Pension Schemes Bill [ Lords ] (Fourth sitting)
Stephen Timms ExcerptsThursday 5th November 2020
(5 years, 1 month ago)
Public Bill CommitteesRead Full debate Pension Schemes Act 2021 View all Pension Schemes Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 5 November 2020 - (5 Nov 2020)
Richard Thomson (Gordon) (SNP)
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 (East Ham) (Lab)
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.
The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)
It is a pleasure to serve under your chairmanship, Mr Robertson. I am beginning to regret agreeing to address 11 separate new clauses at once—it seemed like a great idea before lunchtime. Given the multitude of speeches I have heard and the multitude of notes to which I have to refer, I am sure that the next 15 minutes will be entertaining. Here goes. I will try to address the new clauses in sequential order to assist colleagues in their understanding, and at least then my notes will prove relatively useful.
On new clauses 1 and 5, the former Secretary of State, David Gauke—he is much missed in this place—set out provisions for the automatic enrolment review to be enacted by this and future Governments. There is a cross-party approach, particularly on automatic enrolment, that was started by the Labour Government, continued by the coalition Government and brought forward on an ongoing basis by the Conservative Government. In my view, the DWP’s single biggest achievement on pensions in the last couple of years has been the double jump to 8% of automatic enrolment in 2019. Opt-outs were very low and the increase in savers has been massive, with well over 10 million people now saving. Savings by young people and women have increased from approximately 40% to well above 80%.
Our thanks are due to all the businesses who provide support on that. That goes to the heart of the issue: even though it is a defined-contribution system, contributions are not made purely by the individual concerned; a 3% contribution is made by businesses, with some assistance from the Chancellor and tax rebates.
We will unquestionably implement the automatic enrolment review, as previously stated, by the mid-2020s. As I said earlier, my view is that there will be a further pensions Act in this Parliament with a view to implementing that. It will, without a shadow of a doubt, require primary legislation both to institute the short points necessary for automatic enrolment and to give an indication of its direction. Primary legislation is also needed for superfunds. I was told that CDCs would need relatively little legislation until, after a lot of work, our 52 clauses were drafted, but I believe that automatic enrolment would require a relatively small Bill. However, there is no doubt that superfunds would need a large Bill, and I will come to that later. The mid-2020s remain our target.
Clearly, we have to balance the current fiscal situation and the fact that this Government, with the support of all Members of the House, have put additional burdens on business, whether by raising the living wage—the rate of which has been massively increased for low-income workers since the days of the minimum wage—or other costs. For certain larger businesses, there is the apprenticeship levy among other things. Unquestionably, the Chancellor, the Prime Minister and the Secretary of State for Work and Pensions have to look at the fiscal framework, and they will have to decide how to do that and whether there should be an increase above 8%.
To the question about whether we will reduce the lower earnings threshold and raise the age groups, the answer is yes, we will. I have made and continue to make that point repeatedly in Parliament.
Stephen Timms
I welcome the Minister’s commitment to legislate in this Parliament. Can he give us some indication of when in the next four years that Bill might be introduced? December 2024 would be rather late to legislate for something to take effect the following year. Will he reassure us that it will be done a little earlier than that?
Guy Opperman
I am always nervous about saying that the legislation will come in on this or that particular date because—as the right hon. Gentleman will understand, having held my current job—it is way above my pay grade. I have been trying to get this Bill into this House for a considerable time: well over a year, in fact. The election got in the way of the first attempt, and clearly other things are taking place—whether relating to covid or other legislation.
All I can say is that we will, I hope, have time for such legislation at some stage. It is a matter for the Prime Minister, the Chancellor and the Cabinet, and the usual write-around process that applies, to decide when there will be a further piece of pensions legislation. I cannot be any more specific. Frankly, if I gave a date, the Whip, my hon. Friend the Member for Halesowen and Rowley Regis, would wrestle me down and say that it is not for me to make Government policy and announce a specific date.
I can only say that our intention is that what we are discussing should take place in the mid-2020s. As we all know, summer can be a very long month when one is defining things in Parliament; I take the point that, if it is to happen in the mid-2020s, legislation has to be in order at some particular stage.
The great advantage of the Government’s review of automatic enrolment, “Maintaining the Momentum”, is that it sets out the procedures through which the Government are going to proceed in terms of the lower earnings rate and the change of age. Because of the way payroll works and the sophistication of payroll now that we have automatic enrolment up and running, I am advised that the changes are relatively easy to make. I accept that businesses will need some time, but it will not be like the original version of automatic enrolment, when we had to completely invent a system; this is an expansion of a pre-existing system. The right hon. Gentleman can remind me of that when things do not necessarily go like a Swiss watch, but that is my confidence on the matter. I hope that that provides assurances.
I will touch on one particular point: expansion of 8%. I endorse the comment that 8% is not sufficient—there is common belief about that. We are looking at international models, and Australia is the best example of the way forward. Clearly, I hope that in the longer term we would increase automatic enrolment, but there has to be a balance as to who is going to contribute to that. Will the employer have a larger role, paying more than the 3% that they do at present? Alternatively, will it be solely down to the individual? How can one offset that in respect of tax rebates and other such things?
Such policy work needs to be done on an ongoing basis and will take a little time. We have to be mindful of the fact we are in the middle of particularly difficult fiscal times because of covid. Imposing further burdens on businesses has to be balanced with the desire, which all of us have, to ensure that people have greater savings on an ongoing basis. This is a work in progress. I do not have any difficulty in being held to account for that: quite right, too—I would like to make progress as well. How we make progress is complicated.
The next amendment that the hon. Gentleman for Airdrie and Shotts brought forward was new clause 11, regarding automatic enrolment again. On the simple point about small pots, I should say that the matter is already a work in progress. I endorse so much of the broad thrust of what the amendments are saying. I totally endorse the principle the issue of small pots needs to be examined. The Work and Pensions Committee, to be fair to it, is beginning to look into that, as we discussed earlier. We have convened at the Department. I have asked all the industry sector and some of the third sector people, who clearly matter in this light, to come together and give me a report before the end of November, on a very provisional basis, about what they see as the key challenges and approaches going forward.
I would clearly be surprised if I were not summoned before the Work and Pensions Committee in due course to discuss these matters, in order to try to formulate policy. It seems to me that there is great scope, and a desire, to address a small problem on a long-term basis. In my view, that has to be wrapped up with a consideration of costs and charges as a whole. I would not want to deal with the issue in a bite-sized piece; if I can do it, I will attempt to do it in the round.
