful presentation of the data that seems to privilege some kinds of assets over others, depending on who is running the scheme. This is potentially a really powerful tool and we need to place some firm limits on its use until the market is much clearer.

Amendments 49 and 50, in my name, specify that regulations may require the provision of information on likely retirement income and administrative charges. I put these out as probing amendments to find out what information will be on the dashboard. What will consumers see? Without an estimate of their likely income on retirement, many consumers who do not have the skills and knowledge of the noble Baroness, Lady Bowles, may have no idea of what the size of a fund will mean in terms of an income on retirement, and without some guide they may struggle to understand that. Often, it should be possible to provide that, because for occupational DC schemes that are used for auto-enrolment, trustees must produce a chair’s statement with value-for-money assessments which include illustrations on the likely retirement income. Presumably, if schemes are doing this properly, that data can be uploaded to the dashboard.

There should also be transparency on charges, but the presentation of charges to members often does not distinguish between the many kinds of charges that can be levelled on a fund. This amendment would require the disaggregation of investment and administration charges, so individuals could readily see the administrative charges that they face on the scheme in which their savings are held. Schemes can differ a lot in their administrative efficiency, and consumers should be able to see at a glance which schemes are levying high administrative charges.

Can the Minister confirm that this information—indeed, the requirement to be on the dashboard at all—will not apply to any legacy private schemes or new private pensions not covered by auto-enrolment? That leaves out quite a chunk of the market where transparency would be particularly important because a lot of those old schemes are very inefficient, with very high charges. Do the regulations permit the Government at some point to force those schemes to come on board? If so, do the Government intend to use that power?

I understand that any dashboard developed by MaPS would have a liability model developed alongside it. I asked about the liability model and the Minister said that he would come back to it this week; I cannot remember if he is coming back to it now or later, but I look forward to hearing about it at some point today. That would be marvellous. I would also like him to answer this question: if it is to be developed alongside the MaPS dashboard, and that is delayed, will there none the less be a liability model in place before any dashboard goes live, so that we are not waiting for the public dashboard?

Amendment 57, from the noble Baroness, Lady Altmann, requires that the projected state pension on retirement be available on the dashboard. It is important that people can readily access information on the state pension, which for many of them will be a core part of their retirement income. The challenge is that it will change at different points in their life depending on choices made, working patterns, et cetera, but it seems quite hard for the DWP to mandate everyone else to provide their data, and not do it themselves. It will have to go into that space.

After the comments between the noble Baroness, Lady Altmann, and the noble Lord, Lord Young of Cookham, I am interested to hear the Minister’s response on questions of identity verification. I found his comments on the challenges of some of the services very interesting. I take her point that, if one is to get personal data, some verification process will be needed. His points about beneficiaries are important as well.

I am a little more nervous on the point about equity release. The FCA has just started to look into this market. The noble Lord, Lord Flight, said that it has cleaned itself up, and certainly some practices which were standard 10 years ago, such as negative equity, are no longer standard. However, there are still a lot of questions about this, and a number of people are concerned that we are seeing patterns of commission-driven decisions; these have raised concerns in other markets in the past. Certainly, if any noble Lord has the misfortune to find themselves self-isolating for coronavirus and watching daytime television, they may at some point see advertisements for equity release, because a lot of advertising on this is going out in different forms.

One of the main arguments for having all the bits of pension on the dashboard is that you know where they are. Most people, even if they do not have the expertise of the noble Baroness, Lady Bowles, know where their house is, are reasonably confident that it is there, have some idea of its value and could find out readily if not. I take the point about people wanting to look at the whole of their assets, but, given some of the nervousness around this market, before we dive too firmly into that area I would be interested in the Minister’s view on this—as I am in in his view on all the amendments.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

46: Clause 118, page 107, line 28, at end insert—
“( ) Any regulations made under section 238A or this section which make provision for privately owned or commercial providers of pensions dashboard services to enter service must include provision about—(a) designation of the responsible regulators for—(i) operators of the pensions dashboards,(ii) displayed dashboard information,(iii) conduct relating to the use of data,(iv) advertising, and(v) revenue generation from the pensions dashboard service for the provider, including revenue from advertising;(b) redress mechanisms and designation of the responsible body for claims arising from harm to users of a pensions dashboard service including for loss or improper use of data;(c) mechanisms to mitigate the risk of fraud;(d) rules about type of content, presentation of information, assumptions regarding predicted pension income, valuation, projections, risks and comparisons;(e) rules about advertising on the pensions dashboard service and any revenue generated from the pensions dashboard service for the provider of the pensions dashboard service or any third party;(f) display of charges or any commission received by the dashboard provider for any services, transfer of funds or purchases available through the pensions dashboard service, and(g) display of the projected cash effect on expected pension income or lump sum outcomes of any services, transfer of funds or purchases available through the pensions dashboard service.”

[Baroness Bowles of Berkhamsted]

My Lords, I am conscious that, in the two groups we have already discussed, we have touched quite thoroughly on the background that inspired my amendment. The Minister has explained several times that it is the intention that this legislation is flexible, that because of the ability to make regulations it can develop over time and that many of the things that noble Lords have already been pressing for are potentially in the mind of government. There was a similar discussion at an all-Peers meeting a couple of weeks ago, which several noble Lords—in particular, the noble Baroness, Lady Sherlock—were at and which inspired this probing omnibus amendment that puts together all the things we discussed in that meeting and a few more. I do not see that it in any way competes with the amendments about the content of regulations or the SCA being the dashboard regulator.

The purpose of this amendment is to discuss how to make certain that there will be joined-up, end-to-end coverage by the regulator and the regulations—or in supervision, as the noble Baroness, Lady Sherlock, expressed it. Again, I am sure that it is the intention for a lot of this to happen—there are certainly enough powers in the Bill to do it—but there is nothing yet in the Bill to make it certain. I acknowledge that things have been said but that is not the same as having something in the Bill.

It has been said that a lot of these things might develop as a result of consultations with industry groups. If industry groups decide that they do not want some of this, what happens? There needs to be a basic obligation that these things will be covered—in particular, as my amendment envisages, if we are getting to the point where we have commercial dashboards. If these things are not resolved by the time we get them—it looks as if we might be getting them anyway, not after a delay—I do not think that it is satisfactory to have nothing in the Bill.

To ensure end-to-end regulatory coverage for the process of loading information on to dashboards to the dashboard itself and for any consequential actions arising from the dashboard, my wish list, or probing list, covers: dashboard operation; information; data; advertising and revenue generation; redress mechanisms; fraud mitigation, which the Minister has already mentioned; content; presentation; assumptions; valuations; projections; risk; comparison; third-party revenue charges; and commissions and their effect on projections.

Noble Lords said on the previous group that it is difficult to have information about charges because they are done in different ways and are the be-all and end-all. That in particular is why I have said that the effect of the charges should be given because that is where you can assess them. If there are lots of different mechanisms and they can make things weaselly wordy or look wrong, they should not be able to disguise the cash effect of the charges that can be extracted. That is probably more important than saying what the charges are. I do not think that this is in conflict with anything else that has been said today.

However, what happens if there is a data breach? That might be a matter for the Information Commissioner. It might be automatic or a matter for redress by the financial ombudsman. These mechanisms are all out there. How will they join up? We want to know for certain that they will. Nothing in my amendment suggests how this must be done; it just says that it must be done.

While mentioning the FCA, we need to be clear that unless it is told categorically in legislation or regulations that something is regulated, it will not consider it as within the regulatory perimeter. As I have said previously, it regards that as a matter for government and Parliament to authorise. An example is that although the FCA covers conduct in banks—which, as we well know, are also heavily regulated by the Prudential Regulation Authority—banks can do quite a lot that, although they have that heavy regulation, falls outside the regulatory perimeter for conduct. Commercial lending is one example. People tend to trust regulated entities but then do not realise that things that do not have that supervisory and conduct backing can be done. It is necessary to dot the “i”s and cross the “t”s here.

For example, it might be that the phrase “Click here to transfer your pension” would be covered, but as the noble Baroness, Lady Altmann, hinted in her previous suggestions, would it be against the regulations to say, “Click here and buy a Maserati”? It was once suggested that that might happen with pensions freedoms. What about equity release for double glazing and conservatories, which feature heavily in the advertising about equity release? If we do not cover advertising and the FCA does not, who does? It must be covered. It cannot be left open. My amendment aims to draw attention to these matters through my list. I will obviously be interested to hear the reply.

