Pension Schemes Bill [HL]

Earl Howe Excerpts

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

The Minister’s reply to this group is of particular importance. I have tried to point out the specific hurdles he will have to jump over, but it will be important for him to give us as clear an answer as he can to each point to help us—and the many people who will be listening to this debate and reading the transcript—to understand where the Government are going. We have no desire to undermine the ability of the regulator to pursue those who put at risk the hard-earned funds of pension savers; equally, we need to be sure that appropriate safeguards are there. I look forward to the Minister’s reply.

[Earl Howe (Con)]

My Lords, this is quite a large group of amendments, all having as their subject matter Clause 107. I want to do justice to them so I therefore hope the Committee will forgive me if my reply is somewhat longer than might be welcome or the norm.

Let me briefly set out what this clause seeks to do. Clause 107 introduces two new criminal offences into the Pensions Act 2004, in new Sections 58A and 58B, and provision in new Sections 58C and 58D for mirroring financial penalties. These provisions strengthen the deterrent and punishment for certain conduct which puts pension schemes at risk. My noble friend Lady Neville-Rolfe and the noble Lord, Lord Hutton, asked what sorts of acts we are targeting. The types of acts that could fall within the criminal offences—and which, incidentally, the Pensions Regulator has previously encountered—are, for example, the sale of an employer with a defined benefit scheme without replacing an existing parental guarantee over the employer’s Section 75 debt, resulting in the loss of the guarantee, including failing to tell the trustees about the sale in advance. That might be one example.

A second example would be the purchase of a company, subsequent mismanagement of that company and extraction of value prior to it going into administration, while a third might be the stripping of assets from the employer, resulting in a substantial weakening of support for the scheme. I do not mean to suggest that that is an exclusive list, but I hope it gives the Committee a flavour of the actions that we are targeting.

If found guilty of an offence under these new sections, a person would be liable to a fine on summary conviction or, on conviction on indictment, a fine or imprisonment for up to seven years. Where a financial penalty is issued in respect of these provisions, the person may receive a penalty of up to £1 million. The noble Lord, Lord Hutton, asked me why we had drafted it so that the offence could be tried either way. I think that, in sum, the reason is that it gives the Pensions Regulator discretion to focus on all ranges of what might be considered bad behaviour or wilful or reckless behaviour, not just the most severe. It gives the regulator that flexibility.

I realise that Amendments 17 and 22 are probing amendments. They seek to probe whether and how far the two new offences should apply to any person whose conduct is within the scope of the offences, and they suggest that they might apply only to a person who wilfully, recklessly or unscrupulously does an act or engages in such conduct. I will say something about the words “wilfully” or “recklessly” in a moment, but is it is important first to understand that the new criminal offences and financial penalty provisions target conduct that avoids employer debt to pension schemes or risks accrued scheme benefits being paid. It is the conduct that we are focusing on here. It is an offence only if the person intended to harm the scheme or should have known that the conduct would have that effect and has no reasonable excuse for their actions.

In proposing these criminal offences, it is absolutely not the Government’s intention to interfere with routine business activities. The Pensions Regulator also continues to be responsible for making sure that employers balance the needs of their defined-benefit pension scheme with growing their business. However, it is important that where the elements of the offences are met, no matter who has committed them, the Pensions Regulator should be able to respond appropriately. Any restriction of the persons would create a loophole for these people to act in such a way.

Leading on from that, Amendment 18, tabled by the noble Baroness, Lady Bowles, seeks to remove the requirement in the new criminal offence in new Section 58A for the Pensions Regulator to prove that a person intended an act or course of conduct to have the effect stated in the offence. The amendment would significantly change the nature of the new offence. It would also duplicate many elements of the new offence contained in new Section 58B. In practical terms, new Section 58A as introduced applies only where wilful behaviours have occurred. That is evident as the section requires that

“the person intended the act or course of conduct”

to have the effect as set out. It is worth my adding that this offence also mirrors the existing main purpose test in the contribution notice regime and has been worded accordingly.

The noble Baroness made reference at Second Reading to the difficulty, in her view, of proving intent in the corporate environment. I have to say that I am not with her on that. Proving that a person’s behaviour was intentional is something that the regulator currently does under the main purpose test in the contribution notice regime, so we are confident that this should not be cause for concern.

In contrast to some of the earlier amendments, Amendments 23, 24, 25 and 26 would change the basis of the new criminal offence, as included in new Section 58B, making the scope of the activities caught by the offence wider than as set out in the Bill. Mirroring changes have also been made to the corresponding financial penalty provision, as included in new Section 58D. As introduced in the Bill, the basis of the test in these new sections is whether a person does an act or course of conduct which,

“detrimentally affects in a material way the likelihood of accrued scheme benefits being received”.

The test requires that the person knew or ought to have known that the act or course of conduct would have this effect. However, the amendments as tabled would mean that the test is met where a person,

“wilfully or recklessly puts at risk accrued scheme benefits being received”.

There are two main points I would like to address on these amendments and on why their wording is not appropriate. The first is a point of clarification around why we have not drafted the new offence and corresponding financial penalty in terms of the words “wilful” and “reckless” conduct. We have listened to feedback following consultation around the application of a test and we concluded that there would be too much uncertainty regarding what the words mean for us to legislate on this basis. Instead, the provisions have been drafted in such a way that it should be clear whether the test is met.

Secondly, changing the basis of the test to “puts at risk” could cause uncertainty within the industry. We consciously used the existing contribution notice tests as the basis for the new sanctions, as they target similar behaviours and are already familiar to the industry. By comparison, changing the basis of the test at new Sections 58B and 58D to “putting at risk” would create a new concept. Our view is that this would create uncertainty and a lack of clarity about the application of the new sanctions. In particular, changing the basis of the test could raise questions around the interpretation of the legislation, which the Bill, as introduced, already seeks to address.

It is clear that the types of conduct that either,

“detrimentally affects in a material way the likelihood of”,

benefits being received or, as per the amendment, “puts at risk” benefits being received, could be wide-ranging. This is why the Bill, as introduced, includes the concept of materiality, as a means to indicate that consideration will need to be given to the level of impact the conduct has on the likelihood of accrued scheme benefits being received. The concept “puts at risk” does not include any indication that the level of impact should be considered at all. Therefore, if the amendments were to be accepted, it could be argued that conduct that puts benefits at risk by even a fraction of a per cent could be in scope, which would go beyond the policy intention.

Amendments 19, 20 and 21 seek to provide further clarity around the way in which the reasonable excuse defence will work and to provide protection from prosecution if an act or course of conduct has been approved by the Pensions Regulator or the Pension Protection Fund. I believe that Amendments 19 and 20 are unnecessary and will set out why.

The existing phrase in the Bill “reasonable excuse”, which is to be removed by Amendment 19, has an inherently wide meaning in practice and could be interpreted to include the factors being presented in the amendment. It is therefore unnecessary to set out those factors. The factors that the prosecuting authority would consider when determining whether there is a reasonable excuse would depend on the individual circumstances of each case. Amendment 20 could, however, limit the factors the prosecuting authority and the courts could consider when determining whether there is a reasonable excuse and may potentially result in unintended consequences. For example, a person may have a reasonable excuse that does not fall into one of the factors to be considered. It is the age-old problem of including a list in legislation—a problem with which my noble friend is very familiar, I am sure.

--- Later in debate ---

[Lord Hutton of Furness]

I hear what the Minister says about prosecuting authorities but can he turn his remarks to the subject of why in those circumstances the Secretary of State should be considered a legitimate prosecuting authority? He has not mentioned that. I understand his points about the DPP and the Pensions Regulator but what about the Secretary of State?

[Earl Howe]

I was coming to that but I will deal with it now. The Secretary of State for Work and Pensions can institute proceedings for an offence under new Sections 58A and 58B in England and Wales only. This drafting mirrors the legislation of similar offences, such as insider dealing in the Criminal Justice Act 1993, as well as offences in the Financial Services and Markets Act 2000 and the Insolvency Act 1986, where the Treasury or the Insolvency Service could bring prosecutions.

The inclusion of the Secretary of State here enables the Government to ensure that the most serious conduct that harms pension schemes will remain punishable in the future. For example, if the ability of the regulator to bring about proceedings is hindered or the regulator ceases to exist—or exists in a different form—this provision could cut in. It is not envisaged that the Secretary of State will institute prosecutions where the Pensions Regulator or, where relevant, the Director of Public Prosecutions has decided against it. Further, where the power to institute prosecutions is exercised, the guidelines from the Code for Crown Prosecutors will apply.

[Lord Hutton of Furness]

Where will that be set out? If the Secretary of State will not prosecute in those circumstances, how will that be made clear?

[Earl Howe]

It will be made clear—in practice, if anything—but the Secretary of State will reserve the power for the rarest of occasions, I imagine, in the circumstances that I outlined. The normal course would be for the traditional prosecuting authorities to act. Only where the Secretary of State sees an egregious example of someone likely to get away without prosecution for reasons beyond the control of the prosecuting authorities will he or she step in. I cannot generalise about the circumstances. That power is there, as in the other Acts that I mentioned, very much as a long-stop provision.

Amendment 35, in the name of the noble Baroness, Lady Sherlock, proposes a new clause requiring the Pensions Regulator to publish guidance on how it intends to use the new criminal offences. We think this amendment is unnecessary. The Pensions Regulator already has a general prosecution policy in place which sets out the matters it considers when using its prosecution powers. The Pensions Regulator intends to issue further specific guidance explaining its approach to prosecuting the new offences under Part 3 of the Bill.

I fear there is also a practical difficulty, because it is unclear how the amendment could be implemented. The amendment would require the Pensions Regulator to publish guidance pertaining to the new offences at the point of Royal Assent. The problem with that is that the provisions in Part 3, which include the new criminal offences, are subject to changes up to the point of Royal Assent and it would be unwise to pre-empt the will of Parliament by preparing guidance based on draft provisions. It is expected that, following Royal Assent, the regulator will consult on the contents of the guidance for the new offences and expects to publish this guidance prior to commencement. It is clearly important that the industry’s views are sought on what is contained in the guidance, and the timing requirement proposed in this amendment would mean the regulator would consult before the offences are finally settled.

A further reason the amendment is unnecessary—indeed, I would say inappropriate—is due to the inclusion of the phrase

“guidance … concerning the operation of law”.

This phrase has a very specific meaning, and implies that the intention behind the amendment is that it will be for the Pensions Regulator to determine how the legislation should be interpreted. This is of course a matter for the courts, which will make the decision as to whether an offence has been committed in a particular case. Therefore, while the regulator’s guidance will provide assistance as to how the regulator intends to use the new criminal offences, it will not be definitive; nor could it or should it be, since something deemed to be reasonable in one case, for example, may not be reasonable in another. I should mention, for completeness, that there are a number of technical issues with all these amendments which could cause confusion. I shall not go into them here, but I can explain the details to noble Lords if necessary, outside the Committee.

My noble friend Lady Neville-Rolfe asked what kind of estimate we make of the number of people who might go to prison under these criminal offences. Clearly, irresponsible treatment of pension schemes is rare; however, it is important that where we have wilful or reckless behaviour, appropriate sanctions are available. The Pensions Regulator has successfully brought 16 convictions over the past two and a half years—it is of course for the courts to decide who gets convicted and what the penalty should be. I hope it is widely accepted that the Pensions Regulator must meet a higher threshold before a criminal prosecution can be commenced. As the Pensions Regulator has already commented, it would use these new powers only in the right circumstances.

The noble Lord, Lord Hutton, asked a further question about the words “any person” and what other legislation uses that phrase. It is the norm for criminal offences across the statute book to be drafted as applying to “any person” and I can give him examples—I would be happy to write to him.

It is clear that the majority of employers want to do right by their scheme. However, we must ensure that there are sufficient safeguards to protect members’ pensions from the minority who are prepared to put them at risk. If the category of persons whose conduct is within the scope of the offences as set out in Clause 107 were to be narrowed in the way that some of the amendments propose, we believe that the deterrent provided by the offences would be weakened, as indeed would the safeguards built into them. In contrast, making the scope of the activities caught by the offences wider, as separately proposed by other amendments, not only risks removing a key consideration of the level of impact of the conduct but also reduces safeguards. The Government have therefore sought to strike a balance to ensure that members’ benefits are protected while taking into account impacts on business.

I apologise again for speaking at such length, but I hope that the comments I have made will allow noble Lords to feel comfortable in not pressing their amendments.

[Baroness Bowles of Berkhamsted]

I thank the Minister for his comprehensive reply. I had intended to probe especially around the words “wilful” and “reckless”; I had a little add-on for fun. When I first thought of putting those words in after “person”, I rapidly came to the conclusion myself—I think the noble Baroness, Lady Stedman-Scott, was there—that in the end they did not make any difference. However, I am not actually sure that that is quite true with regard to the offence of the avoidance of employer debt. New subsection (2)(b) states

“the person intended the act or course of conduct to have such an effect”

but that has to be applied to the examples that might be targeted given by the Minister. In the case of sale of the employer and a parental guarantee not being replaced, that might be done through negligence rather than intent and then it would not be caught because the words “ought to have known” do not appear in the new Section 58A offence, although they do in the new Section 58B offence. So the Government have caught recklessness in new Section 58B but not in new Section 58A. Maybe the words “ought to have known” or something like them could be put there.

[Earl Howe]

It might be helpful to the noble Baroness if I clarify. New Section 58A is intended to capture the concept of wilfulness and new Section 58B the concept of recklessness.

[Baroness Bowles of Berkhamsted]

I see. I do not see why we could not have them caught in both. Anyway, we have debated this long enough. I thank the Minister for his replies, and I beg leave to withdraw the amendment.

Pension Schemes Bill [HL]

Earl Howe Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Baroness Sherlock]

My Lords, my noble friend Lady Drake has made a compelling case for the importance of this issue as well as giving us a helpful strategic overview of the state of the long-term savings industry and the impact of this dashboard on it. Done right, a dashboard could in time offer a useful service to savers. It would offer a chance to locate lost pots, to view in one place all the different bits of pension, state and private, and to make a realistic assessment whether someone is saving enough for retirement. But equally, the risks are huge, particularly given the scale if, as my noble friend said, data for more than 22 million people are to be channelled through this platform.

This becomes a public good only if it is designed and delivered in the right way, with transparency and all the necessary safeguards. As my noble friend Lady Drake said at Second Reading,

“public good cannot be traded off against commercial interests.”—[Official Report, 28/1/20; col. 1367.]

Labour would prefer this to be a public service, but if the Government are determined to go down the road of commercial dashboards, it is clearly essential that there be one “public good dashboard” owned, controlled and governed by a public body. My noble friend has given us a frankly staggering list of organisations supporting this that are right at the heart of the industry, including the CEO of the Pensions Regulator, who told the Work and Pensions Select Committee on 26 June 2019 that

“there must be the public dashboard”.

It is really very simple: the public should not be required to use a commercially owned dashboard to access their own data, especially in a market so susceptible to consumer detriment.

It is quite extraordinary that there is nothing in the Bill saying that there should be a public dashboard, when I think everybody had assumed this was going to happen. The Minister said at Second Reading

“MaPS committed to providing a dashboard in its 2019-20 business plan.”—[Official Report, 28/1/20; col. 1414.]

However, a Minister telling us that an NDPB has plans to do something is not the same as legislating that it must happen, so our amendments simply require that there be a public good dashboard.

The MaPS business plan said:

“It is envisaged that there will be multiple dashboards connected to the infrastructure, but also that there is merit in a consumer facing dashboard provided by a non-commercial and impartial organisation. The Money and Pensions Service, as part of its business as usual function to provide impartial information and guidance, will begin the development of a noncommercial consumer facing dashboard.”


There is not exactly a sense of urgency there; it contrasts quite markedly with what the noble Lord, Lord Young, has described as the ABI champing at the bit to get going and hoping to have it done by last year, or at the very latest this year.

That is the second point. Even if Ministers seek to assure us that MaPS is committed to producing a public dashboard, we want to know that it will be up and running before any commercial dashboards are allowed to start operating. That is what Amendment 48 is designed to ensure. I cannot see why this should be controversial. If Ministers are confident that MaPS is on target, no doubt they will accept the amendments from the noble Lord, Lord Young, and reassure the Committee that a good public dashboard will be set up. Would it not be obviously sensible to have that up and running to test the architecture and infrastructure before allowing private companies to set their own up dashboards, with the additional risks that will bring?

I suppose it is possible that Ministers are not confident that MaPS will have its public dashboard running any time soon. They could easily dispel that thought by accepting the amendments from the noble Lord, Lord Young, or indeed ours. I believe MaPS has said only that it hopes to be one of the first. The state’s recent track record with large-scale IT projects, as those of us covering DWP know to our cost, has not been fantastic. If multiple dashboards are to be allowed to be set up all at once, and if MaPS is to take its time in doing it, there could potentially be a considerable period in which consumers will be able to access their data only through a commercial dashboard. That does not seem to be in line with what we understood the Government intended to do.

