Co-operatives, Mutuals and Friendly Societies Bill

Lord Bourne of Aberystwyth Excerpts

2nd reading
Friday 24th March 2023 Lords Chamber

[Lord Bourne of Aberystwyth (Con)]

My Lords, I support Second Reading of this Bill and declare my interests as set out in the register. I congratulate the noble Lord, Lord Kennedy of Southwark, on his sponsorship of the Bill in your Lordships’ House, and thank the honourable Member for Preston, Sir Mark Hendrick, for steering the legislation through the other place. I also congratulate my noble friend the Minister and the Government on supporting this legislation.

The co-operative movement can be traced back to the Victorian era, essentially in response to the Gradgrind version of capitalism, in contrast to the more enlightened Tory tradition of the Earl of Shaftesbury and others, who legislated to protect workers and who recognised the merit of co-operation. The social enterprise model is an important recognition of a form of business other than the simple shareholder model. Community-owned businesses are a vital part of our life, generating employment, social benefit and continuity.

Demutualisation can be a threat to the mutual sector, facilitating the break-up of a business, as we have seen in the past. The distribution of all the assets, including substantial legacy assets, contrary to the intention of those who set up that business, is not in the interests of us all. Mutuals may, of course, resist demutualisation attempts, as the recent Liverpool Victoria saga showed us in 2021, when the private US equity firm Bain Capital tried unsuccessfully to take it over. This legislation will assist in resisting demutualisation.

The legislation governing mutuals is somewhat archaic. I welcome the possibility that the Law Commission might look at the wider area of mutuals and how they may have access to capital. I hope that the Minister, in responding, can say whether there is a timescale for that and whether it is happening. The United Kingdom has a relatively small mutual sector, compared with other comparable economies such as France and certainly Italy, where it is significantly larger—particularly in Emilia-Romagna, where it is a large part of the enterprise sector.

This Bill will give co-operatives, mutuals and friendly societies flexibility in assessing what fits for themselves as the best model. It enables them to adopt this form of block if they want to do so. As the noble Lord, Lord Kennedy, has said, it is not obligatory. It will help those societies that choose to adopt the so-called asset lock. Voluntary asset locks have been adopted to good effect by some societies, often with so-called charitable assignment clauses, but this legislation will build on that and ensure that, where there is an intention on the part of the business, it can go forward with a lock that is significantly harder to unpick than some of these voluntary locks that have been adopted.

I give an unqualified welcome to what is clearly a sensible piece of legislation. I have just one additional question for the Minister. Looking at the Explanatory Notes, this is a reserved area for Wales and Scotland; that much is clear. It is not a reserved area for Northern Ireland, so what will happen in relation to Northern Ireland? We all hope, I am sure, that the devolved body, Stormont, will be up and running before long. It has been a good week in relation to Northern Ireland, with the success of the legislation going through. It has been a good week for sensible government. I hope that the Minister can say something about how the Northern Ireland part of the United Kingdom can benefit from this legislation in the short term while we do not have Stormont up and running.

However, I will not detain the House any longer, except to give an unqualified welcome to this legislation, and to thank the noble Lord for bringing it forward.

UK Infrastructure Bank Bill [HL]

Lord Bourne of Aberystwyth Excerpts

Consideration of Commons amendments
Tuesday 14th March 2023 Lords Chamber

[Baroness Hayman (CB)]

I declare my interest as co-chair of Peers for the Planet and rise to speak to my Motion 3A, which as the Minister said would reintroduce nature-based solutions into the definition of infrastructure in which the UK Infrastructure Bank may invest.

We had some very helpful conversations after Report and the debates in the other place, and I think we have now reached a highly satisfactory position on this amendment, in no small part due to the Minister’s customary constructive approach to the debates that have taken place in this House, for which I am very grateful.

Of course, the original amendment included the “circular economy”, and I know that there will be some disappointment that that is not included now, but the bank’s strategy is reassuring on that issue. Anyone who listened to the item on the “Today” programme this morning about data centres using the heat they normally have to dispose of to heat up the water in local swimming pools will have heard a lovely example of how we need to put those sorts of issues together.

I thank all the Members of this House who have taken part in the debates, and in particular those who signed the various iterations of my amendment, including the noble Lord, Lord Bourne of Aberystwyth, the noble Baroness, Lady Jones of Whitchurch, and the noble Lord, Lord Teverson. This amendment has had significant cross-party support because of the increased recognition that nature-based solutions have a critical role to play in the fulfilment of the bank’s objectives. The Chancellor’s strategic steer in 2022 encouraged the bank to

“explore early opportunities in nature-based solutions”

and aim to have

“a positive impact on the development of the market”.

The bank has since published a discussion paper setting out its initial thinking on how it can invest in and support the growth of natural capital markets, and I look forward to the results of this consultation.

The discussion paper clearly explains the importance of natural capital as a form of infrastructure and the vital contributions it makes to our society and economy, often in ways which are more cost-effective to the taxpayer. Carbon removals through creating and restoring woodlands, wetlands and peatlands, flood mitigation measures, providing “clean and reliable” water supplies, underpinning our food security and bolstering our resilience to climate change: these constitute numerous examples of how we can deploy nature-based solutions to support our infrastructure and provide social, economic and environmental benefits. There is also an ever-increasing recognition of the key role that nature can play in solving climate change, nature being our biggest asset with which to fight it. Nature-based solutions also provide significant co-benefits, such as jobs and good health and well-being outcomes, with considerable economic advantages.

I welcome that the UK is leading on the Taskforce on Nature-related Financial Disclosures, but there is an average $700 billion funding gap for protecting and restoring nature globally, and evidence that more needs to be done to help market participants mainstream and scale these products alongside growing investor demand. This simple addition to the definition of infrastructure in the Bill sends a strong signal to the markets that the UK recognises this and the Government are serious about taking action to help build and develop this nascent market. It also provides certainty to the bank, which recognises that it has a role in developing capacity towards a pipeline of investable projects and is poised to act. It will encourage others to do the same and further develop the UK finance sector’s position as a leader in this important emerging new market.

As I said, I am very grateful to the Minister and her officials for the support they have given and the resolution that I think we have reached.

[Lord Bourne of Aberystwyth (Con)]

I support the noble Baroness, Lady Hayman, in her proposed amendment and congratulate her on her tenacity in pursuing this issue. She has achieved something notable, and I thank her very much indeed. Account being taken of nature-based solutions improves the Bill and, on that basis, I also congratulate the Minister. My noble friend has proved herself to be a listening Minister, and the Government have taken a very common-sense approach, which improves the Bill. It was previously a good Bill, and it is now a better Bill after changes made in this House and the approach of the Minister and the Government.

I do not propose to detain the House, except to say that I agree with much of what the noble Lord, Lord Teverson, said in Committee and at Second Reading. I regret that we have not gone a bit further, but at least we have an improvement in this legislation. On that basis, I once again congratulate the Government.

[Baroness Bennett of Manor Castle (GP)]

My Lords, I join in the congratulations to the noble Baroness, Lady Hayman, who is both a force for nature and a force of nature in your Lordships’ House. I thank everyone else who has joined in getting this progress on nature-based solutions, although we should not look at those solutions as an alternative to cutting our carbon emissions. Both those things have to be done.

I was not going to speak but, given something the Minister said in her introduction, I feel forced to ask her a question. In justifying the exclusion of “circular economy” in the Commons amendment, she said that it was “not a precise term”. Does the Treasury understand the term “circular economy” and its essential nature in delivering the sustainable society we need? If the Minister wants a source for this, I point to a government paper entitled, Circular Economy Package policy statement, from 30 July 2020, which was put out jointly with Wales, Scotland and Northern Ireland and which defined “circular economy” as

“keeping resources in use as long as possible, extracting maximum value from them, minimizing waste and promoting resource efficiency”.

Will the Minister confirm that the Treasury recognises that the circular economy is an acknowledged term and is urgently needed?

Pension Schemes Bill

Lord Bourne of Aberystwyth Excerpts

Thursday 5th February 2015 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

2: Schedule 4, page 100, line 8, leave out from “period” to end of line 11 and insert “required by section 91(1A) or (6A).
(1A) A member of a pension scheme loses the right to take a cash equivalent in accordance with this Chapter if, after the member makes an application under section 91, the duty of the trustees or managers to do what is needed to carry out what the member requires is extinguished by section 95(2A).
(1B) Nothing in subsection (1) or (1A) prevents the member from later acquiring a new right to take a cash equivalent in relation to the same benefits.”

[Lord Bourne of Aberystwyth (Con)]

My Lords, I apologise that this amendment may not be quite as highly charged as the previous one. It corrects an oversight in relation to the amendments that we made to the transfer provisions on Report and simply inserts the provision relating to when a member’s transfer rights fall away into Northern Ireland legislation.

The amendment makes a consequential amendment to the existing transfer legislation, which sets out when a member’s rights to a transfer fall away. It puts beyond doubt that the right to a transfer value falls away after either three months or any extension period granted by the legislation. This amendment and the one applying to the legislation relating to Great Britain have been made in response to industry concerns that the current situation could place trustees in a position where the right to transfer somehow still subsisted, although the trustees could not action the transfer.

