Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020

Lord Flight Excerpts

Wednesday 21st October 2020 Lords Chamber

[Lord Flight (Con)]

My Lords, I welcome and support this legislation. I should first refer to my declarations in the register. The speeches so far have been really useful and picked up elements that need attention.

This matter is indirectly about how many SMEs fail to survive the Covid crisis. That will drive the volume of financial support required from the PPF when pension schemes are inadequately financed. I anticipate that there will be sufficient funds to cover the first wave of SME pension deficits. A major wave could require government financial support via the PPF. There is also the issue referred to by others, of levy payers being required to contribute more than they see as fit and fair. The regulations extend the scope of the PPF’s rights as a creditor when moratoriums are in place for relevant community benefit organisations.

The Treasury has widened the cover of the PPF, adding charities, LLPs and virtually all community benefit schemes. The questions here relate to the volume and financial adequacy of their accompanying pension funds and whether these new institutions’ pension schemes are adequately funded long term. We have already had a detailed set of regulations from PPF boards with creditor rights, which have been widened and extended. The PPF is now able to intervene and help with restructuring plans.

The second Covid wave of SME failures could be larger than the first and is likely to be accompanied by high volumes of inadequately financed pension schemes needing to be restructured. I am interested to know the total value of pension fund assets covered by the PPF. The pension situation may require the Government to bring in further support for SMEs to save many from failing.

Down the road, there is the risk of excess investment in gilts, with large losses when inflation and interest rates rise. I am aware of private sector pre-packs that provide speedy and successful reorganisation of SMEs that have failed. The PPF might usefully have its pre-pack investment formula ready to be rolled out for different situations. The question that this raises is on whether the PPF has the necessary skills to organise and manage restructuring of pension assets and schemes, and to help with company restructuring. The reason for the PPF being established in 2005 was to be able to pay compensation to members of defined benefits schemes where the employer had failed and the pension scheme had insufficient assets to cover its liabilities.

It is noteworthy that Karen Buck MP and the previous Minister for Social Security pointed out that the measures in the regulations do not entirely restore the PPF’s powers re corporate insolvency and the Corporate Insolvency and Governance Act; and the position occupied in restoring situations before the Act.

Covid-19: Over-60s

Lord Flight Excerpts

Monday 12th October 2020 Lords Chamber

[Baroness Stedman-Scott (Con)]

I completely agree with the noble Lord that it is patronising and not a good thing to be judging people aged over 60, because of their ability to work or otherwise. Noble Lords in this House—I include myself in that—would say that they work very hard and make a great contribution to the country. We owe a huge debt to the over-60 generation, but I am afraid I am not going to comment on what the World Health Organization says people should do.

[Lord Flight (Con) [V]]

My Lords, I first ask for clarification of whether the World Health Organization report is based solely on age and does not take potential physical condition into account. Secondly, what steps are the Government taking to prevent long-term unemployment among older workers as a result of Covid-19?

[Baroness Stedman-Scott (Con)]

On the noble Lord’s first point, I will need to write to him and clarify that answer. Secondly, the Government have recently announced their plan for jobs, doubling the number of work coaches and putting £150 million into the flexible support fund. The Government are also offering people all manner of support services. We are not writing anybody off and we are going to turn every stone to get people back to work.

Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020

Lord Flight Excerpts

Monday 14th September 2020 Grand Committee

[Lord Flight (Con)]

The Pension Protection Fund provides compensation and reconstruction arrangements for businesses in financial difficulties. The PPF can also provide compensation to members whose employers are in difficulties. These regulations allow the PPF to intervene to protect its interests where businesses are in a moratorium introduced by the Corporate Insolvency and Governance Act 2020.

An urgent procedure is justified as there is an ongoing risk that a business could obtain a moratorium from its creditors or otherwise exclude the PPF. Under the Insolvency Act 1986 and the Companies Act 2006, the PPF has powers to exercise its right as a creditor during an assessment period following an insolvency event. These terms are defined by the Pensions Act 2004. The moratoriums and restructuring plan introduced by CIGA are, however, not qualifying insolvency events under the 2004 Act. As a result, the PPF lacks the necessary negotiating powers. The regulations are designed to remedy this so that the PPF can exercise creditor rights in a CIGA moratorium or restructuring plan.