However, when it comes to drafting regulations—again, this has relevance because the Minister has already mentioned it—there should not be too much left to the regulatory rules. They can create holes, especially after the regulator has consulted the people it is attempting to regulate. I touched on that in a debate last week, when I explained how regulators’ rules—FCA rules, to be precise—had watered down the generality of “fit and proper” as a test for behaviour. It is by no means the all-encompassing test that was originally intended; it was narrowed down by the rules of the regulator.

When it comes to pensions, I therefore want a belt-and -braces approach. As I said, I have attempted to draft something that sweeps together all the concerns in a probing, omnibus-type way; I will not go through the list because quite a lot of it has already featured in our debate today on previous amendments. I do not aim to say how it is to be done but I suggest that when there is to be a commercial dashboard, the regulations must be done for all these things. I believe that that is what the Government say they will do, but it is better to have it on a piece of paper inside the Bill. I beg to move.

[Lord Sharkey (LD)]

My Lords, my noble friend’s amendment, among other things, speaks about advertising. The underlying question about advertising, however, is surely why allow it at all? That was touched upon by the noble Lord, Lord Vaux, and the noble Baroness, Lady Altmann. You can see the benefit, obviously, to commercial dashboard providers: another revenue stream and/or the cross-selling of their products. However, it is hard to see why the customer would want yet another advertising channel while there are already thousands—perhaps tens of thousands—of advertising channels. What really is the benefit to the consumer; or perhaps more accurately, what really is the risk-benefit balance for the consumer created by the existence of advertising on commercial dashboards? What assessment have the Government made of this risk-benefit balance? If the answer is none, perhaps they should consider doing exactly that. I am curious about whether the Government have, in fact, indicated to potential commercial dashboard providers that they will be able to run ads on their dashboards. Is there some implicit quid pro quo going on here?

--- Later in debate ---

[Earl Howe]

My Lords, I fully appreciate that the noble Baroness is trying to ensure that consumers are properly protected and have confidence in the dashboard infrastructure. Indeed, an aspect of this is the need for robust supervision, and I share her belief that it is important to make clear who will be responsible for oversight of the different aspects of the infrastructure. I do not think that much divides the noble Baroness and me on the objective to be achieved.

I recognise the need for a strong supervisory and regulatory regime for dashboard providers. I also agree with the thoughts expressed by many noble Lords at Second Reading about a new regulated activity being key to maintaining public confidence in dashboards. As I explained earlier, we intend to do this by amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.This will bring the provision of a qualifying dashboard service within the regulatory remit of the Financial Conduct Authority. Unauthorised firms will neither be able to connect to the supporting infrastructure nor be able to provide a dashboard service.

Once the amendment to the order has been made, the regulatory framework for the activity will be proposed in the FCA’s public consultation on the corresponding handbook rules and guidance. This will allow the public and the industry a chance to comment. The FCA must have regard to any representations made to it during the consultation period. This framework can be used to set out any expectations regarding the behaviour of dashboard providers and, in this way, will supplement any conditions imposed on dashboard providers set out in regulations. I would argue that this is where we dot the “i”s and cross the “t”s, as the noble Baroness put it.

I note that the amendment also refers to revenue generated by both dashboard providers and third parties. It might not be necessary for me to do so but I want to reassure the Committee that all qualifying dashboard services, like the dashboard provided by the Money and Pension Service, will not be allowed to charge simply for consumers to see their own information. The provision of financial services and products by firms that are dashboard providers will remain subject to FCA regulation. Fundamentally, our aim in allowing multiple dashboards is only to give customers more options in accessing their information, not different information.

The mention of information should remind us that pension information is the lifeblood of a sustainable dashboard. Dashboards will work within the existing framework established by the general data protection regulation and the Data Protection Act 2018. Dashboard providers will be subject to penalties under these laws should they fail to meet required standards of consumer and data protection. One of the key principles in the design of the dashboard is that the individual will always be in control over who has access to their data. Qualifying dashboard service providers will not be able to see information about the individual’s pension rights.

The responsibility for the provision of accurate data falls on pension schemes. The Pensions Regulator will be responsible for ensuring occupational pension schemes’ compliance with requirements. The FCA will regulate personal and stakeholder pension schemes. Enforcement options, including fines, will be among the tools available to the regulators if requirements are not met.

The role of these regulators will be complemented by the Money and Pensions Service, which will establish and maintain the dashboard infrastructure. While it will not act as a regulator, it will work with the regulators to enable their compliance activity. It is also obliged, as part of its consumer protection function under the Financial Guidance and Claims Act, to report to the FCA where regulated persons are behaving in a manner detrimental to customers.

That leads me to the issue of redress. If an individual wishes to seek redress, any queries around possible incorrect information should be directed to the scheme in the first instance. Schemes are already required to have dispute resolution processes. To come back to a question asked earlier by the noble Baroness, Lady Sherlock, if people are not satisfied with the outcome of the internal dispute resolution procedure, they can take their case to the relevant ombudsman.

The amendment covers the need for regulations around assumptions, projections and comparison of costs and charges. I reiterate that we expect that the initial information provided on dashboards will be simple in the first phase. Adding further information, such as projected pension income and costs and charges, requires consideration on the delivery and consumer protection aspects of these proposals, as we have discussed. I am not ruling out the possibility of including such information, but the industry delivery group should be allowed to consider the implications fully and make its recommendations. To commit to regulations around possible assumptions and comparisons before then would be premature.

Of course, as the noble Baroness will be aware, individuals can already access information on costs and charges. The DWP has consulted on simpler annual benefits statements; the noble Baroness may like to know that it will publish a response on that subject in the spring. The consultation looks at the presentation of costs and charges and how projections are calculated. It acknowledged the crucial need for simpler statements to be consistent with the work on dashboards. We will consider how insights from the consultation can be incorporated into dashboards.

The noble Baronesses, Lady Drake and Lady Sherlock, emphasised the need for adequate consumer representation. The Money and Pensions Service has brought together an industry delivery group whose job it is to ensure that the design of pensions dashboards is informed by industry experts and consumer groups. Membership of its steering group was announced in September last year. It includes a strong representation of consumer groups, including representation from Which? and an independent representative with significant experience in consumer protection. There will also be opportunities for other consumer representatives to take part in working groups, which will help to ensure that the final design is on what information and features consumers value.

The noble Lord, Lord Sharkey, asked specifically about the need to include advertising on a dashboard. I can do no other than refer back to my earlier points. Rules on advertising are as those around any other incremental addition to the dashboard, and rules on the parameters around the use of data will be looked at very carefully. They will be developed by the Government in conjunction with the FCA, which will work with industry and consumer representatives on the delivery group to make sure that if we go down that path, it is with our eyes open and with the risks minimised. We will of course consult on any rules surrounding that issue.

I hope that I have given sufficient reassurance around consumer protection to show that the dashboard infrastructure will build on existing regulatory frameworks. That, with the need to keep dashboards simple, means that while I understand the rationale of the amendment, I consider it unnecessary. I hope that, on reflection, the noble Baroness will feel that she is comfortable in withdrawing her amendment.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for his response. As I said, this is a probing amendment but also an attempt to indicate a framework that could be constructive, perhaps in particular around some of those issues on which all noble Lords have spoken. It covers things such as advertising; it may be that the regulation that one would want around advertising is that there cannot be any of it, but that would still be a regulation to prohibit. I feel that there is a need for an explanation of this vision, somehow all in one place. Yes, a lot of it could be extracted from today’s debate and the reassurances that have been given. However, it would be much better at the very least if it was all put together, perhaps in an Explanatory Memorandum. I still tend to think that there should be something in the Bill, even if more dilute than what I have proposed.

I very much thank the noble Baroness, Lady Drake. This inequality of arms is extremely important. When it comes to FCA consultations, how many members of the public respond? I am not sure whether I am a member of the public, but I have done it from time to time, and I can tell your Lordships that, even for somebody like myself who is well used to this kind of thing, the way it is composed and constructive can be jolly difficult to get your head around. It can be difficult to get yourself organised to put it in, unless you happen to be an industry specialist who does these kinds of things all the time. I therefore very much doubt that you get members of the public responding; you may get some of the consumer organisations, but again, I doubt that they have the familiarity that is necessary always to be able to nail the point.

