Pension Schemes Bill

Debate between Steve Webb and John Bercow

Tuesday 24th February 2015 Commons Chamber

[The Minister for Pensions (Steve Webb)]

I beg to move, That this House agrees with Lords amendment 1.

[Mr Speaker]

With this is will be convenient to take Lords amendments 2 to 9, 44, 49, 56 to 65, and 117.

[Steve Webb]

I believe that the Bill is in a better state as a result of the two groups of Lords amendments that we shall discuss today. Many of them are Government amendments, designed to tidy things up or deal with errors, and some reflect their lordships’ desire for the affirmative procedure to be used in the case of certain statutory instruments. The amendments are largely technical, but I shall of course be happy to deal with them in more detail if the House wishes me to do so.

Lords amendments 1 to 9, 49, and 59 to 65 deal with defined ambition and collectives. The Bill contains key reforms to private pensions; encouraging and enabling “defined ambition” or “shared risk” pension schemes and “collective benefits”. In the following amendments, their lordships sought to refine or build on the legislation since it had left the Commons.

Lords amendments 1, 2, 3 and 6 introduce minor changes to ensure drafting consistency. Clause 27 provides for regulations to require a scheme providing collective benefits to wind up the whole or part of the scheme, while clause 37 provides for regulations to impose a duty on managers of non-trust-based schemes to act in the best interests of the members when making certain decisions. Both clauses refer to different types of obligation that may apply in relation to the scheme, including those that are part of the scheme—that is, provisions of the scheme—and those contained in legislation that applies to the scheme. The amendments provide for descriptive consistency in the clauses in relation to those different types of obligation.

Lords amendments 4 and 5 clarify “publication of documents” provisions. Powers in part 2 of the Bill may require trustees or managers of schemes providing collective benefits to have policies in relation to a number of matters, including the factors used to calculate member benefits, the calculation of transfer values, and steps to deal with a deficit or surplus in relation to the target. Clause 32 allows regulations made under part 2, which require trustees or managers to prepare or obtain any document, to include requirements relating to the publication of those documents and the sending of copies to a specified person. Specified persons could include members and regulators.

The publication of various policies is a key feature of the regime that we are seeking to introduce in order to ensure that it is clear how members’ assets and benefits will be managed or calculated by the scheme. It ensures that there will be transparency in regard to the way in which collective benefit assets are treated in certain circumstances, because there is a less direct relationship than there is in a money purchase benefit when it comes to a member’s entitlement in relation to contributions. We also have regulation-making powers to make certain requirements in relation to the policy. An amendment was required to put it beyond doubt that the provisions of clause 32 also apply to the policies specifically. The amendment ensures there is no possibility of a scheme’s “having” a policy that we cannot require to be published or sent to a specified person.

Lords amendment 7 puts the meaning of the amendment made by clause 45 beyond doubt. The change to section 67A of the Pensions Act in the clause makes any modification to an occupational pension scheme that would replace a member’s accrued rights with a right to a collective benefit a “protected modification”. Protected modifications can be made only if the member consents. Lords amendment 7 makes it clear that the provision applies only when the existing accrued right is not a right to a collective benefit.

Lords amendments 8, 9, 59 and 60 address an omission in the current legislation. While the changes made by the Bill were being checked, omissions in the Pensions Act 2014 came to light. The amendments that were needed all relate to overriding legislation. When legislation overrides conflicting provision in the scheme rules, there are circumstances in which that legislation needs to be treated as if it were part of the scheme rules. The amendments ensure that overriding requirements made under regulations provided for by schedules 17 and 18 to the Pensions Act will be treated as part of the scheme rules for the purposes of the Pensions Act 2004, in the case of Lords amendments 64 and 65, and subsisting rights provisions in the 1995 Act, in the case of Lords amendments 8 and 9. The amendments provide for consistency and clarity in the way in which the overriding provisions are dealt with.

--- Later in debate ---

[Steve Webb]

I beg to move, That this House agrees with Lords amendment 10.

[Mr Speaker]

With this it will be convenient to consider Lords amendments 11 to 43, 45 to 48, 50 to 55 and 66 to 116.

[Steve Webb]

This group of amendments relates primarily to the new pensions freedoms announced by the Chancellor in the Budget last year, which will generally come into effect on 6 April this year. I shall begin with the pension guidance and guarantee, now known as Pension Wise, covered by amendment 10 and amendments 66 to72. The Government intend that all those who stand to benefit directly from the new pensions flexibilities provided by the Taxation of Pensions Act 2014 should have access to guidance. The amendments to clause 47 and schedule 3 are technical amendments to ensure that that is the case.

The amendments adjust the definition of pensions guidance in new sections 333A and 137FB of the Financial Services and Markets Act 2000 to extend pensions guidance to survivors of members who have flexible benefits, rather than just the members of pension schemes. This is needed because in some circumstances pension schemes may provide benefits to survivors of members of the scheme other than insurance-based products or cash lump sums—that is, flexible benefits—without their becoming members of the scheme.

Amendments 11 to 18 and amendment 50 provide advice safeguards. Clauses 48 and 51 were amended in the Lords via Government amendment. These contain the provisions creating the advice safeguard, which requires schemes to check that financial advice has been received before an individual exchanges their safeguarded rights for those that can be taken flexibly. Clause 48 makes provision for Great Britain, while clause 51 makes corresponding provision for Northern Ireland. Amendments 11 and 15 improve the drafting of clauses 48 and 51, while amendments 12 and 16 ensure that the requirement to take advice also applies when a member takes an uncrystallised funds pension lump sum from benefits that are safeguarded.

On Report in the other place, a second group of amendments to those clauses were made in response to the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendments 13 and 17 specifically provide for the only exception to the advice requirement that is intended to be in effect by 6 April—namely, an exemption from checking that advice has been received in the case of those with safeguarded wealth of £30,000 and below. Amendment 50 provides that regulations creating this exception are subject to the negative procedure, while regulations creating any other type of exception are subject to the affirmative procedure.

