(3 years, 3 months ago)
Grand CommitteeMy Lords, I thank the Minister for her clear explanation of these regulations. I welcome them, but I would like to raise one or two questions which seek some clarity.
The Pension Schemes Act 2021 gave the regulator new moral hazard powers with the introduction of two new criminal offences and by extending the flexibility available to the regulator to make connected parties such as group companies and directors liable for pension scheme deficits, and make payments to a scheme, by issuing a contribution notice. The Act introduces two new tests for imposing contribution notices: when the regulator considers that an act or failure to act materially reduces the employer debt likely to be recovered if a Section 75 debt has fallen due immediately after an insolvency event or reduces the resources of the employer in a manner which was material when compared to the debt in the pension scheme—the employer resources test, which is the subject of these regulations.
They set out that employer resources test for assessing whether a relevant act or failure to act reduced the value of the employer’s resources and whether that reduction was materially relevant to the pension scheme’s debt. I read in detail that the employer resources will be assessed through the pre-Act normalised annual profit before tax measure, under which non-recurring or exceptional items are removed, and then the impact of the act or failure to act on that profit is determined. If that impact is material, the regulator can start to build its case for a contribution notice. Indeed, it is a measure akin to the employer’s ability to support the scheme. The measure is sometimes used in the preparation of an employer covenant analysis undertaken for trustees.
For the record, as it is not clear, can the Minister say how dividends, including payments within a group of companies, will be treated in the normalised annual profit before tax measure and in the assessment of material detriment? That certainly proved a controversial issue of concern during scrutiny of the Pension Schemes Act 2021, and it is not clear—certainly not to me—how those will be considered under the new test. From a pension scheme member’s point of view, if the resources of the employer sponsoring the scheme are weakened through transferring assets or dividends, leveraging more debt or some other reason, the employer basically may be less good for the money and pension benefits will be less secure. They will look to the cavalry at the regulator to come over the hill and issue a contribution notice, and they need to have the confidence that that will actually be done with more focus, positivity and speed of action than the past has demonstrated.
In their response to the consultation published on 29 June, the Government set out their reasoning for the employer resources test. In summary, it said that, in the majority of past contribution notice cases, the regulator faced
“difficulty in forecasting the medium and long-term performance of a business for the purposes of the … ‘material detriment test’.”
This is because it had to extrapolate from an employer-related act into the future, with the uncertainty and challenges that causes evidentially. Indeed, trustees can experience exactly those similar difficulties in trying to assess those implications for the employer covenant, because there is no industry consensus on how to value the employer covenant. Therefore, the employer resources test removes the need to forecast how the employer might or might not have performed in the absence of that act and assesses the impact on a snapshot basis. So it is quicker, sharper and more efficient.
However, the regulator still will not be able to issue a contribution notice if a party can show that they meet the conditions for a statutory defence and can provide reasonable excuse. The three premises are that they gave prior consideration to the test and to the extent that the failure or failure to act would reduce the value of the employer’s resources in a material way; that they took all reasonable steps to mitigate any such detrimental impact; and that it was reasonable for them to conclude that the act would not detrimentally affect in a material way the likelihood of the scheme members receiving their benefits.
I sighed a little because, even after applying the employer resources test, the regulator still has to conclude that it would be reasonable to impose a contribution notice, taking into account all relevant factors including the extent of any mitigation provided and a broader assessment of the employer’s strength. I just wonder whether we are going to face a potentially long and drawn-out process, which the employer resources test was intended to remove, in the way in which the defence arguments can be applied and whether the Government’s intention of deploying an employer resources test as a quick and efficient snapshot—rather than on a holistic basis—could be undermined.
I ask the Minister: what powers or processes are relied on to prevent the statutory defence conditions undermining the policy intention to have a quick and efficient employer resources test? Is it the intention to issue fuller guidance on how measures to mitigate the detrimental impact on pension schemes of an act or failure to act will be assessed as to whether they are sufficient to meet the statutory defence? These are the kind of realities that trustees will need to understand and employers will need to know.
Just as a concluding line, poor behaviour affects not only the value of members’ benefits paid but, as the Pension Protection Fund is funded by a levy, it affects those businesses which abide by the rules but end up bearing the costs and subsidising those businesses which seek to avoid their pension liabilities. Good employers and trustees or members have an interest in these new regulations working efficiently.
