Pension Schemes Bill [Lords]

John Bercow Excerpts

Wednesday 22nd March 2017 Commons Chamber

[Alex Cunningham (Stockton North) (Lab)]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to discuss the following:

New clause 2—Member trustees—

“(1) By a date to be set by the Secretary of State in regulations, approved Master Trust Schemes must ensure that at least a third of the trustees of the scheme are Member Trustees.

(2) Member Trustees must be individuals who are—

(a) members of the Master Trust scheme; and

(b) not members of senior management of a company that is enrolled in the Master Trust scheme.

(3) Member Trustees must be appointed by a process in which—

(a) any member of the scheme who meets the condition in subsection (2) is to apply to be a Member Trustee,

(b) all the active members of the scheme, or an organisation which adequately represents the active members, are eligible to participate in the selection of the Member Trustees, and

(c) all the deferred members of the scheme, or an organisation which adequately represents the deferred members, are eligible to participate in the selection of the Member Trustees.

(4) Member Trustees should be given sufficient time off by their employer to fulfil their duties.

(5) For the purpose of this clause “senior management”, in relation to an organisation, means the persons who play significant roles in—

(a) the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or

(b) the actual managing or organising of the whole or a substantial part of those activities.”

This new clause requires Master Trusts to make provision for some form of member representation within Master Trusts.

New clause 3—Member representation and engagement—

“One year on from the registration of Master Trusts by the Pensions Regulator, the Government will fully review member trustee representation, member engagement and annual member meetings.”

This new clause requires the Government to set up a review into member representation and engagement within Master Trusts.

New clause 4—Requirement to hold an Annual Member Meeting—

“(1) The trustees of an authorised Master Trust scheme must hold an annual meeting open to all members of the scheme.

(2) The Master Trust must take all reasonable steps to make the meeting accessible to all members, this includes making arrangements for—

(a) scheme members to observe the meeting remotely, and

(b) scheme members to submit questions to trust members remotely.”

This new clause requires Master Trusts to hold an Annual Member Meeting, and sets out ways to ensure members are properly given the opportunity to be involved.

New clause 5—Excluded groups—

“(1) The Secretary of State must, before the end of the period of 12 months from the day on which this Act receives Royal Assent, establish a review of participation in Master Trust schemes.

(2) The review must consider what steps can be taken to increase the participation in Master Trust schemes by the following groups—

(a) carers,

(b) self-employed,

(c) workers with multiple employees, and

(d) workers with annual earnings below £10,000.

(3) One of the options considered by the review to improve participation must be changes to the terms of auto-enrolment.”

This new clause enshrines the requirement on the Government to do something specific for currently excluded groups.

New clause 6—Exit fees—

“(1) The Secretary of State may by regulations restrict or set limits to exit fees paid by members of a Master Trust scheme.

(2) For the purposes of section (1) “members” includes past and current, active and deferred members.”

This new clause makes provision for the Secretary of State to restrict exit fees paid by Master Trust schemes’ members.

New clause 7—Asset protection for unincorporated businesses—

“The Secretary of State must, by regulations, make provision to amend section 75 of the Pensions Act 1995 in order to protect unincorporated businesses who are at risk of losing their personal assets including their homes.”

New clause 8—Review of actuarial mechanisms for valuing pension scheme liabilities—

“Within six calendar months from the day on which this Act comes into force, the Secretary of State must conduct a review of the actuarial mechanisms used to value pension scheme liabilities under section 75 of the Pensions Act 1995.”

New clause 9—Non-associated multi-employer schemes: orphan debt—

“The Secretary of State must, by regulations, exclude from the calculation in section 75 of the Pensions Act 1995 the orphan debt in any non-associated multi-employer scheme.”

Amendment 5, in clause 8, page 5, line 41, after “scheme” insert “or scheme funder”.

The financial sustainability of the scheme funder must be taken into account when assessing a Master Trust scheme’s financial sustainability.

Amendment 6, in clause 11, page 8, line 1, leave out subsection (b) and insert—

“(b) either the only activities carried out by the body corporate or partnership are activities that relate directly to the Master Trust scheme, or if the body corporate or partnership carries out activities other than those defined as “restricted activities.””

