Pension Schemes Bill [HL]

Baroness Stedman-Scott Excerpts

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

Moved by

[Baroness Stedman-Scott]

That the Bill be now read a second time.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

My Lords, I take this opportunity to thank all noble Lords for the positive engagement and feedback they have provided over the past couple of weeks and since the Bill was originally introduced in October last year. From the conversations I have had with many noble Lords, I believe there is a genuine desire across the House to tackle the matters addressed by the Bill. It is my sincere hope that we can continue to engage in this way as the Bill progresses through this House. Should any noble Lord wish to discuss any part of the Bill between its stages, our doors are always open.

It is unlikely to have escaped noble Lords’ attention that this is not a small Bill, partly because we have also legislated for Northern Ireland. Now there is a functioning Assembly again we have been in contact with Northern Ireland Ministers to establish whether they are content in principle for Westminster to legislate on their behalf in this Bill. I believe it is important to ensure that the people of Northern Ireland also benefit from the changes and safeguards put in place for the rest of Great Britain.

Although the Evening Standard referred to the Bill in October as a morsel of “fresh legislative meat,” it is far more than that. It has been built on consensus across the pensions community and political spectrum and has consumer protection at its heart. It focuses on a range of key measures that are a priority today, not just for those who are already receiving a pension, but for record numbers who are now saving for their retirement. This Bill will help people plan for the future, provide simpler oversight of pensions savings and protect people’s savings by providing greater powers for the Pensions Regulator to tackle irresponsible management of private pension schemes.

Before I talk a little more about the measures in this Bill and why they are so important, I would like to touch on delegated powers. I know from talking to noble Lords that there are some concerns about the number of delegated powers in the Bill and how they may be used. There are a number of good reasons why we have structured the Bill the way we have, and we will respond fully to any concerns the DPRRC may have when we reply to its report. However, I have listened to what your Lordships have said to me and have asked my officials to prepare illustrative regulations under Part 1 before we reach Committee. I hope that they will help your Lordships understand the way delegated powers in that part are intended to be used and the limitations in pre-empting their use.

The measures in this Bill build on the reforms of the past 10 years, and I shall take a few moments of noble Lords’ time to explain how. On Part 1, which relates to collective defined contribution schemes, which are known as CDCs, current UK pensions law defines all private pension benefits as either money purchase, where investment and longevity risks are shouldered by the individual member, or as non-money purchase, where all risks are born by the sponsor, usually an employer or insurer. Current pensions legislation means that new types of pension schemes have to fit within those two definitions. This stifles innovation and prohibits new kinds of risk sharing.

Part 1 sets out the regulatory framework for new collective money purchase schemes. These are more commonly known as collective defined contribution schemes or CDCs. In developing these measures, I welcome the cross-party and external stakeholder support for the methodology and the legislative approach that the Government have used. The measures facilitate, and build upon, the initiative between the Royal Mail and the Communication Workers Union which have concluded that a CDC scheme would best suit their needs for the future. I put on the record our thanks for the constructive and supportive way in which both Royal Mail and the Communication Workers Union have engaged in developing these measures. It is right for us to support employers and unions working together to bring about such a positive outcome. The scheme will be the first of its type in the UK, and it offers a model for other employers and other workforces to launch their own schemes.

There has been some interest in CDC provision from other unions and large commercial master trusts. However, we believe that this new type of provision and the supporting regulatory regime need time to bed in before a decision is made on whether multiple employer, sector-specific or commercial CDC provision should be facilitated. Nevertheless, the Bill provides for us to adapt the legislation, where appropriate, to extend the framework in the future.

These new schemes will enable contributions to be pooled and invested to give members a target benefit level. They aim to deliver for members an income in retirement without the high cost of guarantees and without placing unpredictable future liabilities on the employer, and they will give employers new options for managing their pension obligations.

In its press release on the Bill’s introduction in October, the Pensions and Lifetime Savings Association said that CDC schemes

“offer employers increased flexibility and choice in how they structure schemes to benefit savers.”

Further, Hymans Robertson commented:

“Providing a framework for collective money purchase schemes … will offer the clear benefits that can be derived from pooling of these risks across individuals.”


I hope that we can all welcome these measures, which enable employers and workers to come together in a way that will benefit both.

I move on to CDCs in Northern Ireland and shall focus briefly on Part 2 of the Bill. As noble Lords know, private pensions are a devolved matter for Northern Ireland. Throughout the development of this Bill, Ministers and officials have worked closely with the Northern Ireland Office and the Department for Communities, Northern Ireland. In the absence of an Assembly, the Department for Communities has asked the UK Parliament to include provisions for Northern Ireland in the Bill. This will ensure regulatory alignment across the UK and parity for pension schemes and their members in Northern Ireland. Part 2 and other clauses embedded in each part of the Bill therefore make provision for corresponding Northern Ireland legislation.

