Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage
Thursday 5th February 2026 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Bowles, for introducing her amendments and explaining why she wants to advance them. As she said, taken together, they would give the PPF much more flexibility—full flexibility, in fact—in deciding how to set the levy by removing the requirement for at least 80% of the PPF levy to be risk-based. Obviously, in the current legislation, 80% of the levy has to be based on the risk that schemes pose to the PPF; this supports the underlying principle that the schemes that pose the greatest risk should pay the highest levy.

Although the PPF is responsible for setting the pension protection levy, restrictions in the Pensions Act 2004 prevent it significantly reducing the levy or choosing not to collect a levy when it is not needed. As has been noted, the PPF is in a stronger financial position and is less reliant on the levy to maintain its financial sustainability. That is why, through the Bill, we are giving it greater flexibility to adjust the annual pension protection levy by removing the current legislative restrictions.

Clause 113 will enable the PPF to reduce the levy significantly, even to zero, and raise it again within a reasonable timescale if it becomes necessary. To reassure levy payers, Clause 113 provides a safeguard that prevents the board charging a levy that is more than the sum of the previous year’s levy and 25% of the previous year’s levy ceiling. The legislative framework will also enable the PPF to continue to charge a levy to schemes it considers pose a specific risk. In support of this change, the PPF announced a zero levy for 2025-26 for conventional DB schemes and is consulting on setting a zero levy for these schemes in the next financial year. That would unlock millions of pounds in savings for schemes and boost investment potential, and it has been widely welcomed by stakeholders.

On the way forward, as the PPF is not currently collecting any levies from conventional schemes, whether risk based or scheme based, the make-up of the split is less consequential for schemes: a different percentage of a zero charge is still zero. But, while the PPF is strongly funded, it underwrites the whole £1 trillion DB universe, as I said. There is inevitably huge uncertainty about the scenarios that could lead to the possibility of the PPF needing to charge a levy again in the future, but it cannot be entirely discounted. We recognise the concern that, if that were to happen, the proposed legislation does not go far enough to allow the PPF to calculate the appropriate split between risk-based and scheme-based levies, particularly as the number of risk-based levy payers is expected to diminish over time.

Obviously, the amendments tabled here would give the PPF full discretion on how the split of the levy is calculated and set. While that may be welcomed by some, our view is that we need to consider any changes carefully to ensure that any legislation is balanced, is proportionate and gives the right flexibility while maintaining appropriate safeguards. That will take time. We will continue to consider whether further structural change to the PPF levies may be required in the future and, where it is, whether it works for the broad spectrum of eligible DB schemes, the PPF and levy payers.

In response to the noble Baroness, Lady Stedman-Scott, the Government’s view is that there is a reason the framework is set in legislation: to give levy payers confidence on future calls. But, as I said, we will consider the way forward. I cannot say to the noble Baroness that we will do that between now and Report—it will take time to reflect on future changes and, if there are to be any, to make sure that they happen—but I am grateful to her for raising the matter and for the debate that it has produced. I hope she will feel able to withdraw her amendment.

[Baroness Bowles of Berkhamsted (LD)]

I thank noble Lords who spoke. I freely admit that they know more than I do about these aspects, so I am glad that the conversation has started. I understand that this might bring something a little less wide in due course. It is a conversation that, having started, I hope will be continued. I will think about whether I can invent something that is a little less adventurous for Report, but in the meanwhile, I beg leave to withdraw my amendment.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage
Tuesday 3rd February 2026 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

I do not think I was suggesting that it was an anti-competitive move by the pensions industry, but there are segments in it that are advantaged by it. The other concern is that the meetings that took place prior to the signing of the Mansion House agreement were very particular to certain types of organisation; I have yet to know of any that really had interests in listed investment companies or of any of them that were invited. Perhaps the Minister does not know because this is not her field, but I have to say, I am very concerned that this has been a secretive consultation, not a public consultation, among a selection rather than among the many.

[Baroness Sherlock (Lab)]

My Lords, I am not going to say any more than I have now. The noble Baroness has made a series of complaints about cartels, secrecy and lack of integrity—all kinds of things—none of which are merited. I simply felt that I needed to put something on the record to counter that, and I do not have anything to add. We have made it clear that these were iterative discussions with the industry, looking at what was going to happen specifically in relation to the accord, and I have made the Government’s view on that clear.

On enforcement, Amendment 145, to which the noble Baroness, Lady Stedman-Scott, has added her name, probes whether the maximum penalty of £100,000 per employer in new Section 28I is proportionate. We have worked closely with the regulators and benchmarked against comparable penalty regimes. The intention is to set a maximum that is meaningful as a deterrent to wilful or repeated non-compliance but is not routinely applied. I assure the noble Baroness that it is a cap, not a fixed sum, so the regulators will take account of the facts in each case; in practice, the potential loss of qualifying scheme status for auto-enrolment is likely to be a far more significant consequence than any fine.

We are keen to work with schemes, trustees and providers to ensure that any future use of the reserve asset allocation powers, were that to come to pass, is carefully targeted, evidence-based and consistent with trustees’ duties. We believe that the Bill provides the right framework, including the savers’ interest test, the requirement for a prior report and a proportionate enforcement regime. In the light of all that, I hope that noble Lords can withdraw or not press their amendments.

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[Baroness Bowles of Berkhamsted (LD)]

If this is such a good idea, why not just mandate it for all pension funds?

[Baroness Sherlock (Lab)]

The Bill as a whole is trying to pursue scale and is trying to mirror what the Mansion House Accord did. I have been through that argument many times. We are seeking solely a reserve power to act as a backstop to an industry-led decision. The industry itself has decided to go in this direction. It is a simply a reserve power, and the reason why we are using it is that we know that there remains a risk that people will not all follow through on it because of the excessive focus on cost and the competitive advantage that may come from backsliding on that. I fully accept that the noble Baroness does not agree, but those are the Government’s arguments. I hope that the noble Baroness will withdraw the amendment.

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[Baroness Sherlock (Lab)]

I am grateful to the noble Baroness, Lady Noakes, and others for their contributions. Clause 48 inserts new Part 7A, on

“Unilateral changes to pension schemes”,


referred to as “contractual override”, into the Financial Services and Markets Act 2000. As has been clear, that will enable providers of FCA-regulated DC workplace pension schemes to override the terms of a pension scheme without the consent of individual members. To be clear, that will mean that providers will be able to transfer members to a different pension scheme, to make a change that would otherwise require consent, or to vary the terms of members’ contracts. The Bill provides important protections around the use of such powers, which I will come on to.

The noble Lord, Lord Palmer, asked why we want to do this—why change anything? I will explain. Providers can have thousands of DC arrangements for different employers, which will include a large number of legacy schemes that predate the introduction of auto-enrolment. Some of those arrangements will be delivering poor value for members but, due to the challenges of engaging with members, there is often little that providers can do about it. That is because, currently, providers have to gain individual consent from each member of the scheme to enact the changes that will be allowed under this part. That is time-consuming, costly and often simply impractical. In many cases, members will not even have kept their contact details updated.

Contractual override aims to address that issue and, in doing so, it would establish broad equivalence with the trust-based market, where trustees already have the power to conduct bulk transfers. The measure is necessary to help drive better outcomes for members and help to establish fewer larger pension schemes that are delivering value for money, supporting the scale measures and value-for-money framework also implemented by the Bill.

We want to protect consumers, so the Bill introduces a number of important safeguards, including the best interests test, which must be met and certified by an independent person with sufficient expertise before a contractual override can occur. That test is the focus of the amendments. Amendment 175 from noble Baroness, Lady Noakes, probes the test to assess whether this should proceed. She asked about the relationship to the FCA’s consumer duty—I think she asked why we need it at all if we have the FCA consumer duty. The answer is to provide an additional and clear safeguard. We believe that that is necessary given the nature of what is being provided for here.