I also take this opportunity to clarify the purpose of Amendment 30, which I spoke to on Report. That amendment inserted a new limb into an existing regulation-making power in Section 101F(6A) of the Pension Schemes Act 1993. It created a power to disapply, in prescribed circumstances, the right of prescribed persons to transfer pension rights acquired as a consequence of divorce. In describing that amendment, I stated that it restored an existing power. I now understand that this is in fact a new power which expands upon the narrower existing power. I hope that noble Lords will accept this new amendment to align Northern Ireland legislation, along with my clarification of the operation of Amendment 30 made on Report.

As this is the final amendment to which I will speak, before I sit down I would like to take a moment to thank the Opposition for their constructive and positive engagement in this process—I do so sincerely; their engagement has been valuable. I also thank colleagues across the House who have dedicated their time and expertise to scrutinising and improving the Bill. It has been the House of Lords at its best. I think we can all say that your Lordships’ House has done a good job in scrutinising the Bill and that it goes back to another place a much better Bill than it was before.

A significant amount of work goes into preparing a Bill and supporting its passage through both Houses, to say the very least. This Bill contains a wide range of measures and has involved a number of different policy teams from the Department for Work and Pensions, Her Majesty’s Treasury and the Ministry of Justice. They have worked unstintingly and with dedication. I am grateful to them and to the excellent draftsmen in the Office of the Parliamentary Counsel, who have worked very hard on this Bill.

I am also indebted to my noble friend Lord Newby for his considerable work and assistance on the Bill, to my right honourable friend Steve Webb, the Minister for Pensions, for his advice and help, and to my noble friend Lord Freud for his support. With that, I beg to move.

[Lord Bradley]

My Lords, I again thank the Minister for clarification of the amendments, and these are obviously acceptable. I also thank him for the clarifications he has given throughout the Bill’s passage, as well as for the courtesy that he and his fellow Ministers have shown to this House and for the help that he has given to the Opposition as we have debated the issues. I also thank the civil servants for the support that they have given to the Opposition in answering the questions that we have raised.

As we come to a close in the Bill’s passage through this House it is worth reminding ourselves that on Second Reading we considered two Bills together—this one and the then Taxation of Pensions Bill—as it had been recognised that the two were inextricably linked. That has clearly been shown to be the case during our deliberations generally and in our consideration of this amendment. The speed between the announcement of pension freedoms and flexibilities in the Budget last year and implementation of the policy in April of this year has led to a huge number of amendments and policy clarifications, with many significant regulations still to come. Let us remember that implementation is barely nine weeks away.

Although broadly supporting the policy, we have tried during these debates to ensure that the interests of the public have been paramount and properly protected. We have sought and received assurances from the Government that the policy is clear and fully thought through, including in our debate today on the treatment of pension funds for income-related benefits and care costs assessment. However, in the light of today’s debate, I remain deeply concerned. We have been assured that not only will the crucial guidance guarantee service be fully in place by April but that it will have capacity and its staff will have the expertise and be fully trained to deliver a quality service for the 320,000 people who may seek guidance in the first instance.

Obviously, we are pleased that the Government accepted our argument for a second line of defence to give the public greater protection. We will continue to monitor closely the implementation of the powers vested in these two pieces of legislation. However, we remain concerned on many issues. These issues will be closely scrutinised both inside and outside this House to ensure that the public’s interests are properly and fully thought through and protected.

Finally, I thank all noble Lords who have participated in our debates. I would particularly mention the support I have been given by my noble friends Lady Drake, Lady Hollis, Lord McKenzie and, of course, Lord McAvoy and Lady Sherlock.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord for that. Clearly, we recognise the support that we have had generally for these important pension freedoms. The noble Lord, Lord Hutton, who is not in his place, certainly spoke of this as a revolutionary measure—which it is in many ways. I accept that guidance is at the heart of it. We need to ensure that these freedoms are exercised with proper guidance and proper advice, which is where this House has been quite properly engaged, and recognise that there is still ongoing work to do, to which we will return.

Amendment 2 agreed.

Pension Schemes Bill

Lord Bourne of Aberystwyth Excerpts

Tuesday 27th January 2015 Lords Chamber

[Lord Bourne of Aberystwyth (Con)]

My Lords, I first thank the noble Lord, Lord McAvoy, for his contribution. I will do my best to answer his points and those of my noble friend Lord German.

I welcome the opportunity to debate this amendment again, having discussed it at length in Committee. It is fair to say—as the noble Lord said in opening—that, in philosophical terms, there are differences between the Government and the Opposition on this issue. However, we certainly want the freedoms that the new system contained in the Pension Schemes Bill offers. To that extent, we are united. However, we are certainly coming at it from different angles.

The noble Lord, Lord Bradley, suggested in Committee that all workplace pension schemes should be run by trustees and have a legal duty to prioritise members’ interests. In the same debate the noble Baroness, Lady Drake, made a broader case for extending a fiduciary duty to all who have the discretion to manage other people’s money. The Government share the concerns of the noble Lord and the noble Baroness that pension schemes should be well run. As I said in Committee, the Government are committed to ensuring that all workplace pension schemes are well governed, with members’ interests at the heart of everything they do. That is why, in March last year, we set out our proposals for strengthening the governance of occupational pension schemes that are money purchase schemes, and to the money purchase benefits provided by other schemes, in the Command Paper, Better Workplace Pensions: Further Measures for Savers. I should add that the majority of stakeholders supported these proposals by saying that they represented a positive change, intended to drive the right behaviours.

As noble Lords will be aware, in that publication last October we put these proposals on a sure footing by consulting on draft regulations to place minimum governance standards on, broadly, all occupational pension schemes which are money purchase or have money purchase elements to them. That consultation has now ended; we will shortly be publishing the Government’s response and laying the final draft regulations before Parliament, to come into force this April. For workplace personal pension schemes, the FCA has also completed its consultation on draft rules for independent governance committees, which were referred to by my noble friend Lord German and which will ensure oversight of these schemes in members’ interests from April 2015, and aims to publish its policy statement by early February of this year. That probably answers my noble friend’s point: these committees are essentially supervisory rather than day-to-day, which would be the role of trustees.

In respect of the governance of collective benefits, I can reassure noble Lords that we have a number of provisions in Part 2 that enable us to make requirements in regulations about some of the key aspects of running a scheme offering collective benefits. These are specifically tailored to such schemes and reflect key differences in the rights that members have in collective benefits, compared to money purchase benefits. We may also make regulations under a power in Part 3 to require certain decisions in respect of collective benefits, and in relation to defined ambition schemes, to be made in the best interests of members to ensure appropriate safeguarding of members’ interests. This reflects the different nature of the decisions being made on behalf of members in these types of pensions, compared to money purchase pensions.

I will refer now to another point made by the noble Lord, Lord Bradley, in Committee. He proposed that a trust-based approach is preferable to a contract-based one. I emphasise again that we must not assume that trust-based schemes are always better governed than contract-based workplace pension schemes. There is no evidence that one governance structure necessarily delivers better outcomes than the others. As I said in Committee, we consider that scale, good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust-based. But as I also emphasised, while we are interested in scale inasmuch as it may help schemes to improve quality and lower charges, it is not an aim in itself and bigger does not always mean better. The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the Treating Customers Fairly principles, which have formalised firms’ responsibilities to their customers.

The introduction of independent governance committees with a duty to act in members’ interests, from April 2015, will further strengthen the governance of contract-based schemes. Also from April of this year, the Government and the FCA are intending to introduce measures so that certain savers in, broadly, all occupational and contract-based schemes providing money purchase benefits which are used for automatic enrolment will not be subject to high or inappropriate charges. The positioning in the Bill of this amendment limits the powers to schemes with collective benefits. However, it is not clear whether this is the intention behind the amendment.

We would not want to single out collective schemes here and, as I have mentioned, there are powers in Part 3 covering the interests of members of collective schemes. If the noble Lord, Lord McAvoy, intended the amendment to apply to all schemes, I am not sure whether it would achieve this. As I explained in Committee, if this amendment were exercised across all schemes, it would require independent trustees to be recruited for tens of thousands of pension schemes. I believe that this answers a point raised by my noble friend Lord German. Data from the Pensions Regulator show that there are at least 47,680 private workplace schemes alone, although I accept that not all those will need to recruit independent trustees. My noble friend Lord German put a powerful case for not passing this amendment, as it is not clear whether it is intended to cover just collective benefit schemes or schemes more widely. Clearly, there will be a cost associated with it.

[Lord McAvoy]

I thank the Minister for giving way. The Minister has raised some objections that are less extreme than those of the noble Lord, Lord German—so there is a difference in fairness here. Our new Clause 13 was initially a response to the problem of having so many trustees. Let us not forget this direct quote from my honourable friend Gregg McClymont:

“Our new clause 13 would initiate a response to that problem, but let us not forget that of the 200,000 pension schemes in the UK the vast majority are group personal pensions under the management of four or five—no more than half a dozen—insurance companies. A governance board properly constituted of trustees attached to each one of those major insurance companies would deal with the vast majority of pension schemes in the UK. That is a very important point”.—[Official Report, Commons, Pension Schemes Bill Committee, 4/11/14; col. 324.]