The House of Lords Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments have both considered the new regulations and did not raise any concerns. The House of Commons debated the instrument on 7 September, when Guy Opperman said that the regulations were vital for the continuance of the new insolvency regime. I understand that the Labour Party supported the measures, and on 8 September the instrument was approved by the House of Commons without further debate.

The Government introduced the amendments to the PPF on 21 July; they are subject to the “made affirmative” procedure and came into force on 23 July. The amendments are concerned with bringing co-operatives, community benefit societies and credit unions into the scope of the regulations. The PPF regulations need amending so that the PPF can intervene in such organisations. The amending instrument has not yet been considered by the Joint Committee on Statutory Instruments or the House of Commons. The approval period ends on 1 October.

The widening of the scope for the PPF to be involved in sorting out insolvencies makes sense as it has the expertise so to do. I simply raise a modest flag about the cost of levies where there are already criticisms and it is not reasonable to impose charges of increasing size on pension funds that have no problems to solve.

[The Deputy Chairman of Committees (Lord Palmer of Childs Hill) (LD)]

My Lords, I call the next speaker, the noble Baroness, Lady Wheatcroft. Baroness Wheatcroft? We will come back if we have to. I call the noble Lord, Lord Bourne of Aberystwyth.

Pension Schemes Bill [HL]

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3rd reading & 3rd reading (Hansard) & 3rd reading (Hansard): House of Lords
Wednesday 15th July 2020 Lords Chamber

[Lord Naseby (Con)]

My Lords, I declare an interest as a trustee of the Parliamentary Contributory Pension Fund. I place on record that I have spoken on this Bill, I have tracked all stages of it and I pay a major tribute to my noble friend on the Front Bench, in particular for her care and attention regarding the less obvious aspects of a major Bill like this. If this is her first Bill as Minister, she has made an extraordinarily good start.

[Lord Flight (Con)]

My Lords, I add my congratulations to my noble friend, who has managed a complex and important territory most constructively. I also thank the Opposition for collaborating in a constructive way. I could not help thinking, as we come to the end of this bit of legislation, that if we look forward 30 years, we will then be in a very different age where people will live much longer and will retire later. There will have to be an adaption of their pension saving between now and then but, for the present, this Bill has done a very good job of addressing a difficult territory.

[Baroness Stedman-Scott]

I thank everybody for their comments and supportive remarks. What has really come out of this is that we collaborated, we talked, we listened and we made the Bill better. For that, I thank everybody.

Automatic Enrolment (Offshore Employment) (Amendment) Order 2020

Lord Flight Excerpts

Tuesday 19th May 2020 Lords Chamber

[Lord Flight (Con)]

My Lords, I hope we all support these proposals to maintain auto-enrolment for the 26,000 seafarers and offshore workers. Automatic enrolment has been the key success in this country in achieving the 10 million increase in pension provisioning.

There are five important recommendations outstanding to complete the auto-enrolment programme: to lower the minimum age of participation to 18; to implement the proposals to remove the lower earnings limit; to increase consumer engagement with their pension savings and developing appropriate levels of guidance and advice; to increase the auto-enrolment contribution to 12% to achieve the desired retirement income for the majority; and to ensure that any review and changes to the state pension scheme take into account the overall retirement income targets. Can the Minister give us some assurance that these measures will not get interminably delayed as a result of Covid?

Pension Schemes Bill [HL]

Lord Flight Excerpts

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Lord Sharkey (LD)]

I would be surprised as well.

My Lords, I support the thinking behind both these amendments. I congratulate the noble Lords, Lord Vaux and Lord Balfe, on the excellent way in which they have been introduced. Both amendments allow timely discussion of what is a large, widespread and probably growing problem.

