Pension Schemes Bill [HL]

Lord McKenzie of Luton Excerpts

Committee: 1st sitting (Hansard - continued): House of Lords
Monday 21st November 2016 Lords Chamber

Moved by

[Lord McKenzie of Luton]

32: Clause 14, page 8, line 29, at end insert “annual statement and”

[Lord McKenzie of Luton]

My Lords, I beg to move Amendment 32 and shall speak also to Amendments 33 and 34. I shall be brief. We have dealt earlier with amendments relating to communicating and engaging with members. These amendments deal specifically with the requirements to ensure that an annual statement must be submitted to the Pensions Regulator, together with the scheme accounts. The annual statement for these purposes is that required by the 2015 DC regulations, with particular reference to relevant multi-employer schemes.

The requirement to produce an annual statement—the chair’s annual statement—although supported by the trustee board, is part of the Pensions Regulator’s DC code. The clause is designed to ensure that the Pensions Regulator has sufficient information about the master trust scheme to know when a scheme should be required to submit a supervisory return. I beg to move.

[Lord Young of Cookham (Con)]

My Lords, after some five hours of debate there is now a glimmer of hope for one of the amendments moved by the noble Lord, Lord McKenzie. Its intention appears to require the trustees of an authorised master trust scheme to submit the scheme’s annual governance statement to the Pensions Regulator each year.

The annual governance statement, sometimes known as the chairman’s statement, which trustees of most money-purchase occupational pension schemes are required to produce, provides information on the scheme’s compliance with governance measures such as the charge cap. It sets out, among other things, the level of charges in the scheme and the trustees’ assessment of the extent to which these represent good value for members.

I understand why this amendment may have been tabled, and I agree that it is important for schemes to operate transparently and demonstrate that they represent good value for money for members. This information would indeed be valuable to the regulator in its assessment of the master trust against the authorisation criteria. However, I have reservations about whether the approach, as drafted, represents the best way of achieving this. From a drafting perspective, there is a risk in making a provision of this kind in primary legislation which relies on a reference to a provision in regulations—in this case the Occupational Pension Schemes (Charges and Governance) Regulations 2015. Should those particular regulations be amended in the future—for example, so that the statement is no longer required under the same specific provision—there is a risk that this provision of the Bill would no longer have the desired effect.

A safer approach is to make use of the existing provision in the Bill, which enables regulations to specify that the regulator may require that further information is submitted to it. That provision is in Clause 15(2). I can confirm that it is intended that the provision of the annual governance statement to the regulator will be dealt with in these regulations by enabling the regulator to require the statement to be included in master trusts’ supervisory returns. We will of course consult on these regulations and we cannot confirm the final content until the consultation is concluded. I hope that I have explained to noble Lords that I resist the amendment not because I disagree with it but because there is a better way of getting there. The Bill already allows equivalent provision to be made in a manner more likely to secure the desired outcome in the long run. Against that background, I hope that the noble Lord will withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for that response. I thought for a moment that the glimmer of hope was going to be completely snuffed out, but I am pleased to know that it has not been. I accept the point about drafting and will look forward in due course to seeing this in the regulations. Having said that, I beg leave to withdraw the amendment.

Amendment 32 withdrawn.

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Moved by

[Lord McKenzie of Luton]

35: Clause 16, page 10, line 9, leave out “negative” and insert “affirmative”

[Lord McKenzie of Luton]

My Lords, I shall speak also against Clause 16 standing part of the Bill. The amendment is an alternative formulation that requires the affirmative procedure to operate for the regulations. We touched on this issue earlier this evening. The clause imposes a duty on a range of persons involved in running a master trust to give notice of the fact that a “significant event” has occurred. Civil penalties can be applied to anybody failing to comply. The only hint of what might constitute a significant event is what the Secretary of State sets out in regulations. No hint is given in the Explanatory Notes to the Bill. The information provided to the Delegated Powers Committee simply refers to a significant event being one that might affect the ability of the scheme to meet the authorisation criteria, such as a change of trustee or scheme administrator.

As the Delegated Powers and Regulatory Reform Committee pointed out, the delegated power confirmed by Clause 16(3) is a very wide one. It emphasised that the definition of what constitutes a significant event is fundamental to determining the duty imposed by Clause 16. It says that the width of the power appears to be needed because the Government have not yet decided on the policy or purposes for which the power is to be used. Its conclusion is that the power is inappropriate in the absence of any convincing reasons to justify its scope. We agree that as things stand the Government have more work to do to justify the change in the clause. I beg to move.