Our amendments are simply designed to ensure three things: that there is a dashboard which is publicly owned, controlled and governed; that it is free to use and does not display advertising; and that if Ministers are to go down the route of commercial dashboards, they do not do so until the public dashboard has been operating for at least a year, and the Secretary of State has been able to report to Parliament on its structure and effectiveness.

I would like to ask the Minister some specific questions. They are really easy—not A-level questions but low-grade SATs questions, which I have no doubt should be in her brief somewhere. I shall read them really slowly. First, when does DWP expect the MaPS dashboard to be up and running? Secondly, when does it expect the first commercial dashboard to be up and running? Sorry, I was looking at the wrong Minister. Thirdly, how many dashboards do the Government think we will have? How many do they know of that are being tested or in the pipeline? Fourthly—this is a biggie—will commercial dashboards be allowed to charge consumers for using them? Fifthly, and this may be at GCSE standard, I understand that alongside any dashboard developed by MaPS, a liability model will need to be developed. We do not have any guarantee that the liability model will be ready before commercial dashboards become available, even if the MaPS dashboard is not ready. Is there any way that there could be a gap between people using commercial dashboards and the liability model being ready? That matters because, of course, if detriment is created then we need to know how it is to be managed and where responsibility lies.

I remain very worried about what the Government may be creating without considering all the implications, and its unintended as well as intended consequences. I look forward to the Minister’s reply to our amendments and to those tabled by the noble Lord, Lord Young. I hope the Government can reassure us that they will in fact be committed to having a high-quality, public good dashboard established before the industry is allowed to get into a free-for-all.

[Earl Howe (Con)]

My Lords, I thank the noble Baronesses, Lady Drake and Lady Sherlock, my noble friend Lord Young and the noble Lord, Lord Sharkey, for their valuable contributions to a debate on what I am the first to acknowledge is a significant set of topics. This group of amendments explores how privately operated dashboards will work alongside a public dashboard provided by the Money and Pensions Service. They also explore whether a public service dashboard will be delivered.

I want first to reassure the Committee that the Government are absolutely committed to the Money and Pensions Service, or MaPS, providing a qualifying dashboard service. Let there be no doubt about that; it was clearly set out in our consultation response Pensions Dashboards: Government Response to the Consultation published in April last year. The MaPS business plan for 2019-20, also published last April, subsequently confirmed its commitment to deliver a dashboard.

Furthermore, to pick up the sense of Amendments 47, 48 and 70, we entirely understand the importance of having a dashboard run by a public body without any commercial interest. One of the core functions of the Money and Pensions Service under the Financial Guidance and Claims Act 2018 is to provide free and impartial information and guidance about occupational and private pensions. Read together with Clause 122, that ensures that MaPS has the legal powers to provide a pensions dashboard that includes state pension information. To be clear, I say that accessing the information on dashboards will remain free, regardless of whether a dashboard is provided by MaPS or another organisation.

MaPS will be able to include signposting to free and impartial guidance on its dashboard, as will other organisations, as that supports its pensions guidance function. However, MaPS will not be able to host any income-generating advertising. MaPS has no revenue-raising powers under the Financial Guidance and Claims Act 2018.

I turn to ownership. We expect MaPS to provide a dashboard on an ongoing basis. However, it is important for there to be flexibility in how that function is carried out in line with changing technology and consumer interests. Here I am talking about the medium to long term. We also want to maximise the Government’s ability to ensure that ownership of the dashboard is in the right place in the longer term.

On Amendment 71, I very much share my noble friend Lord Young’s desire for a dashboard to be delivered in a timely manner to help people plan for their retirement. However, setting a date in legislation may be counterproductive. It risks creating a situation where decisions are taken simply to meet a legislative deadline, regardless of outcomes, rather than to meet the needs of individuals. To my mind, more important here is that we ensure that the service is accurate, secure and consumer focused. Developing a service that gives consumers a single point of access to their pensions information is complex. There are 40,000 schemes of differing types, covering around 25 million people with private pension wealth. The staged onboarding of thousands of pension schemes covering millions of separate records will raise issues that are not currently apparent, it is safe to predict. That tells us that dashboards should be delivered only when the Government and MaPS are confident that they are ready, so that consumers can be confident in the service offered. I hope that the noble Baroness, Lady Sherlock, in particular agrees, given her apposite references to computer systems that perhaps have not quite lived up to expectations.

Through Amendments 37 and 48 the noble Baronesses, Lady Drake and Lady Sherlock, also probe the question of introducing multiple dashboards alongside a MaPS dashboard. Having the potential to offer multiple dashboards at launch maximises the possible reach of this policy from the outset and could help to meet the differing needs of the many people using them. User research completed as part of the Government’s feasibility study and consultation showed that individuals may prefer to use a dashboard provided by an organisation with which they already have a relationship—for example, their employer—due to higher levels of familiarity and trust. It is a case of one step at a time, however.

I hope that the Committee is reassured that the information shown on all dashboards, public or private, will be the same, and based on user testing. We also intend all dashboards to start with a limited functionality until we better understand how individuals interact with their information.

A majority of respondents to the government consultation were supportive of multiple dashboards, provided sufficient consumer protections were in place. The Government have considered how to ensure that consumer protection, and accordingly we shall be introducing a new regulated activity under the Financial Services and Markets Act 2000 to reflect the provision of dashboard services. As I am sure noble Lords are aware, we will cover this issue in more detail later.

Clause 118 provides the power to set out detailed requirements “for qualifying pensions dashboards”. It is also likely that this will be linked to the new regulated activity outlined by the Financial Conduct Authority. These are all provisions to ensure consumer protection in relation to privately run dashboards. Our job is to put that consumer protection regime in place, but, once it is in place, we do not wish to constrain the potential reach of the policy. Nor do we wish unnecessarily to limit consumer choice.

--- Later in debate ---

[Baroness Altmann]

I hope my noble friend will forgive me for intervening, but after what he has just said, it is important to put on record that there are potentially significant dangers in launching commercial dashboards at the same time as the publicly funded dashboard. It is likely that that will generate enormous confusion in the consumer. It is entirely possible that consumers will not know which dashboard is which and will be driven to a commercial dashboard, which may not be in their impartial interests. I urge my noble friend to consider carefully that there are really strong and important reasons from a consumer protection perspective to have this publicly funded dashboard first, especially as the Government have devoted so much resource and commitment to providing it.

[Earl Howe]

I say—gently—to my noble friend that I could not disagree more. I cannot see the risks that she has articulated, given all that I have said about putting the necessary consumer protections in place before anyone makes the first move to launch a commercial dashboard. Having said that, I very much respect her knowledge of the landscape and would be happy to have a conversation with her about the risks that she referred to. But having thought about this in some depth myself, I am satisfied that we will not allow a situation to arise where consumers are confused or put at risk by the multiplicity of dashboards. All the dashboards will show the same information. They will not be allowed to show different information. They may set it out differently, but that does not seem to constitute a risk to the consumer or of confusing the end user.

Subject to those remarks, and despite the lack of clarity around the timing of the matters I referred to, I hope that the assurances I have given are sufficient for noble Lords, and that the noble Baroness feels content to withdraw her amendment on that basis.

--- Later in debate ---

[Earl Howe]

I will come back on a couple of points raised by the noble Baroness. The regulations that would achieve any future changes to the dashboard are subject to consultation and the affirmative resolution process. It comes back to what I indicated earlier was a step-by-step process. If the Government wanted to augment or change the content of the dashboard, they would have to do it in a measured and ordered way.

She also asked whether I believe that consumers want a publicly funded dashboard. I think that the answer to that will be revealed in consumer behaviour: if they clearly want it, they will use it, and we will know that. Of course, we cannot predict how consumer behaviour may change over the medium to long-term. That is the point that I was seeking to make earlier.

[Lord Flight]

I will make a practical point. Running up to the launch, it would surely be very useful to have extensive marketing and advertising of MaPS, so that citizens know what to expect when it is live.

[Earl Howe]

That is a very constructive suggestion from my noble friend. I will take it away with me.

[Baroness Sherlock]

My Lords, that had better not happen too soon, though, because there might be nothing to see for a while. I am very grateful to the Minister for his thorough response, even if some of it disappoints me. I am grateful to him for taking his time to go through the questions.

My noble friend Lady Drake, as always, expresses it more cogently and thoroughly than I do, but my problem is that the Minister is essentially saying that the Government are committed to MaPS producing a dashboard. This is not the same as the Government saying that they will ensure that there is a dashboard. My worry is that I do not want to see this rushed. I have been an adviser in government myself, when tax credits were being developed. I realise the problems that come out and I know only too well that when you develop new computer systems, you do not know what will happen until you press the button on the first day. However, my worry is that that is precisely what could happen here. If the Government are determined to allow commercial dashboards to go live whenever they are ready, what if MaPS then takes years to get it right? What if it never does? What if MaPS itself fails on another front? We could end up never having a public dashboard, in which case the Minister would not have broken his word but none the less a public dashboard would never have come to pass. If it were in the Bill there would be an obligation on Ministers.

I take my noble friend Lady Drake’s point about new incumbents. I have been in my brief since I think 2011 or 2012. I think that I am on my seventh Secretary of State. Given that one of them was there for quite a long time, there has been an awful lot of turnover since. It is not impossible that a new Secretary of State could come in and take a radically different view from their predecessor, as they have in my time, on some aspect of policy. It is not really the kind of assurance that we would want.

My worry is that the Minister has not addressed one point: if the Government believe that there should be a public dashboard, but are relaxed about the fact there could be a long period of time where consumers would be able to access their data, which the Government had mandated the release of, through only a commercial dashboard, why do they think that there should be a public dashboard at all? Theoretically, there could be five years between the commercial dashboard and the MaPS dashboard. If the Government think that it does not matter that there will be no public dashboard for that interim period, why do they think that it matters at all?

My final point is about the fact that the Minister thinks that there are no risks at all. I would like to hear this conversation between him and the noble Baroness, Lady Altmann, but I think it should take place in this Committee. The Minister defended the skeletal nature of the Bill. We will come back to this in the next group on Monday, but the Constitution Committee was quite explicit in saying that the Government’s defence that the Bill is very complex, that we have to get on with it and that we should not worry because the regulations will be affirmative, is not adequate or an excuse for drafting the Bill in this way. Part 4 is almost a skeleton.

The combination of all this is that the Government are saying, “There should be a dashboard. We cannot tell you when the public dashboard will be up. Don’t worry, it’ll be fine because we will regulate it. We can’t tell you who will regulate it, or how, or any of the circumstances. We can’t even tell you how we’ll make sure the risks don’t come to pass”. The Minister says that the information will be the same, but can he tell me whether it will be displayed in the same way, who will decide what the information will be or what the time periods will be? None of these questions has yet been answered. We will come back to them with our next amendment.

The Minister is asking the Committee to take a huge amount on trust when we have literally no idea what the dashboard will look like. Yet, somehow, we are just meant to say that it will be fine and the risks are fine. I spent 10 years on the board of the Financial Ombudsman Service. Every year we had to read a selection of case files. I have a pretty long experience of all the things that have gone wrong in sectors where the Government were confident they were well regulated and controlled, and where things could never possibly go wrong. My goodness, they have gone wrong in ways one could never have imagined when the regulations were being framed.

I am glad that the Minister is confident that there are low risks. I do not share his confidence, but maybe I am an old cynic. I would be interested if he could respond in particular to the point about why there needs to be a public dashboard at all if the Government do not mind whether there is not one for as long as it takes for MaPS to catch up. Can he answer that point?

[Earl Howe]

I believe I am right in saying that while your Lordships’ Delegated Powers Committee had some trenchant things to say about the delegated powers in the rest of the Bill, it felt pretty relaxed about the powers in Part 4, because it recognised that it was absolutely necessary to have the kind of flexibility I referred to. We must take it that the committee looked at these matters in some depth. Clearly, it did not feel constrained in criticising the nature of the powers in other parts of the Bill. I think the delegated powers here are necessary. I do not think we should be frightened of them, but I can see that the accumulation of them might appear off-putting to noble Lords.

[Baroness Drake]

I am conscious that I was a member of the Constitution Committee. The issue is not that simply the Government do or do not want flexibility. The issue is that such extensive delegated powers are being taken in the absence of significant areas of policy being settled. That is not the correct way to approach legislation.

--- Later in debate ---

[Earl Howe]

I hear what the noble Baroness says. It is not that the policy is not settled but that the implementation of the policy is not settled. We know broadly what we want to achieve but the detail has yet to be worked through; including the functionality and the way that the liability model will form. We do not know all the answers; we know some of the answers, but not all of them. I do not accept that the policy as such is a blank sheet of paper.

[Baroness Drake]

I beg leave to withdraw my amendment.

Pension Schemes Bill [HL]

Earl Howe Excerpts

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Earl Howe (Con)]

My Lords, I am grateful to all noble Lords who have spoken to this group of amendments. Perhaps I can start by addressing the questions raised by the noble Baroness, Lady Sherlock, in the context of the issues posed by the Constitution Committee. I appreciate the points she and the noble Baroness, Lady Drake, made on this. The Constitution Committee raised the skeletal nature of the provisions in this part of the Bill and sought clarification on how, and by whom, some of the powers might be exercised. Notwithstanding that, as I have pointed out previously, the committee accepts the need for some of the powers, even if in skeletal form. The noble Baroness was kind enough to concede that.

The noble Baroness picked me up on the distinction I made last week between policy and policy implementation. The policy in this area is developed: we are clear about what we want to achieve and what needs to occur for that to happen. There was a full and thorough government consultation. Following that, a government response was published and our policy aims were set out. As we have made clear throughout this process, further work on the technical development must be carried out and in due course, we will bring forward the affirmative regulations that provide much of the detail that noble Lords seek.

I would like to explain why it was necessary to bring the Bill forward at this point. The noble Baroness asked me why we think dashboards are a good thing. In our government consultation, there was overwhelming support across consumer groups, individuals and industry for our proposal to introduce a legislative framework in order to,

“deliver dashboards within a reasonable timeframe”.

Our experience over the past five years of trying to make progress on this matter—a long time, as noted by my noble friend Lord Young—is that without the clarity of our commitment brought by legislation, it would prove impossible to bring together the industry in a way to develop the service that consumers require and have said they want.

We have asked the industry delivery group, under the guidance of the Money and Pensions Service, to develop the infrastructure required to provide dashboards by working with a range of stakeholders, including pension scheme providers. This process will inform the content of the delegated powers. The alternative approach would be to table a Bill once all the technical work has been completed but, as I have just outlined, we would struggle to get industry to engage with us to enable this technical work to complete. We took the view that that course of action would be impractical and simply further increase the time that consumers need to wait for a dashboard service.

I am the first to recognise the Constitution Committee’s reservations about the use of delegated powers but, in this instance, we consider their use to be entirely appropriate and in keeping with the committee’s suggestion that they meet “an exceptional justification”. As to that justification, the reasons for the nature of the delegated powers are fully set out in the delegated powers memorandum. This recognises the need for a degree of flexibility while creating a digital service solution in order to ensure that the service provided remains up-to-date, secure and accurate. Technical requirements and user needs change and the legislative framework needs to be able to adapt at pace to meet those requirements.

The committee also referred to Clause 118 and asked the Government to explain who might be prescribed by the Secretary of State as someone who can publish standards, specifications or technical requirements for a qualifying pensions dashboard service. Pensions dashboards fit with wider government aims to give consumers access to and control over their own data, particularly across financial services. The Government’s approach is therefore to ensure that dashboards are fit for purpose over the long term, which includes recognising that ownership of the dashboard infrastructure and responsibility for the setting of standards may need to change over time, as explained in paragraph 1.364 of the delegated powers memorandum. It is not possible to set out now who might be asked to take on this responsibility in future, nor to state now the mechanisms of accountability to Parliament. That would need to be determined according to the circumstances but, as we have already set out, such changes will occur within the wider legislative framework, which offers multiple layers of consumer protection.

[Viscount Eccles (Con)]

Perhaps I should already know this, but will it be possible, in the additional technical work, for an individual to decline to have the information about his or her pension position put on to a dashboard? If past history is any guide, some people will always prefer not to join such a system. They might feel that they do not need it. Therefore, I express the hope that it will be possible to opt out.

[Earl Howe]

It will be entirely up to the consumer to decide whether they wish to have a dashboard showing all the information relating to their pension entitlements. Nobody will be forced—

[Baroness Drake]

At one level it is entirely up to the consumer, but if somebody hacks into the system or steals their identity, that is not under the control of the consumer.

[Earl Howe]

I will come on to the question of identity in a second when I address the amendment tabled by my noble friend Lord Young. Clearly, we want to do our utmost to ensure that the system is secure and that data can be accessed only by those entitled to access it.

