Economic Activity of Public Bodies (Overseas Matters) Bill

Debate between Lord Davies of Brixton and Baroness Altmann

Committee stage
Tuesday 14th May 2024 Lords Chamber

[Lord Davies of Brixton (Lab)]

I have made no secret that this is a bad Bill that is badly drafted, and I spoke against it at Second Reading. In this debate, my suggestion that we should not agree Clause 12 is narrowly focused.

Local government pension schemes should be treated in exactly the same way as every other funded occupational pension scheme—the point made by my noble friend Lady Blackstone. I agree totally with the amendments tabled by my noble friends, and I certainly support their proposals, but my question is: do we need separate legislation to cover the local government pension schemes? My strong view is that we do not; the schemes should all be treated the same. They should come under the same rules as the fiduciary duties on trustees or committees —whoever is responsible for taking the decisions—and they should be the same across the board.

I tabled my clause stand part notice just to ask what the effect would be of not having this provision. Would it mean that I achieve my objective and that, should the provision be removed from the Bill, the local government pension schemes would be treated like other pension schemes? I suspect not. I suspect that I would need a more detailed amendment that would place local government pension schemes under the same responsibilities and law as occupational pension schemes more generally. That is my objective, and I hope that we can have this debate again on Report so that all pension schemes are treated the same.

I listened carefully to the remarks from the noble Baroness, Lady Altmann, but I think her argument fails. First, there are private employers whose employees are within the local government pension scheme. Equally, there are public bodies whose pension schemes are not covered by this legislation, most obviously the universities superannuation scheme. So the division between the sheep and the goats in this respect is arbitrary. There is no consistency about—

[Baroness Altmann (Con)]

The noble Lord and I usually agree on so many pension issues—in fact, almost all of them. However, would he not agree that the fundamental difference between the local authority pension schemes and private schemes, or indeed the universities super- annuation scheme, is that the local authority pension schemes do not belong to the Pension Protection Fund and do not pay levies to it, and are therefore effectively underwritten by central government, not by local government? If a council goes bust, it is rather difficult to imagine that the burden of paying the pensions promised to local authority workers would not fall on government itself. That is indeed the reason why these schemes are not part of the Pension Protection Fund, and indeed do not pay any kind of levy. For me, that is a powerful reason—I would be grateful to hear the noble Lord’s view—why there should be a differentiation between those schemes and all other schemes. Typically, there is not, but that misses an important part of this debate.

[Lord Davies of Brixton (Lab)]

I am afraid to say that it is not that simple. Technically, the history is that the funds established by local authorities to pay the pensions of their employees were there to protect the ratepayer rather than the members. That is the history of it, but I think we have moved on from that. Certainly, the members of these schemes believe that the money they have paid is there for their benefit. What would happen if a local government pension fund were unable to pay the benefits that were due is actually an open question. There is no explicit government guarantee for the local government pension scheme.

In addition, under the present provisions of the cost-sharing enforced by the Government on the Local Government Pension Scheme, it is the members who are the residual fund source of any shortfall in money. If there is a shortfall in the Local Government Pension Scheme, the contribution from the local authority is capped; it is the members who will lose out by having to pay higher contributions or seeing their benefits reduced. It is not a simple matter of “The Government will always make things good”. Initially, the members have to make things good. If the members cannot afford it, I suspect that it is right that the Government will step in—but that is not in the rules, so there is a contingent possibility there. So the situation is far less clear-cut than the sheep and goats I identified earlier.

Of course, this all comes about because technically, I think, under present law, the administration of the Local Government Pension Scheme comes under the aegis of a public body or public authority. I am not really sure what the difference is between the different terms under the Bill. But that is not how it is perceived by scheme members. They do not see their pension scheme as being a public authority, and we should respect that. As I say, my central thought is that local government pension schemes should be treated like all other occupational pension schemes.

Financial Services and Markets Bill

Debate between Lord Davies of Brixton and Baroness Altmann

Report stage
Tuesday 13th June 2023 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I support the amendment. I still think of myself as a relatively new Member of the House, so it is useful to remind the House of my lifetime spent working in the pensions industry, broadly in support of scheme members. I have been a scheme trustee, I have chaired the Greater London Council investment panel and I have advised trustees of pension schemes as the scheme actuary. I am just stating my expertise here.