My Lords, it seems like quite a long time ago that we were last in this Room. In fact, I think the last time I spoke in this Room was in the discussion on pension schemes, so it is nice to see a lot of old faces. There is a nice feeling of déjà vu about it. These regulations are reassuringly brief, so I will try to keep my comments equally brief, if I can.
First, I was a bit confused by the name of this, which refers to an employer resources test, that test being profit before tax. Profit before tax is not a measure of a company’s resources. It is a backward-looking measure of a company’s profitability. I question the comments in the Explanatory Memorandum that
“profit before tax … is less subjective than other options”.
Notoriously, profit before tax can be made to be whatever one wants it to be. A cash-flow measure would be an altogether less subjective, more objective measure. Profit before tax also does not, as the noble Baroness, Lady Drake, has said, take account of other forms of leakage of resources out of the company, be they dividends, share buybacks or massive capital expenditure. It is perfectly possible for a company to be highly profitable and highly indebted at the same time and therefore to have very low levels of employer resources.
I was a bit confused by the title, and would therefore like to add my name, as it were, to the question asked by the noble Baroness, Lady Janke, about why the Government did not go down the holistic route of looking at multiple measures that give a full picture of the employer resources rather than this one very narrow picture which is only a backward snapshot.
I have two other questions that relate to the discussions we had at the time of the Pension Schemes Bill. This instrument is obviously relevant to the subject of dividends that companies with deficits pay. The noble Baroness will remember that we had quite a lot of discussions about that back then. Indeed, the Minister at the time agreed that the Government would keep the question of dividend payments by companies in deficit under review.
I have two questions. First, can the Minister explain what assessment the Government have made of the impact that these regulations might have on the ability of companies to pay dividends? There has been some speculation in the press that it might significantly depress the payment of dividends by companies, something which on the whole is a good thing, but there could be situations where that could be a negative. Secondly, I would welcome confirmation from the Minister that the Government are still keeping under review the question of payment of dividends by companies that have deficits, as they promised.
(3 years, 3 months ago)
Grand CommitteeMy Lords, we certainly agree with the policy aims and mechanisms of this instrument and endorse the Government’s actions to make sure that
“members do not languish in sub-optimal arrangements that do not meet governance requirements and are unable to take full use of investment opportunities, to the benefit of the end saver’s eventual retirement outcome”,
as the Explanatory Memorandum states.
As the Minister has said, paragraph 7.6 of the Explanatory Memorandum explains that Regulation 2 requires that schemes holding assets worth less than £100 million and which have been operating for three or more years are to compare charges, transaction costs and the return on investments with three other schemes. We are not clear how those schemes are to be selected and who is to select them. Is it the trustees, for example? Are there selection criteria other than that they have assets of more than £100 million and are personal pension schemes? If it is not the trustees, who selects the comparator schemes?
Paragraph 7.8 states:
“Where the trustees have reported that the scheme does not provide good value for members, they are also required to report whether they propose to wind up the scheme and transfer the members’ rights into another scheme or explain to TPR why … not … and what improvements they are planning to make.”
What happens if these improvements are not acceptable to the Pensions Regulator and what powers does the regulator have based on compliance or non-compliance with Regulation 3?
We would probably all agree that it is a good idea to encourage smaller funds to transfer rights or improve if Regulation 2 comparisons show poor performance, but what about larger funds? Should there not be a requirement for them to undertake the same comparisons and take the same actions if their schemes show poor value for money for their members? It is easy to see why small funds should be encouraged in this way but hard to see why larger firms are not similarly encouraged. I would welcome the Minister’s clarification on these points.
My Lords, I refer to my entry in the register of interests, particularly as trustee of a large master trust and the Telefónica pension scheme. I thank the Minister for the clarity of her explanation. It is a pleasure to talk face to face, rather than digitally, for once.
Of the three main provisions in these draft regulations, one requires smaller DC schemes with less than £100 million to demonstrate overall good value. If they cannot, the expectation is that they will wind up and consolidate into another scheme. The regulations also require schemes to take their net investment returns and increase flexibility to take account of performance fees when calculating the 0.75% pension cap on pension savings.
