Pension Schemes Bill [HL]

Lord Flight Excerpts

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Lord Young of Cookham (Con)]

My Lords, Amendment 38 in my name endeavours to fulfil the objectives of the pensions dashboard by ensuring people have access to all their pension entitlements. At the moment, they will be able to access entitlements under schemes only in their own name; they will not be able to access information about entitlements they may have because their husband, wife or partner has named them as a beneficiary under another scheme. More and more couples are both at work, and most pension schemes enable a beneficiary to provide for a surviving spouse. My amendment would enable a named beneficiary to access a dashboard where they had an interest. Without that information, that beneficiary will not know whether they have made adequate provision for their old age, which is a primary objective of the dashboard.

There may be other ways of achieving this objective. When a policy is taken out, beneficiaries could be sent a copy; I do not think this happens at the moment. They could be sent an annual statement, as the main policyholder is, or the main policyholder could be given the option of ticking a box so that beneficiaries can access the relevant dashboard with their consent. The point made in the amendment is a simple one: if the dashboard is to give people a complete picture so they can make informed judgments, they need to have access to this relevant information.

Amendment 43, supported by my noble friend Lord Flight, and Amendment 44 have a similar objective in enabling someone to see whether they have made enough provision for their old age by including relevant assets that can provide a pension income on the dashboard. The helpful policy brief says on page 45:

“Putting individuals in control of their data, dashboards should support engagement in pensions and planning for retirement.”


Planning for retirement involves more than pensions. Each Sunday, the Money section of the Sunday Times has a “Fame and Fortune” feature, in which there is a standard question:

“What’s better for retirement—property or pension?”


Yesterday, the Olympic medallist Sharron Davies said “Property.” The question makes the point that, for many people, there is a choice of how to provide for retirement. This amendment is a permissive one, which would enable a pension provider with a dashboard to include information on the equity locked up in someone’s home.

For millions of people, the equity in their home is worth more than their pension pot. Increasingly, that equity can be and is unlocked to provide an income stream in retirement. According to the ONS, we have £14.6 trillion in wealth—perhaps a little less following the slump on the stock exchanges last week—within which private pension wealth makes up 42% of national wealth, while net property wealth is not far behind at 35%. Arguably, equity release should play a higher role in proactive financial planning. Potentially, it is a valuable source of supplementary retirement income, particularly for pensioners on low incomes in homes that they own.

Many pension providers also provide equity release: for example, Aviva, Liverpool Victoria, Scottish Widows and Legal & General. It would make sense for them to be able to include illustrations about equity release alongside the pensions dashboard. Equity release is regulated by the FCA and can be sold only through a financial adviser. It is now one of the most highly regulated financial service products in the UK. In many ways, the decision whether, when and how to access equity release is not unlike the decision to access a pension pot. Independent advice is necessary, taking all considerations into account. I repeat what I said at Second Reading: I do not want to do anything to slow down the introduction of the dashboard, but I want to ensure that, when it is up and running, it can be used by those providing it to give customers a comprehensive view of assets and options, rather than a partial one.

I turn finally to Amendment 45, which deals with the verification process before one is allowed to access the dashboard. This is the weakest link in the chain. The ABI website—incidentally, it still proclaims that the Government’s objective

“is for the service to be available to consumers by 2019”—

says this about verification:

“The process to confirm the identity of users is based on the gov.uk/verify system which has already proved to be a secure portal for people accessing personal information.”


That could be an understatement. So secure is the portal that, as I will come on to in a moment, 56% of those who try to verify that they are who they are fail to do so and hence would be unable to use the dashboard.

There are risks in building the dashboard on the shaky foundations of Verify—one of the Government’s least successful IT initiatives—from which it is hastily disengaging, leaving its future in doubt. The NAO described Verify in March last year as

“intended to be a flagship digital programme to provide identity verification services for the whole of government ... In its 2016 business case, GDS identified the following key targets and expectations for the platform: 25 million people would use Verify by 2020, and 46 government services would be accessible through Verify by March 2018.”

As of 13 February, 22 government services use Verify—fewer than half the number expected by March 2018—and only 5.8 million people have signed up. There is a verification success rate of 44%, against an initial target of 90%. I failed twice to verify who I was.

In July 2018, the Infrastructure and Projects Authority recommended that Verify be closed as quickly as practicable. In a recent report, the NAO concluded:

“Even in the context of GDS’s redefined objectives for the programme, it is difficult to conclude that successive decisions to continue with Verify have been sufficiently justified.”


The Institute for Government’s Whitehall Monitor recently commented that the scheme continued to be “mired in issues”, had fallen short of targets and had

“failed to build its intended user base and it is not delivering the efficiencies that the government sought.”