As was also suggested, there is a tendency with consultations to weigh the responses: X% says this, and Y% says that, and the ones who struggle and have difficulty, which is always on the consumer side, are outweighed. An awful lot of people with a financial interest from the industry side will respond. There needs to be a better mechanism for communicating with, if you like, the public and their representatives. One thing that could be done is for the FCA to obligingly inform Parliament when it is coming out with its consultations. I do not camp on the FCA’s website, looking for its consultations, and if I do not, I do not know how many members of the public will. This is a work in progress. I have to come back again on the costs.

Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Lord Young of Cookham (Con)]

My Lords, I see that on the website of an organisation called This is Money, published on 20 January, Mr Opperman, who is of course the Minister with responsibility, is quoted as saying that he

“believes a new commission should review the future of the automatic enrolment system”.

Noble Lords may also remember that on 17 January, two think tanks, the Fabian Society and Bright Blue, launched a report calling for a cross-party commission on pensions. Responding to that, an organisation called B&CE published the following comments:

“Commenting, Guy Opperman MP, Minister for Pensions, said: ‘Over the last decade, Conservative and coalition governments have made huge strides to improve pensions for the next generation, with the introduction of auto-enrolment, an enhanced state pension and the development of the Pensions Dashboard. For the next stage of pension reform, we need to continue the consensus that emerged following the Pensions Commission of 2003 to 2005. A new Commission has cross-party support, and will help us map out the future of auto-enrolment, so we can boost contribution rates in the coming decades, and explore how we can support savers with pensions freedom reforms. Let’s not give up on the progress we’ve made in pensions through cross-party working. It’s time to explore ideas for the next generation’.”


It therefore seems that the thinking behind the proposed new clause in the name of the noble Lord, Lord McKenzie, has some support at the moment within the DWP.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the noble Lord, Lord Young, has done the job for me, but broadly speaking, I support this amendment. As well as what has already been elaborated, it plays into the feelings that have come up several times as we discussed the Bill as well; namely that, although the noble Earl has said that there is policy, a lot of implementation is also yet to come, and perhaps some of us feel that some policy is also yet to come. I therefore hope that a commission could come along subsequently and that it would be able to have an overview of some of the newer things as well as reviewing older things and looking forward. Therefore, I also support the notion of having this pension schemes commission.

[Baroness Neville-Rolfe (Con)]

I look forward to hearing from my noble friend the Minister on this, but I confess that I have a little scepticism about this proposal. We have had many reviews of pensions, including the trailblazing Pensions Commission led originally by Adair Turner—the noble Lord, Lord Turner. Many changes have been made to the law, including auto-enrolment, which I think we in this Committee have all welcomed. Of course, those in the current Bill are important as we seek to tackle the issues raised by the BHS and Carillion cases and to introduce dashboards.

I am not convinced that this is the time for another commission and another review. I feel that this is the job of the Pensions Minister and the DWP. Quite a lot is going on in pensions, and the priority should be to make sense of the sort of issues we have discussed on this Bill or issues that arise on things such as exit from the EU, and to get on with those in a practical manner. I look forward to hearing from my noble friend. If she takes a different view, of course, I am happy to reconsider.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

My Lords, I signed this amendment and I do not think there is a great deal to add to what the noble Baroness, Lady Altmann, has said. I am sure we are all familiar with the phrase that two wrongs do not make a right. As has been explained, this is one of those instances in which two rights have ended up making a wrong, in that auto-enrolment and raising the tax thresholds were right but have resulted in more and more people falling into this trap. If we are to believe all the things we read in the newspapers about the Budget, it may be that more right things will be done, in terms of tax thresholds, that will then trap more people in this wrong of paying more than they should for their pension. These people would be better off if they were not in the scheme but in a private pension scheme because there would be mechanisms for them to get that tax relief.

The problem could be adjusted through the tax system because it knows who they are. There are various ways in which it could be addressed. The noble Baroness, Lady Altmann, has put forward one in which it is up to employers to seek out the solution. If that is regarded as too onerous, something else must be done because this really is very bad, once again hitting the people who always seem to be at the rough end of every deal and are predominantly women. I am not quite sure how it is taken into account in universal credit—whether it asks, “Are you paying more for your pension than you should?”—but I would not mind betting that many of them will be the same people who suffer at every twist and turn. I therefore strongly support this amendment.

[Lord McKenzie of Luton]

My Lords, I, too, support this amendment. We should congratulate the noble Baroness, Lady Altmann, on the diligence with which she has persisted on this matter for quite a long while. As she hinted, she was responsible for convening an industry group that spent a lot of time digging into this to make sure its focus was right.

The reality is clear. There are two systems giving tax relief and no reason in principle why they should not both deliver the same result. One does not for low earners at the moment. Which of the two systems you are in depends on your employer’s choice. That simply cannot be right. As the noble Baroness said, there are ways of dealing with this. I understand that the Treasury has set its face against that to date. Of course, for the Treasury, the downside is that providing a bit more tax relief means having a little less revenue. However, we are talking about the lowest paid, who are being disadvantaged by this. It is about time that this was brought to a halt.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

My Lords, I have added my name to this amendment because the circumstances that have been outlined are distressing and there seems to be no easy way for the affected people to address them. If they were bigger and more powerful, it is certain that they would not be pursued—not least because the instructions for pursuit, if I can call them that, are that you have to be able to recover more than it costs you to do so. It would not take a great deal of litigation for that to be backed off from.

It is another example of how unfair it is when people who have run a business as a partnership, unincorporated, are at a disadvantage compared with those who take advantage of limited liability. You are not doing anything bad by putting yourself and your livelihood on the line. It may be that it has not been done in the way that it should have been in small practices, such as plumbing companies, but when you find yourself in this kind of situation—which you would not be in if you had been incorporated—it has always been difficult to see fairness in the law.

The noble Baroness, Lady Altmann, has produced a tightly composed amendment. I have studied it and it seems to fit the bill. Obviously, if someone can improve on it that would be fine. Otherwise, I do not see how there will be fairness for those who do not have equality of arms with the larger companies, which have sometimes been allowed to leave schemes without necessarily paying up as much as they should. In such cases, the burden falls on smaller firms. The trustees should have taken that into account long ago. If they have not, why should the burden fall on those who cannot find the means to take the matter to court? Basically, that is what this is about. A large employer in the scheme would fight the case and perhaps there would be claims for negligent behaviour for some of what has gone on. This solution avoids quite a lot of unpleasantness and untidiness that might otherwise be the only way. If there is any way that the Government can pursue this amendment, it would be a very good thing.

[Baroness Stedman-Scott]

I thank my noble friend Lady Altmann for tabling this amendment and congratulate her on her tenacity in continuing her campaign to resolve this situation. If we were giving awards for tenacity, she would win, I am sure.

The Government understand the difficulties facing employers in these situations, especially where, in the past, they have taken all reasonable steps to fund the scheme as requested by the trustees. The amendment seeks to amend Section 75 of the Pensions Act 1995 to allow trustees further discretion to cancel a departing employer’s debt in certain circumstances. It raises a number of issues that I will address.

The effect of this amendment would be that every time it is applied, the employer covenant would be weakened, increasing the risk of thousands of members not getting their benefits in full. It is hard to envisage a scenario where trustees could agree to such an arrangement and still be compliant with their fiduciary duty to act in the best interests of scheme members. In particular, the proposals for a new de minimis threshold raise significant issues. Even if the threshold is set at a very low level, it could enable a large number of small employers to depart schemes without payment. The aggregate impact of this could be significant. Passing this level of debt on to employers who remain could make them insolvent.

It is worth noting that some flexibility already exists for trustees to collect reduced employer debts as long as the scheme is funded above a Pension Protection Fund level basis. It is set at this level to ensure that schemes do not place an additional burden on the Pension Protection Fund and, ultimately, the levy payers.

The amendment also proposes that debts could be compromised if the majority of the debt relates to orphan members whose employers no longer remain in the scheme. This would be very difficult for the scheme trustees, who have a duty to ensure that orphaned members’ rights are protected and that their scheme is properly funded. Removing orphan debts from the employer debt calculation would ultimately worsen the scheme’s funding position, putting thousands of members’ pensions at risk.

Further, this amendment would impose different statutory requirements on unincorporated and small employers, creating a number of challenges. For example, if all or the majority of the scheme’s employers were either unincorporated or small, it could mean that none, or very few, employer debts would ever be collected; in the long term, that could create a severe underfunding situation, with all the risks that entails.

