Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

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

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for her introduction of the Bill. It is her first pension Bill and we wish her well. I welcome the open approach that she has signified and the focus already on delegated powers, which I am sure we will discuss extensively.

As we have heard, the Bill focuses on three significant areas: a framework for setting up, operating and regulating “collective money purchase” schemes, otherwise known as collective defined contribution pensions or CDC; enhanced powers for the pensions regulator; and pensions dashboards. As we have heard, Part 1 relates to England, Scotland and Wales and Part 2 to Northern Ireland. We have agreed to consider these in parallel.

My noble friend Lady Drake will focus in particular on matters relating to the dashboard while my noble friend Lady Sherlock will focus on the powers of the regulator. On the former, we know that the move away from DB schemes has been accompanied by a growing tendency for individuals to lose track of their pension pots through moving house or changing jobs. That is why we support the dashboard, but with a preference for it to be a single publicly funded one. On the latter, we are registering concerns about the breadth of Clause 107 and will wish to pursue them in Committee. Otherwise, we are broadly in agreement with the measures in the Bill. I acknowledge the close engagement of my colleague Jack Dromey MP with the Royal Mail and the CWU in formulating the CDC proposals.

In concentrating on the main provisions, though, we should not overlook the measures in Part 5, which the Minister referred to and which also have our support. These variously provide for amendments to DB scheme funding to help improve decision-making and governance across the sector. This runs from the 2018 White Paper, which concluded that DB pension schemes were well managed on average, and we agree with the proposal for a DB funding code. Although active membership of DB schemes continues to fall—in the private sector it now has some 500,000 members, but with assets of £1.5 trillion—we should not write them off. However, we understand that the Pensions Minister, Guy Opperman, has made it clear that he would not support CDC schemes being a route to enable the closure of DB schemes. How is this secured in the Bill, if indeed it is? How many more CDC schemes, if any, are currently being considered? I take it from her introduction that the answer should be none, but it would be good to have that on the record.

So we have DB, DC and now CDC schemes. How can an individual best save in a cost-effective manner for a predictable income in retirement? An individual would of course typically not know for how long they might live, but they should know with greater accuracy how long on average a group of people might live. So finding ways of harnessing collective arrangements to allow the sharing of longevity risk is one way forward, and that applies to CDC.

Much of our consideration of pensions policy provisions hitherto has been a binary matter, with choices conducted between DB and DC schemes. On the one hand, the investment, longevity and inflation risk are with the sponsoring employer, and on the other, they are with the individual member until on annuitisation they are shared more widely. Annuities are a collective risk through contracted insurance contracts, but these have become very expensive.

UK legislation now allows for a different approach. The Pension Schemes Act 2015 enables sharing of risks by individual members through payment of collective benefits, the value of which could vary. However, the Government have chosen not to implement the 2015 provisions but, as has been explained, to bring forward in the Bill a more bespoke regime. The overlapping provisions are repealed. Can the Minister tell us what future plans there are, if any, for the remaining 2015 Bill provisions that have not been repealed? There may be none.

The impetus for the provisions in the Bill has come from Royal Mail and the CWU, which should be congratulated on their collaboration and determination. This development of course came in the circumstance of decisions to close the DB scheme. As we know, the structure of CDC involves pensions being set by reference to targets determined by actuaries. It is argued that CDC arrangements typically have better outcomes. This is in part due to economies of scale on investment and enabling a timeline on investment beyond the individual member. It is of course a feature of CDC that there are no guarantees on pension levels paid out on assets of the scheme. As the Minister said, there is no recourse to a sponsoring employer. Indeed, pension levels set by actuarially determined targets rather than binding targets require a robust communications effort to ensure that Royal Mail employees, in this case, are fully aware of what this all means.

However, numerous studies by academics and practitioners have concluded that CDC can give better outcomes when compared to DC plus either draw-down or annuitisation. We take some comfort from the fact that the CDC concept has the support, we understand, of both the CBI and the TUC. While novel in the UK, it has been operated by the Dutch and Danish systems, albeit not on identical terms, for a number of years.

As has been pointed out, and indeed acknowledged by the Minister, this is very much a framework Bill, with much detail to be filled in by regulations. These will have to cover extensive issues, from financing, fit and proper persons, scheme design, sustainability, actuarial valuations and much more. There is a need to understand the valuation timetable and the gap between asset valuation and changes to pensions to be paid. If there is not to be a buffer, what alternative headroom measures are envisaged?

What can the Minister tell us about the tax regime which will operate and how auto-enrolment will work? Will it require changes to primary legislation? In relation to the SIs and the information that will come forward, can the Minister tell us when this will be available? I think she said by Committee, but that is actually very soon. I wonder how much detail we will get if that is the timeframe. We would certainly welcome it by Committee, but it is often more usual to get it by Report. However, I do not want to deter the Minister or suggest that she spends her time on other matters.

One of the criticisms raised about CDCs is that they invariably generate intergenerational unfairness, with older members doing better at the expense of younger members. How does the Minister respond to that? As is often the case with pensions legislation, it is the things left undone, just as much as those included, on which judgments will be made.

A number of commentators have expressed disappointment that the opportunity has not been taken to implement the changes to auto-enrolment recommended by the 2017 review: namely, to extend the application to workers aged 18, and to remove the qualifying earnings deduction and the earnings threshold. As NOW: Pensions points out, all three of these would help to narrow the gender pensions gap. Is it not time that we got to grips with the self-employed issue?

I am told that the Tory party manifesto, which I have not read, contained a promise to sort out the net pay anomaly. I would welcome that, but do not know whether the Minister has an update on the timeframe. I acknowledge the efforts of a group of professionals, prompted by the noble Baroness, Lady Altmann, in engaging with HMRC to that end.

One further disappointment is the lack of a consolidator regime. It is suggested that superfunds will provide a new and affordable option to enable schemes to consolidate—although, like CDCs, they would require a robust authorisation and supervisory regime. We trust that the Minister, Mr Opperman, has not spent all his capital on CDCs.

Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

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

Moved by

[Lord McKenzie of Luton]

1: Clause 8, page 5, line 19, at end insert—
“(c) the impact of a collective money purchase scheme on private and public sector defined benefit schemes.”

[Lord McKenzie of Luton (Lab)]

My Lords, in moving Amendment 1 I will speak also to Amendment 34. The latter seeks to insert into the regulations’ objectives the promotion of DB schemes. Amendment 1 adds as one of the things that TPR may take into account when considering an application for a collective money purchase scheme the potential impact of such a scheme on the DB landscape. Together, the amendments are a peg on which to hang a discussion about the position of DB schemes and their future, especially outside the private sector, and to see what more might be done to sustain them for future accrual.

As the White Paper reminds us, DB schemes currently have 10.5 million members, with £1.5 trillion under management—a not insignificant component of the pensions landscape. Notwithstanding this, DB schemes continue to close to future accrual or membership. Hitherto, the alternative has been some DC scheme, and now there is the prospect of CDC schemes in the future.

In times past, DB schemes were the stalwarts of the occupational pension system. Things looked good, with seeming scope for regular improvements in benefits and with surpluses and contribution holidays available. Indeed, were there not concerns at the Treasury about the system being used for tax shelters? These halcyon days have diminished through a combination of factors: more realistic actuarial assumptions; increasing longevity of members; impacts of inflation; falling asset prices; and, probably, less effective collective bargaining.

Much of the content of the Bill is about maintaining and building confidence in the DB system, but with a stronger regulator, and improving scheme funding rules. We support this approach. It is a pity that the Bill did not include a framework for consolidation but we note that this is to come. Perhaps the Minister will give us a timeline on that.

Although DC schemes remove longevity risks from employers, they are generally characterised as having lower contribution rates, doing nothing for our chronic undersaving. The Minister in the other place has declared that he does not want to see the advent of CDC as being a channel to further closures of DB schemes. In particular, he clarified that the Bill’s proposals do not provide a back door to converting DB rights into CDC rights and are not intended to encourage public service and/or DB schemes to convert their accrued benefits.

Can the Minister say how this intention is manifesting itself in the Bill? The data that have been presented to us show that CDC schemes can generate a pension income significantly above that of a DC arrangement, but of course this is not guaranteed. The question arises as to whether the lure of higher returns could be a catalyst to more DB schemes closing to future accrual. There are restrictions that make this difficult, at least at the moment—single or associated company arrangements being but one. Can the Minister say what mechanisms might be contemplated to deflect such moves, if it is the business of government to do so?

The briefing makes it clear that an employer remains within its rights to close an existing DB scheme to new accruals and to offer pensions on a different basis going forward. We know that it has become common for employers to close DB schemes and to open DC schemes in their place, but the briefing note says that CDC schemes should be seen in this context, as a new option for employers looking to develop their pension offering. Closing DB schemes could indeed be such a channel. I beg to move.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)]

I thank the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, for tabling these amendments. Taken together, they seem to explore the Government’s response to the continuing decline of defined benefit pension provision in the UK. I will address the specifics of these amendments but, first, it may help if I talk about the Government’s approach to workplace pensions in general.

The Government’s priority is to promote pension savings for later life through workplace pensions. However, it is for employers to decide what form of provision to make. This is part of their remuneration strategy to recruit and retain quality employees. The Government’s role is not to tell employers what sort of pension to provide, but to promote workplace pensions and to set some minimum standards. That is why we require employers to automatically enrol all eligible employees into a qualifying workplace pension scheme and to make a minimum contribution to that scheme.

