Pension Schemes Bill [HL]

Baroness Neville-Rolfe Excerpts

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

[Baroness Neville-Rolfe (Con)]

My Lords, I always welcome the contribution of the noble Lord, Lord Hain, who likes to call a spade a spade. He is right to say that everyone should be encouraged to save more, especially in pensions, as they represent such a favourable form of saving.

I thank my noble friend Lady Stedman-Scott for her summary of the Bill. She used to be my Whip, and I can think of nobody more kindly and more helpful. It is a tribute to her ability that this Bill has started in this House. Her experience in the charitable sector, her openness—on which everyone has commented—and her readiness to tackle the nitty-gritty are just what is needed today. I look forward to helping her make any necessary improvements.

This is a very complicated subject and I will deal with only a few issues, which unfortunately involves leaving many important ones unmentioned by me.

The truth is that pensions legislation has a rocky past, from which we must learn. The combination of long timescales, complexity and unexpected changes in the market and in demography has been disastrous. In the 1980s, the Government promoted private pensions —a good idea in principle. However, the selling was largely unregulated and, as a consequence, a substantial number of teachers and nurses were persuaded to relinquish their state-financed final salary pensions.

In the 1990s, Robert Maxwell dealt with his financing difficulties by borrowing money from the Mirror pension funds, and he came to a sticky end. When the markets were strong, pension funds did well, but there was a rule that you could not keep more than a certain surplus in a pension fund so a number of companies gave staff pension holidays instead of saving such surpluses for a rainy day. The rain came with the arrival of Gordon Brown, who made a substantial raid on the pension funds, arguably setting them up for later failure.

I was responsible for pensions when I was an executive at Tesco, and I used to have cups of tea with Frank Field as we both felt that private provision for all company staff was a marvellous benefit. The pensions cap that limited payouts to senior staff perversely encouraged executives to wind down the favourable final-salary pensions and to reduce corporate contributions to all employees.

One of the positive changes in this sorry story has been auto-enrolment, which makes young people save for a pension with a match from their employers. In its time, that was very unpopular, especially with small business, but I believe it was right. As the noble Lord, Lord Sharkey, said, it has boosted the pension prospects of 10 million people in just seven years.

Today I shall mention just two aspects of the Bill and one omission. The first aspect is the introduction of collective money purchase schemes. I strongly support this as it will remove the unhappy choice between, on the one hand, defined benefit schemes that are unaffordable and, on the other, defined contribution schemes that put most of the risk on the individual. Savers pool their money into a single fund and share the risks of longevity and investing. As we have heard, this will help the Royal Mail, whose workers now face huge challenges as online life replaces the letter and the stamp. However, I will want to question the Minister on the potential danger of the transfer of DB scheme members to collective money purchase, possibly leading to pension providers reneging on their promises, as highlighted by the Institute and Faculty of Actuaries.

The second aspect is the requirement for pensions dashboards. With employment patterns changing, many people have several small pots and find it very difficult to keep track of them. Dashboards would allow people to see how much they could expect on retirement and to prepare better, by putting more money aside where they can—for example, through tax-free ISAs—or indeed working for longer. When the Tesco scheme was established, the average beneficiary lived until 62.

The pensions dashboard is a great digital idea. Matt Hancock would be proud of it. However, there is another problem that we will have to debate in Committee: the substantial cost, and whether that is borne by employees, employers or other beneficiaries. I have to say that the impact assessment for the Bill is impressively fat, but, unfortunately, it is difficult to understand. The various dashboard costs appear to me to tot up to well over £1 billion, which is a lot of money. We must try to keep that cost down. Can we work up a single, secure and simple dashboard system in order to do so? Is this another area where we could see a draft statutory instrument and debate the options? And is there a case for some state help for the smallest and poorest schemes? The noble and, if I may say so, expert Baroness, Lady Drake, also made some good points about the dashboards that I think need to be addressed and discussed.

I also listened to the noble Baroness on the subject of sanctions. I would like to express some doubts about the scale and nature of penalties. I think the noble Baroness, Lady Bowles, needs to listen to the Minister on this. Most pension schemes are well run and well managed. Indeed, I fear that increasing penalties, especially increasing them more than proposed, could deter respectable people from becoming trustees or entering the pensions industry. That would obviously be another perverse effect.

My final point relates to the omission in the Bill of any remedy to tackle the problem of the pension cap for professionals, notably in the health sector. This Treasury-inspired cap is leading to many GPs and hospital doctors retiring early and/or refusing to work extra hours. I understand that there has been a short-term interim fix, but my doctor friends tell me that it has introduced other disincentives. I know this is not within the Minister’s remit, but will she undertake to talk to the Treasury and write to us about this whole issue before Committee? That is just in case we need to use this Bill to help the Government to solve this appalling problem.

