Pension Schemes Bill [HL]

Lord Sharkey Excerpts

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

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

My Lords, perhaps I may start by addressing the government amendments. I recognise that in Committee and in subsequent meetings, some noble Lords expressed concern over the regulation-making powers in Part 1 and how they might be used. I have considered those arguments carefully and am persuaded that your Lordships are, in many instances, right. Following your Lordships’ helpful comments, I am now persuaded that it would be more appropriate to make certain regulation-making powers subject to the affirmative procedure on all usages. I recognise that CDC schemes are a totally new form of pension provision in the UK and it is right that Parliament is, as a matter of course, able to debate changes to key parts of the regulatory framework surrounding them.

Your Lordships will recall that Clauses 11 to 17 set out the authorisation framework that all CDC schemes must meet. I know that the House was concerned by the delegated powers in respect of these clauses, as they provide for the core foundations of the authorisation regime. I am pleased, therefore, to announce that those delegated powers which were subject to the affirmative procedure only on first use will now be subject to the affirmative procedure on each use. In addition, the transfer-related regulations for CDC schemes, introduced by Clause 25, will now always be subject to the affirmative procedure rather than the negative procedure.

The relevant provisions contain two powers to amend the timeframes set out in primary legislation which govern when action must be taken by trustees once a transfer out of the scheme has been requested. First, there is a power to extend the time in which trustees must facilitate a request to transfer out of a CDC scheme to a period longer than the specified six months. Secondly, there is a power to amend the three-week “cooling-off” period, during which trustees may not facilitate the requested transfer unless they receive written instruction from the member to do so. Given the importance a decision to transfer out of a CDC scheme may have for a member, it is right that regulations in respect of the timeframes for related action are debated in Parliament under the affirmative procedure as a matter of course.

Amendments 35 to 38 make changes to Clause 47 to make it clearer that this power is not as wide as it may have appeared on first reading. I understand noble Lords’ concern about this clause: it contains a Henry VIII power and as such it should be as clear as possible when and for what purpose it can be used.

Our amendments make it very clear that the power can be used only to provide for non-employer established schemes, such as master trusts, and other non-connected multi-employer CDC schemes as and when concrete scheme designs come to light over the next few years. Noble Lords may recall that the Work and Pensions Select Committee in its report on CDC schemes called for our legislation to be extended to provide for CDC master trusts at the earliest opportunity, and organisations from commercial pension providers to trade unions and even the Church of England have made similar requests.

However, there are clear administrative differences between a scheme with one closely involved employer and a master trust with many more distant employers. The authorisation and supervision legislation will therefore need to be tailored to reflect the risks posed by such schemes and providers so that members and participating employers are to be adequately protected.

This is what Clause 47 seeks to do. It is intended to allow us to make the necessary changes via regulations in a timely fashion so that master trusts and other non-connected multi-employer CDC schemes can be up and running as soon as possible, and employers and employees can benefit at the earliest opportunity. Without this clause, it is likely that the extension of CDC provision to master trusts and other non-connected multi-employer models would be delayed.

However, I assure noble Lords that any such changes required would be considered carefully and consulted on thoroughly before being brought before the House to ensure that they covered the right ground. Such changes would also be subject to the affirmative procedure, which would give the House opportunity to scrutinise the regulations.

The amendments before the House are intended to address concerns in key areas— authorisation, transfers and the provisions relating to the future expansion of CDC—and I am grateful for the informed and thoughtful comments that have led us to this point. The points that I have made also apply to the corresponding Northern Ireland provisions in Part 2 of the Bill. I hope that noble Lords are reassured by the amendments. I beg to move.

[Lord Sharkey (LD) [V]]

My Lords, I shall speak briefly to government Amendments 1, 3 to 7, 9 to 12 and 14 to 31, as well as to my related Amendment 2. First, I thank the Minister and her team for their close engagement with us on the Bill and their time, patience and occasional willingness to change their minds.