I share the aim of noble Lords to make dashboards as useful as possible to individuals planning for their retirement. To that end, we are considering many of the aspects in these amendments as potential features of pensions dashboards in the future. Having said that, I need to come back to a point that I made earlier. The development of a pensions dashboard service that gives consumers a single point of access to their pensions information is a complex undertaking.

I remind the Committee that there are over 40,000 schemes, around 25 million people with private pensions wealth and a huge amount of state pension information. My noble friend Lady Altmann was absolutely right to stress that. It is why we have asked the industry delivery group to work with representatives from the pensions industry and consumer groups to ensure that the service is accurate, secure and consumer focused. Once again, I underline the word “secure”. I have to sound a cautionary note to noble Lords who want to broaden out the service in short order. Again, my noble friend Lady Altmann is quite right: adding any further complexity at this stage, however well intentioned, risks delaying the delivery of pension dashboard services to individuals.

I am sure we can agree that it is important that the design of this service is consumer focused. It must consider potential risks to the consumer and provide benefits to individuals planning for their retirement. The industry delivery group will undertake further user research and testing to ensure that that is the case. Any additional functionality should be made available only if three conditions are met: a clear consumer need should have been identified; safeguards and protections must be in place; and any functionality must be controlled and tested.

With those thoughts and aims in mind, I turn, first, to the amendments tabled by my noble friend Lord Young. In Amendment 45, he raises the important point of identity verification. This is crucial in giving consumers and pension providers confidence in the security of their data. In order to ensure a consistent consumer experience, the dashboard infrastructure should have one digital identity standard agreed across the industry. The level of identity verification used must be consistent with the internationally recognised standard published by government—the good practice guidance on identity proofing and verification. The good practice guidance is designed to be as inclusive as possible, so that as many people as possible are able to securely access the online services.

The creation of a digitally secure identity is complex. Last year, the Government introduced the digital identity unit, which is now leading work to develop a digital identity solution that can be used across the public and private sectors. The industry delivery group will work with the digital identity unit to enable the delivery of a secure, effective and inclusive identity service for users of the pensions dashboard. I understood what my noble friend said about Verify, and I assure him that the industry delivery group has this issue squarely on its radar. It is being informed by industry experts and consumer groups, and it will carefully consider available options and make recommendations on the best identity solution for pensions dashboards. The solution may not be Verify.

ID verification will have to meet the standards for all parties, including state pension, and that requires a high level above that for an individual scheme. Whatever happens, I can assure my noble friend that dashboards will be free at the point of use for consumers; that includes identity verification. Digital identity remains a priority for government and we are considering ways in which to continue this work with departments across government. We hope to make announcements on that in due course.

On Amendment 38, the Government fully support beneficiaries with entitlements having access to their pension information via dashboards. I can tell my noble friend Lord Young that this clause, as already drafted, enables this to happen. The delivery of this facility will be considered by the industry delivery group. However, his amendment does not distinguish between beneficiaries with entitlements and potential beneficiaries, without current entitlements to the scheme. Creating provision for a person with a potential entitlement introduces considerable legal and technical challenges about data protection and confidentiality in relation to the principal scheme member. The members themselves should have control of the access to such information, and this should happen only with consent. We should be wary of undermining confidence that an individual’s own pensions data will be kept safe, confidential and secure.

On Amendments 43 and 44, the Government recognise that some people will have a range of assets, including their homes, which could be used to form part of an individual’s retirement income. I understand all that my noble friend said in favour of adding to the dashboard in this way. However, I question whether such amendments are either wise or necessary. Many income projection tools are available through independent financial advisers to support individuals with this. The amendments open up the possibility of financial advisers being able to add information and make calculations directly on to a dashboard. This would significantly extend the scope of pensions dashboards, adding more complexity and risk to delivery.

That cautionary note is quite a good segue into Amendment 39 in the name of the noble Baroness, Lady Sherlock, on financial transactions. The document Pensions Dashboards: Government Response to the Consultation sets out that qualifying pensions dashboard services will not initially have the capability to facilitate transactions. They will start with a “find and view” function, allowing only individuals to see their information. Further functionality will be carefully considered, taking into account the potential risks to consumers alongside the potential benefits.

It may reassure the noble Baroness, Lady Drake, that although the Government have been clear that we want to enable consumer-focused innovation in the long term, this does not necessarily lead to transactions on dashboards. I also respectfully remind her of the mantra that we have uttered many times: that the consumers’ interests must come first. We set out in our consultation document three overarching design principles, which underpin the pensions dashboard ecosystem. These are: first, to put the consumer at the heart of the process by giving people access to clear information online; secondly, to ensure that consumers’ data are secure, accurate and simple to understand; and, thirdly, to ensure that the consumer is always in control over who has access to their data.

--- Later in debate ---

[Baroness Sherlock]

My Lords, I want to ask a couple of questions so that the Minister does not need to come back to us twice.

My noble friend Lady Drake powerfully picked up the points on transactions that I wanted to make. I heard the Minister say that the Government’s intention is to proceed to transactions at some point—I would be grateful if he could correct that if I misunderstood—but I did not hear him say why they feel that this is a good idea. I heard him say carefully that they would want assurances to protect consumers, but I did not hear anything about the positive driver for doing so that outweighs the risks that manifestly come with it, which my noble friend just articulated.

I apologise; I have two more questions. I should say that I am hugely grateful for the Minister’s thorough response; I appreciate him taking the time to give us that. It may be that, in all that, I missed the answers to a couple of my questions; I apologise if he gave them and I did not pick them up.

First, am I right in understanding that the dashboard will not cover legacy private pensions and new private pensions not covered by auto-enrolment? If so, do the regulations, as they stand, allow those to be included subsequently, and do the Government have any views on whether they were going to do so?

The Minister touched on my second question but did not answer it. On Wednesday, he said that

“we entirely understand the importance of having a dashboard run by a public body without any commercial interest.”—[Official Report, 26/2/20; col. GC 182.]

Why do the Government think that that is a good idea? Why are they not worried that there could be a long period when there are only commercial dashboards and no public dashboard?

[Earl Howe]

My Lords, on the final point made by the noble Baroness, it is fair to say that our debate last Wednesday gave my colleagues and me considerable food for thought as to the scheduling of all this. The strong wish expressed by noble Lords to prioritise a publicly funded and owned dashboard was duly noted. I hope to provide her with further thought on this as we go forward. I will come back to her in writing on her specific question on the inclusion of auto-enrolment schemes and so on.

The noble Baroness, Lady Drake, asked whether the consumer groups expressed a particular preference for the MaPS dashboard coming before any others. I bow to her on that. I will have to check whether that is a fair reading; I do not doubt that it is if she says so. I do not have the specific information to hand. The majority of respondents suggested and supported multiple dashboards, not just one. I can only repeat that the rollout of dashboards will be considered as part of a carefully controlled implementation plan.

I do not believe that I expressed a categorical government intention to include transactions on the dashboard. I said that we would make that incremental step only after the most careful consideration and public consultation, and assessment of all the risks. I freely acknowledge that risks exist in that quarter. If we venture into that sphere relating to dashboards, we must be absolutely certain that the risk of abuse, scams, misleading nudges and so forth is as minimal as it can be. Each incremental step will require further parliamentary scrutiny. The noble Baroness, Lady Drake, believes that this should be through primary legislation. I have to differ with her on that. We have made provision for secondary legislation by affirmative procedure, which provides a good measure of parliamentary scrutiny, preceded by public consultation which will inform parliamentary scrutiny. She and I have to part company in this area.

--- Later in debate ---

[Lord Vaux of Harrowden (CB)]

My Lords, the noble Baroness, Lady Sherlock, talked about the business model of these dashboards. The noble Earl has just talked about multiple commercial dashboards. There must be a reason why people will wish to create these things, and therefore there must be a business model behind them. What is the Government’s vision for that?

[Earl Howe]

The Government’s vision is for consumers to have access to their own information if they wish, and a multiplicity of ways to achieve that. We believe that more is better in this context. That is not to make comparisons between one provider and another, but multiple dashboards will give consumers more choice in where they access their pensions information, and will drive innovation to meet what are bound to be the varied needs of those 25 million people with private pension wealth who are not yet in receipt of their pension.

[Lord Vaux of Harrowden]

My apologies: my question was not clear. I was asking specifically about the business model behind this. What is the incentive for commercial providers to create these things? Is it advertising? We have talked about transactions, et cetera. If we are going to have this multiplicity of them, there must be a multiplicity of reasons. Do the Government have a view on the best model and controls around that, whether it might be advertising, transactions or charges to funds?

[Earl Howe]

Scheme providers have been absolutely clear that they are keen for this to happen, mainly because the more exposure that the information has to the particular consumer, the more opportunities there may be for a dialogue between the consumer and the scheme provider—“Are you saving enough? Can we do more for you?”, that sort of thing. They see marketing opportunities in this, but that is very distinct from allowing the dashboard to enable them to enter into transactions. I hope that I have already covered that point satisfactorily.

[Lord Flight]

My Lords, is there not the point that, with people having on average 11 different jobs during their career and potentially 11 different pension pots, particularly those they were part of when they were younger, many of them have no information at all about it. They do not even know who the manager or the provider is. Already, the amount of unclaimed financial assets in this country is colossal. Without what is happening under this legislation, the problem will get worse, and we urgently need to sort out the ownership of lesser pension schemes, going back a long time.

--- Later in debate ---

[Baroness Sherlock]

My Lords, the six amendments in this group in my name and that of my noble friend Lord McKenzie of Luton are probing amendments designed to get Ministers to reassure the Committee that there is a robust system of regulation and supervision for those involved in the dashboards. Rather than go through them one at a time, as there are overlapping amendments from other noble Lords, it might be easier if I simply ask the Minister to clarify some of the key aspects of the supervision and regulatory regimes which the Government have in mind.

I was delighted last week when the Minister indicated that the Government have acceded to the request from my noble friend Lady Drake and many others around the Committee:

“we shall be introducing a new regulated activity under the Financial Services and Markets Act 2000 to reflect the provision of dashboard services.”

Hurrah, say I. That is marvellous. The Minister continued with only very slightly less certainty:

“Clause 118 provides the power to set out detailed requirements ‘for qualifying pensions dashboards’. It is also likely that this will be linked to the new regulated activity outlined by the Financial Conduct Authority.”—[Official Report, 26/02/20; col. GC 183.]


I think we are being told that this means providing a dashboard service will be added to the regulated activity order. I am assuming that is what that means.

Those requirements in Clause 118 may include

“what … information is to be provided”

and

“how the ... dashboard service is to be … operated.”

They may also,

“require a dashboard service to comply with standards, specifications or technical requirements published … by ... the Secretary of State ... The Money and Pensions Service”

or another specified person. Crucially they may,

“require the provider of the pensions dashboard service to be a person approved … by … the Secretary of State … the Money and Pensions Service”

or another specified person. The last of those is crucial.

If running a dashboard service is to be an FCA-regulated activity, should that not mean that those running it have to be approved by the FCA—in which case, ought that not to be made clear? It could be another body, but the bodies named do not include the FCA. If the activity is on the ROA, does that mean that the FCA will then be able to use its full range of FiSMA powers of supervision and regulation on anyone providing dashboard services? Can the Minister further confirm that that would mean that complaints about anything to do with the dashboard could be made to the Financial Ombudsman Service?

This is the train I am trying to establish. It is great that the activities are regulated by the FCA. Will the people running it have to be FCA approved and therefore subject to the full range of FiSMA powers? It seems that that is where the real firepower is located. Alternatively, are the Government envisaging that a dashboard service might be run by an organisation that was not FCA approved, supervised or regulated? Would there be a real risk of consumer detriment if the FCA cannot use its full range of powers on anyone using a commercial dashboard?

Provision of information to a dashboard also needs to be subject to a scheme of regulation and compliance. Information will come from various sources. Will the provision of information from trust-based schemes to a dashboard be regulated by the TPR? What about the information provided from contract schemes? Will that come from via the FCA? Will it be directly under FCA supervision or by the fact that they regulate the firms providing the information? Who will oversee the provision of information from the state and make sure it is accurate? Where does the consumer go to complain about their data? At the moment, if a bank misuses your data, the ICO will deal with the bank, but the consumer will go to the Financial Ombudsman Service to deal with detriment. What will happen here?

My biggest concern is what will be done with data provided on dashboards and the potential for mis-selling. Amendment 68 would require that those providing dashboard services would have to act in the fiduciary interest of savers. My noble friend Lord Hutton just made a compelling case for that. Our argument is that this is a special situation where the state has mandated that consumers’ data should all be gathered together in one place. That is helpful, but it is a little like saying, “Rather than having them wandering freely across the hillside, all the lambs have been gathered into one pen”. In that case, you want to be pretty sure that there is a good lock on the gate and that anyone coming along pretending to be a shepherd can be spotted early and—“Stop. Enough of this analogy. Ed.” I think the point is made.

Because of this higher challenge, there should be a higher duty of care to the consumer. If an organisation running a dashboard service is regulated by the FCA, it will be subject to the “treating customers fairly” FCA standard, but this goes higher. It becomes even more important if it is possible that any of those people will not be subject to the full range of FCA supervision and regulation powers. There should be a duty of care to the consumer. We can see the benefit of gathering information/lambs in one place, but it of course makes the information/lambs much easier to access. Can the Minister give us some reassurance on those points?

[Earl Howe]

My Lords, the amendments in this group are designed to ensure that consumers are placed at the heart of dashboards and that the Financial Conduct Authority is given responsibility for certain aspects of that. I say straightaway that I wholeheartedly agree with this aim. What I cannot agree with is the way of achieving it proposed in the amendments.

The Government are persuaded that a strong regulatory regime is key to maintaining public confidence in dashboards. There are existing powers which we will use to introduce a new regulated activity for dashboard providers. We can do this by amending the regulated activities order set out in Section 22 of the Financial Services and Markets Act 2000. This will bring the provision of a qualifying dashboard service within the regulatory and supervisory the remit of the FCA. There is no need for the new dashboard-specific regulated activity to be in the Bill.

We are working with Her Majesty’s Treasury and the FCA to agree the nature and scope of the changes. Legislation amending the order will be brought forward in due course. I can also confirm that the Financial Services and Markets Act covers Northern Ireland, meaning that any new regulated activity would also extend to Northern Ireland. It is important to note that the new regulated activity will apply only to dashboard providers. Pension scheme trustees and operators are already within the regulatory remit of either the Pensions Regulator or the FCA. The requirement on pension schemes relating to the provision of information via dashboards will be set out in regulations and FCA rules pursuant to this Bill.

The noble Baroness, Lady Sherlock, asked whether the FCA will be able to use its full range of powers; yes, it will. All the FCA’s existing powers will be available where a dashboard provider must be FCA-authorised. To answer the noble Lord, Lord Hutton, the Financial Conduct Authority has an existing framework to ensure that authorised firms take the interests of customers into account. The Government will again set out in regulations the conditions that a dashboard will have to meet. This will be supported by new, dashboard-specific regulated activity, as I have just explained.

Strong consumer representation on the industry delivery group, alongside new regulations and a new, dashboard-specific regulated activity, will ensure that the design is in the interests of consumers and that they are protected. The regulatory framework for the new regulated activity will be proposed in the FCA’s consultation on the corresponding handbook rules and guidance.

[Lord Hutton of Furness]

I hear what the Minister is saying and am very grateful for the thoroughness with which he is responding to these issues, but will pension scheme members have any direct legal redress against a dashboard services operator should things go wrong? As I am hearing him, most of the remedies seem to lie in the hands of regulators or others, but if my data is misused or I feel that some problem has occurred as the result of the inappropriate organisation of a pensions dashboard service, where do I stand?

[Earl Howe]

Consumers will have various modes of redress available to them if they are not served legally or properly by their scheme provider or the dashboard provider. Our response to the consultation on dashboards highlighted the need for a clear liability model for the whole dashboard system. The objective is to enable users to identify easily where to raise a complaint or a dispute if a dashboard fails to work, or if they fail to receive their pension information. We have asked the Money and Pensions Service, through the industry delivery group, to consider how this might operate and to make recommendations. The Pensions Regulator and the FCA will regulate compliance by pension schemes and the Information Commissioner will have a role in ensuring that the disclosure of pension information takes place in accordance with data protection legislation. Only FCA-approved bodies can provide a qualifying dashboard. Only qualifying dashboards can connect to the infrastructure, and they will fall under the full regulatory regime.

New Section 238G, introduced by Clause 119, ensures that the regulator will be able to monitor and enforce compliance with the new requirements, in keeping with the existing regulatory regime. The FCA also has the power to enforce rules that it will make under this legislation. Part 14 of the Financial Services and Markets Act 2000 allows the FCA to enforce any requirement on authorised persons, including those setting up or operating a personal stakeholder pension.