--- Later in debate ---

[Baroness Stedman-Scott]

The noble Baroness, Lady Drake, is absolutely correct and I am glad that she pointed out the difference to me. I would like to meet her before Committee to address that issue, if she is happy to do so.

The noble Lord, Lord McKenzie, asked why the Government have not legislated for the measures in the 2017 automatic enrolment review in this Bill. The Government have set out their ambition to lower the age at which people are automatically enrolled from 22 to 18 and to abolish the AE lower earnings limit in the mid-2020s. Our approach will be to expand the coverage and increase the amounts put into retirement savings by millions of working people, focusing on younger people and lower earners.

The noble Baroness, Lady Donaghy, and the noble Lord, Lord McKenzie, raised the subject of the self-employed. The 2017 automatic enrolment review concluded that the current automatic enrolment framework is not suitable for the self-employed. They are a highly diverse group and one solution will not necessarily fit all. The Government have committed to carrying out research trials to form the evidence base and future policy.

The noble Lord, Lord Sharkey, asked what the Government are doing to tackle investment scams—an issue raised by other noble Lords. These scams are outrageous. The Government are committed to raising awareness about pensions scams to help protect consumers. As part of this, the Financial Conduct Authority launched its ScamSmart campaign to raise awareness of the steps that people can take to avoid investment scams. During the campaign, 173,000 users visited the ScamSmart site, and 376 users were warned about an unauthorised firm.

The noble Lord, Lord Sharkey, raised the need for a stronger nudge towards guidance, as provided for in Sections 18 and 19 of the Financial Guidance and Claims Act 2018. In that Act, we committed to test different approaches to providing a stronger nudge towards Pension Wise guidance. Pension Wise began this work on Royal Assent of the Act and it was picked up at the launch of the Money and Pensions Service. Trials commenced in October 2019. We are on course for those trials to finish and for qualitative work to be undertaken ready for the publication of the evaluation report in the summer.

Many noble Lords raised the question of whether there should be one dashboard or multiple dashboards, and the views on that were mixed. My noble friend Lady Fookes asked why there should not be just one, but I was interested to hear the noble Lord, Lord Sharkey, say that multiple dashboards will give consumers more choice in where they access pension information. Multiple dashboards will help to meet the varied needs of the 24.5 million people with pensions and wealth. I am sure that this is a topic on which we will have extensive discussions prior to and during Committee.

The noble Lord, Lord Vaux, made the point that the payment of dividends will not be a notifiable event. It would be disproportionate to require every dividend payment to be notified to the regulator. Hindering dividend payments could affect pension schemes, as many are shareholders in companies with DB schemes.

The noble Lord also raised the Dutch scheme. Despite communication issues in Holland, for generations the Dutch scheme worked as though it were a DB scheme. Where adjustments needed to be made, these came as a surprise. We will ensure that in communications to members, particularly at key points throughout a member’s pension scheme journey—on joining and annually, and before and during retirement—CDC schemes are clear and transparent that benefit values may go down as well as up.

The noble Lord, Lord Vaux, asked what safeguards there are to ensure that transfer values are fair. The cash equivalent transfer value represents the actual calculated cash value of providing members’ benefits within the scheme. Legislation provides a framework for the calculation of transfer values that trustees must follow.

The noble Lord also asked why companies should not be stopped from paying dividends if their pension schemes are in deficit. We do not believe that it is sensible to stop companies paying dividends to shareholders, even when a scheme is in funding deficit. Government intervention to block dividend payments could discourage investors and weaken the business, further reducing the security of the defined benefit scheme.

The noble Lords, Lord Vaux and Lord Sharkey, and others raised a lot of questions on that subject. It is not that I am not trying to give an answer; it is just that I am unable to do so at the moment, but I will get back to them.

My noble friend Lady Altmann asked what the sanctions will be for pension scheme providers who do not comply with compulsion. If a pension scheme provider fails to comply, it might be subject to penalties, including fines. The regulator will have a range of powers, including issuing compliance notices, penalty notices and fines.

My noble friend also raised the question of simpler annual benefit statements. The industry delivery group will consider the outcome of the consultation on simpler statements when making recommendations on the information to be included on dashboards.

I pay tribute to my noble friend Lady Altmann, whose tenacity on net pay allowance and tax relief is legendary. She has taught me everything that I know about it. That was a matter raised also by the noble Lord, Lord McKenzie. I am not trying to get out of anything here but it is a matter for the Treasury. However, the Government recognise the different impacts of the two systems. To date, it has not been possible to identify any straightforward or proportionate means to align the effects of net pay and relief at source. However, as announced in our manifesto, the Government will conduct a comprehensive review of how to fix this. We say that we will do it.

