Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Work and Pensions
Matt Rodda
Main Page: Matt Rodda (Labour - Reading Central)Department Debates - View all Matt Rodda's debates with the Department for Work and Pensions
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting)
Matt Rodda ExcerptsTuesday 15th June 2021
(3 years, 6 months ago)
Public Bill CommitteesRead Full debate Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2021 - (15 Jun 2021)
Peter Grant
Q
Ms Howard, another major problem has been not the unregulated activities carried out by regulated organisations, but unregulated companies that hide behind the fact that some company associated with it is regulated—for example, if a regulated company gives section 21 authorisation for its marketing materials. I will ask the same question again: do the people being encouraged to make these investments understand that the fact that marketing material is issued by a company registered with the FCA does not mean that its activity is regulated?
Sheree Howard: In evidence as part of LCF there was substantial discussion of the financial promotions regime—of the section 21 approval regime in particular. The Government are currently considering changes to that regime to help to improve understanding by making it a specific gateway so that we can test firms that wish to give such approvals to ensure that they do so appropriately. That should help to ensure that consumers understand better.
Matt Rodda (Reading East) (Lab)
Q
The Chair
May we ensure that questions are in scope of what is before us? You have only three to four minutes.
Matt Rodda
I will move through them rapidly.
To what extent do the witnesses believe that pensions scams are a tangible risk to the future of people’s retirement in the UK?
James Darbyshire: The FSCS is seeing an increase in pensions scams in our work. The area certainly needs further attention, given the distress and the potential for losing life savings. Where we see evidence of scams, particularly use of the FSCS logo, we are working closely to reassure pensioners in relation to scam investments and are sharing data with regulatory colleagues to ensure that they can take action as appropriate.
Matt Rodda
Q
James Darbyshire: Focusing specifically on scams, we think that online scams and the ability to scam investors and pensioners should be considered for inclusion as part of the online safety Bill. That is certainly our position, and I believe it is also the FCA’s.
Matt Rodda
Q
Sheree Howard: Picking up on James’s final comment on the online harms Bill, we definitely would support that. Good changes have been made recently, but further changes would be helpful in mitigating the risk of scams and fraud in pensions and investments. We have our ScamSmart campaign and have done targeted campaigns around it. We work with partners, as James said. Could more be done? Yes, more could be done, such as the online harms Bill, education and so on. We are working with partners, but more could be done.
Matt Rodda
Q
David Taylor: Our role relates to paying the compensation at the end of the process. The cases we are talking about here almost entirely predate pension freedoms. The reasons for the liberation cases have gone away to an extent, as a result of pension freedoms. There is not a great deal that would be appropriate for me in my role to talk about pension freedoms.
Matt Rodda
Q
David Taylor: We have almost no discretion in how the Fraud Compensation Fund levy is set. Members will probably be familiar with the Pension Protection Fund levy, the much larger levy on defined benefit schemes, where we have a lot of discretion and we do a lot of work on structuring that levy. As far as the Fraud Compensation Fund levy is concerned, it is simply a flat-rate levy. Our only choice is whether to charge the maximum amount or less. In the light of the size of the claims we are now dealing with, we will charge the maximum for the foreseeable future.
Matt Rodda
Q
David Taylor: Again, that is slightly outside our remit but we are, of course, well aware of the debate around the fact that it is a per-member levy, and the representations made by master trusts, in particular, on the impact that has where they manage numerous small pots.
Matt Rodda
Q
Philip Brown: Yes, of course. Fraud is a serious issue and people should have a route to redress, as has been said by other witnesses. The challenge is how you pay for that redress.
The current levy system was created a long time ago, before master trusts existed. The People’s Pension is a master trust and a not-for-profit organisation. If a levy is put upon us, it comes from our members’ savings—from the savers we are trying to help create pensions.
The challenge we have with the current system is that it works on a member basis. Between ourselves and NEST, as the two very large master trust schemes, we paid approximately 37% of the Fraud Compensation Fund levy the last time it was taken, in 2019. That is a significant amount of money. At the time, the levy raised £6.9 million.