The majority of defined benefit schemes are now closed and, as a result, the defined benefit landscape is changing. Most schemes are maturing with fewer contributing members and more receiving pension benefits. The Government’s 2017 Green Paper and 2018 White Paper did not seek to prevent changes to the pension landscape, but to protect the interests of the large number of members who will still rely on defined benefit schemes for their retirement income. That is what the scheme funding measures in this Bill do.

Before the introduction of automatic enrolment in 2012, the decline in defined benefit pensions was not matched by increases in other types of pension. Overall, therefore, pension participation was in decline. Automatic enrolment has been hugely successful: over 10 million people have been automatically enrolled into a workplace pension and the decline in participation has reversed. The number of eligible employees participating in a workplace pension increased from 10.7 million in 2012 to 18.7 million in 2018.

Amendment 1 seeks to put a duty on the Pensions Regulator to take into account the impact on defined benefit schemes when considering an application for authorisation of collective money purchase schemes, also known as collective defined contribution—CDC—schemes. Given the term CDC is widely understood, I shall use it throughout these debates. While the Government do not think they should tell employers what sort of pension they should provide, beyond setting some minimum standards, they want to foster innovation, so that employers have real choices in the type of pension they offer.

I know that concern has been raised that CDC schemes will replace defined benefit schemes. The noble Lord, Lord McKenzie, raised this at Second Reading. I want to be clear that the Government do not see CDC schemes as a replacement for defined benefit schemes.

Royal Mail, the employer actively looking to set up a CDC scheme, does not believe that either. Indeed, it has always seen its CDC scheme as an alternative to its individual defined contribution schemes. To manage cost and risk, employers are moving away from defined benefit schemes towards individual defined contribution schemes. CDC schemes should be seen in this context. For example, Royal Mail has been working on a CDC scheme in partnership with the Communication Workers Union because both sides felt that it served Royal Mail employees better than an individual defined contribution scheme. I am sure that noble Lords will recognise what a positive message this sends about CDC schemes.

Royal Mail is not alone. There is growing evidence that many employers with defined contribution schemes want to provide their employees with a pension scheme that provides an income in retirement. CDC schemes are a new opportunity for employers and employees to choose a pension scheme that works for both. I point out that the Bill includes clear safeguards for existing defined benefit pensions: Clause 3 prohibits public service pension schemes being CDC schemes, and Clause 24 prohibits accrued defined benefits being converted into CDC benefits. Therefore, accrued defined benefit pensions cannot be put at risk by the existence of CDC pensions.

I understand the desire to ensure that members in good-quality defined benefit schemes continue to have access to guarantees from their employer, but the amendment could have unintended consequences for members. If the amendment meant that a CDC scheme could not be authorised, it seems likely that the employer would close its defined benefit scheme and offer an individual defined contribution scheme instead. It is important that the decision on whether to authorise a CDC scheme is based on the criteria and information relating to that scheme. It would not be fair on employers or employees to cloud the issue by linking the authorisation to consideration of other types of schemes. Requiring the regulator to make judgments about different types of schemes would also have implications for its role.

Amendment 34 provides for a new objective for the Pensions Regulator: to promote the membership of defined benefit schemes. The regulator exists to protect workplace pensions in the UK. It makes sure that employers put staff into a pension scheme and pay money into that scheme, and that workplace pension schemes are run properly. It does not matter whether members are in a defined benefit scheme, a defined contribution scheme or a CDC scheme—the regulator’s role is to protect their scheme.

As I said in my introduction, the Government’s priority is to promote pension savings for later life and set minimum standards for employer-provided workplace pensions. The Pensions Regulator is required to ensure that those minimum standards are met. The Government do not consider it appropriate to task the regulator with promoting particular types of pension schemes. This could undermine its role as the regulator of workplace pensions in the UK generally. It is for employers to decide what type of pension they provide; employers who provide defined benefit pensions need to be genuinely able to afford the costs and bear the risk. Promoting defined benefit pensions to employers which may be unable to do this would conflict with the regulator’s other objectives, such as protecting members’ accrued benefits and minimising the risk of calls on the Pension Protection Fund.

The noble Lord, Lord McKenzie, asked why superfunds are not in the Bill. Developing a new regulatory framework for them is a complex task. We are working hard across government and with relevant stakeholders to build consensus on the right approach. We aim to publish our response to the consultation shortly; it will set out in more detail our proposals for a future legislative framework. Once that it is complete, we will look to legislate as soon as we can.

I hope that the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, recognise that the Government’s approach is sensible and proportionate. I urge the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

I thank the Minister for that full reply. We never intended to press the amendments anyway. As I said at the start, it is an opportunity to have a discussion about where the Government are going, particularly on DB schemes.

I am still a little unclear. I quoted one of the briefing papers which the Government provided in preparing for this debate. It referred to a new option for employers looking to develop their pension offering going forward, which seems inconsistent with what we had understood to be the commitment made earlier by the Minister: that the Government do not want CDCs to undermine the existing DB regime. There seems a risk of doing that, and that in many ways was the tenor of the reply she gave: it is not up to the Government, it is up to employers. Of course we accept that there is a role for employers, but is there not an obligation to work with employers to ensure that the best type of arrangement is available? Historically, that has been DB schemes.

Is not a test for this the extent to which we are saving enough as a nation? We do not save only through pensions but saving through pensions is clearly a very important part, particularly as the Minister instanced the auto-enrolment provisions, which we agree have been a huge success. One might just reflect for future policy that they were conceived under a Labour Government, with the legislation prepared under a coalition Government and introduced under a Tory Government. Perhaps there is an example in pensions policy of how we might better work together on other matters.

I will summarise my concerns. It is good that CDC schemes are available to provide, generally, a better return than can come from a straight DC scheme. It is not all upside, as we shall discuss in other amendments, but it is important that we do not lose sight of the benefits available under a DB regime which, apart from other things, had contribution levels way above pretty much anything that arises under a DC scheme. That should concern us all: the level of saving that is taking place.

Having said that, I do not know whether the Minister wants to come back.

[Baroness Stedman-Scott]

I thank the noble Lord for the observations he has made. I am thrilled that noble Lords agree that auto-enrolment has been a great success and a great way for people to save for their retirement. The role of government in all this is to encourage saving through automatic enrolment, pensions and other savings vehicles. The noble Lord has raised some valid points. I will take them back to officials and, if we need to write to him or meet him to talk about them further, that is what we will do.

[Lord McKenzie of Luton]

I thank the Minister for that. I stress, in agreeing about the success of auto-enrolment, that it was started off by a raw junior Minister in the DWP getting that early legislation through.

Amendment 1 withdrawn.

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[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.

[Baroness Stedman-Scott]

I thank noble Lords for tabling these amendments linked to fairness. Concerns about fairness often arise in respect of CDC. I fully understand noble Lords’ interest in this important matter. I share their commitment to ensuring that members of CDC schemes are treated fairly. However, I do not agree that the amendments proposed are necessary to protect members.

Ensuring that members are treated fairly has been a central part of our work on CDC since we began. We have been mindful of the problems that other countries have experienced—for example, in their approach to adjusting benefits—and we have learned from them. Envisaged regulations under Clause 18 will mean that scheme rules will require that there is no difference in treatment between different cohorts or age groups of scheme members when calculating benefits and applying benefit adjustments. If they are not compliant, the scheme will not be authorised.

Noble Lords have previously expressed concern that a significant number of older members might choose to leave a CDC scheme shortly before retirement and that this may pose a risk to younger members. Noble Lords will note that one of the authorisation criteria in Clause 12 relates to the soundness of the scheme design. It is intended to protect members from being enrolled in ill-considered and poorly designed schemes which are unlikely to remain viable over the long term.

It is important that due consideration is given by employers to a scheme’s viability at the design stage, including to how the benefits aspired to will be affected by significant potential events, whether this is a reduction in investment returns or in membership. Envisaged regulations to support the design requirement will aim to ensure that sufficient evidence is provided to satisfy the regulator that appropriate stress testing of the scheme’s design has been undertaken and that a suitable strategy is in place for monitoring and reacting to threats to a scheme’s viability. These are complex matters, so we will consult thoroughly on what the regulations should require in this respect and more widely. We want to ensure that the scheme design is subject to appropriate scrutiny by the regulator at the initial application stage and on an ongoing basis. I am happy to discuss the scheme design requirements in more detail when we reach the relevant clauses.

My noble friend Lady Altmann mentioned cash equivalent transfer values. We propose that a member’s transfer value will be calculated by reference to the present value of the assets currently held that are needed to pay the anticipated pension whenever that is due. That means that, if every member chose to leave at the same time, they would get the present value of their anticipated pension. Nobody would receive anything that was due to anyone else, as the valuation process means that the assets and the cost of all the anticipated pensions should always be in balance. It also means that a member transferring and a member staying always keep the present value of their rights in the scheme and nobody receives anything more than is due to them from the scheme, whether they stay or go.

