All 6 Richard Thomson contributions to the Pension Schemes Act 2021

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Wed 7th Oct 2020
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Commons Chamber

2nd reading & 2nd reading & 2nd reading: House of Commons & Money resolution & Money resolution: House of Commons & Programme motion & Programme motion: House of Commons & 2nd reading & Money resolution & Programme motion
Tue 3rd Nov 2020
Pension Schemes Bill [ Lords ] (First sitting)
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Tue 3rd Nov 2020
Pension Schemes Bill [ Lords ] (Second sitting)
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Thu 5th Nov 2020
Pension Schemes Bill [ Lords ] (Third sitting)
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Thu 5th Nov 2020
Pension Schemes Bill [ Lords ] (Fourth sitting)
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Mon 16th Nov 2020
Pension Schemes Bill [Lords]
Commons Chamber

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Pension Schemes Bill [Lords]

Richard Thomson Excerpts
2nd reading & 2nd reading: House of Commons & Money resolution & Money resolution: House of Commons & Programme motion & Programme motion: House of Commons
Wednesday 7th October 2020

(3 years, 5 months ago)

Commons Chamber
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Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
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As my hon. Friend the Member for Airdrie and Shotts (Neil Gray) set out earlier, there is a great deal in the Bill that the SNP can welcome, including pension dashboards, allowing trustees to take cognisance of the environmental impacts of the investments under their control, legislation to help avoid the unsuitable transfer of funds and allowing the Pension Protection Fund to continue. Those are all good and welcome improvements to the regulatory and administrative landscape in which pensions operate.

When it comes to dealing with pensions—as Members have said, in many cases, that is the most significant investment that many of us make—it is crucial that we are aware of unintended consequences. As a cautionary tale, I remind Members of what happened when the ability of funds to benefit from advance corporation tax was removed. While Treasury coffers have swelled as a consequence, that sounded the death knell for many excellent final salary pension schemes. Those on the Treasury Bench may not care terribly much for that comparison, but it is the sort of cautionary tale with which we would wish to approach this to make sure we are doing our level best to avoid similar mistakes arising from past legislation and the present legislation, and it is on that note that I wish to focus my remarks.

The first issue I wish to concentrate on is one addressed by the hon. Member for Birmingham, Selly Oak (Steve McCabe) in relation to clause 123 and funding requirements for defined benefit schemes. It is obvious why we would all wish to be assured that schemes are funded to meet the liabilities they have, but if we are to insist on being able to demonstrate that too rigidly, there is a very grave risk that the resulting investment policy that needs to be enacted will become so conservative that it focuses on meeting current liabilities at the expense of delivering future benefits for members within the scheme.

Obviously, that could mean a change in investment strategy away from equities to secure but potentially lower yielding investments, such as bonds, fixed interest investments, property infrastructure and similar, rather than balancing that mix with other types of investment, which might be expected to deliver higher returns over the longer term, and that danger is very real. Paragraph 210 of the consultation the Pensions Regulator is undertaking says:

“We consider that trustees’ focus should be to ensure the security of members’ accrued benefits rather than to ensure the provision of future benefits.”

An estimated 21% of defined benefit scheme members in the UK belong to schemes that are still open to new members, and if the approach that seems to be favoured by the Pensions Regulator is followed for schemes that are open to new members, then as surely as night follows day, scheme investments will begin to ossify in favour of those preserved benefits, at the expense of the ability of these schemes to absorb new members, and that is something that will slowly be closed off to the detriment of those potential new members.

Clause 123 recognises the difference there needs to be in an investment strategy between schemes that are closed to new members and those that remain open. I do not believe that it is or should be the intention of guidance to close down such schemes to new members, but I think that is a danger this will have. Enshrining in legislation the ability of trustees to reflect the characteristics of the schemes that they manage in their investment strategies would help to avoid such an adverse and presumably unintended consequence. I encourage the Minister to ensure that such a clause or something that has similar effect is included in the final legislation.