--- Later in debate ---

[Baroness Altmann]

I thank my noble friend for his very thorough response to this group of amendments. Is it not possible that without a comprehensive, overarching regulatory framework for all dashboard activities, consumers could fall between different cracks, and the provider of the dashboard that has provided them with misleading or incorrect information could then say, “Well, it was the person who gave us the data who was misleading: it wasn’t us. We are just providing information.”? Or could this activity in some way be related to unregulated lead generation, which is part of the pensions landscape and has been so damaging to consumers? Therefore, what I hoped we might achieve with my amendment was an overarching regulated activity for anybody participating in or providing data to the dashboard and for the dashboard provider providing the data to a customer.

[Earl Howe]

We come back to the question of a liability model. I might as well deal with that now. We set out in the consultation response that we expect the industry delivery group to make recommendations on a robust liability model that ensures that there are clear roles and responsibilities and a clear process for dealing with complaints. The point made by my noble friend that there is a risk that something might fall through the cracks is a very good one. The best that I can do at the moment is to say that, as the service is developed, the detail of where liability exists will emerge. She will agree with me that we are not dealing with new data or with new financial transactions, but yes, potential service risks might emerge. The IDG will, as I have said, recommend robust liability models, and the framework of any new liability arrangements will be set out in regulations. That is one of the reasons why we need delegated powers in this area.

I think that the industry delivery group is the best forum to build a liability model to which all parties are signed up and that takes into account good practice and lessons learned from open banking. While I realise that there are many differences, there are certainly lessons that we can draw from that sphere.

[Lord Flight]

My Lords, is not the big issue in this territory that when people have discovered that they have four, five, six or seven different pension funds, they will want advice as to what to do with them? There is the whole problem of who can give advice, guidance or help in that area, but unless arrangements are determined about how to deal with this question, I can see all sorts of regulatory issues arising.

[Earl Howe]

My noble friend is quite right. The industry delivery group has these matters squarely on its agenda. I can go no further than to say what I have said thus far on his points, but I will consider the matter further and write to him if necessary.

[Baroness Drake]

The liability model has not been settled. That is perfectly understandable; I do not rush to criticise it because there is a lot to do. All I would say, because I cannot resist doing so, is that it goes to the argument that one should start with a public dashboard. My question follows on from that asked by my noble friend Lord Hutton. On reading Clause 118, clearly powers are given to certain parties to set requirements—with the exclusion of the Secretary of State, who is in a totally different position. Can the Minister confirm that no such powers under Clause 118 can override the FCA’s existing powers? He may not be able to answer that yet but it would give clarity.

[Earl Howe]

I believe that to be so but I need to take advice; I will write to the noble Baroness on that point.

[Baroness Sherlock]

On a related point, I tried hard to listen to what the Minister said because I am particularly interested in whether somebody can run a dashboard service if they are not FCA-authorised. I heard him say that the full range of FiSMA powers could be used, so a dashboard must be FCA-authorised, but I think I heard him say also that only FCA-approved bodies can run dashboard services. Is that right?

[Earl Howe]

Yes.

[Baroness Sherlock]

Excellent. In that case, I am trying to relate that to New Section 238A(5)(c), to be introduced by Clause 118(2), on page 105 of the Bill. It states that requirements prescribed under subsection (2) may, in particular,

“require the provider of the pensions dashboard service to be a person approved from time to time by—

(i) the Secretary of State,

(ii) the Money and Pensions Service, or

(iii) a person specified or of a description specified in the regulations”.

If, as the Minister just said, the FCA must authorise someone to run a dashboard, does it not make more sense for a government amendment to come forward to make that clear in the regulations, rather than naming two bodies—neither of which is the FCA—and having a catch-all for the third?

While I am on my feet—hey, why waste an opportunity?—and the Minister reflects a little more on that point, I want to ask about the duty of care and the fiduciary duty. I take the Minister’s point about the wording there, but are the Government resistant to the underlying point made by my noble friend Lord Hutton and me: that, in these particular circumstances, there should be a higher duty of care to the consumer on the part of the organisation running the dashboard services than would be the case in the general mêlée of the FCA? Treating customers fairly and related things may suit that generic environment but this is a very particular circumstance; the Government have initiated this and put all this information in one place and mandated its release. If it were more felicitously worded, would the Government resist the notion of a higher duty of care in this circumstance than the one that prevails generally in FCA supervision?

[Earl Howe]

I will certainly go away and consider that point, even if “fiduciary” is not the appropriate word, and look in conjunction with my officials at whether there is a mechanism that would achieve that aim without inventing some new legal status. I am grateful to the noble Baroness and the noble Lord, Lord Hutton, for their points.

The question posed by the noble Baroness, Lady Drake, boils down to this: if MaPS or another specified person sets the data standards, how will they be accountable to Parliament? As I said, the regulations enable parliamentary scrutiny and debate on any specific future proposal as they come forward.

We need to ensure that dashboards are fit for purpose over the longer term. That cannot happen in a summary way. Delegating the ability to set and update standards and technical specifications support through secondary legislation will, in our view, ensure that dashboards remain beneficial and relevant to consumers.

Our approach recognises that ownership of the dashboard infrastructure and the responsibilities for the setting of standards may need to change over time, but I reiterate that, taking into account the good practice that exists, the industry delivery group will develop and make recommendations on a robust liability model to ensure that there are clear roles and responsibilities in the event of a breach. That includes a clear consumer redress mechanism. In answer to the noble Baroness, Lady Sherlock, the policy intent is that the FCA should authorise dashboard providers and that this should be achieved by order.

The FCA takes seriously the need to consult the public. It has a general duty to consult the public by publishing draft rules. This duty will apply equally in this case. The FCA will also consult the Secretary of State and Her Majesty’s Treasury prior to public consultation on draft rules. That will ensure that the rules have regard to the regulations that place obligations on trust-based schemes, which will provide a consistent and coherent approach.

We have covered quite a lot of ground, but I hope that I have effectively explained the role of the FCA in protecting consumers and provided the assurance that noble Lords are seeking that we will bring dashboard services within the FCA’s scope. If I have not covered all the ground, I hope that I can rely on meetings with noble Lords following Committee so that, by Report stage, I am able to come up with any further and better particulars that they seek. With that, I hope that for the time being the noble Baroness will feel comfortable in withdrawing the amendment.

[Baroness Altmann]

I thank my noble friend for his detailed response and the broadness of his willingness to consider the points that we have made on this important issue. I am delighted that he agrees that we all seem to have the same aim, which is to protect the consumer. However, I would be grateful if he went back to the department and perhaps wrote to me and other interested noble Lords about this. We all aim to have consumer protection but, if that is to be put in via a series of regulations with a liability model that we do not yet quite have, would there be any specific harm in putting in the Bill the regulatory framework and the requirement for FCA authorisation and protection for consumers, so that there is a comprehensive, overarching framework?

My concern is that, although this is portrayed as an information dashboard, we know that the provision of guidance and information has no consumer protection whatever—it is a matter of caveat emptor. If, for example, those dashboards carry advertisements that may be perceived as enticing people to buy products but they do not fall under such a regulation in FCA terms, we might be well advised at this stage to place an overriding emphasis from the consumer perspective on regulatory protection and authorisation for the entire framework, rather than relying on liability being proven later and redress being provided to the customer after a problem has occurred. For the moment, however, I beg leave to withdraw the amendment.

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[Earl Howe]

My Lords, I fully appreciate that the noble Baroness is trying to ensure that consumers are properly protected and have confidence in the dashboard infrastructure. Indeed, an aspect of this is the need for robust supervision, and I share her belief that it is important to make clear who will be responsible for oversight of the different aspects of the infrastructure. I do not think that much divides the noble Baroness and me on the objective to be achieved.

I recognise the need for a strong supervisory and regulatory regime for dashboard providers. I also agree with the thoughts expressed by many noble Lords at Second Reading about a new regulated activity being key to maintaining public confidence in dashboards. As I explained earlier, we intend to do this by amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.This will bring the provision of a qualifying dashboard service within the regulatory remit of the Financial Conduct Authority. Unauthorised firms will neither be able to connect to the supporting infrastructure nor be able to provide a dashboard service.

Once the amendment to the order has been made, the regulatory framework for the activity will be proposed in the FCA’s public consultation on the corresponding handbook rules and guidance. This will allow the public and the industry a chance to comment. The FCA must have regard to any representations made to it during the consultation period. This framework can be used to set out any expectations regarding the behaviour of dashboard providers and, in this way, will supplement any conditions imposed on dashboard providers set out in regulations. I would argue that this is where we dot the “i”s and cross the “t”s, as the noble Baroness put it.

I note that the amendment also refers to revenue generated by both dashboard providers and third parties. It might not be necessary for me to do so but I want to reassure the Committee that all qualifying dashboard services, like the dashboard provided by the Money and Pension Service, will not be allowed to charge simply for consumers to see their own information. The provision of financial services and products by firms that are dashboard providers will remain subject to FCA regulation. Fundamentally, our aim in allowing multiple dashboards is only to give customers more options in accessing their information, not different information.

The mention of information should remind us that pension information is the lifeblood of a sustainable dashboard. Dashboards will work within the existing framework established by the general data protection regulation and the Data Protection Act 2018. Dashboard providers will be subject to penalties under these laws should they fail to meet required standards of consumer and data protection. One of the key principles in the design of the dashboard is that the individual will always be in control over who has access to their data. Qualifying dashboard service providers will not be able to see information about the individual’s pension rights.

The responsibility for the provision of accurate data falls on pension schemes. The Pensions Regulator will be responsible for ensuring occupational pension schemes’ compliance with requirements. The FCA will regulate personal and stakeholder pension schemes. Enforcement options, including fines, will be among the tools available to the regulators if requirements are not met.

The role of these regulators will be complemented by the Money and Pensions Service, which will establish and maintain the dashboard infrastructure. While it will not act as a regulator, it will work with the regulators to enable their compliance activity. It is also obliged, as part of its consumer protection function under the Financial Guidance and Claims Act, to report to the FCA where regulated persons are behaving in a manner detrimental to customers.

That leads me to the issue of redress. If an individual wishes to seek redress, any queries around possible incorrect information should be directed to the scheme in the first instance. Schemes are already required to have dispute resolution processes. To come back to a question asked earlier by the noble Baroness, Lady Sherlock, if people are not satisfied with the outcome of the internal dispute resolution procedure, they can take their case to the relevant ombudsman.

The amendment covers the need for regulations around assumptions, projections and comparison of costs and charges. I reiterate that we expect that the initial information provided on dashboards will be simple in the first phase. Adding further information, such as projected pension income and costs and charges, requires consideration on the delivery and consumer protection aspects of these proposals, as we have discussed. I am not ruling out the possibility of including such information, but the industry delivery group should be allowed to consider the implications fully and make its recommendations. To commit to regulations around possible assumptions and comparisons before then would be premature.

Of course, as the noble Baroness will be aware, individuals can already access information on costs and charges. The DWP has consulted on simpler annual benefits statements; the noble Baroness may like to know that it will publish a response on that subject in the spring. The consultation looks at the presentation of costs and charges and how projections are calculated. It acknowledged the crucial need for simpler statements to be consistent with the work on dashboards. We will consider how insights from the consultation can be incorporated into dashboards.

The noble Baronesses, Lady Drake and Lady Sherlock, emphasised the need for adequate consumer representation. The Money and Pensions Service has brought together an industry delivery group whose job it is to ensure that the design of pensions dashboards is informed by industry experts and consumer groups. Membership of its steering group was announced in September last year. It includes a strong representation of consumer groups, including representation from Which? and an independent representative with significant experience in consumer protection. There will also be opportunities for other consumer representatives to take part in working groups, which will help to ensure that the final design is on what information and features consumers value.

The noble Lord, Lord Sharkey, asked specifically about the need to include advertising on a dashboard. I can do no other than refer back to my earlier points. Rules on advertising are as those around any other incremental addition to the dashboard, and rules on the parameters around the use of data will be looked at very carefully. They will be developed by the Government in conjunction with the FCA, which will work with industry and consumer representatives on the delivery group to make sure that if we go down that path, it is with our eyes open and with the risks minimised. We will of course consult on any rules surrounding that issue.

I hope that I have given sufficient reassurance around consumer protection to show that the dashboard infrastructure will build on existing regulatory frameworks. That, with the need to keep dashboards simple, means that while I understand the rationale of the amendment, I consider it unnecessary. I hope that, on reflection, the noble Baroness will feel that she is comfortable in withdrawing her amendment.

[Baroness Bowles of Berkhamsted]

My Lords, I thank the Minister for his response. As I said, this is a probing amendment but also an attempt to indicate a framework that could be constructive, perhaps in particular around some of those issues on which all noble Lords have spoken. It covers things such as advertising; it may be that the regulation that one would want around advertising is that there cannot be any of it, but that would still be a regulation to prohibit. I feel that there is a need for an explanation of this vision, somehow all in one place. Yes, a lot of it could be extracted from today’s debate and the reassurances that have been given. However, it would be much better at the very least if it was all put together, perhaps in an Explanatory Memorandum. I still tend to think that there should be something in the Bill, even if more dilute than what I have proposed.

I very much thank the noble Baroness, Lady Drake. This inequality of arms is extremely important. When it comes to FCA consultations, how many members of the public respond? I am not sure whether I am a member of the public, but I have done it from time to time, and I can tell your Lordships that, even for somebody like myself who is well used to this kind of thing, the way it is composed and constructive can be jolly difficult to get your head around. It can be difficult to get yourself organised to put it in, unless you happen to be an industry specialist who does these kinds of things all the time. I therefore very much doubt that you get members of the public responding; you may get some of the consumer organisations, but again, I doubt that they have the familiarity that is necessary always to be able to nail the point.

As was also suggested, there is a tendency with consultations to weigh the responses: X% says this, and Y% says that, and the ones who struggle and have difficulty, which is always on the consumer side, are outweighed. An awful lot of people with a financial interest from the industry side will respond. There needs to be a better mechanism for communicating with, if you like, the public and their representatives. One thing that could be done is for the FCA to obligingly inform Parliament when it is coming out with its consultations. I do not camp on the FCA’s website, looking for its consultations, and if I do not, I do not know how many members of the public will. This is a work in progress. I have to come back again on the costs.

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[Baroness Sherlock]

My Lords, I do not want to say very much, but I have a couple of questions on the back of what the noble Baroness, Lady Altmann, has said.

Can the Minister tell the Committee a little about what the regulators and the Government are doing to ensure that companies are ready to clean up data ready for transferring to the dashboard? Is there any intention for providers to check that members recognise the accuracy of the data at any point? Regarding what the noble Baroness described, if data had been wrong for decades, perhaps the member would not have known the details, but they might have known if they were not in a scheme, were in a different one, or if the basics were different.

The Cheviot Trust said that it was concerned that deferred members’ data would be less accurate. Is this on the DWP’s horizon? If so, what is being done about it?

[Earl Howe]

My Lords, I completely appreciate my noble friend’s desire to ensure that the information on the dashboard is accurate and secure. I absolutely agree that accurate information is essential to the effectiveness of a pensions dashboard. The answer ultimately must lie with appropriate regulations and sanctions. The Government believe that these protections are in existing regulations, and that the relevant regulators have the powers to intervene if compliance is not maintained. Having said that, I shall explain in a minute what work is going on in relation to this set of proposals.

In relation to personal and stakeholder pensions, rule 9.1.1 in the FCA’s senior management arrangements systems and controls sourcebook requires pension providers to

“arrange for orderly records to be kept of its business and internal organisation, including all services and transactions undertaken by it, which must be sufficient to enable the FCA … to monitor the firm’s compliance”.

If a scheme fails to meet these requirements, the FCA will select the most appropriate regulatory tool in the circumstances. Responses are proportionate and could include supervisory intervention.

Where enforcement action is deemed appropriate, the FCA aims to ensure that the sanction is sufficient to deter the firm or individual from reoffending and deter others from offending. Where it takes disciplinary action against a firm or an individual, it will consider all its available sanctions, redress and restitution powers, including public censure, financial penalty, prohibition, suspension or restriction orders; it has quite an armoury.

Regarding occupational pension schemes, trustees and managers are also required under existing legislation to put processes in place to ensure that the data they hold is accurate. Section 249A of the Pensions Act 2004 and the internal controls regulations 2005 require occupational pension scheme trustees to establish and operate internal controls that are adequate to ensure that the scheme is administered and managed in accordance with scheme rules and the law.

If a pension scheme fails to administer the scheme to a sufficient standard, or to comply with any other aspect of pensions legislation, the Pensions Regulator is able to issue an improvement notice. Where trustees fail to comply with an improvement notice, the regulator can issue a fine of up to £5,000 in the case of an individual or £50,000 in other cases.

My noble friend and the noble Baroness, Lady Sherlock, stressed the importance of promoting data quality on dashboards to scheme providers. Pension trustees and providers have been aware of our intention to introduce dashboards for some time now. We have been clear that they should start preparing their data now. The Pensions Regulator has increased its scrutiny of scheme records in recent years, and launched a specific targeted initiative in October 2019. It will take time to resolve data issues, which have in some cases been ongoing for decades, but the regulator is seeing good results from its engagement. There is still work to do, as my noble friend will be the first to agree.