However, the Government are committed to making sure that this works well. We will continue to work closely with the FCA as it beds in the consumer duty, and to engage with stakeholders about their experience of the duty and its impact. The FCA will develop its rules for contractual override in its usual manner and will consult on that, so there will be an opportunity for people to respond to the way that engages and to identify any of the issues that have been raised.

Amendment 175A from the noble Baroness, Lady Bowles, would alter the threshold for the best interests test from requiring that a change is “reasonably likely” to achieve a better outcome to requiring that “there is evidence” that the change will achieve a better outcome. I will explain why the Government believe that our test strikes the right balance between providing robust consumer protections and still making it practical for schemes to carry out a contractual override where it is the right thing to do. The test itself allows for a contractual override to take place only when the provider has reasonably concluded that the change is reasonably likely to lead to a better outcome for directly affected members and no worse an outcome for the other members of the scheme. I will break down some of the specific requirements that must be met for it to be satisfied. First, the provider must conclude that it is “reasonably likely” that the contractual override will lead to a better outcome for directly affected members, taken as a whole, and no worse an outcome for the other members taken as a whole.

The provision accounts for the fact that, although no provider can predict the future with certainty, they must conclude based on the information available, with a reasonable level of certainty, that the outcome is better for the directly affected members taken as a whole and no worse an outcome for the other members taken as a whole. That means that the provider must clearly evidence this assertion in order to proceed. We believe that changing the test from “reasonably likely” to “there is evidence”, as in the amendment, would lower the threshold of the test and reduce consumer protection, because the alternative wording provides no requirements about the strength of the evidence and leaves open the possibility that decisions could be taken on the basis of limited or poor evidence. By contrast, the existing wording requires providers to demonstrate that the outcome is a real prospect.

Secondly, a provider must reasonably conclude that the test is met. This requirement is deliberately included to address the risk of a provider reaching a conclusion that is not based on valid evidence or reasoning. The FCA, as the regulator responsible for contract-based workplace pensions, must make detailed rules regarding contractual override. That includes rules about the considerations and information that providers must take into account in determining whether the best interests test is met. As I have said, the FCA will develop those rules in its usual manner, which will include consultation.

Finally, new Section 117E requires that an independent person, with expertise to be defined in FCA rules, has to certify that the best interests test has been met, providing a further safeguard.

Overall, the contractual override policy establishes broad equivalence with the trust-based market and, in doing so, it delivers on a long-requested industry ask, promotes better member outcomes—which is key—and helps to achieve the wider goals for DC pensions that this Bill will deliver. We believe it strikes the right balance, and I hope that noble Lords will not press their amendments.

[Baroness Bowles of Berkhamsted (LD)]

I appreciate that the response was prepared on the basis of the wording, and I accept that my “evidence” wording was a marker. But will the Minister please look up what the legal “reasonably likely” really does imply? She does not have to take my word for it; I did look it up. Therefore, I maintain that the words “reasonably likely” need adjustment. I hope that can be investigated and accepted, and maybe the Government can come back with their own amendment.

[Baroness Sherlock (Lab)]

I am happy to reflect on the noble Baroness’s point. If it leads the Government to believe that we have phrased the test badly, then of course we will take appropriate action; if not, then we will say where we are.

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[Baroness Bowles of Berkhamsted (LD)]

I have not intervened on this group because I have not really delved into it. I wonder whether the Minister will go into some of the points she is making. Obviously, there are cases where you want consolidation in order to produce a solution that gives a reasonable retirement income, rather than having it in different bits. However, I am concerned that some people will want to keep things in different pots and have different bits. When the guidance on what might be exempted and so on comes out, will there be any consultation on that so that there is provision for people who have got alternative incomes and other means? They may want to defer taking their pension for a lot longer than is the norm while they have other income.

There is a whole universe of things; indeed, a whole universe of things is happening to me on these issues, in terms of whether I start something or leave it. It is all made more complicated when the Government come in and tax it, but there are all these things that go on. Will all of that be open to a public consultation before guidance comes out to make sure that it is taken account of?

[Baroness Sherlock (Lab)]

I do not know who we had in mind when we were designing this measure, but I am pretty confident that it was not the noble Baroness. If she were to ring up and say, “I want to take my pension pot”, and we said, “Here is a solution”, she would absolutely be able to say, “Do you know what? I don’t want to do that, thank you very much. I already know what I want to do with it”, or to have a conversation about the alternatives. This is really aimed at and concerned with those who would not be in a good position to make these complex decisions.

However, the consultation will explore these things. We have already talked about what kinds of thing trustees might have to take into account. There will be a range of things. If there is anything specific on which I can write to the noble Baroness, I will do so, but the intention is to consult on the nature of how this will work in practice and all of the design requirements. That is one of the reasons for keeping so much in regulations: to keep it flexible.

We are already finding, though, that providers are coming up with interesting, innovative solutions. Some schemes are offering flex then fix, which would give some flexibility in the years ahead. There are schemes that are doing different things, and we do not want to shut those down because we want there to be alternatives. I do not want to give the impression that we are forcing people into it, that they have to do only one thing before being allowed to take their pension or that their pension freedom has been taken away; none of that has happened because that is not what we are trying to do. I thank the noble Baroness for giving me the opportunity to clarify that.

Amendment 180 would remove regulation-making powers to enable the charging of fees for transfers to be prohibited or limited. The Government recognise that pension schemes rely on the charges they impose on members to operate the administration of the scheme effectively. There is an existing cap on charges, which can be placed on default funds under auto-enrolment, whose purpose is to shield individuals from high and unfair charges that could significantly erode their savings. The guided retirement measures were very conscious. They will introduce the concept of a default route and were, therefore, alive to the risk that individuals placed in a default plan may not scrutinise the costs involved. Therefore, we expect to consult on any detailed policy set out in regulations; we would test any assumptions about the impact of introducing a cap or a prohibition, including for transfers, as part of that consultation.

The Clause 51 and 57 stand part notices from the noble Viscount, Lord Younger, seek confirmation that Clause 51 will provide members with clear and consistent information. I am very happy to provide that assurance. The Government understand the power of communications and the importance of members understanding the default pension plan provided by the scheme, alongside the other options. Through this clause, the Government have the power to specify the format and structure of communications. There is also a requirement that all communications issued by schemes are in clear and plain language to help members make better decisions regarding their retirement income when they wish to do so.

As the noble Viscount mentioned, Clause 53 requires the development of a “pensions benefit strategy” by relevant pension schemes, which will be expected to include details of how the scheme will communicate its default pension plans to its members. Schemes will have to make these strategies available to scheme members and to the regulator for effective scrutiny; the Bill includes corresponding arrangements in respect of FCA-regulated providers. As a minimum, we expect the strategy to present the evidence base for the chosen default or defaults to give the member the opportunity to compare their circumstances and those on which the default is based.

Clause 57 is the corresponding provision in relation to FCA-regulated schemes. This inserts into the Financial Services and Markets Act 2000 a new section that will deliver default pension benefit solutions to FCA-regulated pension schemes, ensuring that members on both sides of the market benefit from default solutions. Clause 57 requires the FCA to make rules, having regard to the rest of Chapter 6 of the Pension Schemes Bill, to make default plans available to members of FCA-regulated pension schemes. This helps ensure that regulatory frameworks are aligned and that members experience broadly equivalent outcomes; it also maintains fairness and consistency across the market. Clause 57 also requires the FCA to aim to ensure, as far as is possible, that the outcomes to be achieved by its rules in relation to this chapter achieve the same outcomes as the rest of this chapter achieves in relation to schemes regulated by TPR.

