Pensions Bill

Baroness Sherlock Excerpts

Wednesday 12th March 2014 Lords Chamber

[Lord German (LD)]

I shall say a few words about the two issues raised by this amendment. They are important issues, albeit for a small number of beneficiaries, although that number will increase over time, as the noble Lord, Lord McKenzie, has just said. It strikes me that because of the loss of one part of pension credit, the part that gives this passported benefit for cold weather payments, the Government presumably have to have something in place to ensure that people are in receipt of that payment. Will my noble friend reassure the House that it is not the intention that eligibility for cold weather payments will be reduced so that only a few will be able to receive them for the very important purpose for which they are drawn? Can he tell us about the fuel poverty strategy which I understand the Government are consulting on and whether these issues are rightfully the sorts of issues which could be debated and discussed during the consultation? If that is the case, there is clearly a route forward, but I seek reassurance from my noble friend that both these schemes are intended to continue and that their purpose and scope will not be diminished.

[Baroness Sherlock (Lab)]

My Lords, I am pleased to support Amendment 1 which is tabled in the name of my noble friend Lord McKenzie of Luton. My noble friend has been like a terrier chasing the Minister on the subject of passported benefits and payments. The Minister may have thought he had shaken him off as he left the Moses Room at the end of the Committee stage, but I am sure he knew better. Indeed, it is to the Minister’s credit that he was content to return to this subject at Third Reading, knowing that he would face the onslaught of yet more gentle but expert and determined questioning from my noble friend Lord McKenzie.

I express my appreciation to the Minister for allowing his officials to brief us and to his officials for giving us for the first time a detailed list of all the benefits that are being passported from pension credit. However, that left some clear question marks about the future strategy for passported benefits. If the Minister is in a position to tell us where the Government’s forward plans are taking them, not just on these two, but on any of the other benefits that are not clearly passported from pension credit, I think the House would appreciate that.

My noble friend has set out the case characteristically clearly, and I need add little to it, but the House and the country will want to hear the Minister answer the questions asked by the noble Lord, Lord German. We want to be satisfied that people will not lose out and that there is an alternative plan for arrangements to replace the passporting of cold weather payments and access to the warm home discount scheme.

The point made by my noble friend Lord McKenzie about the role of rising energy prices in the cost of living crisis is visible to all noble Lords at the moment. This is a particular issue in relation to these two benefits in parts of the country that obviously suffer from lower temperatures. I should perhaps declare an interest as a resident of Durham where, despite the fact that we have a world heritage site and much to commend us, with lower rainfall on average, even I have to confess that our temperatures are on average perhaps a whisker below those on the tropical Riviera of Cornwall. On the other hand, this will not affect me until I reach state pension age and that is receding ahead of me at some rate, so perhaps no declaration of interest is needed.

The Government have indicated that they propose to introduce the new single-tier pension above the current level of the guarantee credit in pension credit. But it is clear that that could come in at just a shade above. If Ministers want to carry on asserting that reducing means-testing is an important part of these pension reforms, then they have to have a strategy on passporting—otherwise they will end up with the kind of cliff-edges which anyone who worries about means-testing will know can really be a trap for the unwary.

Maybe the Government have had the opportunity since Report stage to think through how this will be taken forward and can give the House the kind of assurances that have been sought by both noble Lords who have spoken. If they have not, which I will understand, I very much hope that the Minister can accept the amendment. Parliament has a right to know what will happen to these payments, and by the time we get regulations it will be too late. I look forward to the Minister’s reply.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, I am glad to have the opportunity to discuss the amendment, which the noble Lord, Lord McKenzie, was understandably unable to move on Report. I hope that I will be able to offer him some reassurance about the current arrangements and the further work that we are planning.

As noble Lords will be aware, pension credit acts as a passport to a number of other benefits, most of which are linked to an individual being in receipt of the guarantee credit element. That element will continue to be available for the poorest, whether they reach state pension age before or after the introduction of the single-tier pension, and will continue to act as a passport to cold weather payments.

I also remind noble Lords that the single-tier pension itself promotes savings, removing the need for savings credit. The full single tier will be set above the level of the basic means test, removing the current problem whereby the state pension has not kept pace with the means test and therefore the need for a complex reward system. Together with other reforms to the pension system over time, the poorest pensioners are also the most likely to have higher incomes than they would have done if the current system had been rolled forward.

While I understand concerns about knock-on effects for vulnerable pensioners, there is actually relatively little in the pensioner welfare system that depends entirely on receipt of pension credit. For example, housing benefit and council tax reductions can already be claimed on low-income grounds, regardless of receipt of pension credit, and this will continue. Other benefits such as free television licences and travel concessions can be claimed on the grounds of age. The only significant benefits that are truly passported from pension credit are cold weather payments and the warm home discount scheme.

