Pension Schemes Bill [HL]

Lord Berkeley Excerpts

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

[Lord Vaux of Harrowden [V]]

My Lords, I had intended to add my name to this amendment, and I apologise that I failed to do so. The noble Baroness, Lady Bowles, has raised an extremely important issue in the amendment and has eloquently set out the reasons.

We are often guilty of looking at defined benefit schemes as a concept that is on the way out—that we are only really talking about the run-out of closed schemes —but that ignores the fact that many DB schemes remain active and open to new joiners. I am very grateful to the Railways Pension Scheme for explaining the potential implications for such schemes of the regulator’s consultation on the defined benefit funding code of practice.

For schemes that are mature or closed and in the run-down phase, it makes complete sense to minimise the risk of the investment strategy so that there is a high degree of certainty that the fund will be able to meet its obligations. The flipside of that, of course, is that a low-risk investment strategy means a low return. That is fine for mature schemes, but schemes that are not mature and still live would suffer from being restricted to a low-risk, low-return investment strategy. As the noble Baroness, Lady Bowles, said, the largest part of benefits paid from a fund typically come from the investment returns earned over its life. If forced to take such a low-risk, low-return approach in order to meet a certain level of benefit, they would have to massively increase contributions from either the employer or the employee or a combination of both. Indeed, I confess that I had not understood that there are DB schemes that specifically share such risk between employers and employees.

A higher-risk investment strategy with the ability to earn better returns is entirely appropriate for schemes that are not mature. I think that it was the noble Lord, Lord McKenzie of Luton, who, in Committee, raised a concern about hastening the demise of defined benefit schemes. If the regulator, in taking an overly risk-averse approach, insists on too low a risk and a low-return approach for open or immature schemes, they will inevitably become less attractive to employers and possibly to employees. All we will achieve is the hastening of the end of defined benefit schemes, which are the gold standard for pension saving, especially for those on lower earnings.

The amendment is therefore critical to ensure that the regulator takes into account the state of maturity of a fund when looking at scheme funding and to ensure that trustees have sufficient discretion to be able to act in the best interests of their beneficiaries.

[Lord Berkeley (Lab) [V]]

My Lords, I too congratulate the noble Baroness, Lady Bowles, on bringing forward this amendment. It is vitally important that the many contributors to these open schemes have comfort that these schemes will continue and will provide them with a reasonable level of benefit when they retire. I am grateful to the Railways Pension Scheme for a very useful briefing, which other noble Lords have seen. I myself am not a member of that pension scheme, but I have a large number of friends who are among its 350,000 members. I think it is relevant that 100,000 of them are still active, and that number will probably continue. That will happen, as the noble Baroness said, in the schemes for local authorities, nuclear decommissioning and many other sectors.

The real point is that many of the people contributing to these funds are comparatively low paid. Perhaps the Minister when she comes to respond can explain why the Government think it is a good idea to allow the schemes to require a greater contribution from the members and from the employers for no particular benefit. It seems absolutely clear that open and closed schemes must be treated separately. In ending, I ask the Minister to explain to me and other noble Lords why Ministers are not going along with this amendment. It seems so simple and well thought through, and I will certainly support it if the noble Baroness decides to divide the House.

[Lord Snape (Lab) [V]]

My Lords, I will confine my remarks to the impact of this amendment on the Railways Pension Scheme, and I join other noble Lords who expressed support for the amendment. As a former railwayman I was a member of the RPS in my younger days, although I was sensible enough—if that is the right term—to transfer to the parliamentary pension scheme when I was elected to the other place many years ago. However, I remain in contact with many of my former colleagues within the railway industry, and certainly they and the trustees of the Railways Pension Scheme have expressed their concern about the impact of this legislation on their future policy.

I remind the Minister that the RPS is a final salary defined benefit scheme that replaced the British Rail Pension Scheme after privatisation in 1993. Successive Ministers since then—among them those as distinguished as the noble Lord, Lord Young of Cookham—have assured the Railways Pension Scheme that matters will continue pretty much as before, and phrases such as “mirror image” and “the continuation of the present scheme” have been used. To find ourselves in the position that we will be in if this amendment is rejected is, to say the least, something of a surprise.

I have to tell noble Lords that the future of the Railways Pension Scheme is of massive concern among the railway unions, one of which, the National Union of Rail, Maritime and Transport Workers—I used to be a member of its predecessor, the National Union of Railwaymen—has already balloted or threatened to ballot its members about the future of the scheme. The acceptance of this amendment would go some way to ease the fears that many members of the scheme feel about the future.

However, the trustees of the RPS themselves have expressed concern about the future. Without this amendment being written into the Bill, they feel that the regulations which will follow will force trustees to take short-term investment decisions rather than the long-term and ethical decisions that the RPS takes at the present time. Indeed, one of them passed a comment to me that “We will be forced in the end to buy nothing else but government gilts”—which is probably not an investment path that most advisers would recommend in the current circumstances.

To ensure that the RPS is traditionally able to make long-term and ethical investments, I make this plea to the Minister to write this amendment into the Bill. It may well be that the noble Earl, Lord Howe, says to us, “We hear what you say. We are conscious that there is concern; we will look at this. Of course, many of your fears are groundless, and Ministers will bear all these fears in mind”. However, over the years that I have been a Member of the other place and your Lordships’ House, Ministers have come and gone. The other day I counted that 27 Ministers for Transport have been around in my time in one House or the other. Ministerial pledges are all very well, but times change—not quite as often as Ministers.