The noble Viscount asked how schemes will be supported rather than forced into defensive behaviour. The regulator will issue guidance for all trust schemes. DWP officials have been engaging, and will continue to engage, with industry ahead of introduction, including through formal consultation.

The noble Baroness, Lady Neville-Rolfe, asked why the negative procedure and why the affirmative one. The affirmative procedure has been used for certain delegated powers where the power touches on a central aspect of the policy. For example, the power in Clause 49(4)(d) can be used to influence the defaults designed and offered by a scheme, so the affirmative procedure is used.

I have tried to answer all the questions that were asked. I hope that those explanations have been helpful and that noble Lords will feel able to withdraw or not press their amendments.

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage
Monday 26th January 2026 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, trustees will have to make their own decisions on that. I understand that, were mandation to come in, there would be constraints on this, but let me see whether I will pick up some answers to help with that as we go.

The noble Baroness, Lady Altmann, and, I think, the noble Viscount, Lord Younger, suggested that the Bill explicitly discriminates against listed investment funds. The noble Baroness, Lady Bowles, made this point previously. That concern is perhaps reflected in Amendment 124, which would remove the language that in general serves to exclude listed securities. Nothing in this language refers directly to investment funds or should be construed as a signal of discrimination, but I have listened carefully to the arguments made and I recognise that some people clearly feel otherwise. I am happy to take that away and consider further the arguments about signalling.

A number of noble Lords, starting with the noble Baroness, Lady Bowles, emphasised the issue of underlying investments, pointing out that the Mansion House Accord includes specific language on this. It defines UK private markets as meaning

“where the underlying assets are based in the UK”.

Accordingly, new Section 28C(6) provides the mechanism to reflect this aspect of the accord. Amendment 127 relates to this point, and I will say more when I return to it. I have already recognised that DC funds may invest directly or through funds. That means that, if we ever came to exercise these powers, we would need to implement the regulations under new Section 28C in a way that suitably reflects this. However, we do not consider it necessary to amend the clause to achieve this, since there is sufficient flexibility in new Section 28C to prescribe descriptions of qualifying assets in a way that reflects this, subject to the constraints in new Section 28C(5).

On the matter of competition, the noble Baroness, Lady Bowles, made a more constrained speech than she did last week, and I commend her for that. The question of competition law was raised. For the record, there has been no breach of competition law by the Government, nor are we encouraging a breach of competition law. We strongly welcome the Mansion House Accord; I make that clear for the record.

I turn back to Amendment 127 in the name of the noble Viscount, Lord Younger, because it picks up some of these points. This amendment would remove the provision that allows the Government, if exercising these powers, to specify that a proportion of assets subject to an asset allocation requirement should be invested in the UK. This aspect of the clause was developed with the Mansion House Accord firmly in mind. Under the accord, half of the 10% of default fund assets committed to private markets is intended to be invested in the UK. This provision simply ensures that the powers can operate as a backstop to that commitment. What constitutes a UK investment will vary by asset and will be set out in due course, with new Section 28C(6)(b) making it clear that this can be done through regulations.

Amendment 121, tabled by the noble Baroness, Lady Altmann, also relates to the definition of qualifying assets. Its effect would be to add to the list of examples of private asset classes that may be prescribed as qualifying assets in regulations made under new Section 28C(4). As the noble Baroness is aware, the Government have designed these provisions to mirror closely the asset classes covered by the Mansion House Accord. The clause does not perfectly correspond, word for word, with the drafting of the accord, but the effect is the same. To be clear, I can confirm that UK infrastructure assets, UK scale up capital and UK SME growth market shares, which I assume is what the noble Baroness meant when she referred to quoted companies, are all capable of being designated as qualifying assets, provided that they are not listed on a recognised investment exchange. They are very good examples of the sorts of assets in which these reforms should encourage investment; none the less, it is not necessary to list them individually in the Bill.

I have listened carefully to the many considered points and arguments that have been made in relation to qualifying assets. I recognise that there is not unanimity in the Committee, although it is always interesting when my noble friend Lord Davies agrees with the noble Baroness, Lady Altmann, and, at least in part, the noble Baroness, Lady Noakes, agrees with me; all things are possible, we discover, in Committee in the House of Lords. Given that, and given the arguments that have been made both here and previously, I hope that noble Lords will feel able to withdraw or not press their amendments.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I thank all noble Lords who have participated in this debate; I also thank the Minister for, from my perspective, attempting to defend the indefensible.

The Minister mentioned the industry documentation underlying the accord. I would be grateful if that could be forwarded to me, made a matter of public record and, perhaps, placed in the Library. As I said in my opening speech, if noble Lords want to know, I have had some 70% of the people representing the default funds—if you take their turnover—say that they did not think that they have agreed to the exclusion of listed investment companies. So something is going wrong here.

[Baroness Sherlock (Lab)]

I should have quoted what I was referring to; I meant to do so but forgot, so I apologise. I was referring to the question and answer materials that accompany the accord on the ABI’s pensions website, which I am sure the noble Baroness has read. They say:

“The definitions of both global and UK private markets assets include directly held, or via investment through unlisted funds in property, infrastructure, private credit, private equity and venture capital”.


The Government understand that this reflects the intention of the accord to exclude investment in listed investment funds. I would be happy to send these materials round to noble Lords.

[Baroness Bowles of Berkhamsted (LD)]

I am not sure that “directly held” applies to an LTAF either. The fact is that you have wrappers and underlying assets. It is discriminatory, and that should be tested. I still do not see how, when you have the public policy laid out by the high-level working group set up to create LTAFs, you can then say, “A private negotiation overrides that”. I stand by that.

I know that the Pensions Minister received a letter from a past lord mayor, Alastair King, who is one of the architects of the Mansion House initiatives, on 22 October last year. He relayed that he had encountered both support for the investment trust market and concerns that the Bill did not acknowledge the potential of the investment company structure. That evidence—one of the architects asking, “What’s going on here?”—also seems to have been ignored.

I come to the same basic point: for me, the Government have not provided a clear, public or specific rationale for this exclusion. I would say that neither has the ABI, but I did not know that it runs the country. All of the evidence points the opposite way to what the Government have done. Officials have confirmed in meetings that no assessment of using listed investment companies has been carried out, despite the clear steer of the policy in the working group to do so. It seems that this Q&A from the ABI overrides a Bank of England/FCA/government working group. That cannot be so. The only explanation ever offered is that there are “suitably targeted guardrails”—a phrase that has never been defined, evidenced or justified. What do you have to guard from in a listed investment company? Competition? Transparency? That is a very strange thing to say; it is an instrument of division and discrimination, protecting secrets.

Let us remind ourselves of what we are dealing with: two collective investment vehicles, each of which is a wrapper holding protected assets of net asset value for the pension scheme. That is where they differ from an ordinary equity. An ordinary equity does not have any protection for the assets; if the company goes bust, it is bust. If the listed investment company goes back to the net asset value, the assets are still there for the pension fund. That is the difference, which is why a collective investment vehicle such as a listed investment company belongs with the LTAF; it does not belong with an equity.

I still do not see why they stick so closely to some Q&A but, whether by design or by accident, they have produced a proposal that I still say is without foundation, without evidence and, frankly, without integrity. It is irrational and procedurally unfair, and it fails to take account of relevant and public considerations, relying instead on things that have not been consulted on and that have been presented through private industry discussions. I have never seen anything like this before. There are simple ways to make it fair in various proposed amendments in the rest of this group, spoken to by the noble Baroness, Lady Altmann—

Pension Schemes Bill

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage
Thursday 22nd January 2026 Grand Committee

[Baroness Sherlock (Lab)]

The important thing here is clarity. The noble Baroness mentioned a single scheme. I am not going to comment on individual schemes, for reasons she will appreciate—she would not expect me to do so, I know—but we have to set some clear boundaries. The boundary has to be somewhere. As I said, we have actually gone for the bottom end of what was consulted on. We have created a transition pathway precisely to give schemes the opportunity to grow; they need to be able to persuade us that they have a credible path to do that.