Stephen Timms
I want to press the Minister on the timescale. I take the point that a response will be published early next year, so when does he expect the arrangements to be in place so that people can see the statements online?
Pension Schemes Bill [ Lords ] (Third sitting)
Stephen Timms ExcerptsThursday 5th November 2020
(5 years, 1 month ago)
Public Bill CommitteesRead Full debate Pension Schemes Act 2021 View all Pension Schemes Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 5 November 2020 - (5 Nov 2020)
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.
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.
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.)
Pension Schemes Bill [ Lords ] (First sitting)
Stephen Timms ExcerptsTuesday 3rd November 2020
(5 years, 1 month ago)
Public Bill CommitteesRead Full debate Pension Schemes Act 2021 View all Pension Schemes Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2020 - (3 Nov 2020)
Stephen Timms (East Ham) (Lab)
I am very pleased to be serving under your chairmanship, Mr Stringer. Like others, I very warmly welcome this proposed legislation for CDC pensions, and congratulate Royal Mail, the CWU and everyone involved on the success of their joint efforts to achieve the statutory framework that is needed to deliver them.
My hon. Friend the Member for Feltham and Heston referred to the previous Select Committee on Work and Pensions report on CDC schemes, published in July 2018. That report said that CDC schemes had the potential to “transform the pensions landscape”, and it also commended Royal Mail and the CWU on the “ground-breaking agreement” they reached at that time. It added:
“To offer more good choices is entirely consistent with both pension freedoms and promoting retirement saving.”
The Royal Society of Arts has long supported CDC provision, and I want to bring to bear on our discussion some of the points it has made in welcoming this proposed legislation. It points out, as my hon. Friend has just said, that CDC schemes are likely to provide a much higher income in retirement—at least 30% higher, it says—than the alternative of individual saving and then buying an annuity, and that that improvement is achieved by sharing longevity risk and targeting higher asset returns than an annuity provider. The RSA believes that the Bill provides a good framework for introducing CDC schemes, noting in particular that the regulator will act as a gatekeeper to ensure that only well-designed CDC schemes can open. It suggests that authorisation requirements for opening a CDC scheme and the process to verify continuing viability should not be unduly cumbersome, and that there should be a proper balance of prescription in scheme rules and trustee, actuarial and regulatory oversight.
Unlike DB schemes, a CDC scheme cannot go back to the employer and ask for more funding, so CDC pensions do need to vary if things prove better or worse than predicted. Those variations in other countries where CDC schemes are in place can generally be accommodated by raising pensions by more or less than inflation, but after the 2008 crisis the Dutch reduced their CDC pensions by 2% on average, and in one of the Dutch schemes the level of pensions being paid was reduced by 6%. Understandably, that caused a furore, so people in a CDC pension need to know what might have to be done depending on what happens in financial markets in the future.
Does the Minister agree that this places a premium on effective communications with members of CDC schemes? During stable times, CDC payments may seem pretty reliable, as had been the experience in the Netherlands, where they were uprated each year in the expected way. For many years, the Dutch system had experienced no problems with that, nor had the potential for reductions been clearly explained to pensioners, so when the reduction came—2% on average, 6% in one case—it caused a lot of anger, for understandable reasons.
My hon. Friend referred to the model put together by Willis Towers Watson, I think at the request of the RSA, to model how a CDC pension would respond to the drop in capital values over the first quarter of this year. As she said, that model showed that the Royal Mail scheme would have been pretty robust. The Bill will allow the Royal Mail proposal to proceed, and other private sector organisations to create similar arrangements, but it does not allow for unrelated companies to work together to create a single CDC pension plan. Since effective pensions require economies of scale, that in effect excludes smaller companies from the legislation’s provisions, and from the option of a CDC—at least for now.
Guy Opperman
I agree that large employers, such as Royal Mail, which employ nearly one out of every 200 full-time working employees in this country, will look at that and say it is a potential way forward.
Before I come to the hon. Lady’s point, I want to address DB briefly and make it clear that CDC is intended to offer a further pension-saving option for employers and their workers, should they wish to make use of it: it is for the employers and the workers to decide the type of benefit they wish to have via their occupational pension scheme. That has always been the right of the employer fundamentally, but also engaging with the employee. We specifically amended the subsisting rights provisions via clause 24 to prevent existing DB benefits in the scheme from being converted into CDC benefits. I hope that I have addressed in full the DB issue, which was also raised separately by the right hon. Member for East Ham.
Stephen Timms
I am grateful for the Minister’s reassurance on communications. Will good communications be a consideration for the regulator in determining whether a proposed CDC scheme should go ahead?
Stephen Timms
Can the Minister raise our hopes that perhaps in the next 12 months or so, there might be regulations that allow multi-employer CDCs to be set up?
The Chair
Could the Minster be brief, as that moves us into a debate on clause 47, which comes later in the agenda?
Seema Malhotra
It is a pleasure to respond to the Minister’s comments. I thank him for laying out the Government’s thinking on the clauses and amendments in this group. I will speak to Government amendment 6 and briefly to amendment 25, tabled by my right hon. Friend the Member for East Ham.
I thank the Minister again for his speech and the arguments that he has laid out for seeking to remove the amendment tabled by the noble Lord Sharkey and cross-party colleagues in the other place, which was agreed by peers in June. The Minister commented that, in his view, some of the concerns could be addressed by the implementation of clause 18. I want to come back to why I am concerned that may not go far enough; perhaps this will be an issue of ongoing debate as the Bill proceeds, and in regulations.
The amendment included by those in the other place was very considered. It spoke about
“the requirement that trustees make an assessment of the extent to which the scheme is operating in a manner fair to all members”.
I believe that is the additional wording in the Bill. It is a very considered amendment, which could only be useful in keeping on the agenda of trustees the important analysis that should take place in relation to decision-making—to be sure about the best possible input and considerations in relation to the performance of the scheme for all its members.
I alluded in my opening remarks to the considerable insecurity that we face as a nation, exacerbated by the impact of covid-19 and its disproportionate impact on different groups and different generations, in terms of the economy and levels of employment and therefore saving into pension schemes. People’s personal finances are likely to be under great strain in the coming years. Not only is there that insecurity, but it is increasingly difficult to encourage young people to save for retirement, with all the other cost pressures in life—paying off debts, for example, or the fact that, at the moment, the average age at which they will purchase their own home is around 34. There are considerable pressures on the personal finances of the next generations, as they plan ahead for their lives.