Moving on to the Pensions Regulator, several recent high-profile insolvency cases in relation to defined benefit pension schemes have weakened confidence in the pensions system. They have highlighted that the existing regulatory regime is not always an effective deterrent to serious wrongdoing. Doing nothing will mean that more people are likely to be affected by employers not taking their responsibilities seriously, and the existing fines that the Pensions Regulator can pursue are an ineffective deterrent to more serious wrongdoing. In order to amend the existing powers and provide the regulator with new powers, changes and additions must be made through primary legislation. Not doing so will mean that the current gaps and problems continue to exist.

Part 3 addresses that and fulfils a commitment that we made in 2017. It places a requirement on those responsible for corporate transactions to set out in a statement how they will mitigate any adverse effects on the pension scheme. The measures will improve the regulator’s information-gathering powers, enabling it to enter a wider range of premises and require individuals to attend an interview. This will boost the regulator’s ability to ensure that those responsible comply with pensions legislation. There will also be new civil and criminal sanctions to punish those who wilfully or recklessly harm their pension scheme, including a maximum seven-year prison sentence and a civil penalty of up to £1 million.

I know that some noble Lords have expressed concern about the adequacy of the sentences outlined in the Bill and have advocated even tougher ones. We have set the maximum level of the financial penalty at a level similar to equivalent sanctions in the financial sector for financial crimes. However, we also recognise that there might be a need to increase this maximum amount in the future to ensure that the financial penalty continues to provide suitable levels of deterrence and punishment. The Bill therefore includes a regulation-making power enabling the maximum amount of the financial penalty to be increased if needed in the future.

Charles Counsell, the chief executive of the Pensions Regulator, said of these measures:

“Fines and criminal sanctions, combined with improved avoidance powers, have the potential to act as a strong deterrent in respect of behaviour that represents a risk to savers.”


The Pensions and Lifetime Savings Association was also clear, saying:

“While most pension schemes are well-run and managed, high-profile cases like Carillion and BHS damage confidence in the pensions system. We support new powers for the Pensions Regulator to take action sooner, impose significant fines, and have more oversight of risky corporate transactions in order to prevent reckless behaviour and protect savers’ hard-earned money.”


Cumulatively, the improvements to the regulator’s powers outlined in this Bill will help the regulator to meet its aim of being “clearer, quicker, and tougher”. In turn, this will afford increased protection for defined benefit scheme members’ savings.

Part 4 of the Bill delivers on our commitment to provide for pensions dashboards. Many savers worry that they do not have adequate information or knowledge to enable them to plan and make decisions about their saving for retirement. This can be exacerbated by the fact that it can be hard for savers to keep track of pension savings where they have had multiple jobs. Dashboards will provide an online service allowing people to view all their pension information—including state pension—in a single place.

The measures in this Bill set out the legislative framework to define what a qualifying dashboard service is, along with requirements that must be met by potential dashboard providers. Importantly, they will compel occupational, personal and stakeholder pension schemes to present an individual’s pension information to them through a qualifying dashboard service. To make sure that they do, the measures also introduce compliance powers for enforcement of this requirement through the Financial Conduct Authority and the Pensions Regulator. Finally, Part 4 also provides for the Money and Pensions Service to oversee the development of the dashboard infrastructure.

As I said earlier, there is broad support for pensions dashboards. For example, Aegon has commented:

“Millions of individuals have multiple pensions in which they’ve built up benefits over their working lives and Pension Dashboards will for the first time allow them to see all of these, online at the touch of a button. This offers a huge opportunity to help millions of individuals better engage with their retirement planning”.


I turn now to Part 5 of the Bill. The measures within this part cover four important areas. Clause 123 and Schedule 10 relate to defined benefit scheme funding. The defined benefit landscape is changing, with many schemes now closed to new members and future accrual. As more schemes reach maturity, with fewer contributing members and more members receiving their pension benefits, it is important that we act now to ensure that trustees manage their funding and investment in a way that is appropriate to the specific characteristics of their scheme.

The measures in the Bill will enable the Pensions Regulator to enforce clearer scheme funding standards in defined benefit pension schemes. They will support the regulator’s risk-based regulatory approach by introducing a requirement for trustees to have a funding and investment strategy for the scheme, and for the statutory funding objective to be achieved consistently with this strategy. The measures also require trustees to explain their approach to the regulator in a statement of strategy. The measures can require trustees to send this statement to the regulator at such occasions and intervals as may be prescribed.

These provisions seek to help trustees to improve their scheme funding and investment decisions, and to better manage potential risk. They enable the regulator to take action more effectively to protect members’ pensions, mitigate risks to the Pension Protection Fund, and take account of the sustainable growth of the employer.

Clause 124 introduces new powers to protect individuals’ pensions savings by helping trustees to prevent transfers to fraudulent schemes through restricting the statutory right to transfer a pension. This will protect members from pension scams by helping trustees of occupational pension schemes to ensure that transfers of pension savings are made to safe, not fraudulent, schemes.

Clause 125 rectifies some of the unintended outcomes of a High Court judgment. It retrospectively restores the policy intent with regard to the calculation of Pension Protection Fund compensation payments. The measure will provide statutory cover for past payments and will ensure that there is no question of vulnerable members being asked to repay any overpayments.