The noble Lord, Lord Sharkey, asked about the impact of cross-subsidisation on younger members in CDC schemes. Such members may get less value from flat-rate contributions if they decide to transfer out of the scheme before retirement. It is important to remember that pension schemes are long-term saving vehicles, designed to deliver an income in retirement. Our focus is on the long-term benefit of a CDC pension scheme for the scheme members. While CDC benefits are money purchase benefits, a CDC scheme’s purpose is to provide a variable income for life in retirement for its members and not a transferable cash sum.

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Moved by

[Lord McKenzie of Luton]

3: Clause 14, page 9, line 8, after “scheme”, insert “or by an employer”

[Lord McKenzie of Luton]

My Lords, I move Amendment 3 on behalf of my noble friend Lady Drake, whose expertise noble Lords will see shining through this presentation. Collective money purchase schemes will be a new model of pension provision in the UK landscape. A key function of the legislation and the associated regulation that authorises and supports these new schemes is to understand the risks that members of the schemes may face, and put in place measures that seek to mitigate those risks. We just heard a strong example of that. One risk is that, for some reason, a collective money purchase scheme becomes financially unsustainable. One can speculate on the possible reasons: the main employer might become insolvent, decline in size or withdraw from the scheme, thereby cutting off the future supply of contributing members. That could undermine the shared-risk approach in a CMP scheme. Alternatively, some catastrophic administrative or governance failure could lead the regulator to rescind the scheme’s authorisation. The resolution of such failures will incur significant costs.

The Bill as drafted follows in significant part the authorisation and supervision regime put in place for master trusts. Clause 31 identifies such risks to the sustainability of a money purchase scheme, as I referenced; these are referred to as triggering events. Clause 34 refers to the continuity options that must be taken should a triggering event occur, such as the wind-up and transfer of assets to another scheme, resolution of the event or converting to a closed scheme. It is arguable that the resolution of such triggering events is more complex for a collective money purchase scheme than a master trust because of the existence of pensioners and pooling arrangements in CMP schemes, which are potentially more costly to resolve.

Where such a triggering event occurs, a provision replicates what exists in the master trust legislation: a ban on increasing members’ charges, thus protecting the member from bearing the cost of sorting out that triggering event. None the less, the cost of resolving a triggering event and pursuing one of the continuity options must be met. The Bill is unclear on the source of funding to meet those costs. My noble friend’s concern, which I share, is that the Bill as drafted means that the only source of funding within a CMP scheme to resolve a triggering event will come from the members’ themselves, albeit that these funds are built up in advance from their savings. None the less, the members are funding the risk of scheme failure.

The Pension Schemes Act 2017 was a response to the exponential growth in the minimally regulated master trust market. A key risk, which was a matter of considerable debate in the House during the Act’s passage, was that in the event that a master trust failed and costs crystallised, they should not be met from members’ savings. The 2017 Act introduced a financial sustainability requirement: that a buffer of financial resources had to be in place as the line of defence to protect members’ money from being drained when a triggering event occurred and had to be resolve; and that in the event of a triggering, such resources should be sufficient to meet the costs of continuing to run the scheme for a period of between six months and two years. Those responsible for setting up the master trust had, in some way, to share in the responsibility of providing for the financial buffer, which would be available in the event of a scheme failing.

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[Baroness Stedman-Scott]

I am happy to make sure that that happens.

[Lord McKenzie of Luton]

I beg leave to withdraw the amendment.

Amendment 3 withdrawn.

--- Later in debate ---

[Lord McKenzie of Luton]

The noble Lord, Lord Sharkey, has made a powerful case on these provisions and we look to support him. There must at least be a strong reason to say why they cannot be pared down and need to be as wide as they are. If there is an argument for them, at least they should be pared down. In so far as whether this is doable—the noble Lord said he is not sure what the answer is—in some of these areas, I am not sure that we know what the question is, which is deeply worrying. These things need to be sorted out because, as they stand, they are going to undermine a scheme that generally has a lot of support, particularly our support, in principle. I would like to get it back on track, so that we can deal with it, deliver it and not be waylaid by these very real concerns over delegated powers.

[Baroness Stedman-Scott]

My Lords, I recognise the expressed concerns over the regulation-making powers in Part 1 of the Bill and how they might be used. There has also been comment on the principles underlying the choice of negative or affirmative procedure for some of the regulations. This is why we have shared illustrative draft regulations to help noble Lords understand how we intend to use these powers, but the secondary legislation to be made under the proposed delegated powers can be laid before this House in final form only after Royal Assent, in accordance with the procedures set by Parliament. This House will have the opportunity then to scrutinise the secondary legislation.

There are important legal principles at stake before the proposed delegated powers can be exercised properly. In many instances, the Government will wish or have promised to consult further on the technical substance, particularly in Part 1. There are instances where there may be a statutory requirement to consult because of a connection to existing legislation. There are instances where there may be a need to await the outcome of consultation being undertaken by the regulator or where consultation is needed with professional bodies. Finally, there are instances where proposed delegated powers are sought to enable the Government to react to future developments.

Where there is an intention, promise or legal requirement to consult on the substance of secondary legislation, the legal position is clear that the Government cannot prejudge the outcome. Had the Government purported to draft all the secondary legislation at the same time as drafting the Bill, that would have entailed, inevitably, prejudging the substance without the benefit of any necessary consultation or consideration of the eventual wishes of Parliament. Likewise, it is more appropriate to consult once the Bill is passed, so as not to prejudge the intentions of Parliament.

Those are the points of principle. I will now deal with the point that the provisions intended for future secondary legislation could, nevertheless, be written into the Bill, at the inevitable cost of delaying introduction. This approach is consistent with the approach to previous pension schemes Bills, recent examples being the Pension Schemes Act 2017 and the Pension Schemes Act 2015. As with those Acts, the provisions in the Bill embody the fundamental policy.

Provisions of a more technical nature, or which are by their nature liable to change, are delegated to secondary legislation. This staged approach has two benefits. First, it enables flexibility to ensure that the legal framework remains appropriately tailored to developments in the pensions industry. Secondly, it provides legal certainty more quickly and enables those affected to prepare for changes to the law. This is important for the pensions industry.

I note that comment has been made on the propriety of affirmative procedure on first use only. I take this opportunity to make it clear that the Government do not accept that the practice of specifying an affirmative procedure on first use is licence to use those provisions inappropriately at a future stage. The reason for affirmative on first use then negative is that a decision on when the scheme design is sound will be critical to the effective running of the scheme and to safeguarding members. Therefore, it is important that when first determining these matters the regulations are subject to full debate. Further use of the powers is likely to be limited to adapting matters the regulator will be required to take into account in the light of operational experience, so the negative procedure would be appropriate.

With respect, this House is called to scrutinise the scope of the proposed delegated powers and the parliamentary oversight of those powers. The Government can, of course, give this House assurance as to their future intentions in using these delegated powers. To assist the House, the Government have produced illustrative regulations relating to Part 1. I hope this illustrates both the way delegated powers in that part are intended to be used and the limitations in pre-empting their use.

Clause 18 provides for CDC schemes to be required to have rules for how the current value of CDC scheme members’ benefits must be calculated and adjusted each year and for powers for government to make provision about those rules. It is therefore a very important clause for ensuring that all members of CDC schemes are protected from inappropriate calculation methods, with all benefits calculated equitably, with no differentiation on the basis of age, gender and so forth.

The amendment moved by the noble Lord, Lord Sharkey, would significantly reduce the Government’s ability to ensure that all members of CDC schemes are treated fairly. For example, scheme rules could discriminate against certain members on the basis of age, and the Government would have limited powers to react swiftly to stop this unfairness.

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[Viscount Eccles]

My Lords, I say in support that, if I were a trustee of a pension scheme, and one, two or more people wanted to transfer out, I would be extremely unhappy if they had not taken independent financial advice. I would see that as a necessary condition of coming to the deal that we were possibly coming to.

[Lord McKenzie of Luton]

My Lords, we should thank the noble Lord, Lord Young, for bringing this amendment which, as he said, mirrors other aspects of pensions legislation. I was unclear whether this sits alongside the pause and triggering events or would supersede it. I hope the former, as it would be the quickest and easiest way to deal with it. Intrinsic to the wording are challenges that have been met in other pension environments about how to deal with or define “advice”, “adequate” and all that, but it is not beyond the wit of noble Lords to cover that off.

[Baroness Stedman-Scott]

My Lords, this amendment would mean that a member of a CDC scheme would be unable to transfer their share of the collective assets to another pension scheme, with a view to acquiring flexible benefits or accessing them flexibly under the pension freedoms where this was permitted by scheme rules, unless they had taken regulated advice. I welcome the interest of the noble Lord, Lord Young, and that of my noble friend Lady Altmann, in this area and agree that taking advice can play an important part in helping to ensure pension scheme savers make informed decisions about their pension savings. This includes whether to access them flexibly under pension freedoms or transfer their savings to another pension scheme, with a view to acquiring flexible benefits.

This is why we introduced the advice requirement under the Pension Schemes Act 2015 for members with safeguarded benefits. These are benefits, for example defined benefits, that contain a promise about the rate or amount of pension income that the member will receive in retirement. The advice requirement ensures that members with safeguarded benefits worth more than £30,000 must take regulated advice before they can flexibly access their benefits under the pension freedoms or transfer their pension savings to another pension scheme, with a view to acquiring flexible benefits.

