John Bercow
Main Page: John Bercow (Speaker - Buckingham)Department Debates - View all John Bercow's debates with the Department for Work and Pensions
(10 years, 6 months ago)
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The Minister of State, Department for Work and Pensions (Steve Webb)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
Amendment (a) to Government new clause 1, line 6 at end add—
‘(2) In this section—
(a) “charges”; and
(b) “transaction costs”
shall be defined in regulations by the Secretary of State.
(3) Before making regulations under subsection (2), the Secretary of State must undertake a public consultation, which must include the views of—
(a) the Financial Conduct Authority; and
(b) the Pensions Regulator.
(4) With reference to paragraph (2)(a), any public consultation must consider the different elements which comprise charges and not just the annual management charge.
(5) Such charges, together with any transaction costs incurred by the funds in which qualifying schemes are invested, shall be declared on an annual basis to the Pensions Regulator, which shall maintain a public register thereof.
(6) The Secretary of State shall by regulations set the standards by which pension schemes must declare charges and transaction costs for the purposes of the register and for declaration to their members and their members’ employers.
(7) The standards set out in regulations under subsection (6) shall be reviewed every three years.
(8) The Secretary of State shall have power to make regulations ordering other disclosure arrangements on administration charges.
(9) Regulations under this section may not be made unless a draft has been laid before and approved by resolution of both Houses of Parliament.’.
New clause 7—Railways pension scheme—
‘(1) The Railways Act 1993 is amended as follows.
(2) In Schedule 11 (Pensions), after paragraph 11 there is inserted—
“Employers insolvency
11A (1) This paragraph applies if an insolvency event occurs in relation to the employer or former employer of a protected person.
(2) Where this paragraph applies the Secretary of State shall become liable to discharge any liabilities in respect of relevant pension rights, to the extent that they are not discharged by the trustees of a new scheme in which the employer was a participating employer.
(3) For the purposes of this paragraph—
(a) “insolvency event” has the meaning set out in section 121 of the Pensions Act 2004;
(b) “relevant pension rights” means the relevant pension rights referred to in paragraph 6(3) above.
11B The duty referred to in paragraph 11A also applies if an insolvency event has occurred in relation to the employer or former employer of a protected person on or after 1 October 1994.”.’.
New clause 9—Fiduciary duty of independent trustees—
‘(1) The Secretary of State may by regulations—
(a) require any pension scheme, which is not already overseen by independent trustees, to appoint a board of independent trustees; and
(b) set out the powers and duties of a board appointed under paragraph (1)(a).
(2) Regulations under this section—
(a) shall be made by statutory instrument; and
(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(3) The board of independent trustees shall have a fiduciary duty towards members of the scheme overseen by them.
(4) The fiduciary duty set out in subsection (3) shall take precedence over any duty to—
(a) the shareholders in, or
(b) other owners of,
the operators of the scheme.
(5) In relation to any matters of member interest, decisions of the board of independent trustees shall be binding on the board of directors or other analogous management board of any undertaking operating a pension scheme.’.
New clause 10—Promotion of good value in scheme size—
‘(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.
(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.
(3) The Pensions Regulator shall have power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.
(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.
(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.’.
New clause 11—Decumulation—
‘(1) Any qualifying money purchase scheme must direct its savers to an independent annuity brokerage service or offer such a brokerage service itself.
(2) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—
(a) an assisted path through the annuity process;
(b) ensuring access to most annuity providers; and
(c) minimising costs.
(3) The standards meeting best practice on decumulation shall be defined by the Pensions Regulator after public consultation.
(4) The standards set out in subsection (3) shall be reviewed every three years and, if required, updated.’.
New clause 12—Sustainability of private pensions: review of implications of climate change and natural resource constraints—
‘(1) The Secretary of State shall commission an independent review of the implications of climate change and natural resource constraints for the sustainability of private pensions.