[Lord Freud]

I will begin by explaining why it is important that the clause stands part of the Bill, and then I shall set out my thoughts on the proposed change in the parliamentary scrutiny procedure.

Clause 16 addresses one of the requirements that will be placed on a master trust scheme once it has been authorised. One of the great strengths of the authorisation regime is that it is an ongoing system. This means that, in order to continue operating in the market, the Pensions Regulator must remain satisfied that the master trust continues to meet the authorisation criteria. This makes it particularly important for the Pensions Regulator to remain informed about the scheme. Indeed, I hark back to our discussion a little earlier about whether there should be someone to compensate as a last resort. It is really important that we make sure that the Pensions Regulator knows what is happening in schemes. That is one of the key ways in which to make that happen.

The regulator will collect information from authorised master trust schemes on a regular basis through a combination of existing requirements on occupational pension schemes and new requirements on authorised master trust schemes, introduced as part of the Bill. For example, all occupational pension schemes are already required to submit an annual scheme return to the Pensions Regulator and, under Clause 15, master trusts will be required to submit a supervisory return as well. In addition, Clause 14 introduces a requirement on the trustees of master trust schemes to submit the scheme’s annual accounts, and on the scheme funder to submit its accounts to the Pensions Regulator. These returns allow the Pensions Regulator to collect information from schemes on a regular basis in order to determine whether they still meet the authorisation criteria.

This clause provides that the Pensions Regulator must be notified in writing if significant events occur in relation to an authorised master trust scheme. The Secretary of State, following consultation with the industry, will set out in regulations what constitutes “significant events” for the purposes of this clause. These might include, for example, change of scheme trustee, change of scheme administrator, changes to the continuity strategy or changes to the business plan. The Government intend that the events which will be prescribed as significant events will be events of the type which the regulator would need to be made aware of promptly due to the potential impact on the scheme’s authorised status or because they are indicators that support or intervention may be required.

To be clear, the occurrence of a significant event in a master trust scheme will not necessarily affect the ability of the scheme to meet the authorisation criteria. It just may have such an effect or it may be a warning sign. For example, a scheme may have a change of trustee. As the fitness and propriety of a trustee is linked to the authorisation criteria, the Pensions Regulator must be informed of this change so that the new trustee may be assessed against the relevant standards. The new trustee may well meet the required standards, in which case the scheme’s authorisation status will not be affected—but there could be an impact. A civil penalty will apply to a person who fails to comply with this reporting requirement. For that reason, it is important to be as clear as possible about who will be subject to this requirement in the Bill. This clause therefore lists the persons subject to this requirement in subsection (2). Further persons may be listed in regulations.

There is a precedent for this requirement. Section 69 of the Pensions Act 2004 provides that key persons involved in the running of defined benefit occupational pension schemes must report the occurrence of certain events to the Pensions Regulator. That provision was made to warn the Pensions Regulator that such a scheme may require the support of the Pension Protection Fund. The provision in this Bill is made to warn the Pensions Regulator that an authorised master trust scheme may need support or intervention or be at risk of not meeting the authorisation criteria. This provision will protect scheme members and it will assist the Pensions Regulator to carry out its functions. That is why it is important that this clause stands part of the Bill.

Amendment 35 concerns the affirmative as opposed to the negative procedure. We have discussed that and we will also consider it in this context. On that basis, I hope that the noble Lord will see fit to withdraw both his opposition to the clause and his amendment. I hope that I have provided clarity on the wider purpose of Clause 16 and I commend it to the Committee.

[Lord McKenzie of Luton]

I thank the Minister for that response. I think we understand what the intent of this provision is. Obviously, the persons to whom this obligation applies are listed in detail in the Bill. Why, therefore, is it not possible to list at least some examples in the Bill—for example, a change of scheme trustees—as one of the significant events which might require action? There is silence on that side of the equation. However, there is a list of persons who are subject to this provision.

[Lord Freud]

I think the reason is that it is pretty odd to have a hybrid approach to a list of requirements some of which are in the Bill and some in regulations. We are looking to put them all together in a coherent way in regulations, which we will consider how best to introduce to the House.

[Lord Freud]

The noble Lord has opened himself up to a letter from me.

[Lord McKenzie of Luton]

My Lords, I think we need to read the record. In the meantime, I beg leave to withdraw the amendment.