I support the amendment because I think a review is required. I take on board the remarks about the thin end of the wedge, but unless we have the review those concerns cannot be addressed. As the noble Baroness, Lady Bowles, said, there is now a big conversation about using pension scheme money to promote the British economy. There is actually a long history of that sort of proposal going back over many years, but it seems to have reached a crescendo over the last year or so.

It is essential that we have a review. What is also essential, of course, is that the review is undertaken by those who know what they are talking about, but that has not necessarily been true about all the comments made so far. For example, I draw the attention of the House to the recent useful report produced by the Pensions and Lifetime Savings Association—not a body that I consistently agree with—on supporting pension investment in UK growth and thinking up quicker and simpler ways to promote pension fund investment in our economy.

I was going to raise two issues. One has already been explained clearly by my noble friend Lord Eatwell: the funding standards that have been established work against the principles that I am sure we all support. Another problem that we have is the Conservative Government’s introduction of freedom and choice. It is difficult to oppose freedom and choice but, when you come to pensions, which are long-term arrangements depending on long-term investment, giving people freedom of choice weakens the very basis upon which they are being organised. It is all very well saying to pension funds, “You’ve got to invest in infrastructure”, but if the members of that scheme have the right to pull their money out at any time, it is very difficult to take the long-term view. That is a fundamental incoherence behind the so-called policy of freedom and choice. Those issues need to be addressed in the review.

I also hope that the list of consultees for the review is not a complete list; to the extent that it is possible to consult the scheme members, they should be consulted as well. I also hope that the issues can go somewhat broader than those listed in the amendment.

In general terms, a review is needed, and I hope it will lead to the objective being clearly set out of promoting the UK economy.

[Baroness Altmann (Con)]

My Lords, I fully support and have added my name to this amendment. It is a pleasure to follow the noble Lord, Lord Davies. We both go back a long way in the pensions industry. My entire career has been in pensions—examining occupational pension schemes as an academic, then managing occupational pension investments in the City, then advising schemes and Governments. I have also been a trustee on investment committees for pension schemes.

I have to say that the current position that members of pension schemes find themselves in—both members of defined benefit schemes and members of too-often-forgotten defined contribution schemes—has not been positive in terms of the experience of the 2022 markets. As we have heard, trustees and managers of pension schemes have been encouraged to believe that the right way in which to invest a pension fund is in supposedly low-risk—which actually also means relatively low-return —investments, rather than in the traditional and older-fashioned way of managing schemes that persisted until the noughties, which was to try and maximise returns.

We have now moved to a position whereby we were supposed to be minimising risk, but I argue that that entire movement away from supporting the British economy and away from supporting UK equities and UK growth assets has been underpinned and misled somewhat by quantitative easing. The Bank of England’s policy, which effectively offered a natural large buyer that underwrote and underpinned the government bond market, perhaps led people to believe that that was the best or safest way in which to invest pension funds. That was partly because the long-term value of the liabilities, as well as their present value, is discounted and measured as of today by using the gilt yield or bond yield measure. In corporate reporting it is double-A corporates; in actuarial valuations it is typically gilt yields.

In 2022, conventional gilts lost 20% and index-linked gilts 30% of their value. The FTSE 100 rose a little. Yes, smaller companies did not do so well, but the idea that pension schemes were investing in a low-risk manner was actually confounded last year, and I would argue that, as we move into a post-QE world and as we have recognised and I have been warning since 2011, or even earlier than that, the policy of quantitative easing is a significant danger for pension scheme investments and members.

We must recognise that we do not fully understand what investment risk means any more. The capital asset pricing model is based fundamentally on the idea that gilt yields are the lowest-risk assets and all assets are more risky—even if they offer more returns, potentially they are more risky—and may need to be considered with a little more circumspection.

That leads on to the idea that, if we do not quite know whether gilts and fixed income are indeed low risk in the way that we thought they were and they have been in the past—because central banks are going to need to offload at some point and are certainly no longer underpinning the markets—diversifying investments and supporting the domestic economy in the way that this review would be investigating must come into the public debate.