After the publication of TPR’s annual funding review in March 2019, the Investment & Pensions Europe magazine reported that TPR had

“vowed to engage with a number of schemes this year if recovery periods were considered to be ‘unacceptably long’, and warned trustee boards to expect communications in the coming months. … Consultancy firm Hymans Robertson estimated that one in five FTSE 350 companies with DB schemes were at risk of intervention from TPR.”

That is an alarmingly large number.

To understand what TPR means by “communications”, it helps to look at what TPR in its annual funding review states as the three key principles behind its expectations. The first is:

“Where dividends and other shareholder distributions exceed DRCs, we expect a strong funding target and recovery plans to be relatively short.”


The second is:

“If the employer is … weak”


or tending to weak,

“we expect DRCs to be larger than shareholder distributions unless the recovery plan is short and the funding target is strong.”

The third is:

“If the employer is weak and unable to support the scheme, we expect … shareholder distributions to have ceased.”


These are all fine principles—in principle. The real question is how, or whether, they are in fact working. How many FTSE 350 companies has TPR intervened on in the last 12 months, and on how many occasions has it advised against or prevented shareholder distributions? Perhaps the Minister could give us an assessment of TPR’s success in applying its three key principles.

Both amendments in this group offer a simpler and different approach to restrictions on shareholder distributions, but in contrasting strengths. Both have the merit, it seems to me, of making responsible behaviour by employers more likely, and that is no small thing if there are 70 FTSE 350 companies out there needing effective intervention to protect employees’ pension rights. I look forward to the Minister’s response.

[Lord Flight (Con)]

My Lords, I think we all understand the reason for these two amendments; whether one of these two or another amendment is to deal with the situation, it needs to be dealt with. I am slightly surprised that neither amendment would actually stop the payment of dividends. I think there is an argument that, where the finances obviously mean that a dividend cannot be afforded, the company should not be allowed to make a dividend payment. I am not sure that Amendment 27 or Amendment 84 addresses the issue as well as it might be addressed. The Government might have another look at what they want to achieve, which should be stopping payments of dividends where they cannot be afforded.

--- Later in debate ---

[Lord Flight]

My Lords, I want to point out that Amendment 28 is important because members of pension schemes do not generally have much knowledge or understanding of how their assets are invested and managed. This clause places a reporting duty on the Pensions Regulator to publish statements of investment principles under Section 35 of the Pensions Act. The amendment would also place a requirement on the Pensions Regulator to create an SIPP repository, accessible to the public through its website, so that all scheme members could check their scheme’s investment strategy.

It will be interesting to see how investment strategies are described. I think that it will be necessary for them to be described in a way that is readily understandable by all citizens.

[Baroness Janke (LD)]

My Lords, my Amendment 89 relates to the occupational pension schemes regulations in the statement of investment principles. Again, it is about compliance with the Paris Agreement, particularly to hold the global average temperature increase to well below 2 degrees centigrade. Other amendments in the group seek compliance in this area.

It is clearly very important to protect the interests of savers and the economy. I am grateful to the Minister for her amendments on climate change risk, her speedy response and her awareness of issues arising in this area. I have also supported Amendments 75 and 92. I certainly support Amendment 28 from the noble Baroness, Lady Altmann, on the register and publication of the SIPPs from all pension schemes, and understand the administrative problems of smaller ones.

As we have heard from others, the size of the pension fund is hugely influential, particularly in transforming the economy into a green economy. I believe that pension schemes have had enormous effects in other areas. My own recollection is of South Africa, where schemes exerted very strong influence. In my city of Bristol, when creating a smoke-free city, we sought to get the pension schemes and their investors to support it. This can be a very powerful instrument in changing behaviour and thinking; I hope that it will be.

The noble Baroness, Lady Hayman, mentioned that her amendments extend to all pension schemes. Again, I am not clear what the differences are. I note that the briefing from the ABI suggests that the PRA and the FCA are better placed to deal with the smaller pension schemes, but I would like to hear the views of the Minister on this. I very much support the spirit and content of most of the amendments in this group.