Thinking about our institutions and how we continue to consider and embed intergenerational fairness should be on Parliament’s radar in all our work. In that context, we see unprecedented public policy challenges in ensuring fairness between different groups in society—from those in hard-hit industries, such as aviation and hospitality, to those affected by the way education is being delivered in the times in which we are living, which could continue beyond the next few months into the next few years, with all that uncertainty. We have also seen that black, Asian and minority ethnic communities have been hit harder by the health and economic impacts of this terrible virus. We can look at income today, but we are really talking about income tomorrow, and the impact on tomorrow of savings today.
It is incumbent on the Government to think about fairness between generations, and how we can stop young people bearing the brunt of the uncertainty and hardship caused by the economic havoc that we are experiencing right now. The impact on them could go unchecked in the medium and longer term. Concern about intergenerational fairness was raised by many respondents to the Government’s consultation on the Bill’s provisions.
Clause 27, as amended in the other place, sought to deal with some of those concerns. It effectively acknowledges that there may be a divergence in interests between different cohorts or sets of members in CDC schemes. Importantly, it does not compel any particular kind of action, but requires trustees to consider fairness and assess the extent to which the scheme is fair to all members. To Opposition Members, that is a very sensible suggestion, and we struggle to understand why it should be controversial for the Government.
I appreciate that the Minister outlined some comments from the CWU and others about the interpretation. He also mentioned treating people in the same way and his interpretation of the current wording of clause 18, which I was just reviewing. If there are different considerations in relation to levels of savings, other ways of joining a scheme or different circumstances, it may be necessary to look differently at different cohorts. Treating people fairly may not always mean thinking of them as the same. When we are thinking about fairness, we may need to be a bit more nuanced in our consideration of different needs and circumstances, and the potential impact of a decision on all cohorts.
Perhaps a different way of interpreting the amendment that was made in the other place would be to see it as enhancing the intention behind clause 18. I repeat that the amendment did not compel any particular kind of action, but made it more explicit what trustees should consider. Baroness Stedman-Scott, the Parliamentary Under-Secretary, said in the other place:
“I welcome the sentiment behind the proposed amendment; it is something to which we want to give further consideration. We need to give careful thought to how such reporting might work in practice and would want to work with trustees, administrators and the regulator to ensure that any such requirement is proportionate, appropriate and clear. We would also want to consult on any such approach to make sure that it is effective. I reassure all noble Lords that we will give this matter careful consideration. Should we need to bring forward such a requirement in regulations, we already have sufficient powers in existing legislation to require schemes to report on fairness in CDC schemes if warranted.”—[Official Report, House of Lords, 30 June 2020; Vol. 804, c. 605.]
I hope that the Minister will continue to keep this issue under review, because we think it is very important for the sustainability of fairness and confidence in schemes. The very considered wording that was proposed and passed in the other place could help the Government in securing the intended outcomes that he described as being behind clause 18. Perhaps he can provide more detail on his plans to incentivise trustees to assess and report on the extent to which CDC schemes are operating in a manner that is fair to all.
My right hon. Friend the Member for East Ham may make a few comments on amendment 25, which is intended to require pension schemes to send information on the diversity of the trustee board to the pensions regulator. We believe in the value of this amendment, which is also supported by other colleagues—the SNP in particular. It is important to ensure that there is a diversity of voices in decision making. The debate about diversity on public and private boards comes in cycles. Diversity on public boards was considered under the last Labour Government, with quotas for diversity in recruitment. This is not a party political matter; a lot of research shows that diversity in decision making leads to better and safer sustained outcomes.
When looking at public funds, for example, the diversity of needs should be understood at the decision-making table. We do not need to rehearse the arguments for ensuring that different voices are represented at decision-making tables, whether that relates to gender, those with disabilities or those from particular minority communities.
The same is true of boards in the private sector. Research undertaken by business schools shows that diversity on decision-making boards has often led to considerably better returns on investment, and indeed shareholder returns. There is no sustained, credible argument that not having diversity on boards leads to better business outcomes.
I do not understand why this would not be an important consideration. Amendment 25 simply says that pension schemes should send information on the diversity of the trustee board to the Pensions Regulator. I am sure my right hon. Friend the Member for East Ham will share more information about how trustee boards are less diverse than other boards. That cannot be right for boards that have an increasingly important role in decisions about funds and investments, and about inclusivity and fairness.
This is not only an important consideration in terms of social justice; it is about the performance of the schemes. It is about recognising the importance of having diverse voices and voices that are representative of those within the schemes and those who may benefit from the schemes in the future. This is a matter of obvious importance that should not raise concerns, and it should be included in the Bill.
Stephen Timms
I apologise for raising clause 47 in the previous debate; I probably should have waited until now. I am glad we had that debate and I welcome the Minister’s assurance that regulations to enable multi-employer CDCs will come forward within the next year.
I will confine myself in this debate to clause 46 and amendment 25, which stands in my name on the amendment paper. I am grateful to the hon. Members for Airdrie and Shotts and for Gordon for adding their names to it, and to my hon. Friend the Member for Feltham and Heston for the important points she has just made in favour of it. I thank ShareAction for its work on this topic and for the briefing it has provided.
We are all familiar, as my hon. Friend has just reminded us, with the criticism that there is insufficient diversity among directors of FTSE 100 companies. There has been progress, but the Government targets are going to be missed and there is still a long way to go among major company boards. Some 68% of board members are male and only 7.4% are from black, Asian or minority ethnic backgrounds. That proportion falls to 3.3% in the most senior board positions: chair, chief executive and finance director. Only just over half of boards have any ethnic minority members at all.
Ms Karen Buck (Westminster North) (Lab)
I ask my right hon. Friend to confirm my understanding, which is that when we talk about diversity, we are not simply talking about it being a good thing to have a range of different experiences and backgrounds; all the evidence from across the commercial sector is that diversity increases performance because of the range of perspectives that it brings to bear.
Stephen Timms
My hon. Friend is absolutely right. She and I took part in a debate on a similar issue around 10 years ago, on the Welfare Reform Bill. She is right on this point, and that is an argument that I want to come to in a moment.
I hope the approach that I am advocating will be applied to other pension trustee boards in the UK in due course, because according to a report on diversity published in March by the Pensions and Lifetime Savings Association, which we used to call the National Association of Pension Funds, 83% of pension scheme trustees are male; 50% of chairs of trustee boards are over 60; a third of all trustees are over 60, while only 2.5% are under 30; 25% of pension schemes have trustee boards that are entirely male; and only 5% of schemes have a majority of female trustees. This is a particularly stark picture if we look at the make-up of pension scheme trustee boards at the moment.
As the Pensions and Lifetime Savings Association comments:
“It seems clear that occupational pension scheme trustee boards have generally not implemented robust diversity policies as effectively as FTSE 100 boards”.