(2) In particular, the review must consider the implications for long-term investment outcomes for members of work-based pension schemes of potential—
(a) systemic risks posed by high levels of exposure to fossil fuels and other carbon-intensive assets;
(b) economic and physical impacts of climate change under various climate mitigation scenarios; and
(c) constraints on the availability of non-renewable resources.
(3) In subsection (2)(c), “non-renewable resources” includes food, water, land and energy resources.
(4) A report of the review’s findings, including recommendations to government, must be laid before Parliament no later than 30 October 2014.
(5) The government must lay before Parliament its response to the review’s recommendations no later than 30 January 2015.’.
Government new schedule 1—‘Work-based schemes: power to restrict charges or impose requirements.
Amendment 38, in clause 29, page 15, line 24, leave out from ‘scheme’ to end of line.
Government amendments 5 to 10.
Amendment 53, in clause 34, page 18, line 22, at end insert—
‘(5) Regulations under this section shall not exempt entire classes of business or businesses, such as small and medium-sized businesses, from automatic enrolment.’.
Government amendment 11.
Amendment 54, in clause 42, page 23, line 7, at end add—
‘“(czb) to promote, and to improve understanding of long-term and sustainable investment amongst work-based pension schemes,”.’.
Amendment 39, in schedule 16, page 84, line 37, leave out from ‘of’ to ‘transfer’ in line 1 on page 85, and insert
‘a transferable benefits scheme, the cash equivalent of the transferable benefits—
‘(a) is transferred to a nominated’.
Amendment 40, page 85, line 3, leave out ‘automatic transfer’ and insert ‘transferable benefits’.
Amendment 41, page 85, line 8, leave out from ‘an’ to end of line 9, and insert
‘a transferable benefits scheme, means a member of the scheme who is no longer having contributions made to their benefits.’.
Amendment 42, page 85, line 22, leave out sub-paragraph (5) and insert—
‘(5) In this Schedule “nominated transfer scheme” means—
(a) a work-based pension scheme which is registered under Chapter 2 of Part 4 of the Finance Act 2004 and is a money purchase scheme;
(b) a scheme in which the qualifying member is a member, or that has been nominated by the member or the transferable benefits scheme for the purposes of transferring pots;
(c) a pension scheme which meets quality standards as set out by the Secretary of State;
(d) a pension scheme that meets any other requirements set out in regulations.’.
Amendment 43, page 85, line 38, leave out from beginning to end of line 29 on page 87, and insert—
‘Transferable benefits scheme to transfer to nominated transfer scheme
2 (1) The regulations must require the trustees or managers of a transferable benefits scheme to establish an agreement with a nominated transfer scheme to make provision—
(a) for the transfer of qualifying members’ benefits to the nominated transfer scheme; and
(b) describing how and when steps are to be taken in order to effect the transfer.
(2) The regulations may make provision for a protocol through which a transferable benefits scheme may establish an agreement with a nominated transfer scheme.
(3) The regulations must ensure that where the duty to transfer qualifying members’ benefits to a nominated transfer scheme, has arisen, the member may opt out of the transfer or identify an alternative nominated transfer scheme to which the members’ benefits will be transferred.’.
Amendment 44, page 88, line 25, at end insert—
‘Nominated transfer schemes: quality requirements and administration charges
10A (1) The regulations may impose requirements that must be satisfied by any nominated transfer scheme.
(2) The requirements may in particular relate to—
(a) the governance of the scheme;
(b) the administration of the scheme; and
(c) the certification of the scheme by the Regulator.
(3) The regulations may make provision limiting or prohibiting any administration charge that may otherwise be imposed on a member of an automatic transfer scheme.
(4) Regulations made because of sub-paragraph (3)—
(a) may make provision for the manner of, and criteria for, determining whether an administration charge exceeds any limit or is prohibited; and
(b) may provide for the determination to be made in accordance with guidance issued from time to time by the Secretary of State.
(5) The requirements that may be imposed, and the charges that may be limited or prohibited, because of this paragraph need not relate to things done under the regulations.’.
Amendment 45, page 88, line 27, leave out paragraphs 11 and 12.
