Pension Schemes Bill [HL]

Lord Young of Cookham Excerpts

Report stage (Hansard): House of Lords
Monday 19th December 2016 Lords Chamber

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I strongly support the case made by the noble Lord, Lord McKenzie. In my experience, in a defined benefit situation the trustee is rightly prescriptive with regard to the steps that need to be taken to satisfy a reasonable test of an engagement and communication strategy. It is blindingly obvious that it is different with master trusts, because they deal with a number of employers. Some of them might be very different in the work they do and the way they do it, so the extra link in the chain justifies this. No sensible person wants to litter primary legislation with a lot of detail. However, at the very least, the master trust needs to be constrained in law by satisfying itself in some way that it is taking steps, not just to ensure that the employers within the scheme are acting properly but so that the members of those individual schemes get the benefit of a flow of information and data which is appropriate to support the important provision of their pensions in the future. The case is well made. As I say, I am not in favour of adding things for the sake of it, but the cause is just. If, as the noble Lord, Lord McKenzie, suggests, it is kept skeletal, as long as there is some duty in the primary legislation, the Committee would be much happier to consider the passage of this legislation.

[Lord Young of Cookham (Con)]

My Lords, I begin by responding to the point that the noble Lord, Lord McKenzie, made in his introduction about whether, if one was dealing with a start-up, it would have to provide accounts. Of course, it does not, because it cannot, so that bit of Clause 4(2) would not apply.

A range of amendments relating to member engagement were put forward for consideration in Committee, and during that debate and at Second Reading I made it clear that I had sympathy with the principle behind them, as I have with the case that has just been made. Member engagement is important, and members should be encouraged to develop a strong sense of ownership of their pension saving. As the noble Lord, Lord Monks, noted when we last debated this issue, the money that the scheme is managing belongs to them. I also agree that it is important that schemes should keep their members well informed, especially—again, as the noble Lord, Lord McKenzie, noted in Committee—as a member approaches retirement.

That earlier debate focused largely on member communications. Communications are not quite the same as engagement, which is a somewhat broader notion including the idea of a two-way exchange. Effective communications certainly contribute to good levels of engagement but they are not the only factor that determines whether a member develops a sense of ownership of their savings. Noble Lords may also have drawn this distinction, which is why the amendment requires that broader “engagement” strategy. In practice, however, I believe that that strategy would inevitably contain significant detail on communications from a master trust, which is why I would like briefly to revisit some of the arguments on communications which I set out in Committee.

The purpose of this part of the Bill is to introduce robust minimum requirements which ensure that the interests of master trust scheme members are protected from the risks that arise in these types of schemes; it is not a Bill that seeks to prescribe every facet of running an excellent scheme. Some of those aspects, including how required outcomes may best be achieved in relation to an individual scheme, are matters for the trustees. That is why the documents listed in Clause 4 relate to the key risks and documents directly required under the authorisation criteria, rather than to wider documentation that the scheme may have.

I also noted that there is already a series of legal requirements setting out the minimum standards for communications in occupational pension schemes, which the noble Lord, Lord Kirkwood, may have referred to. It is worth briefly recapping those requirements. Trustees must provide members with basic information about the pension scheme within two months of their joining, and they are required to update them if this information changes. They must provide most members with a member-specific projected pension and an annual benefits statement. They must also provide a wide range of information upon request, including the annual report, the scheme rules, information about the investment principles and information about benefits and transfer values.

I re-emphasise that those are only minimum standards. The Pensions Regulator publishes codes of practice and detailed guidance for trustees to help them run their scheme according to good practice. This includes guidance on member communications. Our view remains that, provided the statutory requirements are met, it should be for trustees to decide how best to manage member communications. This is one area where a good scheme has an opportunity to distinguish itself. Once the regime commences, our assurance regarding the calibre of trustees of master trust schemes will be further enhanced because they will all have passed the new fit and proper persons requirement.

I also take this opportunity to respond to a specific point that was raised in Committee. The noble Lord, Lord McKenzie, argued:

“The Pensions Regulator should have the opportunity to review the systems and processes related to communications just as much as the features and functionality of the proposed IT system”.—[Official Report, 21/11/16; col. 1754.]

I thank the noble Lord for that contribution, which I have considered further. Although I cannot go as far as he would like me to, I hope that I can go a little further than I did in Committee. I can confirm that the Bill as drafted allows the regulator to take into account the systems and processes relating to communications and engagement when assessing the adequacy of a scheme’s systems and processes more broadly. I can also confirm that the Government would intend—subject, of course, to consultation—to use the regulations under Clause 11 to ensure that the regulator specifically considers a scheme’s systems and processes in relation to these important communication matters when deciding whether the scheme is run effectively.

There is of course the wider point of the engagement of individuals with workplace pension savings, which we take seriously. As part of the review of automatic enrolment that we announced on 12 December, the Government specifically committed to consider member engagement. In a Written Statement, the Minster for Pensions confirmed that the review would include,

“how engagement with individuals can be improved so that savers have a stronger sense of personal ownership and are better enabled to maximise savings”.—[Official Report, Commons, 12/12/16; col. 38WS.]

This review will be supported by an external advisory board, which will include pension provider representation, and we will ensure that we engage closely with the industry as part of that review.