--- Later in debate ---

[Earl Howe]

I will come back on a couple of points raised by the noble Baroness. The regulations that would achieve any future changes to the dashboard are subject to consultation and the affirmative resolution process. It comes back to what I indicated earlier was a step-by-step process. If the Government wanted to augment or change the content of the dashboard, they would have to do it in a measured and ordered way.

She also asked whether I believe that consumers want a publicly funded dashboard. I think that the answer to that will be revealed in consumer behaviour: if they clearly want it, they will use it, and we will know that. Of course, we cannot predict how consumer behaviour may change over the medium to long-term. That is the point that I was seeking to make earlier.

[Lord Flight]

I will make a practical point. Running up to the launch, it would surely be very useful to have extensive marketing and advertising of MaPS, so that citizens know what to expect when it is live.

[Earl Howe]

That is a very constructive suggestion from my noble friend. I will take it away with me.

Pension Schemes Bill [HL]

Lord Flight Excerpts

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Baroness Janke (LD)]

My Lords, I too signed Amendment 2, which my noble friend Lord Sharkey so ably introduced. I will be brief because I think all the arguments have been very well covered. The only thing that I would add is that the importance of transparency in a scheme such as this seems fundamental. I know we are talking about communications and ensuring that members are fully aware of what they are signing up to, both the benefits and the disbenefits later on, but, as part of the arguments that have been put forward in favour of this group of amendments, there is the whole issue of explanation and ensuring that members are fully aware of their position under this type of scheme. I particularly support the idea that in order for a scheme to be registered, the explicit prerequisite is to show what the strategy is to address the whole issue of intergenerational fairness. I know we will be talking about capital buffers later on, but the amendments address the interests of transparency and fairness and the welfare of all members of the scheme, and I support them.

[Lord Flight (Con)]

My Lords, it will be very important to address these issues because I suspect that CDCs will become very popular among the younger generation as they have considerable attractions. I add only that the principle of building up of reserve seems to be one way of evening out fairness.

[Lord McKenzie of Luton]

This has been a good debate. I think we are minded to support this measure. I am not very clear in my mind as to precisely how Royal Mail is tackling this issue at the moment, and if the Minister were able to deal with that in her response that would be a help. One thing that has come through from the Government’s own thinking about this is that wherever we end up on it, there must be specific rules. This should not be just a matter of trustees’ discretion; it should be clearly set out in the rules. I shall wait to hear what the Minister has to say.

--- Later in debate ---

[Lord Hutton of Furness]

My Lords, I am grateful to the Minister for her response but something is still not clear to me. She says that there is a continuing power on the Pensions Regulator’s part to vet all appointments that fall under Clause 9. I cannot find that continuing authority; I do not know where it is in the Bill. If she could, at some future point, alert me to what provision of the Bill covers that ongoing authority on the regulator’s part to make appointments, I would be grateful.

The second interesting point is that the Minister referred to Clause 28 as if it had some relevance to the point covered by my amendment. There is no definition of “significant event” in the Bill; it will be set out in future regulations. My concern may well be addressed if the Minister were to confirm that any new appointments of trustees or other persons listed in Clause 9 falls within the definition of “significant events”.

I know that my final point goes beyond my amendments; I hope that I am allowed to make it. On the assumption that the Bill becomes law—I very much hope that it does—it is striking that we have a specific set of provisions for how trustees for these collective money purchase schemes are to be appointed; they must be fit and proper persons, for example. But if one looks at the appointment process for other pension schemes, such as defined contribution and defined benefit schemes, there is no parallel provision. Under the Pensions Act 2004, those trustees must have some knowledge of pensions law and of their own scheme, but there is no equivalent provision for the appointment of trustees to other pension schemes. I wonder whether it is justifiable to have this particular provision relating just to these new pension schemes—perhaps it is—but not to have a parallel provision for other trustee and significant appointments to DB and DC schemes.