Pensions transfer advice is highly specialised, involving a full assessment of a member’s financial circumstances and a personal recommendation. This helps the member to understand the potential implications of surrendering benefits, where the amount of pension that the person will receive under the scheme is guaranteed by the employer. Pensions transfer advice can be offered only by advisers whose firms have the relevant permissions set out by the Financial Conduct Authority, along with professional indemnity insurance. This comes at a premium, because it is restricted to those prepared to take on the business, and can be expensive. By setting a financial level at which the requirement is triggered in relation to safeguarded benefits, we have sought to ensure that it is applied proportionately. It may not be cost effective for members with smaller amounts of pensions savings to take and pay for such advice.

It is also worth noting that collective money purchase benefits, as a subset of money purchase benefits, are “flexible benefits” for the purposes of the provisions of the Pension Schemes Act 2015. As such, a CDC scheme could decide to allow members to access their share of the collective assets flexibly under the pension freedoms. Before such an option is offered in the scheme’s rules, we intend for trustees to consider fully the potential impact this might have on other scheme members and on the ongoing viability and sustainability of the scheme. For example, if significant numbers of members crystallise all or some of their benefits shortly before retirement, this might impact the scheme’s viability. As part of the authorisation regime, the Pensions Regulator must be satisfied that a scheme’s design is sound, and that such impacts have been considered and appropriately planned for, so that the scheme design meets the authorisation requirements.

We envisage that regulations in support of the scheme design criterion will require evidence that there has been appropriate consideration of risks relating to pension flexibilities, and that action has been taken to mitigate such risks. The ongoing requirement for review of the scheme’s viability report should ensure the scheme monitors any impacts arising from pension flexibilities. These are complex matters; accordingly, we will need to consult thoroughly on what the regulations might require in this respect.

CDC provision is new and the nature of CDC benefits is very different from defined benefits, to which the existing advice requirement relates. As I have explained, pension transfer advice is highly specialised. As CDC schemes are new and only one employer has so far committed to establishing such a scheme, it will likely take time—until more CDC schemes are in place—before advisers consider entering this new market. It will also take time for advisers to develop the necessary expertise to offer appropriate and effective transfer advice to members of CDC schemes. We would need to work closely with the Financial Conduct Authority, which will regulate these potential advisers, to determine what effective or quality advice might look like.

As I have said, CDC is a new provision. Even if we were to set a level—for example, £30,000—at which a requirement could apply, it may take time for members’ funds to grow to this level. I can assure the Committee that my officials will monitor this situation as these new CDC schemes bed in. Once it is clearer that an advice requirement for CDC schemes is warranted, for example because members’ funds have grown significantly, we will still need to work out what the appropriate financial level is for triggering the advice requirement in CDC schemes and how that requirement would work best in practice. At that time, we will engage with the industry and stakeholders to work out these details, and we will then consult on the proposal that has been developed. Subject to the outcome of that consultation, we will seek to legislate to implement the requirements.

In the meantime, we will require CDC schemes to provide their members with appropriate information to help them to understand how their scheme works. For example, we would want the communication that the trustees send to a member who has applied for a transfer to contain the estimated value of their share of the collective assets and to outline the potential implications of transferring out of the CDC scheme before normal retirement age. Member communications at joining and near retirement will also signpost CDC scheme members to the guidance that is available from the Money and Pensions Service. The Money and Pensions Service is responsible for providing guidance to people with pensions, and that will include members of CDC schemes.

I hope my explanations have reassured noble Lords that until a CDC advice requirement is needed, members with collective money purchase benefits will still have access to information and guidance to help them to make informed choices. For the reasons that I have set out, I urge my noble friend to withdraw his amendment.

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[Lord Hutton of Furness]

My Lords, the provisions in the Bill dealing with the authorisation of CDCs are based on the equivalent provisions of the 2015 Act. We all know that those provisions have not been brought into effect and we therefore have no firm evidence as to whether they are robust, but there is a genuine problem with the way in which they are designed to work.

The powers conferred on the regulator appear to be confined to the initial authorisation of a collective money purchase scheme—I am talking specifically about the fit and proper persons test. The powers given to the regulator by Clause 11 are tied specifically to Clause 9, which, as noble Lords will see, is about the decision on the initial application to authorise a collective money purchase scheme. What is going to happen if, as inevitably will happen at some future date once the scheme has been authorised, there is a change in the trustee membership of the scheme, or if any of the other persons referred to in Clause 9 change? It is not at all clear that the Pensions Regulator at that subsequent point has the power to determine whether that person is a fit and proper person to act in any of the capacities referred to in Clauses 9 and 11.

The regulator has the power in Clause 30 to withdraw authorisation from a collective money purchase scheme if he or she regards the authorisation criteria as not being met. That might include, for example, that a trustee or any other person is not considered to be a fit and proper person. Clause 29 allows the regulator to issue risk notices if there is a prospect of the authorisation criteria being breached—that, again, might include that one of those persons is a not a fit and proper person. However, the power of the regulator at that point is to withdraw authorisation for a collective money purchase scheme; it is not to make a determination about whether anyone is a fit and proper person. It is really a sort of nuclear option, which is to withdraw authorisation from the entire scheme. That clearly cannot be appropriate; it would not be in the best interests of the scheme members.

I acknowledge that my amendment is almost certainly imperfect—let us get that issue out of the way—but it is designed simply to allow us to have a discussion. I hope that the Minister can reassure me that I am completely off beam, but is it not better to have it made explicit in the Bill that it is in respect not just of the initial application that such judgments have to be made about fit and proper persons but of each subsequent appointment?

[Lord McKenzie of Luton]

My Lords, I have put my name to this amendment for the clear reasons that have just been stated. There should be a continuing obligation to make such a judgment, because, between decisions and determinations, many sorts of things could happen to the individual involved. Be it an annual event or a one-time event, there needs to be an ongoing obligation for a judgment to be made.

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[Baroness Bowles of Berkhamsted]

My Lords, I should have added my name to this amendment; I apologise for not getting around to it. It is important, as has been explained.

Another question triggered in my mind is: what information relating to the lifetime allowance will be provided for the member? You get information from a defined benefit scheme; you know what you are expected to get—though, as we know from the NHS, you can get into difficulties if, suddenly, you are earning a little too much. If you pay into personal pensions, or whatever they are called nowadays, you get a number for the pounds that you are likely to have as a transfer value, but what will you get here, especially as you will perhaps be at risk? For example, you may think, “Well, I’d quite like to run a personal pension alongside this just in case.” How are you going to calculate whether you are at risk of breaching the lifetime allowance? If you did breach it and then got a tax charge, but then the scheme started to pay you less pension for whatever reason, would you get that tax charge back?

[Lord McKenzie of Luton]

My Lords, I agree entirely with what has been said about the need to communicate and the basis on which to do so. I simply raise that, in 2018, we had extensive discussions on the Financial Guidance and Claims Bill, as it then was. A key point was the lack of full understanding of financial matters of the general public. I have forgotten the statistics, but there was a House of Lords review of financial inclusion, and its conclusions were stark. This is not a reason not to communicate; it is a reason to communicate even more intensively. In how we communicate, we need an understanding of how people might receive these messages and we should not assume they can operate in an environment like this—as many, we know, cannot.

[Baroness Stedman-Scott]

My Lords, I agree that, for CDC schemes to be a success, a high degree of transparency and effective communications are key. If we want to foster member trust in this new provision in the UK, the full scope of risk and benefits of collective schemes must be clearly communicated to members and others, particularly highlighting the nature of benefits, their potential fluctuations and that they are targeted. I mentioned this at Second Reading.

I have already shared with noble Lords a draft illustrative statutory instrument. Paragraph 32 gives examples of the documents and information we plan to require CDC schemes to publish. This includes documents that relate to target benefits, including the actuarial valuation and a statement informing members and prospective members that benefits may be adjusted based on the actuarial valuation and are not guaranteed. We will also require CDC schemes to publish their scheme rules, which will include details of benefit design.

In addition to those regulations under Clause 46, the existing disclosure requirements under Section 113 of the Pension Schemes Act 1993 that currently apply to money purchase occupational pension schemes will apply to CDC schemes, as they are a subset of money purchase benefits. This covers targeted individual member information, and we intend to amend the existing disclosure regulations under Section 113 of that Act to ensure that, for CDC schemes, such information includes key risk messages about benefit fluctuation; for instance, providing full details regarding the possibility of benefit fluctuation at the point of joining in scheme information; emphasising that benefits can change in the member’s annual benefit statement for active and deferred members; being clear that benefits can change during retirement in retirement information packs; and notifying members in advance of any change to their rate of benefit during retirement.

I appreciate the intention behind the noble Lord’s suggestion but, if this amendment stands, all documents and information published would need to include a risk warning message, which would not be relevant in all circumstances; for example, in the scheme’s statement of investment principles. I suspect this would also not meet the noble Lord’s intention that such messages be included in other important communications also made under existing powers. I believe that the best way to approach these concerns is to set out the required information in regulations, as I have indicated, as this would allow the Government to work with the pensions industry to ensure that relevant targeted messages are developed for each relevant document or piece of information.

Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

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

[Lord McKenzie of Luton (Lab)]

The noble Baroness paints a bleak picture; I do not doubt that she is absolutely right.