The government amendments are a good example of mind-changing. As the Minister said, they remove the instances in Part 1 of first-use-only affirmative procedures; that is a very good thing. The DPRRC’s report on the Bill in February this year was concerned about the use of these procedures. It pointed out that the powers in the regulations remain exactly the same on subsequent use. In Committee, I strongly urged the Government to remove this type of procedure; I very much welcome the fact that they have now done this. All the subsequent uses of the negative procedure have been withdrawn by these amendments.

However, one negative procedure remains: what is left of Clause 11(8) in line 18 on page 7. This is the subject of my probing Amendment 2. Subsection (8), as amended by government Amendment 3, prescribes the negative resolution procedure for regulations under Clause 11(2)(e). Subsection (2)(e) seems a little opaque. It seems to allow the Secretary of State to add persons or categories to those whose fitness and propriety TPR must assess. On 22 June, the Government confirmed to me in writing that this was the case. They believed that this was largely an operational matter and that the negative procedure provided

“appropriate scrutiny as well as opportunity for debate if desired”.

This is a mischaracterisation of the negative procedure, which in practice barely merits the label “scrutiny” at all. Possibly because I did not ask them to, the Government did not address why subsection (2)(e) was necessary at all or give examples of what kind of persons or categories of persons are envisaged in subsection (2)(e) and what role they may play in the schemes themselves. Any additional involvement of these persons or categories of persons may give them significant influence over the conduct of the schemes.

It is obviously desirable to have these new entrants assessed for fitness and propriety. The issue here is the Secretary of State’s decision to add persons or categories to the list without constraint, restriction or proper scrutiny. I would be grateful if the Minister could address these points when she replies.

[Baroness Altmann (Con) [V]]

My Lords, I very much welcome the Government’s amendments to this Bill and congratulate my noble friend on her initial speech, in which she so clearly explained what the Government intend to do. I also congratulate her on the way in which she has engaged with Members across the House and, together with the Bill team, has listened to the concerns expressed at previous stages of this Bill. I particularly welcome the change from the originally proposed first-use-only affirmative procedure and the comments made by my noble friend on the importance of, for example, the cooling-off period before pension transfers occur.

I must admit that I also support Amendment 2 in the name of the noble Lord, Lord Sharkey. I share his concerns and would welcome an explanation, such as he has requested from my noble friend when she comes to respond, of why only this area—assessment of whether somebody is fit and proper to run a CDC scheme—should be left to the negative resolution procedure and be wholly at the discretion of the Secretary of State without what we would normally consider to be appropriate parliamentary scrutiny in this important area. The CDC framework is completely new for this country. I therefore think that colleagues across the House who have expressed the same concerns are right in suggesting that it is important that we have as much scrutiny as possible.

I have an amendment in this group—Amendment 13—regarding the accuracy of pensions data that needs to be submitted to a CDC scheme. I will not move it at this stage; I will come back to this subject during debate on a later group with my other amendments.

I welcome the current government proposals and hope that my noble friend will listen to some of the concerns expressed. I look forward to hearing contributions from other noble Lords and colleagues as we go forward in this debate.

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[Lord Naseby]

I think the amendments have been extremely well aired and I await the response from my noble friend on the Front Bench.

[Lord Sharkey [V]]

My Lords, I will restrict my remarks to Amendment 32, which is in my name and the names of the noble Lord, Lord Vaux of Harrowden, and my noble friend Lady Bowles. I thank them for their support. In Committee, we spent a long time discussing intergenerational fairness in CDC schemes. We did this partly because we knew from the Government’s excellent briefing note that concern about intergenerational fairness was raised by many respondents to the consultation and because it seemed clear that the risk to intergenerational fairness was an almost inevitable feature of such schemes.

We pressed the Government to legislate the requirement for intergenerational fairness into the schemes. We knew that the Government themselves were deeply concerned about the issue and seemed to be choosing mechanisms for intergenerational fairness over benefit stability; but as I remarked at the time, it was hard to tell how they might work, since the mechanisms for bringing this about were not yet explicit and no real assessment of effect was possible.

In her response, the Minister made it clear that she shared our commitment to ensuring intergenerational fairness and that the mechanisms for achieving it would be introduced, after extensive consultation, by regulations under Clause 18. This will be long after the Bill has become an Act, and leaves open the question of how we will assess the success or otherwise of these mechanisms. It also leaves open the question of how the assessment of any such mechanisms will be communicated to members and potential members of the scheme.

