Pension Schemes Bill [ Lords ] (Third sitting)

Stephen Timms Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 5th November 2020 Public Bill Committees

[Seema Malhotra]

I take on board the points the Minister has made. This is an area that may requires further dialogue, and we will reflect on what the Minister has said. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 124 ordered to stand part of the Bill.

Clause 125

Exercise of right to cash equivalent

[Stephen Timms (East Ham) (Lab)]

I beg to move amendment 21, in clause 125, page 121, line 11, at end insert—

“(e) the results of due diligence undertaken by the trustees or managers regarding the intended transfer or the receiving scheme.”

This amendment enables regulations under inserted subsection (6ZA) of section 95 of the Pension Schemes Act 1993 to prescribe conditions about the results of due diligence undertaken in relation to a transfer request such as to determine that the statutory right to a transfer is not established if specific “red flags” are identified in relation to the transfer or intended receiving pension scheme. Amendments 22, 23 and 24 are related.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 22, in clause 125, page 122, line 4, at end insert—

“(e) the results of due diligence undertaken by the trustees or managers regarding the intended transfer or the receiving scheme.”

This amendment enables regulations under inserted subsection (5A) of section 101F of the Pension Schemes Act 1993 to prescribe conditions about the results of due diligence undertaken in relation to a transfer request such as to determine that the statutory right to a transfer is not established if specific “red flags” are identified in relation to the transfer or intended receiving pension scheme. Amendments 21, 23 and 24 are related.

Amendment 23, in schedule 11, page 193, line 20, at end insert—

“(e) the results of due diligence undertaken by the trustees or managers regarding the intended transfer or the receiving scheme.”

This amendment enables regulations under inserted subsection (6ZA) of section 91 of the Pension Schemes (Northern Ireland) Act 1993 to prescribe conditions about the results of due diligence undertaken in relation to a transfer request such as to determine that the statutory right to a transfer is not established if specific “red flags” are identified in relation to the transfer or intended receiving pension scheme. Amendments 21, 22 and 24 are related.

Amendment 24, in schedule 11, page 194, line 15, at end insert—

“(e) the results of due diligence undertaken by the trustees or managers regarding the intended transfer or the receiving scheme.”

This amendment enables regulations under inserted subsection (5A) of section 97F of the Pension Schemes (Northern Ireland) Act 1993 to prescribe conditions about the results of due diligence undertaken in relation to a transfer request such as to determine that the statutory right to a transfer is not established if specific “red flags” are identified in relation to the transfer or intended receiving pension scheme. Amendments 21, 22 and 23 are related.

New clause 10—Pensions Guidance—

“The Secretary of State must write to members or survivors of pension schemes five years prior to the age of becoming eligible to access their benefits, to state a scheduled date and time for a pensions guidance appointment, or the option to reschedule or defer this appointment; and write annually until a pensions guidance appointment has been taken, or the member’s desire to opt out has been confirmed.”

This new clause would ensure members or survivors of pension schemes receive an impartial pensions guidance appointment prior to the point when they become eligible to access their pension benefits, with an appointment booked each year until such time that the member has received impartial guidance.

[Stephen Timms]

I am pleased to be serving under your chairmanship this morning, Mr Stringer.

The Work and Pensions Committee, which I chair, discussed amendments 21 to 24, and I am grateful to Labour colleagues on the Committee, the Conservative Vice Chair of the Committee, the hon. Member for Amber Valley (Nigel Mills), and the right hon. Member for New Forest West (Sir Desmond Swayne) for putting their names to the amendments. I am grateful to the hon. Members for Airdrie and Shotts and for Gordon for doing so today as well. This is a tripartisan amendment, as all good pension policy should be.

Last weekend, I was in touch with a nurse who works at a health centre in my constituency. Her husband drives a black cab. Some years ago, a financial adviser they knew well and who had given them good advice previously called and told them about an opportunity to realise their pension savings early with no real downside. They took up his offer. The upshot is that all their savings have gone and they now face a massive tax bill of about £60,000 with no means to pay it. The financial adviser, I understand, is living on a yacht in Tenerife.