In October 2018, the Cabinet Office announced that the Government would stop funding the scheme in March 2020. Against the background of the unpromising progress of the scheme, the then Minister for Implementation stated, in words that could have been crafted by the scriptwriter of “Yes Minister”, that it was

“now sufficiently mature to move to the next phase of its development.”—[Official Report, Commons, 9/10/18; col. 3WS.]

The intention is that the private sector will take over responsibility for the scheme, despite the NAO finding that the Government have failed to make the scheme self-funding and the Government failing to convince their own departments to use the scheme. What will the private sector do with the scheme? With no government support, the providers of the service may have to increase the charges to government departments, which the NAO warns may make it unaffordable for them to use. Of the 22 that use it, half have alternative means of accessing the services provided.

This is what the whole dashboard depends on. Will the private sector continue with it? If so, will it be free for consumers, as at the moment? What happens if there is no Verify process? On charges, the policy brief says on page 51:

“Government is clear that accessing basic information via pensions dashboards must be free at the point of use for consumers.”


I ask this in passing: where in the Bill is that commitment legislated for, and what is the point of making it free to access the dashboard if the verification process has a charge? I appreciate that my noble friend the Minister is dependent on the Cabinet Office for support on this issue, as that is where responsibility for Verify rests, but she has an obligation to satisfy the pension industry and pensioners that the system proposed in the Bill is fit for purpose.

Finally, at the moment, many pension providers have websites that customers can access and where they can get information about their individual pension pot. They can not only access that information but top up their pot, withdraw sums and switch investments. But under the Government’s proposals, if that pension provider then provides a dashboard, existing customers will not be able to access it using their usual log-on procedure; they will have to go down the Verify route first. Perhaps the Minister can confirm that that is indeed the case.

So, we have the odd situation where a purely passive site such as the dashboard, which can provide only information and is not interactive—Amendment 39 secures that—has a different and higher standard of security than the pension provider’s site, which is interactive. I do not understand why a pension provider that has satisfied itself about the bona fides of a customer to the extent that it will respond and pay drawdown cannot allow access to a dashboard on its site, which is purely passive, without obliging the customer to go through a cumbersome verification process. Perhaps that could be looked at as well. I beg to move.

[Lord Flight (Con)]

My Lords, I support Amendments 43 and 44 in the name of the noble Lord, Lord Young. He made the point that equity release is a growing source of income for people later in life. I would say it more strongly than that: I can imagine it being the biggest source of income for such people in 20 years’ time. I understand that the financial advisers who advise otherwise on pension fund matters are not qualified to advise generally on equity release. That has been substantially cleaned up, as it were, over the past 10 years so it is not a problem, but if the dashboard cannot include equity release, it does not meet its objective of setting out what people have to live on in older age. We do not want to delay wider progress but if equity release is not included quite speedily in the dashboard, it will not do its job.

[Baroness Drake (Lab)]

My Lords, the purpose of Amendment 39 is to contain the delegated powers in the Bill so that they do not provide the power to authorise commercial dashboards to engage in transactional activities. Any authorisation regime to permit transactions should be addressed in a future Bill.

In a previous contribution, I sought to set out the policy still to be settled when the dashboard is focused on enabling individuals to view their pensions information in one place. When functionality is extended to the ability to transact on a commercial dashboard, the challenges and potential risks are even greater; there are multiple ways in which detriment to savers can occur. We should again remind ourselves that the dashboard project can extend to the whole of the UK pension system—public and private—embracing many millions of people. Allowing transactions over dashboards needs separate and clear consideration. It cannot be implicitly tucked into the delegated powers in this Bill.

Issues of private and public good will be impacted by whether the dashboard is fit for purpose when it comes to transactions: private good at the individual level and public good at the whole pension system level. I have yet to see the behavioural outcomes strategy associated with the dashboard. I assume the Government are not agnostic on the matter, given that the state supports the long-term saving system with some £45 billion of tax relief, so they will have a direct interest in knowing that the outcomes are good.

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[Baroness Altmann (Con)]

My Lords, I will make a few observations about this suite of amendments. It strikes me that the demands to add even more to the current proposal for the dashboard are fraught with danger from the customer perspective. I agree that, from a strategic, overall macro perspective, if one is looking to plan one’s retirement income, it will be most helpful to have as many sources reflected in any dashboard that will contribute to that income. However, the problem we face in getting this dashboard up and running is that there are so many different types of pension and of scheme that we already face a monumental task in just trying to list people’s pensions and make sure that the dashboard reflects all the elements attached to them over the many decades: the different tax regimes they have been under; whether they have a guaranteed annuity or protected tax-free cash; a guaranteed return of some kind; whether benefits have to be taken at specified ages, otherwise certain things are lost; whether there is any extra insurance in there that might be attached to the pension from old-style schemes; protected rights, and so on. And that is just for defined contribution, before we even get on to the defined benefit records.