In the case that the noble Baroness mentioned, if there were some particular market conditions that caused problems across a sector, she will be aware that in the Bill there is something called a protected period. There are powers in Sections 20 and 26 of the Pensions Act 2008 that give regulators the ability to delay temporarily the impact of the scale measures. That is to ensure that the consequence of a scheme failing to meet the scale requirement—having to cease accepting any further contributions—is planned and managed. There is a range of reasons why that might happen. It might be about an individual scheme that has been approved as having scale but has failed to meet the threshold or it might be a market crash that affects all schemes. There is flexibility there for the Government.

However, the principle is that we have to set some boundaries around that. The Government have reviewed the evidence carefully, and we have concluded that the point that we have chosen is appropriate. We have created a transition pathway in order to do that, and we have created new entrant pathways in order to accommodate those situations. We believe that that will protect members’ interests.

[Baroness Bowles of Berkhamsted (LD)]

The Minister has not yet mentioned whether there is any kind of indemnity or legal consequence. What the legislation does is not neutral in the sense that it provides cut offs and reasons not to invest. Is a company doing something wrong by continuing when it should say that it will not be able to make £25 million and it should roll up now? These are issues about which questions have come to me. It has not been looked at in the research. Could the Minister write to me to say whether there are any legal dangers for either side and whether there would be any compensation if the value of the pension becomes less than expected?

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[Baroness Sherlock (Lab)]

I am sorry I did not namecheck the noble Viscount in responding to the second point. I intended to respond by pointing to the safeguards and the guardrails that have been built in. That was the nature of the response to that.

In response to the first question, I thought I said that the Government accept that this is not the only issue and that we are addressing the other ways. We have been looking at the other barriers and investment opportunities. We also mentioned that the FCA has looked at examples. It is not the only thing; we are looking at the other things as well. We think there is already significant progress, but we think this reserve power is a way of ensuring that progress goes forward and not backwards on this issue.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I will be brief. There is a lot that could be said, but we will have other opportunities later on in this Bill.

This should have been a happy Bill, doing good for ordinary workers and building the economy, looking after the future in two interconnected ways. For the main part, we had cross-party policy consensus and continuity. We had public and industry support, which is just what you need for issues such as pensions and long-term investment, aided by significant and consensual regulatory changes—culminating this week—that should enhance diversity, choice and transparency in investment decisions.

However, at the heart, we got this devil’s clause. The Government have not given development a chance and such a reserve power is a massive intervention. It is a clause that, where there was unity, brings division; where there was trust, brings doubt; where there was confidence, brings concern; and where there was hope, brings despair. No wonder noble Lords oppose it. It ticks every bad box. I urge the Government to think again. They have not given policy and process any due regard and therefore I am sure that many of us will return to this on Report. But, for now, I will withdraw my amendment.

Jobs Market: Wider Economic Implications

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Thursday 18th December 2025 Lords Chamber

[Baroness Sherlock (Lab)]

I welcome a particularly fine question from my noble friend. I could almost have said that myself; in fact, maybe I will. He makes a really important point. We need to have support in the investment of skills for young people: skills for today and for tomorrow. Simply putting them on to some kind of make-job scheme does not work. We actually need to invest in them, so my noble friend is quite right. At the Budget, we announced £820 million of investment into the youth guarantee to support young people to earn or learn, but there was another £725 million for the growth and skills levy. We are trying to invest in young people so that they will find ways of getting the skills and be inspired to get out there and make a difference.

We also need to understand those who are not engaging. Alan Milburn issued a call for evidence this week. He is asking two questions: what is stopping more young people participating in employment, education or training, and what would make the biggest difference to support more young people to participate? We want to hear from anyone with knowledge, expertise or lived experience, so I urge noble Lords, with all their connections: let us all together try to get the answer to one of the most pressing questions facing our country.

[Baroness Bowles of Berkhamsted (LD)]

My Lords, the Bank of England has canvassed for resignations to cut jobs to save £45 million and use more AI, and many other jobs continue to be lost to AI. What strategy have the Government got to ensure that their AI and tech procurements support British jobs? If mandating is okay for pension fund investments, where is it for government?

[Baroness Sherlock (Lab)]

My Lords, I think I might save the pension fund for the extensive debate we will have later, which is my Christmas present from the Chief Whip. That is all I can conclude. The noble Baroness makes a very important point. One of the things that the Government as a whole are doing is looking across the piece. The truth is that it is still quite early days in working out what, in the medium to long term, will be the impact of AI on the economy. There is evidence that jobs may be displaced in some sectors while in others jobs are created. While we are understanding the full impact, the challenge for us is to make sure we equip people with the skills that enable them to compete in the markets that are to come. There is a lot of work going on in my department, but also in DSIT and across government, to monitor this and develop strategies. In particular, there is work on investing in homegrown tech companies to make sure that we have the opportunities here in which we can invest and our young people can work.

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Report stage & Report stage (Hansard) & Report stage (Hansard): House of Lords
Tuesday 30th June 2020 Lords Chamber

[Baroness Bowles of Berkhamsted (LD) [V]]

My Lords, like other noble Lords, I appreciate the government amendments to make regulations by the affirmative procedure. Having thanked the Minister for that, I will move on to speak on noble Lords’ amendments.

Amendment 2, in the name of my noble friend Lord Sharkey, would delete reference to negative procedure regulations being used to change the rules around fit and proper persons. It has been laid out how that might change who becomes a fit and proper person. My question is: would it also affect who might not become a fit and proper person and potentially elaborate further if it is found that people are doing things that should disqualify them? I sense that that might be a possibility. Although, under Clause 11(3)(b), regulators can take into account other such matters as they consider appropriate—I presume that that can be in the negative sense as well as the positive—it would be useful to know whether such powers in other areas as well as this are, in general, used. I detect that regulators are often reluctant to go beyond things that they can specifically point to in regulations. If that is the case, maybe the Minister has an excuse to have these powers. That is the area that I am interested in, but it would certainly be a much more significant move for this to be made by the affirmative, rather than the negative, procedure.

The noble Baroness, Lady Altmann, has tabled an amendment about data that I support, but like her I think that it is probably best to have just one debate on data. I will make my intervention on that later.

I also support the intention of Amendment 33 on diversity. I recognise, as the noble Lord, Lord Balfe, did, that it links to the wider issue of how trustees are appointed and where from. Many trustee appointments will link back to present or former workforces and therefore carry through any historical lack of diversity for quite a long time. Despite the fact that there might be costs to professional trustees, I still think that there should be scope to ensure that there are more additional independent external trustees, without necessarily going to people who are so embroiled in the making of regulations. It should be possible to find objective people who are not necessarily charging the equivalent of full professional rates.

Finally, my Amendment 45 is a simple one that says that regulations may not create a regulator. That might not be the intention, but Clause 51(3)(a) says that regulations may

“confer a discretion on a person”.

A discretion to do what: to allow, not allow or approve certain things? What kind of things and what kind of person? That could be wide enough to allow or disallow the doing of things regarded as being a regulator, yet there are none of the constraints in the Bill that would normally appear in such circumstances. I therefore seek some clarification about what “discretion” means and what powers it might conceal or cover.