The second point on which I wish to focus relates to something that is not addressed in the Bill at present. It relates to the treatment of multi-employer industry pension schemes, and I would like to cite the example of the Plumbing & Mechanical Services (UK) Industry Pension Scheme. I state for the record my interest as a member of the all-party group on plumbers’ pensions. For Members who are not familiar with it, this scheme is an industry-wide occupational scheme that provides defined benefits. It has over 35,000 members and has, over its life to date, had about 3,500 employers involved in the scheme. The scheme opened in 1975, and it closed to future accrual of benefits from the end of June 2019, with about 350 employers participating in it at that point in time. One of the issues here is the size of the scheme relative to the remaining employers, many of which are small businesses.

Employer debt legislation contains a number of statutory easements, which are available to many employers facing a section 75 debt under pension legislation—the Pensions Act 1995—when they close their businesses. However, those statutory easements do not cover all situations, such as where an employer has retired or has ceased trading, where the overall amount of the liability in relation to the scheme is small in comparison with the scheme’s size or where an employer has triggered a section 75 debt prior to the closure of a pension scheme to future accrual. In this particular instance, the trustee has been able to apply some existing easements allowed for in legislation, but there are a number of particularly sensitive cases where easements cannot be applied. As a result, individuals face personal bankruptcy, and companies that would otherwise be financially viable face being forced into insolvency.

I want to go into further detail about this case. The trustee currently has 72 employers to consider pursuing for payment where existing easements may not apply. Of those, 43 are incorporated and 29 are unincorporated. Of the 29 unincorporated employers, 20 have retired, and the existing statutory easements cannot apply where the employer has ceased trading. In these cases, there is no ongoing business, but because those employers were unincorporated, they have personal liability to the scheme, which means that their personal assets can be seized by the trustees and used to settle the employer’s debt to the scheme. The trustees advise that, under section 75, these 20 employers collectively have a liability to the scheme of £7 million. Even if each of those employers was made personally bankrupt, only a fraction of that £7 million is likely to be recovered.

I spoke this morning over the telephone to a member of a small local plumbing business in my constituency. He had written to me at the start of the year, and I will give the House a flavour of what he said, because his experience is sadly not untypical. He said:

“I am approaching retirement age, but retiral will trigger my section 75 debt as the law stands at the moment. My father started our employees on the… pension scheme almost forty years ago, long before it was mandatory to have a pension scheme. When I told him about this section 75 issue, my dad burst into tears and said ‘What have I done to you’. I said it was not his fault as he was only doing what he thought was a good thing for our employees by entering them into a pension scheme. Surely after almost 40 years paying into the scheme, all the payments that were due, it can’t result in me losing my house, my office building and my own personal money, which is by no means substantial, and being declared bankrupt.”

There are two methods that could be used to address that, and my party will table amendments on this in Committee. One is the introduction of a trustee discretion to allow trustees not to pursue a section 75 debt when it is below a de minimis threshold. The other is the alteration of deferred debt arrangements to permit employers in a scheme closed to future accrual to apply for a deferred debt arrangement, providing they meet other statutory tests.

That is exactly the sort of thing that I mean by unintended consequences, because I cannot believe for one moment that anyone would have deliberately set up a scheme or put in place a law of that nature with these sorts of outcome in mind. I hope that my party’s amendments in Committee will be accepted and incorporated, because the Bill provides the best opportunity that many will have to get these issues resolved and ease that burden on their minds.

On the whole, this is a good Bill, and we find much in it to support. It gives opportunities to improve the pensions and retirement savings landscape, and I hope that the Government will remain open to further suggestions on how the Bill might be improved as it progresses and heed the warnings, so that we can avoid these unintended consequences.

Pension Schemes Bill [ Lords ] (First sitting) Debate

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Pension Schemes Bill [ Lords ] (First sitting)

Richard Thomson Excerpts
Committee stage & Committee Debate: 1st sitting: House of Commons
Tuesday 3rd November 2020

(3 years, 4 months ago)

Public Bill Committees
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Stephen Timms Portrait Stephen Timms
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My hon. Friend makes an important and interesting point. If we are to be confident that these new scheme trustees will make decisions that are fair to both the working members of the schemes and to pensioners, it is important that the voices of working age members should be taken fully into account in the trustee board’s decisions. She makes a good argument about why diversity, specifically in respect of age, is important in this context.