Is there not a role in all this for the auditors, and a body whose feet can be held to the flames for not doing its job and not checking the systems, for example? It would not be a solution, but presumably it would contribute to an improvement.

[Baroness Altmann]

The noble Lord raises an important point which highlights that I have not necessarily covered all the areas to be dealt with on this. Including auditors and having a requirement for them to verify the accuracy of data is indeed another way of approaching the issue. I went to trustees and scheme managers widely, but auditors are another area which might be considered.

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[Baroness Janke (LD)]

I have some amendments which we will come to later concerning similar issues. I very much support this amendment. The briefing that we had from the ABI gave us quite an insight into the way that women suffer as a result of not having a proper pension settlement. I very much welcome Amendment 78, which seeks to get the spouse’s permission for the transfer of a pension.

[Lord McKenzie of Luton]

My Lords, there are three amendments in this group. Amendment 78, in the name of the noble Baroness, Lady Altmann, focuses on the evidence of a member’s spouse’s consent when a transfer is to be made. We believe that this amendment has considerable merit and are supportive of it. Quite what the technicalities that come to confront us might be remain to be seen, but certainly we should seek to make progress on it.

Regarding the other two amendments in this group, Amendment 99 is simply the Northern Ireland equivalent of Amendment 77, which, as we have heard, deals with unfunded public service DB schemes. I am alarmed to hear that without this amendment they would be attacked by some source. That is rather worrying. Regarding the prescribed conditions that must be satisfied for the purposes of the provision, can the Minister outline what those might contain?

[Baroness Stedman-Scott]

I thank my noble friend Lady Altmann for tabling her Amendment 78, which introduces further conditions to the right to transfer. It would require the consent of a current or ex-spouse or civil partner of the member before a trustee or scheme manager could transfer a member’s savings. This condition would apply where the member was getting divorced or dissolving their civil partnership or might do so in the future. It would therefore apply to all members who might seek to transfer and are married or in a civil partnership.

The amendment would introduce unnecessary and onerous conditions into new legislation. Options already exist for those who seek a financial settlement on divorce or the dissolution of a civil partnership. The law identifies when pensions should be taken into account as part of a financial settlement on divorce or dissolution of a civil partnership, and the courts will make the final decision if there is no agreed settlement.

Where a couple are negotiating a financial settlement on divorce or dissolution of a civil partnership, they are obliged to disclose all assets, including pensions. The process includes provisions to compel disclosure where the court is concerned that the financial disclosure might not be honest or complete. The amendment introduces a radical precedent where someone other than the member will determine the final use of their financial asset without a court order or notice being in place. It is not a requirement for individuals to seek their spouse or civil partner’s consent in respect of other financial assets, such as sole name bank accounts. Why then would we include such a requirement in pension legislation?

In addition, the amendment would place additional burdens on trustees to verify that the spouse or civil partner consents to the transfer. In doing so, it risks causing a conflict with the trustee or manager’s fiduciary duty to act in the best interests of members.

The noble Lord, Lord McKenzie, asked about types of pension and the name of the scheme, and said that people might lose out in a divorce settlement. Both persons in a couple are obliged to declare assets when coming to a financial settlement in the context of the dissolution of their relationship.

[Lord McKenzie of Luton]

My question related to Amendment 77 and unfunded public service DB schemes where there is a requirement for prescribed conditions to be satisfied before trustees or managers can use the cash equivalent. I sought to determine what those prescribed conditions might be.

[Baroness Stedman-Scott]

In the circumstances, I will write to the noble Lord if he will allow me.

In conclusion, for the reasons I have outlined, I ask the noble Baroness, Lady Altmann, to withdraw her amendment.

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[Baroness Altmann]

My Lords, I have added my name to this amendment, which is a very important amendment in the context of consumer protection. As the noble Lord, Lord Sharkey, has so excellently explained, the amendment is an attempt to ensure protection, particularly against scams. What we tried and succeeded in doing during the passage of the Financial Guidance and Claims Act was to pass an amendment that would automatically see people before they transfer money out of a pension—or withdraw money from a pension—receiving at least the independent, impartial guidance that was originally intended to accompany the pension freedoms. When they were introduced, the aim was for everybody to be able to have this impartial guidance so they did not do the wrong thing and understood the risks of taking money out too quickly. This is another line of defence for the consumer given that that amendment, which was passed in the Lords, did not make it into the Bill. It was taken out in the Commons.

One line of defence would obviously be if someone has an authorised adviser or can demonstrate that they have received independent advice. A second line of defence would be the providers themselves asking a few very basic, approved questions: “Are you asking to transfer out because of an unsolicited communication of some kind?”, and, “Do you know anything about the scheme you are transferring into?”. The provider could ask two or three basic questions; should those questions raise red flags, there would be an opportunity to protect the member before they transferred out. Other than that, there is a 60-day limit because, again, scams normally require you to transfer your money very quickly.

I hope that there may be some consideration of the importance of this protection and the use of Pension Wise in the way that it was originally intended. As we look to introduce a new Pension Schemes Act, we might find ways in which we can enhance the consumer protection that I know my noble friend understands is so important.

[Lord McKenzie of Luton]

My Lords, this amendment goes to the heart of protecting people’s pensions. We have touched upon a number of issues surrounding the same sort of concepts during debate on the Bill and in other legislation, such as financial guidance provisions. We should see whether we cannot get together a comprehensive note of how these things are covered. I am bound to say I am unclear as to what is and is not covered in all circumstances, so it seems that would be beneficial.

Concerning the specifics of the amendment, we clearly give it broad support. It raises practical issues, as I am sure the noble Lord, Lord Sharkey, would identify, particularly on responding to approved questions. I am not sure who is on hand when the questions are being asked. We have seen what happened with taxi licences and such things in the past. The provision could give rise to challenges but the thrust is right: it is another attempt to make sure that people are aware of the consequences of what they do, to the fullest extent possible. As I say, I am not sure whether we have a comprehensive arrangement yet across all pensions and circumstances. It seems that it would be worth some effort to try to get that into place. With those words, I am happy to it give broad support. When the Minister replies, I am sure there will be some stumbling blocks in it but if we do not keep pushing and shoving, we are not going to make progress on this.

[Earl Howe]

My Lords, I am grateful to the noble Lord, Lord Sharkey, and my noble friend Lady Altmann for tabling this amendment because it provides me with an opportunity to update the Committee on the progress that the Department for Work and Pensions, the Financial Conduct Authority and the Money and Pensions Service have made on delivering the stronger nudge to pensions guidance. As noble Lords are aware, this is a requirement of Sections 18 and 19 of the Financial Guidance and Claims Act 2018.

Before that, however, I would like to talk briefly about the take-up of Pension Wise guidance, which is a very positive story. The service is on target to exceed 200,000 guidance sessions this financial year, more than tripling those in its first year of operation. Recent Financial Conduct Authority data suggests that 52% of personal and stakeholder pensions accessed for the first time in 2018-19 received either regulated advice or Pension Wise guidance. That clearly demonstrates that the work the Money and Pensions Service, Government and the industry are already doing to promote both Pension Wise guidance and regulated financial advice is working.

I would like to talk about the measures in the Financial Guidance and Claims Act 2018 which were designed to further increase the take-up of Pension Wise guidance. Sections 18 and 19 require the Government to deliver a stronger nudge to pensions guidance. As the Committee is aware, MaPS is testing options for the best way to do that, in a way that complements the suggestions made by the noble Lord, Lord Sharkey, during the passage of the Act that his amendment was

“designed to be a nudge, rather than any kind of probably unenforceable or counterproductive compulsion.”—[Official Report, 31/10/17; col. 1294.]

As noble Lords are also aware, the drafting of Sections 18 and 19 was influenced by the Work and Pensions Select Committee. Following trials, those sections will deliver a final nudge to consumers to consider taking guidance prior to accessing their pension.

The Government firmly believe that, to effectively prompt more people to take guidance before accessing their pension where it is appropriate, we need to understand the impact of the nudge, and ensure that we avoid creating perverse incentives. We do not disagree with the principles of the amendment—work is already under way to establish how best to ensure that people thinking about accessing their pensions are encouraged to take guidance. We believe it is essential to use the evidence base that the trials on a stronger nudge will provide, and to consult before implementing the primary legislation in the Act. We would welcome the thoughts of the noble Lord and my noble friend on the proposals in the consultation.

The trials to test the most effective way to deliver on Sections 18 and 19 are due to conclude shortly, and an evaluation report is expected to be published by MaPS this summer. We are working to deliver on the requirements of the Act as quickly as possible, and as such we are already preparing for a public consultation this year. The Financial Conduct Authority will also consult on rules that have regard to these regulations, to make sure that there is consistency between occupational pensions and personal and stakeholder pensions.

The noble Lord seeks to require a member to provide responses to questions before a transfer can proceed. The effect of the amendment is that trustees would have the power to refuse a transfer should members’ responses not meet the conditions which the amendment proposes should be set in regulations. I assure him that the Government are already introducing conditions that seek to safeguard members against the risk of being defrauded. That change will strengthen trustees’ discretion in respect of transfers. Transfers were discussed in the earlier debate on Clause 124. The Government are amending members’ statutory right to transfer, to allow conditions to be imposed for transfers between schemes. That is aimed at ensuring that transfers are made to safe destinations. Non-statutory transfers can still take place, if the scheme rules allow. However, the amendment puts responsibility on members, not trustees, to assess the appropriateness of the receiving scheme. If the questions to be asked of members are specified in regulations, as proposed new subsection (1)(c) requires, an unintended consequence could be that fraudsters will be enabled to game the system. Members could be coached to provide answers that lead to transfers that should have been refused.