If we are going to raise a levy using the same mechanism, the current estimate is £350 million. The proportion of that that falls on the two schemes that I referred to is very significant, and it needs to be put in the context that, between those two schemes, we have roughly 1% of the assets in the sector, so there is a very disproportionate effect of how the current levy system works. A fundamental review is necessary for how levies are calculated.
Matt Rodda
Q
Philip Brown: Yes, absolutely. Between ourselves, the People’s Pension and NEST, we are serving the small and medium-enterprise end of the market. Those savers are all relatively new to pensions, so they have modest funds, and it is a very disproportionate effect if you are taking roughly 37% of the fees from those organisations.
Matt Rodda
Q
I wonder whether I might ask Dame Elizabeth a short question as well. In your view, Dame Elizabeth, should there be a wider explanation of the rights of consumers in relation to the regulatory failure that we have heard about today?
Dame Elizabeth Gloster: I am not sure I understand the question. What do you mean by “a wider explanation”?
Matt Rodda
Exploration, sorry. Should there be a wider exploration of this issue?
Dame Elizabeth Gloster: I am not sure what you are suggesting. Do you mean the regulatory failures in connection with LCF or more widely?
Matt Rodda
Q
Dame Elizabeth Gloster: I do not think that is something that I am qualified to comment on. I did my report. The problem about wider reviews is that they need to focus, as my report did, on a specific case and specific facts. The idea of a judicial commission looking at all the financially regulated firms that have gone bust in the last two years—I am not sure what it would achieve beyond the failings that I have identified in my report. It might identify other failings, or it might not, but I do not know that my answer is a very informed answer to that.
Matt Rodda
Q
Finally, I want to turn to Mr Agathangelou—I apologise if I have mispronounced your name. You talked about catastrophic failure across the system. I am particularly interested in the issue of pensions, and obviously we are talking about the wider financial services system. I wonder whether you might comment on the scale of the problems in the pensions sector on its own.
Andy Agathangelou: As it happens, most of my career has been connected to the pensions sector. To know that the issue is very widespread, you only have to look at the report produced by the Work and Pensions Committee as a consequence of the excellent investigation that it had into the pension schemes problem. There is a long list of recommendations in that report. Most, if not all of them, are very warmly supported by the Transparency Task Force.
Unfortunately, the trajectory is worsening. The problem we have is widespread regulatory failure leading to catastrophic losses for people—sometimes literally life-changing losses—and sometimes extreme emotional harm as well as financial considerations. The problem is getting worse. I genuinely believe that the only way we are going to have a chance to deal with these issues systemically is if there is a high-level, widespread investigation into what is going wrong. I believe that could be carried out it a very constructive way. It is not about apportioning blame; it is about having very honest conversations about what is actually broken here and the most pragmatic ways to solve it.
The Chair
I now call Mr Gareth Thomas. You will be pleased to know the witnesses are with us until 11.25 am, Mr Thomas.
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting) Debate
Full Debate: Read Full DebateDepartment: HM Treasury
Matt Rodda
Main Page: Matt Rodda (Labour - Reading Central)Department Debates - View all Matt Rodda's debates with the HM Treasury
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)
Matt Rodda ExcerptsTuesday 15th June 2021
(3 years, 6 months ago)
Public Bill CommitteesRead Full debate Compensation (London Capital & Finance plc and Fraud Compensation Fund) Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2021 - (15 Jun 2021)
John Glen
Out of courtesy, I am very happy to respond to my colleagues. The right hon. Member for Wolverhampton South East asked why the 80% figure was not 100%. As I have tried to explain through the submissions that I have made, the Government have been trying throughout to balance the interests of bondholders and the taxpayer to ensure that we have a fair level of compensation in respect of the financial losses incurred. The scheme is based on the FSCS level of compensation but, as he knows, it is 80% up to that cap of £68,000 to reflect the unregulated nature of the LCF product.