It is not as though there is no evidence that diverse trustee boards do a better job. My hon. Friend the Member for Westminster North has just reminded the Committee that there is a substantial, growing body of evidence that diverse company boards make more effective decisions than homogeneous boards. We have talked about age, but we should not forget that the gender pensions gap, which is nearly 40%, is almost twice the size of the gender pay gap. The issues here are stark.

The Pensions Regulator commented on diversity in trustee boards for the first time last year:

“Our view is that pension boards benefit from having access to a range of diverse skills, points of view and expertise as it helps to mitigate against the risk of significant knowledge gaps or the board becoming over-reliant on a particular trustee or adviser. It also supports robust discussion and effective decision making.”

Amendment 25 would require those who put boards together to report to the Pensions Regulator on steps to ensure diversity considerations are taken into account in the recruitment of the trustee board, with regard to age, gender and ethnicity. I know that the Pensions Regulator has set up an industry working group to consider this issue, as part of the consultation that the Minister referred to, and to raise the profile of it. However, to be effective, that group needs data, and this amendment would help to provide it. I think the result of the amendment would be not only greater fairness but better trustee decisions. I commend the amendment to the Committee.

Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
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It is a pleasure to serve under your chairmanship, Mr Stringer.

I will confine my brief remarks to amendments 6 and 25. I listened carefully and with interest to what the Minister said about the rationale for trying to withdraw clause 27 from the Bill. I agree that with him that in trying to come up with a legal definition of fairness, it will always be nebulous. There are clear difficulties around that, which is why I do not think the initial intention behind the clause was to provide absolute legal clarity.

I was reassured to a large extent by what the Minister said about the steps that would be taken to set up CDC schemes—by definition, schemes that are obviously unfair will not pass approval. The difficulty I have with that argument is that all that is being asked in clause 27 is that there is a requirement for trustees to make an assessment and nothing further. It is useful to have a process of self-challenge and continuous improvement, looking at aspects of the schemes that are directly under their control and that they can directly influence and alter. It is good to always have that consideration of whether the scheme is operating as fairly as possible for all present and future members and those taking benefits from it. My question to the Minister is, very simply, where is the harm? Even after taking on board all that he says, I still do not see the harm that lies in the Bill as it stands.

Moving on to amendment 25, I hear exactly what the Minister says about the requirement that already exists on trustees to be fit and proper people. My observation is that there are many potentially very fit and proper people who do not currently find themselves on boards, advisory committees or any of the governance structures around pensions, and who could nevertheless make a very good contribution to the running of those schemes.

Speaking from personal experience, prior to being elected as the Member for Gordon, I was a councillor in Aberdeenshire. Through that role, I was one of the Convention of Scottish Local Authorities nominees to the Scottish local government pension scheme advisory board, whose representation was equally split between employers’ representatives, of which I was one, and trade union representatives. The trade union representatives were all extraordinarily capable and represented quite accurately the diversity of the scheme members whose interests they were there to represent. In all honesty, the employers’ representatives perhaps did not represent that quite so well. I played my own part in skewing that representation.

The requirement to report back on the membership characteristics is a very useful tool in trying to understand whether all that is reasonable is being done to ensure that trustees and those in positions of governance on pension schemes are as representative as possible not just of the membership, but of the interests of the membership, and that we are giving as many people as possible the opportunity to fully skill up, participate and play the role that they can do. As things stand, we are missing out on the talents of many fit and proper people. Again, I do not see the difficulty in simply recording and reporting that information as part of the cycle of continuous improvement and self-reflection on whether we are achieving all that we seek to do.

Angela Eagle Portrait Ms Eagle
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I want to support, or enhance, the comments that have just been made by Opposition Members about the two issues that we are discussing in this group of amendments: amendment 25 on diversity, which was tabled my right hon. Friend the Member for East Ham, and the issue of intergenerational fairness and how it can be properly guaranteed in CDC schemes.

I hope the Minister will reaffirm on the record, in no uncertain terms, his agreement with the principles behind the amendment on intergenerational fairness that was made in the other place, even if he has issues with how one defines fairness in law. I have to say that, in social justice terms, we would have made very little progress in the whole of our society if we quibbled about the meaning of fairness in law. Just because it is difficult to define, it does not mean that we should not assert it or seek to bring it about.

