Pension Schemes Bill [HL]

Baroness Stedman-Scott Excerpts

Consideration of Commons amendments & Ping Pong (Hansard) & Ping Pong (Hansard): House of Lords
Tuesday 19th January 2021 Lords Chamber

Moved by

[Baroness Stedman-Scott]

That this House do agree with the Commons in their Amendment 1.

1: Clause 27, page 17, line 38, leave out from beginning to end of line 40 and insert “The notice must specify—”

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

My Lords, before turning to the Commons amendments, I will take a moment to remind the House of what the Bill does, as a lot has happened since it was last here.

If enacted, the Bill will affect the lives of millions of people throughout the country. It will make pensions better by creating a new style of pension scheme that has the potential to increase future returns for millions of working people, and by delivering pensions dashboards that will help individuals to make informed decisions about their financial futures. It will make them safer by helping to prevent scams and by clamping down on those who recklessly try to plunder the pension pots of hard-working employees. It will make them greener by requiring pension schemes to take the Government’s net-zero climate targets into account in managing their own climate risk. I know that your Lordships agree that this is a worthwhile and important piece of legislation, and it has received cross-party support in both Houses. I hope that we are now at the final stage of its passage, and that we can agree and allow it to move on for Royal Assent.

I turn to Amendment 1. We welcome the strong interest shown in both Houses on ensuring that CDC schemes treat their members fairly and, in particular, operate in a way that is intergenerationally fair. As we explained in both Houses, requiring trustees to assess fairness is likely to generate confusion, as the concept means different things to different people, and there would be uncertainty about what was required. That is why we have intentionally avoided referencing fairness in such a way within any of the CDC provisions. Instead, following consultation, we intend to use these regulations to set out clear principles and processes that schemes must follow to ensure that different types of members are treated the same where appropriate—for example, when accruing and calculating benefits and making adjustments to benefits. These requirements will form part of the authorisation process for CDC schemes overseen by the Pensions Regulator.

For example, we intend that regulations under Clause 18 will require CDC scheme rules to ensure that there is no difference in treatment when calculating and adjusting benefits between different cohorts or age groups of scheme members, or between members who are active, deferred or receiving a pension. This is a clear and effective approach to delivering fairness in practice that is not only easy to understand, but also easy for members and trustees to apply, because it avoids a subjective interpretation of what is fair. We are all pleased that Royal Mail agrees with our approach, and it is for these reasons that we do not consider the amendment to the Bill necessary.

I will move on to Commons Amendments 2 and 3. Pension dashboards will help to revolutionise the pensions industry and bring it into the 21st century. This innovative programme will help to reconnect consumers with their otherwise lost pension pots and engage millions of UK citizens with their pension savings in a safe, secure and convenient way. These amendments on delaying the introduction of dashboards from other providers and preventing transactions through dashboards were overturned in the other place. This was in recognition of the approach taken to ensure that consumers were protected as part of the development of dashboard services. In respect of multiple dashboards, it has always been the Government’s belief that individuals should be able to access information about their pension savings from a service of their choosing. I am delighted that, following the changes that we made in this House, consumers will be able to access a dashboard service that is publicly owned, provided by the Money and Pensions Service. I restate the commitment that was made by my noble friend Lord Howe in this House on 30 June last year that

“the Government wholeheartedly agree that such a dashboard should be available to all users from day one, alongside dashboards offered by other organisations.”—[Official Report, 30/6/20; col. 668.]

We will not allow any qualifying dashboard to be launched before that of the Money and Pensions Service. However, we remain firmly of the belief that allowing other properly regulated dashboard providers to operate is the best way to drive engagement, reaching out to consumers where they may already interact with digital services, and unlocking innovative potential. I have said before that dashboards will launch with a simple find-and-view capability; this remains the case. However, enabling transactions through dashboards can provide an innovative way of safely giving people more effective control of their pension savings. Functionality on dashboards will be increased only as a result of user testing, after careful review and with the right level of consumer protections in place. It is important that we maintain the ability to meet the needs of the user by not prohibiting functionality that can put individuals in control. The ability to have this type of functionality in the future could bring real and significant benefits for consumers—for example, when consolidating small pots of pensions savings.

Dashboards are a hugely exciting innovation that will benefit and empower millions of citizens. We should support the development of dashboards so that they reach their potential and change the way that people interact with their pensions savings by placing them in control of all their pensions.

