Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Lord Davies of Brixton Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 19th October 2021 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I want to address the second part of the Bill, Clause 2, which allows the Secretary of State to

“lend money to the Board”

of the Pension Protection Fund. The background to this is that, in effect, the fund’s remit was extended to cover pension liberation schemes. I am not totally convinced by the argument that these were not known about in 2004be. Be that as it may, it is clear that, like Clause 1, this provision is necessary only because of a lamentable series of failures of Government, of legislation and of regulators.

It is of course right that members of occupational pension schemes should be compensated where they are victims of dishonesty and have a reasonable expectation that they should be protected. But we need to ask: why is this happening, and what can be done about it? This Bill is just a sticking plaster and we need to address what lies beneath. For example, we have to consider what the role of online advertising and spam has been. I have no doubt that there should be specific provisions in the draft online harms Bill, and we will certainly seek to add these when it comes before us. The Bill needs to tackle financial crime and advertising.

We have the stark warning from the House of Commons—both the Treasury Committee and the Work and Pensions Committee—that there is a risk of large financial losses to the public. This is all in the future, not something that has happened and will not happen again. The problem we face is that financial crime is ever evolving. We were told that pension scams were not recognised as a threat back in 2004. Of course, the arrangement goes back to 1995, following the Maxwell scandal. The reason pension funds are sitting ducks for this sort of fraud is that, in Willie Sutton’s apocryphal phrase, “That’s where the money is”. He was supposed to be talking about robbing banks. Here, we are talking about pension funds. Regrettably, in my view, the front door has been left open following the move to so-called pension freedoms. As well as claiming credit for the additional liberties introduced, responsibility has to be taken for the unintended consequences, which are indeed dire.

Can the Minister tell us what the Government are doing to get ahead of the game—to take a lead and not just react to the latest scandal in this area? We also need to ask: what more can pension funds themselves do to protect members? I recognise the difficulties, but it is the funds with members who are not subject to fraud which will have to meet the cost of this measure. There is every incentive for the industry itself to take a lead, so what steps will the Government and the Minister be taking to encourage the development of this work?

Finally, it is worth noting the amount of money involved in dealing with pension fraud: up to £350 million in compensation, we are told. That is no mean sum, particularly when set against the existing scale of the fund when it held only £26 million. The £350 million figure was estimated a year ago, at the time of the trial. Can the Minister provide an updated estimate of what the ongoing growth in the figure will be?