All of us can understand just how devastating is the impact on hard-working families of being robbed of their life savings in that way. People who have saved conscientiously, worked hard and done the right thing, and who are entitled to be able to look forward to secure retirement, suddenly find that their hopes have been destroyed. The Transparency Task Force, one of the groups that urged the Select Committee to undertake an inquiry on scams, reports cases of spouses who, sometimes for years, have not dared tell their partner what has happened, so awful are the consequences. People wake up every day in dread of the future. They are often ashamed and embarrassed to have fallen for such a barefaced lie. Scammers groom people; they become trusted family friends. They “warn” savers that schemes will advise them not to transfer their money, and claim that that is because the schemes want to hang on to it for their own benefit. If the saver does become aware that the receiving scheme has fallen foul of regulators, they will say that that was just because someone was late filling in some forms.

It seems absurd that, as the law stands, trustees are compelled to make a transfer if a member demands it, even if the trustees know that the money is being handed over to crooks. Even if the receiving scheme is on the warning list, published by the Financial Conduct Authority, of firms known to be suspect, the law requires trustees to go ahead with the transfer; and if they are slow about it, they can be fined.

The Select Committee on Work and Pensions has launched an inquiry on the impact of the pension freedoms five years after they were introduced in April 2015, and the first of three parts is looking at pension scams. It is striking how loud a call there has been, from many different places, for the Select Committee to look at this matter. It reflects widespread revulsion at some of the scandals we have seen and fear of the damage that they do—certainly to individuals, but also to the industry as a whole. There has been a particular worry that the pension freedoms plus the financial pressures of the pandemic could be creating what the Pensions Regulator has called a golden age for pension scams, so the inquiry is looking at the prevalence and impact of scams.

Margaret Snowdon, who leads the Pension Scams Industry Group, told the Select Committee at its meeting on 16 September that, based on a survey that the group carried out a couple of years ago, it estimates that some 5% of pension transfers in the last five years have been into scams. The amount may total £10 billion over that period and 40,000 people may have been affected; some will not yet know that they have been scammed. And this is carrying on. Responsibility for preventing and responding to scams cuts across many different bodies, and our witnesses reflect that. It is a tragedy that many victims see very little, if any, of their money ever returned.

The Bill was amended in the other place before the summer break—the amendment was, I am glad to say, accepted by the Government—so that if a defined-benefit transfer application raises one of the red flags on a prescribed list of features likely to indicate that there is a scam going on, the trustees must delay the transfer until the saver has taken financial advice.

These four amendments are based on work by the Pension Scams Industry Group. I pay tribute to Margaret Snowdon and her colleagues for their hard work. The amendments would empower trustees to refuse a transfer altogether if they had good grounds, based on the red flag analysis, for believing that a proposed transfer involved moving pension savings into a scam. It would say to the trustees, “You don’t have to do this.” The amendments provide for the making of regulations that prevent a transfer from taking place, depending on the results of that due diligence on the receiving scheme undertaken by the trustees or the scheme managers. That would allow a period of consultation and evidence gathering before regulations were drafted and implemented, to ensure that the detail was right.

I am grateful to the Minister for the helpful discussions we have had on this point since the summer. I know that he is as appalled as I am by the impact of scams, and that he has been looking very carefully, with his officials, at whether it is possible to achieve the effect of the amendments—without actually accepting them—by using powers already in the Bill. I am looking forward to what he will have to say to us today about that. From what I have seen, and thanks to the work of his officials, it does look as though it might well be possible to deliver the effect of the amendments with regulations under the Bill as it stands. I was sceptical about that to begin with, but thanks to the work that the Department has now done, I can see that that might well be the case.