Our Amendment 32 proposes a way of addressing these issues. It provides that, whenever TPR issues a notice requiring a scheme to submit a supervisory return, the notice must include a requirement that the trustees

“make an assessment of the extent to which the scheme is operating in a manner fair to all members.”

The amendment speaks of fairness. Intergenerational fairness is a critical subset of fairness, but there are other kinds of fairness, too. For example, there is gender fairness, and single versus married status and the fairness implicit in that, or not. The amendment makes no attempt to define fairness; it relies on the trustees to do that, as they should in the normal operation of the scheme. Their definitions and assessments will help members of all classes, and potential members, understand the working of their scheme and the success of the trustees in operating it fairly in the interests of all members.

As I mentioned in Committee, AJ Bell noted that the DWP leaves little doubt that it will not allow schemes to be skewed in favour of one cohort of members over another. I am sure that is the intention, but AJ Bell also noted that fairness could make outcomes in CDCs less predictable and raises the spectre of pension cuts. It goes on to say:

“The DWP itself notes any reductions in benefits will not be well received, and so clear communication of this – not just upfront but on an ongoing basis – will be absolutely essential.”


Our amendment will bring some communication and transparency to the balancing required to produce, and to the consequences of producing, fairness across all member cohorts.

In Committee, the Minister explained how the proposed headroom mechanism for the Royal Mail scheme would be fairer than a capital buffer. All classes of members and potential members of the scheme need to know how well this headroom mechanism or other mechanisms generated by Clause 18 are working. Our amendment will require the trustees to explain these things and to assess their success in managing the scheme fairly for all members.

Given the acknowledged risks to fairness inherent in the scheme, and that Parliament’s opportunity to influence the mechanisms that might arise in regulation will be as small as usual, it is vital that scheme trustees are open and transparent about their success in producing fair outcomes for all members. That is what our amendment would help bring about, and I intend to test the opinion of the House.

[Baroness Sherlock [V]]

My Lords, I say at the outset that Labour supports Part 1 of the Bill and the move to create CMP schemes, provided, of course, that they are not used as a means of downgrading good DB schemes. The two amendments in this group deal with different concerns that have been expressed about CMP schemes. Amendment 32 acknowledges that there may be a divergence of interests between different sets of members in a scheme of this kind. It does not prescribe any particular action but it does require trustees to surface the issue and to assess the extent to which the scheme is fair to all members.

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Moved by

[Lord Sharkey]

32: Clause 27, page 18, line 10, leave out “The notice” and insert “Any such notice must include the requirement that trustees make an assessment of the extent to which the scheme is operating in a manner fair to all members and”
Member’s explanatory statement
This amendment would require any notice from the Secretary of State to CDC scheme trustees to include a requirement to report on the fairness to members of the operation of the scheme.

[Lord Sharkey [V]]

My Lords, I wish to test the opinion of the House on Amendment 32.

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I support the Government’s cautious approach. I welcome it and I think that it is the right way to go forward for the time being.

[Lord Sharkey [V]]

My Lords, I shall speak to Amendments 72 and 74 in this group. Neither amendment in any way alters any of the important climate change amendments in the group, except in one respect: they require the Government to make something happen.

What the amendments would do is very straightforward: they would simply impose a binding legal obligation on the trustees or managers of an occupational pension scheme of a prescribed description with a view to securing effective governance of the scheme with respect to the effects of climate change. They would also impose an obligation to include, in particular, the risks arising from steps taken because of climate change, whether by the Government or otherwise, and opportunities relating to climate change.

All those things are word for word in the Bill except that they are all governed by the word “may”. Our amendments would replace the two references to “may” with “must”. As the Bill stands, the Government are not actually obliged to do any of those things, or indeed anything at all, in this clause. The word “may” in subsections (1) and (2) is permissive, not directive—a point made by my noble friend Lady Bowles and me in Committee.