Financial Services and Markets Bill

Debate between Lord Davies of Brixton and Baroness Altmann

Report stage
Tuesday 6th June 2023 Lords Chamber

[Lord Davies of Brixton (Lab)]

My Lords, I support the amendments in this group, particularly Amendment 93. It is always a pleasure to follow my noble friend Baroness Drake, who has said it all. I will join on the back of her comments to say that I strongly support the approach she has taken.

I also support Amendment 113 from the noble Baroness, Lady Hayman. I respect the extent to which some concerns have been taken into account to make it clear that the interests of the members are paramount in the amendment—that is crucial. On the idea that pension funds should have a more active role in growing our economy, obviously its time has come. It is not new—people have been making suggestions about it; I have been involved in it in the past—but there now seems to be a confluence of views that something must be done. However, it has to be done in a way that respects the fiduciary duty to put the interests of members front and centre in the decisions that are taken. I take a fairly broad view of what constitutes members’ interests, but it is the members and their trustees acting on their behalf who have to take that decision, rather than bodies which do not have the direct results inflicted on them if they get it wrong.

It is important to stress that any ideas have to be practical and effective. I have some doubt as to whether the problem we face is about the supply of money; rather, it is about how the money will be used. Putting these proposals forward without having the other side of the bargain improved will be a problem. It is also important to stress that there are very different types of schemes, and they all have different investment needs. Again, whatever guidance is given has to respect the particular types of schemes.

I have one concern, which I would like the Minister to address, about the phrase “have regard to” in relation to guidance. It appears in the government amendment and in Amendment 113 put forward and supported by my noble colleagues. The problem with the “have regard to” is that it is a legal lottery. It is very difficult to know in advance what exactly it means, so it would be very helpful to me, and I hope the House, if the Minister could say something about that. Is it, as is sometimes suggested, like the accounting requirement—you comply or explain—or do you have to, in some way or another, follow the requirements as they are set out? What does “have regard to” mean in this legislation? It would be good to have clarification during the progress of the Bill, because the phrase appears several times.

[Baroness Altmann (Con)]

My Lords, I congratulate my noble friend the Minister on her Amendment 4. I am sure that it is very well-intentioned, and it meets some of the concerns that were clearly expressed in Committee. I welcome the update that will be coming from her on the green taxonomy; I believe that there will be a consultation on that. There is also the new green finance strategy, which has been published. They are all welcome.

Amendment 4 is welcome, but, as the noble Baroness, Lady Hayman, explained, although it will ensure that the Treasury produces guidance or requirements for sustainable investing by pension schemes and others, it would appear that the FCA and the PRA may not have the powers to issue that guidance. So, once the Treasury has produced its recommendations, we will still need to legislate. Can my noble friend the Minister confirm that that is the case, and that we will need further legislation if we want to implement the impacts of Amendment 4 through to pension schemes?

I have added my name to Amendments 93 and 113 in the name of the noble Baroness, Lady Hayman. Amendment 93 deals with the investment duties of pension providers and investment managers, and Amendment 113 deals with the investment duties of occupational pension trustees and managers. Clearly, if we are to make progress in line with the Government’s laudable objectives—and I congratulate them on all the work they have been doing, including some of their world-leading work on trying to ensure that pension schemes invest more in line with green objectives and sustainable investments for the long term—the amendments will ensure that the FCA and the PRA can make those rules. The amendments are very reasonably drafted; the FCA and the PRA may make these rules, but they do not require them at this stage to do so. The trustees and investment managers must then have regard to the rules, but, as the noble Baroness explained, they can explain why they are not going to implement the rules. However, at least we can set up a system where the trillions of pounds of long-term investment money in pension schemes can assuredly do more to protect the planet and provide investment opportunities that will help with social objectives for this country.