[Baroness Sherlock (Lab) [V]]

My Lords, I should declare a historical pecuniary interest as a former independent director of the Financial Ombudsman Service. I should also declare that my home is in Durham so I have often visited Barnard Castle, but solely for the purpose of visiting the wonderful Bowes Museum. My eyesight is okay for the moment. I will save my remarks on data issues until a later group, but I will briefly address the other two issues raised by amendments in this group.

On regulations, concerns were expressed on all sides in Committee about the use of Henry VIII powers and the skeleton nature of much of the Bill, especially Part 4, but I am grateful that the Minister has engaged with us throughout this process on these and other issues. I think that it will make for a better Bill in the end.

I am grateful to have had sight of the draft regulations under Part 1, even if I would have preferred to see all the remaining draft regulations before Report. I am very glad to see the government amendments clarifying the scope of some of the regulations and those which make regulations affirmative or confirmatory. If nothing else, it saves me from tabling endless Motions just to ensure adequate scrutiny. However, I will be interested to hear the Minister’s answers to the points raised by the noble Lord, Lord Sharkey, the noble Baroness, Lady Fookes, and the noble Lord, Lord Blencathra, about the retained use of the negative procedure and other matters related to delegated powers.

--- Later in debate ---

[Baroness Bowles of Berkhamsted [V]]

My Lords, I declare my interests as in the register: I am a non-executive director of London Stock Exchange plc, which has a pension scheme of which I am not a member.

I have signed both amendments, which are about getting priorities right on the matter of how a company uses spare cash and the importance of paying down deficits, especially if it is over too long a time. If there is spare cash around, deficit reduction should rank ahead of share buybacks and be balanced with regards to dividends. Both those issues have already been well elaborated, especially by the noble Baroness, Lady Altmann, and the noble Lord, Lord Vaux.

The amendments would not prohibit either of those eventualities; they would make them notifiable events. The regulator could then exercise discretion about whether there were good reasons; for example, checking that, in the circumstances, the quantum of the dividend was acceptable. I am less certain about good reasons for buybacks, but if there were any, they could be discussed. I therefore support the amendment. To deem it excessively cautious would not be to take it as it is intended. Although we say that the matter would need to be investigated, we would expect the Pensions Regulator to be reasonable in all the circumstances. For example, if everybody had fallen into big deficits, obviously the situation would be different, because of what was going on in the markets, from where a company was being a laggard in making up its deficits. However, we must not forget that if those deficits are not repaid and the company is under stress, it will be the workers and the pensioners who lose out in the end. They cannot always be put at the end of the queue.

[Baroness Sherlock [V]]

My Lords, I am grateful to the noble Lord, Lord Vaux, for returning to this issue. We all know that there are some DB schemes with significant deficits and employers who could be doing more to clear them more quickly. Let us not forget the work done by LCP, which showed many firms paying out dividends 10 to 20 times their pension deficit payments, or the regulator’s annual DB funding statement last year, which raised concern about the disparity between dividend growth and stable deficit repair contributions.

The problem will not disappear. As more DB schemes have closed, they will soon be paying out more in pensioner payments, leaving them less to invest and with a need to de-risk their remaining investments.

The Covid pandemic is going to make things worse. The Pensions Regulator reports that, so far, only around 10% of schemes have agreed a temporary suspension or a reduction in DRCs post Covid, but more trustees and employers are in the process of discussing possible requests to suspend or reduce contributions. We all know that the full force of the economic storm has yet to hit us.

The noble Lord, Lord Vaux, mentioned the no-dividend rules for Covid business loans. The regulator’s Covid-19 guidance on defined benefit scheme funding and investment says that, if trustees face requests to suspend or reduce contributions, then they should seek mitigations. It gives an example, saying:

“All dividends and other forms of shareholder distribution to stop throughout the period of suspension and not to start again until the deferred or suspended contributions have been paid.”


TPR will still require trustees to report agreements to suspend or reduce contributions and provide information on the mitigations.

Ministers say that the regulator can chase employers if resources are taken out that should not be taken, but we know what the danger is if action is taken only after a dividend has been paid out. If the dividends are paid out by a UK employer to an overseas parent, it can be very difficult to get them back. It is entirely possible, in these difficult times, that if a company is in trouble and its parent company is based overseas, there may well be a move to repatriate assets to the home state. These amendments seek to tackle that problem not by stopping dividends or even buybacks where there is a deficit but by making them a notifiable event in certain circumstances.

The noble Lord, Lord Vaux, has softened his amendments, but he has still made a compelling case. Therefore, if the Minister does not want to accept these amendments, can he tell the House how he will ensure that the next BHS or Carillion scandal will not be a company with a foreign parent seeking to repatriate assets before abandoning its obligations to the pension scheme? I look forward to his reply.

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Baroness Bowles of Berkhamsted]

I thank the Minister for her responses. Referring to the question put by the noble Baroness, Lady Sherlock, as to which of these the Government may be doing, I think the answer has come back: all of them. I will go through them.

With proposed new paragraph (a), to

“create a new criminal offence”,

I was not focusing on fine-tuning Clause 107. We are used to how fine-tuning of an existing offence is done. If you look at some other areas, such as sanctions and anti-money laundering, you will see that it is a new criminal offence every time a new sanction is created, but the framework for what has to be done to create such a sanction is laid out in the Bill. If the right kind of policy direction is given in the Bill, you can be allowed to do more. I beg to differ with the assumption that there are no powers here, when the Government can amend any enactment. It puts no restriction on what they may do, so I do not think there is any legal certainty around not creating something that is a completely new idea of a criminal offence.

I am pleased to hear that there is no power here to enable the creation of a regulator. I would be interested to look again at the Hansard from the first day of Committee, because under the requirement to

“confer a discretion on a person”,

the person can be a body corporate and the discretion was specifically referenced as “powers”, if I remember rightly. I would be happy to accept a Pepper v Hart statement that there is to be no creation of regulators, if the Minister felt able to make one.

It has been made clear that there is the intent to create multi-employer collective money purchase schemes. This worries me greatly: having looked at it further, I am now less than certain about the general benefits and there is a risk to pensioners and employees. So many of the points put forward over the four days of Committee debates show that we have not got sufficient guidance as to what that shape will be. It worries me quite a lot that although we cannot yet work out how to do it fully for one, we are going with the more risky multi-employer system.

The requirement to

“significantly restrict the powers of trustees”

is, I suppose, a trick point. If anything does not deserve to be in the list, it is that, but I have drawn out a debate around the point, as I hoped to. Perhaps we have to be able to do that, but maybe there is some other way to make sure that it is framed with care.

My amendment then comes back to the amending of primary legislation. This is a wide power and I know that it can be used usefully, but such wide powers are never based on a single regulation. An individual regulation that could amend or revoke primary legislation would mean that Parliament could then reject it without being accused of always throwing the baby out with the bath water and losing all the other good things in the regulations. That might be a more reasonable way to approach things, but we know that that is not how it happens: we find ourselves doing something that we do not like because it is a small element of a much bigger thing. It is always done when the Government can make the case that it is urgent and that it will be a total disaster if it is booted out.

[Baroness Sherlock]

I am grateful to the noble Baroness for giving way, especially as I am about to abuse her generosity by asking a more general question. It is directed across the table, and is something that I forgot to ask in my own contribution.

The noble Baroness asked for assurance on various points. At various times during the Committee, the Minister has kindly agreed to write to noble Lords. Can the Minister confirm that those letters will come before Report?