I emphasise that it is imperative to avoid creating the misconception that Government will stand behind bad investments in future, even where the FSCS does not apply. That would create a moral hazard for investors and potentially lead individuals to choose unsuitable investments thinking that the Government will provide compensation when things go wrong. To avoid creating that misconception, and to take into account the wide range of factors that contributed to the losses that the Government would not ordinarily compensate for, the Government will establish the scheme at the level of 80% of LCF bondholders’ initial investment up to the maximum of £68,000. With any investment, there is clearly a risk that sometimes investors will lose money, and the Government and taxpayer cannot and should not be expected to step in and compensate for every failure and every loss. It would not be right or fair for investors in non-regulated products to receive fuller compensation than those who have invested in regulated products, for which the maximum amount is capped at £85,000 under the FSCS.
On the remarks of the hon. Member for Glenrothes about the individuals involved in an ongoing serious fraud inquiry, I am not familiar with the detail, but obviously I am happy to receive any representations. I hope that brings satisfaction to the Committee.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Loans to the Board of the Pension Protection Fund
Matt Rodda (Reading East) (Lab)
I beg to move amendment 3, in clause 2, page 2, line 7, at end insert—
“(3) No loan shall be made under this section until the Secretary of State has laid before Parliament an impact assessment of the means of repaying the loan, including specifically the impact on pension schemes from the Fraud Compensation Fund levy.”
This amendment would prevent the Secretary of State from making a loan to the Board of the Pension Protection Fund for the purpose of compensating eligible pension schemes until he or she has laid before Parliament an impact assessment of the Fraud Compensation Fund levy on different pension sectors.
The Chair
With this it will be convenient to discuss the following:
Amendment 5, in clause 2, page 2, line 7, at end insert—
“(3) Before making a loan under this section, the Secretary of State must lay before Parliament an assessment of the levels of fraud in the pensions system.”
This amendment would require the Secretary of State to publish a report on the levels of fraud in the pensions system before making any loan under new section 115A of the Pensions Act 2004.
Amendment 6, in clause 2, page 2, line 18, at end insert—
“(5) Within twelve months of this Act receiving Royal Assent, the Secretary of State must publish a report on the operation of the Fraud Compensation Fund in connection with any loan made under section 115A.”
This amendment would require the Secretary of State to publish a report, within twelve months of this Act being passed, on the operation of the Fraud Compensation Fund in connection with any loan made to the Board of the PPF under new section 115A of the Pensions Act 2004.
Matt Rodda
We have tabled a number of amendments seeking to improve the Bill. Amendment 3 seeks to ensure that we have clarity and certainty before taking the step of asking key pension schemes to fund the majority of the bill for the Fraud Compensation Fund. It is perhaps worth reflecting on the evidence we heard this morning, which was so illustrative on this issue. One socially important pension scheme—the People’s Pension fund, which we heard about today—was asked to put forward a large amount of money to help support the compensation fund. The fund is known to take a large number of people—many of them women, on low incomes or self-employed—who have started to save for a pension through auto-enrolment. I am sure the whole Committee will agree that it is a worthwhile objective of Government policy to encourage pension savings by a wide range of people, not just the wealthier sector of the community.
Specifically, amendment 3 would prevent the Secretary of State from making a loan to the board of the Pension Protection Fund for the purpose of compensating eligible pension schemes until he or she has laid before Parliament an assessment of the impact of the Fraud Compensation Fund levy on different pension sectors, thereby allowing Parliament to consider the issues affecting them. That is essential because, as we have heard, the burden of compensating victims of fraud is falling disproportionately on certain groups. As we heard this morning, just two schemes—the People’s Pension and the National Employment Savings Trust, which are both not-for-profit operators—have historically ended up paying the lion’s share of the fraud compensation levy, despite their size and the fact that there is no tangible connection between those funds and the fraud that we are trying to address.