I want to sound one note of caution. I understand that the Department would like to exempt from its proposed regulations certain categories of scheme. For example, it would want to guarantee that a transfer to an authorised master trust should not be blocked on the basis of a red flag assessment. Actually, I have no problem with exempting authorised master trusts, given their oversight by the Pensions Regulator, but it would be a serious mistake to exempt FCA-registered schemes, because a lot of scams are FCA registered.

I am told, for example, that it is perfectly possible for schemes to be both FCA registered and on the FCA warning list. Typically, those might involve an overseas adviser, probably not FCA registered, who would use the platform of a UK self-invested personal pension which is FCA registered to offer exotic investments overseas. That is precisely the form that many such scams take. When the regulations are drawn up, whether under my amendments, if they are accepted, or under the existing powers as the Minister intends, it is important not to create a large loophole to allow the bulk of the crimes to carry on. We certainly need to improve drastically the protection for savers. Implementation of the pension freedoms without safeguards has inflicted great harm. We must now put essential safeguards in place.

I come now to new clause 10. Last week, the Department published a document entitled, “Stronger nudge to pensions guidance: statement of policy intent”. That does not sound like a document that will set the world or fire, but I think its content is widely regarded as rather timid and disappointing. It does not deliver the default guidance approach that Members on all sides wanted when the Financial Guidance and Claims Act 2018 became law and was debated.

Consumer organisations are also calling for people to be directed to an appointment automatically, rather than expecting them to sort one out for themselves. We know how successful harnessing inertia to bring people into pension saving has been; we should harness inertia as well when people come to access their pension savings—auto-enrol in, but auto-enrol out, too. New clause 10 would auto-enrol pension savers into an appointment with Pension Wise these as they approach the point of accessing their pension. Put savers’ interests first and recognise the dangers in hasty, badly made decisions.

Pension Wise is delivered by Citizens Advice. It is immensely popular with the rather small number of people who use it. Nine out of 10 of those who use it report high or very high satisfaction. That is a pretty impressive level of satisfaction, yet the service is hidden away from most people. A significantly higher number of users than non-users say that they are very or fairly confident about avoiding pension scams having used Pension Wise. The default ought to be that people get an appointment.

Progress on take-up has been poor. Pension Wise reaches only a fraction of those who need it most—non-advised pension savers at the point when they choose to access their pension savings. The FCA estimates that between one in 10 and one in eight savers—a tiny proportion—first use Pension Wise when accessing a pension, and what should be the norm is instead the preserve of a minority. We should not be surprised about that. Pension planning is complicated, people do not know the ins and outs, and it very easily drops down a to-do list with all the other things going on, despite its importance.

In the statement of policy intent of last week, the Department said it will implement a guidance policy based on the “Stronger Nudge trials” of the Money and Pensions Service. Those trials did show a very limited increase in appointment bookings resulting from the nudges that were tested, but it is nowhere near enough. That is why the amendment is necessary.

Two nudges were tested. The first was that the pension provider offered to book a Pension Wise appointment for the consumer; the second was that the customer was transferred to the Money and Pensions Service, who then booked a Pension Wise appointment for them. The document sets out that, with both nudges, around 11% of pension holders attended a Pension Wise appointment, compared with 3% in the control group.

It is perfectly true that one in nine is a better level of take-up than one in 33, but we can surely agree that we must do far better than that. Auto-enrolment was needed for pension saving precisely because the nudges that we had all tried for years did not work. That is why we now have more than 10 million extra people saving into work- place pensions. Pension saving has become the norm, and impartial pensions guidance must become the norm as well. That is what the amendment would deliver.

--- Later in debate ---

[Guy Opperman]

I thank the right hon. Member for East Ham who leads the Select Committee for his kind words and heartfelt speech. I echo the comments in terms of his constituents, who clearly have had a terrible time. My thoughts are with them.