The Minister’s response is a rather a technical answer to the principle that has been asserted by the change that their lordships made to this part of the Bill. His responses to my questions earlier did not fill me with confidence that he knew how the principle would be brought about if the amendment that their lordships put in the Bill was taken out. He simply seemed to say that it was a good thing to assert, and that it would be brought about by regulations that have not yet been written. He could not really give us any thoughts about how it might be guaranteed in the future, although he is asking us to take out an amendment that has actually been made to the Bill. He is asking us to exchange something that is really quite good and not damaging for something that is very nebulous and does not exist yet—it might do at some point in the future—in regulations that will be unamendable. We will have to take them or leave them when they come to the House, so I am slightly worried about that.

As is his wont, my right hon. Friend the Member for East Ham has zeroed in on the issue of diversity on boards and given us some shocking figures about what is happening on pension trustee boards. That ought to raise many alarm bells about potential group-think and about how the decisions made by trustee boards are not representing the interests of the many people who have pension savings in a way that we would find modern or appropriate.

Amendment 25 is a modest amendment. My right hon. Friend is asking only for the publication of information. He is not doing what I might do, which would be much more radical and would probably include all sorts of things, such as quotas and positive action, in order to make a real difference quite quickly. It is a modest amendment. If the Minister cannot accept that it is and does not have the good grace to support it, I will be rather disappointed.

Pension Schemes Bill [ Lords ] (Second sitting) Debate

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Pension Schemes Bill [ Lords ] (Second sitting)

Richard Thomson Excerpts
Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 3rd November 2020

(3 years, 4 months ago)

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Rob Roberts Portrait Rob Roberts
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I am not necessarily advocating a lack of transparency; I am advocating a focus on the outcome, rather than on every element of the journey along the way. There are lots of things that we currently do not talk about, in terms of the costs and charges. We look at the costs and charges of the scheme in general, and it is not necessarily a requirement for the costs and charges of the individual funds that make up the scheme to be included in those calculations. There are lots of things that could be included in there, but it is the outcome that is important, not necessarily the minute detail of every element along the way.

Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
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I do not think anyone would disagree that overall it is the outcome that is important, but historically the trouble is that consumers have often been encouraged to look at outcomes that may or may not have been realistic over an extended period of investment, and have not had the full awareness that they ought to have had of the charges. Surely as part of educating the consumer we should be drawing their attention to the charges and helping them to understand them in the context of everything that is important. If we want engaged, informed consumers, surely we should not be telling them not to worry their little heads about the charges; we should be making it transparent and open.

Pension Schemes Bill [ Lords ] (Third sitting) Debate

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Pension Schemes Bill [ Lords ] (Third sitting)

Richard Thomson Excerpts
Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 5th November 2020

(3 years, 4 months ago)

Public Bill Committees
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The Minister has referenced the regulator’s consultation. Does he agree that it is entirely appropriate for elected politicians to provide a policy direction of travel to the regulator, without dictating points of detail that remain rightly the realm of regulations? Will the Minister also give assurances that the Bill, as amended by the Government in Committee, will not accelerate the closure of open schemes and that they will be treated differently?
Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
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It is a pleasure to serve under your chairmanship once again, Mr Stringer. I am pleased to get the chance to delve further into some of the issues that were raised on Second Reading, of which this was one. I am happy to add my support, along with that of my hon. Friend the Member for Airdrie and Shotts, to amendment 18.

When I spoke on Second Reading I warned of the need to be aware of unintended consequences, one of which originated outside the Bill. One that merited clear guidance in the Bill to prevent it from ever coming to pass was the issue around defined-benefit schemes.

The Minister says he does not want good schemes to close and schemes to be forced into the de-risking process. That is fine and good as far as it goes, but Ministers come, Ministers go, Ministers change their mind, yet legislation endures. I have been very impressed with the Minister’s handling of the Bill today and I do not want to see him go anywhere—

Guy Opperman Portrait Guy Opperman
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Sit down now. Stop now.

Richard Thomson Portrait Richard Thomson
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I have got a bit to go. The Minister highlighted paragraphs in the Pensions Regulator’s recent consultation, but I draw his attention to paragraph 210, which states:

“We consider that trustees’ focus should be to ensure the security of members’ accrued benefits rather than to ensure the provision of future benefits.”