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage & Committee: 3rd sitting (Hansard) & Committee: 3rd sitting (Hansard): House of Lords
Monday 2nd March 2020 Grand Committee

[Baroness Bowles of Berkhamsted (LD)]

My Lords, I was not intending to speak to these amendments, but it has been quite an interesting debate to listen to. In some ways, I have changed my mind during the course of the debate. I found the notion of having everything all in one place, as put forward by the noble Lords, Lord Young and Lord Flight, an interesting idea. Of course, it can already be done, but for historic reasons—because I have been self-employed for most of my life, as has my husband, and we have quite a lot of pension schemes around—I am well versed on various different platforms. Yes, I do a lot of mystery shopping, as I call it, on these things. I have loaded up information and practised telling lies as well—putting in overvaluations of my house or saying what other things I have—to see how a platform projects what my income will be, so it is difficult to get right. I wonder about the house valuations that people might be tempted to put in, because there is a tendency to be optimistic when it comes to that.

In this last week, I was looking at one platform, thinking, “Where is the sell-all button for absolutely everything?” I could not do it; I had to go through several times, so I very much take the point made by the noble Baroness, Lady Drake, that you will take the path of least resistance when there is something that you think is urgent. If I can fall for that kind of wanting something to be there, others will too, but when I went through everything and had to think, “Do I really want to sell that or don’t I?”, I made different decisions from those I might have made if I had had a sell-all, transfer-all button. Given that I like to think that I know a thing or two about these things, I would rather err on the side of caution, as the noble Baroness, Lady Drake, pointed out. I do not want to interfere with people’s freedoms, but it has to be good to have a certain number of hurdles to give people a pause to think.

I tend to agree that equity release will have to be a big part of the future, and I wonder whether some of the people already taking out lump sums are thinking that way as well. Perhaps that is safer left until we can more broadly investigate what is going on there and make a rather safer and better environment, though I acknowledge that that there have been improvements that I have not tested yet.

[Baroness Sherlock (Lab)]

My Lords, I will speak to the three amendments in my name in this group and respond to the others. Amendment 39 in my name, and that of my noble friend Lady Drake, would, as she indicated, prevent the powers granted under the relevant sections of this Bill from being used to extend dashboards into becoming transactional. My first question, therefore, is whether that is necessary: will transactions be permitted? The noble Earl, Lord Howe, said last Wednesday:

“We also intend all dashboards to start with a limited functionality until we better understand how individuals interact with their information. ”—[Official Report, 26/2/20; col. GC 183.]


Does that rule out transaction? I think not specifically. The excellent policy brief from the DWP says this:

“Dashboards will present simple information, without the ability to carry out transactions.”


That seems really clear: no transactions. A bit later on, however, it says:

“In future we expect that dashboards should be able to provide a greater level of functionality and information.”


So here is the rub: does functionality include transactions? Will the Minister tell the Committee plainly: is it the Government’s intention ever to allow transactions at any point on the dashboards? If not, then let us make that clear on the face of the Bill. If they do, then, as my noble friend Lady Drake said, they should have to come back to Parliament and seek further authorisation before going down that road. The reason is simple: we are being asked to authorise the establishment of a service that will be based on the compulsory release of data about the assets of some 22 million people, with no clarity about what is being created.

In the debate on the last group of amendments last week, my noble friend Lady Drake offered the Committee a short list of some of the matters not yet resolved. The Minister—the noble Earl, Lord Howe—said:

“It is not that the policy is not settled but that the implementation of the policy is not settled.”—[Official Report, 26/2/20; col. GC 190.]


Obviously, it depends where one thinks policy stops and implementation begins. If the policy is, “Have at least one dashboard with some pension information on it”, I acknowledge that the policy is settled. If it is much beyond that, we are into murkier water.

Let me add my shortlist of a few things we do not yet know. We do not know how many dashboards there will be. We do not know who will run them. We do not know what information will be provided on them or in what form. We do not know what uses of the information will be permitted. We do not know how the whole system will be governed and regulated. We do not know where liability will lie for each of the links in the chain. Without that, we do not know how complaints about failure and compensation for detriment arising at each point will be handled. We do not even know who will get to make rules for the dashboards, because the regulations provide for that to be literally anyone.

There are so many points in the information and action chain where something could go wrong: data loss or leakage; errors in data being supplied to the dashboard, by either the state, TPR-regulated schemes or FCA-regulated firms; compliance failures in displaying it inappropriately; transactions on or off screen, regulated or unregulated, where the consumer ends up with a poorer outcome than should have been the case.

Last week, the Minister defended the proposed delegated powers, saying to my friend Lady Drake that they were needed to provide momentum to the process of co-operation that would be required to develop the dashboard infrastructure. But the Constitution Committee addresses that specifically in its comments on Part 4 and the use of broad regulation-making powers. It said:

“There is a need for some of these powers in order to commence the work on pensions dashboards and facilitate the sharing of data to make them function. However, the rest of the powers could have been omitted until the policy had been prepared and sample regulations produced for consideration as part of a future bill. We have observed previously that ‘Skeleton bills inhibit parliamentary scrutiny and we find it difficult to envisage any circumstances in which their use is acceptable. The Government must provide an exceptional justification for them’”.


Can the Minister tell us what the exceptional justification is?

The case for not allowing regulations to be made under the Bill to allow transactions is overwhelming. Having thought about it over the weekend, I now think it is even stronger than when we tabled the amendments, because the debate in Committee last week surfaced more information about the Government’s plans for dashboards. We have learned that they are committed to MaPS providing a dashboard service, but we also learned that they are open to anyone who can meet the criteria running a qualifying dashboard and that they have no idea how many people that will be.

We learned that the Government think that having multiple dashboards running right from the launch would actively be a good idea because they think it would increase reach, and we learned that they are relaxed about commercial dashboards being there first and MaPS coming in, if necessary, some time later. If MaPS took a long time to get a dashboard up and running, which is not impossible, there could be years in which the only way the consumer could view the data on her own pension, the release of which the Government had mandated, would be on a commercial dashboard. I asked the Minister last week if the Government think that it is a good thing to have a public dashboard, and if so why. I ask him that again now. If he thinks it is a good thing, why are the Government relaxed about there potentially being a period of years when there is no public dashboard yet the mandated data has been released? I should be interested to hear the answer to that.

Also last week, the Minister said that accessing the information on dashboards will remain free. That is good news, but it means that, as my noble friend Lady Drake said, we need to understand the charging model of commercial dashboards. If they cannot charge you to look at it, why would they do it unless they can make money at it some other way? We need to understand what those other ways are. I do not know; I can only speculate. Are they hoping to find a way to monetise the access to data that the dashboard gives? Would that be allowed? Will they want to use the dashboard to show a consumer her various assets and encourage her to consider a more efficient way of organising them? For example, “Look, it is all spread over here. Would it not be tidier if you brought it all over in this fund over here, which—oh look?—my firm happens to run?” That way, the firm might stand to make money either from transactions or from the scheme itself. What about through advertising? Perhaps when a user logs on to her dashboard, up pops an advert that either encourages her to engage with a firm or asks, “Have you thought about equity release? Would not that be a better way of going about what you do?” Or even, as my noble friend said, there could be careful presentation of the data that seems to privilege some kinds of assets over others, depending on who is running the scheme. This is potentially a really powerful tool and we need to place some firm limits on its use until the market is much clearer.

Amendments 49 and 50, in my name, specify that regulations may require the provision of information on likely retirement income and administrative charges. I put these out as probing amendments to find out what information will be on the dashboard. What will consumers see? Without an estimate of their likely income on retirement, many consumers who do not have the skills and knowledge of the noble Baroness, Lady Bowles, may have no idea of what the size of a fund will mean in terms of an income on retirement, and without some guide they may struggle to understand that. Often, it should be possible to provide that, because for occupational DC schemes that are used for auto-enrolment, trustees must produce a chair’s statement with value-for-money assessments which include illustrations on the likely retirement income. Presumably, if schemes are doing this properly, that data can be uploaded to the dashboard.