As noble Lords will recall, we have banned cold calling on pensions in legislation and established Project Bloom: a joint task force between government, regulators and law enforcement to share intelligence, raise awareness of scams through communications campaigns, and take enforcement action when appropriate. The FCA and the Pensions Regulator launched the latest ScamSmart advertising campaign on 1 July 2019, which has targeted those approaching retirement, as they were identified as being most at risk from scammers. There is also an FCA warning list, an online tool that helps investors check if a firm is operating with the right authorisation and find out more about risks associated with investment.

The noble Lord raised a specific concern about transferring out of DB schemes. Since January 2018, following its work on the British Steel pension scheme, the FCA has been working closely with both the Pensions Regulator and the Money and Pensions Service to ensure that it monitors pension transfer activity in DB pension schemes that might be subject to increased transfer activity. Also since January 2018, the FCA has issued tripartite letters to over 50 defined benefit pension scheme trustees. The tripartite letter reminds scheme trustees of their responsibilities when issuing transfer values to members and requests them to provide data that allows it to monitor scheme activity. On 21 January 2019, the FCA published a new protocol for how the three organisations—the FCA, TPR and MaPS—will work together to share information and work with pension scheme trustees, and that protocol addresses many of the recommendations made in the Rookes report.

I want to touch on one other point raised briefly by the noble Lord, Lord Sharkey. He suggested that the new pension freedoms might be encouraging people to draw down savings too fast, putting them at risk of scams. In fact, the Financial Conduct Authority’s Retirement Outcomes Review did not find significant evidence of consumers drawing down their savings too fast. The study’s findings, published in June 2018, found that most of those withdrawing had some other form of retirement income or wealth.

Clearly, it is of the utmost importance that information and guidance are available to people and that they are aware of it. That is why there are now more opportunities for people to access guidance earlier in the pensions journey. Alongside the stronger final nudge trials, Pension Wise continues to run successful advertising campaigns across multiple channels, as well as working with employers nationally and locally to encourage them to engage with their employees at their place of work. The Financial Conduct Authority’s “wake-up” packs also encourage people to think about their pension options and include signposting to Pension Wise.

I reassure noble Lords that we are very aware of the importance of the need to make progress with implementing the requirements placed on government, the Money and Pensions Service and the Financial Conduct Authority, as set out in the Act. Our aim is to find an effective and proportionate way to do this.

To conclude, I accept that this work might not have progressed as quickly as perhaps noble Lords would like, but that is for a good reason. I believe it is very important to get this right and ensure that the policy is developed based on evidence. We always talk about evidence-based policy and this is a classic example of that. The trials will conclude very shortly and will be followed by an evaluation report. We will consult this year and will seek to lay regulations as soon as possible after that, alongside the rules that will be made by the Financial Conduct Authority.

For the reasons I have explained, I hope that the noble Lord will feel able to withdraw the amendment.

Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Baroness Altmann (Con)]

I have added my name to this amendment. I support my noble friend and echo his request to the Minister for a meeting to discuss this issue further. I understand that it may not be possible to arrange immediately, and needs careful consideration, but, given the rulings in court cases and so on, it may be worth trying to address some of these issues, which are clearly causing distress to an important, albeit small, number of people.

[Lord McKenzie of Luton (Lab)]

My Lords, we have some difficulty with this amendment. We are more than happy to put it on the agenda for a meeting, although I recall earlier sessions when I think the noble Lord, Lord Balfe, convened a meeting with the pilots’ association for us to range over this. At that stage neither we nor the Government were particularly happy with any change—or the sort of change suggested here.

There is an issue about affordability for the PPF that has to be taken into account. We should also bear in mind that funding for the PPF comes from a levy on these other pension schemes, so the higher costs go the greater the hit on those schemes. As I understand it, the proposition is that it would cover not only those who receive a payment in future but all those currently receiving capped payments. It would free up those amounts, too.

I do not know whether the noble Lord has an impact assessment for this proposal; if so, we should certainly see that. Although he partially dismissed it in his speech, when the scheme was designed the moral hazard issue was very much in mind—heavy hitters and senior people in organisations are better able to control the destination of their pension funds and remuneration, and there should be a mechanism in there to ensure that the options were not open-ended. At the moment the cap bites, I think, at something like £40,000, so we are not talking about people with minimal pensions. I think the average payout from the PPF is about £4,000, so there is a big contrast. Having said that, I am more than happy to join a discussion to review these issues—but I am not convinced that we would change our position.

The PPF has done marvellous work over the years, enabling people to receive an income when there would have been nothing. It is a very good organisation. We may check to see whether its view now is different to its view previously, but I doubt it, so the onus is very much on the noble Lord to come forward with an impact assessment to say how much this would cost if we did it. Having said that, we on this side would not be able to sign up to it.

[Baroness Altmann]

I echo that praise for the Pension Protection Fund. It has been a marvellous success story and has rescued so many people. It is run efficiently and with care for those who claim on it. I cannot praise it highly enough.

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[Lord Balfe]

I thank noble Lords for this short, but interesting, debate. An interesting part of my role is that when David Cameron said, “Try to be helpful to as many trade unions as you can”, I seem to have collected some of the higher paid trade unions such as those for hospital consultants, British airline pilots and one or two others in the TUC. It is always great fun to go down to the TUC Congress, meet them there and hear them muttering away. I take the points that have been made. The feeling arose largely out of the Monarch situation in which a number of people had paid a considerable amount in yet they were not getting what they saw as fair recompense. The point made to me, which I am sure will be made again, was that if they were in the public sector, there would be no case for them going into the Pension Protection Fund because public sector funds do not go there, but because they were in the private sector—

[Lord McKenzie of Luton]

The point the noble Lord makes about public sector funds is right, but in trying to make comparisons between somebody with a public sector pension and people who are not in that position, all sorts of differentials come into play, such as general levels of remuneration. With great respect, I do not think the noble Lord’s argument stands up in that respect.

[Lord Balfe]

Perhaps I mix with rather affluent members of the medical profession. I had a session recently with a hospital consultant staff association, which made some very firm points about how high earners were being discriminated against. I am not making the hospital consultants’ point here. I am making the point that the public sector basically has a system of protection so that when a Permanent Secretary or a member of the First Division Association retires, there is no case that the FDA pension will ever go into the lifeboat. I was making the point that was made to me, which was that members were paying into a fund that they were not receiving benefit from and that if they had been in the public sector they would. I am very pleased that the Minister has offered to discuss this, although having heard the response I am not sure that the discussion is going to lead very far. I am pleased that we have had this constructive debate and on the basis of what has been said, I beg leave to withdraw the amendment.

--- Later in debate ---

Moved by

[Lord McKenzie of Luton]

82: After Clause 128, insert the following new Clause—
“Pension Schemes Commission
(1) Within six months of the passing of this Act, the Secretary of State must establish a Pension Schemes Commission to—(a) conduct a strategic review of public policy regarding pension schemes, and(b) make recommendations.(2) The Secretary of State must respond to reports from the Pension Schemes Commission with a written statement laid before each House of Parliament.”

[Lord McKenzie of Luton]

My Lords, it will not take us long to deal with this amendment. When it was conceived as an amendment, there was a fairly grand design behind it but, as time has moved on, it has perhaps condensed just to a statement of beliefs in the key issues. The amendment calls for the establishing of a pension schemes commission—I hesitate to raise that issue in the proximity of my noble friend Lady Drake; we live in awe of what that commissioner achieved. The idea of the commission would be to conduct a public policy review of pension schemes. There is plenty to reflect on without stepping on the policy responsibilities of the Minister, or indeed of any Select Committee.

In recent times we have experienced the implementation of a Pensions Commission and auto-enrolment; the new state pension; changes to state pension age; the so-called pensions freedoms; master trusts, CDCs, and the future of DB schemes; an increased focus on governance, transparency, levels of charges and the pension tax system. Some of this has reached a degree of maturity and some not; some has been seen in the strategic context, and some not. In respect of this, there remain the ongoing matters of gender equality, savings levels and, still, pensioner poverty. In addition, there is our consultation on investment principles and the important issue of climate change. Therefore there is scope in all of this to reflect in future pensions issues, and today I do no more than set down a list for consideration. I beg to move.

[Lord Young of Cookham (Con)]

My Lords, I see that on the website of an organisation called This is Money, published on 20 January, Mr Opperman, who is of course the Minister with responsibility, is quoted as saying that he

“believes a new commission should review the future of the automatic enrolment system”.

Noble Lords may also remember that on 17 January, two think tanks, the Fabian Society and Bright Blue, launched a report calling for a cross-party commission on pensions. Responding to that, an organisation called B&CE published the following comments:

“Commenting, Guy Opperman MP, Minister for Pensions, said: ‘Over the last decade, Conservative and coalition governments have made huge strides to improve pensions for the next generation, with the introduction of auto-enrolment, an enhanced state pension and the development of the Pensions Dashboard. For the next stage of pension reform, we need to continue the consensus that emerged following the Pensions Commission of 2003 to 2005. A new Commission has cross-party support, and will help us map out the future of auto-enrolment, so we can boost contribution rates in the coming decades, and explore how we can support savers with pensions freedom reforms. Let’s not give up on the progress we’ve made in pensions through cross-party working. It’s time to explore ideas for the next generation’.”