Amendment 14 provides more detail on the nature of the “appropriate independent advice” that is to be required under the safeguard. It provides that “appropriate independent advice” must be given by an “authorised independent adviser”, who has permission under the Financial Services and Markets Act 2000 to carry out a regulated activity specified in regulations. The Financial Conduct Authority sets out the standards for regulated activities in its rules, and that will allow it to set the standards for advice provided under the advice safeguard. Amendment 18 makes corresponding provision for Northern Ireland.

Let me now deal with amendments 19 to 21, 23 to 25, and 38 to 43, which are amendments to clauses 55 and 56, consequential on the Taxation of Pensions Act 2014. They allow a person to leave any remaining money purchase funds to a nominee or a successor. Schemes will be able to offer both nominees and successors a drawdown fund, so they need to be included in the clauses which deal with such arrangements. Amendments to clauses 60 and 61 do the same thing for legislation covering Northern Ireland, while amendments to clauses 72 to 74 make small changes to the definitions of terms used in part 4 of the Bill.

Let me now deal with amendments 22, 26 and 73 to 116, which are technical amendments to reflect the extension of the statutory right to transfer benefits and to ensure that the transfer process continues to operate smoothly after the requirement to take “appropriate independent advice” comes into force in April. Without these amendments there is a risk that the new transfer rights would not operate as intended after the new flexibilities come into force. Schedule 4 of the Bill amends the existing transfer rights provisions contained in part 4 of the Pension Schemes Act 1993 to give scheme members a statutory right to transfer a particular category of benefits, and gives scheme members with flexible benefits a statutory right to transfer these rights up to and beyond their scheme’s normal retirement age. Amendments 73, 92, 94, 96 and 115 would make consequential amendments to reflect numbering changes made elsewhere in schedule 4.

Amendments 22, 82 and 83 ensure that clause 55 and regulations under clauses 56 and 57 override any pension scheme rules which conflict with the statutory right to transfer overriding provisions for the purposes of the definition of “scheme rules”. These provisions amend the Pension Schemes Act 1993, the Pensions Act 1995 and the Pensions Act 2004, while amendments 26, 105 and 106 make corresponding provision for Northern Ireland. Amendment 75 replicates existing powers in the 1993 Act and will be used to preserve the effect of existing regulations under those powers, while amendment 98 makes identical provisions for Northern Ireland legislation.

Amendments 76 and 78 provide powers to extend the period within which a member who has received a statement of entitlement must take the cash equivalent of their accrued rights, and for the right to take the cash equivalent to lapse. Amendment 80 provides a power to extend the time in which the trustees of a scheme must do what the member requires. Amendments 88 and 89 make similar provision to extend time for pension credit members, and for trustees to act on members’ instructions. Amendments 99, 101, 103, 111 and 112 make similar amendments to the corresponding Northern Ireland legislation.

Amendments 79 and 102 make changes to section 98(1) of the 1993 Act and clarify that a member’s right to take a cash equivalent falls away where the trustees’ duty to carry out the member’s wishes is extinguished because they have been unable to confirm that the member has taken appropriate independent advice. Amendments 81, 86, 93 and 95 ensure that the definitions of scheme rules in the 1993 Act and the 2004 Act work for personal pension schemes. Amendments 82, 83 and 105 ensure that the definitions of “scheme rules” in the 1993 and 2004 Acts also apply for personal pensions, while taking account of any provisions that override these rules. Amendments 104, 109 and 116 do the same for Northern Ireland. Amendment 87 inserts a power to disapply the right of a pension credit member to transfer their pension credit rights in relation to prescribed descriptions of persons. Amendment 110 makes a similar amendment to Northern Ireland legislation. The remaining amendments in this group make a number of drafting, technical and consequential amendments to schedule 4 of the Bill.

Amendments 27 to 37 relate to public service scheme transfers. These are technical changes to improve drafting and ensure that the new safeguard applies where it should. The remaining amendments 45 to 48 and 51 to 55 are general amendments to part 6 of the Bill and are what are often known as the “back of the Bill” provisions. Amendments to clauses 80 and 81 would extend provisions to Northern Ireland, while the amendment to clause 84 would ensure that pension flexibilities provisions come into force at Royal Assent. I hope that what I have said has been helpful, and I commend the amendments to the House.

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 26th January 2015 Commons Chamber

[Steve Webb]

Action is already being taken. Those statistics were a snapshot showing the position in April 2014. Measures that we have announced, such as the charge cap, mean that some of those schemes will be dealt with, and by the end of this week I shall have met six major pension providers to discuss how we can speed up the process of tackling the high legacy pension charges which the last Government did nothing to tackle.

[Mr Speaker]

Last but not least, Mr Graham Allen.

Pensions and Benefits Uprating

Debate between Steve Webb and John Bercow

Tuesday 25th February 2014 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

I beg to move,

That the draft Guaranteed Minimum Pensions Increase Order 2014, which was laid before this House on 27 January, be approved.

[Mr Speaker]

With this we shall discuss the following motion, on the draft Social Security Benefits Up-rating Order 2014:

That draft Social Security Benefits Up-rating Order 2014, which was laid before this House on 27 January, be approved.

[Steve Webb]

Let me deal first with what is an entirely technical matter that we attend to each year, and not one that I imagine we shall need to dwell on today. The Guaranteed Minimum Pensions Increase Order 2014 provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.7%, in line with the increase in the consumer prices index to the previous September.

I should like to turn now to the Social Security Benefits Up-rating Order 2014. As part of his autumn statement, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2014-15, and today we are debating the order that will uprate those social security pensions and benefits for which my Department is responsible. As the House will be aware, we are not here to discuss the Welfare Benefits Up-rating 2014 Order, which was made on 24 January. Those rates increased by 1% under that order, and were debated in Parliament during the passage of the Welfare Benefits Up-rating Act 2013.