An in-depth understanding of the challenges that pension schemes and providers will face in complying with compulsion is essential. The industry delivery group has therefore commissioned specialist independent and qualitative research. This will be conducted on a completely anonymous basis and will explore the challenges of meeting the requirements on data through deep-dive interviews with sample pension providers and schemes. This builds on the Pension Regulator’s insight. It will inform the delivery group’s recommendations for data requirements, taking into account the needs of different scheme types. It may be helpful to my noble friend if I note that, as part of the delivery group’s activity, a priority is to consider these specific items of people’s pensions data, which pension providers and schemes should supply for dashboard displays.

Experiences from other countries with dashboards indicate the importance of agreeing data standards with all industry stakeholders and the benefits of using the widest possible consumer research. The industry delivery group, working with its steering group, is developing a data-scope paper, which will highlight its latest thinking on dashboards’ data across the whole pensions industry. The IDG plans to publish this paper in due course, asking industry for feedback and, in particular, its provision of additional evidence where it exists.

The first iteration of the industry working group on data will effectively involve the whole industry before a small, focused working group will then refine this data thinking as we move on through the spring. I therefore hope that my noble friend can be reassured that the process that we have in mind has several stages to it, that they are logical stages, and that they should tease out the issues that she has very rightly drawn attention to in her remarks.

I hope that I have illustrated that the current obligations placed on schemes by the FCA and TPR, together with the enforcement powers which both regulators have, combined with the work that I have just described, are sufficient to ensure that the schemes will provide accurate data to the dashboard. I hope, therefore, that my noble friend will feel able to withdraw her amendment at this stage.

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[Baroness Altmann]

I echo the words of the noble Baroness, Lady Drake. A number of elements of the expense shown in the impact assessment are elements that one would have hoped that the industry would take upon itself in any case. I sometimes need to remind providers that automatic enrolment has been an absolute gift to them. It has brought them 10 million new customers on a plate, with all the associated tax relief money. Surely they need to take an obligation upon themselves to modernise their processes and bring their IT into the 21st century. The standard answer is: “It’ll cost too much”, or, “We’ve got our own system, we don’t want to change to a new one”, but in Australia, the Government mandated a particular system that everybody had to adopt so that there was a common standard. It worked very well. My noble friend suggested that the industry delivery group is working on such a potential procedure, which would be excellent. It would incur costs but it would set the industry up for much more business in future on a long-term, sustainable basis.

[Earl Howe]

I am grateful to my noble friend for raising this important issue.

The Government published impact assessments for each measure in the Bill at its introduction. As is usual practice, we will publish updated impact assessments when the Bill is enacted, setting out the impacts of any material amendments to the Bill. I assure my noble friend that for measures where regulations that are subject to consultation are required, we will publish impact assessments when those regulations are brought forward. This must be the most beneficial time to revisit the impacts, when further policy detail is set out and we are able to apply that element of further insight to our estimates of costs and benefits. I suggest that adding another impact assessment between Royal Assent and the laying of the regulations would not provide any further transparency.

Turning to dashboards specifically, the Government are well aware of the additional costs necessary to support the set-up and maintenance of pensions dashboards. As my noble friend knows, when we published an impact assessment that accompanied the Bill, we set out initial estimates of the possible costs. However, we should recognise that many schemes already provide similar levels of information directly to their consumer through annual benefit statements or digital platforms, so not all schemes will necessarily incur significant additional costs.

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[Lord McKenzie of Luton]

My Lords, this amendment goes to the heart of protecting people’s pensions. We have touched upon a number of issues surrounding the same sort of concepts during debate on the Bill and in other legislation, such as financial guidance provisions. We should see whether we cannot get together a comprehensive note of how these things are covered. I am bound to say I am unclear as to what is and is not covered in all circumstances, so it seems that would be beneficial.

Concerning the specifics of the amendment, we clearly give it broad support. It raises practical issues, as I am sure the noble Lord, Lord Sharkey, would identify, particularly on responding to approved questions. I am not sure who is on hand when the questions are being asked. We have seen what happened with taxi licences and such things in the past. The provision could give rise to challenges but the thrust is right: it is another attempt to make sure that people are aware of the consequences of what they do, to the fullest extent possible. As I say, I am not sure whether we have a comprehensive arrangement yet across all pensions and circumstances. It seems that it would be worth some effort to try to get that into place. With those words, I am happy to it give broad support. When the Minister replies, I am sure there will be some stumbling blocks in it but if we do not keep pushing and shoving, we are not going to make progress on this.

[Earl Howe]

My Lords, I am grateful to the noble Lord, Lord Sharkey, and my noble friend Lady Altmann for tabling this amendment because it provides me with an opportunity to update the Committee on the progress that the Department for Work and Pensions, the Financial Conduct Authority and the Money and Pensions Service have made on delivering the stronger nudge to pensions guidance. As noble Lords are aware, this is a requirement of Sections 18 and 19 of the Financial Guidance and Claims Act 2018.

Before that, however, I would like to talk briefly about the take-up of Pension Wise guidance, which is a very positive story. The service is on target to exceed 200,000 guidance sessions this financial year, more than tripling those in its first year of operation. Recent Financial Conduct Authority data suggests that 52% of personal and stakeholder pensions accessed for the first time in 2018-19 received either regulated advice or Pension Wise guidance. That clearly demonstrates that the work the Money and Pensions Service, Government and the industry are already doing to promote both Pension Wise guidance and regulated financial advice is working.

I would like to talk about the measures in the Financial Guidance and Claims Act 2018 which were designed to further increase the take-up of Pension Wise guidance. Sections 18 and 19 require the Government to deliver a stronger nudge to pensions guidance. As the Committee is aware, MaPS is testing options for the best way to do that, in a way that complements the suggestions made by the noble Lord, Lord Sharkey, during the passage of the Act that his amendment was

“designed to be a nudge, rather than any kind of probably unenforceable or counterproductive compulsion.”—[Official Report, 31/10/17; col. 1294.]

As noble Lords are also aware, the drafting of Sections 18 and 19 was influenced by the Work and Pensions Select Committee. Following trials, those sections will deliver a final nudge to consumers to consider taking guidance prior to accessing their pension.

The Government firmly believe that, to effectively prompt more people to take guidance before accessing their pension where it is appropriate, we need to understand the impact of the nudge, and ensure that we avoid creating perverse incentives. We do not disagree with the principles of the amendment—work is already under way to establish how best to ensure that people thinking about accessing their pensions are encouraged to take guidance. We believe it is essential to use the evidence base that the trials on a stronger nudge will provide, and to consult before implementing the primary legislation in the Act. We would welcome the thoughts of the noble Lord and my noble friend on the proposals in the consultation.

The trials to test the most effective way to deliver on Sections 18 and 19 are due to conclude shortly, and an evaluation report is expected to be published by MaPS this summer. We are working to deliver on the requirements of the Act as quickly as possible, and as such we are already preparing for a public consultation this year. The Financial Conduct Authority will also consult on rules that have regard to these regulations, to make sure that there is consistency between occupational pensions and personal and stakeholder pensions.

The noble Lord seeks to require a member to provide responses to questions before a transfer can proceed. The effect of the amendment is that trustees would have the power to refuse a transfer should members’ responses not meet the conditions which the amendment proposes should be set in regulations. I assure him that the Government are already introducing conditions that seek to safeguard members against the risk of being defrauded. That change will strengthen trustees’ discretion in respect of transfers. Transfers were discussed in the earlier debate on Clause 124. The Government are amending members’ statutory right to transfer, to allow conditions to be imposed for transfers between schemes. That is aimed at ensuring that transfers are made to safe destinations. Non-statutory transfers can still take place, if the scheme rules allow. However, the amendment puts responsibility on members, not trustees, to assess the appropriateness of the receiving scheme. If the questions to be asked of members are specified in regulations, as proposed new subsection (1)(c) requires, an unintended consequence could be that fraudsters will be enabled to game the system. Members could be coached to provide answers that lead to transfers that should have been refused.

As noble Lords will recall, we have banned cold calling on pensions in legislation and established Project Bloom: a joint task force between government, regulators and law enforcement to share intelligence, raise awareness of scams through communications campaigns, and take enforcement action when appropriate. The FCA and the Pensions Regulator launched the latest ScamSmart advertising campaign on 1 July 2019, which has targeted those approaching retirement, as they were identified as being most at risk from scammers. There is also an FCA warning list, an online tool that helps investors check if a firm is operating with the right authorisation and find out more about risks associated with investment.

The noble Lord raised a specific concern about transferring out of DB schemes. Since January 2018, following its work on the British Steel pension scheme, the FCA has been working closely with both the Pensions Regulator and the Money and Pensions Service to ensure that it monitors pension transfer activity in DB pension schemes that might be subject to increased transfer activity. Also since January 2018, the FCA has issued tripartite letters to over 50 defined benefit pension scheme trustees. The tripartite letter reminds scheme trustees of their responsibilities when issuing transfer values to members and requests them to provide data that allows it to monitor scheme activity. On 21 January 2019, the FCA published a new protocol for how the three organisations—the FCA, TPR and MaPS—will work together to share information and work with pension scheme trustees, and that protocol addresses many of the recommendations made in the Rookes report.

I want to touch on one other point raised briefly by the noble Lord, Lord Sharkey. He suggested that the new pension freedoms might be encouraging people to draw down savings too fast, putting them at risk of scams. In fact, the Financial Conduct Authority’s Retirement Outcomes Review did not find significant evidence of consumers drawing down their savings too fast. The study’s findings, published in June 2018, found that most of those withdrawing had some other form of retirement income or wealth.

Clearly, it is of the utmost importance that information and guidance are available to people and that they are aware of it. That is why there are now more opportunities for people to access guidance earlier in the pensions journey. Alongside the stronger final nudge trials, Pension Wise continues to run successful advertising campaigns across multiple channels, as well as working with employers nationally and locally to encourage them to engage with their employees at their place of work. The Financial Conduct Authority’s “wake-up” packs also encourage people to think about their pension options and include signposting to Pension Wise.

I reassure noble Lords that we are very aware of the importance of the need to make progress with implementing the requirements placed on government, the Money and Pensions Service and the Financial Conduct Authority, as set out in the Act. Our aim is to find an effective and proportionate way to do this.

To conclude, I accept that this work might not have progressed as quickly as perhaps noble Lords would like, but that is for a good reason. I believe it is very important to get this right and ensure that the policy is developed based on evidence. We always talk about evidence-based policy and this is a classic example of that. The trials will conclude very shortly and will be followed by an evaluation report. We will consult this year and will seek to lay regulations as soon as possible after that, alongside the rules that will be made by the Financial Conduct Authority.

For the reasons I have explained, I hope that the noble Lord will feel able to withdraw the amendment.

[Lord Sharkey]

I am very grateful to the Minister for that very comprehensive answer. There are one or two observations that I would like to make about components of the answer. We seem to disagree about quite what the reach of Pension Wise is. The Minister quoted a composite figure of, I think, about 52% in Pension Wise and other advice. The figure that I had was, as I said earlier, about 15% using Pension Wise.

I was also interested in the comment about whether the current drawdown rate was sustainable. The Minister might recall that in the original discussions on the pension freedoms Bill, the foreseen sustainable drawdown rate was 3%. Now, it is running at 6% and 8% for pots under £50,000. Although I admit that I might be mistaken about this, I think that the FCA may in fact have said that 6% was not sustainable in the longer term either. Therefore, I think that there are warning signs about the rate of drawdown.

I had one other question about the nudge programme. I know that two schemes are being tested against each other, in an absolute sense as well, but when this programme was designed, did it incorporate a level of success at which a rollout would be justified? I would be interested to know if that were the case—I think it should be—and what the number was for these schemes. What would trigger a rollout nationally of these two small tests? I mentioned the FCA and the investment pathways initiative. Can the Minister write to me with more detail of what is happening with investment pathways; that sounded a very promising way of coming at the problem.

Finally, there is the question of timing. Timing is behind a lot of what I was saying. It is a long time since we started on the Financial Guidance and Claims Bill and debated all this thoroughly here and in the other place. We are still not in a position to do as much as we wanted about providing guidance or advice at drawdown. A very long time has elapsed, and I have demonstrated the harms being done to consumers in the meantime by ill-judged drawdowns or transfers. I continue to worry that these timetables will slip and the harms will continue. I am reassured by the Minister expecting a result from the nudges in summer—which I take to be ending in September—and then to move as quickly as we can to implement it, if it is a success. Perhaps he and I can have a conversation later; I would be interested to know what plan B is, because it is possible that neither of those nudge trials produces what is needed. Having said all that, I beg leave to withdraw the amendment.

Pension Schemes Bill [HL]

Earl Howe Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Lord McKenzie of Luton]

My Lords, this issue has been rumbling around for far too long and it is time to try to get a solution to it, particularly, as many noble Lords have explained, because of the pressure that the NHS would have been under anyway but for the recent crisis. My noble friend Lord Warner made a strong case with his proposition and we would certainly like to reflect on it. I know that the problem is that lots of people have reflected from time to time on a possible solution. That reflection goes on, but we do not yet have a solution. But Report on this Bill will be coming up shortly, and of course we have a Budget of some sort not far in the distance.

I have a couple of questions. I do not know whether my noble friend Lord Warner or the Minister can help with them. Was the one-off payment that the NHS made to cover the annual allowance taxable, and what might the consequences of that be? Under the scheme-pays arrangement, as the noble Baroness, Lady Altmann, hinted, if the problem is the penal interest rate then what is to stop those rates being adjusted, and who controls them?

We also need to bear in mind in all this is that these rules, unless I misunderstand them, have general application in the tax system. We need either to find a way of having some special arrangements or to accept that the adjustments we make here would have to be run for the tax system generally. We will need to work through the consequences of that. I am conscious that this contribution has not added one bit of sense to a practical solution, which is what we need to reach. Maybe, at the end of the day, we simply need to rank the solutions that we have on the table and choose the best, even though that may not be optimisation.

I am sure we all remember the pressure about this—I certainly remember pressure from the old Luton and Dunstable Hospital about it—and the real adverse effect that it causes on the delivery of services. We cannot continue to allow that to go forward; we simply have to drive through a solution to this. That is the challenge; presumably, the Treasury has ultimate responsibility for meeting it. But if it will not then we should, with the help of my noble friend Lord Warner and his expertise in these areas.

[Earl Howe (Con)]

My Lords, the amendment from my noble friend Lady Neville-Rolfe would commit the Secretary of State for Work and Pensions to review the tapered annual allowance on tax-relieved pension savings and require the Secretary of State to set out how pension schemes could mitigate any adverse effects of the taper. On the other hand, the amendment from the noble Lord, Lord Warner, would commit the Secretary of State for Work and Pensions to make regulations to require the NHS pension schemes to reimburse members for pension tax charges and, in particular, annual allowance charges.

I will set out where matters currently stand on this. First, in recognition of the impact that the tapered annual allowance is having for some doctors this year, NHS England has announced—as has been mentioned —a special arrangement for 2019-20 only, which doctors in England can use to ensure that they will not be worse off as a result of taking on extra shifts this tax year. This arrangement allows senior clinicians to defer an annual allowance charge through scheme pays. Their NHS employer will make a contractually binding commitment to pay a corresponding amount on retirement, ensuring that they are fully compensated in retirement for the effect of the scheme-pays deduction on their retirement income.

Health is a devolved matter. This special arrangement applies only to England, but we are aware that the Welsh Government and NHS Scotland have also put arrangements in place for the current tax year.

The Government most certainly recognise that urgent action is needed to resolve the pensions tax issue, which has caused some doctors to turn down extra shifts for fear of high tax bills. We are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments due to the interaction between their pay, their pension and the relevant tax regime. That is precisely why the Government are taking forward their manifesto commitment to carry out an urgent review of the pensions tapered annual allowance, to make sure that doctors spend as much time as possible treating patients. This builds on the Treasury’s review into the effect of the tapered annual allowance on public service delivery, announced last August. The Government have announced that these reviews will report at the Budget on 11 March.

I understand that the ongoing reviews have received evidence from the British Medical Association, the Academy of Medical Royal Colleges and other representative organisations from across the public and private sectors. The Economic Secretary to the Treasury has held round-table discussions with key health sector stakeholders, as well as representative organisations across the public sector. The evidence provided will ensure that the Government can consider fully the impact of the tapered annual allowance and its effects on the NHS and other public services.

The amendment from my noble friend Lady Neville-Rolfe would have the Government commit to yet another review of matters relating to the tapered annual allowance. I hope she will accept that there is no need for a further exploration of this matter when the two reviews are ongoing and have not yet concluded, especially as those reviews will report shortly.

The amendment proposed by the noble Lord, Lord Warner, would commit the NHS pension scheme administrators to reimburse their members to the extent they had incurred an annual allowance tax charge. The practical difficulty with this, which I am sure the noble Lord does not intend, is that reimbursement from the scheme for tax charges could trigger an unauthorised payments tax charge for the member and a scheme sanction charge for the scheme. Noble Lords will appreciate that this is a very complicated area of tax law and, as I have said, could result in further unforeseen tax charges arising.

