Pension Schemes Bill [Lords]

Thérèse Coffey Excerpts

2nd reading & 2nd reading: House of Commons & Money resolution & Money resolution: House of Commons & Programme motion & Programme motion: House of Commons
Wednesday 7th October 2020 Commons Chamber

[The Secretary of State for Work and Pensions (Dr Thérèse Coffey)]

I beg to move, that the Bill be now read a Second time.

Pensions are a fundamental part of everyone’s future. They offer security later in life and can provide much-needed investment to help to build the sustainable future we need. This Bill delivers on our manifesto commitments to legislate for a new style of pension scheme, establish pensions dashboards and tackle those who try to plunder the pension pots of hard-working employees. It creates a new style of pension scheme that has the potential to increase future returns for millions of working people while being more sustainable for employees and employers alike. The Bill has consumer interests at its heart. It strengthens protections for savers by extending the Pensions Regulator’s sanctions regime—prison for pension pot pinchers will, I hope, deter reckless bosses from running schemes into the ground.

The Bill transforms the way people get information about their retirement savings, bringing pensions into the digital age by allowing people to see all their pension information in one place, at the touch of a button. Importantly, it will ensure that individual savers can be told exactly how their pensions will be affected by the increases in the global temperature and what their scheme contributes to carbon emissions.

Through the Bill, the UK will be among the very first countries in the world to put climate change reporting for pension funds into law. That is a crucial step in meeting the Government’s net zero ambition. It will ensure that pension funds play a leading role in the decarbonisation agenda.

[Duncan Baker (North Norfolk) (Con)]

My constituents in Norfolk are passionate about climate change. They want to have safe and sustainable investments for the future. Can the Secretary of State explain how they will be able to invest sustainably and safely, and how the Bill will help them with that?

[Dr Coffey]

My hon. Friend has one of the constituencies with the highest number of pensioners in the country, but for his future pensioners this is an important Bill. It will bring transparency for the first time about what is happening with individual investments. This Government are not in favour of trying to force divestment of different elements of fossil fuels and similar—I am conscious that he has Bacton in his constituency. But the Bill is about making sure that the trustees—effectively, the way in which pension funds will be used—are clear about how they can contribute to ensuring that we tackle climate change and how their investments can play a part in making that happen.

This unprecedented period that we have been experiencing has shown more than ever the need for financial resilience but also the need to focus on future resilience. Helping workers to achieve greater financial resilience for themselves for the long term is a crucial part of our economic recovery. Improving the financial resilience of the public is a personal priority for me and I am proud that the Bill is designed to help pension savers across the country. The Government have already taken action to ensure that there is support for pension contributions under automatic enrolment in the coronavirus job retention scheme. How important that policy is to us is demonstrated by the fact that we will be paying for pension contributions for kickstarters.

There are five parts to the Bill. Parts 1 and 2 set out the regulatory framework for new collective money purchase schemes, also known as collective defined contributions or CDCs. Interest in the CDC schemes is growing, as both members and employers look for options beyond the more traditional choices currently available to them to build long-term resilience. The schemes will provide employers with a new way of providing a pension where employers and employees can work together to deliver mutually beneficial outcomes.

The schemes will enable contributions to be pooled and invested, to give members a target benefit level. Investment risk is borne across the membership, rather than by individual members, delivering a good income in retirement without the cost of guarantees and without placing future liabilities on the employer. The Bill will ensure that the schemes are well run and we will require good member communications, so that members understand how their scheme works, including the risk-sharing features of CDC schemes, and that benefit levels may fluctuate.

Part 3 strengthens the powers of the Pensions Regulator. That fulfils our manifesto commitment to tackle those who think they can plunder the savings of hard-working employees. No more. The Bill introduces criminal sentences, so that the worst offenders could end up in jail for seven years, ensuring that those who play fast and loose with hard-working people’s pensions face justice. These important measures introduce the power to issue civil penalties of up to £1 million, as well as creating three new criminal offences for individuals found to be acting wilfully or recklessly.