It is perhaps helpful to mention the figures again, for the sake of clarification. To recap, the PPF’s 2019 annual report and accounts reported that the FCF levy raised £6.9 million. What is truly surprising to casual onlookers, however, is that 37% of that was paid by the two pension schemes that I mentioned—NEST and the People’s Pension—even though they managed only £20 billion of the roughly £2 trillion of assets held in UK workplace pensions. They were managing just 1% of the total, which is a tiny amount, as I am sure everyone will agree. There is clearly a mismatch, and I am sure that the Minister, who has obviously followed this in great detail, will want to respond because something strange seems to be going on. With the figure now enlarged significantly to hundreds of millions of pounds, and with the potential repayment of the loan via an increased levy, it is understandable that the schemes are anxious about where the burden of repayment will fall. That is a fair point, and one that I am sure we would all want to consider thoroughly.
We have been promised a review of the levy later this year, and I appreciate that the Government are willing do that. However, it does not seem right that, given the significant sums involved for the loan, the legislation should proceed without pausing—all we are asking for is a pause—to consider its impact. Both of the pension schemes I have mentioned play a hugely important part in expanding pensions coverage, and I am sure that members of the Committee are aware of the national policy challenge of encouraging more people to save for their pensions. We all want a much larger proportion of the community—ideally, everybody—to have access to a pension scheme that they can save into as well as the state pension. The two organisations I have mentioned have many low-income savers who I am sure we want to support. It is crucial that we consider the long-term viability of those schemes as we consider the structure of the levy, and that the long-term viability of the two pension schemes is not jeopardised.
A fundamental change is under way and it needs to be addressed. I hope that the Minister will reflect on that. First, the scope of who is compensated for fraud has been drastically expanded by the High Court judgment. Secondly, the industry structure has radically altered since the levy was first designed. Both of those points are important, and combined they will, potentially, have a huge impact on the rest of the sector. Careful consideration neds to be given to that. An impact assessment is necessary to give parliamentarians, sector experts and decision makers in the round a broader understanding of this complicated situation.
The Chair
In case any Member did not quite understand what I said at the top, all of the proposed amendments to the clause are being debated now, including amendments 5 and 6. Mr Rodda, to confirm, are you aware of that, and do you wish to speak to amendments 5 and 6 now?
Matt Rodda
I am very grateful, Ms Ghani. I would like to speak to amendments 5 and 6. Amendment 5 obviously covers a very different area. I sponsored it because I think that the central principle of this country’s pensions system—I am sure the Committee agrees—is that people who work hard all their lives and who contribute and save diligently are able to receive a decent pension in their retirement. I hope there is cross-party agreement on that. I am sure there is; historically, that has been the case.
In recent years, however, it has become clear that an increasing number of pensioners—and, indeed, people approaching retirement, who are also an important group and are in some ways quite vulnerable—have been set back significantly as a result of what are commonly called pension scams. As the Bill Committee, we have a duty to protect people and to help them prepare for their retirement. Amendment 5 therefore seeks to require the Secretary of State to publish a report on the levels of fraud in the pensions system before making any loan under new section 115A of the Pensions Act 2004. We believe that that is a crucial first step in tackling pension scams. Obviously, there are a whole series of ways to tackle them, and we appreciate that the Government are taking other steps. This is important because the consequences of the scams can be utterly devastating for those directly affected. They are also potentially expensive and damage trust in the pensions system as a whole and the operation of many businesses in the sector. It is critical that we have a system that is robust and protected against scams. The Bill highlights the consequences for everyone, including other scheme members, when fraud is allowed to spiral unchecked.
The pandemic has, sadly, given rise to an increase in fraud, as many criminals have taken advantage of the confusion and, in some cases, the isolation of vulnerable people to prey on those who, sadly, can fall victim to these dreadful crimes. However, pension scams were already on the rise. It is worth noting that, since George Osborne’s pension freedoms were introduced in 2015, fraudsters have taken advantage of confusion around what the rules precisely allow. We warned at the time that those reforms would significantly increase that risk. The Government must acknowledge, as I am sure they will, the failings of pension freedoms and their associated tax problems, as in the case of the NHS.