Finally, Commons Amendment 5 removed the privilege amendment made in the Lords, as is the norm in these cases. I beg to move.

[Lord Vaux of Harrowden (CB) [V]]

My Lords, as there are no counterproposals to these Commons amendments, I shall try to brief, but there are a couple of points I would like to make in relation to Commons Amendments 1, 2 and 3.

Throughout the passage of the Bill, we have had lengthy discussions around the risk of unfairness, intergenerational or otherwise, that is inherent to collective money purchase schemes, or CDCs as they seem still to be called. I regret that the Government chose not to accept the amendment which required trustees to make an assessment of the extent to which a scheme is operating in a manner fair to all members; it has been removed by Commons Amendment 1. That seemed a fairly uncontroversial concept. However, the Minister has been very clear that the Government acknowledge the risk of unfairness, that they intend to learn from experiences in other countries, such as the Netherlands, and that they intend to deal with this issue in the regulations that they will publish in relation to Clause 18.

Commons Amendments 2 and 3 remove the amendments your Lordships agreed to in relation to pensions dashboards which required that there should be a period during which pensions dashboards are initially restricted to the MaPS dashboard and that they should not become transactional platforms without primary legislation. On the second point, I remain quite uncomfortable with the idea of a pensions dashboard becoming a transactional platform without very serious thought and experience. However, these matters will also be dealt with by regulations and I am confident that the Minister has heard the concerns that have been raised, even if she does not agree with the proposed method of dealing with them.

The Minister has been very generous with her time and commendably willing to meet to listen to and discuss concerns throughout the passage of the Bill. As a result of changes made to the Bill as it passed through your Lordships’ House, most of the regulations that will follow will be subject to the affirmative procedure. However, even under the affirmative procedure, it will not be possible to amend regulations. I therefore urge the Minister to continue her constructive and collaborative approach in relation to the regulations that will now follow by consulting across the House before draft regulations become set in stone. That way she will be able to take advantage of the very deep pensions knowledge and experience in this House and the regulations will be all the better for it.

--- Later in debate ---

[Baroness Sherlock (Lab) [V]]

My Lords, I, too, am grateful to the Minister for explaining why the Government asked the Commons to reject the amendments passed in this House. We have come a long way since the Bill had its First Reading in this House on 7 January—more than a year ago, although it seems more like a lifetime. The Bill now makes some important changes, creates CDC schemes, legislates for the pensions dashboard and strengthens the regulatory environment on pensions.

During the Bill’s passage through this House, the Government have made some welcome concessions. For example, we ran an amendment to require a public dashboard from the outset. The Government brought forward amendments requiring that, and I am grateful for the confirmation that the Minister has given today. We ran amendments saying that the FCA should regulate the provision of dashboard services, and the Minister has confirmed that that will happen. We ran an amendment to say that using the dashboard to see your own data must be free, and the Minister has confirmed that it will remain free.

The Bill initially made no reference to climate change, but my noble friend Lady Jones of Whitchurch, the noble Baroness, Lady Hayman, and Members from across the House worked together to persuade the Government to amend the Bill to require trustees and managers to take the Paris Agreement and domestic climate change targets into account in their overall governance and their disclosure of climate change risks and opportunities. This is the first time that the words “climate change” have featured in domestic pensions legislation.

This is a better Bill than it was when it started, and I am grateful to all noble Lords who have worked so hard on it, especially my noble friend Lady Drake and Dan Harris in our Opposition Whips team. I am also grateful to the Minister for engaging with our concerns and to the Bill team and all the officials who have engaged with us.

That said, the Government have rejected the amendments which this House voted for. On CDC schemes, I hope they will review the intergenerational impact of any schemes as they are developed and will keep an eye on that. I am particularly disappointed that our amendments on the pensions dashboard system were rejected. They would have put in place two essential safeguards: that the MaPS public dashboard should be in operation for a year and that the Secretary of State should lay a report before Parliament on its operation and effectiveness before commercial dashboards enter the market, and that the delegated powers in the Bill could not be used to authorise commercial dashboards to engage in transactions.

Like the noble Lord, Lord Vaux, I remain deeply concerned about the risks to consumers. Those amendments were especially important given the sheer breadth of the delegated powers the Bill grants and how little we know at the moment about how the dashboards will work. We still do not know how many dashboards there will be, who will run them, what information they will have, how it will be displayed or how consumers will respond. We do not know where liability will lie for each link in the chain or how consumers will be compensated if they lose out. We do not know what the charging model will be or how data security, identity verification or third-party access will be managed.

