Pension Schemes Bill [Lords]

Debbie Abrahams Excerpts

2nd reading: House of Commons
Monday 30th January 2017 Commons Chamber

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

I thank the Secretary of State for outlining the content of the Bill. In addition, I pay tribute to my colleagues in the other place who have already scrutinised the Bill.

The Opposition recognise and support the need to ensure that there is adequate regulation for master trusts as they have developed since the introduction of auto-enrolment, but the point made about the missed opportunity was right.

As the Secretary of State set out, the Bill focuses on defined contribution occupational pension schemes alone, defining regulation of master trust schemes which provide centralised workplace pension funds for several companies at the same time and have largely emerged as a result of the development of auto-enrolment in pensions. It gives the Pensions Regulator responsibility to authorise those schemes that meet certain criteria. It also provides for a funder of last resort in cases where a master trust fails. Sadly, this is something we hear too much about with too many other pension schemes. Finally, the Bill gives the Pensions Regulator the ability to withdraw authorisation from a master trust and sets out the criteria for triggering such events should a master trust face difficulty.

As I said, the measures in the Bill are slightly overdue. In April 2014, it was estimated that master trusts accounted for two-thirds of people who had been auto-enrolled. Master trusts operate on a scale that is unprecedented in occupational pensions and most are run on a profit basis. Currently, however, they are not subject to the same regulation as contract-based workplace pensions. There is no requirement for a licence to operate and limited barriers to entry. There is also little guidance on who can become a trustee and no infrastructure in place to support the wind-up of a failed trust.

Given that the savings and pensions of millions of employees and their employer contributions are at risk, we cannot allow this to continue. We support the Bill, which is vital to putting the auto-enrolment system on the strongest possible footing, but we will look to strengthen it where we can, for example by building on our amendment on the funder of last resort. By protecting members from suffering financial detriment, while promoting good governance and a level playing field for those in the sector, the Bill should ensure that the system is a secure and trusted means of saving in the future.

Before I come on to specific elements of the Bill, I would like to expand on how disappointed I am, and how millions of others will be, with how limited the Bill is. Perhaps the Secretary of State will surprise us, but I think this is likely to be the only pensions Bill in this Parliament. Significant issues are already arising relating to both state and occupational pension provision. It is therefore disappointing, if we are to see no other Bill, that those issues are not being addressed.

One key issue is that of the WASPI women: the Women Against State Pension Inequality Campaign. These women, and some men, have been left behind by the Government’s poorly managed accelerated equalisation of the state pension age. Over 2.5 million women born in the 1950s made their plans for retirement only to find that their retirement age had been quietly pushed back by the coalition Government.

[Madam Deputy Speaker (Natascha Engel)]

Order. I gently remind the hon. Lady that we are discussing what is in the Bill, and not what is not in the Bill. It is quite a narrow Bill.

[Debbie Abrahams]

I am grateful to you for reminding me, Madam Deputy Speaker. It was a debating point in the House of Lords. As I said, it is not likely that there will be another pensions Bill in this Parliament, so I hope you will give me some latitude.

[Frank Field]

There was a hope among some of us on either side of the House that the Bill might be blocked tonight, temporarily, until we got justice for the WASPI women. Unfortunately, as I understand it, Labour was not willing to do that and the Scottish National party in particular was not willing to do that, as they are pleased with the Bill and want it to go through. May I make a plea to my hon. Friend that, should the next pensions Bill come, as it assuredly will, and before all the WASPI women are taken up to the new state retirement age, Labour thinks tactically about trying to get them justice, rather than merely talking about it, as I have to?

[Debbie Abrahams]

I am grateful to my right hon. Friend for his remarks. We recognise the importance of the Bill in tightening the regulation—or lack of it—on master trusts and the vulnerability that that lack places on the millions of people who are being auto-enrolled. It is therefore important that the Bill goes through. My point is that if it is the only pensions Bill in this Parliament, it has serious omissions. Those omissions should be on the record, as should our objection to the fact them. If I could just have a few moments to mention—

[Madam Deputy Speaker]

Order. The hon. Lady has made the point that she feels those issues have been omitted, but they are not in the Bill. If she could now move on, I would be very grateful.

[Debbie Abrahams]

I am grateful for that ruling, Madam Deputy Speaker. Although we have made significant improvements in terms of pensioner poverty, I have to say it is a disappointment that there are still outstanding problems. Under our pension system, of which we should be guardians, one in seven pensioners still unfortunately lives in poverty. We are the fifth richest country in the world, so we should be able to ensure that our pension system provides dignity and security in retirement. Currently, it does not. For me, this a significant failure of our pension system and highlights a particular failure in the Bill.