Amendment 35 withdrawn.

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Moved by

[Lord McKenzie of Luton]

37: Clause 24, page 17, line 3, at end insert—
“except where the Pensions Regulator is satisfied that continuity is best achieved by the substitution of a new funder.”

[Lord McKenzie of Luton]

I shall speak also to Amendment 38. Amendment 37 seeks to probe an additional route to continuity. As the Bill stands, where trustees have chosen, or are required, to pursue continuity option 1, they must identify one or more master trust schemes to which members’ accrued rights and benefits are proposed to be transferred. Continuity option 2—an attempt to resolve the triggering event—is a route to be determined by the trustees, and not, seemingly, the Pensions Regulator. It is understood that in some circumstances a route to achieving continuity would be to change the scheme funder at the initiation of the Pensions Regulator as an alternative to transferring out or winding up a scheme. On the face of it, the regulation-making powers of Clauses 24(3)(a) and (b) do not seem to cover the position, but perhaps the Minister will tell us how, or indeed whether, this outcome can be accomplished.

Transferring the responsibility for a master trust to a new scheme funder could provide a quick answer to a collapsing master trust and would fit in with what happens with standard occupational schemes where it is wished to avoid having to wind up the whole scheme if a scheme sponsor becomes insolvent. Changing the scheme funder could be an easier solution that costs less and helps members because it keeps the scheme intact and avoids unnecessary investment transition costs and expenses for the members. Does the Minister agree that this opportunity should be available and, if so, can he put on the record how it might be accomplished?

The purpose of Amendment 38 is to highlight circumstances under continuity option 1 which require a transfer out and winding up and for members’ accrued rights and benefits to be transferred. Notwithstanding regulations which might require transfers to alternative schemes or the right of employers or members to opt out of a proposed transfer, what is the position if the trustees simply cannot identify a transferee scheme? How is continuity option 1 to proceed? It is accepted that the focus of the Bill is just the money purchase component of a master trust but, if other benefits are provided, what is the position regarding these and how are they to be covered by other legislation and regulations? I beg to move.

[Baroness Altmann (Con)]

My Lords, I want to raise an issue which is very relevant to this point. As the Bill will, rightly, require continuity strategies for the event of failing master trusts, I ask the Minister to consider introducing measures that will facilitate bulk defined contribution pension transfers. At the moment, the bulk transfers are governed in a way that would be suitable for defined benefit schemes rather than defined contribution schemes. It seems that we have an opportunity to disapply Regulation 12 of the 1991 preservation regulations and to introduce measures in this Bill to directly facilitate defined contribution pension transfers, which could also cut the costs of transferring across.

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Perhaps I may have another shot at responding to my noble friend Lady Altmann. There will be specific bulk transfer provision for master trusts that are following continuity option 1. That will be made by regulations under Clause 24. It will not have the normal requirements on defined benefit schemes, such as an employer link between the two schemes. I hope that is of some help to my noble friend, and that the noble Lord will consider withdrawing his amendment.

[Lord McKenzie of Luton]

I thank the Minister for his response. Working backwards through our amendments, I think that in referring to the second paragraph of Amendment 38,

“dealing with benefits other than money purchase benefits”,

he said that there is legislation in place which in a sense covers those situations. Can we be clear—perhaps he would care to write to me and to my noble friend Lady Drake—that there is a perfect fit of that regulation in those circumstances where there is a master trust with money purchase benefits and other benefits, just to make sure that it fits those precise circumstances? I think that we remain to be convinced on that point.

On the point about continuity under option 1 or option 2 and who should initiate that, the amendment talks about the Pensions Regulator being,

“satisfied that continuity is best achieved by the substitution of a new funder”.

It does not itself say that the Pensions Regulator effectively has to initiate it. I am not sure if we are on the same page on that one, although perhaps there is more than a glimmer of light. But I think that there is an issue here. We understand what the Minister has said about the role of the trustees as opposed to the Pensions Regulator, but what we were seeking was that the Pensions Regulator could perhaps have some influence, or focus on nudging, to get people to accept a situation where there is a new funder rather than go through one of the other courses—we accept that, obviously, that would involve the trustees having to sign up at some stage, and this would not necessarily be something done over their heads. Again, we will read the record, but it is something to which we will return on Report, among some other things. In the meantime, I beg leave to withdraw the amendment.

Amendment 37 withdrawn.