Pension Schemes Bill [HL]

Baroness Neville-Rolfe Excerpts

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

[Baroness Altmann [V]]

My Lords, I have added my name to these amendments in the names of my noble friends Lady Noakes and Lady Neville-Rolfe. I congratulate my noble friend Lady Noakes on the way she introduced this amendment.

There are valid concerns around the wording of the good intentions of this Bill to introduce criminal offences or financial penalties for avoiding employer debt or risking member-accrued benefits. But it is right to express some concerns that this should apply only if the person is either an employer or associated with the employer, so that professional advisers cannot be held criminally liable, nor banks just making loans in the ordinary course of business, nor even insurers for mistakes made in underfunding the pension scheme.

I welcome the long-overdue extension of the Pensions Regulator’s powers contained in this Bill, which can punish wilful or reckless behaviour and non-compliance with contribution notices and so on. I also welcome the intention to deter bad practice by scheme employers, and indeed scheme trustees from undermining their pension scheme. It is right to have a criminal offence, but, as currently written, the provisions under Clause 107 could criminalise anyone who deals with a pension scheme. I do not believe that is the intention, and it could leave parties reluctant to deal with a business because of its pension scheme, which could in turn jeopardise the ongoing solvency of the company. Therefore, I would welcome some reassurance from the Minister that this will not be the outcome of this legislation.

Some might say that advisers should surely share the responsibility were there to be attempts to avoid pension debt. I have some sympathy with this. So, once again, will my noble friend reassure us that this Bill will not see those acting in good faith being caught out by the actions of an employer, or even perhaps of complicit trustees who might act in ways that are detrimental to the scheme? I hope that this reassurance can be forthcoming.

[Baroness Neville-Rolfe (Con) [V]]

My Lords, I support my noble friends Lady Noakes and Lady Altmann and the strong case they have made for these amendments. Noble Lords may recall that at Second Reading on 28 January I expressed some doubts about the scale and nature of the penalties in this Bill, which include a civil penalty of up to £1 million. I am still concerned that increasing them, especially the new criminal element, will deter the respectable people we need from becoming pension scheme trustees.

The world has been changed by the challenges of the coronavirus, as we have just heard. According to Patrick Hosking in the Times yesterday, using figures from pension experts Barnett Waddingham, FTSE pension deficits have soared by £45 billion to £210 billion since the start of the year, so that companies that have a deficit are now a good deal further away from closing it. This is an enormous strain on mostly well-run companies and schemes and reflects years of low interest rates caused by QE and turbulent equity markets. Who would want to get involved in pension administration? Yet its success is at the heart of the British savings system and vital to the future livelihoods of millions of hard-working people, often of modest means, up and down the country.

The Bill rightly reflects the need to plug a hole revealed by the Philip Green case and the furious debate in Parliament before Sir Philip was persuaded to pay up. However, as is often the case with legislation that responds to scandals, it is wide-ranging and takes enormous powers. It goes too far in my view towards burdening business at the expense of other stakeholders. The result will be less willingness to become a trustee and more administrative and other costs for pension schemes paid for, in the end, by the unfortunate pensioners, and the risk of more businesses being pushed into the Pension Protection Fund. This is the background to my unease with Clause 107 and why I moved an amendment in Committee with the help of my noble friend Lady Noakes, and why I now support her and my noble friend Lady Altmann with these amendments.

The criminal offences in Clause 107 are widely drawn. They try to catch bad behaviour by anyone who might be involved. But I maintain that this may have appalling perverse effects, injecting great uncertainty into what is permitted behaviour by those involved in pensions administration. My principal concern is with trustees, having been one and knowing what fine judgments one is called to make, but also with financial advisers, actuaries, accountants, insurers, property consultants and even secretarial support, all acting in good faith. It is one thing to provide for criminal sanctions against an employer, but wrong to extend this in such a vague and general way. A number of suggestions were made in Committee as to how one might tackle this, but disappointingly the Government have not listened—or not so far.

These new criminal offences will have a chilling effect on trustees and others involved, as my noble friend Lady Noakes explained, and I ask my noble friend the Minister to agree to think again and to narrow the very wide offences in this Bill to provide some comfort, either in this House or when it proceeds to the other place.

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

Lord Naseby has withdrawn, so I call Lord Blencathra. No? I gather that there have been some problems, so I call the noble Viscount, Lord Trenchard.

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[Baroness Noakes]

I shall be brief. I indicated that I want to speak on these amendments because I am concerned about the impact that they would have on companies’ ordinary transactions. Part of the problem would be that there is no distinction between ordinary dividends and something that might be regarded as an excessive dividend.

The noble Lord, Lord Vaux, has taken the approach of saying that share buybacks are always less common and always have to be referred to the regulator but other distributions of capital by way of dividend are not. Life is never that simple; if you are sitting in a boardroom deciding on dividend policy, there is clearly an approach to ordinary ongoing dividends. Then there is what you do with surplus capital, which can go by way of either a special dividend or a share buyback. I do not know how this amendment could possibly differentiate between those.