Cold weather payments, as noble Lords are of course aware, provide help with the additional costs of heating during periods of severe weather. The scheme runs from 1 November to 31 March each winter. A payment of £25 is made to someone when the average temperature has been recorded as, or is forecast to be, zero degrees or below over seven consecutive days at the weather station linked to their postcode. In some winters there are relatively few triggers, in some years there are many triggers; in fact, there have been very few indeed this year.

Cold weather payments are made to people who receive certain income-related benefits and satisfy the eligibility conditions set out in the Social Fund Cold Weather Payments (General) Regulations 1988. All those who receive pension credit are eligible, whether they receive the guarantee credit or the savings credit element, or both.

The noble Lord, Lord McKenzie, asked about universal credit. Those eligible for cold weather payments are those who are not employed or self-employed and they or their partner receive either a limited capability for work element or a limited capability for work element with a work-related activity element, or who receive a disabled child element within their assessment, or who have a child under the age of five years in the family. Universal credit recipients who are employed or self-employed will be eligible for cold weather payments only if they have a disabled child in the family.

Our predicted expenditure on cold weather payments is based on the average number of payments over the past 10 years. On that basis, while we cannot predict the actual impacts, we might expect around £2 million to have been spent in 2020 on cold weather payments for people who would have received pension credit under the current system, but who would not under the single -tier system. That is based on our calculation of 20,000 single-tier pensioners being raised above the standard minimum guarantee, and 60,000 who would have been entitled to a savings credit under the pre-single tier system.

That expenditure is of course by no means certain, which is why we have not assumed any savings from cold weather payments as a result of the Bill. However, we are not complacent about that issue and that group of people. That is why we are already considering ways in which it might be possible to identify, for cold weather payment purposes, single-tier pensioners whose income will be above but close to the level of the standard minimum guarantee.

In response to the question from my noble friend Lord German, I can reassure the House that it is not our intention to reduce eligibility.

The noble Lord, Lord McKenzie, also asked about the warm home discount scheme. That is a rebate on electricity bills for pensioners aged 75 or over who receive the guarantee credit in pension credit, and for pensioners under 75 who receive the guarantee credit without a savings credit. From 2014-15 it will be extended to all pensioners receiving the guarantee credit. Rebates may also be available for a broader group including those in receipt of the savings credit as well as certain other groups below pension age, but those broader group rebates are subject to a cash limit and to the policies of individual suppliers, as agreed with Ofgem. We have committed to extending the warm home discount scheme into 2015-16, but we have not made plans for 2016-17 and beyond.

On the question asked by the noble Lord about discussions with electricity suppliers, that will be part of the consultation in the spring on extending support for the core group. Access to cold weather payments and the future of the warm home discount scheme are part of a broader set of issues around targeting spending to combat fuel poverty among older people. As I said, we will consult later in the spring on a new fuel poverty strategy, which will include the question of reducing fuel costs for those pensioners in the second income quintile, which is where savings credit recipients are clustered.

For single-tier cohorts, it will not be possible to identify exactly which household might have been entitled to a savings credit without retaining the savings credit assessment itself. We are assessing the cost and capacity issues of doing that, as well as the trade-off for intrusion into pensioner households. However, the department’s initial assessment is that there are likely to be better and more cost-effective ways of reducing fuel costs for that group, especially by using recently developed datasets that allow us to identify poorly insulated homes and the characteristics of the households living there, with a view to making infrastructural as well as cash interventions.

I can reassure noble Lords that cold weather payments and the warm home discount scheme are an important part of our fuel poverty strategy, and major components of our work to improve the well-being of older people. However, that is a separate issue from promoting savings through pension reform, and we are not wedded to particular ways of meshing the two together.

On the question put by the noble Baroness, Lady Sherlock, on our passporting strategy, we will continue to use a mixture of age, low-income and passporting from means-tested benefits to target different benefits and services to different groups. I understand the concerns raised by the noble Lord, Lord McKenzie, and I hope that I have been able to provide him with reassurances.

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I refer, finally, to the issue of European requirements, because it has been raised in the debate on the transparency of transaction costs. I know from speaking to one or two colleagues that there is a little uncertainty about the extent to which European requirements may be brought to bear on any action taken by the Government on the transparency requirements on transaction costs. Can the Minister confirm that the UK Government are free to set requirements on the transparency of transaction costs for occupational and money purchase personal pensions; that the Government will do so; and that they are not constrained from doing so by the EU rules on retail investment products?