I support the focus on smaller schemes and the drive to consolidate them into larger schemes. The TPR evidence reveals that many smaller schemes struggle to match the governance, investment opportunities and charges delivered by schemes operating at scale, but the Minister’s aspirations are high. I quote Guy Opperman, who wrote:
“It is not my intention to stop at £5 billion”,
and that
“There is no doubt in my mind that there must be further consolidation”,
and that
“further action will follow”.
However, even a threshold of £5 billion goes beyond small and will catch all but the very largest of DC schemes.
The Minister believes that consolidation drives better member outcomes, a view again with which I agree, and I accept that scale matters. The Minister wants to understand the barriers to further consolidation through two lenses. He stated:
“I am particularly keen to understand how the creation of greater scale in the DC market can benefit members through economies of scale and access to alternative investments.”
However, the Government have to recognise that they created some of those barriers, even though the case for scale was well documented at the time. When auto-enrolment was introduced, they took the view that there should be an open market with virtually no barriers, or few barriers, to entry, with the inevitable proliferation of provision and the acceleration of small pot numbers that followed, which made decisions for employers even more complex. The transfer of the cost of market failure on to the members of the growing number of poorly regulated master trusts was eventually recognised and led to the new authorisation regime. At the start of that authorisation regime there were 90 master trusts; 37 were granted authorisation, a reduction in the overall size of the market by 58.8% in a little over a year, perhaps an indication of how inefficient the original policy had been. Is it anticipated that the drive to accelerate the consolidation of schemes will lead to a further reduction in the number of authorised master trusts? Will the TPR be expected to modify its approach to the authorisation criteria? Given the Minister’s aspiration and the Government’s drive for greater consolidation, what do they consider would be the optimal outcome in terms of the number of schemes? How do they define optimum scale in terms of assets under management?
The Government’s policy that consolidation into fewer and larger DC schemes will facilitate greater investment into a wider range of assets and bring benefits to scheme members and the UK economy was captured in the letter of 4 August from the Prime Minister and Chancellor, entitled Igniting an Investment Big Bang: A Challenge from the Prime Minister and Chancellor to the UK’s Institutional Investors. They called for the need to,
“seize this moment … to unlock the hundreds of billions of pounds sitting in UK institutional investors”—
particularly pension schemes—
“and use it to drive the UK’s recovery”,
and growth. They added that the Government were,
“doing everything possible—short of mandating more investment in these areas as some have advocated—to encourage a change in mindset and behaviour among institutional investors, and we remain open to addressing further barriers”.
(3 years, 7 months ago)
Lords ChamberAs I originally said, we have 195,000 vacancies and more are still coming in, so we are positive that we will create hundreds of thousands of jobs for Kickstarters. We are well aware of the difficulties associated with the north-east. We are doing a deep dive on Friday with departmental officials, and we are working at pace to secure adequate opportunities for the plan for jobs. I am confident that we will meet our target in the timeframe allocated for Kickstart.
Can I press the Minister on my noble friend’s question? When will the Government report what direct action they are taking now to ensure they deliver equity across the regions on Kickstart placements? Sentiment is fine, but could we have the evidence of what the Government are doing to ensure equity? Secondly, unemployment of young black people started high and is rising faster than that of their white counterparts. What measures are the Government taking now to stop potential bias and discrimination in the hiring process for Kickstart jobs?
(3 years, 9 months ago)
Lords ChamberI understand the noble Lord’s desire to move speedily on this and I share that desire. Following our engagement session in November, policy officials met the BBC and the director of policy then had a meeting on 17 December. This was followed by a working-level meeting with the DWP and BBC on 11 February. On 29 March, the Minister for Pensions and I will meet the BBC director-general. Of course we will meet Peers again. We are open to dialogue and, in early May, there will be a stakeholders’ meeting including people from other industries.
My Lords, it is clear that the numbers in pensioner poverty have risen. Benefit take-up rates by poor pensioners are low—37%, or 1 million, do not claim the credit. They are now being billed for a TV licence that they should not have to pay for and that they cannot afford, and they will get even poorer. The Government handed over policy on pensioners and the licence fee to the BBC, but they did not hand over their responsibility for the poorest pensioners. I put again the question asked by my noble friend: will the Minister give a backstop date by which there will be a meeting of the Peers with the voluntary bodies involved with the pensioners, the BBC and DWP, so that all the parties in the room can look at this challenge that we need to face? Secondly, will the Minister confirm that she will consider innovative changes to get that take-up rate increased, such as auto-enrolling the poorest pensioners?