One of the most egregious abuses of pension freedoms has been a scam by sophisticated criminals who trick people into accessing their pensions before the legal age of 55, relying on confusion about the rules, and then abscond with the funds, leaving people in a desperate situation. In some cases, the victims suffer a double injustice: not only do they lose their entire pension pot in some cases; they are also aggressively pursued by HMRC for tax penalties, having broken the rules on money they no longer have. There are some truly heartbreaking cases of innocent people being misled and sadly losing their life savings, as well as being left with tax debts of tens of thousands of pounds.
We would like reassurance that the Department for Work and Pensions and the Treasury will look into tackling this problem in the wake of the Dalriada judgment last year. The Government could provide that reassurance by supporting amendment 5 as a crucial first step. They should also find a way for HMRC to work with the authorities to make sure that these crimes are properly investigated, targeting the promoters, not the victims, and recognising the dreadful circumstances in which those victims find themselves through little fault of their own.
The High Court judgment that is at the centre of the loan we are discussing today is linked to exactly that type of fraud. In its recent report on pension freedoms fraud, the Select Committee on Work and Pensions recommended that particular aspects of pension freedoms and the Pension Protection Fund be reviewed in further detail in that light.
We agree with the Select Committee. Our amendment, which calls for an assessment, could form an important part of tackling the issue. It is important that the Government publish the report the amendment seeks, in order to show the public that they are not simply looking at the symptoms of fraud, but tackling the causes. I am sure the Minister will want to consider that point. The Government should set out an action plan to protect pension savers and an assessment of the level of fraud in the system as part of that work.
I know the Minister campaigned to tackle cold-calling last year in the Pension Schemes Act 2021. The Bill quite rightly tackled telephone cold-calling, but people can be approached in a cold manner online. I ask the Government to consider that avenue for scams. There has been some mixed messaging, but I hope the Minister, who I know is in touch with the sector, will take the point on board. I have written to the Secretary of State for Digital, Culture, Media and Sport to ask that the Government act on this point and include it in the online harms Bill, which is an appropriate place to tackle these serious scams, alongside many others.
Pension savers are particularly vulnerable in the few years just before retirement, when savings have accumulated but before they have actually retired. Pension transfers, especially for those in defined-benefit pension schemes, can be targeted by criminals, alongside pensions liberation fraud, which we are talking about today. This is where the Money and Pensions Service should play a bigger part. As Members will know, the service is a Government-funded body that offers free pensions advice to people aged over 50, through its Pensions Wise service.
Is it possible for Pensions Wise to play a bigger role? I hope the Minister will consider that point. It could be helpful and supportive to individuals, as well as helping the operation of the sector—the businesses that are operating legitimately, as the vast majority are.
It was disappointing that the Government rejected a proposal in proceedings on the Pension Schemes Act that would have booked a default Pensions Wise appointment for everyone in the five years prior to their retirement. The amendment was put forward by the Chair of the Work and Pensions Committee, my right hon. Friend the Member for East Ham (Stephen Timms), and was supported by the Opposition. It would have meant that everybody would automatically get some basic knowledge about where they stood, better protecting them against scams.
Finally, I would like to share some research from the People’s Pension and the Police Foundation that demonstrates the scale of the problem and why we need to act urgently. The true level of pensions fraud in the UK, though large, is unknown, but could it be as high as £14.6 billion, based on the average pot size of £63,700.
I hope the points I have set out are helpful and that the Minister will consider them. We would like to see this area addressed by the Government. I urge the Minister to respond to my points.
Ms Ghani, should I speak to the other amendment now?
The Chair
The amendments are grouped, so they are all to be debated together. Do you have a contribution on amendment 6?
Matt Rodda
Yes. I will move straight on. I appreciate your tolerance.