[Lord Bourne of Aberystwyth]

I am grateful to the noble Lord opposite for that intervention, but the case remains there is clearly going to be a cost associated with this. This is an objection to it, but the prime objection is that we do not accept the principle that contract-based schemes need such a fundamental change. Though different in essence from the fiduciary nature of trustees’ duties and trust schemes, there are of course obligations placed on contract-based schemes, as I have tried to set out.

We all agree that good governance of pension schemes is essential. This is why the Government’s proposed new governance standards, applying across broadly all workplace pension schemes in respect of money purchase benefits will further protect members by ensuring that schemes are run in their interests. It is also why this Bill makes provision for targeted regulation-making powers in respect to the running and good governance of collective benefits and certain decisions in defined ambition schemes and in relation to collective benefits.

I accordingly and respectfully ask the noble Lord to withdraw this amendment.

[Lord McAvoy]

My Lords, maybe I am paranoid or maybe I just have a suspicious mind or maybe my mother knew what she was doing when she called me “Thomas”, but I do not believe that it is entirely coincidental that what someone called the Welsh mafia are in operation here, with certain facts—in inverted commas—being produced. Cost has been mentioned by the noble Lord, Lord German, and the Minister. Can anyone in this House give an exact figure for the cost to the members of pension schemes where there has not been proper fiduciary guarantees of independent governance? Can anyone give me a quote? Plenty of folk can quote instances where money has been lost through pension funds. I do not think that the principle that we are putting forward here is as unreasonable as has been portrayed, particularly by the noble Lord, Lord German. We will return to scale at a later stage. In the mean time, we will try to find an estimate of how much has been lost to ordinary members of pension schemes through a lack of governance.

In the mean time, however, I beg leave to withdraw the amendment.

--- Later in debate ---

Moved by

[Lord Bourne of Aberystwyth]

2: Clause 45, page 19, line 24, at end insert—
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”

--- Later in debate ---

[Lord Bourne of Aberystwyth]

My Lords, I address the House as one half of the Welsh mafia or the Taffia—a charge I reject totally of course.

These amendments are consequential in nature. They address an omission in the current legislation. In the course of checking through the changes made as a result of the Bill, omissions in the Pensions Act 2014 came to light. The amendments needed all relate to overriding legislation—that is, when legislation overrides provision in the scheme rules such that the legislation is treated as if it were part of the scheme rules.

Without these amendments, any overriding requirements made under regulations under Schedules 17 and 18 to the Pensions Act 2014 would not be treated as part of the scheme rules for the purposes of the Pensions Act 2004 and subsisting rights provisions in the 1995 Act, leading to inconsistency in the way in which overriding provisions are dealt with and a potential lack of clarity.

I beg to move.

[Lord Bradley (Lab)]

I shall briefly respond as this is the first set of government amendments. I thank the Minister for the courtesy of writing to me with his proposals around these amendments; it is very helpful to have that in advance, as it limits the need for further debate on these matters. Maybe I should declare an interest in that my great-uncle was Welsh, but I do not claim to be part of the Welsh mafia. With those remarks, I am supportive of the amendments.

--- Later in debate ---

Moved by

[Lord Bourne of Aberystwyth]

3: Clause 45, page 19, line 27, at end insert—
““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”

Pension Schemes Bill

Lord Bourne of Aberystwyth Excerpts

Tuesday 27th January 2015 Lords Chamber

[Lord Bradley (Lab)]

My Lords, the purpose of this amendment is to give the Government the ability to cap the charges on flexi-access draw-down pension products. It is important because it gives the Secretary of State the power to take action if it is clear that unfair charges are being levied. When the freedoms and flexibilities commence in April, there will likely be a large increase in the number of people using these products, and it is right that the Government are able to protect these savers.

In Committee, I laid out why this measure is necessary. A possible 320,000 savers will be looking to turn their pension pots into retirement income in April, and the charges that can be levied can be high. As Which?, the consumer body, has pointed out:

“Even for a simple fund structure from a low-cost provider, the annual management charge might be 1% plus an administration fee of £250 per annum, which would cover the cost of income payments and income level reviews, for example. A more common total cost is about 2% p.a. which is similar to that for an investment-backed annuity. Worryingly, we came across cases where the charges for a SIPP package and advice were 4%-4.5%”.

We remain concerned about ensuring that good products are available for low and middle-income savers, as well as for those who have large pension pots. As I have said, we should remember that the median pension pot is around £30,000. The cap on charges for these products on decumulation, alongside those in place during accumulation, could be a very important stage. As NEST pointed out in its recent consultation on the subject:

“The solutions we as an industry develop over the next few years could affect the lives of millions of people in old age. We absolutely cannot afford to fail consumers. Leaving their retirements to chance is not an option”.

As I said in Committee:

“A good first step would be to remove the possibility of savers being open to what may be termed rip-off charges. This should apply in the decumulation stage as well as the accumulation stage, because a rip-off charge is a rip-off charge, wherever a consumer finds themselves at the end of it”.—[Official Report, 12/1/15; col. 614.]

I accept that I have fallen into the jargon that we promised we would not pursue during our deliberations. Decumulation is when you are turning your pension pot into a decision on retirement income.

The Minister replied that this amendment was not required, because:

“There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers”.—[Official Report, 12/1/15; col. 617.]

This is obviously potentially very welcome, but I want take the opportunity provided by this amendment to probe a little further. Can the Minister advise the House today precisely which part of the existing legislation the Government would use were they to take action? Further, can he say whether the Government have any plans to take such action and when that would arise? I am trying to establish not just whether the Government believe that it is possible to do that but whether they would use the powers that the Minister says they now have. Even if the powers already exist—I look forward to the Minister’s response to my question—accepting this amendment would send a powerful signal that the Government intended to protect savers in this market from April. I hope therefore that the Minister will indicate that the Government are ready and willing, as well as able, to do so. I beg to move.

[Lord Bourne of Aberystwyth (Con)]

I thank the noble Lord, Lord Bradley, for his contribution and recognise that “decumulation” might be jargonistic—I am sure that I have used jargon myself—but “rip-off” certainly is not, and I think we agree that we do not want rip-off charges. The Government are as much against them as the Opposition, I am sure. I will do my best to answer the specific points that the noble Lord raised.

This amendment was tabled by the noble Lords, Lord Bradley and Lord McAvoy, also in Committee earlier this month, so noble Lords will forgive me if I have dealt with some of this previously. As I mentioned on that occasion, the Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. I can reassure the noble Lord on that point.

I am pleased to be able to say that the Government have powers under the Pensions Act 2014—specifically, Section 43 and Schedule 18 confer them—to limit or ban charges borne by members of any pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers.

Similarly, the Financial Conduct Authority has wide-ranging product intervention powers, including the ability to cap charges on flexi-access draw-down funds. These existing powers cover all the institutions that could offer such draw-down arrangements.

Flexible draw-down is a relatively niche product, aimed primarily at those savers with large pension pots. HMRC data from the start of 2014 showed that only 5,000 people per year have entered flexible draw-down, which has been in place since 2011. Flexible draw- down is clearly not currently a mass-market product.

With the introduction of the new flexibilities from April of this year, we expect this to change. We have given the industry a great deal of flexibility to develop a range of more flexible retirement income products and offer consumers greater choice. We want to see a vibrant and competitive marketplace, bringing forward products that meet consumers’ needs and enable consumers to make reasoned choices. The Government believe that a competitive market is the best way to ensure that products are well priced and we expect the expansion in take-up of draw-down products to exert a downward pressure on charges. Moreover, as scheme members can withdraw variable amounts, draw-down products generally require more administrative activity than accumulation-phase products. With the introduction of the new pension flexibilities, none of us can be absolutely certain how this market will develop. This was a point made quite fairly by both the noble Lord, Lord Bradley, and the noble Baroness, Lady Drake, in Committee.

Imposing a charge cap on draw-down at this stage, before we have seen the charges on the new products that are currently under development, could therefore risk setting a new norm and arrest any reduction in charge levels, or set a charge that is too low to be deliverable and stifle the draw-down market altogether. We therefore need to monitor how this market develops from April to gather further evidence about average charge levels before making any decision on what would be an acceptable charge level. The Government and regulators are therefore monitoring the development of new retirement income products, including the next generation of draw-down products, very closely.

Innovation and flexibility in the retirement income market must, of course, be for the benefit of consumers, not at their cost. The Government welcome the FCA’s commitment in its recent policy statement that it will commence a full review of its rules in relation to the retirement income market in the first half of this year. If these measures reveal evidence of sharp practice—rip-off charges, in the noble Lord’s phraseology—the Government and the FCA have the powers to act quickly to protect consumers. Along with the Financial Conduct Authority, we are also legislating to require reporting of charges and information on transaction costs by trustees and independent governance committees respectively of all workplace pension schemes from April this year. We are also committed to consulting further in 2015 on the transparency of additional costs and charges, to enable comparability across schemes; we will be considering draw-down funds as part of this work programme. We covered some of these transparency issues in Committee.

[Baroness Drake (Lab)]

The Minister made the point that I had not heard before that, from April 2015, the independent governance committees will be invited to report on draw-down products, which is to be welcomed. Could he clarify whether the full remit of the independent governance committees will apply to draw-down products, or is it just a question of reporting?