I do not have a problem with the concept of government directing pension schemes to invest a certain proportion of their assets, if necessary, in green, sustainable and socially desirable projects, including infrastructure, forestation, nature preservation and so on. At least 25% of all pension schemes—we are talking about hundreds of billions of pounds—has come from the taxpayer in the first place in the form of tax relief. Given that 25% of everyone’s pension is tax free, that is money that was spent by taxpayers. Given the budget circumstances that the country faces, and as taxpayers would otherwise be funding these projects outside pension schemes, I do not think that it is impossible to justify the idea that, should the private sector not be forthcoming with its investments in these vital elements for future growth and for a sustainable future for us all, the Government might themselves decide to require it.

These amendments will at least pave the way to ensure that there is more chance of these huge amounts of money, which are put aside for millions of people’s retirement income later in life, being invested in a way that will benefit them and the economy, as well as ensuring that there is much more and better protection for the planet, which I know that the Government wish to achieve. So I support Amendments 93 and 113, and I have added my name to Amendment 114, so excellently explained by the noble Baroness, Lady Wheatcroft, again facilitating rules that it will be necessary for schemes to follow, should the Government desire that—which is the indication that I have had from my noble friend the Minister and which is implied in the Government’s Amendment 4.

Bereavement Benefits (Remedial) Order 2022

Debate between Lord Davies of Brixton and Baroness Altmann

Tuesday 17th January 2023 Grand Committee

[Baroness Altmann (Con)]

My Lords, I too very much welcome this order. I am most grateful to my noble friend the Minister for his excellent introduction and explanation.

Enabling co-habiting bereaved partners to be treated the same way as those who are legally married in claiming the widowed parent’s allowance or bereavement support payments is something for which I think there is unanimous support. Indeed, I have found it extraordinarily difficult to justify denying these payments to cohabiting couples in the past when, in other tax and benefit calculations, there is no differentiation in this way; often, that can be to their financial detriment. This order is most welcome.

Echoing the words of the noble Baroness, Lady Hayman, I pay tribute to my noble friend Lady Stedman-Scott and welcome my noble friend Lord Younger to his position. I am most grateful to the Low Incomes Tax Reform Group for its briefing and the work it has been doing on this change and want to raise a few issues relating to the potential tax and benefit consequences of surviving partners receiving backdated lump-sum payments pursuant to this order. If the Minister does not have the answers today, I am happy for him to write to me.

The first issue relates specifically to the widowed parent’s allowance, as this benefit is taxable, unlike bereavement support payments. Lump-sum back payments could well give rise to tax demands for the recipients, when they are applied to past tax years for which they were due. In many cases, recipients are unlikely to have a tax adviser to help them look back over past years. They may have spent the money and, as a consequence of this order, face sudden tax demands and penalties for which they are unprepared. The documents accompanying this order state that the DWP will flag cases to HMRC, but how will this work in practice? Could it give rise to a potential problem for the claimants which, after all the years they have been waiting for this money, seems to be something to be avoided—if we can?

Paying the lump sums gross runs the risk of the money being spent. What measures can the Government implement in practice to protect claimants? Could my noble friend tell us, for example, how the DWP might work with the Treasury to jointly identify those who may be affected, perhaps by using national insurance numbers to link up records, and help people to understand how much tax they need to pay? The JCHR recommends that recipients should be clearly reminded, but might my noble friend consider going further and, perhaps, more proactively involving MoneyHelper or some other direct communication that clearly warns that tax may be due on this money, so that it does not come as a surprise?

The second issue relates to recipients of back payments who are on means-tested benefits. I welcome my noble friend’s confirmation that the lump sums resulting from this order will indeed be disregarded, but I hope he can also reassure us on a point that has been raised—it may already have been catered for—about whether, as I hope, there is a sensitive interpretation of the deliberate deprivation of capital rules. People who suddenly have a change in lifestyle because they have received a lump sum that they should have had over a period should not then be considered as deliberately depriving themselves of capital or should not lose out in some other way.

How will backdated lump-sum awards be treated for tax credits? I thought I heard my noble friend say that these are disregarded for universal credit and means-tested benefits, but is that the same for tax credits? I suspect it is not, from listening to my noble friend. It seems wholly unfair for the DWP to treat the payments as capital and disregard the income, other than that relating to the current year, when HMRC treats them as income in that year for the purpose of tax credits.

