Pensions Dashboards (Prohibition of Indemnification) Bill

Richard Graham Excerpts

Committee stage
Wednesday 26th October 2022 Public Bill Committees

[Mary Robinson (Cheadle) (Con)]

It is a pleasure to serve under your chairmanship, Mr Sharma. I am grateful to you and to Committee members for joining me to look at the detail of the Bill. I am particularly pleased to be joined this morning on the Committee by my hon. Friend the Member for Hexham, who in his many years as Pensions Minister played a pivotal role in the introduction of the pensions dashboard, and has supported the Bill from its inception.

This is a simple Bill with just two clauses, but its purpose is to safeguard the interests of pension savers, which I think we can all agree is an important and worthy cause. The need for the Bill arises from the fact that there is currently nothing in legislation backed by a criminal sanction that specifically prohibits rogue trustees or managers from using a pension scheme’s assets to reimburse themselves and to repay civil penalties that they incur for breaches of pensions dashboard legislation. The Bill addresses that problem. It is welcome to have not just Government support for the Bill but, I hope, support from Members on both sides of the Committee. I noted that on Second Reading the hon. Member for Westminster North (Ms Buck) said:

“It should never be the case that mistakes, failures or a lack of action to meet legal requirements on the part of trustees should land with scheme members.”—[Official Report, 15 July 2022; Vol. 718, c. 659.]

I agree wholeheartedly with that point, which explains in a nutshell why I introduced the Bill.

Before going on to the specific detail of the Bill, it is worth briefly recapping some of the broader context about what pensions dashboards are, and the work that the Government are doing to make them a reality. Pensions dashboards are an electronic communication service that will allow individuals to see their pensions information, including the state pension, in one place online. With the continued success of automatic enrolment, millions more are saving for their retirement, and so may have multiple pension pots with no easy way of keeping track of them. Dashboards will help individuals to be reunited with lost and forgotten pensions. They will also support people in better planning for their retirement, making it possible for people to review their pensions savings online in the same way that people might currently view their bank accounts, whether on their phone or laptop at home.

There will be an online dashboard provided by the Money and Pensions Service. Additionally, to help to cater for the varied needs of the millions of people with pensions savings, it will also be possible for other organisations to provide dashboard services. Those organisations will be regulated by the Financial Conduct Authority, which will soon consult on a regulatory framework and rules for pensions dashboard operators. Individuals will see the same information regardless of which dashboard they use.

Importantly, the technology behind pensions dashboards has been designed with the security of data at its heart. Crucially, pensions information is not stored in any central database. It will continue to be held only by the pensions schemes themselves or by a third party administering the data on their behalf, and will be displayed only at the request of the individual. Individuals will always have control over who has access to their data and will be able to revoke access at any time.

I know that the Government are committed to ensuring that pensions dashboards become a reality as soon as possible. Even since I spoke on Second Reading of the Bill in July, much progress has been made. Only last week, the Pensions Dashboards Regulations 2022 were laid before Parliament and will be the subject of affirmative debates in due course. That is a huge milestone, because those regulations will require trustees and managers of occupational pension schemes to connect their schemes to the pensions dashboards digital architecture and provide information on request. I understand that the Financial Conduct Authority expects to confirm the final rules for personal and stakeholder pensions in the near future.

In the event of non-compliance with any of the requirements in part 3 of the Pensions Dashboards Regulations, the Pensions Regulator may, at their discretion, issue compliance notices, third party compliance notices and penalty notices. If the regulator chooses to issue a financial penalty, that can be up to a maximum of £5,000 in the case of an individual or up to £50,000 in other cases, such as corporate trustees.

That brings me neatly back to the contents of the Bill. Despite amounting to just two short subsections, clause 1 provides the real substance of the Bill. Committee members will see that subsection (1) simply adds section 238G of the Pensions Act 2004 to the list of statutory provisions in section 256(1)(b) of that Act. Section 256 of the Pensions Act 2004 prohibits any amount being paid out of the assets of an occupational or personal pension scheme for the purpose of reimbursing, or providing for the reimbursement of, any trustee or manager of the scheme in respect of a penalty they are required to pay under specific pensions legislation.

[Richard Graham (Gloucester) (Con)]

There may be some people listening to this debate who are unpaid trustees of pension funds and are concerned that these provisions will give them a huge potential liability. Will my hon. Friend confirm that many pension schemes have indemnity policies arranged through insurance companies, which will prevent that from happening, and this legislation will enforce the obligation on managers and trustees to ensure that the pensions dashboard is implemented?

[Mary Robinson]

I am grateful to my hon. Friend for making that point, because he is exactly right. It is worth reinforcing that we know that the overwhelming majority of people who take on the role of trustee want to do the best thing in the right way. This legislation reflects what is already in law, to ensure that financial penalties cannot be reimbursed from pension funds. It is important that we protect those savers’ pension pots.