The Government’s Green Paper and subsequent White Paper, which was published in March 2018, on defined benefit pension schemes looked very closely at this issue and considered carefully what could be done to relieve the pressure that some employers face from their obligation to pay an employer debt. The White Paper concluded that the existing arrangements in legislation, along with the deferred debt arrangement introduced in April 2018, provide enough flexibility for employers to manage their employer debts. Further, the current full buyout calculation method is the most secure and effective way of protecting members and remaining employers in a multi-employer scheme.

While the Government recognise the difficulty facing companies in managing this debt, they cannot, at this time, offer any easements beyond those already provided for in legislation. However, recognising the many representations that the Government have received supporting a change that would assist employers in this difficult position, we will keep this under review and continue the dialogue.

My noble friend Lady Altmann raised the issue of retired employers triggering a debt and being unable to pass it on. Flexibility in the rules enables retired employers to pass their scheme on to another employer without triggering an employer debt. The scheme has a streamlined, flexible apportionment arrangement, which could help employers in this situation.

My noble friend also made the point that some people find themselves in extreme difficulties, with the potential to lose their home. The employer debt regime is designed to protect employers who remain in a multi-employer scheme. It would be unfair to burden remaining employers with additional unplanned costs to cover the shortfall that would be created by relaxing requirements for one group of employers. The flexible apportionment arrangement currently available in legislation can be used to help unincorporated employers who wish to incorporate.

My noble friend Lady Altmann also asked whether the scheme is fully funded. My noble friend the Minister mentioned that the scheme is fully funded on a technical provision basis. However, I understand that the scheme is underfunded on both a budget basis and a PPF basis. The next scheme valuation is due in April 2020, which will give us a clearer picture of the scheme’s funding position.

I thank my noble friend and other noble Lords for their contributions to the debate on this amendment. I know how important it is to my noble friend, but, on the basis of my response, I respectfully ask her to withdraw the amendment.

--- Later in debate ---

Moved by

[Baroness Bowles of Berkhamsted]

101: Before Clause 129, insert the following new Clause—
“Regulations
Regulations under this Act may not—(a) create a new criminal offence,(b) create a regulator,(c) create multi-employer collective money purchase schemes,(d) significantly restrict the powers of trustees, or(e) amend primary legislation.”

[Baroness Bowles of Berkhamsted]

My Lords, in Committee there has been broad resistance by the Government to positive amendments suggesting what could be put in the Bill to give reassurance about many of the issues raised. The Government claim that that needs to be the case to preserve flexibility, but that does not get over the fact that there are very broad delegated powers in the Bill, as pointed out by my noble friend Lord Sharkey on the first day in Committee and by the Delegated Powers Committee. There is no certainty about how far those broad powers will be used. They are not called Henry VIII clauses for nothing, although delegated powers nowadays put Henry VIII in the shade. I believe the noble and learned Lord, Lord Judge, elaborated on that last year.

This amendment goes the other way. Instead of making suggestions to clarify what needs to be done, it clarifies five things that the Government may not do under the delegated powers. It is, of course, a probing amendment. I could have made a longer or different list, and a couple of matters are in it specifically to enable further discussion. However, despite the probing nature of the amendment, its form is not novel. It has appeared in other legislation, and I believe it appears several times in the withdrawal Act. It is a known way of addressing issues of concern in skeleton legislation. I may have helped it into a few pieces of legislation, but I consider that such a clause should always exist.

I shall take each of my points in turn. Proposed paragraph (a) states:

“Regulations under this Act may not … create a new criminal offence”.


That provision has been used before to constrain broad powers in legislation. A new criminal offence should always come to Parliament in such a way that it can be amended or rejected. I believe there are examples of finding a new criminal offence within a set of regulations with no amendment possibilities; indeed, I have been on one of the Secondary Legislation Scrutiny Committees, and there were examples. That should not happen. It would be a disproportionate use of delegated power—that has been suggested when I have run such a proposed clause—yet it has been used and therefore it is reasonable to suggest that it should not be. In the instance of pensions, and despite the fact that I have argued on this Bill that the criminal offences are not drawn wide enough, so I am certainly not a dud with regard to them, I do not believe that it would be reasonable to make new ones by regulation. The relevant clauses in the Bill are easily wide enough to do that.

Proposed paragraph (b) is about not creating a regulator. There appears to be a strong danger of that here because the wording that enables powers to be conferred on any person could enable the creation of a regulator. I think the wording is “discretion”, but my noble friend Lord Sharkey inquired as to what it meant and the reply came back that it could be any powers to any body, therefore it would enable the creation of a regulator. There is an example of that in Clause 51. If the person who is designated is already a regulator which has been set up under primary legislation, it is not a problem to expand its powers appropriately, but if a new regulator is created, that would be wrong. So why are there clauses in the Bill that are wide enough and of a description that would enable that? My wording here does not capture all the wrongs that could happen under any power to any person provisions, but at least it draws a line.

Proposed new paragraph (c) prohibits the creation of a multi-employer collective money purchase scheme through regulations. I refer back to issues that have already been discussed with regard to problems in the plumber pension scheme. There are other examples of difficulties caused by withdrawals from collective DB schemes. It can come around in particular when large and small employers are put together. Our discussions with regard to collective money purchase schemes have already made it clear that there are issues on which we are still uncomfortable in the context of the employee risk, even in a single CDC scheme. The Post Office scheme is not an everyday case; they will start out with some advantages. There will be even more unknowns in the multi-employer scheme. For example, the pool for risk-sharing is larger, which might seem attractive, but the risk of a larger group leaving is then an awfully large matter for the remaining pensioners to take on board.

Proposed new paragraph (d) is not to

“significantly restrict the powers of trustees”.

I do not mean to override the powers the regulator has to sanction trustees for improper behaviour. I put this point in because there has already been discussion as to whether some of this Bill’s provisions are encroaching on the day-to-day decision-making of trustees—for example, with regard to investment policies. There are noble Lords here who have far more experience of pension trustees than I do, and I particularly value thoughts on the usefulness of this provision. I want to be clear: I am not suggesting that this is anything to do with preventing regulators having the right balance of powers to do things. It is where they would intervene on day-to-day matters.

Proposed new paragraph (e) prevents amendment of primary legislation. I am aware that this is in conflict with the powers the Government have given themselves in Clause 47(5). It is a matter of principle. Pensions are a highly sensitive policy area, and it would be wrong if a Government could selectively change or revoke significant consumer protection provisions without scrutiny at the level of primary legislation. The clause says:

“Regulations under this section may among other things … amend, repeal or revoke a provision of this Part or any other enactment.”


A short while ago, when we were discussing one of the amendments from the noble Baroness, Lady Altmann, I think I heard that the Minister did not think there was the power to do certain things. Actually, the Government jolly well have it here, because they can “amend, repeal or revoke” anything they like—any enactment—so I think that was not a valid excuse, if I can put it that way.

Of course, the real problem here is that parliamentary procedures are deficient in that departments have to enter into a bidding process to get Bills and, because of time constraints, they do not come around superabundantly. The only other option, regulations, is not really democratic on the level on which they have become used. It is possible for the Government to do something about that, but it is my view that, until it is done, restraints must be placed on powers in the manner I propose—all the more so when there is lack of policy guidance.

I know we have had exchanges before on whether there is adequate policy guidance. Some of us think there is not, and the noble Earl has said it is all about implementation and the policy is there. I cited Clause 47(5), and Clause 51(3) says:

“Regulations under this Part may … confer a discretion on a person”.


When that was discussed—when the noble Lord, Lord Sharkey, raised the clause stand part debate on Clause 51—my immediate scribble was “may not create a regulator”, which was directly in response to what could be covered under “discretion”. That, therefore, is the reasoning. I could give more reasons and find many more examples of where discretion is conferred: a failure to really tie it down to the policies. Given that where helpful suggestions have been put forward that would perhaps have given more reassurance on the true nature and scope have been resisted, there is no alternative but to outline what may not be done. I beg to move.

[Baroness Altmann]

My Lords, I add my support to many aspects of the amendment from the noble Baroness, Lady Bowles. She is trying to do something very helpful for the Committee and the Bill. We have all expressed concerns about the wide-ranging powers in this Bill, which seem to go a lot further than normal for such Bills. I recognise that pensions Bills tend to have wide powers added to them, but it makes sense to identify areas where we would not wish the legislation to allow a Minister to do things that would normally come back to Parliament for our scrutiny or further legislation.

--- Later in debate ---

With the further assurances I have provided, I respectfully request that the noble Baroness withdraw her amendment.