Amendment 6 seeks to perform another important role—ensuring that the PPF and the Fraud Compensation Fund work effectively and efficiently for all parties, which I am sure everyone here would support. The amendment would require the Secretary of State to publish a report, within 12 months of the Act being passed, on the operation of the Fraud Compensation Fund in connection with any loan made to the board of the PPF under proposed new section 115A of the Pensions Act 2004.
In the debate on amendment 3, I set out why we needed a fuller understanding of the way the levy works and its impact—I mentioned the two not-for-profit organisations that are doing such valuable work—in order to improve the situation for savers and pensioners. I will not go into the detail of those arguments again, but they are applicable and equally important for this amendment.
It is crucial to highlight the context in which we put forward the amendment. A very limited number of schemes are currently propping up the fraud compensation levy by paying disproportionate contributions, even though they do not have a meaningful connection to fraud at this time.
These are crucial funds that support large numbers of savers—indeed, increasingly so in this country, as we enjoy the success of auto-enrolment, which is a great step forward for pension savers, and indeed future pensions across the country, providing greater access to pensions. Millions of workers across the country, at different stages of their lives, pay into these schemes and rightly expect their pension pots to be given the best possible chance to grow. Yet because the levy is passed on to savers through charges, it is current Government policy to ask savers to do the right thing in order to pay for the damage caused by criminals. As we heard earlier, this is not happening on a small scale but on quite a large scale.
The Chair
Let us try to ensure that we get through this portion of business before the Division. The Opposition spokesperson may of course respond, but let us keep it brief.
Matt Rodda
I am grateful to the Minister for his response. I feel that he is being somewhat generous in his description of the Government’s assessment of this problem and the level of response. I urge him to redouble his efforts and to focus on some of these points in further detail.
I think that the hon. Member for Glenrothes is right to draw attention to the subtle legal difference on the issue of the impact assessment. Surely, given the scale of what is going on, it would be wise to carry out an impact assessment. I appreciate the pressure of time, but perhaps with the considerable resources of DWP, which has the largest staff quota of any Department and a very able group of civil servants, it would be possible to carry out an impact assessment on a rapid turnaround, given the scale of what we are talking about and, indeed, the problems of the sector as a whole.
On the ongoing consultation and the possibility of reviews in this area, will the Minister agree to meet me and the not-for-profit providers to explore the particular issues affecting them?
Guy Opperman
I will, of course, agree to meet them. I already meet NEST and the People’s Pension regularly, and they have made a very good pitch for a reduced levy. It is already a reduced levy, as I am sure the hon. Gentleman is aware, and there is already a 0.75% cap, but of course I am looking forward to meeting them as part of the ongoing consultation.
Matt Rodda
I am very grateful to the Minister and put on the record my thanks to him for offering that meeting. I look forward to seeing him and discussing the matter.
On amendment 5, the Minister mentioned the regulations in the Pension Schemes Act 2021, but will he write to me to discuss some of the ways in which the specific parts of the regulations relate to this issue? He has been reported in the media as suggesting that it might be wise to consider pension scams in the online harms Bill. Perhaps he will comment on that now or write to me separately, because we would like to work constructively with the Government on this matter. I appreciate that online harms are a huge and wide-ranging issue, and I have a constituency interest in violent crime in respect of a tragic incident in Reading.
Guy Opperman
I would be happy to write to the hon. Gentleman. He can read in detail what I said in The Times on both occasions, and that is pretty much all I can say on that matter.
Matt Rodda
I thank the Minister for his candour and for offering me a cutting from The Times, which is a fine newspaper.
Finally, on the PPF annual report, the issue is that while these documents are very worthy, and we should all read them, there is a delay. I urge the Minister to consider the need to reassure organisations in the sector, pension savers and pensioners themselves in the near term, rather than our having to wait well into 2022 before the 2021 annual report is available.
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 2 ordered to stand part of the Bill.
Clause 3 ordered to stand part of the Bill.
Bill to be reported, without amendment.
Committee rose.