Queen’s Speech

Lord McKenzie of Luton Excerpts

Tuesday 22nd October 2019 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, it is a great pleasure to follow the noble Baroness, Lady Meacher, and I applaud her campaign. Recent years have seen a number of key changes to the UK pensions landscape, some concerning accumulation, such as auto-enrolment and master trusts, and some decumulation, notably pension freedoms. Some concern compliance and regulation, such as the charge cap, but, as the Pension Schemes Bill demonstrates, there is still much to do. On much, but not all, of it there is an underlying political consensus.

Auto-enrolment has rightly been acknowledged as a huge success, but data from the Pensions Regulator has shown that more than 9 million workers are not enrolled in a workplace pension scheme and, as usual, it is the low paid and those with several jobs, mostly women, who are missing out. What needs to be done to expand the scope of AE is well known and, although it is right to assess the impact of the 8% contribution level on opting out, we should make faster progress if we are to address the national challenge of undersaving. Expanding the scope to include the self-employed and others with non-standard forms of employment, lowering the age criteria and calculating earnings from the first pound earned will make a difference.

There is a long-standing issue concerning workers earning below the tax personal allowance whose employer enrols them into a net pay arrangement. Opportunities to address the inequity of tax relief for the low paid in these circumstances are not unfamiliar to HMRC. They exist and should be addressed.

As for pension freedoms, a policy introduced under the coalition Government without proper thought and analysis has proved to hold significant risks for savers and has left the FCA and TPA having to play catch up. Recent FCA data identifies that some 646,000 pension pots were accessed in the year to March 2019, with more than half withdrawn in full and almost half accessed without advice or guidance. This raises the prospect of avoidable financial harm, particularly from pension scams and unsustainable withdrawal rates. TPR and FCA research points to the increasing threat posed by pension scams.

We agree with the Government that it is high time to strengthen the oversight of pension saving, including powers to tackle irresponsible management of private sector schemes, and to have enhanced powers for the regulator. The “clearer, quicker, tougher” approach included in the Bill for TPR looks to be headed in the right direction, but it will have to be tested in Committee.

Nearly two-thirds of UK adults have multiple pension pots, which is not surprising given that the average person will have around 11 jobs over their lifetime. The PPI’s last pension survey revealed that 6% of unregulated pots are considered to have gone missing by providers, amounting to a staggering £10 billion. This is why we support a pensions dashboard that will compel providers to make consumer data available. It will increase individual awareness and understanding of their pension information, but we are mindful of concerns expressed about the absence of representation from the auto-enrolment sector on the steering group. How such arrangements are to be structured and operated will be important. The quality of scheme data will be fundamental to its success. Recent research has found that to be trusted, the dashboard should be government-funded. How do the Government respond to this?

Our consideration of pensions policy has hitherto been typically a binary matter characterised by DB or DC schemes. There is another way; the noble Lord, Lord Willetts, mentioned it. In 2017, following on from but not implementing the provisions of the Pension Schemes Act 2015, Royal Mail and the CWU agreed a new pensions arrangement: a collective defined contribution arrangement, as used in the Dutch and Danish systems. Multiple studies show that in the right circumstances a CDC can give a better outcome than others available, but it needs to be understood that that it is not guaranteed. It also needs to be understood that a CDC provides a target income, and work needs to be done to ensure that workers are aware of that and properly informed of its implications. We know that CDC schemes enjoy the support of the CBI, the TUC, the PLSA and the DWP Select Committee. Indeed, the RSA and the Pensions Policy Institute have been promoting a regulated form of CDC for a number of years. The Bill contains much that we have to examine, notwithstanding that we inherently support the CDC approach.