[Baroness Bowles of Berkhamsted]

I thank the Minister for her responses. Referring to the question put by the noble Baroness, Lady Sherlock, as to which of these the Government may be doing, I think the answer has come back: all of them. I will go through them.

With proposed new paragraph (a), to

“create a new criminal offence”,

I was not focusing on fine-tuning Clause 107. We are used to how fine-tuning of an existing offence is done. If you look at some other areas, such as sanctions and anti-money laundering, you will see that it is a new criminal offence every time a new sanction is created, but the framework for what has to be done to create such a sanction is laid out in the Bill. If the right kind of policy direction is given in the Bill, you can be allowed to do more. I beg to differ with the assumption that there are no powers here, when the Government can amend any enactment. It puts no restriction on what they may do, so I do not think there is any legal certainty around not creating something that is a completely new idea of a criminal offence.

I am pleased to hear that there is no power here to enable the creation of a regulator. I would be interested to look again at the Hansard from the first day of Committee, because under the requirement to

“confer a discretion on a person”,

the person can be a body corporate and the discretion was specifically referenced as “powers”, if I remember rightly. I would be happy to accept a Pepper v Hart statement that there is to be no creation of regulators, if the Minister felt able to make one.

It has been made clear that there is the intent to create multi-employer collective money purchase schemes. This worries me greatly: having looked at it further, I am now less than certain about the general benefits and there is a risk to pensioners and employees. So many of the points put forward over the four days of Committee debates show that we have not got sufficient guidance as to what that shape will be. It worries me quite a lot that although we cannot yet work out how to do it fully for one, we are going with the more risky multi-employer system.

The requirement to

“significantly restrict the powers of trustees”

is, I suppose, a trick point. If anything does not deserve to be in the list, it is that, but I have drawn out a debate around the point, as I hoped to. Perhaps we have to be able to do that, but maybe there is some other way to make sure that it is framed with care.

My amendment then comes back to the amending of primary legislation. This is a wide power and I know that it can be used usefully, but such wide powers are never based on a single regulation. An individual regulation that could amend or revoke primary legislation would mean that Parliament could then reject it without being accused of always throwing the baby out with the bath water and losing all the other good things in the regulations. That might be a more reasonable way to approach things, but we know that that is not how it happens: we find ourselves doing something that we do not like because it is a small element of a much bigger thing. It is always done when the Government can make the case that it is urgent and that it will be a total disaster if it is booted out.

[Baroness Sherlock]

I am grateful to the noble Baroness for giving way, especially as I am about to abuse her generosity by asking a more general question. It is directed across the table, and is something that I forgot to ask in my own contribution.

The noble Baroness asked for assurance on various points. At various times during the Committee, the Minister has kindly agreed to write to noble Lords. Can the Minister confirm that those letters will come before Report?

[Baroness Stedman-Scott]

I can absolutely ensure that those letters will be with all Committee members before Report. We have debated these issues and I have listened to the concerns raised by noble Lords. We believe that all the powers are suitable and appropriate.

[Baroness Bowles of Berkhamsted]

I am not convinced, but we will await those letters—that was a very useful intervention. This is a matter that, one way or another, we may have to return to in some guise on Report. For now, I beg leave to withdraw my amendment.

Amendment 101 withdrawn.

Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

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

[Baroness Bennett of Manor Castle [V]]

I thank your Lordships’ House for allowing me to speak. I apologise for the earlier confusion. I also apologise in particular to the noble Lord, Lord Balfe, for upsetting the rhythm of his speech. I thank him and other noble Lords for providing an introduction to Amendment 33. I must pay tribute to the campaign group ShareAction, which has done a lot of work on the amendment. I know that it has informed other noble Lords about it.

I moved the amendment in Committee. In response, the Minister pointed to the consultation on the future of trusteeship, which concluded that, due to a lack of consensus on how to address the issue, it would look at setting up, and is setting up, an industry working group to look at the diversity of pension boards. While this is welcome, we need the data to inform that work. I ask the Minister to consider incorporating this into future versions of the Bill.

A further development has happened since we last debated the Bill. There has of course been a great upswelling of frustration and understandable anger, represented by the Black Lives Matters movement. The issue of ensuring that all voices in our society are heard and have decision-making powers is particularly pressing. I urge Members of your Lordships’ House to consider it.

In response to the amendment in Committee, the Minister stressed that she wanted the pensions dashboard to focus on the provision of basic information. That is why the amendment has been amended so that it does not refer to this information being on the pensions dashboard, but rather that it would simply be reported. Information on diversity could be published elsewhere. That might be on the Pensions Regulator’s website, or as an annexe to its planned SIP repository.

Other noble Lords have referred to the level of inequality in our society and the lack of diversity. I will finish by reflecting on what the noble Baroness, Lady McIntosh, said, and the fact that a 2016 survey showed that on average 83% of pension boards are male and that a quarter are all male. That reflects another crucial disparity: we all know that there is a very large pay gap between men and women, but the pensions pay gap, at 40%, is double the pay gap. These inequalities have to be tackled in our society along with levels of inequality and poverty. We have had a lot of discussions about intergenerational fairness, but we must not forget that there are already a lot of people at pension age now who really are struggling to get by in this difficult world.

I thank your Lordships’ House for the debate that we have had thus far and I look forward to further debates.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, like other noble Lords, I appreciate the government amendments to make regulations by the affirmative procedure. Having thanked the Minister for that, I will move on to speak on noble Lords’ amendments.

Amendment 2, in the name of my noble friend Lord Sharkey, would delete reference to negative procedure regulations being used to change the rules around fit and proper persons. It has been laid out how that might change who becomes a fit and proper person. My question is: would it also affect who might not become a fit and proper person and potentially elaborate further if it is found that people are doing things that should disqualify them? I sense that that might be a possibility. Although, under Clause 11(3)(b), regulators can take into account other such matters as they consider appropriate—I presume that that can be in the negative sense as well as the positive—it would be useful to know whether such powers in other areas as well as this are, in general, used. I detect that regulators are often reluctant to go beyond things that they can specifically point to in regulations. If that is the case, maybe the Minister has an excuse to have these powers. That is the area that I am interested in, but it would certainly be a much more significant move for this to be made by the affirmative, rather than the negative, procedure.

The noble Baroness, Lady Altmann, has tabled an amendment about data that I support, but like her I think that it is probably best to have just one debate on data. I will make my intervention on that later.

I also support the intention of Amendment 33 on diversity. I recognise, as the noble Lord, Lord Balfe, did, that it links to the wider issue of how trustees are appointed and where from. Many trustee appointments will link back to present or former workforces and therefore carry through any historical lack of diversity for quite a long time. Despite the fact that there might be costs to professional trustees, I still think that there should be scope to ensure that there are more additional independent external trustees, without necessarily going to people who are so embroiled in the making of regulations. It should be possible to find objective people who are not necessarily charging the equivalent of full professional rates.

Finally, my Amendment 45 is a simple one that says that regulations may not create a regulator. That might not be the intention, but Clause 51(3)(a) says that regulations may

“confer a discretion on a person”.

A discretion to do what: to allow, not allow or approve certain things? What kind of things and what kind of person? That could be wide enough to allow or disallow the doing of things regarded as being a regulator, yet there are none of the constraints in the Bill that would normally appear in such circumstances. I therefore seek some clarification about what “discretion” means and what powers it might conceal or cover.

[Baroness Sherlock (Lab) [V]]

My Lords, I should declare a historical pecuniary interest as a former independent director of the Financial Ombudsman Service. I should also declare that my home is in Durham so I have often visited Barnard Castle, but solely for the purpose of visiting the wonderful Bowes Museum. My eyesight is okay for the moment. I will save my remarks on data issues until a later group, but I will briefly address the other two issues raised by amendments in this group.

On regulations, concerns were expressed on all sides in Committee about the use of Henry VIII powers and the skeleton nature of much of the Bill, especially Part 4, but I am grateful that the Minister has engaged with us throughout this process on these and other issues. I think that it will make for a better Bill in the end.

I am grateful to have had sight of the draft regulations under Part 1, even if I would have preferred to see all the remaining draft regulations before Report. I am very glad to see the government amendments clarifying the scope of some of the regulations and those which make regulations affirmative or confirmatory. If nothing else, it saves me from tabling endless Motions just to ensure adequate scrutiny. However, I will be interested to hear the Minister’s answers to the points raised by the noble Lord, Lord Sharkey, the noble Baroness, Lady Fookes, and the noble Lord, Lord Blencathra, about the retained use of the negative procedure and other matters related to delegated powers.