This amendment allows for exceptions to the requirement that a scheme funder must only carry out activities directly relating to the Master Trust scheme for which it is a scheme funder.

Amendment 1, page 8, line 13, at end insert—

“( ) A minimum requirement of annual reporting of administration, fund management costs and transaction costs for each asset class, drawdown product and for active and passive asset management strategies.”

This amendment would introduce annual reporting and inclusion of transaction costs requirements for Master Trusts.

Amendment 7, in clause 10, page 7, line 23, at end insert—

“(6A) The Secretary of State may by regulations define “restricted activities” and these regulations must set out activities that a scheme funder cannot engage in to minimise risk of losses or liabilities which might deplete or divert its financial resources.”

This amendment makes provision for the Secretary of State to define “restricted activities” by regulation, including a list of specific activities restricted in order to minimise risk of loss by Master Trust scheme funders.

Amendment 2, in clause 22, page 16, line 28, after “employers” insert “and scheme members”.

This amendment ensures that scheme members are told of triggering events as well as employers.

Amendment 4, in clause 31, page 23, line 16, leave out paragraph (d).

This amendment removes the part that allows Master Trusts to halt making payments to pensioners in the event of a pause order.

Amendment 3, page 23, line 27, at end insert—

“(f) directive that employers will retain both their own and employee contributions pending resolution of the pause order.”

This amendment requires employers to hold onto employee and employer contributions during a pause order.

Amendment 8, page 23, line 27, at end insert—

“(f) a direction that further contributions or payments to be paid towards the scheme by or on behalf of any employers or members (or any specified employers or members) are collected and held in a separate fund until the conclusion of the pause order;”

This amendment provides the Pensions Regulator with an alternative to stopping payments to the schemes under subsection 5(b) of a pause order.

Amendment 9, page 23, line 39, at end insert—

“(7A) The Secretary of State may by regulations set conditions on the terms of a separate fund used for purposes under section 5(f).”

This amendment is consequential to amendment 8.

[Alex Cunningham]

Generally speaking, this is a good Bill, and it goes a long way to properly regulating master trusts and looking after the interests of the pension scheme members. Sadly, it does not address the WASPI issue, which we raised on Second Reading and in Committee, as it has been ruled out of scope of the Bill. However, I am pleased to report that Stockton Borough Council backed the WASPI women. Tory councillors abstained on the vote, so clearly they are not very happy with the Government either.

There are a number of aspects of the Bill that could still be improved and that could better protect and inform scheme members. Sadly, after the Commons Committee stage, it was clear that we had failed to convince the Government of that, but having reviewed the Minister’s arguments we still believe that a number of issues need to be covered on Report this afternoon.

New clause 1 returns to the issue of a funder of last resort for master trusts. Contrary to the written statement from the Under-Secretary of State for Pensions, which we received on Monday, the removal of this clause is significant, and I was surprised that he felt that it was not. This new clause looks to ensure that, in the event of a master trust failing, there is a funder of last resort— somebody in place who guarantees that scheme members are not left out of pocket through no fault of their own. This would, in effect, act as a final underpinning of the promises that have been made to scheme members, giving them recourse to a legally established funding organisation committed to making good on scheme member dues. When this was debated in Committee, the Minister refused to back this most sensible of additions to the regulations of the Bill, arguing that it would place an unnecessary additional burden, that the new regulatory regime was sufficient to make the risk of collapse absolutely minimal, that existing master trusts would pick up any scheme members affected by their master trust failing, and that the Government were consulting the industry on the creation of a panel of white knights, who would commit to stepping in to ensure that all scheme members are protected.

I am glad that we have the Minister on record saying that there is no chance of a master trust going bust under the regulatory regime that this Bill creates. It is clearly a gamble that he is willing to take. Opposition Members are not prepared to gamble with people’s pension savings. In order to best protect scheme members, we need the strongest possible regulatory environment in place. Unlike the Minister, we are not content to leave things to chance.

We have support from the industry itself for these proposals. For example, the chair of the Standard Life master trust has called on the Government to be the funder of last resort, because

“their policy foul-ups have allowed the proliferation of unsustainable Master Trusts.”