Turning to the benefits and pensions in the Social Security Benefits Up-rating Order 2014, I shall deal first with the basic state pension. Despite the current tough fiscal context, this Government remain committed to protecting those who have worked hard all their lives, which is why we have stood by our triple-lock commitment to uprate the basic state pension by whichever is the highest of earnings, prices or 2.5%. This year, as prices were greater than average earnings and greater than 2.5%, the basic state pension will increase by CPI at 2.7%. The new rate of basic state pension will therefore be £113.10 a week for a single person, an increase of £2.95 from last year. That means that the basic state pension is forecast to be around 18% of average earnings from April 2014, a higher share of average earnings than at any time since 1992. Our triple-lock commitment means that someone on a full basic state pension can expect to receive £440 a year more than if it had been uprated by earnings since the start of this Parliament.

On pension credit, we have continued to take steps to ensure that the poorest pensioners will benefit in full from the effect of our triple lock. Each year, the standard minimum guarantee must, by law, be increased at least in line with earnings. That means that the minimum increase this year would be 1.2%. However, to ensure that the poorest pensioners benefit from the full cash value of the increase in the basic state pension, we decided again to increase the value of the standard minimum guarantee credit, in this case by 2%, so that single people will receive an increase of £2.95 a week and couples will receive an increase of £4.45 a week. Again, consistent with our approach last year, the resources needed to pay this above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means those with higher levels of income will see less of an increase.

Let me now deal with additional state pensions. This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 2.7%, which means that the total state pension increase for someone with a full basic state pension and average additional pension will be about £3.75 a week, or just under £200 a year. Unlike under the Labour party, which froze SERPS in 2010, this will be the fourth year in a row that the coalition has uprated SERPS by the full value of CPI.

In these debates, we discuss the most appropriate measure of inflation by which to uprate benefits. I have had the pleasure of such exchanges with the right hon. Member for East Ham (Stephen Timms) several times, and I want to refer him back to something he said three years ago in the corresponding debate. We were using CPI rather than RPI—the retail prices index—and it is CPI which underlies these motions. He described the move to CPI as “ideological”; that is an interesting description of a choice of price index, but he regarded it as an ideological shift. He went further in expressing his distaste for this measure, saying:

“As for the view of my party, I simply refer the Secretary of State to what the leader of my party has said, which is that the suggestion that the change should be made for a period—perhaps up to three years—would be something that we could consider. If that proposition were on the table, we would be happy to consider it.”—[Official Report, 17 February 2011; Vol. 523, c. 1187.]

So his position three years ago was that, perhaps for three years, we might use CPI because it saves a bit of dosh but that the Labour party was committed to RPI.

I therefore hope that when the right hon. Gentleman responds and gives his party’s position on these motions he will clarify whether that is still his position. He will realise, first, that RPI has now been dropped by the Office for National Statistics as an official statistic because of methodological concerns. So I would be surprised if he remained committed to going back to RPI. Perhaps he thinks we should use CPIH, as he complained that we did not have owner-occupier housing costs in the measure that we are using. If that is his position, he would obviously be arguing for a lower increase in benefits this year, because at the moment the level of CPI is above that of CPIH. Given that he was opposed to a permanent switch to CPI, given that RPI has been dropped as an official statistic and given that some of the other measures are lower than the one we are using, I am slightly puzzled by his position—I am sure that by the time we have heard his speech we will no longer be puzzled.

On disability benefits, this year the coalition will ensure that those who face additional costs because of their disability, and who perhaps have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of CPI. So disability living allowance, attendance allowance, carer’s allowance, incapacity benefit and personal independence payment will all rise by the statutory minimum of 2.7% from April 2014. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also increase by 2.7%, as will the employment and support allowance support group, and the limited capability for work and work-related activity element of universal credit. Pensioner premiums paid with working-age benefits will increase in line with pension credit.

At a time when the nation’s finances remain under real pressure, this Government will be spending an extra £3.3 billion under these orders, and related orders, in 2014-15. We will thus continue to help support those who are not currently in work, first, by increasing the main rates of working-age benefits by 1%, and by ensuring that pensions, and benefits that are designed to help with the additional costs of disability, are protected against the cost of living. Of that, we will be spending about £2.7 billion extra on state pensions, including an above-inflation increase, and more than £600 million on people of working age. Nearly £600 million will be going to disabled people and their carers. Our decisive action to limit to 1% the increases in the main rates of most working-age benefits is part of our overall economic strategy, which has substantially brought down the deficit.

In this order, we continue: first, to maintain our commitment to the triple lock, meaning that the basic state pension will reach its highest level as a percentage of average earnings for two decades; secondly, to protect our poorest pensioners with an over-indexation of the standard minimum guarantee, so they too will feel the benefit of our triple lock; and, thirdly, to protect the benefits that reflect the additional costs that disabled people face as a result of their disability, through increases to disability living allowance and attendance allowance, carer’s allowance and the main rate of other disability benefits in line with CPI. I have set out our ongoing commitment to ensure that no one is left behind, and I commend these orders to the House.

Pensions Bill

Debate between Steve Webb and John Bercow

Tuesday 29th October 2013 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

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

[Mr Speaker]

With this it will be convenient to discuss the following:

Amendment (a) to Government new clause 1, line 6 at end add—

‘(2) In this section—

(a) “charges”; and

(b) “transaction costs”

shall be defined in regulations by the Secretary of State.

(3) Before making regulations under subsection (2), the Secretary of State must undertake a public consultation, which must include the views of—

(a) the Financial Conduct Authority; and

(b) the Pensions Regulator.

(4) With reference to paragraph (2)(a), any public consultation must consider the different elements which comprise charges and not just the annual management charge.

(5) Such charges, together with any transaction costs incurred by the funds in which qualifying schemes are invested, shall be declared on an annual basis to the Pensions Regulator, which shall maintain a public register thereof.

(6) The Secretary of State shall by regulations set the standards by which pension schemes must declare charges and transaction costs for the purposes of the register and for declaration to their members and their members’ employers.

(7) The standards set out in regulations under subsection (6) shall be reviewed every three years.

(8) The Secretary of State shall have power to make regulations ordering other disclosure arrangements on administration charges.

(9) Regulations under this section may not be made unless a draft has been laid before and approved by resolution of both Houses of Parliament.’.

New clause 7—Railways pension scheme—

‘(1) The Railways Act 1993 is amended as follows.