There should also be transparency on charges, but the presentation of charges to members often does not distinguish between the many kinds of charges that can be levelled on a fund. This amendment would require the disaggregation of investment and administration charges, so individuals could readily see the administrative charges that they face on the scheme in which their savings are held. Schemes can differ a lot in their administrative efficiency, and consumers should be able to see at a glance which schemes are levying high administrative charges.

Can the Minister confirm that this information—indeed, the requirement to be on the dashboard at all—will not apply to any legacy private schemes or new private pensions not covered by auto-enrolment? That leaves out quite a chunk of the market where transparency would be particularly important because a lot of those old schemes are very inefficient, with very high charges. Do the regulations permit the Government at some point to force those schemes to come on board? If so, do the Government intend to use that power?

I understand that any dashboard developed by MaPS would have a liability model developed alongside it. I asked about the liability model and the Minister said that he would come back to it this week; I cannot remember if he is coming back to it now or later, but I look forward to hearing about it at some point today. That would be marvellous. I would also like him to answer this question: if it is to be developed alongside the MaPS dashboard, and that is delayed, will there none the less be a liability model in place before any dashboard goes live, so that we are not waiting for the public dashboard?

Amendment 57, from the noble Baroness, Lady Altmann, requires that the projected state pension on retirement be available on the dashboard. It is important that people can readily access information on the state pension, which for many of them will be a core part of their retirement income. The challenge is that it will change at different points in their life depending on choices made, working patterns, et cetera, but it seems quite hard for the DWP to mandate everyone else to provide their data, and not do it themselves. It will have to go into that space.

After the comments between the noble Baroness, Lady Altmann, and the noble Lord, Lord Young of Cookham, I am interested to hear the Minister’s response on questions of identity verification. I found his comments on the challenges of some of the services very interesting. I take her point that, if one is to get personal data, some verification process will be needed. His points about beneficiaries are important as well.

I am a little more nervous on the point about equity release. The FCA has just started to look into this market. The noble Lord, Lord Flight, said that it has cleaned itself up, and certainly some practices which were standard 10 years ago, such as negative equity, are no longer standard. However, there are still a lot of questions about this, and a number of people are concerned that we are seeing patterns of commission-driven decisions; these have raised concerns in other markets in the past. Certainly, if any noble Lord has the misfortune to find themselves self-isolating for coronavirus and watching daytime television, they may at some point see advertisements for equity release, because a lot of advertising on this is going out in different forms.

One of the main arguments for having all the bits of pension on the dashboard is that you know where they are. Most people, even if they do not have the expertise of the noble Baroness, Lady Bowles, know where their house is, are reasonably confident that it is there, have some idea of its value and could find out readily if not. I take the point about people wanting to look at the whole of their assets, but, given some of the nervousness around this market, before we dive too firmly into that area I would be interested in the Minister’s view on this—as I am in in his view on all the amendments.

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage & Committee: 2nd sitting (Hansard) & Committee: 2nd sitting (Hansard): House of Lords
Wednesday 26th February 2020 Grand Committee

[Baroness Bowles of Berkhamsted]

My Lords, I support all the amendments in this group—Amendment 31 is my own. The broad principle is not to let the fines simply be a cost of doing business for the wealthy and especially large companies. Inevitably, large fines give rise to concern among those who would be the bottom end of any range of fines, with respect both to the seriousness of their offence and their resources. It is clear that proportionality is key—proportionality both to the severity of the offence and the resources of the offender. The fine must also be a sufficient deterrent, not just a cost of doing business.

It does not seem to be customary to recite proportionality in legislation, as it is presumed. For my part, I would not see it as damaging to include wording on proportionality, and anyway it would always be part of any appeal. That is why, in Amendment 31, I changed the new Section 88A fine from “£1 million” to

“twice the employer’s pension deficit or 4% of the employer’s annual global turnover (whichever is greater)”.

The fines may not be these amounts; they are the maximums. These fines can be for egregious matters that put pension funds at risk—and, therefore, the livelihood and well-being of pensioners and future pensioners—and potentially impose on taxpayers. They are fines for being a social pestilence.

I thought that the size of the deficit was relevant—maybe I should have made it three times the size, because my inspiration was US-style triple damages that can apply for monstrous offences. I have made it clear that I think doing bad things to pensions is pretty monstrous.

Turnover-linked criteria are also not new. They are in use in the UK, having been recently introduced for the Information Commissioner; that is what I have copied. They have, of course, been in play for some time for competition offences. The Information Commissioner penalties also have a numerical option, although again that is not limited to the turnover side of the penalty. I left out the number in my amendment to emphasis the proportionality point, but I would have no problem adding in the amendment of my noble friend Lord Sharkey so that we have a numerical measure in there as well.

It would seem from something that was said to me—in one of the meetings, I think—that the £1 million fine level was inspired by “similar fine provisions” by the FCA. Well, I can suggest several responses to that. First, the FCA may be the one out of line with modern thinking, the fine having been set a while ago. Also, it has perhaps been undermined because it always has to do consultations and, strangely, has to consult those who might be fined. But, as a matter of consultation, I note that the ABI has supported my amendment.

[Baroness Sherlock]

My Lords, these amendments offer a good opportunity to explore whether the penalties in the Bill are of the right kind and scale. I hope the Minister will take this opportunity to set out the thinking behind the decisions that the Government have reached. I read the DWP policy brief for the Bill; it says that, in developing the new sanctions, the main priority had been getting the right balance between increased deterrents and protection for members, minimising any negative impacts on industry, and ensuring that the new sanctions are in line with the wider statute book. So one of the questions is: has it done that?

The first question, raised by the noble Lord, Lord Sharkey, is: are the penalties set at the right place and why are they set at that place? What is the argument —why £50,000 and not £100,000? Why £l million and not £10 million or £50 million? Was this done to mirror provisions elsewhere? If so, which ones? If not, what work—what modelling—was done to lead Ministers to believe that they have landed in the right place?

Interestingly, the policy brief then says that the DWP considered the level when establishing the new penalty of up to £1 million. It says that the level had to be proportionate for local individuals and businesses of different wealth levels and appropriate for a wide range of behaviours, provide a stronger deterrent than the current regime and work alongside the new criminal offences for non-compliance, under which an unlimited fine can be issued. I need the Minister to help me here because this is not my area of expertise: if the maximum fine is £1 million, why does the maximum fine have to take account of a wide range of behaviours and wealth of individuals or businesses? Presumably, the maximum fine applies only to the people at the top of the scale, either those who have the most money or have done the worst thing. How does that balance work in setting a maximum fine? There may be a really good reason—maybe you have to be proportionate; I do not know—but could she explain it to me?

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

My Lords, this amendment aims to utilise an existing provision in the Company Directors Disqualification Act 1986. Section 8(1) of that Act was broadened in 2015 so that the Secretary of State for BEIS may, in the public interest, apply to the court for a disqualification order. It used to be the case that Section 8(1) was activated by a report after certain specific investigations, one of which was an investigation by the FCA. The change in 2015 recognised that the reports did not need to be so restrictive. What I propose follows the theme of the original procedure and suggests that when there has been a serious offence committed regarding pensions, the Pensions Regulator should make a report to the Secretary of State for BEIS for the purposes of the Company Directors Disqualification Act.

The Pensions Regulator would be required to identify the person, or, if a body corporate, the directors at the time when the offence was committed, and,

“state whether the Pensions Regulator considers that, having regard to the need for public confidence in the system of pensions regulation, it would be expedient in the public interest for … a disqualification order.”