When one gets into the detail of Amendment 51, which tries to set a level at which so-called ordinary dividends would trigger the potential interest of the regulator, we could potentially get into problems. I do not think that it would be healthy to have major uncertainty hanging over companies undertaking their ordinary approach to the distribution of profits alongside what might well already be a well-defined deficit repair plan with contributions already agreed with the pension trustees, and then have something on top be required to go to the Pensions Regulator. The definition of what the regulator should be interested in will end up with a lot of things being notified to the regulator that, frankly, cause no concern at all. I do not think that that is an efficient way to approach life.

[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.

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[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.

[Baroness Neville-Rolfe [V]]

My Lords, as noble Lords know, I am as concerned as anyone with consumer protection. I therefore welcome the amendment which we have agreed to during the passage of the Bill to ensure that the Money and Pensions Service provides a public-owned dashboard. That was a great step forward, and we will come on to that on the next amendment.

However, I fear that this amendment could stop commercial experimentation, which is desirable if properly regulated. As I understand it, any organisation providing a pension dashboard must achieve authorisation from the FCA. Innovation is important and can help consumers and pensioners. If the amendment were passed, it could have a chilling effect and prevent innovation until another Bill had cleared Parliament—not, I suspect, a welcome prospect for HMG after the extent of the amendments made to this Bill.

I have a question for the Minister. I am a little concerned about compliance with GDPR, which obviously is important in securing equivalence in the EU context, where portability is a key requirement. I wonder if the amendment could run us into any trouble on that aspect of regulation.

[Baroness Janke [V]]

My Lords, I support Amendment 52. I also support the other two amendments tabled by the noble Baroness, Lady Altmann, as a result of the matter being much debated in Committee, I am very grateful to the noble Baroness, Lady Drake, for her clear analysis of the issues involved.

Many would say that pensions dashboards are long overdue. They enable people to plan their future finances taking account of existing pensions, and to take a long-term view of future financial provision. However, the challenge of producing a dashboard that will adequately cover the complexity of the pensions landscape should not be underestimated. We are talking about millions of people, and the enormous number of lost pensions that we hear about shows both the need for and scope of the task. Given the level of complexity, the scope for scams and fraudulent actions increases and it is therefore essential that members of the public are sufficiently protected.

As many noble Lords have said, the vulnerability of many people means that they can be much more susceptible to scams and bogus claims and apparently attractive offers from the commercial sector. The additional factor that digital literacy and access can be problematic for some people also needs to be considered. That and the lack of sound advice can lead to bad decisions and life-changing, irreversible mistakes, as we heard from the noble Baronesses, Lady Drake and Lady Altmann, in Committee.

Pensions is a complicated subject; it is not easily accessible by everyone. Lack of engagement, which has already been talked about, is a result and, as the noble Baroness, Lady Drake, said, people often take the line of least resistance and take wrong decisions that they are unable to change. I hear the arguments made by the noble Baroness, Lady Neville-Rolfe, about innovation. Certainly, it is an important factor, but I feel that the protection of pension holders is more important. Measures to provide full protection should be the subject of further primary legislation rather than secondary legislation, as indicated in the Bill.

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[Lord Sharkey [V]]

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

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

[Baroness Neville-Rolfe [V]]

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

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

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

[Baroness Janke [V]]

I support Amendment 63 and am not voting from a garden bench. The case for this amendment has been very well stated and I will therefore not take up time by repeating it here. I support Amendment 63 and will vote for it if there is a Division.

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So, while ministerial assurances are all very well, if we are to continue the sensible—and, I repeat, ethical—policies of the Railways Pension Scheme, it is essential that the Government accept this amendment and write it into the Bill.

[Baroness Neville-Rolfe [V]]

My Lords, I have little to add, but I very much agree with ensuring that

“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”,

to quote from the amendment. I look forward to hearing from the Minister on how he can meet the House’s concerns.

[Lord Bradshaw (LD) [V]]

My Lords, I too welcome this amendment in the name of my noble friend Lady Bowles to help keep open defined benefit schemes. This is to be applauded, as I believe that they are in the best interests not just of their members but of wider society. Open defined benefit schemes assist UK plc over the long term and reduce the potential burden on the state from inadequate pension provision.

As we have heard, the genesis of this Bill dates back to corporate failures such as Carillion and BHS. It is right that the Government look to address the shortcomings that led to these failures and the losses that members of those schemes unfortunately suffered—but it is important to learn the right lessons. BHS and Carillion were fundamental examples of pension schemes brought down by a failure of corporate governance to manage those companies properly, not of companies brought down by a failure to manage their pension schemes.

Like other noble Lords, I understand the Pensions Regulator seeking to protect members’ benefits, but it should look at defined benefit schemes, because they look to the future. They do not just look in the rear- view mirror but have a much wider responsibility to act in the best interests of all members—past, present and future.

Any moves to significantly reduce those returns by forcing schemes that remain open to new members to start investing in line with the risk profile of closed schemes will have unintended consequences. I shall certainly support the noble Baroness, Lady Bowles, if she decides to call a Division.