Pension Schemes Bill

Lord Bourne of Aberystwyth Excerpts

Tuesday 27th January 2015 Lords Chamber

[Lord Bourne of Aberystwyth (Con)]

My Lords, I first thank the noble Lord, Lord McAvoy, for his contribution. I will do my best to answer his points and those of my noble friend Lord German.

I welcome the opportunity to debate this amendment again, having discussed it at length in Committee. It is fair to say—as the noble Lord said in opening—that, in philosophical terms, there are differences between the Government and the Opposition on this issue. However, we certainly want the freedoms that the new system contained in the Pension Schemes Bill offers. To that extent, we are united. However, we are certainly coming at it from different angles.

The noble Lord, Lord Bradley, suggested in Committee that all workplace pension schemes should be run by trustees and have a legal duty to prioritise members’ interests. In the same debate the noble Baroness, Lady Drake, made a broader case for extending a fiduciary duty to all who have the discretion to manage other people’s money. The Government share the concerns of the noble Lord and the noble Baroness that pension schemes should be well run. As I said in Committee, the Government are committed to ensuring that all workplace pension schemes are well governed, with members’ interests at the heart of everything they do. That is why, in March last year, we set out our proposals for strengthening the governance of occupational pension schemes that are money purchase schemes, and to the money purchase benefits provided by other schemes, in the Command Paper, Better Workplace Pensions: Further Measures for Savers. I should add that the majority of stakeholders supported these proposals by saying that they represented a positive change, intended to drive the right behaviours.

As noble Lords will be aware, in that publication last October we put these proposals on a sure footing by consulting on draft regulations to place minimum governance standards on, broadly, all occupational pension schemes which are money purchase or have money purchase elements to them. That consultation has now ended; we will shortly be publishing the Government’s response and laying the final draft regulations before Parliament, to come into force this April. For workplace personal pension schemes, the FCA has also completed its consultation on draft rules for independent governance committees, which were referred to by my noble friend Lord German and which will ensure oversight of these schemes in members’ interests from April 2015, and aims to publish its policy statement by early February of this year. That probably answers my noble friend’s point: these committees are essentially supervisory rather than day-to-day, which would be the role of trustees.

In respect of the governance of collective benefits, I can reassure noble Lords that we have a number of provisions in Part 2 that enable us to make requirements in regulations about some of the key aspects of running a scheme offering collective benefits. These are specifically tailored to such schemes and reflect key differences in the rights that members have in collective benefits, compared to money purchase benefits. We may also make regulations under a power in Part 3 to require certain decisions in respect of collective benefits, and in relation to defined ambition schemes, to be made in the best interests of members to ensure appropriate safeguarding of members’ interests. This reflects the different nature of the decisions being made on behalf of members in these types of pensions, compared to money purchase pensions.

I will refer now to another point made by the noble Lord, Lord Bradley, in Committee. He proposed that a trust-based approach is preferable to a contract-based one. I emphasise again that we must not assume that trust-based schemes are always better governed than contract-based workplace pension schemes. There is no evidence that one governance structure necessarily delivers better outcomes than the others. As I said in Committee, we consider that scale, good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust-based. But as I also emphasised, while we are interested in scale inasmuch as it may help schemes to improve quality and lower charges, it is not an aim in itself and bigger does not always mean better. The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the Treating Customers Fairly principles, which have formalised firms’ responsibilities to their customers.

The introduction of independent governance committees with a duty to act in members’ interests, from April 2015, will further strengthen the governance of contract-based schemes. Also from April of this year, the Government and the FCA are intending to introduce measures so that certain savers in, broadly, all occupational and contract-based schemes providing money purchase benefits which are used for automatic enrolment will not be subject to high or inappropriate charges. The positioning in the Bill of this amendment limits the powers to schemes with collective benefits. However, it is not clear whether this is the intention behind the amendment.

We would not want to single out collective schemes here and, as I have mentioned, there are powers in Part 3 covering the interests of members of collective schemes. If the noble Lord, Lord McAvoy, intended the amendment to apply to all schemes, I am not sure whether it would achieve this. As I explained in Committee, if this amendment were exercised across all schemes, it would require independent trustees to be recruited for tens of thousands of pension schemes. I believe that this answers a point raised by my noble friend Lord German. Data from the Pensions Regulator show that there are at least 47,680 private workplace schemes alone, although I accept that not all those will need to recruit independent trustees. My noble friend Lord German put a powerful case for not passing this amendment, as it is not clear whether it is intended to cover just collective benefit schemes or schemes more widely. Clearly, there will be a cost associated with it.