[Baroness Sherlock (Lab)]

My Lords, I remind the House of my registered interest as a non-executive director of the Financial Ombudsman Service.

I thank the Minister for explaining his amendments and all noble Lords who have contributed to this debate for their insights. On Report the Government were understandably worried by the alliance building up between the noble Lord, Lord Lawson, and my noble friend Lord Browne, who regrets that he is unable to be here as a result of the date of Third Reading being moved. In order to head off a possible defeat, the Minister made a speech offering strong reassurances. It is against those reassurances that the House should judge the amendments that the Government have brought forward today. Let us remind ourselves what those reassurances were.

The Government were keen to assure the House that whatever their amendment said, their intention was that all costs would be covered by their proposals. On 26 February, the noble Lord, Lord Freud, told the House:

“We are looking for transparency on all charges. We are looking to ensure that that is published”.

He reinforced that point today. I think that I heard him say that there will be full transparency on all costs and charges.

My noble friend Lord Browne then intervened on Report to seek clarification on how transparency would be handled in relation to transaction costs, since it seemed that the Government were proposing to exempt areas where there were existing FCA rules in relation to transparency. The existing FCA rules on transparency exempt transaction costs, he noted, so how would the transaction costs in such cases be dealt with? The Minister replied:

“I am putting it on the record that we will aim to capture all costs, including all transaction costs”.

A little later, he went on to say:

“It is not to do with the EU”.—[Official Report, 26/2/14; cols. 967-68.]

What could be clearer? However, the current government amendments give the Secretary of State the responsibility for regulating disclosure of charges only for occupational schemes, leaving it to the FCA to do so for money purchase schemes.

Therefore, the first and most obvious question to the Minister, touched on by my noble friend Lady Drake, is: why is the Secretary of State divesting himself of the power to set the requirements for securing transparency of transaction costs in relation to money purchase personal pension schemes by giving the responsibility for the requirements on disclosure of information to the FCA?

Secondly, Amendment 3 has the effect of explicitly excluding defined benefit schemes from the regulations on the publication of costs and charges, and the Minister gave some indication of the Government’s thinking on that. However, I was very pleased that the noble Lord, Lord Lawson, raised the questions that he did, supported by my noble friend Lady Drake, because this is indeed not a victimless area. Not only are there costs to the companies that are the employers but there are potential risks to the sustainability of the pension schemes if employers find themselves carrying unreasonable and unnecessary levels of cost. It must be remembered that there are employers who may be well equipped to understand and challenge the nature of the charging structure but there are many others who are not, and they deserve protection as well. Perhaps the Government could explain some more about that. In particular, can the Minister tell the House what the timescale will be for this consultation and, if the Government decide to bring forward regulations, when the House may expect to hear more about that?

My noble friend Lady Drake then raised a series of important questions regarding what this dual regulatory regime will mean in practice, given that the FCA currently does not require transaction costs to be published for DC pensions. Amendment 4 makes it clear that the FCA must consult the Treasury and the Secretary of State before making rules about the disclosure of costs. The supplementary memorandum from the DWP to the Delegated Powers and Regulatory Reform Committee on the Bill reminds us that Section 138(1) of the Financial Services and Markets Act 2000, known as FiSMA, requires the FCA also to consult the Prudential Regulation Authority before making rules and then to publish those rules in draft, to seek representations and not to make rules without having regard to those representations.

Therefore, the Minister is left with the crucial question from my noble friend Lady Drake as to the extent to which the PRA’s concern for the sustainability of financial services companies may constrain the Government’s apparent desire for the FCA to make rules to ensure disclosure of all transaction costs, as again promised by the Minister today. What happens if the Secretary of State believes that the decisions that the FCA takes in this respect are not properly aligned with his or her own decisions on transparency in relation to occupational schemes? As my noble friend asked: what happens then?

Finally, there is the interesting question of the role of the EU. The Minister has said clearly that this is not a matter for the EU but my noble friend has sought clarification. I certainly understand that the publication of transaction costs with respect to retail products is covered by EU rules but that the publication of transaction costs with respect to workplace pensions is not, and I look forward to the Minister confirming that. However, one hears that EU rules may or may not lead to increased transparency of all transaction costs some time after 2016. I should like to test the Minister. Does he think that it would be acceptable if the FCA decided not to do anything about transaction costs but simply to await the decision of the EU? One assumes not, as not only would that not seem to chime with the Government’s general rhetoric about ceding powers to Europe but it is hard to see that the Minister’s words to the House on Report would imply that level of uncertainty, since he made it clear that it was nothing to do with the EU.