I know that tax credit legislation is complicated, and it refers to the amount of widowed parent’s allowance being payable. That may be what is driving some of this, but as this relates to past years, it was actually payable previously rather than being—one could argue—payable today. It seems like a grey area. I wonder if the Government might consider building a specific income disregard into regulations if the current position cannot be remedied.

Finally, I echo the comments of the noble Baroness, Lady Hayman, on the importance of reaching out to potential claimants, particularly as there is a time limit, to ensure that people know that they can claim and come forward with their claims. This could be through some national advertising campaign, or maybe the Government already have a database with some indication of cohabiting couples or past claimants who were turned down who can be contacted. Overall, I very much welcome this order and thank my noble friend for his introduction.

[Lord Davies of Brixton (Lab)]

My Lords, I thank the noble Viscount for his useful introduction and give a more general welcome; I suspect that we will be endlessly discussing a series of regulations over the coming months. I thank the noble Baroness, Lady Hayman, for reminding us that there are people involved here. It is easy when you just have a printed set of regulations to think it is just shuffling paper, but there are real people out there who will benefit from these changes. Clearly, we have to welcome that.

Part of the problem is—I take the points raised by the noble Baroness—the mechanics of how this is operated: not what is set out in the regulations but how it will be applied in practice by the officials involved. It should be done as sensitively and practically as possible. I am particularly interested in taxation and how tax is applied to these payments. This is a particular problem which is going to get bigger, and we will be discussing it again. It is a result of the fact that, for all intents and purposes, state benefits are outside the PAYE system.

The problem is that we know the personal allowance will be frozen for a number of years, at a time when inflation is at high levels. With benefits tied to inflation and a frozen personal allowance, more and more pensioners are going to be dragged into the PAYE system on relatively limited amounts of non-state pension income, which will have to be used to pay the tax, potentially, on their state pension. Many people have state pensions in excess of the personal allowance given their credits under SERPS. I think this is going to be a growing problem. It is one I hope the DWP will be able to discuss with HMRC.

My personal situation is that I suffer from this. I have a pretty good state pension and I have to pay tax on quite a large slice of that income out of other income. I manage it because I have the resources to do so, but people on the margin are going to find it increasingly difficult. The example mentioned is one where the closest co-operation between DWP and HMRC is crucial. Politically, it would be advantageous to get the situation sorted, because it will lead to a lot of concern and debate.

My final point relates to the evidence requirements for cohabitation. Most rules applied in the social security sphere about cohabitation tend to be there to take away benefits rather than grant them. Will the department apply the same rules that it applies when it comes to means-tested benefits about cohabitation, or will there be a separate set of rules? If there is a separate set of rules, is there a possibility that it will work against the individual at both ends? To just put in the Explanatory Memorandum that the evidence requirements will be produced “in due course” rather misses the sharp end of this legislation. How it works in practice will depend on the evidence requirements, and it would be useful if we could be told a bit more about where the evidence requirements will fit as compared with other examples where cohabitation affects benefits of different sorts.

Social Security (Up-rating of Benefits) Bill

Debate between Lord Davies of Brixton and Baroness Altmann

Committee stage
Tuesday 26th October 2021 Lords Chamber

[Baroness Altmann (Con)]

My Lords, very briefly, I have added my name to Amendments 5 and 6 and I support the thrust of these amendments. I urge my noble friend the Minister to look seriously at the merits of investigating the poverty levels that are rising among pensioners. Indeed, I urge her to accept some of these looking at the gender issues—so not just pensioner poverty but relative pensioner poverty between men and women—in her new role as Minister for Women, on which I congratulate her. I support these amendments and I look forward to hearing my noble friend’s comments.

[Lord Davies of Brixton (Lab)]

My Lords, I just want to add that we have a complete lack of information on these proposals. As a matter of law, when the regulations come, they have to be accompanied by a report from the Government Actuary. In effect, we are making the decision now—the regulations are just a carry-on of the Act—and it is really unfortunate that we do not have before us the information that Parliament has decided should be available to us when we deal with these regulations.