Equity release has significant dangers for any consumer who is considering it. My worry is that, if consumers look at this information on a dashboard, they will not understand those dangers and will think that the money is available. Recently I have seen very many cases where individuals or their families have taken out an equity release loan for something like 25% of the value of the equity of their home, with an interest rate rolling up at 6% per annum for 20 or 30 years, meaning not only that, if they were to pass away, no value would be left in the home but, more worryingly, if they needed to sell the home and move to a smaller one—if they took out equity release in their 50s or 60s and, in their 80s, needed to downsize for reasons of care or convenience—they would be unable to do so because there would be no equity left for them to use.

Therefore, I caution significantly against trying to go more broadly. I think that we have enough of a challenge in trying to get pensions alone on to a dashboard. I completely agree that it is important to have the state pension on there and, in that regard and in speaking to amendments in the name of my noble friend Lord Flight to which I have added my name, we want people to be able to see what their projected state pension will be. However, we will need an electronic system so that people can go online to check their state pension. If Verify is not the gateway to that, we will need to develop an alternative secure gateway. We need to make sure that the dashboard has a standardised protocol and standardised systems so that every pension provider has to use the same IT structure that can then be securely fed to a dashboard.

[Lord Flight]

With the state pension, you already get from social services advice on what your pension will be about a year before you draw it, so it strikes me that the state pension information is just sitting there waiting to be used by the dashboard.

[Baroness Altmann]

I thank my noble friend. Of course, he is absolutely right but the point of the dashboard is that much younger people can plan their future pension income. The current procedure is to encourage people to log on to the state pension checker, where they can verify their future predicted state pension income so that, as they get into their 50s and closer to retirement, they will be able to make more meaningful financial planning. However, as my noble friend Lord Young pointed out, there are significant security concerns with the current gateway system that allows you to find out what your state pension is. Therefore, if we want the state pension to be on the dashboard, we will need a certain level of security.

The aims of the amendments are correct. We want to be able to see the state pension and a comprehensive list of pensions, but I caution against trying to go more broadly. I also caution against commercial dashboards which might use their own IT systems that lock people out of checking their pensions on other providers’ systems and which try to encourage people to merge their pensions. Indeed, we have seen that the systems of some pension providers do not always flag up the guarantees that can be very valuable for individuals. If people are being not advised but merely guided, or if it is merely information and they are not aware of the guarantees, they could lose out and have no comeback.

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[Earl Howe]

Scheme providers have been absolutely clear that they are keen for this to happen, mainly because the more exposure that the information has to the particular consumer, the more opportunities there may be for a dialogue between the consumer and the scheme provider—“Are you saving enough? Can we do more for you?”, that sort of thing. They see marketing opportunities in this, but that is very distinct from allowing the dashboard to enable them to enter into transactions. I hope that I have already covered that point satisfactorily.

[Lord Flight]

My Lords, is there not the point that, with people having on average 11 different jobs during their career and potentially 11 different pension pots, particularly those they were part of when they were younger, many of them have no information at all about it. They do not even know who the manager or the provider is. Already, the amount of unclaimed financial assets in this country is colossal. Without what is happening under this legislation, the problem will get worse, and we urgently need to sort out the ownership of lesser pension schemes, going back a long time.

[Lord Young of Cookham]

My Lords, this has been a long debate, and I do not propose to lengthen it much more. I am grateful to all noble Lords who have taken part, in particular my noble friend Lord Howe, who gave a very full response to the many issues raised. I was particularly encouraged by what he said a few moments ago—that the debate we had last Wednesday, and the view of the Committee that it would be best if the MaPS scheme was up and running before the other ones, had made some impact. I noted that he said that he hoped to come back to us with more news on that in the future.

I will say just a word on Amendment 39, in the name of the noble Baroness, Lady Drake. I read page 56 of the policy brief, which says:

“Dashboards will present simple information, without the ability to carry out transactions.”


As I understand it from what my noble friend said, that has been qualified and, subject to all the reservations and safeguards that he mentioned, it may be that under this existing legislation, transactions could be provided—I think that is where we ended up. In that case, the wording in the policy brief, if it is by any chance ever reprinted, might be qualified. At the moment it is quite stark:

“Dashboards will present simple information, without the ability to carry out transactions.”


I am being given a look; I am not quite clear what it means, but I will move on.

I was grateful to my noble friend Lord Flight for the support he gave to my amendment on equity release. However, I take the overall view that, while it makes sense at some point to have the opportunity to take a picture of all the assets available that can form a pension income stream, perhaps using the pensions board to do it up front is not the right place. I was reassured by what my noble friend Lord Howe said—that in future, we could consider some embellishments to the scheme, but the top priority was to move ahead as currently planned.