I could also talk about the missed opportunities surrounding the Cridland review of the state pension age, which has not been brought to this place, and there are lost opportunities when it comes to the defined benefit Green Paper. It was due later this year, but it has now been decided that it will not be brought to this place for scrutiny in connection with this Bill.

I will move on, Madam Deputy Speaker, because I know I am testing your patience. [Interruption.] That is a bit unkind. Closer to home and in relation to the Bill, it does very little to build—[Interruption.] Do any Conservative Members want to intervene? Okay, I will carry on.

The Bill does very little to build on the success of Labour’s auto-enrolment policy by ensuring that saving into master trusts is accessible and encouraged for a number of groups currently excluded from auto-enrolment provision. I recognise that the Government have announced a review of auto-enrolment, but again, why is this not in the Bill?

Let me speak briefly about the issue of low-income savers’ access to saving in master trusts. Under the policy of auto-enrolment developed by my party, working people would be automatically enrolled in a master trust scheme once their earnings hit the trigger of just over £5,000. The logic of this proposal was that people would begin to save towards an occupational pension at the same earnings level at which they began to pay national insurance contributions. The coalition Government increased this earnings threshold to £10,000, denying millions of low earners the automatic right to save towards a relatively low-cost occupational pension through a master trust. Given the generational crisis developing in our pension system, we believe that more needs to be done to include low earners in savings provision and encourage retirement planning.

That is also true for the self-employed. Self-employed people currently make up to 15% of the workforce, and since 2008 have accounted for over 80% of the increase in employment. There is much evidence to suggest that the self-employed are not saving as much as other sectors of the workforce. Research by the Association of Independent Professionals and the Self-Employed found that four in 10 self-employed people did not have a pension. Despite that worrying evidence, there is little obvious means by which a self-employed person could begin to develop a savings pot within a master trust. Once again, this is not sorted out in the Bill. There are other examples, such as people with multiple jobs and carers, of those who do not have access to, and the benefit of, an occupational pension scheme.

The Secretary of State has just announced that there are gaps in the Bill, relating to its failure on a number of different issues. We are shocked by the vast amount of detail missing from the Bill, when that detail is necessary to achieve what the Government have set out to do. The Secretary of State mentioned that secondary regulations will not be laid before the end of the year. Once again, the Government are, in respect of some important protections, presenting a skeleton Bill, with much of the detail left to secondary legislation.

Although we generally support the Bill, despite its narrow scope, there are a few aspects that we will look to strengthen and a few gaps that we believe need to be plugged. These can be considered broadly under three themes: improved governance, strengthened member engagement and greater transparency. The Bill includes a number of clauses that provide a framework for the effective governance of master trusts. We welcome, in particular, the authorisation criteria set out in the Bill. However, it does not address a number of core principles, the first being scheme member representation.

Unlike defined benefit schemes, defined contribution schemes provide for the risk of saving and investment to be borne by the scheme member. On that basis, we believe that scheme members should be represented among the trustees of master trust pension funds. It is, after all, their money, and they have a direct interest in ensuring that a sound and sustainable investment strategy is delivered at good value. That surely stems from the basic democratic principle that those on whose behalf decisions are being made should have a say in those decisions. It would also be a necessary step towards greater transparency in the pensions system, which the Under-Secretary of State for Pensions himself confirmed that the Government would pursue following Labour’s campaign.

Furthermore, providing for a certain number of member-nominated trustees would not be a particularly new or unique arrangement. Mandated member representation already exists in the pensions system: trust-based pension schemes are required to ensure that at least a third of the board of trustees is member-nominated. Why should master trusts not be subject to the same requirement, especially in the light of the increased risk borne by scheme members?

Let me say something about transparency. For too long, people have been encouraged to put their faith—and, perhaps more important, their money—in a distant savings pot, and have been given very little information about where the money is invested, the performance of their savings, and, importantly, how much the investment is costing, in terms of the costs and charges that they will incur. Neither the scheme trustees nor the scheme members have been able to ascertain adequately whether they are getting value for money. I remember that in 2015, the former Financial Secretary to the Treasury promised the Work and Pensions Committee that if there was not openness about costs and charges, the Government would introduce legislation. Well, it has come a little bit late. Why has it taken so long?

In almost any other market, people wishing to purchase goods or services are given basic information about performance and costs before they do so. That basic principle is a necessary requirement to ensure that they receive value for money, but it is not operating in our pensions system. The Financial Conduct Authority has therefore published an interim report, which recognises a number of significant failings in the competitiveness of the asset management market. Its recommendations have important implications for the transparency of pension funds, especially in relation to the costs and charges being extracted from pension savings by investment managers.

We are pleased to see that part 2 of the Bill attempts to prevent excessive fees from being applied should a scheme member wish to take advantage of the Government’s pensions freedom reforms. However, the Bill does not refer to transaction costs, the charges applied by asset managers when they are making new investment decisions. There is a great deal of work to be done to tackle the problem of opaque and excessive costs and charges being extracted from workers’ savings by investment managers. Currently, the Bill merely scratches the surface. It must become a stronger vehicle for change in this regard.