(2) In Schedule 11 (Pensions), after paragraph 11 there is inserted—

“Employers insolvency

11A (1) This paragraph applies if an insolvency event occurs in relation to the employer or former employer of a protected person.

(2) Where this paragraph applies the Secretary of State shall become liable to discharge any liabilities in respect of relevant pension rights, to the extent that they are not discharged by the trustees of a new scheme in which the employer was a participating employer.

(3) For the purposes of this paragraph—

(a) “insolvency event” has the meaning set out in section 121 of the Pensions Act 2004;

(b) “relevant pension rights” means the relevant pension rights referred to in paragraph 6(3) above.

11B The duty referred to in paragraph 11A also applies if an insolvency event has occurred in relation to the employer or former employer of a protected person on or after 1 October 1994.”.’.

New clause 9—Fiduciary duty of independent trustees—

‘(1) The Secretary of State may by regulations—

(a) require any pension scheme, which is not already overseen by independent trustees, to appoint a board of independent trustees; and

(b) set out the powers and duties of a board appointed under paragraph (1)(a).

(2) Regulations under this section—

(a) shall be made by statutory instrument; and

(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.

(3) The board of independent trustees shall have a fiduciary duty towards members of the scheme overseen by them.

(4) The fiduciary duty set out in subsection (3) shall take precedence over any duty to—

(a) the shareholders in, or

(b) other owners of,

the operators of the scheme.

(5) In relation to any matters of member interest, decisions of the board of independent trustees shall be binding on the board of directors or other analogous management board of any undertaking operating a pension scheme.’.

New clause 10—Promotion of good value in scheme size—

‘(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.

(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.

(3) The Pensions Regulator shall have power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.

(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.

(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.’.

New clause 11—Decumulation—

‘(1) Any qualifying money purchase scheme must direct its savers to an independent annuity brokerage service or offer such a brokerage service itself.

(2) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—

(a) an assisted path through the annuity process;

(b) ensuring access to most annuity providers; and

(c) minimising costs.

(3) The standards meeting best practice on decumulation shall be defined by the Pensions Regulator after public consultation.

(4) The standards set out in subsection (3) shall be reviewed every three years and, if required, updated.’.

New clause 12—Sustainability of private pensions: review of implications of climate change and natural resource constraints—

‘(1) The Secretary of State shall commission an independent review of the implications of climate change and natural resource constraints for the sustainability of private pensions.

(2) In particular, the review must consider the implications for long-term investment outcomes for members of work-based pension schemes of potential—

(a) systemic risks posed by high levels of exposure to fossil fuels and other carbon-intensive assets;

(b) economic and physical impacts of climate change under various climate mitigation scenarios; and

(c) constraints on the availability of non-renewable resources.

(3) In subsection (2)(c), “non-renewable resources” includes food, water, land and energy resources.

(4) A report of the review’s findings, including recommendations to government, must be laid before Parliament no later than 30 October 2014.

(5) The government must lay before Parliament its response to the review’s recommendations no later than 30 January 2015.’.

Government new schedule 1—‘Work-based schemes: power to restrict charges or impose requirements.

Amendment 38, in clause 29, page 15, line 24, leave out from ‘scheme’ to end of line.

Government amendments 5 to 10.

Amendment 53, in clause 34, page 18, line 22, at end insert—

‘(5) Regulations under this section shall not exempt entire classes of business or businesses, such as small and medium-sized businesses, from automatic enrolment.’.

Government amendment 11.

Amendment 54, in clause 42, page 23, line 7, at end add—

‘“(czb) to promote, and to improve understanding of long-term and sustainable investment amongst work-based pension schemes,”.’.

Amendment 39, in schedule 16, page 84, line 37, leave out from ‘of’ to ‘transfer’ in line 1 on page 85, and insert

‘a transferable benefits scheme, the cash equivalent of the transferable benefits—

‘(a) is transferred to a nominated’.

Amendment 40, page 85, line 3, leave out ‘automatic transfer’ and insert ‘transferable benefits’.

Amendment 41,  page 85, line 8, leave out from ‘an’ to end of line 9, and insert

‘a transferable benefits scheme, means a member of the scheme who is no longer having contributions made to their benefits.’.

Amendment 42,  page 85, line 22, leave out sub-paragraph (5) and insert—

‘(5) In this Schedule “nominated transfer scheme” means—

(a) a work-based pension scheme which is registered under Chapter 2 of Part 4 of the Finance Act 2004 and is a money purchase scheme;

(b) a scheme in which the qualifying member is a member, or that has been nominated by the member or the transferable benefits scheme for the purposes of transferring pots;

(c) a pension scheme which meets quality standards as set out by the Secretary of State;

(d) a pension scheme that meets any other requirements set out in regulations.’.

Amendment 43,  page 85, line 38, leave out from beginning to end of line 29 on page 87, and insert—

‘Transferable benefits scheme to transfer to nominated transfer scheme

2 (1) The regulations must require the trustees or managers of a transferable benefits scheme to establish an agreement with a nominated transfer scheme to make provision—

(a) for the transfer of qualifying members’ benefits to the nominated transfer scheme; and

(b) describing how and when steps are to be taken in order to effect the transfer.

(2) The regulations may make provision for a protocol through which a transferable benefits scheme may establish an agreement with a nominated transfer scheme.

(3) The regulations must ensure that where the duty to transfer qualifying members’ benefits to a nominated transfer scheme, has arisen, the member may opt out of the transfer or identify an alternative nominated transfer scheme to which the members’ benefits will be transferred.’.

Amendment 44,  page 88, line 25, at end insert—

‘Nominated transfer schemes: quality requirements and administration charges

10A (1) The regulations may impose requirements that must be satisfied by any nominated transfer scheme.

(2) The requirements may in particular relate to—

(a) the governance of the scheme;

(b) the administration of the scheme; and

(c) the certification of the scheme by the Regulator.

(3) The regulations may make provision limiting or prohibiting any administration charge that may otherwise be imposed on a member of an automatic transfer scheme.