Given all those things that we do not know, I have sought to persuade the Government to come to Parliament to allow us to debate the proposals they make before the regulations are published. I regret that I have not succeeded in that. Given that this remains a very high-risk programme and that parliamentary scrutiny would surely be an advantage not an impediment, I hope that in her reply the Minister can give us some assurance of our continued involvement in debate on this process. I look forward to hearing her reply.

[Baroness Stedman-Scott (Con)]

First, I thank the noble Lord, Lord Vaux, and the noble Baronesses, Lady Janke and Lady Sherlock, for their contributions. I think it is right to say that we have listened, we have engaged and we have valued and appreciated all noble Lords’ contributions, and I assure noble Lords that that will continue.

I reassure the House that the Government are fully committed to continue transparency and engagement through the development, delivery and operation of pensions dashboards. We greatly value the insight and input from colleagues from across the House in shaping, testing and ensuring the proposals and want that to continue throughout the more detailed stages of development. The pension dashboards programme is committed to publishing six-monthly progress updates, the most recent of which, in October 2020, outlined the work undertaken to define the data standards and the work towards finalising the requirements for the digital architecture and the identity service. It also set out an indicative plan for delivery.

Future updates, in advance of the launch of dashboards, will provide greater detail, engagement opportunity and assurance on key areas of specific interest. These will include the digital architecture and identity service; user consents and permissions, including delegated or third-party access; the consumer protection regime, including the liability model; and further work on how data will be presented to consumers, based on a growing body of user research and a greater understanding of user needs.

I facilitated a meeting between noble Lords and the pensions dashboards programme team just before Christmas. As promised at that meeting, I will ensure that these regular meetings continue. They will provide your Lordships with the opportunity to have meaningful discussions directly with the programme team at the publication of each progress update report and a chance to scrutinise this work at an early stage of development. I will ensure that copies of these reports are placed in the House Library on their publication.

I recognise the concerns that many have expressed about the broad nature of the delegated powers within this area of the Bill. There is a statutory duty on the Secretary of State to consult before making regulations for pensions dashboards. Consultation will cover proposals across the range of areas which are critical to the safe, secure and effective delivery of dashboards, and give all those interested the opportunity to influence the detail before the regulations are laid in draft in this House under the affirmative procedure.

I know that some of your Lordships have asked whether we can go even further, requiring the Government to lay a report before Parliament for debate in advance of draft regulations being laid. I do not believe this to be the right way forward, as the consultation on the Government’s proposals for regulations will already have taken place.

I have listened further to the noble Baroness, Lady Sherlock, and, although we have not always been in agreement, we are together on Peers having ongoing future involvement, and we are prepared to engage, engage and engage. Therefore, in addition to updating the House in the usual manner, I am prepared to commit to the Government tabling Written Ministerial Statements during the consultation phases, prior to the debate on the proposed dashboard regulations.

I reassure the noble Baroness that I will continue to work with her collaboratively in the way we have done throughout the Bill’s progress. On the matter of facilitating further debate on the issue, I am sure that the Chief Whip has heard our debate today, and, when the Written Ministerial Statements are laid, I will draw them to his attention for him to consider further discussion in the usual channels.

Some concerns have been expressed about governance of the dashboard service going forward. The Money and Pensions Service has responsibility for delivery of the dashboard architecture and ongoing oversight and control, and it is clear that our focus for the foreseeable future must be on the development and implementation of the service. Meeting the demands of the scale and complexity of this challenge comes first. Reaching a live and steady state of operation will take a number of years, as set out in the pensions dashboards programme activity plan. As such, I confirm that the Government have no plan to move ownership of dashboards architecture away from the Money and Pensions Service.

My department has clear governance arrangements in place to ensure the delivery of dashboards. As well as the regular published updates that I mentioned earlier, there is an existing legislative requirement, in the Financial Guidance and Claims Act 2018, for MaPS to report to the Secretary of State annually on the exercise of its functions, which includes its responsibilities for pensions dashboards. This report is laid before Parliament.

Chris Curry, the senior responsible officer for the pensions dashboard programme, and Sir Hector Sants, chair of the Money and Pensions Service, regularly report progress to Ministers. The department also undertakes formal quarterly accountability reviews with the Money and Pensions Service. We recognise the importance of effective evaluation, including monitoring of consumer behaviours and outcomes. My department is responsible for overall evaluation of the policy and is working with the pensions dashboards programme and regulators to develop a comprehensive evaluation plan.