Taking all that together, it is at best inconsistent. It should be obvious why we all want to be assured that schemes are funded to meet their liabilities. Nevertheless, that is a deeply worrying statement for many people, including the scheme managers and trustees. There needs to be a difference in the investment strategy between DB schemes, which are open to new members, and those that are not.

As the Minister said, there are clear differences between open and closed schemes. A scheme that is closed to new members, for example, has to have a fixed end point, and their assets need to be readily available to pay pensions. That means investing in assets where the value is predictable, which inevitably leads to investing in asset classes that have lower returns.

In stark contrast, a scheme that is open to new members sees scheme leavers replaced with new members. It does not have to sell assets to pay pensions and can continue indefinitely. To deliver the required investment returns, it needs to be free to invest in a range of asset classes, which may be more speculative and less predictable, but which, nevertheless, over the longer term, might be expected to deliver better financial results and outcomes for the members.

Again, I hear what the Minister says about the actions he has personally taken to increase the range of asset classes in which pension schemes can invest. That is all well and good, which makes it seem all the stranger that we might end up inadvertently with the unintended consequence of choking that freedom off for DB schemes, for want of a lack of clear guidance in the Bill. That is assuredly what will happen.

If we insist on ensuring the security of accrued benefits, which are not at any serious risk, we effectively begin to mandate an investment policy suitable only for closed schemes. As soon as that happens, the potential returns are restricted. The liabilities of the schemes increase overnight, potentially anywhere between £120 billion and £160 billion. The cost of contributions to the employer, potentially the employee, or both is therefore increased. Inevitably, over time—potentially a very short time—the schemes are rendered unaffordable, and we see the closure to new members of what were otherwise perfectly good DB schemes.

Clause 123 provides for open schemes to be treated differently, given their unique characteristics. Retaining the amendment made to the clause would certainly be a stronger safeguard than amendment 18. However, amendment 18 is a genuine attempt to try to find a compromise position that captures the essence of clause 123, while at the same time managing to be far less prescriptive in what the Secretary of State is obliged to do.

Some 21% of DB scheme members belong to schemes that are still open to new members. They still perform a vital role in people’s pension retirement provision, often for lower and middle-income families who have few other savings, and the matter therefore warrants the most careful attention. Amendment 18 would provide the means by which we can ensure that those DB schemes can continue to thrive and deliver for all their members, present, past and future.

I agree with the Minister when he says that there needs to be a reasonable balance between those classes of member, but legislation can be used to usefully set the parameters to guide trustees, which is exactly what amendment 18 would do, given the mixed messages from the regulator. If it is not deemed to be an appropriate compromise, I invite the Minister to work cross-party to try to find a compromise that would offer reassurance to scheme members and managers and that can definitely guarantee the future of DB schemes. Leaving it out of the Bill will not offer reassurance and, given the current mixed messages coming out of the regulator, will lead us down the path of unintended consequences with adverse outcomes for many of those who can least bear the cost.

Guy Opperman Portrait Guy Opperman
- Hansard - - - Excerpts

I loved the first part of the hon. Gentleman’s speech, and I am grateful for his tacit endorsement of our approach. I also loved the latter part, because I do want to work on a cross-party basis. If mixed messages have in any way been interpreted—I am not sure it is an intention in any way by the regulator; I assure him of that and I have spoken to the regulator—and if any clarification needs to be made, I cannot repeat any more that we are here to support DB in whatever shape or form. We have had a DB White Paper, and that consideration and the consultation has brought forward various things. The ongoing consultation by the regulator is exactly that—a consultation.

The request was made for more thought. There is a legitimate and relevant point, although I will resist the amendment, that this is a perfectly valid debate to have in this place. It will definitely influence the regulator’s approach and ensure that, if there is any doubt whatsoever, not all schemes will be treated the same. There is not a one-size-fits-all approach. If anyone is proposing that that is the case, it simply is not. Every scheme should be looked at on its own merits and in its own particular way, because, as all colleagues have rightly identified, schemes have different profiles, different amounts and different objectives. That is what the regulator is trying to do—to build on the current approach.