Stephen Timms
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 (Gordon) (SNP)
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.
Stephen Timms
I am very grateful for the support that has been expressed and for the points that the Minister has made. I take his point that there is a consultation under way. I very much hope that the regulator will decide to require information on diversity from the schemes that are set up, and that it will continue to do so as the trustee board develops. However, at this stage I will not press the amendment to a vote.
Clause 46 ordered to stand part of the Bill.
Clauses 47 and 48 ordered to stand part of the Bill.
Schedule 3 agreed to.
Clauses 49 to 51 ordered to stand part of the Bill
Clause 52
Collective money purchase benefits and schemes
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 53 to 57 stand part.
That schedule 4 be the Fourth schedule to the Bill.
Clauses 58 to 95 stand part.
That schedule 5 be the Fifth schedule to the Bill.
Clauses 96 to 99 stand part.
That schedule 6 be the Sixth schedule to the Bill.
Clauses 100 to 102 stand part.
The Chair
I propose to put as a single question that clauses 53 to 57 stand part, that schedule 4 be the Fourth schedule to the Bill, that clauses 58 to 95 stand part, that schedule 5 be the Fifth schedule to the Bill, that clauses 96 to 99 stand part, that schedule 6 be the Sixth schedule to the Bill, and that clauses 100 to 102 stand part.
Stephen Timms
Would it be in order, Mr Stringer, for me to ask about clause 98 in this part of our discussion? It is the counterpart to an earlier clause and will introduce regulations to enable CDC schemes in Northern Ireland to be extended to include multi-employer schemes. Can the Minister reassure us that in Northern Ireland, as in the UK, the plan will be to introduce regulations to enable that within the coming year?
Seema Malhotra
We will not be making any further comments. We support the Minister on these clauses.
Stephen Timms
This part of the Bill gives new powers to the regulator, so it is worth recapping the problems that gave rise to the need for them. Most of the thinking here came from the joint work of the former Work and Pensions Committee—I pay tribute to my predecessor as its Chair, Frank Field—and the Select Committee on Business, Innovation and Skills, after the awful problems at two firms: BHS and Carillion.
BHS had two defined-benefit pension schemes. They were in a combined surplus of £43 million when Sir Philip Green bought the company in 2000. The surplus gradually declined and the schemes fell into a combined deficit in 2006, following the period when large dividends had been paid to members of the Green family. By the time of the sale of BHS in 2015, the value of the schemes’ assets was almost £350 million short of their liabilities. As the schemes fell into deficit, the BHS board repeatedly resisted requests from the scheme trustees for increased contributions.
In 2012-13, there were negotiations over a deficit recovery plan and they concluded with a 23-year recovery plan. At the time, eight years was the median rate for a recovery plan and 95% of comparable schemes had a recovery plan of less than 17 years. The plan we got in the case of BHS was for 23 years. The payments under that plan barely covered the interest on the scheme’s deficit and so the deficit continued to grow even while that plan was being followed.
The two Select Committees concluded that the Pensions Regulator had acted too slowly. Having received the 23-year plan in September 2013, it did not send the first information request to the trustees until January 2014. The Committee added, however, that the onus for resolving problems was on Sir Philip Green.
In the case of Carillion, it left a pension liability of around £2.6 billion. The 27,000 members of Carillion’s defined-benefit pension schemes will now be paid reduced pensions by the Pension Protection Fund—one of the biggest calls ever on that fund. I agree with what the Minister said earlier about the success of the fund, which was introduced by the previous Labour Government.
Neil Gray
Amendments 19 and 20 are in my name and that of my hon. Friend the Member for Gordon, and for the reasons that other members of the Committee have outlined we support part 3 of the Bill. We are also incredibly supportive of the principles of clause 107, which introduces new criminal offences aimed at deterring occupational pension schemes, sponsoring employers or scheme trustees from engaging in wrongdoing in relation to their pension scheme. We would not table the amendments if we were not concerned, and if serious concerns had not been raised about the clause.
We think the clause will act as a strong deterrent against those who would wilfully run a scheme down, as we have seen happen in the not too distant past, and as was outlined earlier by the Chair of the Work and Pensions Committee, the right hon. Member for East Ham. However, the new criminal powers are wide-ranging and have the potential—I am sure it is unintentional—to criminalise routine behaviour by parties involved with pension schemes and those who are not directly involved at all, such as lenders and those doing business with a pension scheme’s employers. That could have damaging knock-on effects for the viability of the pension scheme, if those who dealt with it, or employers, deemed that that legal risk was intolerable.
We have been working with the Institute and Faculty of Actuaries, which the Minister previously quoted in his favour in relation to part 3 of the Bill, as it has serious misgivings about the impact that the clause could have. It suggests that a wide range of conduct has the potential to have a detrimental effect on the likelihood of scheme benefits being met, in which case schemes might fall foul of the proposed current wording of clause 107.
The Institute and Faculty of Actuaries says, for example, that such conduct might include a Government entity terminating an outsourcing contract, where the contractor has a pension scheme; an employer giving employees a pay increase; a Government increasing corporation tax or business rates; a landlord increasing rents, where the tenant has a pension scheme; trustees or a scheme actuary granting an augmentation or increase to members without additional employer contributions; or a bank refusing to lend to an employer. That view is also supported by the Pensions and Lifetime Savings Association.
Our amendments would protect professional advisers from criminal liability for carrying out their role. That could be achieved in the Bill if the duties and responsibilities of an individual were considered when determining whether a person intended to commit an offence. The amendments would clarify matters in adding the question of negligence, which we feel is the intention behind the clause, but which is not explicit. They would also make it clear that a person’s role and responsibility should be considered.
The intended effect is not to change the policy aims of the legislation—far from it—but to clarify the extent of the powers and, in doing so, protect professional advisers from criminal liability for legitimately carrying out their roles. We therefore hope that the Government will accept the amendments.
Stephen Timms
I have listened with great interest to the case that the hon. Member for Airdrie and Shotts has been making. I have also been contacted by a reputable industry body, the Pensions Management Institute, as well as the Institute and Faculty of Actuaries, which has been mentioned. They expressed alarm about the consequences of clause 107, which the hon. Gentleman has raised concerns about.
I have seen, for example, letters to the Minister from the Joint Industry Forum, which is a genuinely cross-industry group. One is dated 11 December last year, and the other is dated 9 September this year. They suggest possible changes and discussions with officials about how the difficulties could be overcome. I hope the Minister will tell us what discussions there have been since those letters, to try to resolve the problem, and what his conclusion was.