Section 238 of the Pensions Act 2004 relates to the compliance provisions for pensions dashboards. The Bill extends an existing prohibition set out in section 256 of the Pensions Act to include penalties under the compliance provisions in the Pensions Dashboards Regulations and future regulations made under section 238G of the 2004 Act. As a result, if a trustee or a manager were to be reimbursed out of the assets of a pension scheme for a penalty issued under the Pensions Dashboards Regulations and knew or had reasonable grounds to believe they had been so reimbursed, they would be guilty of an offence, unless they had taken all reasonable steps to ensure that they were not so reimbursed, as I have said—that is so important that it was worth saying twice. On successful prosecution, that person would be liable to receive a sentence of up to two years in prison or a fine or both. Additionally, were any amount to be paid out of the scheme’s assets in contravention of this provision, the Pensions Regulator would have the power to issue civil penalties to any trustee or manager who failed to take reasonable steps to secure compliance.

Clause 1(2) makes a similar amendment to article 233 of the Pensions (Northern Ireland) Order 2005, essentially replicating the change that I have just described, so that the same prohibition on reimbursement using the assets of a pension scheme would also apply in Northern Ireland. It is entirely sensible to ensure that relevant pension members across the whole of the United Kingdom can benefit from the safeguards that the Bill provides.

Clause 2 sets out vital but standard information on how clause 1 is to be brought into legal effect, and the territorial extent of the two subsections in clause 1. The Bill has been drafted so that its respective protections extend to England, Wales and Scotland by virtue of amendments to the Pensions Act 2004, and to Northern Ireland by virtue of amendments to parallel legislation in Northern Ireland.

On commencement, clause 2 allows the Secretary of State to make regulations by statutory instrument to appoint a day for commencement in England, Wales and Scotland. It also enables the Department for Communities in Northern Ireland to make an order, by statutory rule, to appoint a day for commencement in Northern Ireland. That provides flexibility for the provisions to be brought into force at an appropriate time.

This is an important measure that will safeguard the interests of pension savers from any would-be unscrupulous trustees. On Second Reading, the Bill received cross-party support, and I hope it will continue to do so today.

--- Later in debate ---

[Maggie Throup (Erewash) (Con)]

I congratulate my hon. Friend the Member for Cheadle on successfully navigating this short but important Bill to Committee. I should start by declaring an interest: I am one of the few people in this room likely to benefit from the Bill sooner rather than later. [Laughter.] I know that does not seem likely, but there we are.

This is a simple Bill that strengthens the pensions dashboard regulations. I will focus on clause 1, which I fully support. When the pensions dashboard regulations come into force, the pensions regulator may take enforcement action, which could include a financial penalty, if a trustee or manager of an occupational pension scheme fails to comply with the regulations. When that occurs, there is nothing in legislation to prevent them from reimbursing themselves from the assets of the pension scheme.

The provisions in the Bill will make it a criminal offence for pension scheme trustees or managers to reimburse themselves using the assets of the pension scheme in respect of the penalties imposed under dashboard regulations. It achieves that by amending section 256(1)(b) of the Pensions Act 2004. I am sure that we have all had surgery cases where constituents feel, for a variety of reasons, that they are not getting their expected pension due to inappropriate use of funds. I am sure that this Bill will go a long way to addressing those concerns.

The part of the explanatory notes detailing the impact assessment quite rightly indicates that there may be some indirect benefits of the Bill, as it should help to reassure pension savers that protections are in place to deter unscrupulous trustees or managers, therefore providing greater confidence to save for a pension, protecting our financial futures. In conclusion, I am sure that my Erewash residents will welcome the measures in the Bill, so I am delighted to support clauses 1 and 2 as they stand.

[Richard Graham]

As a trustee of the parliamentary pension scheme, I should declare a relevant interest. Today is a great moment to congratulate two colleagues. The work on creating the pensions dashboard was done by my hon. Friend the Member for Hexham. I think we all recognise what a great job he did on that as Parliament’s longest-serving pensions Minister. It is also right that we all congratulate my hon. Friend the Member for Cheadle, who has taken this forward, building on the work done by my hon. Friend the Member for Hexham, to create surely one of the shortest and least contentious Bills that this House has ever had to deal with. I am sure that the Minister will say something similar in due course.

Ensuring that trustees and managers do not effectively raid a pension fund, other people’s assets, effectively, to deal with their own errors—advertent or inadvertent; as my hon. Friend the Member for Cheadle said, most instances will be inadvertent—is absolutely right and proper. This just sensibly fills a gap. The business of insurance indemnification for trustees against inadvertent mistakes will also be reassuring to those who volunteer as trustees almost always completely free of charge. On that basis, there is a huge amount to appreciate and support in this short Bill.