I make a couple of quick points. Most schemes will not need to change their approach, as they are already doing the right thing. The investment risk that is supportable for each scheme will continue to depend on scheme- specific factors, including scheme maturity and the strength of the employer covenant, as is currently the case. Maturing schemes, whether open or not, will be expected gradually to de-risk their investments as they move towards lower dependence on the employer. There will be no such requirement for schemes that remain significantly immature, with strong employer covenants, who have been pursing appropriate funding and investment strategies. Taking investment risks—however one wants to describe that—is utterly acceptable as long as it is supportable.

I repeat that I am the Minister who, at the same stage as I am trying to improve and support DB, has given the schemes the power under the illiquids consultation to invest in alternatives, whether that is in green infrastructure, social housing or venture capital, building on the Treasury’s work with the patient capital review and building on the work that the Department for Work and Pensions has done for some considerable time, to make it crystal clear that such investments can be pursued and that they can also produce a higher return.

--- Later in debate ---
Richard Thomson Portrait Richard Thomson
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Does the Minister accept that there is a difference between being given the opportunity to invest in those asset classes and having the freedom to invest in them, if there is a perception that people are being guided down a route of de-risking, and would not that be the benefit of setting it out loosely or flexibly in legislation, in terms of the guidance that could then be given to trustees on how those schemes ought to be managed?

Guy Opperman Portrait Guy Opperman
- Hansard - - - Excerpts

The appropriate way forward, with respect, is a three-pronged approach, which would be a combination of primary legislation, regulation and the DB funding code to balance effectively employer affordability and member security. I think we all start with the fundamental principle—certainly as Minister I have to have it as the guiding principle—that the member is the most important person to be safeguarded, and I believe that the three-pronged approach is the appropriate way. There is an ongoing consultation and I genuinely believe that it should be allowed to run its course, with us all having the opportunity to make points to it.

I will just finish the point I was making: the scheme funding measures in the Bill, together with secondary legislation and the revised scheme funding code, seek to support trustees and employers to manage their scheme funding with a focus on longer-term planning. As is now the case, the scheme’s liquidity requirements and investment timelines and the amount of risk each scheme can support will depend on factors including its maturity and the strength of the employer covenant. Trustees can and do already invest in illiquid assets such as infra- structure, and our measures do not seek to discourage such investments where they are appropriate.

Pension Schemes Bill [ Lords ] (Fourth sitting) Debate

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Pension Schemes Bill [ Lords ] (Fourth sitting)

Richard Thomson Excerpts
Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 5th November 2020

(3 years, 4 months ago)

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The hon. Member for Delyn said on Tuesday that individuals with an interest in particular issues, such as climate change or executive pay, would go and seek out information themselves to inform their saving habits, but it is clear that there are significant barriers to doing that. The amendment would help to allow savers to make more informed use of their pension freedoms by comparing the voting records of particular schemes against others. This is something the Minister should strongly support, as it could make a significant contribution to his climate change agenda. Will he work with us on this important issue before Report stage?
Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
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It is good to see you back in the Chair, Mr Robertson.

I rise to speak to new clauses 3 and 4, which stand in my name and those of my hon. Friends the Members for Airdrie and Shotts, for Perth and North Perthshire (Pete Wishart), and for Kilmarnock and Loudoun (Alan Brown). I should make it clear to the Minister that it is our intention to make amendments of this nature on Report, so we will hear with interest what he has to say in response to the points we make today.

On Second Reading, I spoke about the impact that section 75 of the Pensions Act 1995, which deals with employer debt, could have on an individual employer within a multi-employer pension scheme. I cited the example of the Plumbing and Mechanical Services (UK) Industry Pension Scheme, but in reality the issue could apply to any scheme of a similar nature. I appreciate that not all of us go to sleep at night and dream of the implications of section 75 of the 1995 Act, so if members of the Committee will bear with me for a moment, I will run through them.