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Although the evidence that the regulator will take into account is of interest, it does not give or specify that the pensions regulator will have the power to seek a contribution from an employer using or intending to use it as a qualifying scheme to the financial resources available to meet the costs of resolving a triggering event. That is the intent of my Amendment 8 and I beg to move.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I have signed my name to both these amendments, which follow on from significant debate in Committee. I agree with what the noble Baroness, Lady Drake, said about how Amendment 8 bolsters the importance of ensuring adequate finance for the administration of a scheme in all circumstances. It is necessary to have certain requirements specified and agreed in advance rather than to rely on negotiation at what might be a difficult time or, indeed, where it might be impossible. I therefore wholeheartedly support Amendment 8.

Amendment 32 is important and reflects the matter of general fairness and, in particular—although it is not specified—intergenerational fairness, which was discussed in Committee. My noble friend Lord Sharkey will explain further, but I wish to make the point that we should remember that CDCs have shared risk, that their strength is that returns can be more predictable, and that there is intergenerational solidarity so that good times and bad are to some extent smoothed. That solidarity cannot be undermined by allowing market highs to be carried away by those who may chose to leave the scheme. It surely must be possible to devise mechanisms, whether by way of buffers, conservative valuations, a delayed retained part or something else, to prevent the problem that those wishing to transfer their pensions out essentially ruin what is left for everybody else. The point is that fairness has to extend over more than a snapshot in time. That is the only way that you will have fairness in the sense of shared risk to all the members.

[Lord Vaux of Harrowden (CB) [V]]

My Lords, I wish to support Amendment 32, tabled by the noble Lord, Lord Sharkey, to which I have added my name. I should add that I also wholeheartedly support Amendment 8, but I will restrict my comments to Amendment 32.

While there seems to be general support for the introduction of this new type of pension—collective money purchase schemes, or CMPs; I am going to try very hard not to call them CDCs as we go through this—they are not without risk. As we discussed at some length in Committee, one of the greatest risks that is often raised in respect of CMPs relates to intergenerational fairness. Indeed, at the extreme, in a situation where no returns are being earned but pension levels are maintained for existing pensioners, the pensions being paid would be dependent on the funds being put by new joiners, as in a Ponzi scheme. That is very extreme, as I say, but it demonstrates that there is the possibility of one cohort being disadvantaged by the treatment of another cohort. If existing pensioners are paid too much, those currently paying in will suffer, and if the scheme is overcautious in what it pays out to pensioners, pensioners will suffer and current workers will gain.

This is not theoretical. We only need to look at what is happening in the Netherlands to see that the question of whether to cut benefits when returns are not as good as expected is a real and current issue. In a standard defined contribution scheme, the risk is not pooled, so the issue does not arise. In a defined benefit scheme, the matter is dealt with by the employer making up the difference. However, in a CMP, there is no possibility of that happening. If you want to maintain the level of pensions when returns are low, the future pensions of those still contributing will be impacted and vice versa, so the issue of intergenerational fairness is specific to CMP schemes.

It is also worth pointing out that CMPs have implications for not only intergenerational fairness but fairness more generally. For example, as the noble Baroness, Lady Bowles, pointed out, if someone wants to transfer their fund out of a scheme, how do you value their share? The benefits that arise from the scheme are uncertain, being targets only, so if you value a transfer based on the target benefits, which seems to be what is proposed, that will not take account of the risk that those benefits may not be achieved. In that situation, the person transferring out is getting a better deal than those staying, unless that risk is taken into account in the transfer valuation. The issue is complicated further because of the pooling of longevity risk in a CMP. For example, if someone has just a couple of years to live, there would be a strong incentive for them to take their money out to the detriment of those staying in.

Given that fairness is the single most commonly raised risk that relates to CMPs, it is curious that there is no explicit mechanism in the Bill to deal with it. In our previous discussions, we were pointed in the direction of Clause 18 to see how the matter is dealt with, but in fact that clause sets out only how benefits and so on will be calculated and says that regulations will be made in that respect; nowhere does it mention the critical question of fairness. I imagine that that is because it has been based on other pension legislation, which, as I said, does not suffer from this risk.

Amendment 32 introduces as very simple means by which to ensure that intergenerational fairness and fairness more generally must be assessed by the trustees. Given the importance of this issue, I urge the Minister to consider it really seriously.

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[Baroness Neville-Rolfe [V]]

The noble Lord, Lord Vaux, has adapted his amendments to meet some of the concerns that we all expressed in Committee, for which I thank him, but I am afraid that I am still not happy with the two amendments that he has tabled. For example, nearly all pension schemes are in deficit. Amendment 50 would allow the Pensions Regulator basically to stop all buybacks, which is a matter not for this Bill but for a governance Bill—following proper review and consultation—because buybacks can be justified in some circumstances and we have not had a chance to debate that.

The coronavirus measures, with which a parallel was drawn, are unique and different—that has been made clear in parliamentary agreement to them—so it is better to leave the arrangements to ministerial discretion, as the noble Lord, Lord Vaux, suggested. We have to remember that, however good the regulator is, he or she introduces delay and uncertainty, so we need to make sure that the powers are used with care.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I declare my interests as in the register: I am a non-executive director of London Stock Exchange plc, which has a pension scheme of which I am not a member.

I have signed both amendments, which are about getting priorities right on the matter of how a company uses spare cash and the importance of paying down deficits, especially if it is over too long a time. If there is spare cash around, deficit reduction should rank ahead of share buybacks and be balanced with regards to dividends. Both those issues have already been well elaborated, especially by the noble Baroness, Lady Altmann, and the noble Lord, Lord Vaux.

The amendments would not prohibit either of those eventualities; they would make them notifiable events. The regulator could then exercise discretion about whether there were good reasons; for example, checking that, in the circumstances, the quantum of the dividend was acceptable. I am less certain about good reasons for buybacks, but if there were any, they could be discussed. I therefore support the amendment. To deem it excessively cautious would not be to take it as it is intended. Although we say that the matter would need to be investigated, we would expect the Pensions Regulator to be reasonable in all the circumstances. For example, if everybody had fallen into big deficits, obviously the situation would be different, because of what was going on in the markets, from where a company was being a laggard in making up its deficits. However, we must not forget that if those deficits are not repaid and the company is under stress, it will be the workers and the pensioners who lose out in the end. They cannot always be put at the end of the queue.

[Baroness Sherlock [V]]

My Lords, I am grateful to the noble Lord, Lord Vaux, for returning to this issue. We all know that there are some DB schemes with significant deficits and employers who could be doing more to clear them more quickly. Let us not forget the work done by LCP, which showed many firms paying out dividends 10 to 20 times their pension deficit payments, or the regulator’s annual DB funding statement last year, which raised concern about the disparity between dividend growth and stable deficit repair contributions.

The problem will not disappear. As more DB schemes have closed, they will soon be paying out more in pensioner payments, leaving them less to invest and with a need to de-risk their remaining investments.

The Covid pandemic is going to make things worse. The Pensions Regulator reports that, so far, only around 10% of schemes have agreed a temporary suspension or a reduction in DRCs post Covid, but more trustees and employers are in the process of discussing possible requests to suspend or reduce contributions. We all know that the full force of the economic storm has yet to hit us.

The noble Lord, Lord Vaux, mentioned the no-dividend rules for Covid business loans. The regulator’s Covid-19 guidance on defined benefit scheme funding and investment says that, if trustees face requests to suspend or reduce contributions, then they should seek mitigations. It gives an example, saying:

“All dividends and other forms of shareholder distribution to stop throughout the period of suspension and not to start again until the deferred or suspended contributions have been paid.”


TPR will still require trustees to report agreements to suspend or reduce contributions and provide information on the mitigations.

Ministers say that the regulator can chase employers if resources are taken out that should not be taken, but we know what the danger is if action is taken only after a dividend has been paid out. If the dividends are paid out by a UK employer to an overseas parent, it can be very difficult to get them back. It is entirely possible, in these difficult times, that if a company is in trouble and its parent company is based overseas, there may well be a move to repatriate assets to the home state. These amendments seek to tackle that problem not by stopping dividends or even buybacks where there is a deficit but by making them a notifiable event in certain circumstances.