Some concern has been expressed in the other place that the scope of the powers is too wide and might deter people from becoming trustees. Let me reassure hon. and right hon. Members in this House and the other place that our objective is not to stop or interfere with routine business activity, or to deter people from becoming trustees. We have been clear that businesses must be allowed to make the right decisions to allow them to develop and grow. These new laws underline the importance of being trusted with the stewardship of members’ retirement savings and ensure that people’s hard-earned financial resilience is protected.

Our objective is to provide a sufficient deterrent to make individuals think twice before acting in a way that puts members’ savings at risk. The key point is that the Bill makes it crystal clear that an offence is committed only if the person did not have a reasonable excuse for their behaviour or for engaging in that particular course of conduct. It will be for the regulator to prove that the act was not reasonable. The Pensions Regulator will publish specific guidance on these powers after consulting with the industry.

Part 4 of the Bill delivers on our manifesto commitment to legislate for pensions dashboards. The world of work is changing, and people now have an average of 11 jobs in their lifetime. Pension savings built up during this time are often with different providers, and many people struggle to keep track of their pensions and find it difficult to make informed decisions about their retirement. The provisions in the Bill will bring pensions into the digital age and help individuals to make informed decisions about their financial futures. Pensions dashboards will provide an online service, helping people to reconnect with their pension pots, enabling them to find lost pensions and allowing them to view all their pension information, including the state pension, in a single place.

[Steve Brine (Winchester) (Con)]

I welcome the Bill, and part 4 in particular, including the bit that my right hon. Friend has just outlined about pension dashboards. It is such a minefield for our constituents to find all this information in one place, although people can do so very easily, for instance, via the HMRC dashboard in respect of tax. The Bill talks about compelling schemes to participate and to provide good quality data in a timely manner. Could she just expand on that compulsion? What exactly does that mean in legal terms?

[Dr Coffey]

The Bill will require the pension schemes to provide all the data that they have available, so that it can be brought together to provide that information. I am conscious that this is further data, which may take a little time to come together, but this has been worked on for some time and we have made careful progress with the industry to get to this point. If my hon. Friend has any more detailed questions, my excellent Pensions Minister, the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham (Guy Opperman), will be able to pursue this either in later interventions or in Committee.

[Neil Gray (Airdrie and Shotts) (SNP)]

We welcome this part of the Bill in particular. We support informing savers about their savings landscape, but one concern we have is that the amendment in the Lords that allows for the public dashboard to be bedded in for a year before commercial dashboards come in could be removed in Committee. Can the Secretary of State confirm now that she has no intention of watering that down? If that were to happen, it would be met with the vigorous opposition from the Opposition.

[Dr Coffey]

Our aim is to empower consumers through dashboards and the Government believe that they are best served through multiple dashboards. Of course we have listened carefully to the concerns expressed in the other House as well as in this place. We are still on Second Reading, and I think it is fair to say that we will be considering the contributions carefully and that any matters that may need to be looked into further can be considered in Committee.

[Mr Shailesh Vara (North West Cambridgeshire) (Con)]

I welcome the Bill, particularly the part that my right hon. Friend is referring to at present. Sometimes, when people have multiple pensions with various pension schemes, they wish to put them into one pot, or two or three pots, rather than having to deal with so many. When that happens, some pension schemes seek to charge administrative costs when passing the funds on. Is there any mechanism to ensure that those administrative costs can be kept to a reasonable level, rather than being extortionate, which would ultimately impact on the pension pot for the individual?

--- Later in debate ---

[Dr Coffey]

My hon. Friend is right to say that dashboards could encourage more people to consider consolidating their pension pots. There is guidance out there, and the Pensions Minister assures me that we are continuing to review the costs and charges that can happen in that regard. There is an element of administration cost that comes with such transfers, but I can assure my hon. Friend that we are on the side of the consumers who are saving to ensure that their money goes as far as possible for their future.

