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.