The noble Lord, Lord Vaux, has softened his amendments, but he has still made a compelling case. Therefore, if the Minister does not want to accept these amendments, can he tell the House how he will ensure that the next BHS or Carillion scandal will not be a company with a foreign parent seeking to repatriate assets before abandoning its obligations to the pension scheme? I look forward to his reply.

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My noble friend Lady Stedman-Scott promised to engage with me on low earners denied the tax relief that they are due in a net pay scheme and forced to pay 25% too much for the pensions they are accruing. I know that this has caused data errors which will need correcting over time. I hope that the Government and the regulators—the Pensions Regulator and the FCA—will seriously engage with pension schemes to make sure that they check data, report data errors and can verify that they have been corrected so that a pensions dashboard does not create the same problems for pensioners and pension scheme members as we have seen in the past with situations such as the guaranteed minimum pension, which was left uncorrected for many years so that pensioners ended up having to repay significant sums of pensions received apparently on the basis of incorrect data.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I shall speak briefly to each amendment in this group. The noble Baroness, Lady Altmann, has a series of amendments on data accuracy—there was also one in the first group—which I have signed. It is important to have accuracy, especially when there are matters of significant value and security. Ensuring that records are accurate and are kept up to date should be in-built from the start of operations, and as the dashboard is starting out there is no reason not to take that precaution.

I have expended time and energy tracing and correcting inaccurate records on pensions and with banks. Key causes of corruption and inaccuracy have been that information was not transferred accurately, or sometimes was not entered accurately in the first place but particularly when legacy systems did not join up with a new system. It is immensely important that pensions information is not lost or inaccurate, as that can also open the door to potential scams or other sales pressures built around tracking pensions or correcting pension data.

With regard to the pensions dashboard, I agree with what has already been laid out by the noble Baroness, Lady Drake, so I will not repeat it. Transactions are the dangerous point. They are certainly not where the focus should be as dashboards are set up and their operations tested, but it is going to be very tempting for commercial dashboards. Commercial companies may find a way to get around that, but this information would give the FCA as the regulator a direct guide to what is to be expected so that it could take action against any circumvention of the intentions of the amendment. I therefore support all the amendments in this group.

[Lord Vaux of Harrowden [V]]

My Lords, I support all three amendments. The grouping is slightly odd, mixing the question of transactions with that of data accuracy; there is a relationship but it is only tangential. The noble Baronesses, Lady Drake, Lady Altmann and Lady Bowles, have already explained the reasoning for the amendments so I shall try to be brief.

Amendment 52 would prevent a dashboard service from engaging in financial transactions. The matter has been well explained by the noble Baroness, Lady Drake, so I will just say that the risks around pension-related transactions happening without proper advice are very well known. Dashboards are being created primarily for the purpose of allowing people to obtain better information about their situation. That information will be helpful when deciding whether to carry out some transactions but it does not in any way negate the need for proper advice, so allowing dashboards to become transaction platforms would make ensuring that proper advice had been taken much more difficult. At least until they have been fully established and the implications well understood, it really must make sense to prohibit dashboards from becoming transactional platforms.

The other two amendments along with Amendment 13, which was discussed in the first group, are about establishing appropriate processes to ensure the accuracy of the data on the dashboard. It almost goes without saying that a dashboard containing inaccurate information may actually be more damaging than no dashboard at all; I apologise for the echo of something else there. These dashboards are intended to help people and their advisers to make decisions about their future pensions. Inaccurate data will lead to wrong decisions being made. It is therefore critical that data must be fully and regularly checked and audited, so I urge the Minister to accept these amendments.

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Moved by

[Baroness Bowles of Berkhamsted]

71: Clause 123, page 118, line 4, at end insert—
“(2) In exercising any powers to make regulations, or otherwise to prescribe any matter or principle, under Part 3 of the Pensions Act 2004 (scheme funding) as amended by Schedule 10, the Secretary of State must ensure that—(a) schemes that are expected to remain open to new members, either indefinitely or for a significant period of time, are treated differently from schemes that are not;(b) scheme liquidity is balanced with scheme maturity;(c) there is a correlation between appropriate investment risk and scheme maturity; (d) affordability of contributions to employers is maintained;(e) affordability of contributions to members is maintained;(f) the closure of schemes that are expected to remain open to new members, either indefinitely or for a significant period of time, is not accelerated; and(g) trustees retain sufficient discretion to be able to comply with their duty to act in the best interests of their beneficiaries.”Member’s explanatory statement
The liquidity profile of an open and active scheme that is receiving regular, significant cash contributions is very different from a closed scheme. This amendment seeks to ensure that they are treated differently accordingly.

[Baroness Bowles of Berkhamsted [V]]

My Lords, this amendment revisits the issue of open direct benefit schemes on which discussions started in Committee; I thank the noble Lord, Lord Young, and the noble Baroness, Lady Altmann, for supporting it. Nowadays, those with defined benefit pensions are regarded as the lucky ones, yet there are still millions of people in thriving open DB schemes where, if you start work today, you can join.

However, these are under threat because the Pensions Regulator does not recognise the substantial difference between open and closed schemes. An open scheme is open at both ends. It has no end date and is open to new members, providing a continuing supply of new contributions, including from future members. Cash flow is steady state or positive, giving inherent liquidity and allowing assets to be used to generate returns. A closed scheme is closed at both ends. It does not permit new members. Contributions progressively dwindle to zero and it has a finite end date when everyone in the scheme has died. Closed schemes have a progressively ageing member profile, often or usually negative cash flow and to pay the pensions, the assets must provide liquidity and are progressively consumed.

Examples of open pension schemes include local authority pension funds, the Nuclear Decommissioning Authority and the Railways Pension Scheme. The different classes of open and closed schemes require different investment, risk and liquidity strategies. A low-risk liquid investment strategy is more appropriate for closed schemes where the loss in asset values would impair a model that relies on asset consumption as it moves to its end date. They cannot risk running out of assets too soon and recovery from losses on dwindling assets is difficult.

The same strategy does not need to be applied to open schemes. With a pipeline of new and younger members, assets do not need to be liquid, are not inherently dwindling, and a far longer investment horizon is possible. An investment risk profile of the type generally classed as balanced rather than risk-averse can safely be followed, including real assets such as infrastructure. As an example, the Railways Pension Scheme invested in the Carraig Gheal wind farm in West Argyll and the Sleaford biomass plant, providing both environmental and local community benefits. This type of investment brings higher returns and the contributions from the members and the employers remain affordable. If open schemes are needlessly pressed to have the liquidity and risk profiles defined for closed schemes, it is inevitable that they too will close due to unaffordability: start the run-down, jeopardise employer companies and employees will lose out, pay more, or both.

The reason for this amendment is that, although open schemes and run-on is given as an acceptable strategy in Annex F of the impact assessment, the Pensions Regulator is developing a strategy that requires both open and closed schemes to have a de-risking profile, without adequate recognition of the different natures of the schemes. The regulator’s DB code suggests treating accrued benefits the same in open and closed schemes of the same maturity, which fails to recognise the difference in the models that I have just explained. One open scheme may have a greater or lesser age maturity of its members than another open scheme, but it is not comparable in risk and liquidity terms to a closed scheme of identical member age profile because both ends are open. It is perpetual and new members and cash flows come in.

Amendment 71 would add new requirements on the exercise of regulatory powers by the Secretary of State to ensure that regulations on scheme funding, as provided for in Schedule 10, do not fail to recognise the characteristics of open schemes. Sub-paragraph (a) would require that open schemes are treated differently from schemes that are closed, which means that there should not be a one-size-fits-all policy that disregards the substantial differences that I explained and tries to compare an open scheme with a closed one. It must have its own regime. Sub-paragraphs (b) and (c) list the features of liquidity and investment risk that need balancing with maturity, but also in the light of the perpetual characteristics of open schemes. Sub-paragraphs (d) and (e) specify maintenance of affordability of contributions to both employers and members. Sub-paragraph (f) would require that regulations and principles do not accelerate closures of open schemes—essentially, a do-no-harm requirement. Sub-paragraph (g) states that trustees must

“be able to comply with their duty to act in the best interests of their beneficiaries.”

The effect of treating open schemes as if they are closed would require huge increases in contributions and, at an instant, put schemes in deficit. Dependent on the scheme details, that may not fall only on the employer. For example, the Railways Pension Scheme has a shared-cost approach to funding in which the contributions of the members would substantially increase as well as those of the employer. The Railways Pension Scheme provided me with figures on its strategy, but I understand that other open schemes are similar. For every £1 of pension income received by members, 75p comes from investment gains, with only 25p from contributions. Investments are maintained in a balanced portfolio with equity in the 40% range and only 15% in government bonds, defensive assets and cash. They have consistently met or exceeded investment return requirements.

