Draft Pensions Regulator (Employer Resources Test) Regulations 2021

Matt Rodda Excerpts

Wednesday 21st July 2021 General Committees

[Matt Rodda (Reading East) (Lab)]

It is a pleasure to serve under your chairship, Ms McVey. It is important that the Government encourage people to save for their retirement. Indeed, Ministers have a duty to stand up for people who have worked hard and saved all their lives. It is vital that Government and regulators have the power to take action against the small number of employers who fail to pay their share into workers’ pensions. At times, those powers have been too weak or underused. In some cases, Ministers have failed to use them. We have all seen some appalling cases where thousands of pensioners and workers were left without adequate pensions. Such scandals must simply not be allowed to happen again.

Given that context, I welcome the new, stronger powers. However, I have several questions about how they will work and whether they will be used quickly and effectively. The draft regulations are designed to clearly define an employer’s resources in the context of the employer resources test so that the regulator can more effectively use its contribution notice powers. I note that between the introduction of contribution notice powers and the passage of the Pension Schemes Act through Parliament, those powers were used only once. That seems to be an error worth correcting, especially in the light of the difficulties faced by various high-profile pension schemes over the past few years, after the employers collapsed.

The Opposition support giving the Pensions Regulator the powers that it needs to safeguard pension schemes, which is why it is so important that we get today’s regulations right. Some experts have raised concerns about profit being used as a measure of resources, as the Department intends via the draft regulations, rather than the alternative measure of a firm’s net assets. The experts worry that the corporate sector will be further disincentivised by the new regulations to offer defined benefit pensions, which are already vanishingly rare for today’s younger workers.

The Department for Work and Pensions argued that profitability was less subjective than using net assets, covenant value or covenant strength. I seek assurances from the Minister that that decision was taken with the wider consequences on the future for defined benefit schemes in mind, and that he will address any potential decline in defined benefit schemes that comes as a consequence, either by revisiting the regulations or by taking other steps.

I will move on to some broader issues. First, these further powers could be seen as part of wider increased reliance on regulator to help run pensions policy. Over recent years we have seen the regulator take on a host of new responsibilities. How many more staff will be needed to take on the new role? We must ensure that the regulator has the necessary resources and be aware of its recent increased influence when taking future decisions.

Secondly, the Government have justified the Secretary of State determining the details of employer resources tests in regulations, rather than in primary legislation, as they may need to be changed over time. As we all know, the pensions industry works to very long timeframes, so does the Minister foresee the need to make alterations? How will he ensure that all parties have the notice they need to plan for them?

Finally, some stakeholders fear that the threat of an increasingly complicated and wide-ranging set of regulatory powers could lead to legitimate business activity being caught up and punished or to firms being overly cautious. The Government must commit to communicating clearly with the business community and stakeholders about the regulator’s role and powers.

In summary, Britain should be the best place to grow old, but to make that a reality we need to develop the Pension Regulator’s anti-avoidance powers. We must do so with care and with an awareness of the broader context. I hope the Minister will take my points on board, and I look forward to hearing his response.