[Lord Bourne of Aberystwyth]

As I understand it, it would certainly cover the point that the noble Baroness makes about draw-down products; it will not simply be a question of reporting.

To conclude, while the Government share the concerns about member-borne charges, the Government and regulators are equipped with the powers to cap charges in all pension schemes, including draw-down products. We feel that intervening in the market at this stage would be wrong: intervention must be based on evidence, but it is an intervention that the Government have not shied away from making elsewhere in the market. We are closely and proactively monitoring developments in the decumulation market to consider whether there is need to use those powers.

In the closing remarks of the noble Lord, Lord Bradley, in Committee, he stated his hope that we would act in the interests of consumers if we were to see excessive charges in the new draw-down products that come to market. I can reassure him that this remains our intention. I therefore respectfully ask the noble Lord to withdraw his amendment.

[Lord Bradley]

I am grateful to the Minister for that response, and for taking up all the issues that I raised under the amendment. I noticed with interest his view that the competitive market will put downward pressure on charges, and I sincerely hope that that is the case. Monitoring of that situation will be essential to ensure that products do not come on to the market that seem attractive to customers, but with charges attached that are, because of the products’ complexity, hidden within them.

I welcome the fact that the Government have clarified to the House exactly what powers they have to deal with the matter, and the assurance that the Government not only have them but will use them in conjunction with the regulators if it is quickly seen that it is necessary to protect consumers from excessive charges. With those assurances, and with the certainty that this will be closely monitored both inside and outside the House, I beg leave to withdraw the amendment.

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[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord Bradley, for his contribution and for allowing me to provide an update on NEST. I will do my best to answer the specific point on state aid rules.

I stress at the outset that the Government have broadly two concerns about the amendment. One of them is the state aid rules. The second is that we want NEST to focus on its mission to provide assistance to small and micro-employers in the run-up to 2017, when the restrictions will be lifted. However, I will go through some of the background and do my best to answer the specific points—or point—raised by the noble Lord, Lord Bradley.

As promised—and as acknowledged by the noble Lord opposite—during the Committee proceedings I wrote to the noble Lords, Lord Bradley and Lord McAvoy, copying it to other noble Lords who had participated in the debate, clarifying, I hoped, a point relating to state aid and the removal of the annual contribution limit and transfer restrictions from 1 April 2017. It must be noted that that letter referred to it certainly not being contrary to state aid rules to lift the restrictions on 2017. That was, of course, the consent given. However, it does not follow that it could be done any earlier; otherwise, a particular date would not have been chosen for lifting the restrictions. This is where the issue is: whether if a particular date is given, and consent is given for that date, it follows that you can lift the restrictions at any date before. This is the difference between us. I do not think it follows, where an application has been made for a particular date and consent is given, that you can predate it. However, I will try to come back to that.

[Lord Bradley]

My Lords, following that last point, perhaps I might quote again from the letter, which I accept I may not be interpreting correctly. It says:

“The Commission also agreed that the removal of the restrictions on individuals making transfers into and out of NEST could be brought forward to coincide with the introduction of automatic transfers if this were earlier than April 2017”.

[Lord Bourne of Aberystwyth]

Indeed, and I will come on to that point but it relates only to the transfers, not to the amount. The amount remains subject to the consideration of 2017. There are two limbs to this and I will try to cover that point, because we may be looking at a date slightly earlier than April 2017 if we succeed in achieving the aim of the automatic transfer. That limb of it could be there somewhat earlier but not the other limb, as it were. Let me proceed and, I hope, deal with the points. If not, I am sure that the noble Lord will let me know.

Later this week noble Lords will again, I hope, debate the National Employment Savings Trust (Amendment) Order, laid before Parliament on 16 December 2014. Its purpose is to implement the proposals that we have been talking about. As noble Lords will be aware, NEST was established to support automatic enrolment by ensuring that all employers had access to a low-cost workplace pension scheme with which to meet their duties, regardless of the size or profitability of their workforce. Its design, including the annual contribution limit—I think this is the point at issue, and is subject to the 2017 designation—and transfer restrictions, which admittedly could be somewhat earlier, focuses NEST on this target market of low to moderate earners, and smaller employers whom the market found difficult to serve. I believe that I mentioned this in Committee but I may be wrong on that point.

NEST already has more than 1.8 million members and 10,500 participating employers. NEST is doing what it was set up to do: supporting automatic enrolment, and doing so very successfully. During winter 2012 and spring 2013, the Department for Work and Pensions undertook a call for evidence on these issues of limitation. It sought to assess whether there was evidence that the annual contribution limit and the transfer restrictions placed on NEST were preventing it serving the market it was designed for. The evidence showed that although there was a perception that these two constraints were a barrier to access, the reality was that they did not prevent NEST from serving its target market. Seventy per cent of small and medium-sized employers expect to contribute no more than the legal minimum to their workers’ pensions. Until October 2017, minimum contribution levels are a total of 2% on a band of earnings. There is already a substantial amount of headroom within the annual contribution limit, which is currently £4,600, for contributions above the minimum. For example, minimum total contributions for a median earner on £26,000 a year would be £405.

In relation to transfers, individuals in other schemes who can already make transfers rarely do so. Evidence shows that more than 80% of workers fail to transfer their previous company pension funds across to their new employer’s scheme. In addition, around only 14,000 small and medium-sized employers currently provide trust-based workplace pension schemes that could be transferred to another pension provider. Of these, the Department for Work and Pensions estimates that around 5,000 might be able to consider a transfer of their workplace pension provision to NEST, which is equivalent to less than 1% of all firms.

Around 1.2 million small and micro-employers have yet to enrol their eligible workers. There is most likely to be a supply gap in this segment of the market, which underlies the rationale for establishing NEST. This is where the Government want NEST to focus. This is because of a shortage of provider capacity and the fact that other providers have traditionally not found it possible to serve this market at reasonable cost. Implementation on this scale needs NEST, the only scheme with a public service obligation, to be able to play a significant part in meeting this challenge.

If the House will indulge me for a moment, automatic enrolment has been a tremendous success so far, with more than 5 million workers enrolled into a workplace pension. Opt-out rates have been lower than expected, at around just 10%. We would not be in this position if not for the consensus that automatic enrolment has enjoyed from all sides of this House over the past decade. However, we must not be complacent. The 5 million workers enrolled so far work for only 43,000 employers. The challenge for the next phase of the rollout of automatic enrolment is to ensure that the remaining 1.2 million small and micro-employers are able to enrol their eligible workers.

The Department for Work and Pensions estimates that NEST will need to accept between 45% and 70% of those employers, ensuring that supply gaps are addressed. The scale of this challenge should not be underestimated—for example, during 2016, around half a million small employers will need to enrol their workers, which is an average of more than 40,000 employers per month.

With this in mind—and taking account of the evidence —the Government determined that removing the annual contribution limit and transfer restrictions immediately to address the perception of complexity would not be a proportionate response. Conversely, doing nothing would not be consistent with the Government’s broader policy objectives to encourage increased saving and consolidation of pots. We therefore concluded that legislating now to remove these constraints in 2017 was a balanced approach. Legislating now will address any current perception that the constraints are discouraging small employers from using NEST to meet their automatic enrolment duty. It will also send a clear signal that NEST will be on a similar footing to other schemes from 2017.

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[Lord German (LD)]

My Lords, once again I have a few questions for the movers of the amendment as well as the Minister. The sense that I get from the amendment is that bigger is always best and small is not to be preferred. The truth, presumably, lies somewhere in the middle of all that.

There are questions that arise from the amendment. When you have schemes—I presume there are many tens of thousands of them are around, but I do not know how many of them are of the size and scale interpreted by the amendment—it is important to ask what defines sufficient scale, which is the first part of the noble Lord’s amendment. I would like to understand what “sufficient” means. I presume that noble Lords would want to see all pension schemes with good governance, low fees and good outcomes for their members.

So my first question is: what is it that big schemes can provide that smaller ones cannot? I understand from reading Hansard from the other place that one of the suggestions from the movers of this amendment there was that asset management could be moved in-house. I wonder whether that is a sensible provision. Can the Minister tell us whether or not there have been successes with in-house asset management? Is that a given for securing lower costs and a better outcome for the consumer?

I turn to the other pressure that the amendment seeks to apply. The claim is that by forcing schemes to merge, there will be economies of scale. In the capping regime that the Government have undertaken, there must be a league table of high-cost fee pension schemes. Can the Minister say how many bigger and how many smaller providers are in that league table? This will enable us to discover whether or not big is best and whether there are appropriate economies of scale.

I need to test another issue with the movers of this amendment: namely, merging. Merging with whom and how is it to be determined? What the amendment seeks to do is to force pension schemes to merge. I understand that there has already been a significant shift in the number of schemes that have merged; the extent of the direction of travel is extensive. Perhaps the Minister could remind us of the speed with which schemes are merging and growing bigger. But if you force mergers, as with any arranged marriage you need to engage in a partner search. I wonder whether the movers of the amendment can tell us how this partner search is going to take place; who is going to undertake it and who is going to police it—because I think that would be almost impossible.