In the end, it is up to this House to decide whether it believes that the government amendments brought forward today have the ability to honour the cheque that they wrote to the noble Lord, Lord Lawson, on Report. The Opposition are not, as yet, persuaded. However, it is for the Minister to tell the House how precisely he can guarantee to deliver on the assurance that the Government will capture all costs and charges and, crucially, by what date that will happen.

Finally, and even more importantly, there remains the unresolved issue of a cap on charges. In his extremely impressive speech when we debated these matters on Report, the noble Lord, Lord Turner, put the matter succinctly when he said:

“I do not think that transparency is an alternative to a charge cap”.—[Official Report, 26/2/14; col. 966.]

Nor do I. If the Government really have the interests of consumers at heart, they will take much stronger action right now.

[Lord Freud]

My Lords, let me start by dealing with the question raised by the noble Baronesses, Lady Drake and Lady Sherlock, on the way in which the regulation works between two groups. The Pensions Regulator and the FCA work closely together to ensure that the regulatory frameworks for trust-based pensions under the regulator and contract-based pensions under the FCA are aligned and provide for a robust system of governance and fair treatment for members. The Government are not looking to change the current regulatory structure, as was confirmed in the DWP’s Triennial Review of Pensions Bodies, which was published in December 2013. Structuring the duties in this way is necessary to reflect the dual regulation structure and the fact that the FCA is an independent body in statute. Without this approach, there would be no duty on the FCA to make these rules.

In addition to their existing duties to consult, the amendments mean that both the Secretary of State and the FCA will be under statutory duties to consult one another in making regulations and rules, enabling us as far as possible to ensure consistency of approach with the rules following the regulations. There is absolute commitment from the Government and from the FCA to aim for consistency. The FCA would not propose to deviate from government regulations. The aim of a separate duty is not to provide room for inconsistency—far from it; it is about giving the FCA the flexibility that it needs to use its powers and expertise to respond as an independent regulator.

The noble Baroness, Lady Drake, raised a question on hybrid schemes. The regulations will be able to extend the disclosure rules to the DC element of hybrid schemes. The duty is in addition to the existing power in Section 113 of the Pension Schemes Act 1993.

The noble Baroness also raised a question on the relative position of the PRA—the prudential regulator—and the FCA. The FCA, as per its rules, will be consulting on the development of disclosure and requirements and will work closely with both Her Majesty’s Treasury and the PRA. Treasury Ministers are committed to strong disclosure of member-borne costs and believe that the FCA is best placed to make those rules.

On the question of the SORP code, raised by the noble Baroness, Lady Drake, the Government recognise industry initiatives to improve transparency of pension costs and charges, but as the OFT noted, such measures are voluntary and can be piecemeal. That is why the Government believe that transparency measures should be compulsory and standardised.

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[Lord Freud]

My Lords, I have not carried out a detailed analysis of the SORP code. I can assure the noble Baroness that, under the regulations and rules that we will now develop, we will capture all costs. To the extent that those are not in the SORP code, that would be a wider requirement.

On what will happen if the FCA rules are not found to be adequate, the Secretary of State retains the power in Section 113 of the Pension Schemes Act 1993 to make regulations about both occupational and personal pension schemes disclosure.

On the timescale issue raised by the noble Baroness, Lady Sherlock, assuming that this Bill receives Royal Assent, I believe that regulations will be brought forward later this year. The Government will consult on these regulations before they are laid. The Government’s proposals on charges, transparency and governance will be published soon. I have not changed the position on that after our rather enjoyable debate on the matter on Report.

[Baroness Sherlock]

Is the Minister saying that the Government propose to consult on whether DB schemes should be included and then publish a single set of regulations, or will they go ahead on the basis he has outlined and subsequently consult on DB?

[Lord Freud]

The DB element will be part of the consultation. Depending on that consultation, we will have to decide how to treat that particular aspect.

On the questions around the EU, clearly right now we are free to write these regulations and rules and there are no EU rules to hinder that. However, that might change in the future. One of the attractions of pulling the FCA into this process is that it has technical expertise in this area and is the body negotiating in Europe on relevant EU legislation. It is therefore best placed to work with DWP on determining how costs and charges can be defined, captured, measured and disclosed. By using its own rule-making power, the FCA may be able to respond quicker than the parliamentary process to changes in the market or from the EU.

I think I have dealt with all the issues.