Guy Opperman
I would like to provide some reassurance on that particular point. I am acutely aware of it and have engaged at length with many different organisations. It is certainly not the intention to frustrate legitimate business activities where they are conducted in good faith. It is important, however, that where the elements of offences are met, no matter who has committed it, the Pensions Regulator should be able to respond appropriately. Any restriction of the persons would create a loophole for these people to potentially act in such a way.
The new criminal offences proposed in the Bill make it clear that an offence is committed only if the person did not have a reasonable excuse for doing the act or engaging in the course of conduct. Crucially, what is reasonable will depend, obviously, on the particular circumstances of the act, but the burden will be on the regulator to prove that the excuse was not reasonable. The regulator will be publishing specific guidance on these powers after consulting industry, but ultimately it is for the courts to decide that an offence has taken place, and, if so, the appropriate punishment.
The amendments also seek to remove the reasonable excuse defence—as set out in sections 58A and 58B—and replace it with a narrower concept of negligence. The existing defence of reasonable excuse is wider in definition than that proposed by the amendments. Therefore, the current defence provides more protection and a greater safeguard to potential targets. What is considered negligent is, in fact, specific and relies on case law—the law of tort, as I am sure the hon. Member for Airdrie and Shotts is aware—therefore introducing the concept of negligence would not help individuals to determine if what they were doing would be deemed negligent.
Stephen Timms
I have a real worry about this. Is the Minster saying that, for example, if a trade union successfully called for a higher pay rise than was initially offered, the company subsequently failed and there was a problem with the pension scheme, that the trade union would have to say that it had a reasonable excuse for pressing its pay demand? That seems a strange arrangement for us to be entering into.
Guy Opperman
I am happy to write to the hon. Gentleman and set out the position in more detail. I come back to the simple point. If a trade union has a reasonable excuse for asking for a pay rise for its members, given their circumstances in an organisation, there is no reason why it should have any concern whatsoever. The starting point is whether someone has a reasonable excuse to progress a particular thing. If it is clearly part of normal business activities, I would not anticipate a problem.
Stephen Timms
I wonder whether the Minister would agree that it does seem very odd that a trade union making a legitimate pay claim might have to worry about whether it is committing a criminal offence because of some future damage to the pension scheme. I am very surprised that the Minister is putting in place measures that would have that effect.
Guy Opperman
This is in the context of the offence of avoidance of employer debt. We start with the very eloquent exposition that the hon. Member for Airdrie and Shotts gave on where employer debt arises and contributions are not made to pension schemes. One has to then look at the individuals and their approach. I do not believe that including a reasonable excuse defence will in any way hold back normal, traditional business activity. I can give that reassurance: traditional business activity would clearly include union work. This is clearly an issue that the regulator is very conscious of. On the one hand, we want a more robust approach. On the other hand, we want to ensure that normal business activity goes ahead. I believe that this is the appropriate way forward.
Pension Schemes Bill [ Lords ] (Second sitting)
Stephen Timms ExcerptsTuesday 3rd November 2020
(5 years, 1 month ago)
Public Bill CommitteesRead Full debate Pension Schemes Act 2021 View all Pension Schemes Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2020 - (3 Nov 2020)
Guy Opperman
I will press on, because I am going to answer some of the points that the hon. Lady made. I am mindful that we have spent some time on this particular point and we have a lot to get through.
On matters related to the state pension and triple lock, I leave the triple lock to the Chancellor with good blessing and understanding. I will not get into a rehash of many arguments over the state pension changes made from 1995 and which continued over 13 years of Labour Government. The policy was supported by certain Labour Ministers, including in the DWP. Then, obviously, there was a change of Government and the policy was not necessarily supported. When the hon. Lady talks of the way that people have been treated by the Government, that means all Governments since 1995.
I have persistently defended the actions and the civil servants of the DWP throughout the period between 1997 and 2010. Interestingly enough, so have the courts, because we have recently had the Court of Appeal decision in the BackTo60 claim, which found comprehensively in favour of the Government—not just this Government, but previous Governments—in respect of all matters that apply, including notice.
Stephen Timms (East Ham) (Lab)
It is worth putting on the record that the worst problem was what happened with the Pensions Act 2011, as I think the then Pensions Minister, Steve Webb, has since recognised.
Oral Answers to Questions
Stephen Timms Excerpts(5 years, 2 months ago)
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Rosie Cooper (West Lancashire) (Lab)
Stephen Timms (East Ham) (Lab)
Mr Speaker
I call the Chair of the Select Committee on Work and Pensions, Stephen Timms.
Stephen Timms
The Select Committee’s report published today calls for new starter payments to claimants of universal credit to help tide them over the very difficult five-week wait for their first regular benefit payment, and for the £20 a week increase, which the Secretary of State has referred to, to be made permanent. How can it possibly be justified for people claiming jobseeker’s allowance and employment and support allowance to receive £20 a week less than people in identical circumstances who happen to be claiming universal credit?
Dr Coffey
On what happened with legacy benefits and universal credit, I think the rationale was set out clearly at the time; in particular, it was also about having a rate that was quite similar to statutory sick pay. We will look carefully at the report that the right hon. Gentleman and his Committee have issued to us today, but I remind him that of course people do not need to wait five weeks for a universal credit payment; they can get a payment within a matter of days, and that payment is then spread over the entire year.
Pension Schemes Bill [Lords]
Stephen Timms ExcerptsWednesday 7th October 2020
(5 years, 2 months ago)
Commons ChamberRead Full debate Pension Schemes Act 2021 View all Pension Schemes Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 104-I Marshalled list for Report - (25 Jun 2020)
Dr Coffey
I understand exactly the point my hon. Friend makes. My understanding is that the Financial Conduct Authority is changing its guidance or approach to make sure that asset managers are also getting on board. We are trying to ensure that asset managers, as well as trustees, are aware, so we have that collaborative arrangement to make sure we can make progress on this important use of pension funds.
One big concern people have relates to scams. Clause 125 further protects savers from falling victim to unscrupulous scammers when considering transferring their pension pots. The measures allow us to place conditions on a scheme member’s right to transfer their pension savings to another pension scheme. This will protect members from pension scams by giving trustees of occupational pension schemes a level of confidence that transfers of pension savings are made to safe, not fraudulent, schemes. Regulations will proscribe the circumstances where there is a high risk of a transfer to a fraudulent scheme and could require scheme members to obtain information or guidance before transferring.