I remain to be convinced that forcing unwilling, low-cost, good value for money, well governed, smaller pension schemes to merge is the right approach to ensure that the members of the scheme get the best returns. There are alternatives. The fee cap, disclosure, regulation of governance and transparency are all issues that this Government have taken on board and are progressing. I am left with some doubts about whether the forced marriage regime which is being proposed by the noble Lords opposite is the best approach when there are better alternatives.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord McAvoy, for moving this amendment. It would impose an additional duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme.

The principle of promoting scale to drive value for money for scheme members is one that we can all understand. However, the Government believe that introducing further legislation to ensure that the fiduciary duty of trustees includes a duty to consider whether a scheme has sufficient scale is unnecessary and overburdensome.

In response to my noble friend Lord German, I can confirm that there is already a trend towards larger schemes and away from smaller schemes. We contend that trustees’ existing fiduciary duties already require them to act in their members’ best interests, so it would be unusual if they did not consider this point. In addition, trustees must pay particular attention to four key areas. First, they must comply with governance requirements—for example, they must establish and operate internal controls. Secondly, they must have regard to investment governance and decision-making. Thirdly, they must adhere to administration practices—for example, record-keeping. Lastly, they should seek to prevent fraud—for example, theft or pension scams. Specific legislation would place the financial cost of managing a difficult and complex forced consolidation on members. In many cases it would be in direct conflict with scheme rules which may not permit such transfers and mergers.

A further difficulty with this amendment is the complicated underlying process that trustees would be required to undertake to implement its requirements. The noble Baroness, Lady Drake, put her finger on this in Committee when she said that problems could arise around transfers. Trustees would, for example, be required to find a suitable alternative scheme, assess the scheme’s suitability and undertake independent checks. Again, the costs of that would be borne by members; it could be a costly process if they were required to do that in the way this amendment suggests.

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I hope that I have now persuaded noble Lords that people who turn their pension pots into an income do not shop around for the best deal because it can be complex, confusing and difficult. Guidance, however good it is, will not be enough; it may help them to decide whether to draw down, take cash or annuitise, but deciding between options for annuities will require another level of advice. Because of that it seems sensible, if the consumer is to get it right for their retirement income, to empower pension schemes to undertake their responsibilities. I hope that this proposed new clause draws on best practice and that the Government will see merit in it. I beg to move.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord Bradley, for introducing this amendment, which we recently considered in Committee. In his speech in Committee the noble Lord explained the intent behind this amendment, as he has again today: to protect savers who put their pension savings into an annuity with the same provider they save with because of failure to shop around for a better deal. In Committee he also referred to the concept of empowering schemes to undertake the responsibility for ensuring the member gets the best deal, using their advantages of bulk buying. We can all understand the noble Lord’s motivation but, for reasons I will give, I do not think that the amendment would achieve these ends.

If the amendment were agreed to, an individual would be able to buy an annuity from their savings provider only if it was recommended by an independent annuity broker. This requirement would catch everyone who wants to buy an annuity from their savings provider, not just those who accept an annuity from their scheme without having looked for a better deal on the open market. It would also affect those who have made extensive investigations on their own behalf and who would therefore be paying a broker to tell them something they already know.

Moreover, the amendment would not protect consumers from getting a bad deal. I acknowledge that it might limit the providers who could offer that bad deal, but only regarding their existing customers. There would be nothing to stop someone getting a bad deal from an annuity provider chosen on the basis that it has a shop on their high street or appeared first on their internet search, as the annuity broker requirement would bite only if the member wanted to buy an annuity from his existing savings provider. If the broker does not recommend the savings provider, the member will not be permitted to buy an annuity from them. Are we so sure of the competence of all annuity brokers that we should, effectively, take this decision out of the hands of the person most affected by it and put it into the hands of the annuity broker?

On the idea of empowering schemes to undertake the responsibility for ensuring the member gets the best deal by using the advantages of bulk buying, there again appears to be nothing in the amendment to facilitate this. In any case, I remain agnostic on these advantages in the context of an individual choosing what to do with their pension savings. The purpose of the Budget changes is to allow the member to choose from a range of options that suit them best, based on their knowledge of their specific circumstances and wishes. It is not clear how schemes bulk buying annuities for cohorts of members would be able to reflect these choices.

In addition, we must always be careful of the law of unintended consequences—a law that cannot be amended by this House. There would be a real risk that members would simply stop even considering internal annuity products because of the inconvenience and delays, not to mention the extra costs involved in consulting a broker. In fairness to the noble Lord, that point was raised in Committee.

I remind noble Lords that some providers offer guaranteed internal annuity rates which can often be a higher rate than that available on the open market. We should be careful before we do anything which might deter members from taking advantage of such products. As I hope I have made clear, we agree that individuals should certainly be helped in reaching the decision that is right for them and, as noble Lords already know, we have put in place a number of ways in which this help is offered, and via the FCA we have brought forward additional safeguards thereto. However, we do not think that the individual’s decision should ultimately be constrained by others. On that basis, I urge the noble Lord respectfully to withdraw his amendment.

[Lord Bradley]

Again, I am grateful to the Minister for his views on this amendment, so clearly laid out. I was particularly interested in his comment that we should recognise the law of unintended consequences on this amendment. Some may consider it to be true of the whole Bill, but that remains to be seen.

Maybe the reason I am most persuaded to withdraw the amendment is that I will not have to try to pronounce “annuitise” as many times in the future as I have in the last few days. I recognise the points that have been made, and we will be debating further this afternoon matters relating to the guidance guarantee and how robust that will be in supporting people. We are particularly concerned about the number of people who remain within the same scheme and do not seek advice. We will look at that again as these matters unfold further through regulation. In the mean time, I beg leave to withdraw the amendment.

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Moved by

[Lord Bourne of Aberystwyth]

13: Clause 83, page 47, line 4, after “containing” insert “—
( ) the first regulations under section 8(3)(b), 9, 10, 11 or 21,”

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[Lord Bourne of Aberystwyth]

My Lords, this amendment changes the parliamentary procedure applicable to the exercise of some delegated powers contained in Part 2 of the Bill from the negative resolution procedure to the affirmative resolution procedure the first time these powers are exercised. These powers relate to exclusions from the definition of collective benefits and how schemes that provide collective benefits will operate in relation to certain key matters. The Delegated Powers and Regulatory Reform Committee recommended that the regulation-making powers in Clauses 9 to 11 and Clause 21 should be subject to the affirmative procedure the first time they are used. In response to amendments tabled by the noble Lords, Lord Bradley and Lord McAvoy, in Committee, I made clear that the Government accept that recommendation in respect of those powers. This amendment therefore places regulations made under those powers subject to the affirmative procedure on first use, as the Committee recommended. The Committee also recommended that the power in Clause 8(3)(b), allowing regulations to exclude a specified benefit from the definition of a collective benefit, should be subject to the affirmative procedure every time it is used.

I also explained when we debated the noble Lords’ amendments in Committee that the Government do not consider this to be appropriate because there needs to be flexibility to respond to new developments in scheme and benefit design that could result in benefits falling within the definition of “collective benefits” and hence becoming subject to the requirements of regulations made under Part 2 of the Bill, contrary to policy intention. Clause 8 is a key provision as it defines the scope of the provisions relating to collective benefits in Part 2. Because it is a key provision it should be subject to the affirmative procedure the first time it is used but there are circumstances where the Government may need to use this power without unnecessary delay to avoid members’ benefits being affected and to avoid schemes being subject to expensive requirements around the setting of targets, actuarial valuations and so on, which are not appropriate because other regulatory and governance requirements would be more appropriate to them. As the affirmative procedure could result in delay, leading to significant distress to members who would be without clarity as to whether their benefits were caught by the collective benefit provisions, we believe that the power in Clause 8(3)(b) needs to be affirmative on first use only. I therefore beg to move this amendment.

Amendment 13 agreed.

Moved by

[Lord Bourne of Aberystwyth]

14: Clause 83, page 47, line 4, after “containing” insert “—
( ) regulations under section 48(3)(b), or( ) ”

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Moved by

[Lord Bourne of Aberystwyth]

15: Clause 84, page 47, line 16, at end insert—
“( ) Subsection (2) applies where regulations made by the Department for Social Development in Northern Ireland contain—
(a) provision made under section 51(3)(b), or(b) provision made under section 82 that amends, repeals, revokes or otherwise modifies a provision of primary legislation,(whether alone or with other provision).”

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Moved by

[Lord Bourne of Aberystwyth]

17: Clause 88, page 48, line 35, at end insert—
“( ) section (Public service pension schemes);”

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Moved by

[Lord Bourne of Aberystwyth]

18: Schedule 2, page 63, line 21, at end insert—
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”

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Moved by

[Lord Bourne of Aberystwyth]

25: Schedule 4, page 83, line 5, at end insert—
“( ) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;”

[Lord Bourne of Aberystwyth (Con)]

My Lords, this group of amendments is required to ensure that the transfer provisions contained in Schedule 4, which replace provisions under the Pension Schemes Act 1993, continue to operate effectively. The amendments will also ensure that the regulations being adjusted to take account of the new transfer rights that we are creating operate correctly. It may appear that we are taking a range of additional regulation-making powers, but I reassure noble Lords that that is not the case.

