Pension Schemes Bill [Lords]

Lord Field of Birkenhead Excerpts

2nd reading: House of Commons
Monday 30th January 2017 Commons Chamber

[The Secretary of State for Work and Pensions (Damian Green)]

I beg to move, That the Bill be now read a Second time.

Let me start by placing the Bill in the context of the Government’s overall record on pensions. This Government have delivered radical and much-needed changes to our pensions system to make savings easier, fairer and safer for all. Since 2010 the pensions landscape has seen a revolution not only in state support, but in the ways in which people can save and access their pension savings.

We have removed the default retirement age, helping people to live fuller working lives. That is good for people’s wellbeing and their retirement income, and it benefits individuals, employers and the economy. We have made it easier for them to understand their state pension, and by setting the full amount at £155.65 a week we will lift more pensioners out of means-testing in the future. Together with the reviews of the state pension age, those changes are creating a sustainable system as a foundation for people’s private retirement saving.

We have increased private long-term savings by introducing automatic enrolment. More than 7 million people have already been automatically enrolled into a workplace pension, and more than 370,000 employers have declared that they have met their automatic enrolment duties. This is the cornerstone of our private pension reforms and it reverses the decade-long decline in pension savings prior to its introduction. It is a programme that works and it helps people achieve a more financially secure later life.

I am grateful to the many independent observers who have commented on the success of the policy. The Work and Pensions Committee has recognised that automatic enrolment has been a “tremendous success”. The National Audit Office, reporting on automatic enrolment in November 2016, found that the

“programme is also on track to deliver value for money in improving retirement incomes in the longer term”.

Findings of a report by the Institute for Fiscal Studies, which was also published in November 2016, suggest that automatic enrolment is having a huge relative impact on those with the lowest participation rates in workplace pensions before its introduction, in particular those aged between 22 and 29—a group that has seen a 52.1 percentage point increase in pensions saving—and those in the lowest incomes quartile, who have seen a 53.9 percentage points increase. Moreover, the institute found that automatic enrolment is having an effect well beyond our target eligible group, in particular those earning under the £10,000 threshold, and that some employers are paying above minimum contribution rates.

Women are benefiting, too. In 2011, only 39% of eligible women employed in the private sector were in a workplace pension; by 2015, the figure had increased to 70%. By 2018, we estimate that 10 million workers will be newly saving or saving more into a workplace pension as a result of this change, generating about £17 billion in additional pension saving each year by 2019-20.

The Government’s introduction of pension freedoms in April 2015 allows those aged 55 and over to access their pension savings with more flexibility. People with defined contribution pension schemes can now choose to use those funds in the way that is most suited to their circumstances, whether by drawing down the income, taking out an annuity, taking a lump sum or using some combination of those options. Since the introduction of pension freedoms, more than 1.5 million payments have been made, with £9.2 billion withdrawn flexibly in the first 21 months.

That is the landscape; let me turn to the Bill. Our focus now is to make sure that the regulatory landscape continues to be effective in protecting members so that everyone can have confidence in their pension scheme. Automatic enrolment requires employers, small and large, to provide pensions for their workers, in many cases for the first time. Automatic enrolment is helping to ensure that tomorrow’s pensioners have greater security and an asset base in later life. Many employers have selected master trust pension schemes because they can offer scale, good governance and value for members.

[Frank Field (Birkenhead) (Lab)]

I am grateful to the Secretary of State for giving way and for his earlier comments. Although we may have differences on the adequacy of the Department’s responses to some of the Select Committee’s reports, its response to our report on this issue is immensely encouraging. I think that some Members of the Committee will want to endorse the Secretary of State’s proposals, which implement some of our recommendations to defend the hard-earned savings that many people are making, sometimes for the first time, by auto-enrolment. We do not want the cowboys to get hold of those funds.

[Damian Green]

I am extremely grateful to the right hon. Gentleman for his words. Throughout his intervention, I was expecting “but” to appear at any moment, and it did not. We can be as one on the matter, and I will seek to improve our responses to future reports of the Committee that he chairs.

--- Later in debate ---

[Debbie Abrahams]

I am grateful to you for reminding me, Madam Deputy Speaker. It was a debating point in the House of Lords. As I said, it is not likely that there will be another pensions Bill in this Parliament, so I hope you will give me some latitude.

[Frank Field]

There was a hope among some of us on either side of the House that the Bill might be blocked tonight, temporarily, until we got justice for the WASPI women. Unfortunately, as I understand it, Labour was not willing to do that and the Scottish National party in particular was not willing to do that, as they are pleased with the Bill and want it to go through. May I make a plea to my hon. Friend that, should the next pensions Bill come, as it assuredly will, and before all the WASPI women are taken up to the new state retirement age, Labour thinks tactically about trying to get them justice, rather than merely talking about it, as I have to?