Stephen Timms (East Ham) (Lab)
I welcome this measure in the Bill, reflecting changes in the other place. As the Secretary of State said, the intention is to require, in certain circumstances, savers to take advice before they move their pension savings into what might be a scam. I wonder whether she agrees with me that we should go further and allow trustees to prevent a transfer where it looks as though the savings are going into a scam.
Dr Coffey
I know that the right hon. Gentleman and his Select Committee are looking at this matter carefully, and I appreciate that he has been in discussions with my hon. Friend the Under-Secretary of State for Work and Pensions, who I believe wrote to the right hon. Gentleman yesterday. It is certainly an issue on which we want to continue to work to identify circumstances that could raise red flags, and legislate to enable trustees to act when they appear. The powers in the clause are broad enough to cover some of the scenarios about which the right hon. Gentleman is concerned.
Stephen Timms (East Ham) (Lab)
As has already been widely said, there is much to welcome in this Bill. Some important changes were made in the other place, and I pay tribute to the work that it did. I also appreciate the efforts that the Minister has made to work with my hon. Friends on the Front Bench, with me and the Work and Pensions Committee, and with others across the House to secure broad support for the measures in the Bill.
Pensions dashboards should be an important step forward in enabling savers to understand their pension position, allowing them more readily to make good decisions in planning for retirement. The Select Committee, under its former Chair, Frank Field, to whom I pay tribute, said in 2018:
“The case for a publicly-hosted pensions dashboard is clear cut”
because
“consumers want simple, impartial, and trustworthy information.”
In 2019, the Committee observed:
“A non-commercial pensions dashboard will be a welcome, if overdue, additional tool to provide transparency to individuals and help them plan how they use their pension funds.”
We have heard that it was agreed in the other place that the dashboard provided by the Money and Pensions Service should be up and running for a year, and the Secretary of State should report to Parliament on its operation, before other commercial dashboards are set up, and that commercial dashboards should not have facilities for engaging in financial transactions. Like others, I hope that those changes stay in place.
The former Committee reported in 2016 on defined-benefit pension schemes in between reports that it published on the BHS and Carillion scandals, and its recommendations at that time are reflected in the new powers provided to the Pensions Regulator in this Bill. The Committee recommended, for example, that the Government should consult on proposals to give trustees powers to demand timely information from sponsors, and I welcome the new offence created by the Bill of “knowingly or recklessly” providing false information to trustees.
The Committee also highlighted, in 2018, the attractions of collective defined-contribution pensions. I echo the observation of the hon. Member for Amber Valley (Nigel Mills), whose contribution to the Select Committee I am grateful for, that the pooling of risk offers better pensions than standard defined-contribution saving and avoids the large potential liabilities that have made defined-benefit schemes less popular than they were. I welcome the legislative framework provided in the Bill, and I hope that this new model will be widely taken up.
However, I want to focus my remarks on the issue of pension scams, echoing a number of points that have already been made. As we have heard, the Select Committee has started an inquiry on pension scams, which the Secretary of State referred to. That is the first strand of three in an assessment of the pension freedoms five years on from their introduction by George Osborne.
Losing one’s pension savings to a scam is devastating. The Select Committee has heard of lives that have been ruined by scams—of people who have worked hard all their lives and were looking forward, as they were entitled to, to a comfortable retirement, finding suddenly that their savings have all been stolen; husbands not daring to tell their wives what has happened, or of the shame or dread of the future that they are suffering.
We do not know the scale of this issue. Many scams are never reported, partly because people are ashamed of what they have done and partly because they know that the chance of ever retrieving any of the money is slim. There are grave concerns about the effectiveness of Action Fraud in investigating and ensuring the pursuit of scams, given the low rate of success in retrieving scammed pensions.
The pension scams industry group, to which I pay tribute, estimates that scams could account for anything between 0.5% and 12% of all transfers out of employer pension schemes in the last five years. If we take the middle figure—say 5%—that would mean that over the last five years £10 billion of pension savings have been stolen. There are certainly well-informed reports of named individuals living in the lap of luxury in homes in exotic locations around the world on the proceeds of pensions out of which they have defrauded hard-working savers.
I am bound to say that these awful problems should have been foreseen when pension freedoms were introduced five years ago. Indeed, as I remember well, they were foreseen, but the coalition Government did not adequately prepare for them. I do not know why—they should have done, but they did not. Charles Randell, chair of the Financial Conduct Authority, said at the 2020 annual public meeting of the FCA that
“the manner in which the pension freedoms were introduced leaves a number of lessons to be learnt, including about the importance of coordinating changes in government policy with regulatory and industry preparedness and the speed with which major changes are introduced.”
He was absolutely right—those things were not done, and thousands of hard-working people have had their lives ruined as a result.
The pension scams industry group has thought long and hard about this, and the pensions industry has every incentive to worry about the reputational damage that it suffers as a result of the impact of scams. If people cannot trust what will happen with their money they will not save. The industry group has identified red flags to assist in establishing whether the destination for a proposed transfer is likely to be a scam. It has suggested three main flags, any one of which, most people would agree, should mean that the transfer should not go ahead: first, if the receiving scheme is on the FCA warning list or some other internal list of schemes, entities or individuals of concern; secondly, if advice on the proposed transfer has been provided by firms or people who do not have appropriate regulatory permissions; and, thirdly, if the provider or self-invested personal pension operator is not registered with the FCA. The industry group has identified a number of other flags that may not in themselves show that the transfer ought not to go ahead, but do suggest that further checks need to be made before it does.
As I mentioned in my exchange with the Secretary of State, an amendment to the Bill was tabled in the other place to ensure that if a proposed transfer raised red flags it should not go ahead until the saver had taken financial advice. The problem graphically reported by the pension scams industry group is that only about a quarter of would-be scam victims would be deterred from proceeding after receiving advice telling them not to do so. The scammers win people’s confidence—they become their friends, as we heard in the Select Committee this morning. The scammers tell people, “Yes, they will say that, but that is because they do not want you to move your money.” People trust scammers until the moment they find their pension has gone.
I want to table a proposal enabling trustees to refuse to make the transfer altogether if one of the major red flags is raised. In my view—and I know that other Members support such an amendment—the statutory right to transfer conveyed in pension freedoms legislation should not apply in such cases. We heard this morning from scheme trustees not only that they had an obligation to transfer even if they knew perfectly well that the destination was a scam but that if they did not do it quickly enough they would be fined for not getting a move on under the arrangements that are in place. It is hard to argue that the statutory right of transfer should apply, for example, if the destination is a firm that is listed on the FCA warning list. If the trustees of a scheme know that a particular transfer is going to a firm that is on the warning list, they should surely not have a legal obligation, as they do at the moment, and will still have under the Bill, to hand the money over to crooks if the saver has taken advice but still, despite that advice, wants to go ahead. If the receiving firm is a above board, it must show that to the FCA and get itself off the warning list.