It therefore seems that the thinking behind the proposed new clause in the name of the noble Lord, Lord McKenzie, has some support at the moment within the DWP.

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[Baroness Stedman-Scott]

The best answer I can give is that I will find out and write to the noble Baroness, because I do not have that information at the tip of my fingers.

The Bill will deliver further improvements, including strengthening consumer protections, improving scheme governance and communications, and facilitating the creation of pension dashboards. We will continue to review these improvements, including a contribution that a pensions commission could make in future. I respectfully ask the noble Lord, Lord McKenzie, to withdraw his amendment.

[Lord McKenzie of Luton]

I thank the Minister for her response on this matter and noble Lords who have spoken in favour of this proposition. For those who have felt unable to support it at the moment, I simply make the point that there is no particular timeline: it does not say that it must happen all at one time, or that it must happen tomorrow. There are clearly aspects of the current system which are unsatisfactory.

If I had to encapsulate that in two or three words, I would say that pensioner poverty and under-saving are still with us, big time. Somehow, we need to address that. Having said that, I beg leave to withdraw the amendment.

Amendment 82 withdrawn.

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[Baroness Altmann]

My Lords, I support Amendments 83 and 86. Noble Lords have already explained the problems in great detail. However, this crisis dates back more than two years. NHS hospitals and regional authorities have been trying for some time to deal with the fall-out of the taper and to find a resolution, but so far there has been no action. The Government promised action within 30 days last December, and we are still waiting. The doctors and medical staff in this scheme were given a promise, but it has not been honoured because of flawed attempts to save money on pension tax reliefs for so-called high earners. Yet the costs resulting from the unintended consequences of the legislation—I understand the thrust of that legislation—in paying locums, cancellations and inadequate NHS services may well outweigh any savings that might have been achieved by trying to clamp down on high earners.

I was at a BMA consultants’ conference today, giving a presentation on pensions. In a room seating around 400, those consultants decided to have an emergency vote and it was unanimous in favour of urgent government action, such as Amendment 86 being introduced. There was clear anger around the room at what they feel is a betrayal of their terms and conditions of service. They had no warning of the changes in tax relief, which were said to affect only those earning more than £150,000 a year; in fact, the way that the cliff edge and the threshold work means they have hit people earning a lot less than that. They were given no chance to mitigate their losses. In the private sector or in other government schemes some mitigations have been offered, but not for the NHS.

In any case, the rules of this taper make it impossible to predict what tax bill you might incur as a result of being asked to take on extra work because it depends on your current year’s earnings, which you will not know until the end of the current year. The Government could consider using last year’s earnings; at least one might have a fighting chance of knowing what extra work one might be able to take on. The scheme-pays arrangement, whereby it is possible that staff will not have to pay the charge, is a loan at around 6% interest that rolls up every year. Some consultants in their 40s were explaining to me today how that feels so penal. One could imagine changing that interest rate, for example.

The bottom line is that even the NHS pension scheme was unable to provide the staff with the information that they, or their advisers, would have needed to predict what the tax consequences of the work they were doing might have been. If they do not know what the impact will be, it is logical that they are not going to do the work. I understand that the plan in the Budget may well be for the Government to increase the threshold and introduce a bit more flexibility. I can assure the Committee that if that is the plan, it will not solve the problem.

The proposal in Amendment 86 is a practical way in which doctors can be reassured that if they carry out extra work, especially in the current extreme medical environment that we may well be facing, they will not be penalised taxation-wise and pension-wise for doing so. This amendment might not fit precisely in the Bill, but I would be grateful to hear from my noble friends what the reaction is to the proposed method of dealing with this problem. If the Bill represents, as the BMA said in its briefing, a valuable opportunity to find a resolution to this long-running problem then I hope that it will be able to address the issue, and put our NHS and our most valuable medical staff back on an even keel.

[Lord McKenzie of Luton]

My Lords, this issue has been rumbling around for far too long and it is time to try to get a solution to it, particularly, as many noble Lords have explained, because of the pressure that the NHS would have been under anyway but for the recent crisis. My noble friend Lord Warner made a strong case with his proposition and we would certainly like to reflect on it. I know that the problem is that lots of people have reflected from time to time on a possible solution. That reflection goes on, but we do not yet have a solution. But Report on this Bill will be coming up shortly, and of course we have a Budget of some sort not far in the distance.

I have a couple of questions. I do not know whether my noble friend Lord Warner or the Minister can help with them. Was the one-off payment that the NHS made to cover the annual allowance taxable, and what might the consequences of that be? Under the scheme-pays arrangement, as the noble Baroness, Lady Altmann, hinted, if the problem is the penal interest rate then what is to stop those rates being adjusted, and who controls them?

We also need to bear in mind in all this is that these rules, unless I misunderstand them, have general application in the tax system. We need either to find a way of having some special arrangements or to accept that the adjustments we make here would have to be run for the tax system generally. We will need to work through the consequences of that. I am conscious that this contribution has not added one bit of sense to a practical solution, which is what we need to reach. Maybe, at the end of the day, we simply need to rank the solutions that we have on the table and choose the best, even though that may not be optimisation.

I am sure we all remember the pressure about this—I certainly remember pressure from the old Luton and Dunstable Hospital about it—and the real adverse effect that it causes on the delivery of services. We cannot continue to allow that to go forward; we simply have to drive through a solution to this. That is the challenge; presumably, the Treasury has ultimate responsibility for meeting it. But if it will not then we should, with the help of my noble friend Lord Warner and his expertise in these areas.

[Earl Howe (Con)]

My Lords, the amendment from my noble friend Lady Neville-Rolfe would commit the Secretary of State for Work and Pensions to review the tapered annual allowance on tax-relieved pension savings and require the Secretary of State to set out how pension schemes could mitigate any adverse effects of the taper. On the other hand, the amendment from the noble Lord, Lord Warner, would commit the Secretary of State for Work and Pensions to make regulations to require the NHS pension schemes to reimburse members for pension tax charges and, in particular, annual allowance charges.

I will set out where matters currently stand on this. First, in recognition of the impact that the tapered annual allowance is having for some doctors this year, NHS England has announced—as has been mentioned —a special arrangement for 2019-20 only, which doctors in England can use to ensure that they will not be worse off as a result of taking on extra shifts this tax year. This arrangement allows senior clinicians to defer an annual allowance charge through scheme pays. Their NHS employer will make a contractually binding commitment to pay a corresponding amount on retirement, ensuring that they are fully compensated in retirement for the effect of the scheme-pays deduction on their retirement income.

Health is a devolved matter. This special arrangement applies only to England, but we are aware that the Welsh Government and NHS Scotland have also put arrangements in place for the current tax year.

The Government most certainly recognise that urgent action is needed to resolve the pensions tax issue, which has caused some doctors to turn down extra shifts for fear of high tax bills. We are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments due to the interaction between their pay, their pension and the relevant tax regime. That is precisely why the Government are taking forward their manifesto commitment to carry out an urgent review of the pensions tapered annual allowance, to make sure that doctors spend as much time as possible treating patients. This builds on the Treasury’s review into the effect of the tapered annual allowance on public service delivery, announced last August. The Government have announced that these reviews will report at the Budget on 11 March.

I understand that the ongoing reviews have received evidence from the British Medical Association, the Academy of Medical Royal Colleges and other representative organisations from across the public and private sectors. The Economic Secretary to the Treasury has held round-table discussions with key health sector stakeholders, as well as representative organisations across the public sector. The evidence provided will ensure that the Government can consider fully the impact of the tapered annual allowance and its effects on the NHS and other public services.

The amendment from my noble friend Lady Neville-Rolfe would have the Government commit to yet another review of matters relating to the tapered annual allowance. I hope she will accept that there is no need for a further exploration of this matter when the two reviews are ongoing and have not yet concluded, especially as those reviews will report shortly.

The amendment proposed by the noble Lord, Lord Warner, would commit the NHS pension scheme administrators to reimburse their members to the extent they had incurred an annual allowance tax charge. The practical difficulty with this, which I am sure the noble Lord does not intend, is that reimbursement from the scheme for tax charges could trigger an unauthorised payments tax charge for the member and a scheme sanction charge for the scheme. Noble Lords will appreciate that this is a very complicated area of tax law and, as I have said, could result in further unforeseen tax charges arising.

The noble Lords, Lord Warner and Lord McKenzie, referred to the interest rate being applied in this area. Perhaps I could just explain the background to this. HMRC rules require that when scheme pays is used to pay a tax charge, an actuarially fair reduction is made to the value of the pension. The discount rate used to value this reduction for public service pension schemes is the SCAPE discount rate plus CPI. The SCAPE discount rate reflects the Office for Budget Responsibility’s forecasts for long-term GDP growth in line with established methodology. Due to recent changes to the SCAPE rate and the CPI, the scheme-pays discount rate has fallen in 2019 to 4.8%.