Many of these amendments will enable the continued operation of regulations that have been created under existing powers in the Pension Schemes Act 1993 and their adaptation for the new transfer provisions. These regulations were created under a broad power in the Act to modify or disapply the transfer provisions. This power related to salary-related schemes. As this term will no longer be used, that section of the legislation was removed. However, the regulations that flowed from it still need to operate in the broader regime that we are now creating. Rather than replace the broad power, these amendments introduce a number of more specific powers so that it is clearer in the primary legislation what the regulation-making powers are being used for.

I will now briefly set out what each amendment does. Amendment 25 restores an existing power to ensure that the Transfer Values (Disapplication) Regulations continue to have effect by creating a new limb to new Section 93(10) to provide a power to disapply the right to transfer in prescribed circumstances in relation to a prescribed scheme or a member of a prescribed scheme. It is necessary to restore this power to ensure, for example, that the current provisions relating to NEST and transfers continue to have effect. Amendment 33 makes identical provisions for the corresponding Northern Ireland legislation.

Amendment 26 will allow the continued operation of the regulations that give a member more time to make a decision about their transfer if their cash equivalent value has changed—for example, due to a mistake in the original calculation—after they have received their statement of entitlement. From April, members with safeguarded benefits will be required to take “appropriate independent advice” before their transfer out can be processed. This amendment would allow regulations to provide for more time to apply for a transfer if they do not obtain their financial advice within the usual three-month period, should this prove necessary. Amendment 29 will allow regulations to make corresponding time extension provisions for trustees to do what is necessary to give effect to their members’ wishes.

Amendment 27 provides a power to allow the continued operation of the transfer regulations that enable a member to choose whether to proceed with a transfer where the amount of the cash equivalent shown in a statement of entitlement is subsequently increased or reduced.

Amendment 28 makes a consequential amendment to the existing legislation that sets out when a member’s right to a transfer falls away. It puts beyond doubt that the right to a transfer value falls away either after three months or after any extension period granted by the legislation. This amendment has been made in response to industry concerns that the current situation could place trustees in a conflicting position where they could not action the transfer, as the advice had not been obtained within the relevant period, even though, in theory, the right to transfer still existed.

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Moved by

[Lord Bourne of Aberystwyth]

26: Schedule 4, page 84, line 19, at end insert—
“( ) After subsection (6) insert—
“(6A) Regulations may extend the period specified in subsection (1A)(a) in prescribed circumstances.””

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Moved by

[Lord Bourne of Aberystwyth]

40: Schedule 5, page 106, line 40, at end insert—
“8 (1) Section 29 (regulations and orders) is amended as follows.
(2) In subsection (2), after “other than” insert “regulations under section 18A above or”.
(3) After subsection (2) insert—
“(2A) A statutory instrument which contains regulations under section 18A may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””

[Lord Bourne of Aberystwyth]

My Lords, the House will be relieved that this amendment is relatively straightforward. It enables any regulations that are made under new Section 18A of the Judicial Pensions and Retirement Act 1993 to be subject to the affirmative resolution process.

Clause 78 of the Bill provides a power to create a fee-paid judicial pension scheme via new Section 18A of that Act. The creation of such a pension scheme is a legal requirement on the Lord Chancellor as a consequence of the Supreme Court ruling in O’Brien v Ministry of Justice.

The Delegated Powers and Regulatory Reform Committee report for the Bill recommended that such regulations be subject to the affirmative regulations procedure, and we are pleased to confirm this. This brings regulations on judicial pensions in line with those that will establish the new judicial pension scheme starting in April 2015, providing a high level of parliamentary control in respect of any changes to judicial pensions. I beg to move.

[Lord Bradley]

It would not behove me well to challenge anything that the Supreme Court rules on, but I am sure that it is as relieved as we are that the regulations would be subject to affirmative resolution.

Pension Schemes Bill

Lord Bourne of Aberystwyth Excerpts

Monday 12th January 2015 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

31: Schedule 3, page 65, line 2, after “scheme” insert “, or a survivor of a member of a pension scheme,”

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Moved by

[Lord Bourne of Aberystwyth]

41: Schedule 3, page 74, leave out line 35 and insert “, and survivors of members of the scheme, with subsisting rights in respect of any flexible benefits.”

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Moved by

[Lord Bourne of Aberystwyth]

46: Clause 48, page 20, line 21, at end insert—
“( ) paying a lump sum that would be an uncrystallised funds pension lump sum in respect of any of the benefits.”

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Moved by

[Lord Bourne of Aberystwyth]

49: Clause 51, page 22, line 10, after “acquiring” insert “a right or entitlement to”

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Moved by

[Lord Bourne of Aberystwyth]

51: Clause 55, page 25, line 1, after “pension” insert “, nominees’ drawdown pension or successors’ drawdown pension”

[Lord Bourne of Aberystwyth (Con)]

My Lords, I now turn to a further group of amendments which make minor changes to the clauses dealing with draw-down of pension benefits.

The first set of amendments follows amendments made in Committee in the other place to what is now the Taxation of Pensions Act. The Taxation of Pensions Act will allow for payment of death benefits to nominees and successors of members in relation to money purchase arrangements. The Act makes provision for a nominees’ draw-down pension and a successors’ draw-down pension. These amendments make the changes to this Bill to reflect the introduction of these new types of draw-down pension. They amend Clauses 55 and 56 so that these types of pension are treated in the same way as a dependants’ draw-down pension. They also insert definitions of a nominees’ draw-down pension and a successors’ draw-down pension into Clause 74. Amendments to Clauses 60 and 61 do the same for Northern Ireland. The second set of amendments makes small changes to Clauses 72 to 74, which deal with the definition of terms used in Part 4 of the Bill. As I said, these amendments make minor changes. I hope that noble Lords will agree, and I commend these amendments to the House. I beg to move.

[Lord McAvoy]

My Lords, I thank the noble Lord for his succinct exposition of the amendments. These are more in line with the phrase “minor and technical”. Nevertheless, I still make the point that there has been a barrage of amendments. We will study these carefully and, if necessary, do something on Report. I just make the point that we will be scrutinising them carefully.

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Moved by

[Lord Bourne of Aberystwyth]

52: Clause 56, page 25, line 17, leave out “or”

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Moved by

[Lord Bourne of Aberystwyth]

54: After Clause 59, insert the following new Clause—
“Sections 55 to 57: consequential amendments
“(1) In section 101AI of the Pension Schemes Act 1993 (early leavers: cash transfer sums and contribution refunds - further provisions), in subsection (8)—
(a) in paragraph (a), after sub-paragraph (ix) insert—“(x) section 55 of the Pension Schemes Act 2014;“(xi) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (vii) insert—“(viii) section 55(3) of the Pension Schemes Act 2014;“(ix) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”(2) In section 67A of the Pensions Act 1995 (the subsisting rights provisions: interpretation), in subsection (9)—
(a) in paragraph (a), after sub-paragraph (viii) (inserted by section 45of this Act) insert—“(ix) section 55 of the Pension Schemes Act 2014;(x) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (vi) (inserted by section 45 of this Act) insert—“(vii) section 55(3) of the Pension Schemes Act 2014;(viii) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.”(3) In section 318 of the Pensions Act 2004 (interpretation), in subsection (3)—
(a) in paragraph (a), after sub-paragraph (viii) (inserted by Schedule 2to this Act) insert—“(ix) section 55 of the Pension Schemes Act 2014;(x) regulations made under section 56 or 57 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (vi) (inserted by Schedule 2 to this Act) insert—“(vii) section 55(3) of the Pension Schemes Act 2014;(viii) regulations made under section 56(4) or 57(4) of the Pension Schemes Act 2014.””

[Lord Bourne of Aberystwyth]

My Lords, this group of amendments makes a number of small consequential amendments, all designed to ensure that the transfer provisions work as intended. The amendments are somewhat technical and I hope your Lordships will bear with me while I set out in a little more detail what they do.

Amendments 54, 63 and 64 are consequential on Clauses 55 to 57, which make provision in relation to drawdown. Clause 55 contains a provision that overrides scheme rules to the extent that there is any conflict. Clauses 56 and 57 also contain provisions allowing regulations made under them to override scheme rules to the extent that there is a conflict. The amendments make provision to insert a reference to Clauses 55 to 57 into the list of relevant legislative provisions for the purposes of the scheme rules definition in Sections 100B and 101AI of the Pension Schemes Act 1993—in relation to transfer—Section 67A of the Pensions Act 1995—in relation to members’ subsisting rights—and for the purposes of the Pensions Act 2004. Amendments 62, 67, 71 and 73 further ensure that the definitions of scheme rules in the 1993 and 2004 Acts also apply for personal pension schemes, taking account of any provisions that override these rules. These provisions are needed to ensure that the new overrides are taken into account in the existing legislation and so that it is clear what is meant by scheme rules where a provision has been overridden. Amendments 58, 63, 64, 77, 82 and 86 make provision for corresponding changes to Northern Ireland legislation.

I now turn to Amendments 59, 70 and 72. These make amendments to Schedule 4 to update existing cross-references to the transfer rights contained in the Judicial Pensions Act 1981, the Judicial Pensions and Retirement Act 1993, the Pensions Act 1995 and the Scottish Parliamentary Pensions Act 2009, so that they point to Chapters 1 and 2 of new Part 4ZA of the Pensions Schemes Act 1993. This will ensure that transfer provisions continue to operate as intended in conjunction with this Bill in relation to these pension schemes. This schedule also introduces identical provisions for Northern Ireland legislation in Amendments 76 and 87.