Guy Opperman
I am grateful to the Chair of the Work and Pensions Select Committee with whom I have had, I think, three separate meetings over the summer specifically to address this point. Clearly we are all keen to ensure that clause 125 and the powers within it address the issues that he rightly raises and that are of concern to fellow members of the Select Committee.
The right hon. Gentleman will be aware that I wrote to him yesterday and have given evidence in a more detailed document to the Work and Pensions Select Committee. With his permission, I will put both those documents in the Library of the House, so that all colleagues, including the hon. Member for Airdrie and Shotts (Neil Gray), have an opportunity to be aware of them. I am very happy to continue working with the right hon. Gentleman, and he will be well aware that the view of my Department is that the matters he raised can be addressed fundamentally by clause 125. The FCA has particular views of the red-flag list warning list point, but I am sure we can continue the dialogue.
Stephen Timms
I am extremely grateful to the Minister for those points and for the work that he has done, the responsive way that he has looked at the issue over the past couple of months and for the information that he has now provided. I will be very keen to hear from the Pensions Scam Industry Group whether it feels that the proposal that the Minister has now tabled will meet the points that it has been raising. However, I am grateful for the progress that we have been making on this issue and that will no doubt be further explored in Committee in the weeks ahead.
The determination by the pensions ombudsman in 2015 allowed trustees to decline a transfer request when there were concerns about a scam but the Hughes v. Royal London court case in 2016 overturned that determination and established that the trustees do have an obligation to go ahead even when they know the receiving scheme is a scam. That must be changed, and I am very encouraged by the Minister’s point that he believes that it will be possible to bring forward regulations under the Bill as it stands to have that effect. It is important that that change is made.
Mr R complained to the pensions ombudsman about the decision of the London Pensions Fund Authority and Newham Council, which is my local authority, to allow him to transfer his pension to the Gresham pension scheme. That transfer went ahead and he has lost his entire pension valued at £64,000. He has been awarded £1,000 in compensation since then. His view now is that the trustees should have refused to make that transfer but, under the 2016 Hughes v. Royal London decision, the trustees are legally obliged to go ahead with the transfer in a case of that kind. I think Mr R is right that the transfer that he requested should have been blocked by the trustees, and I very much hope that in future that will be possible. Very few people would today argue that the pension freedoms should be repealed but pension savers are entitled to expect protection. The change that I have described is designed to provide it.
My final point has been touched on by the shadow Secretary of State. Clause 123 was amended in the other place. As the Minister knows, there is very strong support for the amended clause on the part of current defined-benefit schemes, such as the railways pension scheme and the BT scheme, that remain open. If that amendment were to be removed, those schemes fear that they would be treated unfairly by the regulator and in the same way as schemes in very different circumstances. Their future would be threatened as a result. It could be the final blow for private sector defined-benefit schemes. There is great nervousness about the Minister’s intentions on that clause, as he well knows, and about the fact that if he removes the amendment, he may make those schemes unsustainable. I wonder if, in closing the debate, he might comment on his intentions on clause 123.
Social Security (Up-rating of Benefits) Bill
Stephen Timms ExcerptsThursday 1st October 2020
(5 years, 2 months ago)
Commons ChamberRead Full debate Social Security (Up-rating of Benefits) Act 2020 View all Social Security (Up-rating of Benefits) Act 2020 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 1 October 2020 (PDF) - (1 Oct 2020)
Stephen Timms (East Ham) (Lab)
I agree with the case that the Secretary of State has made: that the Bill is needed because in all likelihood there will be no growth in earnings this year. In those circumstances, it is right for the Government to take the action needed, as we are doing this afternoon, to increase the state pension and linked benefits, including the standard minimum guarantee in pension credit.
Like other Members, I want to say a few words about pension credit, because it has proved a very effective tool for reducing pensioner poverty since it was introduced in October 2003. The hon. Members for Glasgow South West (Chris Stephens) and for Delyn (Rob Roberts) were quite right to ask about the take-up of pension credit. I heard the answer that the Secretary of State gave the hon. Member for Glasgow South West, and I would be interested to know what the outcome of those efforts has been. She made an interesting point about what the BBC has done. Does the Minister have any information on whether those changes have led to increased take-up of pension credit? The most recent figures, for 2017-18, show that only six in 10 of those eligible were claiming it, and only 70% of the total amount of pension credit that could have been claimed was in fact being claimed.
Beyond the measures in the Bill, it would be helpful to hear a little more about what further plans the Government have to tackle pensioner poverty. The Social Metrics Commission, chaired by the noble Baroness Stroud in the other place, estimated in its 2020 report that 1.3 million pension-age adults are living in poverty, and the Government’s own figures for pensioners living in relative poverty after housing costs is higher still, at 1.9 million.
The number of pensioners living in poverty had fallen substantially, thanks largely to the introduction of pension credit. However, as others have rightly reminded us, over the past five years or so those numbers have started to go in the wrong direction. That is reflected in the Social Metrics Commission’s measurements. The Joseph Rowntree Foundation—the hon. Member for Delyn drew attention to its “UK Poverty 2019-20” report—makes the point that:
“For years, pensioner poverty decreased across the UK, but now those that are single, have non-white ethnicity or have a landlord, are seeing increases.”
The hon. Member for Delyn quoted the troubling rate of pensioner poverty that we are seeing at the moment, with about 2 million UK pensioners living in poverty, with the highest rate of pensioner poverty in London, at 23%. The Bill will ensure that pensioners’ incomes rise during a period of no increase in earnings, or possibly even a fall in the value of earnings.
I welcome the fact that the Government are taking these steps, but it is not only pensioners we need to be concerned about, as other Members have mentioned already. What will the Government be doing for people of working age who are facing rising unemployment and loss of income? Is there a risk that, on its own, the Bill will exacerbate existing intergenerational unfairness? We are debating the Second Reading of the Social Security (Up-rating of Benefits) Bill, but there are some benefits up-rating matters that the Bill does not address. The Social Metrics Commission’s 2020 report estimated that 8.5 million people of working age are living in families in poverty, and concluded:
“The older you are, the less likely you are to be in poverty. 33% of children aged four and under are in poverty, compared to 23% of those aged between 40 and 44 and 10% of those aged 75 and over.”