Section 75 sets out regulations that are intended to deal with deficiencies in assets in pension schemes; those regulations have evolved and been amended since they were first introduced in the 1995 Act. The key change came into force in September 2005: any employer who left a scheme or prompted a trigger event, such as retiring or moving from being a sole trader to a partnership or a limited company, was required to pay a section 75 debt. That debt is calculated on a buy-out basis, which assumes that the whole scheme is being bought out by an insurance company, so it is a very expensive way of valuing a pension scheme. Also, part of that buy-out debt comprises the orphan liabilities of past employers, who may have become insolvent or left the scheme before 2005 but did not pay their own section 75 debts, so not only is the scheme being valued generously, but those who remain in it are left to pick up the debt of others who have been able to leave it without that burden being placed upon them.

In the case that I raised, the scheme trustees for the Plumbing and Mechanical Services (UK) Industry Pension Scheme estimate that some 60% or £1.3 billion worth of the total scheme’s liabilities are, in fact, orphan. The trustees did not apply the section 75 debt when the provision was introduced in 2005, saying that, because of the nature of the scheme, it would have been impossible to do so. During that period, they lobbied Government to change the legislation, but the employers were unaware that the legislation was not being applied or indeed that any debts were even due until spring 2016, when they became aware of that situation.

I am given to understand that that has had some pretty serious consequences for the plumbers who have since retired and who have triggered the section 75 debt. It particularly affects a small group of around 30 retired plumbers aged between their late 60s and early 90s, who retired between 2005 and 2016. Some easements were introduced to the section 75 legislation over that period, but none of them apply to this small group, because the trustees did not advise them. I am told that they had a section 75 debt until 2018, and onwards.

The individual debts that I am talking about here have a wide range—up to £1.2 million, but with the majority being in the region of about £700,000. Such debts are totally unaffordable for this group, who were unincorporated sole traders for the most part. Naturally, they and their families are absolutely beside themselves with worry about this situation. If the debt is pursued, as legally it must be, it could lead to their bankruptcy and the repossession of their homes, all in pursuit of assets that, even if they are realised, would still fail to repay the outstanding debt.

As I say, there have been some easements. Deferred debt arrangements were introduced in April 2018 as a statutory easement, to allow an employer who had triggered the section 75 debt simply to defer debt but retain a liability to the scheme. That has allowed employers to continue to trade without facing possible insolvency, dependent on the size of the debt, and it allows employers to continue supporting the scheme. However, this scheme closed to benefit accrual in June 2019. Employers who triggered section 75 before the closure of the scheme, and who continue to trade, are not able to use that easement, as it is only available while a scheme is still open. That is one of the proposals in the new clauses.

The second proposal is to amend legislation to allow the application of a deferred debt arrangement in a closed scheme environment. New clause 3 gives flexibility to waive a debt in certain circumstances, as set out in the clause, where the debt is below a de minimis level; 0.5% for the fund value is suggested, bearing in mind that is a reasonable valuation of the fund and of buying it out on a commercial basis. However, new clause 4 would extend the availability of existing deferred debt arrangements for employers who are still trading, but who do not qualify to use the existing easement at present.

Hopefully we all understand the purpose of section 75, but the obligation to apply it in this case is causing untold misery to groups of small employers who have never sought to do anything other than the right thing by those in their employ. I struggle to believe anyone would have deliberately written that legislation or set up and operated the scheme in such a way to engender this kind of outcome. New clauses 3 and 4 would allow the Minister to resolve this issue mathematically, without undermining the important role that section 75 plays in safeguarding the funding of pension schemes. It is our intention to return to this issue on Report, but I would be grateful for the Minister’s observations on how we might tackle this. If we are not to tackle it in this way, in what way—if any—can the Minister envisage it being addressed in the future?

Stephen Timms Portrait Stephen Timms (East Ham) (Lab)
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It is a pleasure to serve under your chairmanship, Mr Robertson. I am very interested by the points raised so far; I am particularly interested—as many others are—in what the Minister has to say in response to the points raised by the hon. Member for Airdrie and Shotts and my hon. Friend the Member for Westminster North about auto-enrolment and where we are going on that.

I will speak to new clauses 9 and 12, and I am grateful for the briefing provided by the organisation ShareAction on the issues raised in these new clauses. One thing I did not need any briefing about was the fact that, 22 years ago, I became the Pensions Minister for the first of two terms in the role. My hon. Friend the Member for Wallasey was a Minister in the Department at the time, which was then called the Department of Social Security. I picked up some work on ethical investment in pension funds started the previous year by my predecessor in the job, John Denham. John made quite a groundbreaking speech on this in July 1998. He wanted a fair hearing for ethical investment to encourage open and honest debate on the issues it raises for the pensions world, and the legal framework within which all pension fund investment must be carried out. It prompted a big debate and much discussion.