I assure the noble Baroness that the Government are committed to action that helps to alleviate levels of pensioner poverty. I regret that I cannot confirm a backstop date, but I can confirm that we will meet Peers and that we will use all the tools available to us for innovation to try to help this group access pension credit.
(3 years, 10 months ago)
Lords ChamberMy Lords, I refer to my pension scheme interests as listed in the register.
I, too, thank the Minister for her presentation. Auto-enrolment has been stress tested during this pandemic and in large part has stood up well, reinforced by support from the Treasury through the various job protection measures. No doubt, the DWP has been a powerful influencer as to the strategic importance of protecting the private pension system. But, in making that acknowledgement, I want to refer to some—I cannot cover all—of the casualties that have occurred.
The key target group for public policy on auto-enrolment is low-to-moderate earners, including young people and women, but the pandemic has brought widening divisions. Young people are more likely to work in the most impacted sectors, to be made redundant or be furloughed, and to find it harder to enter a difficult labour market. In 2017, the Government commissioned a review of automatic enrolment and committed to changes by the mid-2020s to extend coverage. I am sure that if I ask the Minister for a timetable for those changes, she will repeat that it must be considered in the context of supporting businesses and getting people into work, but I want to push back on that argument, on a particular priority.
Young people will feel the consequences of the pandemic for their life chances for many years to come. The Government should give priority to automatically enrolling workers from age 18 and enrolling all young people registered as unemployed or earning below the earnings trigger into a private pension account, into which government makes a contribution. Other public service obligations are built into the design of auto-enrolment. This should be another—to increase the prospects of young people building up a decent pension pot, which has taken a kicking as a result of the pandemic. Will the Minister consider that proposal and give it priority?
The £10,000 earnings trigger has been frozen, but it still means that women will make up well under 40% of the eligible population for auto-enrolment. If more unemployed women re-enter the labour market on lower earnings, even the estimate of 8,000 more becoming eligible could well be overstated. There are other inhibitors to women building up their pension pot. Noble Lords have already raised the issue of tax relief. However, some master trusts offer both relief at source and net pay. It is not the case that all schemes offer only one option. But the main point is that we still have significant unresolved inequalities in respect of women, auto-enrolment and private pension schemes, which the Government do not seem to have the drive to address.
Another casualty is that rising unemployment will accelerate the small pension pot problem, particularly in sectors where the incidence of small pots is already high. As a DWP report suggests, it is employment ending and transitions to new jobs that drive growth of small pots, rather than active decisions to discontinue saving. There is a really pressing need to find a solution. The Government tilted at one in 2013, with pot follows member, but then kicked the can down the road. By when do the Government anticipate they will have a solution for small deferred pots that is fit for purpose?
Finally, it is now over five years since pension freedoms were introduced. There is increasing evidence that industry and policymakers are creating a retirement market based on assumptions about savers’ behaviours which are inconsistent with how they actually behave. Pension freedoms have also reframed the pension pot away from being the means, together with the state pension, to secure an income for life in retirement to being seen as an accessible pot of money to fund priorities in the near-term future. If that reframing persists, there will be a real public policy failure in 20 or 25 years’ time in terms of the money that people have as income in retirement. When will the Government commission a review of the impact of pension freedoms on desirable public policy outcomes?
(3 years, 10 months ago)
Lords ChamberMy Lords, I congratulate my noble friend Lady Sherlock on bringing clarity to the dauntingly complex in expressing her regret. We should be clear, to quote Scope, that this change affects a group with some of the highest support needs and extra costs. These are the people we are putting at risk, many of whom are shielding at home and facing spiralling energy costs. I, too, quote Marie Curie, because it is such a reputable organisation, about those living alone with lifetime illnesses and the cut in SDP. It says that without this money available, many more people are likely to struggle to afford the costs of care. That is likely to reduce social contact, increase their social isolation and have a devastating effect on many people nearing the end of their lives.