The Select Committee, in its first report in this Parliament—on the DWP’s response to the coronavirus outbreak—welcomed the £20 a week increase in the rate of universal credit at the start of the pandemic. The Secretary of State has already referred to that increase, which was introduced to last for a year. The Committee recommended:
“now that the initial surge of Universal Credit claims has mostly been handled, the Department should immediately seek to increase the rates of relevant legacy benefits by the equivalent amount. This increase should be backdated to April 2020, as recommended by the independent Social Security Advisory Committee.”
Sadly, that recommendation on a unanimous basis by the Select Committee, and the recommendation by the Social Security Advisory Committee, have not been adopted by the Government. It is quite unusual for the Government to ignore a recommendation, which is largely technical in character, brought forward by the Social Security Advisory Committee. In their response to the Select Committee, the Government simply made the point that those other benefits
“were increased by 1.7% in April 2020 as part of the annual up-rating exercise”.
They went on to say that the Department has
“no plans to increase these benefits further at this stage.”
The Secretary of State does have the power to uprate those benefits at her discretion and I very much hope that she will.
I welcome the provisions in the Bill, but pensioners must not be the only people we are concerned about. We need to consider the interests of working age people as well. After such a long freeze in working-age benefits, there is a very strong case for making the £20 a week increase permanent, as was pointed out by over 50 organisations brought together by the Joseph Rowntree Foundation yesterday. The Select Committee has been reflecting on that in its current inquiry on the five-week wait for universal credit, on which we will be publishing a report in the coming weeks.
Whatever the Government’s conclusions on that, I put it to the Secretary of State at the Select Committee yesterday that it would surely be inconceivable for Ministers to cut everybody’s benefit by £20 a week in April before the pandemic was even over. The Secretary of State told me that she is still in “active discussions” with the Treasury over this subject. I suspect that everyone in the Chamber wishes her well in those discussions. We will certainly all be eager to learn the outcome.
Let me reiterate the call made unanimously by the Select Committee that the £20 a week increase should also apply to legacy benefits such as jobseeker’s allowance, and employment and support allowance. In our view, it is wrong to have a big discrepancy between the incomes of two people in otherwise identical circumstances based merely on the historical accident of which benefit they happen to be claiming. The rates were the same at the start of the pandemic; they should be the same now.
The main argument at the time for not increasing the legacy benefits was that it would take some time to implement on the rather creaking computer systems through which those benefits are administered. I understand the difficulty, but if work to do that had started in April, the increase could have been implemented around about now. There should certainly be no delay in getting on with implementing it now.
I welcome the measures in the Bill to address the uprating of benefits, but there are some other benefit uprating matters not in the Bill that also require urgent attention.
Oral Answers to Questions
Stephen Timms Excerpts(5 years, 3 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Parliamentary Under-Secretary of State for Work and Pensions (Mims Davies)
First, no one will get away with giving false information. Those who are found to have been abusing the system are subject to the full extent of our enforcement powers. The Child Maintenance Service will pursue those people where appropriate. Parents were asked to report any changes via the self-service portal to ensure that receiving parents did not lose out in the long run. Cases will be updated and people will be notified of any changes. Where payments have been missed, the service will take action to re-establish compliance and collect any unpaid amounts that have accrued.
Stephen Timms (East Ham) (Lab)
The National Audit Office told the Work and Pensions Committee two weeks ago that the “sophisticated” analysis of the Trussell Trust has established an association between universal credit roll-out on the one hand and rising food bank demand on the other. Association is not the same as causation, so what plans do the Government have to commission research, as the National Audit Office recommends, into the impact of universal credit on food bank demand?
The Parliamentary Under-Secretary of State for Work and Pensions (Will Quince)
I thank the Chairman of the Select Committee for his question. As he knows, I gave evidence to the Committee recently on this very matter. I have worked closely with food bank providers—the Trussell Trust and others—over the course of the pandemic to ensure that our support has got to those who need it quickly. We continue to better understand the reasons for food insecurity. That is why we have put additional questions in the family resources survey. We keep all policies under review, and of course we listen to the findings of reports such as that of the Trussell Trust.
Kickstart Scheme
Stephen Timms Excerpts(5 years, 3 months ago)
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Stephen Timms (East Ham) (Lab)
I opposed the closure of the future jobs fund in 2011. The Work and Pensions Committee, in its report in June, highlighted what a great job that scheme did 10 years ago, and I warmly welcome and applaud its return. Will the Secretary of State encourage charities, as happened last time, to take full advantage of the scheme, because they can create jobs that will give many young people a great start to their working lives? What will she do to ensure that disabled young people can take full advantage of it? Will she ensure the collection of sufficient data to allow a thorough evaluation subsequently, like the one published by her Department in November 2012?
Dr Coffey
I welcome the endorsement of the Select Committee Chairman. He will recognise some similarities to the future jobs fund, but ours is a much more ambitious programme and we are opening up more gateways into making sure that young people can access work and support. Of course the scheme is open to charitable organisations, which have been part of aspects of our engagement in considering the design of the programme and can be a very useful source here. My ministerial colleague in the Lords, Baroness Stedman-Scott, has great experience from her previous organisation and is already being an active ambassador with not only a variety of companies but other institutions, as is the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Mid Sussex (Mims Davies).
Oral Answers to Questions
Stephen Timms Excerpts(5 years, 6 months ago)
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Will Quince
Our focus today is rightly on what the Government can do to support people financially through these unprecedented times. However, our broader ambition remains to build an economy that ensures that everyone, no matter their background, has opportunities to enter and progress in work where possible, while being supported by the welfare system in their time of need. I just gently remind the hon. Gentleman that, in this financial year, we have spent more than £120 billion on benefits for working-age people.
Stephen Timms (East Ham) (Lab)
I welcomed the Minister’s confirmation last week of no appeal in the universal credit court case that the Department lost, but has he yet grasped the full scale of the problem that that issue has raised? He said in the House last week that, at most, 1,500 people were affected and suggested that 85,000 was a figure that had come from the Opposition. I wonder whether he has now had the chance to see that that 85,000 figure comes from the decision of Lady Justice Rose in the Court of Appeal last week. Did he also see that Lord Justice Underhill said:
“It is not simply a matter of uneven cash-flow…affected claimants will receive substantially lower payments”.
Will Quince
I answered an urgent question on this matter on Thursday for some 45 minutes, as the right hon. Gentleman has mentioned. I confirmed that we would not be appealing the decision of the court. As I made clear to him, I am now considering options to address the issue and will keep the House updated on progress. The 85,000 figure, which he references, from the judgment, came, in my understanding, from the Opposition. It is referenced in the judgment, but it came from the Opposition and we do not recognise those figures.