If that portfolio were switched to gilts, income would crash because the days of 4.5% yields that underpinned conventional wisdom of investing in the long-dated gilts has gone in the wake of global quantitative easing. Where would the Railways Pension Scheme’s missing 75p per pound then come from—a near trebling of contributions? That would lead to closure and worse. The employees cannot afford it, the companies cannot afford it and the fair-paying public cannot afford it. It is not protecting the public’s purse. Why allow that to happen due to an over-simplistic approach? The Government really need to defend open schemes in this Bill. Given that importance, I am minded to press the amendment to a vote. I beg to move.

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[Earl Howe]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for her amendment, which touches on a number of important factors to be considered in the development of secondary legislation, including the factors that it lists. I say immediately that I agree that these are all important factors to take into account when developing secondary legislation for defined benefit scheme funding. However, we do not need an amendment to do that. The amendment includes factors that are all taken into consideration during the whole process of framing policy, legislation and guidance.

One of the greatest strengths of our scheme-funding regime is that it operates on a scheme-by-scheme basis because every scheme is different, and it would be unhelpful and inflexible to treat them all the same. The measures in the Bill build on that approach, as will the secondary legislation. The existing scheme-funding legislation has been drafted to ensure that it is flexible enough to apply to all types of defined benefit scheme—for example, whether open or closed. Equally, the scheme-funding measures in the Bill are flexible enough to apply to all types of defined benefit scheme.

In the protecting defined benefits White Paper we were clear that there are a number of examples for suitable long-term objectives and that running on with employer support would be a reasonable course of action for an open scheme. Whether or not the strategy for ensuring that benefits can be provided in the long term is suitable will depend on the specific context of a particular scheme. Additionally, we entirely accept that schemes with different liquidity profiles and maturity will be able to take different trajectories. This is, and will remain, fundamental to the scheme-specific approach. So I assure the noble Baroness and the House that any regulations will also be formulated with considerations such as those outlined in the amendment in mind, where appropriate.

The big danger with an amendment of this kind is that it creates inflexibility. It remains our aim that the scheme-funding measures in the Bill do not change existing flexibilities but, rather, seek to make best practice universal and ensure that all schemes are planning for the long term. It is good practice for all schemes, including open schemes, to set a funding and investment strategy.

My noble friend Lord Young asked whether I could commit to a meeting along with officials to discuss these issues. Yes, I am happy to do that, and if schemes have concerns with what TPR is proposing they can engage with the current consultation. The Pension Regulator’s current consultation on the defined benefits funding code includes a twin-track compliance process that takes account of scheme and employer circumstances. Indeed, the current consultation has a full chapter on open schemes, and I encourage anyone interested to contribute their views.

Regulation-making powers exist precisely to allow the system to be calibrated effectively to ensure that this balance is struck. While the noble Baroness’s amendment reflects a number of factors that are considered while developing policy, we do not need to specify those in primary legislation and indeed, as I hope I have indicated, it would be unhelpful to do so. We need to leave room for the flexibility that I have emphasised; we must leave enough flexibility in the system to allow it to react effectively to future changes. Indeed, in the light of the current social and economic climate, it is very clear that the economic shape of the future is unknowable.

I hope that the noble Baroness will recognise from what I have said that the Government’s approach is fair and proportionate and that she will accept my assurance that appropriate flexibilities are, and will continue to be put, in place. On that basis I respectfully urge her, and urge her with some emphasis, to withdraw the amendment.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I thank all those who have spoken in this debate. I particularly thank the noble Lord, Lord Young, and the noble Baroness, Lady Altmann, for signing the amendment, for making their contributions and for speaking to the Government. It is clear to see that there is support for the amendment from across the House, and I hope that it is also clearer to everyone why preservation of open DB schemes is in the public interest. We are, in fact, in a rather strange situation where the Minister is in agreement with the policy; it is in government policy, but yet there is a significant danger from what the Pensions Regulator has actually said. That is the sole reason why there needs to be something on the face of the Bill that confirms what is government policy.

The Government have a further opportunity to amend this Bill in a way that they consider is better than my amendment and give guidance in a different way. I would be happy to help, but we have run out of time and I have not heard a suggestion that something will actually be presented at Third Reading. This House does not have any more opportunities with this Bill, and I cannot see anything coming down the track to give us another opportunity that would be in time to make a difference with regard to the Pensions Regulator’s obvious position.

This is not a new argument: I have spent 10 years in Brussels arguing the toss on these things, on the difference between IORPs and Solvency II, and I know where the pressure comes from the former FSA—now the FCA. Part of this Bill, on CMP schemes, is fixing a problem for one newly privatised employer. Why dump others who have found good ways to make their DB schemes flourish and last? If the Government do not make it clear, that is what will happen: they may well end up being dumped.

In the first group of amendments, the noble Baroness, Lady Sherlock, said that she did not want CMP schemes to undermine DB schemes. Without this amendment or something like it, they may well have nowhere else to go. This is not a nice-to-have amendment; it is vital. The issue should not be swept into the corner for these pension schemes to die quietly, and I wish to test the view of the House.

Pension Schemes Bill [HL]

Baroness Bowles of Berkhamsted Excerpts

Consideration of Commons amendments & Ping Pong (Hansard) & Ping Pong (Hansard): House of Lords
Tuesday 19th January 2021 Lords Chamber

Moved by

[Baroness Bowles of Berkhamsted]

At end insert “, and do propose Amendment 4B in lieu of the words so left out of the Bill—

4B: Page 117, line 44, at end insert—
“( ) In exercising any powers to make regulations or otherwise to prescribe any matter or principle under Part 3 of the Pensions Act 2004 (scheme funding) as amended by Schedule 10, the objectives of the Secretary of State must include supporting the ability of the scheme trustees to decide the specific funding, investment risk management and diversification strategy that is appropriate for the long-term time horizon, liquidity and employer covenant of the scheme.””

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, we have come a long way since the probing discussions in Committee, when the noble Baroness, Lady Altmann, first raised concern about whether there were steps afoot to cause de-risking of open DB schemes and the effect that that might have of shifting investment to gilts. I was among several noble Lords who agreed with that concern, and I followed up on Report with an amendment, kindly signed by the noble Baroness, Lady Altmann, and the noble Lords, Lord Young of Cookham and Lord Vaux of Harrowden, which was passed.

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[The Deputy Speaker (Baroness Garden of Frognal) (LD)]

My Lords, I have not received any requests to speak after the Minister, so I now call the noble Baroness, Lady Bowles of Berkhamsted, to reply.

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, I am not normally a speaker on DWP matters—I am usually in the business and Treasury box—but, after a first foray on this Bill, or into this sweet shop, as the noble Lord, Lord Davies, would put it, maybe I should come again.

I thank all those who have spoken in this debate. The issues have already been explained and the Minister in reply has given the reassurances that were sought. Before I formally withdraw the amendment, I thank the Minister for the way in which these proceedings have been conducted, for her geniality and openness and, similarly, thank the officials from the department and the Pensions Regulator, and everyone for tolerating me.

As has been said, the issues are complex and interlinked. I am grateful to hear the Minister say that the debate around this has been influential and has refined thinking. I acknowledge that some employers will abuse the system and, because of its complexity, I accept that the Government do not want to put words into the Bill that are hard to change and which might give rise to unintended consequences. Of course, I would have preferred to see a little something there, but I understand the reasoning. I accept that there will be good consultation around the regulations and that all of us are looking for the same results.

I thank again noble Lords who have spoken today and supported me in my previous endeavours and all those who gave their expertise in earlier stages of the Bill. I am pleased that we are joined by the noble Lord, Lord Davies of Brixton, and think that we will benefit from his presence greatly in future. Others who have also assisted include my noble friend Lord Sharkey from these Benches, as well as the noble Baronesses, Lady Drake and Lady Young. I also thank the various pension schemes that have been generous with their time and information, so we were able to look at the sort of spread of assets and risks that they were talking about and did not come to this debate without a good basis of information; we knew that our arguments were supported.

It has been a good co-operative effort. I doubt that it is the end of the story, as there will be more consultations and things to watch. I hope and expect that the engagement with noble Lords by the Minister and the department and our co-operation with one another will continue. For now, I beg leave to withdraw the Motion.

Motion 4A withdrawn.