Amendments 60, 61, 68, 69, 75, 76, 78, 79, 83 and 84 amend Schedule 4 to make a number of minor and consequential changes to various sections of the Pensions Schemes Act 1993 and its Northern Ireland equivalent to ensure that the precise wording of the these sections operates as intended, now that a member’s statutory right to transfer will apply at benefit category level.

Finally in this group, Amendments 65 and 66 make small drafting amendments to new Section 100C of the Pension Schemes Act 1993 to put the meaning of “normal pension age” beyond doubt, with corresponding amendments for the Northern Ireland equivalent through Amendments 80 and 81. The amendments make minor and technical changes to the Bill which are important to ensuring that the legislation operates correctly. I beg to move.

[Lord McAvoy]

My Lords, I make the point about minor and technical amendments again. We will study them carefully, although with less suspicion than those in other categories. However, I will just say that Amendment 54 takes up a full page on the Marshalled List of amendments. Again, it reinforces the image of things being hurried or missed out when an amendment of that length has to be moved. Having said that, we accept it as a minor and technical amendment.

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There is not time to meet all the challenges associated with the new freedoms in pensions before April 2015—this is work in progress for some time to come. But it is the right time to recognise that the Government should be given the powers to regulate and control the charges and the quality standards of these products. The pension freedoms announced in the Budget trust savers to make the right choices, but those right choices will not occur solely as a function of trust in the consumer; they require good behaviour by the providers. The Government have enshrined in statute the power to set quality standards and control charges in the market during the accumulation stage. This amendment would give the Government the ability to exercise such controls also on retirement products during the decumulation phase.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord Bradley, for moving the amendment and the noble Baroness, Lady Drake, for her contribution.

The Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. The Government’s announcement of a charge cap on default funds in pension schemes used for automatic enrolment—which, subject to the approval of noble Lords, will come into effect in April—amply demonstrates that commitment to act. However, I am pleased to be able to reassure noble Lords that this amendment is not necessary. There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers.

Similarly, the Financial Services and Markets Act 2012 gave the Financial Conduct Authority wide-ranging product intervention powers. Under these powers, the Financial Conduct Authority also has the ability to cap charges on draw-down products, including flexi-access draw-down funds where these are offered by insurance companies. These existing powers cover all the institutions which could offer such draw-down arrangements.

I also reassure noble Lords that the Government and regulators are, as has been indicated, monitoring the development of new retirement income products, including the next generation of draw-down products, very closely indeed. In the publication of provisional findings from its retirement income market study, the Financial Conduct Authority has specifically committed to monitor how the retirement income market develops and to take action where appropriate if it sees sources of consumer detriment arising or if competition is not working properly in the market. In addition, again as mentioned earlier, the Financial Conduct Authority has also committed to undertake a full review of its rules in relation to the retirement income market which will commence in the first half of this year.

Therefore, while the Government share the concerns that have been expressed about member-borne charges, we believe that this amendment is not required. I therefore hope that the noble Lord will withdraw this amendment.

[Lord Bradley]

I thank the Minister for his response and the noble Baroness, Lady Drake, for her very important contribution to this debate. I am pleased that the Government recognise that this is an issue and that the purpose of this amendment is entirely to protect the consumer in this matter. I hear the Government’s assurance that the powers to act already exist. What we all want to ensure is that the Government do actually act if it does turn out to be the case that excessive charges above what would be a reasonable capped level of such charges actually come into existence as new products come on to the market.

If the Government are right that this amendment is not necessary, the test will be that they actually act in the interests of consumers in a timely way to ensure that they do not suffer the rip-offs that they have in the past in other circumstances. With those assurances, I beg leave to withdraw the amendment.

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Moved by

[Lord Bourne of Aberystwyth]

55: Clause 60, page 27, line 18, after “pension” insert “, nominees’ drawdown pension or successors’ drawdown pension”

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Moved by

[Lord Bourne of Aberystwyth]

56: Clause 61, page 27, line 36, leave out “or”

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Moved by

[Lord Bourne of Aberystwyth]

58: After Clause 64, insert the following new Clause—
“Sections 60 to 62: consequential amendments
“(1) In section 97AI of the Pension Schemes (Northern Ireland) Act 1993 (early leavers: cash transfer sums and contribution refunds - further provisions), in subsection (7)—
(a) in paragraph (a), after sub-paragraph (vii) insert—“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;(b) in paragraph (b), after sub-paragraph (v) insert—“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”(2) In Article 67A of the Pensions (Northern Ireland) Order 1995 (S.I. 1995/3213 (N.I. 22)) (the subsisting rights provisions: interpretation), in paragraph (9)—
(a) in sub-paragraph (a), after head (vii) insert—“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;(b) in sub-paragraph (b), after head (v) insert—“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.”(3) In Article 2 of the Pensions (Northern Ireland) Order 2005 (S.I. 2005/255 (N.I. 1)) (interpretation), in paragraph (4)—
(a) in sub-paragraph (a), after head (vii) insert—“(viii) section 60 of the Pension Schemes Act 2014;(ix) regulations made under section 61 or 62 of the Pension Schemes Act 2014;”;(b) in sub-paragraph (b), after head (v) insert—“(vi) section 60(3) of the Pension Schemes Act 2014;(vii) regulations made under section 61(4) or 62(4) of the Pension Schemes Act 2014.””

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Moved by

[Lord Bourne of Aberystwyth]

59: Schedule 4, page 78, line 17, at end insert—
“Judicial Pensions Act 1981 (c. 20)A1 In Schedule 1A to the Judicial Pensions Act 1981 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes Act 1993”.
Judicial Pensions and Retirement Act 1993 (c. 8)B1 In Schedule 2 to the Judicial Pensions and Retirement Act 1993 (transfer of accrued benefits), in paragraph 3, for “Chapter IV of Part IV of the Pension Schemes Act 1993” substitute “Chapter 1 of Part 4ZA of the Pension Schemes Act 1993”.”

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Moved by

[Lord Bourne of Aberystwyth]

88: Clause 66, page 31, line 5, leave out subsection (4) and insert—
“( ) After section 95(5) insert—
“(5A) Except in such circumstances as may be prescribed in regulations made by the Secretary of State or the Treasury, subsection (2A) is to be construed as if paragraph (d) were omitted.””

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Moved by

[Lord Bourne of Aberystwyth]

90: Clause 67, page 34, leave out lines 1 to 12

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Moved by

[Lord Bourne of Aberystwyth]

94: Clause 69, page 37, line 31, leave out “subsection” and insert “subsections (2) and”

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Moved by

[Lord Bourne of Aberystwyth]

97: Clause 70, page 40, line 1, at end insert “a right or entitlement to”

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Moved by

[Lord Bourne of Aberystwyth]

98: Clause 72, page 40, line 35, after “scheme” insert “or a survivor of a member”

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Moved by

[Lord Bourne of Aberystwyth]

99: Clause 73, page 41, line 2, after “scheme” insert “or a survivor of a member”

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Moved by

[Lord Bourne of Aberystwyth]

100: Clause 74, page 41, line 34, at end insert—
““nominees’ drawdown pension”, in relation to a survivor, has the meaning given by paragraph 27B of Schedule 28 to the Finance Act 2004;”

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[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Balfe, for giving us an opportunity to air this issue this evening and for organising a meeting with the Minister. I thank the Minister and his officials for participating in that meeting. No one can be comfortable with the position of employees in this situation, who approach retirement with a likely pension significantly below the expectation which is derived from an employer promise which can no longer be met. This is not diminished by the fact that, while the pension expectations would be well above average levels, they are commensurate with remuneration levels which reflect the skill of pilots and the responsible jobs they undertake. As we have heard, some 67 Monarch pilots will lose, in aggregate, some £900,000 a year in lost pension because of the operation of the PPF cap and other pilots are in a similar position.

We should acknowledge that the Pension Protection Fund introduced by the previous Government, but on a cross-party basis, protects millions of people throughout the UK, as we have heard, who belong to defined benefit pension schemes. According to the Purple Book, which monitors the risk of DB schemes, there are some 6,057 mostly private sector DB schemes covering more than 11 million scheme members with more than £1 trillion of assets. In broad terms, as we have heard, the fund takes over the responsibility of pension obligations in the event of employer insolvency, but it does not seek to replicate, in every respect, the employer promise. There is, in particular, a cap on levels of payment for those below normal retirement age when the scheme enters the PPF. This is a source of the problem we are discussing tonight.

We know that the PPF is a highly professional organisation dealing with a complex market situation with great skill. On recent data, some 745 schemes have been transferred, covering 217,000 members. Compensation paid to date amounts to £1.53 billion, but the average yearly payout is, as we have heard, some £3,500 only. Tens of thousands of people now receive compensation from the fund and hundreds of thousands will in the future, potentially making the difference between retirement in poverty and retirement in a degree of comfort. This may not be the occasion to discuss how the PPF will operate in shared risk schemes, but that is doubtless a matter we will return to at some stage.