Clause 126 updates the definition of “administration charge” to make clear which costs are in scope of the overarching definition contained in the Pensions Act 2014.

I beg to move.

--- Later in debate ---

[Baroness Stedman-Scott]

My Lords, this has been an excellent debate with excellent contributions. I thank noble Lords for the time they have spent preparing and delivering those contributions. I thank everybody who has taken part. It has been encouraging to hear the positive responses to the measures this Bill proposes. Noble Lords have certainly laid down the challenges we need to address.

The noble Baroness, Lady Sherlock, asked me about our confidence in the Bill. We will have confidence in it if we all work together and turn every stone to make it fit for purpose. I pledge that the Government will do that, and I see no dissention from us working together to achieve that.

I shall deal first with delegated powers and the commitment I made to your Lordships that we will bring forward some examples in relation to Part 1. I do not use the word “trepidation” in conjunction with my noble friend Lady Fookes—it is quite the other way round—but I have her point about Part 3 and the point made by the noble Baroness, Lady Sherlock, about Part 4. We have a wonderful Bill team who are working incredibly hard, and if they tell me they will have them, they will have them.

I understand the concerns raised by some noble Lords in this debate that there are important legal principles at stake before the proposed delegated powers can be exercised properly. In many instances the Government have promised to consult further on the technical substance, particularly in relation in Part 1. There are also instances where there may be a statutory requirement to consult because of a connection to existing legislation. Where there is an intention, promise or legal requirement to consult on the substance of secondary legislation, the legal position is clear: the Government cannot prejudge the outcome. In opening this debate, I said that I have listened to what noble Lords have been telling me, and we are preparing illustrative regulations relating to Part 1 which will be available before Committee. I also pledge to meet noble Lords before Committee to discuss them and all the questions that I will not have time to answer. Noble Lords can see that I have them, so I am not trying to get out of doing the job.

I want to put to bed very quickly the question asked by the noble Baroness, Lady Bryan, about whether we have any plans to increase the state pension age to 75. This is not government policy. The recent independent report recommending raising the state pension age to 75 is not a government report. I hope that gives her comfort.

The multiple dashboard point was raised by numerous noble Lords. The noble Lord, Lord McKenzie, made the point that there should be a single, government-run, non-commercial dashboard to protect consumer interests. We agree that there should be a dashboard that has no commercial aspect. The Money and Pensions Service has made a commitment to deliver such a dashboard.

The noble Lord, Lord McKenzie, asked whether the CDC is just a backdoor to allow employers to close defined pension schemes and impose collective pensions. CDC schemes are unlikely to work well unless the employer and employees are comfortable with the approach. I am sure that employers with open defined benefit schemes are well aware of that. The CBI’s response to our consultation on CDC makes interesting reading. It said that CDC has advantages for both employers and employees and welcomes the opportunity that CDC presents to help fill the gap between defined benefit and current defined contribution schemes.

The noble Lord, Lord McKenzie, was very busy in this debate. He asked why we have not implemented the 2015 Act. Our approach to CDC schemes has developed since, and after much scrutiny we concluded that new primary legislation is necessary to ensure that we get the CDC exactly right for the United Kingdom.

The noble Lord, Lord McKenzie, and the noble Baroness, Lady Warwick, asked why our superfund is not in the Bill. Developing the new regulatory framework for superfunds is a complex task and we are working hard across government and with relevant stakeholders to build consensus on the right approach. We aim to publish shortly our response to the consultation which will set out in more detail our proposals for a future legislative framework. Once this work is completed, we will legislate as soon as we can.

The noble Lords, Lord Sharkey, Lord McKenzie and Lord Vaux, and the noble Baronesses, Lady Donaghy and Lady Janke, raised intergenerational fairness. Fairness between age cohorts has been one of our key considerations from the beginning of our work on CDC schemes. That is why we intend to bring forward scheme rule requirements using regulations under Clause 18. This will ensure that all members, whether active, deferred or pensioner, will share the effects of investment outperformance and underperformance in the same way every year. Should a scheme’s rules not be compliant, it will not be authorised to operate by the regulator.

The noble Lord, Lord McKenzie, and my noble friend Lady Noakes asked how many employers are considering CDCs. It is true that only one company is, namely Royal Mail. However, others are interested. We want to make sure that CDCs work before any future increase.

The noble Lord, Lord McKenzie, asked about automatic enrolment and what the Government are going about the gender pensions gap. Automatic enrolment has been a great success and is already having an impact on the gender pensions gap. Participation in pension saving among eligible women in the private sector has risen from 40% in 2012 to 85% in 2018, which is equal to the figure for men. We have made great progress on that.

[Baroness Drake]

The Minister is accurate. I do not disagree with her description of what is happening with women in the eligible population for auto-enrolment, but it is the millions not in the eligible population for auto-enrolment whom we are particularly concerned about and whom those figures do not address.

[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.

Bill read a second time and committed to a Grand Committee.