The Bill sets out the legislative framework for dashboards and makes provision to compel pension schemes to participate and provide good-quality data in a timely manner. The Pensions Regulator and the Financial Conduct Authority will be responsible for ensuring compliance by schemes. In the other place—this is perhaps covering a little of what has already been said—we introduced Government amendments to make it crystal clear that there will be a public dashboard, which will be overseen by the Money and Pensions Service. As I have already shared with the House, we want to ensure that we increase people’s engagement with their pensions, so it is important that the dashboards are accessible to as many people as possible. Some 52 million UK adults have pensions savings, involving over 40,000 schemes. That is why I believe that having multiple dashboards is the best option, ensuring people can easily access information to manage their financial affairs for today and tomorrow.

Part 5 covers a range of policies. Clause 123 and schedule 10 introduce new provisions with regard to scheme funding. Most sponsors and trustees work well together and use the flexibilities of the current scheme funding regime reasonably, but good practice is not universal. The scheme funding provisions seek to help trustees of defined benefit schemes to improve the way they manage scheme funding and investment. They will also enable the pensions regulator to take action more efficiently to safeguard members’ pensions and to mitigate risks to the Pension Protection Fund.

Climate risk is a key worry and concern for many people in this country. The Government are resolute in how we want to help to tackle emissions to achieve our commitment to net zero by 2050. The Bill will make the pensions system greener and support the commitment to get to net zero by 2050. Clause 124 contains regulation-making powers to require scheme trustees and managers, for the purpose of managing climate-related risks, to take climate change goals, including the Government’s net-zero target and the Paris agreement temperature goal, into account. The clause enables regulations to be made mandating pension schemes to adopt and report against the recommendations of the taskforce on climate-related financial disclosures. This will ensure that occupational pension schemes take into account climate change and the response to climate change in the Government’s risk management and investment strategy, and report on how they have done so. Such measures will ensure that occupational pension schemes take climate change into account and require that trustees disclose progress to their scheme members and the public.

Climate change is one of the defining challenges facing the planet for this and future generations, and the trillions invested in pension funds worldwide offers an enormous opportunity to build back better, greener and sustainably. I am extremely proud that we are at the forefront of efforts to effect real and lasting change. These pension measures are among the first of their kind on the international stage.

[Nigel Mills (Amber Valley) (Con)]

Does the Minister agree that the responsibility for pension scheme trustees goes further than just reporting having a strategy? Once they have invested, they need to engage and to monitor their investments to ensure they actually comply with their obligations to try to drive through that performance change.

[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.

[Neil Gray]

I welcome the intervention from the Chair of the Select Committee. During the passage of the Financial Guidance and Claims Act 2018, the SNP tabled a number of relevant amendments that may well have covered some of these problems, which are a hangover from pension freedoms. Would the Secretary of State and the Minister be willing to look at some of those amendments again in Committee to make sure that some of those issues, particularly in respect of advice and guidance, are tied up?

--- Later in debate ---

[Dr Coffey]

My hon. Friend the Under-Secretary of State for Work and Pensions has just told me he will share with the hon. Gentleman the letter that he sent to the Chair of the Select Committee. Generally, pensions legislation has broad support across the House, in recognition of the fact that these are long-term decisions, so of course the Government will look carefully at any amendments in Committee and any points made by the hon. Gentleman. We want to make sure that, going forward, we have conference in the long-term objectives of the changes that the Bill will bring in.

In conclusion, I pay tribute to my hon. Friend the Under-Secretary who is passionate about pensions, exceptionally assiduous and, in my humble opinion, the best Pensions Minister we have had in a very considerable period of time. I hope the House will agree that having safer, greener and better pension schemes is good for our constituents, as we encourage people to invest in themselves today to prepare for a comfortable retirement, and help to make them better informed about how their money is growing and being used for them and the planet. I commend the Bill to the House.