[Debbie Abrahams]

I am grateful to my right hon. Friend for his remarks. We recognise the importance of the Bill in tightening the regulation—or lack of it—on master trusts and the vulnerability that that lack places on the millions of people who are being auto-enrolled. It is therefore important that the Bill goes through. My point is that if it is the only pensions Bill in this Parliament, it has serious omissions. Those omissions should be on the record, as should our objection to the fact them. If I could just have a few moments to mention—

--- Later in debate ---

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

It is a pleasure to follow the hon. Member for Amber Valley (Nigel Mills), who has made some good points about the importance of advice and about the decumulation phase. I hope that we will have an opportunity to come back to those matters at a later stage.

I welcome the Government’s initiative in bringing forward the Bill. A desire to create trust in pensions savings should unite us across the House. We want all workers to be able to attain a standard of living that will be consistent in allowing them to save while in work in order to have dignity in retirement, secure in the knowledge that a regular income from a state pension and a workplace pension will allow them to enjoy their retirement without financial worry and without living in pensioner poverty. In our view, pensions savings are the best way for most workers to achieve that dignity in retirement. We need to deliver the appropriate level of protection for savers, and the Bill is an important step forward in that regard, albeit one that could be enhanced through constructive amendments in Committee.

Given the growth in master trusts and the desire to ensure that we protect savers’ interests, the Bill is overdue in some regards. Auto-enrolment has led to a significant increase in the use of master trusts. The impact assessment published this month informs us that some 200,000 savers were in master trusts in 2010, increasing to 4 million by 2015. According to estimates from the Pensions Regulator, that may now have risen to 4.3 million savers with around £8.1 billion of assets in master trusts. When we take into account the Government estimate that 10 million workers will be in auto-enrolment schemes by 2018 and that they will be saving as much as £17 billion by 2019-20, with the vast bulk of them in master trusts, the need for robust, effective protection is clear.

The master trust market has grown rapidly, with as many as 84 such trusts in operation today. While there are a small number of larger trusts, it is clearly a fragmented market, with risk of failure in certain cases. Indeed, the Work and Pensions Committee called for stronger regulation in March 2016 when it concluded that:

“Gaps in pension law and regulation have allowed potentially unstable trusts onto the market. Should one of these trusts collapse, there is a real danger that ordinary scheme members could lose retirement savings. There is a risk that faith in auto-enrolment as a whole will be undermined.”

That is a stark warning and underscores the requirement to take this Bill forward. We need to regulate to remove the prospect of inadequately resourced schemes collapsing and to offer protection against scammers entering the marketplace. The warning signs are already there. Two small schemes have already collapsed, affecting 7,500 members. It is currently extremely easy for anyone to set up a master trust and accept savers’ funds, and there is no established mechanism for responding to the collapse of a master trust.

The rules of many schemes currently allow the use of members’ funds to wind up a scheme should it collapse. That is simply not acceptable. As a consequence of the Bill, there will be a requirement for master trusts to be approved, requiring minimum standards of trustees and obliging schemes to prove access to capital that can be used in case of wind-up. There has been widespread support for the need for such a Bill. The Pensions Regulator welcomed the announcement of new powers to regulate master trusts and said:

“We have been calling for a significantly higher bar regarding authorisation and supervision, and we are pleased that today’s announcement proposes to give us the power to implement these safeguards.”

The ABI has said:

“We have previously called for tighter regulation of Master Trusts, and are supportive of the proposed direction set out in the Bill.”

The Pension and Lifetime Savings Association welcomed the Bill as

“essential to protect savers and ensure that only good Master Trusts operate in the market.”

I concur with all those remarks.

Some of the Bill’s requirements may have unintended consequences and require further attention. As the Bill represents a significant change in the role of the Pensions Regulator, the Government must ensure that the regulator is adequately resourced to deliver accordingly. Addressing some of the following concerns could go some way to getting the Bill watertight and satisfying the concerns of many stakeholders. My first point relates to clause 8. If a scheme funder is an FCA and PRA-authorised insurer, the ABI contends that it will already have to comply with solvency II and therefore the regulations under clause 8 should not apply as they would be onerous and costly. The Government should clarify whether they have assessed that potential impact and whether the additional regulation adds a further safeguard, making the provision necessary.