Government amendment 28.
Amendment 55, page 88, line 38, at end insert—
‘(c) the ability of the scheme to generate sustainable investment returns.’.
Amendment 46, page 89, line 39, leave out ‘an automatic’ and insert ‘a nominated’.
Amendment 47, page 90, line 1, leave out ‘current’.
Amendment 48, page 90, line 2, after ‘member’, insert ‘in a nominated transfer scheme’.
Amendment 49, page 90, line 3, leave out sub-paragraph (2).
Government amendment 29.
Amendment 50, page 91, leave out line 11.
Amendment 51, page 91, line 21, at end insert
‘“nominated transfer scheme” has the meaning given by sub-paragraph 1(5);’.
Amendment 52, page 91, leave out lines 36 and 37.
Government amendments 30, 31 and 12.
Steve Webb
This group of amendments contains a long list of disparate topics. To give the House a feel for what we are discussing, it includes an attempt to limit the scope of automatic enrolment, the transfer of small pension pots, short service refunds, the vexed issue of pension scheme charges, issues with governance and administration, the decumulation of pension pots, the specific issue of rail pensions and the pension protection fund compensation cap. I shall do my best to whizz through all those issues to minimise or obviate as far as is possible the need for me to return to the Dispatch Box on this group.
I should start on a note of consensus. This part of the Bill deals with private pensions and I think that the House would agree that the process of automatic enrolment into workplace pensions is going exceptionally well. The process started a year ago. British industry has automatically enrolled about 1.7 million employees into workplace pensions. The rate of not opting out, or of staying in, has been far better than anybody predicted. Our survey evidence suggests that of the order of nine in 10 workers have chosen to remain in their workplace pensions. That is something that we should all welcome.
The Bill is designed to improve that situation further and to deal with some unfinished business. Although the principle of automatic enrolment was legislated for in the previous Parliament, many issues were not dealt with. If those are not dealt with, it will undermine the success of automatic enrolment.
Amendment 53 relates to the scope of automatic enrolment. Clause 34 gives the Government the power to exclude some people from the employer duty for automatic enrolment. I will give the House a flavour of the sorts of people that we might be talking about. In automatic enrolment, we have sought to strike a balance between setting out the rules at the start and giving employers and the industry certainty, and learning and listening and then changing the rules when we have got something wrong or when something needs to be refined or streamlined. We could have changed the rules and constantly tweaked things, or we could have said at the start, “These are the rules for the next five or six years until everybody’s in. Go and deal with it”, but we tried to strike a balance.
As we have learned, the rules require employers to put a certain set of people into workplace pensions who may immediately opt out. For example, people with what is called enhanced or fixed tax protection status—high net wealth individuals—could face a tax surcharge if their pension pot exceeds the lifetime allowance. In general, such individuals will want to opt straight back out of the scheme, and their employers have said, “Why are you making us put these people into pension schemes? We all know they are going to opt out, and indeed they will be cross with us if they fail to opt out and later face a tax penalty.” At the moment, the Government do not have the power to enable firms not to enrol those people, so clause 34 provides the power to exempt them from enrolment.
The second example concerns those who have already given notice. Someone may have given a month’s notice, but in the middle of that period the Government require the employer to put them in a pension scheme. As Members will understand, that is silly, because that person will probably opt out immediately. In any case, asking firms to enrol people who have already given notice does not do much for our relations with the CBI. Those are examples of where we have given employers a comprehensive, rigid legal duty that creates perverse outcomes. Clause 34 therefore allows employers to exempt certain categories of workers, and I have mentioned the sorts of examples it would cover.
Amendment 53 says, “That’s all very well, but we don’t want you using the power to exempt categories of business such as small and medium-sized firms.” Leaving aside the fact that the amendment does not define an SME and it is not clear who would be covered, and that any amendment with “such as” suggests it is a bit vague to begin with, in responding to the spirit of the amendment I assure the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and the House that the Government have no intention of using the power to exclude small and medium-sixed firms. That is not what this is about.