It is interesting that the Minister plans for a panel of white knights. Does that suggest that he does accept that there is a chance that a master trust might slip through his regulatory regime and leave scheme members unprotected? If he does, why not go the whole way and put the proper guarantees in the Bill? There is simply no guarantee that another trust will choose to pick up one that is failing. Why would it? What obligation does it have and why would it be in its interests to do so? Yes, there have been a few pragmatic actions in this area, but nothing is guaranteed.

We all know that the pensions industry and the financial services industry have seen plenty of failures. Perhaps the Minister can tell us what happens if a large master trust fails and the data are in a mess and take months to cleanse before getting members transferred to a new scheme. We cannot simply hope that another trust will just pick that up. Instead, we must intervene now to ensure a proper back-up plan. The Government must prepare for the worst-case scenario, and nothing I have seen so far convinces me that Ministers are doing so.

We need a funder of last resort because we must be able to predict what could happen, even if there is only the slightest chance of it happening, and ensure that we have a plan of protection in place. I ask again: why will the Minister not provide people all over this country with a 100% assurance that the Bill without this provision is enough to protect members. If he is to ignore our sensible new clause, he must guarantee that no master trust will be in a situation in which it has failed and has insufficient resources to meet costs. In the absence of greater clarity, it is essential that this new clause is in the Bill.

I now turn to new clause 2 and the issue of member-nominated trustees for master trusts. I remind the House that all the investment risk lies with the member and not the sponsor or the provider of the scheme, and they should therefore have representation at decision-making levels of the scheme. The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees. If the scheme’s sole trustee is a company, including the employer rather than individuals, scheme members will have the right to nominate directors of that company—member-nominated directors. The Pensions Act 2004 enshrined the right to have at least one third scheme member trustees of a trust-based scheme. The Pensions Regulator is clear that master trusts are covered by this legislation, which is why some already have member-nominated trustees. What the regulator offers in explanation is that there are exemptions that can be taken by master trust, giving the reasoning that having a pool of members greater than a single employer-based scheme poses problems of choice. We find that an inadequate reason for exemption. The greater the number of members, surely the bigger the pool of choice.

We do not agree that independent trustees can adequately represent the fiduciary interests of members if they have no stake in the investment process. What is more, they are paid and chosen by the master trust. This exemption seems like a convenient way of denying the right to representation by those who do have a material interest in the performance of the master trust. We have returned today with an amendment that seeks to give scheme members the law to which they should be automatically entitled. In these circumstances, my references to MNTs apply equally to MNDs.

The Association of Member Nominated Trustees is adamant that master trusts must be obliged to have member representation on their boards. However, it is no surprise that a master trust is lobbying against that. Such companies are mostly profit-making entities. However, it is in their own best interests that they have scheme member representation to win the confidence of the scheme members. The role of the MNT and the trustee boards is sometimes underplayed or undervalued. The Association of Member Nominated Trustees said:

“Members are particularly comforted by having an MNT presence for their scheme. It helps them to feel reassured their retirement interests are truly being met and understood most importantly, but also that they aren’t being ripped off in excessive costs and charges.”

They are the only ones who have no personal interest or gain; their only interests are those of the member. ShareAction also agrees that savers should be able to subject decisions made on their behalf to a healthy degree of scrutiny and challenge.

Ensuring effective governance for pension schemes remains a challenge. Although trust-based schemes benefit from a clear governing body in the form of the trustees, there is a clear absence of member-nominated trustees in the majority of master trusts. However, although some companies choose to operate a trust-based defined contribution scheme, most new auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. In those schemes, member representation on governance boards is far more rare. At this point, I wish to refer back to the concerns that the Pensions Regulator made about master trust governance. In January 2013, said:

“We have identified a number of characteristics that, if present, may prevent these schemes from delivering good outcomes. These are: conflicts of interest as a result of the relationship between the provider and trustees; decision-making powers vested with the provider rather than trustees; a lack of independent oversight in some master trusts – unlike traditional occupational DC schemes, member and employer representatives are unlikely to be involved in important decision-making processes”.