My only request to the Minister at this point—we may come back to it—is that this may be an appropriate time for us to take a wider look at overall pension scheme governance. In my view, there is nothing more important to the health and well-being of a pension scheme than the quality of the governance in place to oversee it. If it is appropriate for trustee and other appointments to these new pension schemes, of which I am very supportive, to be subject to this process, there is a convincing case, too, for an equivalent provision for defined contribution and defined benefit schemes.

[Lord Flight]

The noble Lord is absolutely right. It is extraordinary that one group has a lot of requirements when another has none. Historically—let us say 30 years ago—trustees of pension schemes were often not remunerated. Someone applying to be a CDC trustee today would not think of taking on the responsibilities unless they were remunerated.

[Baroness Stedman-Scott]

On the first point made by the noble Lord, Lord Hutton, we will write to clarify things. We have not listed “significant events” in the Bill because if members are to be protected, it is important that such events can be adapted to emerging threats as well as lessons learned through live running. We want to ensure that these events are appropriate and reflect the specific risks that may be posed by CDC schemes. We will consult with the regulator and others before laying any regulations before Parliament. We will consider the noble Lord’s final point—it was well made—about pension scheme guidance in terms of the new CDC scheme and existing schemes and come back to him on it.

Pension Schemes Bill [HL]

Lord Flight Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Lord Flight (Con)]

My Lords, I echo the comments made by my noble friend Lady Neville-Rolfe about my noble friend Lady Stedman-Scott. I also make the point that my noble friend Lady Fookes spoke not only without notes but with enormous common sense in this difficult territory. I thank her. I also agree very much with what my noble friend Lord Young and the noble Lord, Lord Hutton, had to say.

The most important aspect of this Bill is, as we would probably all agree, the introduction of pension dashboards and of CDCs as a new option. Dashboards are important because they should enable more individuals to look up and thus know what pension savings they have. I declare an interest as a consultant to TISA, which is itself a consultant to the savings industry, where we have campaigned for dashboards over quite a long period and have been in liaison with the Government on the subject.

Since pension saving has become largely the responsibility of individuals after having simply been provided by the employer—a crucial point of change which I do not think is necessarily for the better—it has been a challenge for them to know what pension savings they have. The Which? research carried out in 2016 found that nearly half of people aged over 50 in employment were unsure of the value of their pensions, while over a third of those approaching retirement found it difficult to keep track of their pensions, as well as a fifth who said that they had never checked how much they had in total. It really is an area that needs a bombshell under it in terms of letting people know what they have.

The Bill is a good start but there are areas where Which? and others are correctly looking for further commitments from the Government to ensure that all the key information that consumers need will be shown on dashboards, that commercial dashboards are properly regulated, that the state pension is fully integrated, that there is full coverage of pension schemes and a clear timetable for their delivery. It would also be nice if at some point equity release assets could be included. It has been pointed out that these are becoming an increasing source of income in retirement. Inevitably, one of the key issues is who is going to pay for the dashboards. Which? has pointed out that the whole project could cost between £1 billion and £2 billion when taking into account the related costs as well as the direct costs. The pensions industry has warned the Government that it is not willing to bear all the costs.

The key clauses enabling dashboards are Clauses 119 and 121. They set out that the Secretary of State and the FCA can require all necessary pension scheme information for dashboards to be provided. It is not yet clear whether such information is to include pension charges and income projection figures, which would clearly be helpful if they were included. The Bill appears to leave a lot of specific information requirements to the secondary legislation, but the Government should clarify whether it is their intention for dashboards to include both pension charges and income projection figures. Consumers need to know what they have paid and where charges can have a significant impact on investment returns. An increase in fees from 0.5% per annum to 1% per annum requires contributions to increase by 10% to achieve the same retirement income.

The FCA’s Financial Lives survey found that 71% of respondents with defined contribution pensions are not aware of the charges incurred. Charges need to be shown on the annual dashboard statements. It is clear that people are not saving enough for their retirement. A single retired person needs an income of some £20,000 per annum to have a comfortable retirement lifestyle. Under the current auto-enrolment system, a middle income earner should be able to save £114,000, but they would not expect this to deliver an income of more than £13,450.