The noble Lords, Lord Warner and Lord McKenzie, referred to the interest rate being applied in this area. Perhaps I could just explain the background to this. HMRC rules require that when scheme pays is used to pay a tax charge, an actuarially fair reduction is made to the value of the pension. The discount rate used to value this reduction for public service pension schemes is the SCAPE discount rate plus CPI. The SCAPE discount rate reflects the Office for Budget Responsibility’s forecasts for long-term GDP growth in line with established methodology. Due to recent changes to the SCAPE rate and the CPI, the scheme-pays discount rate has fallen in 2019 to 4.8%.

My suggestion to my noble friend and the noble Lord, Lord Warner, is that it is preferable to wait for the outcome of the two reviews, which are ongoing but have not yet concluded. As I mentioned, they will report shortly, on 11 March. Ultimately, this is a matter for my right honourable friend the Chancellor. I am sorry to have to leave matters in the air, but I hope that my noble friend and the noble Lord will take away from this a good degree of reassurance that the Government are taking seriously the question of what impact the tapered annual allowance is having on NHS pension scheme members and that reviews into this matter are already under way.

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[Lord Warner]

I just want to amplify the point made by the noble Baroness, Lady Altmann. Those of us who have been around in government for some years know that the announcement of review reports in Budgets do not necessarily mean that anything in those reviews will be rapidly implemented. My suspicion would be that any such reviews would have a longish period of consultation and would not appear in the next finance Bill—that is a likely outcome. Building on what the noble Baroness said, I need to go back to my clients—if I may put it that way—who will want to know what the position is. If I prove to be right over what happens on 11 March, would the Government be willing to consider something along the lines of buying two to three years for the NHS doctors? Will they help me get the wording right, so that it does not fall into the elephant traps that the Minister has set out? When we get to Report, we cannot just leave this; we have to come back to this issue with some credible solution. I would be delighted if the announcement on 11 March delivered a quick response, but if we do not deliver a response that covers the next two financial years, we will put the NHS in great peril.

[Earl Howe]

My Lords, my answer to my noble friend and the noble Lord, Lord Warner, has to be exactly the same as that which I have already given. I can do no other than urge all noble Lords to wait for the Budget announcement. I cannot comment on what ideas the Chancellor has in front of him on this issue. Those ideas may or may not include those that have been articulated by my noble friend and the noble Lord—I do not know. I suggest that we get past next week and then take stock. No doubt noble Lords will consider how best to approach this on Report, if they feel that to be necessary.

[Baroness Janke]

The Minister said that these two reviews will be reported in the Budget. Is he talking about the intention to conduct a review or saying that the outcomes of reviews that have already been conducted will be announced in the Budget?

[Earl Howe]

The reviews are under way. They have not yet been concluded, but the conclusions will be announced on Budget Day.

[Baroness Neville-Rolfe]

My Lords, we have had a good debate and I think we have made it very clear that action is urgently needed in the NHS area. It goes wider, as the noble Lord, Lord McKenzie, said, but my amendment was a probing amendment—of the kind that I could get through the clerk—about these problems in the NHS, particularly now that we have the added threat of coronavirus. The noble Lord, Lord Warner, put it very well. It is an own goal lurking in the bureaucracy, although if you look on the internet it is quite easy to find the scale of the problem.

Doctors are having to pay to work and can hit a tax cliff-edge, as the noble Baroness, Lady Janke, said—through no fault of their own, it seems to me—and are not able to forecast exactly when that cliff-edge might occur. It is an unsatisfactory state of affairs. My noble friend Lady Altmann, with her forensic knowledge of the sector, has pointed out that the problem is now some two years old and that the Government made a promise to resolve it. As the Deputy Leader made clear, we must wait to see what the Budget says, but I would like to be clear that I think all of us will want to return to this issue if we feel that we have not made progress in the Budget on 11 March. I beg leave to withdraw the amendment.

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[Baroness Sherlock (Lab)]

My Lords, I want to ask a few questions on the back of that. I thank my noble friend Lady Drake and the noble Baroness, Lady Janke, for raising these issues. It is good to hear some attention being given to the fact that we have a significant problem about women and pensions. I would have liked to see the Bill take the opportunity to do something for the women born in 1950s who lost out so much when the state pension age was raised so sharply. Given that it has not done that, at least the calls for review may give an opportunity to look at the wider range of issues.

The statistics we have heard are really quite stark. If there is that huge a gap in pension wealth between men and women, the situation will only get worse. It is clearly something that the Government need to do something about.

I want to pick up on a couple of specifics. One is the issue of people with multiple jobs below the earnings threshold. This is the point at which I miss most acutely my friend Lady Hollis of Heigham, who raised this at any given opportunity. I feel that her memory is forcing me to do so now, otherwise I could not go back to my office and sit down with any peace. I ask the Minister to comment on that. We see people with multiple jobs—many are women, of course—none of whom make the threshold but who would be over the threshold if their incomes were added up, not getting into auto-enrolment. I worry that this group will keep rising as a result of part-time working and zero-hours contracts. Even the DWP, for example, encourages those on universal credit to take extra jobs to top up their hours or income. What are the Government doing about this? Do they have a sense of the scale of the problem and the direction of travel?

Secondly, I want to say a word about my noble friend’s case on carers. Clearly, women are more likely to work part-time because of caring responsibilities. That is a clear issue for public policy. A society needs women’s reproductive capabilities and their caring work. Women, in turn, deserve to be able to live adequately in retirement. I was delighted to hear my noble friend detail how we got here, not just because I probably have more of an appetite for social security detail than is strictly socially acceptable. If we do not take the time to work out how we got here, we will lose this in future. Those rights were hard-won. It took a long time, step by step, to get the caring responsibilities of women recognised in all parts of the state pension system; then they somehow got lost in the Government’s reforms. I am sure that that was not the intention and I have no doubt that the Government will come back and say, “Yes, but people will get these bigger amounts and more of them will get a full pension”, but that makes no difference. One would get those whether one was a carer or not. They have still lost any recognition of those caring responsibilities in the second state pension. Have the Government looked at the idea of a carer’s top-up, which has been around for a while? If so, what is their response to it? If they do not like it, what is their proposal for addressing this issue?

On Monday, we discussed in Committee Amendment 78 in the name of the noble Baroness, Lady Altmann. It recommended that a member of a scheme should not be allowed to use the pension freedoms to transfer out without the consent of his or her spouse or civil partner. I asked whether the Minister would go away, talk to the department, take some advice and return to it during today’s debate, which she kindly agreed to do. Can the Minister give us a reaction? Has the department established that there is an issue, and what is it doing about it? That would be really helpful.

My noble friend Lady Drake said the gender pay gap will not close until 2050 and pension parity will therefore not be reached until something like 2100. We just cannot wait that long. This is a matter of public policy, economics and societal need, but it is also a basic issue of justice. What are the Government going to do about it?

[Earl Howe]

My Lords, the amendments tabled in the names of the noble Baronesses, Lady Janke and Lady Drake, and the noble Lord, Lord McKenzie, all concern automatic enrolment into workplace pensions.

Amendment 87 would lower from 22 to 18 the minimum age at which a qualifying worker would be eligible to be automatically enrolled by making a change to the Pensions Act 2008.

Amendment 88 would require the Secretary of State to lay a report on the effectiveness of our pension reforms within six months of this Bill becoming law. That review would mandate government to consider the minimum age at which qualifying workers must be automatically enrolled, the minimum level of pension contributions and whether existing legislation offers sufficient opportunity for low-paid workers to save for retirement. The Secretary of State would then have to make a recommendation about whether to bring forward new legislation in the light of its findings.

Amendment 95 would make changes to the criteria for a qualifying worker in automatic enrolment, known as a jobholder. These would lower the minimum age for a worker to be automatically enrolled from 22 to 18, abolish the £10,000 automatic enrolment trigger and make pension contributions payable from the first £1 of earnings.

Perhaps I may begin with the proposed changes to the automatic enrolment criteria. The amendment of the noble Lord, Lord McKenzie, would abolish the £10,000 automatic enrolment trigger. The Government review the operation of the trigger annually under the statutory automatic enrolment thresholds review. That approach means that a range of factors can be assessed, including affordability for employers and whether it pays to save for individuals. Since 2014-15, we have frozen the trigger at £10,000, which has expanded coverage each year due to wage growth. In the tax year 2020-21, this will see an extra 80,000 people brought into pension saving, of whom around three-quarters will be women. This is surely one policy area where we should aim to ensure that we proceed on the basis of sound evidence. We do not have evidence at this time that would support the abolition of the trigger. So, I am afraid that the Government cannot support this amendment.

Turning to the amendments in the names of the noble Baroness, Lady Janke, and the noble Lord, Lord McKenzie, which would reduce the minimum age to 18 and require pension contributions to be paid from the first £1 of earnings, the Government’s 2017 review of automatic enrolment—Maintaining the Momentum —has already set out our next steps in this area. The core proposals are a reduction in the minimum age for being automatically enrolled to 18 and the removal of the automatic enrolment lower earnings limit.

Our review involved extensive engagement with interested parties, including consultation, and was supported by an expert advisory group. Its conclusions were robust and remain correct. However, we have also been clear that these ambitions must be subject to learning from the contribution increases and finding the right approach to implementation. The timetable cannot be forced without risking both the consensus that we have achieved and the very significant policy achievements that have, rightly, been lauded across this House. Therefore, again, the Government cannot support these amendments.

I turn now to Amendments 90 and 91, tabled by the noble Baroness, Lady Drake, and Amendment 96, tabled by the noble Baroness, Lady Janke. They relate to the gender pensions gap and automatic enrolment. Since the introduction of automatic enrolment, workplace pension participation for all women employed full-time in the private sector— not only those eligible for automatic enrolment—has increased from 35% in 2012 to 83% in 2019. This is now the same as the participation rate for men, compared with 2012 when the participation rate for men was six percentage points higher. Our aim remains to increase the level of retirement saving across all groups. The 2017 review ambitions strengthen the framework of workplace pension saving for lower-paid workers, many of whom are women working part-time. As I have already made clear about the implementation, we will remain guided by evidence.

Amendment 90 would require the Secretary of State to undertake a review within six months of passing the Bill. The review would consider how to legislate to provide automatic enrolment contributions to people with caring responsibilities as parents or carers, with reference to a target group.

The new state pension system—introduced for people who reached state pension age from 6 April 2016 onwards—took forward the existing national insurance crediting arrangements. These included the credits brought into effect by Section 23A of the Social Security Contributions and Benefits Act 1992. The majority of people providing care and those who build a qualifying year for their state pension through the carer’s credit are women. The design of the new state pension means that, on average, women, those in lower-paid work and self-employed people receive higher outcomes than under the previous system.

More than 3 million women stand to receive an average of £550 more per year by 2030 as a result of the recent reforms. Women benefit most from the new state pension. Average weekly state pension payments for women are £152.44 under the new system, compared with £135.24 under the previous system. Outcomes are projected to equalise with those for men more than a decade earlier than they would have done under the previous system.

Under the system that operated from 2010 to 2016, people who were caring for more than 20 hours a week could claim the carer’s credit for additional state pension in addition to building qualifying years of the state pension. The full rate of the new state pension is more than £40 a week higher than the full basic state pension. As a result, unless someone had received carer’s credits for the majority of the 35 years of national insurance needed for the state pension, it is unlikely that they would have been in a better position than they will be now under the new state pension.

A key objective of the new state pension was to increase outcomes for women and lower-paid earners, accelerating the equalisation of state pension outcomes for men and women. The new state pension is successfully achieving these objectives. The settlement made in 2016 is building a clearer, simpler foundation for people’s private pension saving and we do not intend to reopen it.

I understand that the noble Baroness, Lady Drake, is concerned that parents and carers who are not working will miss out on automatic enrolment. Most parents and carers will work before or after periods of caring, or will combine part-time work with caring. The introduction of automatic enrolment has helped workers to build on the foundation of the state pension, while implementation of the 2017 review measures will enable them to build up more savings when they are working, improving their financial resilience in retirement. The amount being saved would be transformative: a national living wage earner with a 10-year career break could see an 88% increase in their pot size at retirement.

Amendments 91 and 96 would require the Secretary of State to conduct a review within six months of the Bill becoming law, concerning the sex equality impacts of the current framework. I always read amendments carefully but, if I may speak on a slightly lighter note, Amendment 91—tabled by the noble Baroness, Lady Drake—shows how important it is to read to the end of every sentence. When I first looked at it, I thought that it sought to ensure that the Secretary of State conducts a review of differences between men and women, which, it struck me, could be rather a lengthy exercise—but that is not the case at all. If one reads the amendment in full, it is a model of clarity in referring to a number of specified groups and I want to be serious in addressing it.

Amendment 91 would require the Secretary of State to make recommendations on how legislation and policy could correct any inequalities in automatic enrolment. Amendment 96 relates to the impact of public policy regarding pension schemes on women and the action being taken by government to close the pensions gap between men and women, with recommendations for possible further legislation.

The Government already carry out and publish a range of analysis and evaluation in relation to these matters, and benefit from valuable external evidence. The department currently evaluates the gender impact of changes to automatic enrolment policy on participation—in our annual thresholds review, for example, where this year we estimated that three-quarters of the employees made eligible by the freezing of the trigger were women. We measure and publish statistics on participation rates by gender. We carry out regular monitoring of the rates of stopping saving by gender. We also draw on a wide range of evidence across and outside government on the gender pensions gap, while working closely with the Government Equalities Office.

All that should, I hope, indicate to noble Lords that this is not a matter that we will just let drift and then monitor at some point in the future. We do so regularly as we go along, and in some detail. Outside of DWP’s evaluation of automatic enrolment—AE, if I may call it that—data and analysis of the gender pensions gap is produced from various sources across government. We will continue to draw on this evidence alongside our developing evaluation of AE, post phasing, to assess the impact of AE on the gender pensions gap.

--- Later in debate ---

[Baroness Drake]

I want to take the first opportunity to come back on this because I am conscious that a lot of people are interested in this debate.

I am a little disappointed that the major part of the Minister’s contribution was a bit of a push-back, saying that the Government are all over this and that this is fine when evidence for that is not there. He did become more conciliatory at the end; I hope that the department find a way to bring together an eclectic group of people.

I simply disagree with some of the things that the Minister said. In reference to the small pots, the DWP did a great deal of work on the earnings threshold. It was set at a much lower level based on the DWP’s work, though perhaps not under the current Administration. In the review that led to that threshold going up—originally, it would have gone up to as high as £12,500 if a stroppy group of Peers had not turned up every time automatic enrolment earnings threshold regulations came before the House; in the end, somebody waved the white flag and said, “Oh, freeze it, we can’t face that lot every year”—the reason given, which is on the record, is that if you take it lower than £10,000, it produces small pots, which are inefficient to the industry. Well, that is irrelevant. This is a piece of public policy for mass coverage. That is what made me so angry. It was not based on a gender analysis; it was based on inefficiency in the industry. I invite noble Lords to go back to the report that gave the reason for raising that earnings trigger. There is evidence there. It may be that more modelling or more debate about the behavioural impact of coming significantly below the trigger is needed, but that work was done by the DWP. It may have a different view now but its view a few years—perhaps 10 years—back presented the evidence in a different way.

I do not disagree with the Minister that automatic enrolment has had a real benefit for women—if they are in the eligible population. If they are not, they cannot be among the people gaining from the upside of auto-enrolment. Many carers are precisely the people who are not in the eligible population.

I entirely accept that for a lot of women, an absolute improvement arose as a result of the new state pension, but the pension gap—the pay gap—is about relativity. If you give a man a pay rise of £10 and you give a woman a rise of £5, you can stand up and assert, “The woman is £5 better off: let us celebrate!”. What you have missed is that the pay gap has increased, because the man got £10. The benefits of the single state pension improve the relative position of a lot of people, not just the low-paid but huge numbers of people right across the public sector in DB schemes and generous DC schemes who, for a most modest increase in their national insurance, got that improvement in the state second pension together with the benefits of auto-enrolment or their defined benefit pension system as well. Therefore the relative position of carers was disadvantaged. Yes, their absolute position over a certain period—or after a certain period, although that is not the case—has improved, but the relative relationship did not, because everybody had that benefit from the reform to the state second pension.

I do not want to dwell on that, but there is a community out there who, if I did not do them justice and push back, would say, “Jeannie, why did you just accept those arguments?” I take the Minister’s final remarks about working for the Government. There are groups out there in industry, employers, academics and gender groups who want to work this out with the Government. I hope that the Government can find a way fairly soon to bring together a working group, or whatever. There is a feeling, “How does one communicate to the Government the growing feeling on the gender pension gap?” I felt that I had to push back, because there was a slightly dismissive approach that there was no gender pension gap problem, and there is.