The Minister kindly wrote to us all in response on 5 March. She confirmed that the Government intend to take action and were wholly committed to legislating for effective governance of occupational pension schemes with respect to climate change. She concluded by saying:

“Changing the legislation to ‘must’ would therefore make no practical difference, because as a Government we are committed to making regulations under new sections 41A, 41B and 41C introduced by the Government’s amendment.”


This argument works both ways, of course. What can be the basis of the Government’s objection to “must” if they are committed to doing it anyway? What possible reservations, hesitations or changes of mind are being contemplated here? What can be wrong with having legal certainty that what has been promised will actually happen?

There is a parallel in this Bill to our discussions on the MaPS pensions dashboard. The Committee asked why the provision for MaPS to provide a public dashboard was only a “may”, not a “must”. In reply, the noble Earl, Lord Howe, confirmed that the Government were absolutely committed to MaPS providing a qualifying dashboard service. Several Members, including the noble Baronesses, Lady Drake and Lady Sherlock, noted that the Government being committed to MaPS producing a dashboard is not the same thing as saying that they will ensure that there is a MaPS dashboard. The noble Baroness, Lady Drake, made the point that a little amendment—“may” to “must”—would capture the Government’s assurances

“so that the next Secretary of State does not change their mind.”—[Official Report, 26/2/20; col. GC 186.]

This argument clearly convinced the Government. They have now introduced their own amendments to make a MaPS dashboard a “must” rather than a “may”. I know that we are all very pleased about that.

Can the Government accept the same logic here? If it was right to change “may” to “must” for a pensions dashboard, why is it not right to do the same thing for climate change? I look forward to the Minister’s eager acceptance of the precedent and these amendments.

[Baroness Sherlock [V]]

My Lords, I am grateful to all noble Lords who raised climate issues in relation to pension schemes during our proceedings, especially those involved in the cross-party talks led by the noble Baroness, Lady Hayman, and my noble friend Lady Jones of Whitchurch. I also thank the Minister for listening and moving on from the broad government amendments brought forward in Committee.

This Bill has been on a journey. When it was first published there was no reference to climate change at all. Indeed, from having been given advice from the Library, I understand that climate change has never been included in domestic pensions legislation before in this country, so we are making history here today.

The Labour Benches had two priorities on this: first, to provide clarity on climate risk by ensuring that the Paris Agreement is referenced; and secondly, to ensure that trustees and managers take international climate treaties into account when making decisions. The word “account” is clearly significant. It recalls the Court of Appeal judgment that found that the Government had failed to take into account the Paris Agreement when permitting the Heathrow expansion. That was a good example of the need to make sure that positive action on the international level to combat climate change is not forgotten when Ministers make domestic policy decisions.

Our priorities are reflected in Amendments 73 and 79, but because we have secured cross-party consensus with the Government, they are also reflected in the government amendments in this group, especially Amendments 75 and 76. I will be interested to hear the Minister’s reply to the questions from the noble Baroness, Lady Hayman, about whether these refer also to the physical impacts of climate change and the impact of steps taken to transition towards a low-carbon economy, and for clarification that Amendment 76 includes the UK’s net-zero target.

However, as my noble friend Lady Jones said, we are only at the beginning of a journey to net zero. Divesting pension funds away from fossil fuels is a big challenge. The Government and the industry need to go further and quicker, with aligning investment strategies with domestic and international targets being the ultimate goal. For this Bill, we have reached a good place with broad cross-party support. I look forward to the Minister’s reply.

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[Lord Vaux of Harrowden [V]]

My Lords, I have added my name to Amendment 63 in the name of the noble Baroness, Lady Sherlock. This amendment is very simple. It seeks to ensure a period of a year from the establishment of the publicly operated dashboard before competing commercial dashboards are allowed to operate. This may seem a small point, but it is quite important. Dashboards are a new concept and will include large amounts of sensitive and complex data from many sources. We do not yet know how they will used, whether the current design concepts are suitable in practice and whether changes will need to be made to ensure that they operate well and safely. Therefore, it must make sense for the system to be tried out in one place, with proper controls, and reviewed and reported upon, before we open it up to the commercial world. This period of a year will allow us to see how a dashboard is used and whether any unforeseen problems and consequences arise.