Dashboards will also show the retirement income projection as part of the annual benefits statement. The objective is that by providing the necessary information in a readily digestible package, individuals will be motivated to follow it and to save more for their retirement. It is also necessary to ensure that adequate regulations are put in place to prevent the potential misuse of commercial dashboards by providers, and obviously to prevent fraud. Which? thinks that the legislation does not go far enough on this and that it should make the provision of a pension dashboard a regulated activity, but as several noble Lords have said, in many ways the proposals go too far and may discourage people from serving as pension trustees. There is also a risk that at least some commercial dashboard providers will use the opportunity to present information designed to attract custom. If dashboards remain outside FCA regulation, protection for customers if something goes wrong depends solely on the providers. There is a clear and strong case that the FCA should set standards, monitor compliance and ensure that providers are subject to its complaints and handling rules.

I agree with the comments of my noble friend Lord Kirkhope about penalties being excessive. The Bill enables information about the state pension scheme to be shown on dashboards, but it does not prescribe in what form. State pension information needs to be fully integrated as it forms a significant share of most individuals’ total retirement income. It is to be hoped that the Money and Pensions Service will give priority to designing the government-backed pensions dashboards, which could provide a model for the private sector.

Decisions also need to be taken on whether or not the provision of dashboards should be an activity regulated by the FCA, the Pensions Regulator or both. It is clear that there will be trouble ahead in the form of rivalry between the regulators if this is not sorted out. We need to see how much information about an individual state pension will feature on dashboards. Should it be required that all pension schemes provide information to dashboards? Will the Government set out time deadlines for pension schemes to provide dashboards?

The introduction of pension dashboards requires the creation of a supporting infrastructure enabling consumers to access their pension information. The design and development of this infrastructure is a task for the new industry delivery group working with the oversight of the Money and Pensions Service. Recent high-profile insolvency cases in relation to defined benefit pension schemes such as BHS and Carillion have, not surprisingly, damaged confidence in our pension system. It is difficult not to conclude that dashboards should be FCA regulated. Official policy now seeks to provide greater protection for scheme members by strengthening the pensions regulators’ powers, including new civil and criminal sanctions. However, there is clearly an issue as to what should be done by the FCA and what by the Pensions Regulator.

Another major aspect of the Bill is the provision of a framework for collective defined pension contributions, and in fact this takes up half of the Bill. These are a new concept for the UK. As others have pointed out, they provide members with a variable income in retirement by the pooling of investment and longevity risks. CDC pensions also have the potential to remove risk from employers’ balance sheets as there is no guarantee about the level of income to be provided. I agree very much with what the noble Lord, Lord Hain, had to say about CDCs.

The Bill is drafted to ensure that schemes are set up on a sound footing, that members will get good quality communications, and know that if things go wrong, their rights are protected. Schemes will have to satisfy the Pensions Regulator that they should be authorised and subject to ongoing scrutiny. CDCs may also prove to be a useful vehicle for master trusts.

Part 5 of the Bill introduces four other measures, all of which are essentially protective of pension schemes. Opposition parties have had little to add and indeed there has been broad political agreement on this legislation. Labour has welcomed pension dashboards and the CTC legislation, which should resolve the Royal Mail dispute. Labour and the SNP have argued for compensation for women affected by the raising of the state pension age. In the 2017 general election, the Liberal Democrats advocated the establishment of a review to consider introducing a single rate of tax relief for pensions that is more generous than the current 20%. Former Minister Steven Webb expressed the view that the Bill is notable for things that have been left out rather than for what it contains, as has already been mentioned. I think that is a little harsh. He pointed to a lack of measures advocated by some in the industry, such as expanding auto-enrolment saving—clearly something that has to happen—and the regulation of direct benefit superfunds. There are a few other anticipated measures not yet in the Bill, such as remedying the discrepancies in the tax treatment of relief-at-source schemes versus net payment schemes and the unintended consequences of pension taxation rules for higher earners.

All in all, this is a necessary piece of legislation. A reasonable amount needs to be added to it and sorted out. It is positive that there is cross-party political co-operation on this legislation.