I am afraid that my concerns have not been satisfied at all on Verify. I was grateful to my noble friend for the assurances, first, that there would be no charge for accessing any pensions dashboard; and, secondly, that there would not be a charge for accessing the verification process. The Government have spent hundreds of millions of pounds and many years developing Verify, so I was slightly surprised when he said that the identification process for the pensions dashboard may not be Verify. If it will not be Verify, what will it be? There is no other game in town at the moment. As of yesterday, the Government lost all leverage over Verify by stopping any funding, so its development is now entirely in the hands of the providers. Given that the providers have now heard that Verify may not be the scheme for the pensions dashboard, that may weaken even further their incentive to develop it. What is the business model for Verify if you cannot charge the people who are having themselves verified?

There is therefore still a huge question mark over how we will get access to the pensions dashboard if there is some doubt, as I explained a few moments ago, about Verify, and no clarity at all about what this alternative system might be, which is not Verify and which will unlock the key to the dashboard. Having said that, I do not want to sound at all mealy-mouthed to my noble friend, who did a heroic job dealing with all the other amendments, but I still have some lingering doubts on that one. However, I beg leave to withdraw Amendment 38.

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[Baroness Altmann]

My Lords, the amendments in this group stand in my name and those of my noble friend Lord Flight, the noble Baroness, Lady Sherlock, and the noble Lords, Lord McKenzie and Lord Hutton. A number of us have tabled amendments in this group on similar themes. I will leave other noble Lords to talk specifically to their amendments but the main concern that we are trying to address is that there should be proper protection for consumers when using these dashboards. What is proposed in different formats is that the Financial Conduct Authority should oversee any dashboards—particularly the commercial ones—as a regulated activity. We have not seen that specified in the Bill and feel that clear regulatory protection for any consumers using a pensions dashboard needs to be on the face of the Bill.

Obviously there are different ways in which the FCA may impose regulatory protection. However, if this is meant to be an activity that benefits consumers, then, given all the experience that we have had in pensions and the issues that have arisen for consumers from time to time when there is an asymmetry of information and pension providers, and providers of different products are able to take advantage of the fact that consumers are not always totally au fait with the information on their pensions that they are presented with, it is really important, for example, that the FCA makes sure that the information is clear and that there is a recognised standard for a dashboard so that it cannot be misleading for consumers in some way, as might sometimes be the case. Sometimes providers do not intentionally try to mislead consumers but the language that they use every day is natural vernacular for them, although it does not mean a thing to a consumer. A provider might think that they have explained something very clearly for anyone who knows all about pensions but, on reading it, the customer might get totally the wrong idea or not understand what is being presented and perhaps take an incorrect conclusion from it.

Amendment 68 suggests that the provider of a pensions dashboard should have a fiduciary duty to the user of the dashboard. There is merit in our considering that as an extra layer of protection so that, once again, the provider of the dashboard is required to consider what the consumer might understand and need, and the provider therefore has a duty to help them rather than take advantage of them in some way, whether intentionally or not.

I am not sure that I need to take up the time of the Committee any further. That is the thrust of the intent behind these amendments, and I look forward to hearing from other noble Lords on this issue.

[Lord Flight]

My Lords, the point that I want to make is that there are four cases where the FCA is the regulator but no reference is made to where the Pensions Regulator will provide the regulatory task. It might be readily understood by the industry why regulation is divided but there is a question mark over whether citizens will automatically know to go to the FCA for certain things and to go to the Pensions Regulator for others. I am sure that there are sound reasons for it but I would be interested to hear the Government’s view on what the regulatory model should be.

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[Earl Howe]

We come back to the question of a liability model. I might as well deal with that now. We set out in the consultation response that we expect the industry delivery group to make recommendations on a robust liability model that ensures that there are clear roles and responsibilities and a clear process for dealing with complaints. The point made by my noble friend that there is a risk that something might fall through the cracks is a very good one. The best that I can do at the moment is to say that, as the service is developed, the detail of where liability exists will emerge. She will agree with me that we are not dealing with new data or with new financial transactions, but yes, potential service risks might emerge. The IDG will, as I have said, recommend robust liability models, and the framework of any new liability arrangements will be set out in regulations. That is one of the reasons why we need delegated powers in this area.

I think that the industry delivery group is the best forum to build a liability model to which all parties are signed up and that takes into account good practice and lessons learned from open banking. While I realise that there are many differences, there are certainly lessons that we can draw from that sphere.

[Lord Flight]

My Lords, is not the big issue in this territory that when people have discovered that they have four, five, six or seven different pension funds, they will want advice as to what to do with them? There is the whole problem of who can give advice, guidance or help in that area, but unless arrangements are determined about how to deal with this question, I can see all sorts of regulatory issues arising.

[Earl Howe]

My noble friend is quite right. The industry delivery group has these matters squarely on its agenda. I can go no further than to say what I have said thus far on his points, but I will consider the matter further and write to him if necessary.