Amendment 53 is otiose, because if we were the evil Government that the hon. Gentleman thinks we are and wanted to exclude small and medium-sized firms, we could do that anyway. The staging schedule is set in statutory instrument, subject to negative procedure. Therefore, if we wanted to exclude Britain’s small firms, we would have only to produce a statutory instrument that would say that small firms will be required to stage in 2099. That would not even be subject to a vote in the House. If the amendment seeks to stop the Government doing something that, in any case, we do not want to do, it would not work; we could still do it even if the amendment were successful. I hope I have reassured the House that amendment 53 is unnecessary, because we do not plan to do such a thing. Secondly, the amendment is not well drafted because it is not clear who it means. Thirdly, even if passed, it would not achieve the desired objective. An unnecessary, poorly drafted amendment that does not work should probably not be approved by the House.
Amendments 38 to 52 concern what happens to small pension pots—an issue that was not addressed when the original legislation for automatic enrolment was drawn up. People change jobs perhaps 10 or 11 times in their working life, and they leave behind small pension pots. From the Australian experience, we know that can mean lots of people losing track of their pension pots and not engaging with pension saving because they have large numbers of small, silly pension pots all over the place.
Australia is often mentioned as having one of the world’s best pension systems, and the Australians say that the one thing they wish they had addressed at the start was small dormant pension pots. The Australian Government have been going at this for longer than we have, and they estimate that they have 5 million lost pension accounts containing 20 billion Australian dollars. It is a serious issue. Clause 29 in schedule 16 sets out the Government’s response to the issue, which is what we call pot follows member. When someone moves from an auto-enrolment defined contribution pot to another one, their pot—as long as it is below a £10,000 threshold—automatically follows them unless they opt for that not to be the case.
Interestingly, Nick Sherry, former Australian superannuation Minister and highly regarded in the field, said of pot follows member:
“It’s the only practical way. It’s better off”—
because the money is in the worker’s last account—
“which is why I think it’s the only practical solution”.
We are delighted to have Nick Sherry’s support for our approach, as well as that of the Association of British Insurers. In the briefing sent to hon. Members the ABI welcomes the fact that the Bill includes provisions for the automatic transfer of small pension pots, which will lead to greater engagement and help people make savings decisions that are right for them and should lead to greater income in retirement. That is a welcome level of support for the proposition.
The Opposition amendments suggest a different route and would mean that when someone changes job, the dormant pension pot is automatically transferred to a third-party pension scheme called an aggregator. As I understand it, there would not be just one aggregator but multiple aggregators, and I have multiple concerns about that. First, such a policy would clearly lead to greater fragmentation of pension saving—it must do. Let us imagine the simplest example in which someone moves from firm A to firm B, and works only for two firms in their working life. In our model, the small dormant pension pot follows them from firm A to firm B—or scheme A to scheme B—and they end up with a single pension pot. In the model suggested by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, the dormant pension pot gets shunted off to some third-party provider with whom the employee has never engaged. They therefore have a pot with the current employer and with the third-party provider.
We are trying not just to hoover up small pension pots but to get people engaged in pension saving. The problem with someone shunting their money off to a third-party provider, perhaps one they did not choose—there is not much detail in the hon. Gentleman’s model, but I do not think it involves a person choosing a third-party provider, although perhaps it does—is that they get a letter from a pension company they have never heard of saying, “Guess what, we’ve got your dormant pension pot.” It is not exactly a ransom note, but it might be the first that someone knows about it, and that will not lead them to becoming engaged.
Under our model, someone’s pension savings are with their current employer. That is what they are interested in and where workplace pension engagement takes place. We therefore believe that our model provides better consolidation of pension saving and better engagement. Our model also saves on the cost of running pension schemes, compared with the model set out in the amendments. With a pot size limit of £10,000—obviously our published research relates to the £2,000 pot size limit on the aggregator model—which is the same across the two systems, we still estimate that the aggregate approach will achieve only half the cumulative administrative savings by 2050 of our pot follows member system. While aggregators are worth a look—we considered that option—it is clear that pot follows member is the best solution.