[Earl Howe]

I hope that the noble Baroness will not go away with that impression. We are aware that there is a gap to be bridged. The key point I would ask her to reflect on is that, despite the desire to go faster in this area, there is a risk in doing so. We have learned lessons from the phased approach that we have already adopted. It was the right approach. The gradual approach brought everybody on side. We gathered evidence in the process; we are still gathering that evidence, and the evidence-based approach is the other watchword to bear in mind.

[Baroness Sherlock]

I will follow up a couple of questions that I asked the Minister: one was about mini-jobs, and I do not think that he responded to the other—I am sorry if I missed it—on the issue of spousal consent and pension freedom sharing. In Grand Committee on Monday, we were having a conversation about this. The Minister pushed back quite hard. I suggested that she go back to the department to establish whether there was a problem, and the noble Baroness, Lady Stedman-Scott said:

“The suggestion made by the noble Baroness, Lady Sherlock, is very helpful. I would be happy to do that before we come back to this on Wednesday”—[Official Report, 2/3/20; col. GC245.]


The reason I suggested that is that I knew we were going to have a debate on women’s pensions and therefore we could have it informed by some information. There is not much point in our having assurances if they do not happen. Is there anything to be said on that?

[Earl Howe]

I understand from officials in the Ministry of Justice that there has been a relatively small number of cases where the pension scheme member has taken advantage of the pension freedoms to act in a way that frustrates the intention of an attachment order. However, I would like to establish what evidence there is of the scale of the wider problem, as outlined by my noble friend Lady Altmann and the noble Baroness, Lady Drake, in our debate on Monday, before deciding on the appropriate government response. I can tell the noble Baroness that my officials will work with others across government to gather the available evidence.

[Baroness Janke]

I thank the Minister for his assurances and for the information he gave. I am sure that the Government want to pursue the evidence-based approach, but the actual situation is very hard for many women at this moment. I welcome his offer to work with the Government on this. As the noble Baroness, Lady Drake, said, many groups will be interested in doing so; I hope that we can engage them in positive working on this issue.

A much larger proportion of those now in pensioner poverty are women because their caring responsibilities were never represented in the past. I feel that there has to be a recognition of the current situation while agreeing that we must move forward and take people with us on this.

On the amendments in the name of the noble Baroness, Lady Altmann, it is not only a question of spousal consent to an attachment order. It is often not possible to make a pension settlement because it takes place before the process reaches that stage. Spousal consent is essential because, as others have said, once the money has gone, it is extremely difficult to recover it. The ABI has written a briefing on divorce and pensions; I recommend it to the Government. Pensions in divorce is another issue that is extremely important to women.

Again, I thank the Minister for his response. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I, too, support this amendment. We should congratulate the noble Baroness, Lady Altmann, on the diligence with which she has persisted on this matter for quite a long while. As she hinted, she was responsible for convening an industry group that spent a lot of time digging into this to make sure its focus was right.

The reality is clear. There are two systems giving tax relief and no reason in principle why they should not both deliver the same result. One does not for low earners at the moment. Which of the two systems you are in depends on your employer’s choice. That simply cannot be right. As the noble Baroness said, there are ways of dealing with this. I understand that the Treasury has set its face against that to date. Of course, for the Treasury, the downside is that providing a bit more tax relief means having a little less revenue. However, we are talking about the lowest paid, who are being disadvantaged by this. It is about time that this was brought to a halt.

[Earl Howe]

My Lords, I am grateful to my noble friend Lady Altmann for her amendment. I am well aware that she is a passionate and long-standing campaigner on the issue of lower-paid workers automatically enrolled into a workplace pension who may not benefit as much as other lower-paid workers for their pension saving.

As my noble friend will know—I hope she will not mind my saying this en passant—pensions tax relief is a matter for the Treasury, with the differing treatment of people in net pay arrangements and relief at source pension schemes determined by the Finance Act 2004 which, strictly speaking, is outside the scope of the legislation before us. That does not prevent me giving her as full an answer as I can.

Automatic enrolment legislation defines which qualifying workers are to be put into workplace pensions by reference to their age, earnings level and their being working or ordinarily working in the UK. I appreciate that this is essentially a probing amendment and that the precise wording is of secondary importance, but its reference to the low paid is not a definition recognised in the Pensions Act 2008. It would make it very complex and burdensome for employers accurately to identify the group to be covered by the proposed regulation-making powers.

Automatic enrolment has always sought to balance its core aim of helping working people build up their retirement savings with an implementation approach that recognises the costs and administrative burdens that will inevitably fall on employers. We are mindful that those duties must be proportionate and restricted to the minimum necessary to achieve our policy objectives. That is why pension scheme choice under automatic enrolment is reserved to the employer, who is required to use a scheme that meets minimum quality standards set out in legislation. Tax relief is only one of the factors that an employer should be considering when choosing a scheme for its employees, alongside whether it will accept all its staff, how much it will cost for the employer to administer and whether it will work with the existing payroll systems.

The employer’s decision will be informed by detailed guidance provided by the Pensions Regulator via its automatic enrolment compliance website, including information about the tax implications of different types of scheme. We should remind ourselves that there is guidance on the Pensions Regulator’s website to help employers understand the impact of scheme choice on lower earners below the personal allowance. I am well aware of how much assistance my noble friend gave on this when she was Pensions Minister.

Consequently, the current legislative framework is not set up to allow government to impose broad, undefined requirements on pension scheme trustees, managers or administrators in the way proposed by the amendment. Employers have duties under automatic enrolment, and they select a pension provider from the marketplace, based on their legal obligations towards qualifying workers and the commercial needs of the organisation.

The suitability of an automatic enrolment scheme is determined primarily through statutory quality requirements. Many employers will choose a master trust scheme, which is subject to an additional regulatory framework. All automatic enrolment schemes are registered pension schemes and their members are further protected by the broader legislative framework for occupational and personal pension schemes.

--- Later in debate ---

[Lord McKenzie of Luton]

I heard the Minister’s reply, which seemed a recipe for no action—not this year or next. Given all the hard work that has gone into developing thoughts on this, that does not seem fair. If we are saying that the legislation—or the regulation—is not fit for purpose as it is, why do we not change it? Whatever happened to taking back control?

[Earl Howe]

I promise that nothing I said was intended as a recipe for no action. The problems that my noble friend articulated well relates to how we solve this problem, not whether we are committed to doing so. Unfortunately, it does not admit of a straightforward answer. If it did, we would have solved it long ago.

Amendment 93 withdrawn.

Pension Schemes Bill [HL]

Earl Howe Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Earl Howe (Con)]

My Lords, I am grateful to my noble friend Lady Noakes for tabling these amendments to Clause 107 and for the helpful conversations that we have had about them in recent days.

I start by saying that the Government understand the genuine concerns that have been raised during Committee and by my noble friend through these amendments. The first point that I would like to make —I think that it is necessary for me to make it—is that, in introducing the new criminal offences, the aim is to target individuals who intentionally or knowingly mishandle pension schemes or endanger workers’ pensions by behaviours such as chronic mismanagement of a business or avoiding pension liabilities. It is not the aim to frustrate legitimate business activities where they are conducted in good faith.

The key point is the one that I made in Committee: that it is an offence only if the person intended to harm the scheme or should have known that the conduct would have that effect and they have no reasonable excuse for their actions. The decision on whether a person does or does not have a reasonable excuse and ultimately did or did not commit an offence in a particular case is a matter for the courts. However, in coming to such a verdict, the courts will have paid due regard to all the circumstances in the individual case in question. That, of course, includes coming to a view on whether the person’s excuse for acting in that way was a reasonable one. The burden of proof on that question falls on the Pensions Regulator. In other words, the Pensions Regulator would need to prove that the actions of the individual were unreasonable.

The other dimension of the issue is that it is important that, where the elements of an offence are met, no matter who has committed it, the regulator should be able to respond appropriately. Any restriction of the persons potentially in scope would create a loophole for those people to act in such a way.

Having said all that, we are aware of the concerns raised by industry and by noble Lords. To address those concerns, I draw the House’s attention to the general prosecution policy which the regulator already publishes and which sets out the matters that it considers when using its prosecution powers.

My noble friend mentioned the regulator’s guidance. The regulator has stated that it will also issue further specific guidance explaining its approach to prosecuting the new offences under Part 3. Before it does so, the regulator will consult the industry on the contents of the guidance for the new offences, and it expects to publish this guidance prior to the commencement of these provisions.

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[Baroness Sherlock [V]]

My Lords, I am grateful to the noble Lord, Lord Vaux, for returning to this issue. We all know that there are some DB schemes with significant deficits and employers who could be doing more to clear them more quickly. Let us not forget the work done by LCP, which showed many firms paying out dividends 10 to 20 times their pension deficit payments, or the regulator’s annual DB funding statement last year, which raised concern about the disparity between dividend growth and stable deficit repair contributions.

The problem will not disappear. As more DB schemes have closed, they will soon be paying out more in pensioner payments, leaving them less to invest and with a need to de-risk their remaining investments.

The Covid pandemic is going to make things worse. The Pensions Regulator reports that, so far, only around 10% of schemes have agreed a temporary suspension or a reduction in DRCs post Covid, but more trustees and employers are in the process of discussing possible requests to suspend or reduce contributions. We all know that the full force of the economic storm has yet to hit us.

The noble Lord, Lord Vaux, mentioned the no-dividend rules for Covid business loans. The regulator’s Covid-19 guidance on defined benefit scheme funding and investment says that, if trustees face requests to suspend or reduce contributions, then they should seek mitigations. It gives an example, saying:

“All dividends and other forms of shareholder distribution to stop throughout the period of suspension and not to start again until the deferred or suspended contributions have been paid.”


TPR will still require trustees to report agreements to suspend or reduce contributions and provide information on the mitigations.

Ministers say that the regulator can chase employers if resources are taken out that should not be taken, but we know what the danger is if action is taken only after a dividend has been paid out. If the dividends are paid out by a UK employer to an overseas parent, it can be very difficult to get them back. It is entirely possible, in these difficult times, that if a company is in trouble and its parent company is based overseas, there may well be a move to repatriate assets to the home state. These amendments seek to tackle that problem not by stopping dividends or even buybacks where there is a deficit but by making them a notifiable event in certain circumstances.

The noble Lord, Lord Vaux, has softened his amendments, but he has still made a compelling case. Therefore, if the Minister does not want to accept these amendments, can he tell the House how he will ensure that the next BHS or Carillion scandal will not be a company with a foreign parent seeking to repatriate assets before abandoning its obligations to the pension scheme? I look forward to his reply.

[Earl Howe]

My Lords, I am grateful to the noble Lord, Lord Vaux, for tabling these amendments to Clause 109, which brings us back to an issue that we debated at some length in Grand Committee. It would be helpful to consider these amendments together, as they seek to make the declaration of a dividend or share buyback the subject of a notice and accompanying statement to the Pensions Regulator and trustees of the pension scheme. In the case of a share buyback, this notification would be required where the value of the assets of the scheme was less than the amount of the liabilities. In the case of a dividend, notification would be required if the amount of the dividend exceeded the annual deficit repair contribution and the amount of the annual deficit repair contribution was less than a percentage of the scheme’s deficit. That percentage would be specified by the Pensions Regulator.

I understand where the noble Lord is coming from, but I will address his concern with an explanation of Clause 109. The purpose of the clause is to make sure that the Pensions Regulator and trustees of a defined benefit pension scheme have prior knowledge about corporate transactions or events of which they would otherwise have been unaware and that pose a risk to the scheme and ultimately the Pension Protection Fund. The clause would also ensure that the trustees work with employers to mitigate the effect of such risks.

The Pensions Regulator and the trustees of the pension scheme are able to access information about dividends and share buybacks already. There are well-established processes whereby the regulator is able to get the information that it needs on dividends and similar payments as it assesses covenant strength and the ability of the employer to make contributions to deal with any deficit. Adding additional notifications of the kind that the noble Lord is suggesting is unlikely to be of any help. What it would certainly do is put an unnecessary burden on both employers and the regulator.

The regulator simply would not have the resources to deal with these additional notifications. That is not a trivial point: let us remember that it is a risk-based regulator and must focus its resources where it can do most good. We think that this focus is best directed at ensuring that recovery plans are robust. That is the best way to ensure that schemes are treated fairly. It is the strength of the recovery plan that is key here. Of course there will be occasions when dividends are paid without the regulator’s knowledge, but even if the regulator had been able to prevent that from happening, that would not help the scheme. That is because there is no requirement for the sponsoring employer to pay anything into any scheme deficit other than what is set out in the recovery plan.

--- Later in debate ---

If we end up with a major dashboards mis-selling scandal, this will not be just another PPI. It will be a scandal in a market which the Government actually created by mandating the release of the pensions data of some 22 million people. I am very grateful to so many noble Lords for their support for this amendment, and I beg the Minister to accept it.

[Earl Howe]

My Lords, I begin by turning to Amendment 52, tabled by the noble Baronesses, Lady Drake and Lady Sherlock. We have been clear that the initial aim for dashboards is simply to present people with information about their existing pension provision, whether that be the state pension, occupational pensions or personal pensions. Giving people the opportunity to see that information in a single place will represent a significant achievement. The pensions dashboard programme published papers in April that identify the scope of this initial offer, and it announced recently that the call for input on these proposals will start in early July.

The concern raised by the noble Baronesses relates to transactions. It is worth reminding ourselves that people can already undertake all kinds of financial transactions online, such as transferring existing pension pots between providers or consolidating small pensions into a single account. However, any organisation offering such services must meet existing regulatory requirements. In relation to pension transfers, these include requirements designed to ensure that people understand the potential consequences of undertaking these transactions.

These legislative requirements arise from the Pension Schemes Act 1993 and a member’s statutory right to transfer their cash equivalent to a pension scheme of their choice. Clause 125 seeks to amend that statutory right by creating safeguards to give trustees and scheme managers assurance that such transfers are to safe destinations. I do not think that the noble Baronesses, or indeed anyone who spoke today, gave sufficient credit to those provisions. Any such functionality would also have to navigate other existing legislative requirements, including those set out by Section 48 of the Pension Schemes Act, which require members with a cash equivalent value in a defined benefit scheme greater than £30,000 to seek financial advice. Members with guaranteed annuity rates must be sent personalised, tailored risk warnings before they are informed that they must take such advice.

In addition, I ask the noble Baroness to take into account the Government’s amendments to Clause 125, which will add a further series of safeguards. By taking a regulatory power to notify members to take guidance and information where a transfer meets prescribed circumstances, selected “at-risk” members will have to pause their transfer and demonstrate they have taken action to consider the risks of proceeding. Therefore, it is not fair to portray the Government as ignoring consumer protection.

Alongside this, we have been totally clear that any organisation wishing to provide a pensions dashboard must first complete an authorisation process, overseen by the Financial Conduct Authority. Once it has been authorised, it will be subject to the existing regulatory requirements for that activity and for any other activity it has the regulatory permissions to carry out. Where applicable, this may include the new protections offered by Clause 125 of this Bill.

The decision on whether transactions will be allowed on dashboards is not one we will take lightly. First, we need to understand how users respond to initial dashboards offering a simple “find and view” service and, subsequently, what additional needs users may have where dashboards could add value. Any decision to enhance the functionality of dashboards would have to be supported by extensive user testing as well as a review of the existing consumer protections to ensure that all necessary safeguards are in place to protect the consumer. We would also need to consider the legislative implications of such actions. Any application to transfer made using dashboards would be subject to the transfer requirements set out in primary and secondary legislation that are in force at the time of the application.

I strongly believe that Amendment 52 is the wrong way to go. It would deny people the right to take control of their financial situation. It actively seeks to frustrate. It would mean that consumers, even when properly advised and informed, would have to follow a parallel track to execute their wishes. It may even go so far that it could stop dashboard providers developing useful modelling tools that could, for example, inform people of the potential benefits of increasing their contributions or the impact of increased earnings. This amendment risks stifling future innovations that could demonstrably benefit consumers. My noble friend Lady Neville-Rolfe made that point very effectively.

As I have indicated, this amendment completely fails to take into account the existing regulatory regime under which many types of financial transaction are already regulated. The Government have been clear that we want to enable consumer-focused innovation; as I have said, we will always ensure that safeguards are progressed in line with this innovation.

My noble friend Lady Neville-Rolfe asked whether our proposals risk contravening any GDPR rules. I remind her that only the Money and Pensions Service and qualifying pensions dashboard providers that meet the requirements set out in regulations and operate to agreed standards will be able to connect to the dashboard infrastructure, so the request will effectively be a subject access request from an individual to the data controller to view their data. The individual’s identity will have been verified to the agreed standard level so that the pension scheme can be confident about who is making the request. Any request to search for consumers’ pensions information that is not received from the pension finder service will not be provided via pensions dashboards.