I have absolutely no doubt that the Minister is committed to enhancing the well-being of those with serious disabilities, but regrettably, as so powerfully articulated by my noble friend and reputable voices on behalf of those with disabilities, the new regulations will give rise to detriment for some severely disabled claimants. The loss of SDP under universal credit leaves new claimants worse off. Vulnerable claimants might not understand that they could suffer financially by moving from legacy benefits to universal credit. Not all existing claimants will be fully compensated for the loss of the severe disability premium when moving on to universal credit, and the transitional compensation that is made available has limitations. Claimants on those payments will not receive any annual uplift in their universal credit, so the support erodes away. The payments are insufficient to match the combined losses under universal credit. The payment could be lost through certain changes of circumstance, and the managed migration has been paused.
The Explanatory Memorandum did not initially make it clear that these transitional payments will erode over time. That is ironic, because these regulations present one of the harshest examples demonstrating why legacy benefits should be uplifted in line with universal credit throughout the pandemic and that the £20 weekly uplift should be retained after April.
In February, the Disability Benefits Consortium reported that over 2.5 million people are claiming legacy benefits, the majority of whom are disabled. Pre-pandemic, nearly half the people in poverty were disabled or living with disabled people. The pandemic has compounded their difficulties.
On 8 February, I received the letter that the Minister issued to all Peers, highlighting the great efforts made by DWP staff during the pandemic, which I completely endorse; I am full of admiration for the effort they have put in during the pandemic. However, she went on to refer to public expenditure on job protection, sustaining the welfare safety net and interventions to get people back into work. That and other public expenditure has to be assessed against the economic costs of not undertaking such state intervention. Yes, the Chancellor has challenging judgment calls to make, but the efficacy of those judgments does not hang on cutting the income of those with the severest disabilities. He has far more powerful fiscal measures in his armoury. Nothing about the saving, which targets such a vulnerable group of people, will seriously contribute to the challenges he has to deal with.
The complexity and downsides of these new provisions will make them very difficult, if not impossible, for some severely disabled claimants to understand. As Citizens Advice said:
“Everyone’s situation is different. That’s why it’s important to seek independent advice before making a voluntary move to Universal Credit from another benefit which includes a severe disability premium. You won’t be able to reverse your decision … you could end up worse off, despite the temporary uplift to Universal Credit.”
I add to the compelling questions posed by other noble Lords: where can claimants go for this advice? Where will they find the sources of this advice and will the DWP pay charities to assist with advice provision? As I said on opening, this is a sad tale.
(3 years, 10 months ago)
Grand CommitteeMy Lords, I thank the Minister and welcome the decision to increase the guaranteed pension credit by the value of the cash increase in the basic state pension. Pension credit is targeted at the poorest pensioners, and it has always surprised me that the Government, given their manifesto commitment to the triple lock for the basic and new state pensions, never committed to a protective underpin for our poorest pensioners. Some 1.5 million people receive pension credit, but over a million eligible pensioners do not claim. Now, by not claiming, many will see their annual income reduce by £157.50 when they get their TV licence demand. The BBC, by targeting pensioners in receipt of the pension credit for exemption from the licence fee, perversely excluded over 1 million eligible people for not claiming that credit. Recently there has been radio silence from the Government about how they are progressing and protecting this million, so can the Minister reassure the Committee that they are not walking away from the problem, having handed over policy on pensioners and the licence fee to the BBC?
In the UK, declining levels of household financial resilience were a growing problem before the pandemic and increasingly evident during it, contributing to the easements necessary to create a functioning welfare system. Factors that increase household resilience, such as employment benefits, state benefits, insurance savings and affordable credit, were all weakening. Indeed, only 28% of employers, for example, now provide more than statutory sick pay of £94.25 per week—a reality quickly evident when the virus started to spread. Did the Government give any consideration to increasing the rate of statutory sick pay by more than the 50p in this SI and, if they did, could the Minister share it with us?
(4 years ago)
Lords ChamberTo ask Her Majesty’s Government what steps they are taking to ensure that the Arcadia pension fund receives all of the contributions and assets agreed between its owners, any trustees and The Pension Regulator.
As Arcadia has now gone into administration, the Pension Protection Fund, working with the Pensions Regulator, will now act in place of the trustees and will negotiate on behalf of the scheme to ensure that it is treated fairly compared to other creditors and gets what it is due. If the regulator thinks there has been wrongdoing, it may also be able to use its anti-avoidance powers to get redress.