I will try to address the points raised. In respect of clause 125, the objective of the Government is quite clear. We wish to bring forward measures that will significantly and realistically prevent future scams. We believe that transfers will not go ahead if the conditions set out in the regulations are not met. These conditions can relate to both the destination of the transfers, meaning transfers can be prevented to schemes that do not have the right authorisation, and cases where the member has not supplied the evidence of, say, employment or residency. Importantly, those conditions can also include other red flags, such as who else is involved in a transfer. If those red flags are apparent, the regulations will enable the trustees to refuse to transfer. If the red flag is significant, it will direct the member to guidance or information that they must take prior to being allowed to transfer. Trustees will need to undertake due diligence to establish whether those conditions are met or not. Clause 125 puts trustees in the driving seat in relation to permitting transfers to proceed.

The right hon. Gentleman raised a number of specific issues, which I will try to address. The first relates to the scope of clause 125 in respect of DB and DC pension schemes. I take his point on master trusts, but I assure the Committee that the conditions to be met in relation to safe destinations, red flags and guidance before a transfer can proceed will be applicable to members of DB and DC schemes. Those conditions will be in addition to the current advice requirements for DB members seeking to transfer over £30,000 cash-equivalent value.

I have had discussions with the right hon. Gentleman, both in writing and in person, and with other colleagues on the Work and Pensions Committee, stakeholders, interested parties and other parliamentary colleagues. I have also engaged at great length, sadly by Zoom, with the all-party parliamentary group on pension scams, and then followed that up individually.

Colleagues who are concerned about the extent to which the PSIG requirements of red flags are being met should read the exchange of correspondence in the Library, following the right hon. Gentleman’s agreement that I could disclose it, in respect of the background of our meetings in September on two occasions, the letter that I wrote on 6 October, which included the Financial Conduct Authority’s approach of 5 October, and the follow-up letter of 22 October. If that second letter is not in the Library, which I am not totally sure it is, I will ensure that it is by close of business today. I wish also to put on record my thanks for the efforts of the PSIG, Margaret Snowdon and the various other parties who are all working for the common good to ensure that scams are prevented.

I will speak about guidance in a second, but first I will make two points. Clearly we wish to prevent, as far as possible, any scams or misdemeanours taking place, but that will have to be done through primary legislation and secondary regulations. It seems to me, as this process has been developing, that there is a degree of symmetry between the work that stakeholders—the PSIG and others—are doing, the work that this House is doing by passing primary legislation, and the specific drafting and codification of the regulations, which will be the nuts and bolts that will take this forward.

My objective is that we pass clause 125, which provides the statutory framework. My hope is that Royal Assent is received speedily and I suspect that my civil servants, who obviously have nothing else to do in these difficult times, will be able to progress the regulations very soon. I am hopeful that the Work and Pensions Committee report will have been published by then, and the ongoing dialogue that we have had with the Select Committee, cross-party, will continue, so that we frame the regulations that flow from clause 125 to accord with all our stated objectives.

I accept that the devil is always in the detail. We are all trying our hardest to be as precise as possible, without the regulations having been drafted already, but with regard to the four red flag objectives that are set out and that the right hon. Gentleman has rightly brought to my attention on Second Reading and in correspondence, I am confident that the answers that I have given to him in writing, and that the FCA has given, constitute a basis upon which we can regulate to prevent those matters.

The right hon. Gentleman is trying to tease out the extent of the amendments that he has tabled and the extent to which the Government can address them. We are able to address those matters within the confines of clause 125. I stress that we want to ensure that the powers can be applied quickly. I accept that time is of the essence in ensuring that the regulatory powers come forward as a matter of urgency.

[Stephen Timms]

I am grateful for the Minister’s perceptiveness in our discussions. May I check that he accepts the point that I made, that there should not be a carve-out for all FCA-registered schemes? FCA-registered schemes have been part of the problem in quite a lot of the scams that have arisen over the past few years.

--- Later in debate ---

[Guy Opperman]

The simple answer is that this is not something that could be in primary legislation and then enforced; primary legislation is the framework, and it is has to be in the subsequent specific regulations that follow. I can give the hon. Gentleman an assurance on that point, as I have given it to the Chair of the Select Committee.