Research will also be undertaken with providers and users alike throughout the project life cycle. This will include user testing to understand likely reactions and behaviours, and research to understand the impact that dashboards will have on the market. My department is developing a joint set of critical success factors to complement delivery and measure the success of policy objectives. These are relevant to all stages of the programme and will give insights on, among other things, usage of the service, delivery and compliance. Review of the critical success factors will also play a part in evaluation and service developments.

I finish by repeating the commitment that I made in my opening remarks. We will not allow any dashboard to which schemes are required to supply data to be launched before that of the Money and Pensions Service. On the point raised by the noble Baroness, Lady Sherlock, about a review of intergenerational impact and fairness, we will of course review how CD schemes operate and will monitor how different groups are treated.

I hope that my comments reassure noble Lords that the Government are acting diligently and responsibly in the delivery of dashboards.

Motion on Amendment 1 agreed.

Moved by

[Baroness Stedman-Scott]

That this House do agree with the Commons in their Amendments 2 and 3.

2: Clause 118, page 104, leave out lines 20 to 22

--- Later in debate ---

Moved by

[Baroness Stedman-Scott]

That this House do agree with the Commons in their Amendment 4.

4: Clause 123, page 118, line 1, leave out subsection (2)

[Baroness Stedman-Scott (Con)]

My Lords, this amendment was overturned in the House of Commons because, as the Minister for Pensions and Financial Inclusion explained in Committee in the Commons, no Government can commit to ensuring that all defined benefit pension schemes that are expected to remain open are treated differently from other schemes. Although, of course, the extent to which a scheme is open, and how that affects whether and how it will mature, must be considered, open schemes do not all share the same characteristics, and it would be wrong to treat them all in a similar way. Each scheme must be treated taking account of its own particular circumstances.

The original amendment touched on a number of important factors to be taken into account in the scheme funding arrangements. They are some, but by no means all, of the factors that we think trustees or managers should have to consider when setting a scheme’s funding and investment strategy. These are complex and inter- dependent metrics and most appropriate to be considered in secondary legislation rather than being put on the face of the Bill. The Bill provides for this through delegated powers that will enable secondary legislation to set out in some detail what the new funding and investment strategy will need to include.

Addressing those matters in regulations will give interested parties a chance to contribute to the consultation on draft regulations. It will also allow flexibility to ensure that the arrangements can be adapted as economic conditions change, so that the scheme funding system can continue to operate effectively over time. But we absolutely do not want to see good schemes close unnecessarily. We have made a clear commitment to ensuring that regulations work in a way that does not prevent appropriate open schemes investing in riskier investments where there are potentially higher returns, provided the risks taken can be supported and that members’ benefits and the Pension Protection Fund are effectively protected. With that explanation, I beg to move.

Motion 4A (as an amendment to the Motion on Amendment 4)

Moved by

--- Later in debate ---

[Baroness Stedman-Scott (Con)]

My Lords, I will first respond to the question of my noble friend Lady Altmann on long-term horizons. The scheme funding measures in the Bill, together with secondary legislation and a revised scheme funding code of practice, seek to support trustees and employers to manage this scheme funding with a focus on longer term planning. As now, the scheme’s liquidity requirements, investment timelines and the amount of risk each scheme can support will depend on factors including its maturity and the strength of its employer covenant. Trustees can and do invest in illiquid assets such as infrastructure, and our measures do not seek to discourage such investments where they are appropriate.

I also thank the noble Lord, Lord Davies, for his contribution. The thought of being locked out of a sweet shop gives me more heartache than your Lordships will know. We will do our very best to make sure that it does not happen again. We welcome the noble Lord to the House and have no doubt that he will add a lot of expertise. He has joined the formidable band of brothers on pensions and we are very glad he is with us.

I am very grateful to the noble Baronesses, Lady Bowles and Lady Sherlock, for their amendments. I am also grateful to all those who have contributed to the debates we had relating to schemes that are open to new members. They have been highly influential and have helped us refine our thinking on how schemes in these circumstances should be treated. The Government are very sympathetic to the thinking behind these amendments, but there are good reasons why we do not want to deal with these matters on the face of the Bill.