I thank the Minister for her reply, but it gives little assurance on the £210 million of security agreed with Arcadia getting to the actual schemes. Covid has a major impact, yet large pension deficits have not just built up over the past nine months but over years, and there will be other companies who took out dividends and assets to a value much greater than deficit recovery payments made, leaving their pension schemes more vulnerable than they should be. Will the Government consider urgent amendments to the Companies Act so that directors’ duties to shareholders are subject to a responsibility to repair deficits to pension schemes? We will otherwise have endless cases such as Arcadia recurring.
(4 years, 1 month ago)
Lords ChamberThe right reverend Prelate is consistent in the issues that he raises, and I understand that. As for this happening more quickly, as I said, we were piloting and we were in dialogue. We were not sitting around waiting to be kicked into touch. As I have also said before, we have tested to make sure that these things can work. As for the long-term issue of a child poverty commission, I am not aware of any plans, but I will go away and double-check for him. I take this opportunity to thank the Church and all the faith groups who are supporting their communities in such an outstanding way.
My Lords, for the Government, protecting children is a moral imperative, because children cannot protect themselves. He may not have used those actual words, but they underpin the simple and compelling request from Marcus Rashford; that is why it was so clearly understood by the public and local businesses in their communities. I welcome the Statement as a contribution to preventing children going hungry, but this is a problem growing in prevalence and urgency. The role of local government is important, but may I push the Minister further on the question put by my noble friend Lady Sherlock about how “vulnerable” will be defined? That will be key in capturing the population to be helped and ensuring that some vulnerable families and children are not missed. For example, food aid charities have identified the emergence of the newly hungry—a growing cohort of people previously in jobs, who have been forced to use food banks and claim benefits for the first time during the pandemic. Will the Minister write, giving more detail on how the DWP will define vulnerable families in the Covid winter grant scheme, to ensure and give confidence that that category will include all those who need help?
There is a second example. On 9 November in the other place, the Secretary of State, Dr Coffey, said that
“every child has no need to go hungry in this country”,—[Official Report, Commons, 9/11/20; col. 649.]
and that there would be
“funding available for every child in the UK”.—[Official Report, Commons, 9/11/20; col. 637.]
But she did not expressly answer a question posed by Stephen Timms, so I ask the Minister that question again now. Will she confirm that this package of support extends to families who have no recourse to public funds?
Of course we agree completely that children cannot protect themselves, and we must all do our part to protect them. Local government’s role is important, and we urge all partners in the communities that work with their local authorities, and the community groups with which they have relationships, to work together to identify those they know who really need this support. I undertake to write to the noble Baroness, as she requests, about the term “vulnerable”. As for those with no recourse to public funds, local authorities can, and already do, use their judgment to assess what support they may lawfully give to each person on an individual basis, taking into account their needs and circumstances. That includes providing a basic safety net option to individuals regardless of their immigration status, if there is a genuine care need that does not arise solely from destitution—for example, if there are community care needs or serious health problems—and there is a risk to a child’s well-being.
(4 years, 1 month ago)
Lords ChamberI would like to make it clear to all noble Lords that the Government are absolutely committed to as many people getting pension credit as are eligible. We have no plans, at the moment, to introduce targets on take-up. However, the noble Baroness makes a very good point, which can be joined up with the point that the noble Lord, Lord Foulkes, made. As I have said, I will go back to the department, and I will personally come back with a response.
My Lords, given excess death rates, the Government must be increasingly concerned about vulnerable, low-income pensioners. Pension credit is targeted on the poorest. Some 1.5 million pensioners claim it but, worryingly, four out of 10 eligible pensioners do not, and they are missing out on other benefits, too. Will the Government increase the guaranteed pension credit by at least the cash value of a triple-lock increase to the new state pension? Those eligible for, but not claiming, pension credit will get a TV licence demand for £157.50. How will the Government protect them, given that their campaigns are not enough?
The noble Baroness makes the point that there are, I think, 1.1 million people who could have pension credit if they made a claim and were eligible. I know of no plans at the moment to uprate the other benefit to which the noble Baroness referred, but I will go away and find out and respond to her in writing.