[Lord McAvoy]

I thank the Minister for giving way. The Minister has raised some objections that are less extreme than those of the noble Lord, Lord German—so there is a difference in fairness here. Our new Clause 13 was initially a response to the problem of having so many trustees. Let us not forget this direct quote from my honourable friend Gregg McClymont:

“Our new clause 13 would initiate a response to that problem, but let us not forget that of the 200,000 pension schemes in the UK the vast majority are group personal pensions under the management of four or five—no more than half a dozen—insurance companies. A governance board properly constituted of trustees attached to each one of those major insurance companies would deal with the vast majority of pension schemes in the UK. That is a very important point”.—[Official Report, Commons, Pension Schemes Bill Committee, 4/11/14; col. 324.]

[Lord Bourne of Aberystwyth]

I am grateful to the noble Lord opposite for that intervention, but the case remains there is clearly going to be a cost associated with this. This is an objection to it, but the prime objection is that we do not accept the principle that contract-based schemes need such a fundamental change. Though different in essence from the fiduciary nature of trustees’ duties and trust schemes, there are of course obligations placed on contract-based schemes, as I have tried to set out.

We all agree that good governance of pension schemes is essential. This is why the Government’s proposed new governance standards, applying across broadly all workplace pension schemes in respect of money purchase benefits will further protect members by ensuring that schemes are run in their interests. It is also why this Bill makes provision for targeted regulation-making powers in respect to the running and good governance of collective benefits and certain decisions in defined ambition schemes and in relation to collective benefits.

I accordingly and respectfully ask the noble Lord to withdraw this amendment.

[Lord McAvoy]

My Lords, maybe I am paranoid or maybe I just have a suspicious mind or maybe my mother knew what she was doing when she called me “Thomas”, but I do not believe that it is entirely coincidental that what someone called the Welsh mafia are in operation here, with certain facts—in inverted commas—being produced. Cost has been mentioned by the noble Lord, Lord German, and the Minister. Can anyone in this House give an exact figure for the cost to the members of pension schemes where there has not been proper fiduciary guarantees of independent governance? Can anyone give me a quote? Plenty of folk can quote instances where money has been lost through pension funds. I do not think that the principle that we are putting forward here is as unreasonable as has been portrayed, particularly by the noble Lord, Lord German. We will return to scale at a later stage. In the mean time, we will try to find an estimate of how much has been lost to ordinary members of pension schemes through a lack of governance.

In the mean time, however, I beg leave to withdraw the amendment.

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Moved by

[Lord Bourne of Aberystwyth]

2: Clause 45, page 19, line 24, at end insert—
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”

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[Lord Bourne of Aberystwyth]

My Lords, I address the House as one half of the Welsh mafia or the Taffia—a charge I reject totally of course.

These amendments are consequential in nature. They address an omission in the current legislation. In the course of checking through the changes made as a result of the Bill, omissions in the Pensions Act 2014 came to light. The amendments needed all relate to overriding legislation—that is, when legislation overrides provision in the scheme rules such that the legislation is treated as if it were part of the scheme rules.

Without these amendments, any overriding requirements made under regulations under Schedules 17 and 18 to the Pensions Act 2014 would not be treated as part of the scheme rules for the purposes of the Pensions Act 2004 and subsisting rights provisions in the 1995 Act, leading to inconsistency in the way in which overriding provisions are dealt with and a potential lack of clarity.

I beg to move.

[Lord Bradley (Lab)]

I shall briefly respond as this is the first set of government amendments. I thank the Minister for the courtesy of writing to me with his proposals around these amendments; it is very helpful to have that in advance, as it limits the need for further debate on these matters. Maybe I should declare an interest in that my great-uncle was Welsh, but I do not claim to be part of the Welsh mafia. With those remarks, I am supportive of the amendments.

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Moved by

[Lord Bourne of Aberystwyth]

3: Clause 45, page 19, line 27, at end insert—
““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”