(4) Regulations made because of sub-paragraph (3)—

(a) may make provision for the manner of, and criteria for, determining whether an administration charge exceeds any limit or is prohibited; and

(b) may provide for the determination to be made in accordance with guidance issued from time to time by the Secretary of State.

(5) The requirements that may be imposed, and the charges that may be limited or prohibited, because of this paragraph need not relate to things done under the regulations.’.

Amendment 45,  page 88, line 27, leave out paragraphs 11 and 12.

Government amendment 28.

Amendment 55,  page 88, line 38, at end insert—

‘(c) the ability of the scheme to generate sustainable investment returns.’.

Amendment 46, page 89, line 39, leave out ‘an automatic’ and insert ‘a nominated’.

Amendment 47,  page 90, line 1, leave out ‘current’.

Amendment 48,  page 90, line 2, after ‘member’, insert ‘in a nominated transfer scheme’.

Amendment 49,  page 90, line 3, leave out sub-paragraph (2).

Government amendment 29.

Amendment 50,  page 91, leave out line 11.

Amendment 51,  page 91, line 21, at end insert

‘“nominated transfer scheme” has the meaning given by sub-paragraph 1(5);’.

Amendment 52, page 91, leave out lines 36 and 37.

Government amendments 30, 31 and 12.

[Steve Webb]

This group of amendments contains a long list of disparate topics. To give the House a feel for what we are discussing, it includes an attempt to limit the scope of automatic enrolment, the transfer of small pension pots, short service refunds, the vexed issue of pension scheme charges, issues with governance and administration, the decumulation of pension pots, the specific issue of rail pensions and the pension protection fund compensation cap. I shall do my best to whizz through all those issues to minimise or obviate as far as is possible the need for me to return to the Dispatch Box on this group.

I should start on a note of consensus. This part of the Bill deals with private pensions and I think that the House would agree that the process of automatic enrolment into workplace pensions is going exceptionally well. The process started a year ago. British industry has automatically enrolled about 1.7 million employees into workplace pensions. The rate of not opting out, or of staying in, has been far better than anybody predicted. Our survey evidence suggests that of the order of nine in 10 workers have chosen to remain in their workplace pensions. That is something that we should all welcome.

The Bill is designed to improve that situation further and to deal with some unfinished business. Although the principle of automatic enrolment was legislated for in the previous Parliament, many issues were not dealt with. If those are not dealt with, it will undermine the success of automatic enrolment.

Amendment 53 relates to the scope of automatic enrolment. Clause 34 gives the Government the power to exclude some people from the employer duty for automatic enrolment. I will give the House a flavour of the sorts of people that we might be talking about. In automatic enrolment, we have sought to strike a balance between setting out the rules at the start and giving employers and the industry certainty, and learning and listening and then changing the rules when we have got something wrong or when something needs to be refined or streamlined. We could have changed the rules and constantly tweaked things, or we could have said at the start, “These are the rules for the next five or six years until everybody’s in. Go and deal with it”, but we tried to strike a balance.

As we have learned, the rules require employers to put a certain set of people into workplace pensions who may immediately opt out. For example, people with what is called enhanced or fixed tax protection status—high net wealth individuals—could face a tax surcharge if their pension pot exceeds the lifetime allowance. In general, such individuals will want to opt straight back out of the scheme, and their employers have said, “Why are you making us put these people into pension schemes? We all know they are going to opt out, and indeed they will be cross with us if they fail to opt out and later face a tax penalty.” At the moment, the Government do not have the power to enable firms not to enrol those people, so clause 34 provides the power to exempt them from enrolment.

The second example concerns those who have already given notice. Someone may have given a month’s notice, but in the middle of that period the Government require the employer to put them in a pension scheme. As Members will understand, that is silly, because that person will probably opt out immediately. In any case, asking firms to enrol people who have already given notice does not do much for our relations with the CBI. Those are examples of where we have given employers a comprehensive, rigid legal duty that creates perverse outcomes. Clause 34 therefore allows employers to exempt certain categories of workers, and I have mentioned the sorts of examples it would cover.

Amendment 53 says, “That’s all very well, but we don’t want you using the power to exempt categories of business such as small and medium-sized firms.” Leaving aside the fact that the amendment does not define an SME and it is not clear who would be covered, and that any amendment with “such as” suggests it is a bit vague to begin with, in responding to the spirit of the amendment I assure the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and the House that the Government have no intention of using the power to exclude small and medium-sixed firms. That is not what this is about.

Amendment 53 is otiose, because if we were the evil Government that the hon. Gentleman thinks we are and wanted to exclude small and medium-sized firms, we could do that anyway. The staging schedule is set in statutory instrument, subject to negative procedure. Therefore, if we wanted to exclude Britain’s small firms, we would have only to produce a statutory instrument that would say that small firms will be required to stage in 2099. That would not even be subject to a vote in the House. If the amendment seeks to stop the Government doing something that, in any case, we do not want to do, it would not work; we could still do it even if the amendment were successful. I hope I have reassured the House that amendment 53 is unnecessary, because we do not plan to do such a thing. Secondly, the amendment is not well drafted because it is not clear who it means. Thirdly, even if passed, it would not achieve the desired objective. An unnecessary, poorly drafted amendment that does not work should probably not be approved by the House.

Amendments 38 to 52 concern what happens to small pension pots—an issue that was not addressed when the original legislation for automatic enrolment was drawn up. People change jobs perhaps 10 or 11 times in their working life, and they leave behind small pension pots. From the Australian experience, we know that can mean lots of people losing track of their pension pots and not engaging with pension saving because they have large numbers of small, silly pension pots all over the place.

Australia is often mentioned as having one of the world’s best pension systems, and the Australians say that the one thing they wish they had addressed at the start was small dormant pension pots. The Australian Government have been going at this for longer than we have, and they estimate that they have 5 million lost pension accounts containing 20 billion Australian dollars. It is a serious issue. Clause 29 in schedule 16 sets out the Government’s response to the issue, which is what we call pot follows member. When someone moves from an auto-enrolment defined contribution pot to another one, their pot—as long as it is below a £10,000 threshold—automatically follows them unless they opt for that not to be the case.