We believe that, alongside member-nominated trustees, a member engagement strategy is required to ensure that master trusts are communicating properly with those whose money they are investing, and that they play their part in driving informed saver choices on a bedrock of transparent information. The Pensions Regulator’s voluntary code of practice for defined contribution schemes asks trustees to provide “accurate, clear and relevant” communications for scheme members as good practice. We believe that proper member engagement should not merely be a voluntary requirement placed upon trustees, but should form part of the regulatory framework. That would help to ensure that scheme members can make rational and informed choices about their pension savings, creating a more sustainable system.

There are other elements in the Bill whose purposes we want to strengthen or clarify: for instance, the definition of the scope of a master trust, what happens to non-money purchase benefits under this Bill, a number of issues relating to the pause clause, and the status of the scheme funder as a separate entity.

We welcome the Bill, but we see it as a wasted opportunity. So much is being introduced after the event. There will be no opportunity for another pensions Bill; the provisions will be delegated to statutory instruments.

[The Economic Secretary to the Treasury (Simon Kirby)]

How do you know?

[Debbie Abrahams]

That is what we have been told. That is what we have been led to believe by the Government. Given how long overdue this Bill is, this is likely to be the only opportunity that we have to raise this, and it should have been brought to this House.

We need to develop a sustainable and secure pension system that drives down pensioner poverty and delivers dignity in retirement for all, and I am afraid that this Bill falls well short of that.

Pension Schemes Bill [Lords]

Debbie Abrahams Excerpts

3rd reading: House of Commons
Wednesday 29th March 2017 Commons Chamber

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

As we know, the passage of the Bill was interrupted this time last week as a result of the horrendous attack that took place just metres from this place. I echo the Minister’s remarks, and express my condolences to everyone who is grieving for a loved one, or who is recovering from their injuries. I also express my gratitude to the emergency services, and especially to the incredible support team working in and around this amazing place. I want to say how treasured they all are.

On to the Bill. I want to put on the record my thanks to my hon. Friend the Member for Stockton North (Alex Cunningham) for his unstinting work on this Bill, to our colleagues in the other place, who, as has already been mentioned, kicked this whole process off, and to all our teams for all the hard work they put in to try to ensure that the Bill, which is about closing the gaps in the regulatory framework for master trusts and increasing protections for their savers, is as effective as possible.

It will come as no surprise to the Minister to hear that I regret that he has been a little intransigent in failing to accept our amendments. He might have been constrained, but I wish we could have done more, as it would have strengthened the Bill and protected savers further. However, the Bill as it stands goes some way to increasing protections for master trust savers, the vast majority of whom were automatically enrolled through their sponsoring employer.

This has not been the easiest Bill to scrutinise. The content is, of course, technical, and an unusual amount of legislation is left to secondary regulations, which is a concern. That is becoming a hallmark of this Government and is entirely regrettable. It has not only brought criticism to the Government from the Select Committee on Public Administration and Constitutional Affairs, which has suggested that the Government are writing legislation in lieu of policy, but has made it difficult for this House to get a full picture of how the legislation will operate in practice.

Nevertheless, we are about to point out a number of significant gaps in the Government’s approach to the legislation, as well as some parts that we believe require further thought. As my hon. Friend the Member for Stockton North mentioned last week, we tried to table amendments in Committee to enact our commitment to the WASPI—Women Against State Pension Inequality—women to extend pension credit to those worst affected, ensuring that hundreds of thousands of those women became eligible for up to £156 a week. Sadly, the amendments were not selected. It is a real disappointment that the Government did not use the Bill to address the plight of these women. Labour has a clear, costed plan targeted towards the most vulnerable women, and we are exploring further options to help as many as we can.

Given that we understand that this will be the only pensions Bill in this Parliament—the Pensions Minister can put me right on that—there are many other pensions issues that should have been included in a more comprehensive Bill. As we have said before, this was a wasted opportunity.

Let me move on to the specifics of the Bill. It is a shame that the Government did not heed the advice of our noble Friends in the other place and provide for a funder of last resort. Our amendment would have ensured that scheme members were protected in the event of a master trust becoming insolvent, and would have offered them a clear route for the drawdown of their savings. The Minister believes that the new regulatory framework provides sufficient protection to make this provision unnecessary, yet he seemed unwilling to give a guarantee that no future master trust would go bust. I am glad that he has such faith in the regulatory regime, and I genuinely hope, for the sake of scheme members, that his faith is justified.