We accept these matters and believe that clause 125 already addresses the points made by the amendments, but we still have to draft specific regulations to deal with the specific problems, and those will be much larger than clause 125 and way more comprehensive. The process of dealing with a transfer, what particular points apply, how it is a trustee operates due diligence and how it is that that process works, is genuinely a complex process. Detailed provisions have to be gone through, working with the various parties going forward. The point I am trying to make is that we agree with the principle of the amendment, but it should not be on the face of the Bill; we should accept that clause 125 provides the framework, and we then need to deal with the regulations going forward.

In the time remaining, I will try to address the points about guidance and see if I can assess that in a particular way. Briefly, it is entirely right that people should be supportive of the good work that Pension Wise has done. Demand for the service has grown year on year since we launched it in 2015. The service delivered 205,642 transactions in 2019-20, which was a combination of face to face, telephone and online—more than triple the sessions in the first year of operation—and has had 10 million visits to the website since 2015.

I would push back on the argument for new clause 10, which is that there is no previous engagement. The DWP’s work should also be seen in the context of the work that the FCA does. There is already a multitude of interventions at an earlier stage. Within two months of their 50th birthdays, members receive a single-page summary document that points to the pensions guidance, as required under the Financial Services and Markets Act 2000. Wake-up packs, which were developed in association with all of industry and the interested bodies and are a requirement of the 2000 Act, are received at the age of 55. They include the single page summary document and they point specifically to pensions guidance.

At a later stage, as the individual gets closer to accessing their pension savings and enters the drawdown phase in contract-based pensions, the FCA investment pathway requires that they be presented with four options as to how they want to use their drawdown pot, so it is not the case that there is no engagement prior to the drawdown. That is proposed by the FCA policy statement, which will come into force in 2021.

Although I fully accept that I should be pressed on DWP guidance, the FCA policy statement will come into force in 2021, and, between now and Report, detailed explanation of what that statement entails should be provided to the right hon. Member for East Ham. If it has not been provided to the Select Committee as part of its inquiries on scams, that is a lacunae that needs to be addressed, because it seeks to ensure that all arms of government are working together. The FCA policy statement, and the incoming changes, will definitely make a difference.

Briefly, on the stronger nudge towards guidance, which arose from the Financial Guidance and Claims Act 2018, it is fair to say that where there is transfer from one scheme to another to continue to accumulate and no risk is identified, the transfer can be acted on in accordance with the current requirements. Where a risk is identified, the member must be notified that they will be required to prove that they have taken information or guidance before the transfer can proceed. That is the appropriate effect of what we are legislating for in clause 125 and in the Bill.

Where there is transfer from one scheme to another to access pension freedom with no risk identified, there is the nudge towards guidance and the member is notified that they will need to prove that they have taken guidance or opted out. Where a risk is identified, the points that we have gone through on clause 125 and the prevention of scams come into play. The member must be notified that they are required to prove that they have taken information or guidance, and the amended requirements under clause 125 continue to apply.

There is a graded system depending on the identification of risk to the individual trustees as they proceed. In addition, work has been done to prevent pensions cold calling, and there has been a tightening of the rules to prevent fraud of registered pension schemes. I accept that more needs to be done to bring various departments together. I know that the Select Committee has looked at this area, assessing whether Project Bloom, the multi-agency partnership, and the ScamSmart campaign, are working sufficiently well, and that is something that I have undertaken to improve. The regulator’s evidence to the Select Committee on that exact point argued that a much more beefed-up effort was needed to bring all those particular parties together. Yes, the two arms of government need to work better together, and I hope I have explained how we are doing, but we also need much greater interdepartmental and interorganisational co-operation.

Finally, there has been criticism. I will not go into detail about whether the stronger nudge is a good behavioural insight trial. I support what has been done, but that is a matter of ongoing regulation as well. The appropriate approach would be that we work with the Select Committee on making that as effective as possible on an ongoing basis. I invite the right hon. Gentleman to withdraw his amendment.