Interestingly, Nick Sherry, former Australian superannuation Minister and highly regarded in the field, said of pot follows member:

“It’s the only practical way. It’s better off”—

because the money is in the worker’s last account—

“which is why I think it’s the only practical solution”.

We are delighted to have Nick Sherry’s support for our approach, as well as that of the Association of British Insurers. In the briefing sent to hon. Members the ABI welcomes the fact that the Bill includes provisions for the automatic transfer of small pension pots, which will lead to greater engagement and help people make savings decisions that are right for them and should lead to greater income in retirement. That is a welcome level of support for the proposition.

The Opposition amendments suggest a different route and would mean that when someone changes job, the dormant pension pot is automatically transferred to a third-party pension scheme called an aggregator. As I understand it, there would not be just one aggregator but multiple aggregators, and I have multiple concerns about that. First, such a policy would clearly lead to greater fragmentation of pension saving—it must do. Let us imagine the simplest example in which someone moves from firm A to firm B, and works only for two firms in their working life. In our model, the small dormant pension pot follows them from firm A to firm B—or scheme A to scheme B—and they end up with a single pension pot. In the model suggested by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, the dormant pension pot gets shunted off to some third-party provider with whom the employee has never engaged. They therefore have a pot with the current employer and with the third-party provider.

We are trying not just to hoover up small pension pots but to get people engaged in pension saving. The problem with someone shunting their money off to a third-party provider, perhaps one they did not choose—there is not much detail in the hon. Gentleman’s model, but I do not think it involves a person choosing a third-party provider, although perhaps it does—is that they get a letter from a pension company they have never heard of saying, “Guess what, we’ve got your dormant pension pot.” It is not exactly a ransom note, but it might be the first that someone knows about it, and that will not lead them to becoming engaged.

Under our model, someone’s pension savings are with their current employer. That is what they are interested in and where workplace pension engagement takes place. We therefore believe that our model provides better consolidation of pension saving and better engagement. Our model also saves on the cost of running pension schemes, compared with the model set out in the amendments. With a pot size limit of £10,000—obviously our published research relates to the £2,000 pot size limit on the aggregator model—which is the same across the two systems, we still estimate that the aggregate approach will achieve only half the cumulative administrative savings by 2050 of our pot follows member system. While aggregators are worth a look—we considered that option—it is clear that pot follows member is the best solution.

There is an issue of what happens if money is automatically transferred from a “good” scheme to a “bad” scheme, and I accept that point. That is why we are regulating for scheme quality. It should not just be a worry that someone’s small pension pot gets auto-transferred to a bad scheme; it should be a worry that an entire work force have been auto-enrolled into a bad scheme. We should not have bad schemes and must deal with that. That is why we are tackling pension scheme quality, which includes a range of issues such as governance, investment, costs and charges. In a few moments I will have news for my hon. Friends and the House about what action we are taking on charges. For those reasons, we are not convinced by the multiple aggregator model, as it is catchily known. We believe that the someone changing job and their money following them is a simple, attractive notion that I commend to the House. I therefore ask the House to reject amendments 38 to 52.

Amendments 5 to 10 are largely technical and deal with short service refunds. There is a category of money purchase pension schemes through which someone who has worked for a firm for under two years can have their money back when they leave. That is not in the spirit of what we are trying to achieve through our pension reforms. We want people, even those who put in relatively small amounts of pension savings, to accumulate that, build up what I call a big fat pot, and have a decent retirement. Short service refunds fly in the face of the view that even modest pension savings are worth having, and we therefore propose to eliminate them. The danger with the current legislation is that although someone joined to a pension scheme through a contract has 30 days to opt out, under the Bill they would be in the scheme on day one, and a day’s or month’s worth of pension contribution would be lodged. On purely pragmatic grounds we took that view that we ought to apply the same 30-day rule to short service refunds. Clause 32 abolishes short service refunds, and technical amendments 5 to 10 deliver a 30-day breathing space so that someone who is a member of a scheme for fewer than 30 days can receive a refund of what are essentially nominal contributions. I hope that amendments 5 to 10 will be welcomed across the House.

--- Later in debate ---

[Steve Webb]

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

[Mr Speaker]

With this we will debate the following:

Government new clause 4—Preserving indefinite status of certain existing assessed income periods.

Government amendment 13.

[Steve Webb]

Unlike the debate on the previous group, the debate on this short group need not detain us too long. It relates to a feature of the state pension credit system known as the assessed income period. The basic idea was to avoid the need for people on pension credit to keep reporting changes in their circumstance—the basis was that older pensioners in particular have less frequent changes of circumstance. The basic idea of the assessed income period was a perfectly reasonable one but, unfortunately, it has not worked in practice and has raised a lot of issues.

To give an example, if someone in retirement inherits substantial wealth from the generation above them, they can continue to get pension credit for five years or even indefinitely, despite having very substantial wealth. If someone retires, has an assessed income period and then starts to draw a new stream of pension income, they can go on getting pension credit despite the fact that their living standard is well above the level of pension credit. We have given this a good go, and it was a reasonable thing to try, but in practice it has created anomalies, with payments to people who, if they were assessed on their current circumstances, would not be entitled to benefit.

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 1st July 2013 Commons Chamber

[Sir Tony Baldry (Banbury) (Con)]

Does not this question demonstrate the fact that the concept of national insurance has always been a bit of a con in that it is not, and never has been, an insurance scheme? Essentially, those who are in work at any time are paying, out of their taxed income, for the pensions of pensioners of that time, on the understanding that when they reach pensionable age those in work will pay their pensions. Ever since it was introduced, the phrase, “national insurance”, has been misleading.

[Mr Speaker]

I am sure the reply will be shorter than the treatise.

[Steve Webb]

My hon. Friend is correct: it is an intergenerational pension promise, although we hold to the notion that we pay bigger pensions to those who have made more years of contributions. Therefore, we believe that there is an insurance element to the scheme.

--- Later in debate ---

[Steve Webb]

The hon. Lady will have heard in the comprehensive spending review announcement that the Government are committed to a £3 billion investment in building affordable housing. This is a priority for this Government and we agree entirely that previous Governments left far too few affordable houses.