My suggestion to my noble friend and the noble Lord, Lord Warner, is that it is preferable to wait for the outcome of the two reviews, which are ongoing but have not yet concluded. As I mentioned, they will report shortly, on 11 March. Ultimately, this is a matter for my right honourable friend the Chancellor. I am sorry to have to leave matters in the air, but I hope that my noble friend and the noble Lord will take away from this a good degree of reassurance that the Government are taking seriously the question of what impact the tapered annual allowance is having on NHS pension scheme members and that reviews into this matter are already under way.

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[Baroness Fookes]

It has not yet technically been moved, and you are now moving it. Perhaps I should clarify for the Committee that where there is a group of amendments being debated together, only the first amendment is moved. If a noble Lord wishes to move an amendment, it has to come in its numerical order. The noble Lord was not moving his amendment, he was speaking to it.

[Lord McKenzie of Luton]

Can the noble Lord move the amendment?

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[Baroness Janke]

My Lords, I have three amendments in this group. Amendments 87 and 88 relate to auto-enrolment to reduce the lower age limit to 18 and introduce a review of auto-enrolment which could also examine the possibility of removing the lower earnings limit.

As many noble Lords have said, the success of auto-enrolment is clear, with 87% of eligible employees participating in a workplace pension in 2018. However, by reducing the lower age limit to 18 and removing the lower earnings limit, a further £2.5 billion could be added to savings.

There would also be advantages for younger people in starting to save for pensions earlier in their working lives. It is estimated that the average 18 year-old will end up with a pension pot at retirement around £18,000 lower if they have to wait until 22 to be automatically enrolled. Given that we want people to start saving for a pension as soon as possible, an age limit of 22 seems increasingly hard to defend. Even employers would generally have a simpler system were they to enrol everyone, rather than having different rules for those above and below different age thresholds.

Moreover, further extending the coverage of auto-enrolment by reducing the earning threshold to the national insurance primary threshold would bring 480,000 people, mostly women, into pension-saving. It would also help to improve the gender pensions gap, which is the subject of Amendment 96 in the same group and a growing matter of concern. A woman aged 65 has one-fifth of a 65 year-old man’s pension.

Private pension schemes seem to be the main reason for the gender gap, placing women at a disadvantage, mainly due to domestic roles and lower pay. Among 65 to 74 year-olds, median private pension wealth is £164,700 for men and £17,300 for women, who have just over 10% of the private pension wealth of men. Among the population as a whole, women’s median pension wealth is £4,300, less than a quarter of the £19,800 held by men.

Although auto-enrolled private pensions include all employers, they exclude low-paid employees. Like other private pensions, they make no allowance for periods of caring, hence they perpetuate further the pensions gender gap. New modelling has shown that a family carer top-up in an auto-enrolled pension would substantially boost women’s private pension wealth. Also, the suggestion of a voluntary earnings-related state pension addition—a fully portable auto-enrolled option that allows carer credits—would be simpler and would better meet women’s need for extra pension savings. Amendment 96 provides the opportunity for an early review of issues affecting the pensions gender gap in CMP schemes.

I support the amendments in the group in the name of the noble Baroness, Lady Drake, which address similar and related issues. I beg to move.

[Lord McKenzie of Luton]

My Lords, Amendment 95 in this group is in my name. It seeks to press the Minister to make three important changes to the current auto-enrolment scheme—there are some overlapping issues in this. The changes are: to remove the threshold requirement for earnings over £10,000 to be auto-enrolled; to remove the qualifying earnings deduction; and to extend the threshold down to the age of 18 for workers. As NOW: Pensions points out, these would be positive steps in helping to narrow the pensions gender gap and would be a significant step in boosting participation in pension saving. This should be uncontroversial, as it goes with the flavour of the deliberations of the 2017 automatic enrolment review.

However, on timing, the Government’s ambition is to phase in the abolition of the LEL, with broader changes to the framework, until the mid-2020s. We suggest that this is a weak ambition and urge the Government to reconsider. We recognise that the changes cannot all happen overnight, but the longer we wait, the more difficulty there will be in getting younger people into the savings habit. Abolition of the LEL and making contributions payable from the first £1 of earnings will help to build financial resilience. If implemented, these measures would eventually—I stress “eventually”—bring an additional 910,000 workers into auto-enrolment with, as we have heard, an additional £3.8 billion of pension savings. It would be a good first step in addressing the pensions gender gap.

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[Baroness Bowles of Berkhamsted]

My Lords, I signed this amendment and I do not think there is a great deal to add to what the noble Baroness, Lady Altmann, has said. I am sure we are all familiar with the phrase that two wrongs do not make a right. As has been explained, this is one of those instances in which two rights have ended up making a wrong, in that auto-enrolment and raising the tax thresholds were right but have resulted in more and more people falling into this trap. If we are to believe all the things we read in the newspapers about the Budget, it may be that more right things will be done, in terms of tax thresholds, that will then trap more people in this wrong of paying more than they should for their pension. These people would be better off if they were not in the scheme but in a private pension scheme because there would be mechanisms for them to get that tax relief.

The problem could be adjusted through the tax system because it knows who they are. There are various ways in which it could be addressed. The noble Baroness, Lady Altmann, has put forward one in which it is up to employers to seek out the solution. If that is regarded as too onerous, something else must be done because this really is very bad, once again hitting the people who always seem to be at the rough end of every deal and are predominantly women. I am not quite sure how it is taken into account in universal credit—whether it asks, “Are you paying more for your pension than you should?”—but I would not mind betting that many of them will be the same people who suffer at every twist and turn. I therefore strongly support this amendment.

[Lord McKenzie of Luton]

My Lords, I, too, support this amendment. We should congratulate the noble Baroness, Lady Altmann, on the diligence with which she has persisted on this matter for quite a long while. As she hinted, she was responsible for convening an industry group that spent a lot of time digging into this to make sure its focus was right.

The reality is clear. There are two systems giving tax relief and no reason in principle why they should not both deliver the same result. One does not for low earners at the moment. Which of the two systems you are in depends on your employer’s choice. That simply cannot be right. As the noble Baroness said, there are ways of dealing with this. I understand that the Treasury has set its face against that to date. Of course, for the Treasury, the downside is that providing a bit more tax relief means having a little less revenue. However, we are talking about the lowest paid, who are being disadvantaged by this. It is about time that this was brought to a halt.

[Earl Howe]

My Lords, I am grateful to my noble friend Lady Altmann for her amendment. I am well aware that she is a passionate and long-standing campaigner on the issue of lower-paid workers automatically enrolled into a workplace pension who may not benefit as much as other lower-paid workers for their pension saving.

As my noble friend will know—I hope she will not mind my saying this en passant—pensions tax relief is a matter for the Treasury, with the differing treatment of people in net pay arrangements and relief at source pension schemes determined by the Finance Act 2004 which, strictly speaking, is outside the scope of the legislation before us. That does not prevent me giving her as full an answer as I can.

Automatic enrolment legislation defines which qualifying workers are to be put into workplace pensions by reference to their age, earnings level and their being working or ordinarily working in the UK. I appreciate that this is essentially a probing amendment and that the precise wording is of secondary importance, but its reference to the low paid is not a definition recognised in the Pensions Act 2008. It would make it very complex and burdensome for employers accurately to identify the group to be covered by the proposed regulation-making powers.

Automatic enrolment has always sought to balance its core aim of helping working people build up their retirement savings with an implementation approach that recognises the costs and administrative burdens that will inevitably fall on employers. We are mindful that those duties must be proportionate and restricted to the minimum necessary to achieve our policy objectives. That is why pension scheme choice under automatic enrolment is reserved to the employer, who is required to use a scheme that meets minimum quality standards set out in legislation. Tax relief is only one of the factors that an employer should be considering when choosing a scheme for its employees, alongside whether it will accept all its staff, how much it will cost for the employer to administer and whether it will work with the existing payroll systems.

The employer’s decision will be informed by detailed guidance provided by the Pensions Regulator via its automatic enrolment compliance website, including information about the tax implications of different types of scheme. We should remind ourselves that there is guidance on the Pensions Regulator’s website to help employers understand the impact of scheme choice on lower earners below the personal allowance. I am well aware of how much assistance my noble friend gave on this when she was Pensions Minister.

Consequently, the current legislative framework is not set up to allow government to impose broad, undefined requirements on pension scheme trustees, managers or administrators in the way proposed by the amendment. Employers have duties under automatic enrolment, and they select a pension provider from the marketplace, based on their legal obligations towards qualifying workers and the commercial needs of the organisation.

The suitability of an automatic enrolment scheme is determined primarily through statutory quality requirements. Many employers will choose a master trust scheme, which is subject to an additional regulatory framework. All automatic enrolment schemes are registered pension schemes and their members are further protected by the broader legislative framework for occupational and personal pension schemes.

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[Lord McKenzie of Luton]

I heard the Minister’s reply, which seemed a recipe for no action—not this year or next. Given all the hard work that has gone into developing thoughts on this, that does not seem fair. If we are saying that the legislation—or the regulation—is not fit for purpose as it is, why do we not change it? Whatever happened to taking back control?

[Earl Howe]

I promise that nothing I said was intended as a recipe for no action. The problems that my noble friend articulated well relates to how we solve this problem, not whether we are committed to doing so. Unfortunately, it does not admit of a straightforward answer. If it did, we would have solved it long ago.