One of the officials told me he was given the task of making John’s wish to support pension funds in adopting ethical—although the term was changed quickly to socially responsible—investment policies a reality. At the time, the conventional wisdom was that pension funds had a statutory obligation to maximise the returns on pensions savings and were not allowed by law to take any other considerations into account. The official told me he went around the City looking for ideas and drew a blank until he happened to speak to a senior member of staff at the central finance board of the Methodist Church, who explained how they had been applying ethical principles to their investment strategy for years. One weekend, I remember thinking about all of this, and the official put a copy of a speech—or rather, a sermon—delivered by John Wesley in my red box to help me to understand where all this was heading.

Pension Schemes Bill [Lords]

Richard Thomson Excerpts
Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Monday 16th November 2020

(3 years, 3 months ago)

Commons Chamber
Read Full debate Pension Schemes Act 2021 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 16 November 2020 - (16 Nov 2020)
Ruth Jones Portrait Ruth Jones (Newport West) (Lab)
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I am grateful to be called and to have the opportunity to speak briefly in this important debate, and it is a pleasure to follow the hon. Member for Kilmarnock and Loudoun (Alan Brown), who made several important points.

The Bill seeks to introduce a number of measures aimed at protecting savings and providing simpler oversight of pension savings. This includes the introduction of pension dashboards, collective defined contribution schemes and new powers for the Pensions Regulator to tackle irresponsible management of private pension schemes. These are important steps forward and they are long overdue. In particular, I welcome the strengthening of consumer protections against scams, as I know many examples of residents in Newport West who have been victims of these scams and have not only lost so much money, but been deeply affected by the scams for years after the event.

I am delighted that many of my noble Friends in the other place were able to secure some important amendments to the Bill—in particular, the amendments that require trustees and managers to take into account the Paris agreement and key domestic climate targets in their overall governance and disclosure of climate change risk and opportunities. This is the first time that climate change has featured in domestic pensions legislation and that is to be welcomed.

I urge Ministers and Government Back Benchers to support Labour’s efforts to mobilise billions of pounds towards the vital and timely effort to tackle climate change through pension funds. Given that Ministers refuse to support the amendment in the name of the shadow Minister, my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds), on asking pension funds to develop strategies to help to meet our obligations under the Paris agreement, I hope that we will receive an explanation of how they expect to achieve their goal of net zero carbon emissions by 2050 or sooner.

The other place also forced the Government to amend the Bill to guarantee a publicly owned pensions dashboard free at the point of use and available to everyone. I have called for that before, as has the shadow Minister, and it is a demand that many residents from across Newport West have raised with me in recent weeks and months. The changes contained in the amendment would ensure that consumers are protected and that they do not make poorly informed or hasty decisions when they see their pension information for the first time. I hope that the Minister will welcome that amendment.

Finally, I pay tribute to my right hon. Friend the Member for East Ham (Stephen Timms), who spoke earlier. He has worked hard on these issues and is a man of wisdom and experience. I support his new clause 1, which would set up opt-out appointments with Pension Wise for pension scheme members five years prior to their retirement date, because this is a point at which scheme members are so vulnerable to transfer advice that is not in their best interest or to tax scams. This is so important for the people who need sound guidance and advice before they take their pensions.

The Bill is to be broadly welcomed and I urge Ministers to accept all efforts to make it stronger, more effective and long-lasting.

Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
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I rise to support amendments 7 and 8 and new clauses 4 and 5 in my name and those of others. A recurring theme throughout the debates on Second Reading, in Committee and this evening has been the need to try to avoid unintended consequences. That is a particularly important mindset to approach this with given that the consequences of all that we are putting into legislation this evening will potentially last for decades, and the decisions that we take will affect people’s quality of life and financial opportunities in retirement. It is worth bearing that in mind when approaching the Bill, and when we consider any well-meaning assurances that we might get from the Government Front Bench in lieu of the actual substantive changes that have been asked for in the amendments and new clauses.