One of the main drivers behind our reforms to the scheme funding arrangement is the desire to be able to more effectively tackle the small minority of schemes and employers who push the flexibilities of our scheme-specific arrangements further than is appropriate, to the detriment of their members. As the detail of the arrangements is necessarily complex, there is a real risk that attempting to deal with it in primary legislation will inadvertently weaken the funding regime as a whole and undermine the ability of the Pensions Regulator to tackle the very issues that these reforms were designed to address. Rather, we think that the best place to deal with these matters is in regulations—following a full consultation. That way, we can work closely with the full range of interested parties, effectively calibrate the system and get the right balance between member security and employer affordability. By placing such matters in regulations, we will retain the flexibility in the future to adjust the relevant parameters should the evolving economic situation demand it.

What I can do now is set out some key principles of how we will proceed with framing the secondary legislation, which I am happy to put on the record and am confident will provide noble Lords with the reassurance they are looking for. Much of our original thinking was driven by the fact that most schemes are closed and maturing, but we completely accept that we need to be clearer about our thinking on other important groups of schemes. These are the schemes that continue to admit new members. Many of these schemes will not be maturing in the same way as closed schemes and some of them will be admitting sufficient new members to avoid maturing at all. A genuinely scheme-specific approach has to recognise the characteristics of such schemes and treat them appropriately. I am therefore grateful to the noble Baroness, Lady Bowles, and others for helping us to focus our thinking on these schemes. Let me make it clear now that the Government, having further considered the debate on the Bill and feedback from the pensions industry, fully intend that the defined benefit funding regime will remain scheme specific, and any bespoke approach should build on this foundation. This regime will continue to apply flexibility to take account of individual scheme circumstances.

The department confirms that detailed provisions for ongoing defined benefit funding, including any necessary assessment criteria and metrics, will be set out in regulations and in the Pension Regulator’s defined benefit funding code of practice, which will acknowledge the position of open and less mature schemes. As noble Lords have said, Ministers at the DWP have gone to great lengths to make themselves available to those who have pressed them on the position of schemes that remain open to new members. Both Ministers and officials have had extensive discussions with interested Peers, and others, including on schemes that remain open to new members. I also understand that interested Peers have been able to discuss these matters in detail with senior officials at the Pensions Regulator. This has been a highly productive engagement and, as I have said, it has been instrumental in guiding us to a better and more refined policy position. That is something I expect to continue.

Prior to the publication of the draft regulations, the Government can commit to an engagement programme with interested parties, including a range of schemes. These will include those remaining open and immature. They will launch a consultation document informed by this engagement. The Government will also publish a regulatory impact assessment of the draft regulations and the Pensions Regulator will publish an impact assessment alongside its revised funding code. These will include analyses of different de-risking approaches on members and sponsors of all schemes, including those that are open or immature, and those that are not targeting buyout.

We absolutely do not want to see good and viable defined benefit schemes close unnecessarily. We want them to be treated on their merits in a truly scheme-specific regime. We have said that open schemes should be able to provide the same level of security for members as closed schemes. I want to make it absolutely clear that this does not mean that they necessarily need to invest in the same way. We simply mean that members in an open scheme should be able to enjoy the same level of confidence that the benefits they have worked hard to build up will be paid in full, as for members in a closed scheme. We completely agree that open schemes that are not maturing and have a strong employer covenant should not be forced into an inappropriate de-risking journey. We will ensure that such schemes and employers which can support a higher risk and higher expected reward investment strategy can continue to invest in this way. If they are already doing the right thing, they should not need to significantly increase contributions as a result of these new measures.

The Government accept that for some schemes, depending on the circumstances, de-risking is not the best way to safeguard members’ benefits. Member benefits can be best safeguarded by an appropriate integrated risk management strategy determined after careful analysis by the trustees, which takes account of time horizon, liquidity, employer covenant and appropriate diversification.

This is the way that we intend to proceed as, with the help of close engagement with interested parties, we work on the regulations that will set out the detail of how the funding regime will operate. I hope that what I have said reassures noble Lords of our intentions and that the noble Baroness will feel able to withdraw her amendment.

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

My Lords, I have not received any requests to speak after the Minister, so I now call the noble Baroness, Lady Bowles of Berkhamsted, to reply.

--- Later in debate ---

Moved by

[Baroness Stedman-Scott]

That this House do agree with the Commons in their Amendment 5.

5: Clause 132, page 125, line 17, leave out subsection (2)