It would then be up to the Secretary of State to decide whether to refer it to the court for disqualification. The fact that I have had to explain what this is all about to others outside the Committee, and that it is already envisaged or in law, indicates that it needs a nudge to make it active and that the regulator needs to be empowered and encouraged to make reports.

My proposed new clause is constructed so that all offences can trigger such a report from the Pensions Regulator, whether criminal offences or fines. But under its subsection (4), the Pensions Regulator has discretion not to make a report if a disqualification is already proceeding, which is possible in the event of a criminal offence being decided against an individual, or if the offence is a fine rather than a criminal offence. These new provisions would be particularly relevant when a company has been found guilty. It would mean that the actions of the directors would be investigated. Again, I note that the ABI has indicated support for this amendment.

The inspiration for the amendment comes from the fact that there are certain financial instances or breaches of competition law where the directors are always investigated. Pensions is a significant social issue on which hearing from the relevant regulator should also be a matter of course. There is no automatic disqualification or even an automatic reference to the court—that is up to the Secretary of State—but at least for a criminal matter there would always be a report concerning the circumstances and an added incentive for board scrutiny of matters relating to pensions. I beg to move.

[Baroness Sherlock]

My Lords, I can add little to that careful explanation of the amendment; I know a lot more than I did five minutes ago. However, as the Minister responds, perhaps she could tell us a little more about what happens both now and when the Bill becomes law: that is, what the TPR does when someone has committed an offence, what is its understanding of to whom this should be reported, in what circumstances, and how its enforcement team works with the supervision team and with the FCA’s enforcement supervision arrangements. That is not directly the point which the noble Baroness, Lady Bowles, was making but I very much endorse her approach, which is to put the importance of pensions on a par with the importance of threats in other parts of the economy. That is interesting, and I am interested in the Government’s response to it.

Pension Schemes Bill [HL]

Debate between Baroness Sherlock and Baroness Bowles of Berkhamsted

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Baroness Stedman-Scott]

Noble Lords must forgive me for turning to my friends. This is my first Bill. The answer to that question is no, it should not be.

[Baroness Bowles of Berkhamsted]

Now I am confused. In the previous group, when we were talking in anticipation about buffers and intergenerational fairness, the Minister said that there would be headroom funding. I understood that to be up front, getting the scheme up and running, but the Minister then said that that was going to be spent. I do not think she said what it was going to be spent on, or have I got the wrong end of the stick?

[Baroness Sherlock]

I think this is a language question. The problem that my noble friend Lady Drake raised at Second Reading and which we are trying to raise here is not about a capital buffer to deal with the intergenerational questions of benefits and payments at a time. It was the equivalent in master trust regulations where the sponsoring employer has to put money up front in a safe place so that if things go wrong and the scheme collapses the fallout can be funded without raiding members’ benefits. I think the noble Baroness, Lady Bowles, is describing something slightly different.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

My Lords, I am sorry to rise again but I did warn the Committee. I agree that it is necessary to look again at the precise wording. I do not think that “recklessly” is covered, and it should be. It may well be a solution to remove trustees from the scope.

I want to address the concerns I have about defining “reasonable excuses”. Sometimes you can end up forcing unintended interpretations that can work both ways, either giving loopholes to bad behaviour or unintentionally limiting the scope of excuses. That means, if you like, it can work for the prosecution or the defence, but it means you do not get what you thought you had got. If anything is specified or picked out as an example, it needs to be clear that it may not be binding in all circumstances and that the examples are not an exhaustive list, so that if something else is brought forward as a defence it is legitimate for it to be considered.

There are certainly regulators that have fallen into the trap of too many guidelines. The FRC was criticised in the Kingman report for the detrimental effect on reporting and audit of too many guidelines, resulting in boilerplate recitations rather than thoughtfulness. In this subject, we are also interested in thoughtfulness and people thinking about what they are doing. We debated the FCA report into GRG in the Chamber on 27 June last year, and the FRC gave a line-by-line report of how its published interpretation of “fit and proper” had greatly narrowed what in my personal experience was always held out to be a wide-in-scope basic test. It was even described to me by some people as our version of “unconscionable conduct” in that bad conduct would not be fit and proper and that was the way in which we went about getting bad behaviour. However, in the GRG case and the report from the FRC we found that not to be the truth because of the guidelines and training that were put around those words. So what we do here needs to be done with care.

Concerning Amendments 19 and 20, it should not be a reasonable excuse to do something just because someone else has or might have done it. That is an excuse for a race to the bottom and to disengage from responsibility. It is reasonable to have regard to market practice but the competitive urge to do what others do or to push it a bit further has to be resisted—such behaviour was among the causes of the financial crisis.

I fully accept that there are difficult matters to balance for business; these are in part explored in later amendments relating to dividends. Perhaps the law has not been clear enough so far about what are the right priorities; in the past, pensions have been put at the bottom of the pile, with deficits paid down slowly and surpluses raided and holidays taken rather more eagerly, with a lax attitude when the company is generally well capitalised. That has been the wrong message. I believe it is now the right time to clarify that obligations rank ahead of options in the balance of legitimate interests and call on capital.

[Baroness Sherlock]

My Lords, I will speak to Amendment 35 in my name and respond to the debate on the other amendments. In doing so, I remind the Committee of an historic remunerated interest as the former senior independent director of the Financial Ombudsman Service.

At the outset, I say that we on these Benches place a high priority on ensuring that the regulator has the powers and sanctions that it needs to tackle bad behaviour in the operation of pension schemes. I agree with the noble Baroness, Lady Bowles: conduct that puts at risk the assets that people have worked for all their lives is serious behaviour indeed. It can have a dramatic effect on the lives of millions of people and push them, in the end, into a retirement based in penury rather than the security that they could have reasonably expected. Of course, allied to that is a public policy interest: it may discourage people from saving if they do not feel that the vehicles are secure and that their money will be safe. So we welcome the introduction of the new offences and the focus on preventing bad behaviour and stepping in before the consequences get too serious or, even, the situation becomes irrecoverable.

In the Committee, at Second Reading and outside, I have heard some concerns about the Bill’s drafting, especially around what reasonable behaviour is and what conduct causes material detriment. The noble Baroness, Lady Bowles, expressed that point well. I accept that there is a balance at stake here and that the drafting must strike a balance. It is right to expect those charged with managing or overseeing pension funds to do so with appropriate skill and knowledge, and with care and integrity. However, I am also conscious that the Government would not want inadvertently to discourage good, capable people from, for example, serving as pension scheme trustees if they feared the unforeseen consequences of making reasonable judgments in good faith; nor would they want to foster unhelpful levels or types of risk aversion.

There is a need to have more clarity, for Parliament and the sector, as to how these provisions will operate in practice. Reading the impact assessment, it seems clear that the Government expect the criminal offences in particular to catch hardly anybody. It is based on one person a year being convicted, so the clear expectation in the minds of those drafting this is to have a nod that a safety net will go out—unless I have misunderstood, in which case please correct me.

Amendments 17 and 22 propose the formulation “wilfully, recklessly or unscrupulously”. I do not need to revisit this but I would be interested to know whether the Minister agrees with the noble Baroness, Lady Bowles, in her probing approach on what that phrase means. Also, why did Ministers decide not to go with “wilfully” or “recklessly”? What did they think was changing between that and the formulation that they used in the Bill in the end?

The amendments tabled by the noble Baronesses, Lady Neville-Rolfe and Lady Noakes, are interesting. I hear that the noble Baroness, Lady Neville-Rolfe, regards the current reasonable test as being too low. Many people would regard the test that no reasonable person would do something as very high indeed. I wonder whether the Minister has a sense of how easy it would be for anyone to be convicted on a test of that nature. That is the judgment.