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[Lord Freud]

My Lords, on Report I regrettably said that we had completed the legislation required to cover the change to the Pension Protection Fund compensation cap. Clearly, that was tempting fate because we have noticed that the wording in a particular place is not as clear as it could be, and this amendment addresses that. We made an amendment on Report to the PPF compensation cap measures setting out how the length of pensionable service should be determined for an individual who was a member of connected schemes; that is, for someone who was a member of a multi-employer scheme and who had worked for two or more of the companies attached to that scheme. That amendment allowed for the discrete periods of pensionable service to be added together. Crucially, if the person had worked for two employers at the same time—that is, the periods of employment overlapped—the amendment sought to prevent the overlapping period from being counted twice. Unfortunately, the wording of the amendment could be read as meaning that the period of overlap should not be counted at all. This would clearly not be right. This amendment therefore clarifies the wording to ensure it cannot be read in that manner. As a result, overlapping periods of employment will be counted correctly—in other words, once.

This is the final amendment to which I will speak and so before I sit down, I would like to take a moment to thank all those who have worked so hard on this Bill. Many colleagues across the House have contributed their time and substantial expertise to understanding and improving these landmark reforms. In particular, I am delighted that the Bill now contains measures that will help improve the retirement income of the spouses of service personnel. Preparing a Bill and supporting its passage through both Houses is a significant undertaking. This Bill contains a wide range of measures relating to state pensions, private pensions and bereavement benefits, and so has involved a large number of different policy teams. I estimate that close to 200 policy officials, analysts and lawyers have been involved. Many of them have been directly involved in attending briefing meetings or providing materials that have contributed to the excellent level of debate we have seen.

It has been especially gratifying to hear so many noble Lords mention the assistance of DWP officials in their speeches both in this Chamber and during Committee stage. It is a fitting tribute that their work is recognised in this way. I am grateful to them and to the excellent draftsmen in the Office of the Parliamentary Counsel who have worked so hard on this Bill. The Bill team deserves a special mention and so I would like to take this opportunity to thank Rez Mossavat, Jo Foakes, Megan Rooney, Helen Kelly and the Bill manager, Michael Cordy, for all their work and support. With that, I beg to move.

[Baroness Sherlock]

My Lords, I congratulate the Minister on having spotted the error before Royal Assent and the Opposition have no problem with the amendment.

I, too, would like to take this opportunity to say a few words of thanks to my colleagues for all their wisdom and support. I thank especially my noble friend Lord Browne of Ladyton for doing so much work on this Bill and for being such a constant source of support. I would also very much like to thank the Minister for the way he has handled the Bill—for his openness and his willingness to engage with appeals from all parties and to share the information and knowledge of his department. I thank the noble Lord, Lord Bates, for adopting a similar style and for his engagement. I thank the officials, too, for their helpfulness and their willingness to answer so many questions—in my case, often very stupid ones, which they have answered with graciousness and lots of information. We have all very much appreciated that.

The Bill has benefited from scrutiny in this House and leaves this place a better Bill than when it arrived, as is so often the case. It is the first Bill I have taken all the way through from the Front Bench and I have learnt a great deal from noble Lords on all sides. I have been grateful for the kindness and indulgence of the House as I have learnt on the job—a sort of apprenticeship, as one might have it. As the Minister said, the Bill has now benefited not only from the one victory that the House scored on mini-jobs—we hope very much that the other end will see the wisdom of that but, if not, we stand by our beds awaiting its return should that prove necessary—but from concessions around things such as service wives, auto-enrolment and categories of employer, and in other ways as we have gone through it. I pass my thanks to all noble Lords who have contributed at any point in the process. We all share a common objective of getting people in Britain saving for their retirement and I hope this Bill will help contribute to that objective.

[Lord German]

My Lords, I add thanks from these Benches to my noble friend and to the staff who have been behind all the detailed benefits we have received from having such a deep level of understanding and knowledge of the Bill throughout. I want to mention two particular things. One is the recognition during the Bill’s passage through this House that my noble friend will look very carefully at the needs of children who are in distress. I look forward to seeing that coming forward again in future months as we come to a response to whatever my noble friend is able to deduce from that investigation.

The second piece of thanks that I have to give to my noble friend is for his ability to bring Her Majesty’s Treasury to a meeting with officials of the DWP. That way, there was a coalition not only of Members of your Lordships’ House but of my noble friend’s staff. That ensured that we got a recognition that where pensions in the public sector would be affected by some of the matters in the Bill, they would put an architecture in place for whenever some new money might become available.

While using this opportunity to put this on the record, I want to thank my noble friend for all the support that he has given. The quantity of literature and number of pages that we have received is something that we will weigh with great pleasure during the years to come, because of course the measures which this House is taking in this Bill will affect the population of this country for many generations in the future. It has been very significant to see the Bill pass through the House.