Yes, the Bill may go some way to addressing these concerns, but it does not go far enough. We can build greater trust in the system; increase diversity and bring a range of different perspectives and experiences; and highlight areas that are of interest to members. Once again, we find no real impediment to this amendment. The law requiring master trusts to have scheme member trustees applies and exemption does exist, but that need not be required and should, in our view, be overridden.

Continuing with the theme of engaging with members, I will now address new clause 3. It requires that, one year on from the incorporation and registration of master trusts by the Pensions Regulator, the Government will fully review member-trustee representation, member engagement and annual general meetings for members.

The purpose of the new clause is to ensure that there is a review of the new master trust governance and member engagement processes. Pensions Regulator guidance stressed the importance of understanding and engaging with members to define objectives for the scheme and setting an appropriate strategy—for example, the TPR code of practice 13 on governance and administration of occupational trust-based schemes providing money purchase benefits.

TPR has stacks of advice on these issues for master trusts to follow, but we want a commitment from the Government that they will ensure that master trusts are operating in the interests of members and that the potential of a conflict of interest—in other words, the profit motive—does not get in the way. We need to make sure that there is an opportunity for experienced eyes to take a good look at the system a year after its creation. If there are risks, they must be accounted for. One way to do that is to form a Government inspection of the system.

I turn to new clause 4, which requires master trusts to hold an annual member meeting and sets out ways to ensure that members are properly given the opportunity to be involved. It is now common practice for pension funds to hold a meeting with members on an annual basis. Good member communications, provided at the right time and in an accessible format, are vital if members are to engage and make decisions that lead to good outcomes in retirement. In the Committee debate, the Minister suggested:

“Documents relating to the governance of a scheme, such as the trustees’ annual report, the chair’s statement and the statement of investment principles, have to be provided on request.”––[Official Report,Pension Schemes Public Bill Committee; 9 February 2017 c. 118.]

Having to request information about what one is paying for is the wrong way round. Let us not forget that many master trusts are profit making, so members should be given information as a matter of routine and not by request.

An annual meeting for members ensures that trustees and administrators can be made human and accountable rather than being at some distant, bureaucratic and faceless place. Trustee boards should regularly review member communications and, when deciding on the format of communications, take account of innovations and technology that may be available to them and appropriate to their members. That would allow the more engaged members to hear a presentation from trustees and senior executives about how the scheme has managed their retirement assets over the previous year and what plans the scheme has to deliver strategy and manage risk into the future on behalf of members.

Pensions Regulator guidance accompanying its new DC code highlights AMMs as one way in which multi-employer schemes can stay close to members. Through the new clause, master trusts would be brought into line with normal practice in the corporate sector and among the growing number of pension schemes.

I want to return at new clause 5 to the issue of groups currently excluded from master trust saving—specifically carers, the self-employed, those working multiple jobs and people on low incomes. As it stands, the Bill does not expand the successful auto-enrolment policy: that could have made a real difference to a number of groups who, the evidence suggests, are not saving adequately for their retirement. The Minister and I debated this issue in Committee, so I shall return to the issue only briefly.

As I recognised then, the Government have announced a review relating to the operation of auto-enrolment into master trust savings. Currently, however, the scope of that review is too broad, with few specifics set out to keep the Government to their word. The evidence speaks for itself: too many people are not putting enough away to guarantee the secure and dignified retirement that the Labour party has always worked to provide and continues to strive towards today.

Some 37% of female workers, 33% of workers with a disability and 28% of black and minority ethnic workers are not eligible for master trust savings through auto-enrolment, according to the latest DWP statistics. In Committee, the Minister suggested that gender equality was not an issue under auto-enrolment savings; I suspect that he may have been referring to the participation rate among eligible employees, which is fairly equal between genders. The statistics that I have cited, however, relate to those not eligible, and I believe women are over-represented. Perhaps the Minister can look again at the issue and write if he has evidence to the contrary.

On the specific groups, I would like to press the Minister on the issue of carers, who, as we know, make such a vital contribution to our society, public services and economy. In Committee, the Minister suggested that he would like carers to be included under the Government’s review of auto-enrolment, but accepted that they are not currently specified. May I push him to commit explicitly to including carers under the terms of the review now? I am sure that it would be of great comfort to our carers if they knew that their situation was being looked at specifically by the Government.