There is an issue of what happens if money is automatically transferred from a “good” scheme to a “bad” scheme, and I accept that point. That is why we are regulating for scheme quality. It should not just be a worry that someone’s small pension pot gets auto-transferred to a bad scheme; it should be a worry that an entire work force have been auto-enrolled into a bad scheme. We should not have bad schemes and must deal with that. That is why we are tackling pension scheme quality, which includes a range of issues such as governance, investment, costs and charges. In a few moments I will have news for my hon. Friends and the House about what action we are taking on charges. For those reasons, we are not convinced by the multiple aggregator model, as it is catchily known. We believe that the someone changing job and their money following them is a simple, attractive notion that I commend to the House. I therefore ask the House to reject amendments 38 to 52.
Amendments 5 to 10 are largely technical and deal with short service refunds. There is a category of money purchase pension schemes through which someone who has worked for a firm for under two years can have their money back when they leave. That is not in the spirit of what we are trying to achieve through our pension reforms. We want people, even those who put in relatively small amounts of pension savings, to accumulate that, build up what I call a big fat pot, and have a decent retirement. Short service refunds fly in the face of the view that even modest pension savings are worth having, and we therefore propose to eliminate them. The danger with the current legislation is that although someone joined to a pension scheme through a contract has 30 days to opt out, under the Bill they would be in the scheme on day one, and a day’s or month’s worth of pension contribution would be lodged. On purely pragmatic grounds we took that view that we ought to apply the same 30-day rule to short service refunds. Clause 32 abolishes short service refunds, and technical amendments 5 to 10 deliver a 30-day breathing space so that someone who is a member of a scheme for fewer than 30 days can receive a refund of what are essentially nominal contributions. I hope that amendments 5 to 10 will be welcomed across the House.
Mr Speaker
With this we will debate the following:
Government new clause 4—Preserving indefinite status of certain existing assessed income periods.
Government amendment 13.
Steve Webb
Unlike the debate on the previous group, the debate on this short group need not detain us too long. It relates to a feature of the state pension credit system known as the assessed income period. The basic idea was to avoid the need for people on pension credit to keep reporting changes in their circumstance—the basis was that older pensioners in particular have less frequent changes of circumstance. The basic idea of the assessed income period was a perfectly reasonable one but, unfortunately, it has not worked in practice and has raised a lot of issues.
To give an example, if someone in retirement inherits substantial wealth from the generation above them, they can continue to get pension credit for five years or even indefinitely, despite having very substantial wealth. If someone retires, has an assessed income period and then starts to draw a new stream of pension income, they can go on getting pension credit despite the fact that their living standard is well above the level of pension credit. We have given this a good go, and it was a reasonable thing to try, but in practice it has created anomalies, with payments to people who, if they were assessed on their current circumstances, would not be entitled to benefit.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 6—State pension entitlement for women born between 6 April 1951 and 5 April 1953
‘(1) Women born between 6 April 1951 and 5 April 1953 have the right to choose to receive their state pension and associated benefits under the new state pension system, set out in Part 1, from its introduction.
(2) The Government must ensure information about the full range of entitlements under the old state pension rules and the new state pension is available to allow women in subsection (1) to make a comparison of total weekly income.
(3) The responsibility for making a choice under subsection (1) lies fully with the individual.’.
New clause 8—Review in relation to women born on or after 6 April 1951
‘(1) The Secretary of State shall conduct a review to determine whether all women born on or after 6 April 1951 should be included within the scope of the new state pension arrangements established by this Act.
(2) The Secretary of State must prepare and publish a report on the review within six months of Royal Assent of this Act and must lay a copy of the report before Parliament.’.