We hope to improve the clauses relating to pause orders. Under the legislation, the regulator can step in following a triggering event to halt accumulation and decumulation from a failing master trust. The Government have made an exception for people getting divorced to allow them to access funds held under a pause order, but they did not see fit to offer the same opportunity to, for example, disabled people or those in ill health. This is likely to cause distress to those who desperately need to draw down their savings. The Government did little to consider what would happen to savers affected by a pause order who wished to continue putting aside contributions from their salary and their sponsoring employer for retirement. Our amendment suggested that the employer take responsibility for holding on to these savings until the pause order ended or a new master trust was found. The Government again unfortunately rejected this practical suggestion.

The lack of transparency of costs and charges is a scandal of the pensions industry, and there have been Government promises to tackle it for years. I remember, several years ago, as a member of the Select Committee on Work and Pensions, one of the Treasury Ministers in the last Parliament promising that this would be done, but we are still waiting. It is one of those issues that we are taking far too long to tackle. I appreciate that a review will be published at the end of the year, but that will be too late for legislation. Again, it will be up to the industry to determine what, how and when it will publish its costs.

The matter of charges is a real scandal. I wonder whether anybody here knows the charges on their pension scheme. The charges affecting all savers have been estimated at up to £120 billion a year. We need to decide whose side we are on. Are we going to look after savers or prop up the pensions industry? We tried to raise the issue of opaque costs and charges being applied to members’ savings pots by investment managers and brokers, but again, the Government failed to respond. For too long, people have been encouraged to put their faith and, more importantly, their money in a distant savings pot, with very little information about where that money is invested, the performance of their savings and, importantly, the costs and charges incurred on the investment. In short, neither the scheme trustees nor the scheme members have been able adequately to ascertain whether they are getting value for money on their investments. In almost every other market, people looking to purchase goods or services are provided with basic information about performance and cost in advance of their purchase. This is a necessary requirement to ensure that they are getting value for money, yet this basic principle is not operating in our pensions system.

Part 2 of the Bill makes a small step towards greater transparency regarding the charges applied for those hoping to make the most of pension freedoms and to remove their savings from a master trust, but we maintain that it is not enough. Much more could have been done to shine a light on transaction costs applied to investment returns. The Minister committed the Government to implementing the recommendations of the Financial Conduct Authority’s report on the asset management market. Surely this would have been a great opportunity for the Government to make a start.

There is a lot of work to be done to tackle the problem of opaque and excessive costs and charges being extracted from workers’ savings by investment managers. This Bill merely scratches the surface. The question of governance also remains unanswered by the Government, despite the Opposition’s attempts to clarify. We believe that the Bill should have increased member representation on trustee boards. Their money is being invested, and they should be involved. The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees. If the scheme’s sole trustee is a company including the employer, rather than an individual, scheme members will have the right to nominate directors to that company.

The Pensions Act 2004 enshrined the right to have at least a third of the trustees of a trust-based scheme nominated by scheme members. That stems from the basic democratic principle that those for whom decisions are being taken should have a say in those decisions. The Pensions Regulator agrees that master trusts are covered by that legislation, which is why some already have member-nominated trustees.

The regulator has, however, turned a blind eye to this matter, on the basis that having multiple sponsoring employers presents a barrier. That is not acceptable, and we have urged the Government to clarify and apply the law in this regard. Scheme members should be represented among the trustees of master trust funds—it is, as I said, their money, and they have a direct interest in ensuring there is a sound and sustainable investment strategy that delivers good value. It is disappointing that the Government did not take up this matter, which requires urgent action. Nor was a convincing argument given as to why master trusts should not have to meet their statutory requirements, especially in the light of the increased risk being borne by scheme members.

It is also disappointing that the Bill does nothing to build on the success of Labour’s policy on auto-enrolment by ensuring that saving into master trusts is accessible and encouraged for a number of groups that were excluded from auto-enrolment by the Government’s changes to the eligibility criteria. Throughout these debates, we have recognised that the Government have announced a review of auto-enrolment, but we have not yet heard an explanation of why it comes after the Bill. The self-employed, women, those working multiple jobs, carers and people on low incomes could all benefit hugely from an enhanced opportunity to save towards their retirement. Although the Government did not feel they could commit to a proper statutory basis for their review, we shall hold them to account in the review itself to ensure it properly serves excluded groups.

To conclude, we of course welcome legislation to strengthen the regulatory footing of master trusts. We have, however, tried throughout these debates to address a number of serious issues through pragmatic engagement with the Bill, and by highlighting its many gaps. One would think that the Government would have had time to include much more detail on this piece of primary legislation to allow for proper scrutiny in both Houses. It seems, however, that they were unable to get their act together on this aspect of pensions. [Interruption.] There is some chuntering from the Government Benches—I think there is dissent there. However, we hope that, through these debates, we have at least drawn attention to these important issues, and to the need to create further security and dignity in retirement for working families across the UK.