Clause 9 requires the Pensions Regulator to be satisfied that a master trust has sufficient financial resources to meet the costs of setting up and running the scheme and to protect members in the event of wind up. A master trust must therefore hold capital equivalent to six to 24 months’ worth of running costs. However, it is argued that there is little clarity over how that provision would be applied. The TUC argues that there is an assumption that other master trusts would have an appetite to absorb a collapsed rival’s book of business, but that may not always be the case, particularly if costs are involved. Some savers are more attractive to providers than others. In the absence of greater clarity over the robustness of the proposed capital regime, the TUC contends that clause 9 should be retained. It was accepted in the Lords and provides that the Secretary of State can

“make provision for a funder of last resort, to manage any cases where the Master Trust has insufficient resources to meet the cost of complying with subsection (3)(b)”

after a triggering event. I would support that as a principle.

On clause 10, concerns have been expressed about the additional costs that master trusts could face, such as those offered by insurers due to duplicated regulation enforced by the Pensions Regulator. The ABI has said that that would be to the detriment of existing scheme members, as these schemes already operate under stringent FCA and PRA regulation.

The key issue raised by the ABI is the definition of a “scheme funder” in clause 10. Concerns centre on the fact that the Government state that the clause is intended better to enable the Pensions Regulator to assess the financial sustainability of the scheme by increasing transparency on the assets, liabilities, costs and income of the master trust. The ABI is concerned that the clause does not meet the policy intent of providing transparency because, as a separate legal entity, master trusts can still transfer risk to other entities.

That issue was raised in the Lords, and the ABI continues to ask that, in order to protect the benefits to scheme members and minimise costs, the requirements under clause 10 should not apply where the scheme funder is an FCA and PRA-authorised insurer. There is also a need for greater transparency on fee charging, which needs to encompass transaction costs as well as any ongoing administration fees.

It is welcome that the Government are placing a 1% cap on exit fees for current members and no exit fee for new members. We know that large fees have been charged on exit in the past, and it is clear that we need to protect savers, although if new members are to be excluded from exit fees why should it be permissible for exit fees to remain in place for existing plan holders?

Under clause 12, at least one third of trustees of single-employer workplace pension schemes have to be member-nominated. There is no such obligation on master trusts. The Bill presents an opportunity to explore member involvement, and I hope we can pick up that topic in Committee.

Clause 32 creates a new power enabling the Pensions Regulator to make a pause order requiring certain activities to be paused once a master trust has experienced a triggering event. That includes accepting new members, making payments, accepting contributions and discharging benefits. There is concern about the impact of a pause order on a member’s savings, as there are no mechanisms in place to allow ongoing contributions to be collected and held on behalf of a saver. It is unacceptable that a member should be penalised and, in effect, lose wages in the form of employer contributions due to events out of their control. The Government should clarify whether they intend to take action to protect savers in that area.

We look forward to clarification from the Government on those issues, and we will work in the next stages, where necessary, to improve the Bill. This is therefore a pressing matter and, on behalf of the Scottish National party, I signal our intent to work with the Government to deliver a Bill of which we can all be proud.

The Bill, however, is a missed opportunity to undertake much-needed major reform of the pensions system, rather than patchwork attempts to plug holes in the system. We need a fundamental overhaul of the pensions system, and the UK Government need to introduce more ambitious plans on pension reform. We are disappointed not to have a Bill that looks at the issues with the state pension, particularly the need to address state pension age inequality for the WASPI women.

Madam Deputy Speaker, I take your comments about the WASPI women but, given that the SNP was traduced by the Chair of the Select Committee on Work and Pensions, I make the point that the SNP has raised the issue of the WASPI women at least 44 times in this House and has commissioned independent research. It is completely disingenuous for anyone to suggest that the SNP has refused to support the campaign. A reasoned amendment to kill the Bill was suggested. However, that would help no one and would only remove the Bill’s helpful regulation provisions relating to master trusts.

[Frank Field]

I am grateful to the hon. Gentleman for giving way. The plan was not to kill the Bill but just to hold it up for a bit so that we could hopefully highlight the position of WASPI pensioners, for soon they will all be retired and the horror will have been completed. We have no other weapon against the Government, because they have made it plain that they are going to sit out this issue. The Scottish nationalists were not prepared to form an alliance with those of us who want to block the Bill in order to actually raise this issue and perhaps implement the recommendation of a previous Select Committee report.

[Madam Deputy Speaker (Natascha Engel)]

Order. I appreciate that the right hon. Gentleman is Chair of the Work and Pensions Committee—

[Frank Field]

I am not going to be speaking tonight.

[Madam Deputy Speaker]

I also appreciate that he is not going to be speaking in tonight’s debate, but I just want to say that it is a very narrow Bill about something very specific and this is not the forum for discussing all that. People might be very disappointed that we are not debating transport policy, but we are not; we are debating master trusts, so I ask the hon. Member for Ross, Skye and Lochaber (Ian Blackford) to keep just to that. I know he is trying to skim over things, but if he could skim away from other issues and get back to the main point, we would all be very grateful to him.