New clause 13—Pensionable age: differential effect in England, Wales and Scotland
‘Part 2 of this Act shall not come into force until the Secretary of State has laid a report before both Houses of Parliament containing an assessment of the differential effect and impact of the pensionable age in England, Wales and Scotland due to varying levels of life expectancy and gross value added.’.
Amendment 1, page 10, line 1, leave out clause 20.
Amendment 35, page 11, line 34, clause 24, leave out ‘An’ and insert
‘With the consent of the trustees, an’.
Government amendments 2 and 3.
Amendment 37, page 11, line 40, clause 24, at end insert—
‘(c) a scheme in respect of any of its terms which relate to persons protected under the terms of—
(i) the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990;
(ii) the Electricity (Protected Persons) (Scotland) Pension Regulations 1990;
(iii) the Electricity (Protected Persons) (Northern Ireland) Pension Regulations 1992;
(iv) the Railway Pensions (Protection and Designation of Schemes) Order 1984;
(v) the London Transport Pensions Arrangements Order 2000;
(vi) the Coal Industry (Protected Persons) Pensions Regulations 1994; or
(vii) the nuclear industry employees protected by Schedule 8 of the Energy Act 2004.’.
Government amendment 4.
Amendment 36, page 12, line 10, clause 24, at end insert—
‘“trustees or managers” has the meaning given in section 178 of the Pension Schemes Act 1993 and regulations made thereunder.’.
Government amendments 14 to 20.
Amendment 34, page 79, line 5, schedule 14, leave out paragraph 11.
Government amendments 21 to 24.
Sheila Gilmore
One of the issues that has come up in the course of all the debate about the single-tier pension is the decision that the Government have taken to bring to an abrupt end to the provisions that previously existed for women in particular—I shall talk primarily about women, although men could be in this position—to be able to derive a pension or years towards a pension from the contributions of their spouse. That dates back to a different world. When the state pension system was set up in the post-war period, there was an assumption that the standard pattern for married people was that one person, normally the man, would be the main breadwinner, and the woman would spend considerable periods out of the labour force, and perhaps not even work at all after marriage. Indeed, although they were about to go, there were still marriage bars on certain types of employment, so time out of employment was not just a question of choice; it was sometimes a question of necessity.
Things have changed and, although it can still be a necessity, for many women the amount of time out of employment can be very short. The arrangement in the original proposals was that a woman could receive a derived pension from her husband’s contributions—currently approximately 60% of the full state pension—or receive benefit if she was widowed or divorced. For someone widowed after retirement who was receiving only the 60% pension—sometimes referred to as the married couples pension when both bits are put together—it would be increased to a full single person’s pension, regardless of whether she had made contributions during her working life. For those who are divorced, there is currently provision in the system to inherit and carry over a spouse’s contribution record if it is better than one’s own. That can be beneficial to women, and some men, in building up a pension record.
Other changes that have taken place include crediting certain types of contribution that are not entirely financial. As well as the credits people receive during periods of unemployment when they are claiming benefit, successive Governments have introduced credits for periods of child care and for caring for other relatives, and that can make up some gaps. There are still some people—a decreasing number, without a doubt—who will end up in a position where they do not build up sufficient contributions in their own right. If the right to obtain these so-called derived benefits is taken away, there will be a group of people, primarily women, who, post-2016 when the new arrangements come in, will have less than they would have expected to get before that date. They will be in a worse position than they would have been previously, and that will have all sorts of consequences.
People have reasonable expectations of the rules. Age UK gave an example of someone who had specifically asked the Department for Work and Pensions for advice on whether she should start making contributions relatively late in her working life. She was told not to do so, because she would not be able to work to receive nearly as much as she would be getting in any event. That advice was given in good faith and at the time she accepted it in good faith, but it is now too late for her to make up the difference.
The Government estimate that there are 40,000 women in this position. I am not sure whether there is certainty about that figure, because I do not know whether a full survey has been carried out. However, 40,000 is not a huge number. New clause 5 asks for a full review to ascertain how many women are in this position and what the cost would be of allowing them to continue to benefit from derived rights for a transition period—it would not be for ever.