[Mr Speaker]

Last but not least, I call Oliver Colvile.

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 11th March 2013 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

With permission, I will answer this along with Questions 7, 8 and 16.

We have today published a document analysing the pension outcomes of this group of women. Overwhelmingly, women in this group—who reach state pension age up to three years before a man born the same day—would get more pension benefits over their lives than a man with the same national insurance record.

[Mr Speaker]

The Minister is a man of formidable intellect and therefore I hesitate ordinarily to disagree with him, but I think that the grouping is with Questions 6, 7 and 16. I hope he does not mind.

[Ian Murray]

The Minister may have a formidable intellect but I am going to disagree with him. As he will know, half a million women born between 1952 and 1953, many of whom will have celebrated mother’s day yesterday, will lose out on this single-tier pension. Will he apologise to the 700 women in my constituency who are affected and have written to me? Will he do something before they lose out?

Pensions and Social Security

Debate between Steve Webb and John Bercow

Wednesday 13th February 2013 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

I beg to move,

That the draft Guaranteed Minimum Pensions Increase Order 2013, which was laid before this House on 28 January, be approved.

[Mr Speaker]

With this we shall consider the following motion, on social security benefits uprating:

That the draft Social Security Benefits Up-rating Order 2013, which was laid before this House on 28 January, be approved.

[Steve Webb]

The guaranteed minimum pensions order is a routine and technical order which provides for contracted-out defined benefits schemes to increase their members’ GMPs that accrued between 1988 and 1997 by 2.2%, in line with inflation. I assume that this will be uncontentious. The order paired with this is the Social Security Benefits Up-rating Order 2013.

I shall begin with the basic state pension. Despite the tough fiscal context, the Government remain committed to protecting those who have worked hard all their lives, which is why we have stood by our triple lock commitment to uprate the basic state pension by the highest of earnings, prices or 2.5%. This year the third element of our triple lock comes into play for the first time—our 2.5% minimum commitment. That means that we shall be increasing the basic state pension by more than inflation for millions of pensioners.

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 28th January 2013 Commons Chamber

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

It has been a busy few weeks in pensions world. The Minister will be aware that the Office of Fair Trading has recently announced that it is to undertake an inquiry into the private pensions market. This follows a Labour campaign for just such an inquiry. The Minister’s response to our campaign was to accuse the Labour party of scaremongering on pension charges. Now that the OFT has decided to undertake this inquiry, may I encourage the Minister to heed another Labour campaign call and lift the restrictions on NEST as soon as possible so that it can provide low-cost, high-quality pensions to everyone who wishes to save with it?

[Mr Speaker]

We look forward, I am sure, to hearing about NEST, whatever that may be.

[Steve Webb]

Thank you Mr Speaker. It will be a house- hold name soon, I hope.

We worked very closely with the OFT in the run-up to its inquiry, which will look at whether there are problems in this area. It is very welcome, and we will be working very closely with the OFT as it carries it out. As the hon. Gentleman knows, Labour introduced constraints on NEST—the National Employment Savings Trust—and we are consulting on whether to lift them.

State Pension Reform

Debate between Steve Webb and John Bercow

Monday 14th January 2013 Commons Chamber

[Steve Webb]

My hon. Friend has raised a crucial question. There is some anger and some suspicion that somehow we are throwing money at future pensioners and ignoring today’s, but I can give a categorical assurance that that is not what we are doing. The budget for the new system is the same as the current budget. It is important to note that we are not simply taking the basic pension of £107, sticking 30-odd quid on it, and ignoring all today’s pensioners. We are combining the basic pension, the state second pension and the savings credit into a single flat payment. It is not comparing like with like just to compare the current basic pension with the £144 pension; it is a much more complex process.

[Mr Speaker]

Order. I always listen intently to what the Minister says, but in a bid to make face-to-face contact with his hon. Friend the Member for Stourbridge (Margot James), he is standing sideways. Facing the Chair is always to be preferred.

[Charlie Elphicke (Dover) (Con)]

Does the Minister agree that pensions means-testing seriously undermined a culture of savings built up over many decades? Will he assure us that, following this reform, people will not be punished for making proper provision for their old age, as they were under the last Government?

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 23rd April 2012 Commons Chamber

[Steve Webb]

I recall corresponding with Mr Stellakis on a number of occasions. What concerns him is the idea of a cliff edge before and after 2016. Let me clarify the position. When people receive state pensions of less than the full amount because they were contracted out, as I believe the hon. Gentleman’s constituent was, we will continue to take account of that after 2016, so there will not be the cliff edge that he envisages. We will have to phase out the arrangement over time, but in 2016 we will continue to take account of past contracting out.

[Mr Speaker]

Mr Simon Hughes? Not here. Jo Swinson? Not here.

The Department kindly informed me of the intended grouping at approximately 9.10 this morning. I hope, and say with some confidence that I trust, that it also informed the hon. Members in question. Neither of them is present, however, so I call Mr Julian Brazier.

--- Later in debate ---

[Steve Webb]

Obviously, we will not write the law in a way that prevents all pensioners from being brought within its scope, and I am sure my hon. Friend will press for that. We are aware that, under our proposals, getting on for more than 80%, and eventually 90%, of pensioners will qualify for the pension, so it will have many of the features of a citizen’s pension but be based on 30 years of contributions or credits.

[Mr Speaker]

Well, that exchange was worth waiting for, I am sure the House will agree. I thank both Members.

Topical Questions

Living Standards

Debate between Steve Webb and John Bercow

Wednesday 30th November 2011 Commons Chamber

[Hon. Members]

Give way!

[Mr Speaker]

Order. The House must come to order. It seems clear on observation that the Minister is not giving way.

[Steve Webb]

I am grateful, Mr Speaker.

The hon. Member for Dover (Charlie Elphicke) spoke about how low interest rates benefit growth, which is crucial to the economy. The hon. Member for Broxtowe (Anna Soubry) raised the crucial issue of us having to pay our own way.