I am grateful to the ABI for its commentary on the amendments to this Bill, but I am afraid that I disagree with it on this matter. The ABI is right that making dashboards as accessible as possible is desirable, but that must be done in a way that ensures that unforeseen consequences are avoided. As I mentioned in an earlier debate today, a bad dashboard is worse than no dashboard. A year’s grace period to ensure that what the noble Lord, Lord Young, called the plumbing is working well, and to make any tweaks, seems a common-sense safeguard.

[Lord Sharkey [V]]

My Lords, I have put my name to Amendment 63 because it is vital to allow the MaPS dashboard the best possible chance of reaching a wide public and establishing MaPS as a trusted and independent operator. This amendment would provide the MaPS dashboard with a head start of about 12 months. Without that, I doubt that MaPS would be able to do any of those things very successfully. I doubt that it could establish a wide customer base. If it is competing from the start with rival commercial organisations and their dashboards, those rival dashboards, whose eventual presence I would welcome, would be provided by organisations that have more resources than MaPS does, more consumer-facing expertise and more experience and skill in communications with consumers. Many would also have a very large existing consumer contact base, firmly established brands and loyalty, whereas MaPS would find it very hard to establish itself as a distinct, recognised and trusted independent operator in the clamour of a vigorous competitive marketplace. You need market share, visibility and actual customer experience to do that. That is probably impossible for MaPS in a very busy, very fragmented and possibly very confusing marketplace.

To make the MaPS dashboard work, we need lots of people to know about it and lots of people to use it. If we are to generate trust, we must provide high levels of consumer satisfaction and embed the notion and value of independence in the MaPS brand. The only way to do this is to allow MaPS a head start, to properly fund its launch and its communication campaigns, and to give it time to use what it learns in its first year. That would enable it to offer a very high level of service by the time that the huge marketing expertise of its well-funded and contact-rich competitors arrives on the scene. That is why I support Amendment 63.

[Baroness Neville-Rolfe [V]]

I welcome my noble friend Lord Young’s probing amendments on verification and timing, and I look forward to hearing from the Minister. I was very struck by the summing-up on the previous amendment by my noble friend the Deputy Leader of the House, who showed just how strong the Bill is on consumer protection and to what lengths the Government have gone to meet the House’s concerns. But others have just tried to use the Bill to bring in yet more burdensome measures.

For me, Amendment 63 takes the biscuit, because the Government have agreed to bring in a Money and Pensions Service dashboard so that there is a government, public-funded version that includes people’s various pension pots and the old-age pension. The proponents of this amendment are then trying to exclude the trail-blazing commercial version, which was behind the Bill in the first place and is designed to help savers, building on the good practice that exists out there in the best pension funds and elsewhere. The amendment would lead to a delay of a year for those dashboards, yet they will all be properly regulated and monitored and MaPS would be in the lead. Competition from others will be an incentive to quality and speed, helping to identify the bugs that the noble Baroness, Lady Drake, who knows so much about pensions, referred to.

I cannot support this amendment. It is worrying that the Government are losing on a series of inappropriate amendments because noble Lords are not coming to the House to speak and listen, but can vote from their garden benches.

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[Lord Sharkey [V]]

My Lords, I strongly support my noble friend’s analysis of the one-size-fits-all regulatory threat to open schemes. I also strongly support the proposed remedy, which would ensure proper consideration of the essential differences between open and closed schemes, is proportionate and is not unduly prescriptive. I hope the Minister will respond positively.

[Baroness Sherlock [V]]

My Lords, we all believe that trustees of DB schemes should have a clearly defined funding and investment strategy for insuring pensions in the long term. However, if that is pursued in a way driven by the need to protect members in closed maturing DB schemes, then schemes with strong covenants open to new entrants risk being swept up in an approach that is wrong for them. As closed DB schemes increasingly mature, the regulator will expect them to de-risk and reduce their deficits. However, if that approach is applied in a blanket form it will force some open schemes to de-risk prematurely, putting pressure on employers and, in the railway scheme with its shared-cost basis, on employees too. Given all the concerns expressed, will the Minister accept this amendment?