My noble friend Lady Altmann asked whether the new scheme’s funding requirements support the plumbing pension scheme. I am afraid that I am not able to give a response to that at the moment but I would love to meet her and give her the information that she requires, as well as making it available to other noble Lords.

I am taking a moment to look through my responses in an attempt to be fair to all noble Lords, although I do not think that I am doing a great job.

The noble Baroness, Lady Drake, raised the important point of carer’s credit and the family carer top-up. The Government recognise the valuable role of carers and the fact that they are disproportionately women. The Government Equalities Office gender equality road map, published in July 2019, set out plans to support carers. They included helping people to return to work after taking time out for caring. We are working closely with colleagues in the Money and Pensions Service to empower people to take informed decisions about saving throughout their lives. I am sure that we will revisit this very soon.

We have talked about the gender pay gap—a matter raised by the noble Baronesses, Lady Drake and Lady Bryan. As I said, automatic enrolment has helped lots of women—I have given the statistics. We want to empower them to take informed decisions about saving throughout their life, but we have made progress in bridging the gap.

The noble Baroness, Lady Drake, talked about the consumer protection regime. The Government recognise that the regulation of dashboard providers is critical to maintaining public confidence. My department has been working with HM Treasury and the FCA to decide how best to ensure that the regulatory regime is appropriate and robust.

The noble Baroness, Lady Drake, also raised the important issue of the security of data on pension dashboards. Ensuring the security of data is key to establishing consumer confidence in the dashboards. The Government are committed to ensuring that the infrastructure includes a level of identity assurance that satisfies the good practice established for national cybersecurity.

The noble Baroness, Lady Drake, and my noble friend Lady Noakes raised the subject of the Pensions Regulator. They questioned the impact of the new criminal offences and wondered whether their scope was too wide. We do not want to stop legitimate business activity, such as lenders taking security for normal financing activities. The Government are clear that businesses must be allowed to make the right decisions to allow them to develop and grow.

The majority of employers want to do right by their scheme. However, we must ensure that sufficient safeguards are in place to protect members’ pensions from the minority who are willing to put them at risk—I mention no names. The Government are committed to the Money and Pensions Service providing a dashboard, and MaPS committed to providing a dashboard in its 2019-20 business plan.

I turn to the contribution of my noble friend Lord Young. His powers of foresight are legendary; I am envious, and I am sure that many in both Houses would like to have them. The same is true of his oratory powers; he is very eloquent and his Front-Bench contributions are much missed in this House. We will meet before Committee. Time is really getting on now. I will respond directly to my noble friend Lord Young on the points he raised, and will have an answer to the point raised by my noble friend Lord Flight on equity release.

My noble friend Lady Noakes asked whether there are adequate appeal processes. The answer is yes and I would be very happy to talk her through those at a later time. Her description of a “half-baked dashboard” is interesting. We undertook a significant consultation and got more than 120 responses. These were published in April 2019 and were taken into account during the development of the legislation. We will continue to seek all views as we develop regulations.

The noble Baroness, Lady Donaghy, raised a point about holders of multiple part-time jobs. Currently, where an individual does not earn more than £10,000 per annum in a single job but earns more than the lower limit of the automatic enrolment qualifying earnings band, they can opt in to a scheme in one job and receive the mandatory pension contribution from their employer on earnings over that level.

The noble Baronesses, Lady Hayman and Lady Jones of Whitchurch, talked about climate change. This is a subject close to our hearts and I will meet with them both to talk in more detail. The Government are absolutely committed to tackling climate change and recognise the concerns that have been raised. We have already introduced legislation to require pension schemes to state their policy. In building on this, the DWP continues to work with the industry.

On dashboards, we expect that initially there will be no more information than is already available; to start with, simple information will become available. The delivery group may make recommendations for adding more detailed information as the needs and interactions of users develop.

[Baroness Neville-Rolfe]

Before the Minister sits down, would she be willing to talk to us a little more about the detail of the subordinate legislation on dashboards? She kindly said that she would do that on the first part of the Bill, but several noble Lords are interested in the subordinate legislation on the dashboard.

[Baroness Stedman-Scott]

Of course, I will do that as soon as possible. This is an important Bill with a far-reaching impact on people. We will all work together in the House to get the legislation as we want it. I extend my invitation once again to all noble Lords who may wish to discuss any further issues before Committee. Our door is always open. I thank noble Lords for their contributions today. I commend the Bill to the House and ask that it be given a Second Reading.