[Stephen Timms]

I am grateful to the Minister and to everyone who has taken part in this debate. I welcome a lot of what he has said. On guidance, he told us that the FCA writes to everyone at age 50, but it seems to me that what it should do is say, “Your appointment with Pension Wise is at the following time and place”, taking advantage of that opportunity to increase significantly the likelihood of the guidance being taken. I am grateful to him, however, for saying that further information will come forward before Report and that the discussions and deliberations on the four amendments will also carry on between now and Report. At this stage, therefore, I do not propose to press any of the amendments to a vote.

[Seema Malhotra]

I want to make a few comments. I appreciate the exchange between the Minister and my right hon. Friend the Member for East Ham. I recognise the complexity of the different regulators that the Minister alluded to, and the need to join things up. From a consumer perspective, it is very important to join up different regulators, because it is difficult and confusing for individual consumers or citizens to deal with multiple regulators on different issues. Invariably, we end up with multi-year battles that are exhausting for them and their families. Therefore, ensuring that we have stronger remedies in place is critical to reduce some of the risk.

I support my right hon. Friend and appreciate Minister’s comments about not carving out FCA-regulated schemes that still pose a risk for those at risk of scams. The Minister has mentioned further regulations to come and that the exchange between him and my right hon. Friend the Chair of the Select Committee has been placed in the House of Commons Library—it will be important to review that—but the test will be the extent of the improvements to the system and of the tightening of protections. Those who are vulnerable to pension scammers are at serious risk, and gaps in regulation increase their vulnerability. It is not a harm-neutral situation. This is a uniquely difficult time, and it is a sad fact of the pensions world that there are people who seek to capitalise on that.

The hon. Member for Airdrie and Shotts also made some important comments. I want to lend our support, but we also need to keep this under review as we debate the regulations. We support the amendments, although my right hon. Friend the Member for East Ham has chosen not to proceed with them at this stage. They propose a sensible set of measures to counteract the risks that people, particularly those who are especially vulnerable, face right now.

Amendments 21 to 24 could play a part in future stages of the Bill. They would strengthen the protections to prevent individuals from transferring their pensions into scam schemes. We also welcome that the amendments have been tabled on a cross-party basis by members of the Work and Pensions Committee. It would be helpful to see how quickly those concerns move on to the Minister’s radar, and his imperative to act on them. We welcome both the ongoing dialogue with the Chair of the Select Committee and the proposed route map for addressing the issues under existing powers, which we hope will dramatically increase protection against scammers.

New clause 10 is intended to protect people from scams by auto-enrolling pension scheme members in pensions guidance appointments. That principle is extremely important, and the arguments for a much-needed source of information and impartial advice were well made. That would empower individuals to make good pensions decisions, and through that empowerment they would be more resistant to scammers.

We strongly support the intentions of new clause 10 and amendments 21 to 24, tabled by my right hon. Friend the Member for East Ham. I congratulate him on his Select Committee’s work on this crucial issue, which is a serious matter and could become more so for all our constituents. It is important to have the right protections to give savers greater confidence, particularly with continued pension scheme reform. I urge the Minister to act speedily to ensure that the arms of government that he talked about continue to work closely. I am sure that we can encourage and support him, on a cross-party basis, to move that along more quickly.

I would like to acknowledge the work of Pension Wise and Citizens Advice, and the services that they provide. There will, I hope, be ways—perhaps through what we can do here—to raise awareness of the services that those organisations offer, and, importantly, of pre-emptively encouraging people to get advice in what is a difficult area. We all fall prey to that: when something is incredibly confusing, as my right hon. Friend said, it gets put at the bottom of the pile, often until it is too late. These protections will go a long way to giving more people, particularly younger generations, the confidence to save and save early, which makes a difference.

[Stephen Timms]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Ordered, That further consideration be now adjourned. —(James Morris.)