Turning to Amendments 56 and 59, tabled by my noble friend Lady Altmann and the noble Baroness, Lady Bowles, we agree that the accurate recording and management of pensions data is important. That is why the Pensions Regulator set out its expectations on record-keeping in 2010. It provided additional guidance in 2017 and 2018 to support trustees and scheme managers in measuring and improving their data.

The regulator already expects schemes to conduct annual reviews of their data that cover presence and accuracy, that trustees engage with administrators to identify and prioritise data for improvement, and that they report their data scores so that the regulator can monitor improvements and target its engagement with schemes. The Pensions Regulator has increased its scrutiny of scheme records and has targeted regulatory intervention based on reported data scores. Previous interventions have seen positive results.

The Financial Conduct Authority also has relevant requirements in place. Under its general compliance requirements in the FCA handbook concerning senior management arrangements, systems and controls, firms are required to

“establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives (or where applicable, tied agents) with its obligations under the regulatory system”.

As a result, when the FCA makes rules to compel schemes to provide data via dashboards, these will have to comply with this provision; we expect the rules themselves also to set out that the data must be accurate. In addition, the Financial Conduct Authority has the power to make further rules relating to data accuracy so long as it advances one or more of its operational objectives and is consistent with data protection legislation.

Alongside those requirements, the Minister for Pensions and Financial Inclusion recently wrote to some of the largest pension schemes, providers and third-party administrators to galvanise the industry’s approach to data accuracy and readiness for dashboards. The Minister requested a status report on the quality of their scheme data and, accordingly, their plans to improve it. The Government will feed the findings into the pensions dashboards programme to support their efforts. Schemes will be required to meet a clear set of data standards to connect to the dashboard system; these will be finalised in the autumn.

In addition, the programme will work with the regulators to develop a comprehensive onboarding strategy to support schemes in preparing their data ahead of their connection to the dashboard infrastructure. These activities seek to ensure that dashboards are a success by achieving the necessary coverage and that the data supplied is accurate and clearly understood by the user.

With those assurances and explanations, I hope that my noble friend will feel able not to move her Amendments 56 and 59 when they are reached.

[Baroness Drake [V]]

My Lords, I thank all noble Lords who have supported Amendment 52. I say to the noble Earl that nothing in my amendment would deny any of the things that he listed. That is simply untrue. It seeks to say that Parliament should have the authority to clear taking transactions on to a dashboard system. The noble Baroness, Lady Bowles, captured it quite succinctly: transactions are a key risk danger point and require attention in that sense.

The noble Earl does not deny that there are risks. The difference between us is that I believe that the scale and implications of those risks, and the unknown evidence that is yet to come forward from our experience of the dashboard, are such that this should not be dealt with by regulations or secondary legislation. It should be dealt with by Parliament clearing enabling legislation to allow people to transact on dashboards. That is the thrust of my amendment; it is not to deny people freedoms. This is not without precedent. It was Parliament that intruded to insist that charge caps should be applied to pension savings pots. In spite of the arguments articulated against that, the industry has survived perfectly well and everybody has gone on to thrive under charge caps on pension schemes.

In moving my amendment, I did not put forward a single argument saying that the Government were neglecting consumer protection. Ironically, a lot of the protections that the Government are introducing are to deal retrospectively with the consequences of introducing pension freedoms without a protective consumer wrap. It would be sensible not to make the same mistake twice.

The issue here is that the scale of the potential risks—the unknowns of what behaviour will be like on the dashboard—are such that, in my view, it is perfectly reasonable to say that that issue should come back to Parliament for clearance through primary legislation rather than through regulations or secondary legislation. I wish to press my amendment to a vote.

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This amendment does not prevent commercial dashboards. It simply means that they would not start engaging with consumers until the public dashboard has been running for long enough to give Parliament some necessary assurance before enacting the authorisation of commercial dashboards which the Bill permits. All we are asking for is a year’s grace before commercial firms with, in many cases, an unavoidable conflict of interest are authorised to engage consumers on a new product built on consumer data that the Government have mandated be released. I do not think that that is too much to ask.

[Earl Howe]

My Lords, there was general agreement in Committee that pension scheme members should have access to a dashboard service that is publicly owned and free of potential commercial imperatives. As we set out in Committee, the Government wholeheartedly agree that such a dashboard should be available to all users from day one, alongside dashboards offered by other organisations. We explained that the single financial guidance body, now known as the Money and Pensions Service, can provide a dashboard under its existing statutory functions, but I accept that the Government could provide further reassurance in legislation.

The government amendments reflect this commitment by placing a duty on the Money and Pensions Service to provide a pensions dashboard. The dashboard must display information from private and occupational pension schemes. These amendments also enable the inclusion of state pension information.

In addition, these amendments repurpose the provisions that were in new Section 4A(1)(b), as inserted by this clause, as new Section 4A(1A). The original purpose of these provisions, however, is unchanged. They make it clear that the Money and Pensions Service can carry out functions relating to the provision of qualifying pensions dashboard services by others as part of its pensions guidance function, including providing state pension information. This could, for example, include publishing data standards with which providers must comply.

The amendments also make minor consequential changes to Clauses 119 and 121, as well as to Schedule 9, which relates to Northern Ireland. The duty to provide a pensions dashboard will apply only once the necessary supporting technical architecture is in place and pension schemes are required to provide information to their members via dashboards. I therefore very much hope that the government amendments will be accepted when they are moved.

I will now respond to the amendments tabled by the noble Baronesses, Lady Sherlock and Lady Drake, on the Money and Pensions Service dashboard being the sole dashboard for at least 12 months. The Government have been clear throughout that offering consumers a choice of dashboards is the best way to increase engagement. Our position on this has not changed. Allowing consumers to access their pensions information in the way that they want to is key to putting people in control of their savings.

Having a period of exclusivity for the Money and Pensions Service dashboard, as is being suggested, would seem to achieve relatively little, other than to restrict people’s access to their own information through a route of their choosing. However, what we will not allow to happen is for any commercial dashboard to be launched before that of the Money and Pensions Service. I would like to be clear that the Money and Pensions Service dashboard will be available from day one, alongside dashboards offered by other organisations.

I invite the noble Baroness to note that the Money and Pensions Service has an existing legislative requirement, in the Financial Guidance and Claims Act 2018, to report to the Secretary of State annually on the achievement of its objectives and functions. This report is also laid before Parliament and will provide detailed information about the development, delivery and operation of dashboards.

The noble Baroness, Lady Drake, asked me about the liability model and whether we can guarantee that it will be ready before commercial dashboards can be used. The pensions dashboard programme will develop a robust liability model to ensure that there are clear roles and responsibilities in the event of a breach. This will be in place before the public launch of dashboards.

I hope I have given reassurance that there will be a publicly owned dashboard and that there is a range of reporting requirements that allows sufficient oversight of progress, not least in making sure that the functionality which will underpin all dashboards can be relied upon. I have to say that some noble Lords rather over-egged the argument of functionality risk.

The long and the short of it is that we remain strongly of the belief that multiple dashboards are the best way to ensure that everyone can access their pensions information in the way that they desire. Therefore, I respectfully ask the noble Baroness, Lady Sherlock, not to move her amendment when we come to it.

My noble friend Lord Young has tabled three amendments, covering the Money and Pensions Service dashboard, a date for the introduction of that dashboard, and the verification of identity. I am glad he agrees that the government amendment fully meets his desire for the Money and Pensions Service to provide a dashboard. On providing a timetable for delivery, we are all keen to see dashboards available as soon as possible. However, it is essential to get the design of the service right, to ensure that it provides accurate information and is secure and consumer focused.

On that point, I can assure my noble friend that the pensions dashboard programme put in place by the Money and Pensions Service is taking the necessary steps to deliver the dashboard architecture. In April, it published two papers relating to data. Having deferred consultation on these papers because of the impact of Covid-19, the programme will now run a call for input throughout July and August. It is also bringing together a data working group to finalise a set of data standards and requirements by the end of the year.

The programme is also making progress on the supporting dashboard infrastructure. On 22 June, it started a six-week market engagement exercise with potential suppliers of the supporting dashboard architecture for the pensions finder service and the governance register. This will help the programme to determine the most appropriate route to market in preparation for a formal procurement process, anticipated to start in autumn this year.

Finalising the data standards and the procurement route is key to informing the timetable for delivery. However, it is essential that we do not force upon the Money and Pensions Service an arbitrary timetable set by legislation. I hope that, on reflection, my noble friend will come round to that view.

I understand that my noble friend wants to maintain momentum, and I agree with that. Alongside the annual report by the Money and Pensions Service, which I mentioned, the pensions dashboard programme has committed to publishing a progress update every six months, for the length of the programme. It will also set out a detailed timetable for delivery by the end of the year.

My noble friend also brought us back to the issue of digital identity and how a user of a dashboard is verified. In the March 2020 Budget, the Government reiterated their commitment to the creation of a ubiquitous digital identity market. To achieve this, they created the digital identity unit, which is a collaboration between the Department for Digital, Culture, Media and Sport and the Cabinet Office.

As my noble friend rightly said, an identity verification service is an essential component of the dashboards infrastructure. It will provide the verification required to assure pension schemes—the data providers—that they are returning data to the correct user and to nobody else. The verification service must also meet the needs of users, enabling them to verify their identity without undue difficulty.

On a point raised by my noble friend about funding, I say that the pensions dashboard service, including ID verification, will be free at the point of use for individuals. The identify verification service for dashboards will be managed centrally as part of the supporting infrastructure, as I indicated. Funding options will be carefully considered as part of any proposed solution on identity.

As outlined in the progress update report published in April, the pensions dashboard programme will need to source a functioning, workable identity verification service. It is working with the digital identity unit and the supplier market to explore potential solutions for dashboards. These solutions will be based on managing and mitigating the type of risks associated with dashboards. Developing their requirements will enable the pensions dashboard programme to assess the suitability of available products against robust success criteria.

I say to my noble friend that we understand the need for progress on the delivery of dashboards; we recognise the need for a safe and secure method for verifying someone’s identity, and we understand how important this will be for the success of the dashboard concept. While I can go no further than that, I hope that I have said enough to convince him that his concerns are squarely on the radar, and that he will accordingly feel able to withdraw his Amendment 53.

[The Deputy Speaker]

I have received no requests for noble Lords to speak, so I call the noble Lord, Lord Young.

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Moved by

[Earl Howe]

54: Clause 119, page 108, line 32, leave out “any” and insert “the”
Member’s explanatory statement
This amendment is consequential upon the Minister’s amendment at page 117, line 6.

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Moved by

[Earl Howe]

57: Schedule 9, page 177, line 33, leave out “any” and insert “the”
Member’s explanatory statement
This amendment corresponds to the Minister’s amendment at page 108, line 32.

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Moved by

[Earl Howe]

60: Clause 121, page 113, line 16, leave out “any” and insert “the”
Member’s explanatory statement
This amendment is consequential upon the Minister’s amendment at page 117, line 6.

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Moved by

[Earl Howe]

62: Clause 122, page 117, line 6, at end insert—
“(A1) The single financial guidance body must provide a pensions dashboard service by means of which—(a) information that the trustees or managers of a relevant occupational pension scheme are required to provide by—(i) regulations under section 238D(1)(a)(ii) of the Pensions Act 2004, or(ii) regulations under Article 215D(1)(a)(ii) of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)), and(b) information that specified authorised persons are required to provide by general rules under section 137FAA(1)(a)(ii) of the Financial Services and Markets Act 2000,may be requested by, and provided to, an individual or a person authorised by the individual.(A2) The single financial guidance body may, by means of its pensions dashboard service, provide information about—(a) state pensions,(b) basic and additional retirement pensions, and(c) state pension information relating to an individual.”Member’s explanatory statement
This amendment requires the single financial guidance body (the Money and Pensions Service) to provide a pensions dashboard service to deal with information from occupational and personal pensions schemes. It also enables the body to include state pension information in its pensions dashboard service.

[Earl Howe]

I beg to move.

Amendment 63 (to Amendment 62)

Moved by

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[Baroness Sherlock [V]]

My Lords, we all believe that trustees of DB schemes should have a clearly defined funding and investment strategy for insuring pensions in the long term. However, if that is pursued in a way driven by the need to protect members in closed maturing DB schemes, then schemes with strong covenants open to new entrants risk being swept up in an approach that is wrong for them. As closed DB schemes increasingly mature, the regulator will expect them to de-risk and reduce their deficits. However, if that approach is applied in a blanket form it will force some open schemes to de-risk prematurely, putting pressure on employers and, in the railway scheme with its shared-cost basis, on employees too. Given all the concerns expressed, will the Minister accept this amendment?

[Earl Howe]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for her amendment, which touches on a number of important factors to be considered in the development of secondary legislation, including the factors that it lists. I say immediately that I agree that these are all important factors to take into account when developing secondary legislation for defined benefit scheme funding. However, we do not need an amendment to do that. The amendment includes factors that are all taken into consideration during the whole process of framing policy, legislation and guidance.

One of the greatest strengths of our scheme-funding regime is that it operates on a scheme-by-scheme basis because every scheme is different, and it would be unhelpful and inflexible to treat them all the same. The measures in the Bill build on that approach, as will the secondary legislation. The existing scheme-funding legislation has been drafted to ensure that it is flexible enough to apply to all types of defined benefit scheme—for example, whether open or closed. Equally, the scheme-funding measures in the Bill are flexible enough to apply to all types of defined benefit scheme.

In the protecting defined benefits White Paper we were clear that there are a number of examples for suitable long-term objectives and that running on with employer support would be a reasonable course of action for an open scheme. Whether or not the strategy for ensuring that benefits can be provided in the long term is suitable will depend on the specific context of a particular scheme. Additionally, we entirely accept that schemes with different liquidity profiles and maturity will be able to take different trajectories. This is, and will remain, fundamental to the scheme-specific approach. So I assure the noble Baroness and the House that any regulations will also be formulated with considerations such as those outlined in the amendment in mind, where appropriate.

The big danger with an amendment of this kind is that it creates inflexibility. It remains our aim that the scheme-funding measures in the Bill do not change existing flexibilities but, rather, seek to make best practice universal and ensure that all schemes are planning for the long term. It is good practice for all schemes, including open schemes, to set a funding and investment strategy.

My noble friend Lord Young asked whether I could commit to a meeting along with officials to discuss these issues. Yes, I am happy to do that, and if schemes have concerns with what TPR is proposing they can engage with the current consultation. The Pension Regulator’s current consultation on the defined benefits funding code includes a twin-track compliance process that takes account of scheme and employer circumstances. Indeed, the current consultation has a full chapter on open schemes, and I encourage anyone interested to contribute their views.

Regulation-making powers exist precisely to allow the system to be calibrated effectively to ensure that this balance is struck. While the noble Baroness’s amendment reflects a number of factors that are considered while developing policy, we do not need to specify those in primary legislation and indeed, as I hope I have indicated, it would be unhelpful to do so. We need to leave room for the flexibility that I have emphasised; we must leave enough flexibility in the system to allow it to react effectively to future changes. Indeed, in the light of the current social and economic climate, it is very clear that the economic shape of the future is unknowable.

I hope that the noble Baroness will recognise from what I have said that the Government’s approach is fair and proportionate and that she will accept my assurance that appropriate flexibilities are, and will continue to be put, in place. On that basis I respectfully urge her, and urge her with some emphasis, to withdraw the amendment.

[Baroness Bowles of Berkhamsted [V]]

My Lords, I thank all those who have spoken in this debate. I particularly thank the noble Lord, Lord Young, and the noble Baroness, Lady Altmann, for signing the amendment, for making their contributions and for speaking to the Government. It is clear to see that there is support for the amendment from across the House, and I hope that it is also clearer to everyone why preservation of open DB schemes is in the public interest. We are, in fact, in a rather strange situation where the Minister is in agreement with the policy; it is in government policy, but yet there is a significant danger from what the Pensions Regulator has actually said. That is the sole reason why there needs to be something on the face of the Bill that confirms what is government policy.

The Government have a further opportunity to amend this Bill in a way that they consider is better than my amendment and give guidance in a different way. I would be happy to help, but we have run out of time and I have not heard a suggestion that something will actually be presented at Third Reading. This House does not have any more opportunities with this Bill, and I cannot see anything coming down the track to give us another opportunity that would be in time to make a difference with regard to the Pensions Regulator’s obvious position.

This is not a new argument: I have spent 10 years in Brussels arguing the toss on these things, on the difference between IORPs and Solvency II, and I know where the pressure comes from the former FSA—now the FCA. Part of this Bill, on CMP schemes, is fixing a problem for one newly privatised employer. Why dump others who have found good ways to make their DB schemes flourish and last? If the Government do not make it clear, that is what will happen: they may well end up being dumped.

In the first group of amendments, the noble Baroness, Lady Sherlock, said that she did not want CMP schemes to undermine DB schemes. Without this amendment or something like it, they may well have nowhere else to go. This is not a nice-to-have amendment; it is vital. The issue should not be swept into the corner for these pension schemes to die quietly, and I wish to test the view of the House.