In opposition, one must do two things: yes, one must oppose the things that one is against, but one must also propose the things that one is in favour of. The Labour party failed to tell us where the £46 billion of spending cuts identified by the shadow Secretary of State for Work and Pensions would come from. We heard speech after speech from Labour Members who were opposed to every single cut, but I heard no Labour Member say what they would cut. We heard that there should not be cuts for people out of work, or for people in work, that there should not be cuts to the public sector, or to the private sector. Where does all the money come from? Answer came there none.

Pensions Bill [Lords] (Programme) (No. 2)

Debate between Steve Webb and John Bercow

Tuesday 18th October 2011 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

I beg to move,

That the Order of 20 June 2011 (Pensions Bill [Lords] (Programme)) be varied as follows:

1. Paragraphs 4 and 5 of the Order shall be omitted.

2. Proceedings on Consideration shall be taken in the order shown in the first column of the following Table.

3. The proceedings shall (so far as not previously concluded) be brought to a conclusion at the times specified in the second column of the Table.

[Mr Speaker]

Does Mr Timms or Mr McClymont wish to speak? There is no obligation on any right hon. or hon. Member to speak.

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 13th June 2011 Commons Chamber

[Steve Webb]

To the extent that we know what the hon. Lady’s policy is, it appears to be: to put it off for a decade. Unfortunately, one of the problems with the previous Government’s approach on so many difficult issues was to put them off and assume that somebody else would pay. On pensions, that would require another £10 billion to be paid by tomorrow’s national insurance payers. Does she think that that is a fair burden, given that the people retiring shortly will benefit from the greater longevity?

[Mr Speaker]

I am much obliged to the Minister.

--- Later in debate ---

[Steve Webb]

Although HMOs are one response to the problem, young people will have a range of alternatives, which will differ from individual to individual. For example, one third of single people aged 25 to 34 live with their parents. I recognise that this is not an option for some, but it may be an option that others will take up. Some will use the Government’s “Rent a room” scheme—whereby an owner-occupier will rent out a room, from which they can get more than £4,000 tax free—and some may be able to rent a room from a social landlord, which is something that we are looking to explore more.

[Mr Speaker]

I call Tony Lloyd. Not here. I call Mr Gerry Sutcliffe. Not here.

Housing Benefit

Debate between Steve Webb and John Bercow

Tuesday 9th November 2010 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

This has been a worthwhile debate. We have learned a number of things. Most of all, we have learned that no Labour MP actually read the manifesto on which they stood. [Interruption.]

[Mr Speaker]

Order. Hon. Members are in a state of almost uncontrolled excitement. I want to hear the Minister talking about his position, and about manifestos.

[Steve Webb]

Thank you, Mr Speaker.

Housing benefit will be reformed so that we do not subsidise people to live in the private sector on rents that other ordinary working families could not afford. When we do that, Labour Members are against it. When we propose a cap, they are in favour of it —until we set a figure, and then they are against it. When we propose to cut non-dependant deductions they are in favour of that—unless it actually affects anyone. The shadow Secretary of State said that he wanted regional caps, when the cap would principally affect central London, because he does not want a cap that actually caps anyone. What we need are credible Opposition propositions, not opportunism.

Three main themes have emerged from the debate. The first is that the impact of these changes has been grossly exaggerated. As my right hon. Friend the Secretary of State said at the beginning, talk of highland clearances and the final solution is a disgrace. My hon. Friend the Member for Wolverhampton South West (Paul Uppal) pointed out how offensive such language is to people, but even in this debate we have heard talk of highland clearances, and of Paris.

The right hon. Member for Tottenham (Mr Lammy) does not seem to appreciate that in substantial parts of central London—in the borough of Southwark, for example—48% of properties are in the social rented sector, and will not be affected by either the cuts or the percentiles. The suggestion that central London will be devoid of people on low incomes is complete nonsense. If the right hon. Gentleman wants to correct himself, he is welcome to do so.

--- Later in debate ---

[Mr Raynsford]

Will the Minister confirm that he has just misled the House? Tenants in social housing will be subject to increased non-dependant deductions. The housing benefit of those who have received jobseeker’s allowance for 12 months will be terminated or reduced by 10%, and the benefit of those who are deemed to be occupying accommodation larger than they need will be reduced as well. All those social tenants will be affected by the Minister’s changes. Will he now admit that?

[Mr Speaker]

Order. I think that the right hon. Gentleman intended to include the word “inadvertently” in his intervention.

[Steve Webb]

I am sure that he inadvertently forgot, Mr Speaker.

The impact of the cap, the impact of the 30th percentile and the impact of the removal of the £15 excess have been elided in the debate. The hon. Member for Houghton and Sunderland South (Bridget Phillipson) mentioned the figure of 20,000 pensioners in her constituency—most of whom will not be affected by any of the changes. As I was explaining, less than 10% of people receiving housing benefit in the area most likely to be affected—inner London—will experience shortfalls of more than 10%.

The exaggerated impact has been made clear. However, one point has not been made clear. It has been suggested that the private rented sector is somehow an oasis of stability and settled communities, but there is massive churn in that sector. I want to give an example of that. The people affected by the caps and the 30th percentile are on local housing allowance. Local housing allowance was introduced in April 2008, so pretty much all those people did not even move into their current properties until April 2008; in the vast majority of cases they have lived in them for less than three years. The idea that we are suddenly churning up some settled permanent community is complete nonsense.

Oral Answers to Questions

Debate between Steve Webb and John Bercow

Monday 19th July 2010 Commons Chamber

[Steve Webb]

My hon. Friend raises an important point, not least about ageist attitudes, particularly among employers. One of the worst examples is that it is currently legal to sack somebody for being over 65. We think that that is outrageous. The previous Government talked about it, but we are going to change the law, and that will be part of a cultural change. We need to see longer working lives. Many people want to go on making a contribution, and, like my hon. Friend’s constituent, they are thwarted in their attempts to do so. We need to change that culture and to change attitudes.

[Mr Speaker]

It is always a pleasure to listen to the Minister. May I just ask him to face the House? It is a very natural temptation to look backwards, but facing the House helps us all.