The thrust of the amendment in the name of the noble Lord, Lord Balfe, is generally to improve the position of those whose compensation is limited by the cap. The position of those with significant pensionable service with one employer has already been improved under the Pensions Act 2014, but this does not cover pilots, who tend not to have pensionable service substantially in excess of 20 years. Of course, the origin of the cap was to address issues of moral hazard, as we have heard, but also to be some restraint on the overall costs of the arrangements—it is not just a moral hazard issue. It is accepted that the moral hazard is not present in the case of pilots and the amendments would not lead to 100% compensation. However, the amendments would not apply just to Monarch; we simply do not know who might be entering the scheme at some future date and therefore the costs associated with that. As an aside, I ask the Minister: if the levels of compensation were raised, what if anything would that mean for the arrangements entered into with Monarch that allow for continued trading? Would that arrangement have to be recast?

The bottom line is that amending the rules in the way suggested would lead to higher payouts from the PPF. That raises the question, as my noble friend Lady Warwick has made clear, of where the funding is going to come from. The answer, of course, is the levy, which ultimately feeds back to individual schemes and sponsoring employers. Although the amounts related to pilots may be relatively small in the context of the overall PPF scheme, we simply do not know how many more might be affected and what the overall costs would be. As I have just said, there was an attempt in the 2014 Act to ameliorate the effects of the cap for individuals whose pension entitlement was derived mainly from one source for at least 20 years, although this does not particularly help the matter in hand unless there were to be some recasting of the spread in coverage to affect it in a different way. However, presumably this would involve losers as well as gainers.

It seems that any improvement in the lot of the pilots who might find themselves in a similar position, now and in the future, would involve more resources for the PPF. So, while having great sympathy for those whose legitimate pension expectations have been significantly impaired, I do not think we have been presented with a compelling argument to make the specific changes that the amendments suggest. However, the Government may take the opportunity to reflect on and review how the cap is generally affecting entitlements, bearing in mind the need to ensure the sustainability of the PPF in the current, and future, DB environment.

[Lord Bourne of Aberystwyth]

My Lords, I thank my noble friend Lord Balfe for so eloquently moving this amendment, and other noble Lords who have participated in this debate—the noble Lords, Lord Monks and Lord McKenzie, and the noble Baroness, Lady Warwick. I found the meeting very useful, and I assure the noble Lord, Lord Monks, that, as a former trade union member, I was certainly taking everything very seriously when he put forward the points that he made.

The amendment relates to the position of certain members of pension schemes that have entered the Pension Protection Fund. I am sure that we all have a great deal of sympathy with the situation that these people find themselves in. This amendment, which offers two alternative methods of changing the cap, very helpfully allows me to talk to the Committee briefly about the level of the PPF compensation cap. I understand that my noble friend’s principle is that he would like an increase in that cap to provide higher compensation to those who had accrued a relatively large pension, but who, because they had relatively short service in their scheme, will not be affected by the long-service cap amendments. I will therefore deal initially with that principle rather than concentrating on the actual effect of this amendment.

I start by making a small but perhaps important point: the loss of these pensions is not a consequence of the PPF cap. The fact is that the schemes were underfunded and could not meet the costs of the accrued pensions. Those pensions have already been lost. What we are discussing is the level of compensation that should be paid to the affected people.

The Pension Protection Fund does not replace lost benefits in full. That is not an uncommon approach; for example, deposits in banks are covered up to a limit of £85,000. The PPF pays compensation at the full rate of the pension in payment at the insolvency date to anyone over their normal pension age. Pilots as a group, with their relatively low pension age of 55, benefit from this, as more of them are likely to be over that threshold than if the scheme had a more usual pension age of 60 or 65. It is those below their normal pension age who have their compensation set at broadly 90% of the pension accrued at the insolvency date. Further, it is this group—those below their scheme’s normal pension age—who are affected by the compensation cap.

The current cap produces what many would think was rather a generous entitlement of £32,761 per year at the age of 65. The cap is of course reset for anyone who chooses to take their compensation at an age lower than 65, to reflect the longer period of payment. So a person with an unusual pension age of 55, such as pilots, would have a cap of £26,571 precisely. Noble Lords might also wish to be reminded that the Pensions Act 2014 contains provision for a long-service increase to the cap, which has been referred to during the debate, of 3% for each year of service above 20 years, although I accept this may not be relevant for many pilots because of the lower retirement age.

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Moved by

[Lord Bourne of Aberystwyth]

106: Clause 80, page 45, line 4, leave out “The Secretary of State or the Treasury” and insert “The appropriate national authority”

[Lord Bourne of Aberystwyth]

My Lords, Clause 80 provides a power to enable the Secretary of State or the Treasury to make consequential changes needed to any primary or secondary legislation, whenever made. Clause 81 makes provision for the regulation-making powers that have been set out in the Bill and the procedure for exercising those powers.

The amendments to Clauses 80 and 81 are technical and enable the regulation-making powers contained in the two clauses to be extended to the Department for Social Development in Northern Ireland in relation to Northern Ireland legislation. This will allow the Secretary of State for the Department for Social Development in Northern Ireland, who is responsible for social security benefits and pensions in Northern Ireland, to make consequential amendments to provisions in Northern Ireland legislation, where appropriate. In line with the provisions for Great Britain, including Scotland, where the powers are used to amend primary legislation, they are subject to confirmatory procedure, which is equivalent to the affirmative resolution procedure in this House. These changes and other provisions in the Bill allow the Northern Ireland authorities to maintain parity with pensions legislation in Great Britain. Clause 84 sets out when the different parts of the Bill will come into force.

The Government have given a commitment that from April 2015 people will be able to access their pension savings flexibly. These amendments ensure that the regulation-making powers in Part 4 come into force on Royal Assent so that the relevant regulations can come into effect on 6 April 2015 in line with the commitment given. The amendments also ensure that amendments made to include reference to the Bill in the definition of pensions legislation in the Pensions Act 2004 come into force from 6 April 2015. I beg to move.

[Lord McAvoy]

My Lords, I thank the Minister for his exposition. Somebody must have told him about my Irish grandparents. That is the other side of my Celtic tradition. We accept that these are minor and technical amendments and have no objections to them, with the usual proviso.

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Moved by

[Lord Bourne of Aberystwyth]

107: Clause 80, page 45, line 7, after “any” insert “primary or subordinate”

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Moved by

[Lord Bourne of Aberystwyth]

109: Clause 81, page 45, line 15, leave out subsection (2)

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Moved by

[Lord Bourne of Aberystwyth]

112: After Clause 81, insert the following new Clause—
“Regulations: Northern Ireland
“(1) A power of the Department for Social Development in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).
(2) Where regulations made by the Department for Social Development in Northern Ireland under section 80 amend, repeal, revoke or otherwise modify a provision of primary legislation (whether alone or with other provision), the regulations—
(a) must be laid before the Northern Ireland Assembly after being made;(b) take effect on such date as may be specified in the regulations but (without prejudice to the validity of anything done under them or to the making of new regulations) cease to have effect on the expiry of a period of 6 months from that date unless at some time before the expiry of that period the regulations are approved by a resolution of the Northern Ireland Assembly.“(3) Any other regulations made by the Department for Social Development in Northern Ireland under this Act are subject to negative resolution within the meaning of section 41(6) of the Interpretation Act (Northern Ireland) 1954 (c. 33 (N.I.)).
(4) Subsection (3) does not apply to regulations containing provision under section 84(6) only.”

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Moved by

[Lord Bourne of Aberystwyth]

114: Clause 84, page 46, line 29, leave out paragraphs (b) to (e) and insert—
“( ) any other provision of Part 4 so far as is necessary for enabling the exercise on or after the day on which this Act is passed of any power to make provision by regulations;”

Pension Schemes Bill

Lord Bourne of Aberystwyth Excerpts

Tuesday 16th December 2014 Lords Chamber

Moved by

[Lord Bourne of Aberystwyth]

That the Bill be now read a second time.

[Lord Bourne of Aberystwyth (Con)]

My Lords, I am grateful for the opportunity to open this debate on the Pension Schemes Bill and the Taxation of Pensions Bill.

Before I proceed to introduce these Bills, could I say this is an important occasion for a different reason? My noble friend Lord Jenkin of Roding has given distinguished parliamentary service for over 50 years and served in Cabinet with distinction. He has made an immense contribution to public life in our country. His contributions to the House of Lords, always effective and to the point, will be much missed, and he too, of course, will be greatly missed from the Chamber.

[Noble Lords]

Hear, hear!

[Lord Bourne of Aberystwyth]

I am sure that we all wish him a very happy and well earned retirement, and look forward to hearing his speech today.

I turn to the Bills before us today. Together, these Bills introduce the latest radical reform of pensions. These ground-breaking pension changes were the centrepiece of the Queen’s Speech, and are about encouraging new forms of pension saving, such as shared-risk schemes and the provision of collective benefits to give greater security in retirement, and giving people freedom and choice in how and when they access their pension savings. The time is right to make these changes to private pensions legislation. The new state pension will provide a simplified foundation for those in retirement, making it easier for people to know what pension they will receive from the state. It will provide a platform on which individuals can build their own private pension savings according to their wants and needs in retirement.

The excellent early results of automatic enrolment mean that millions more savers have joined workplace pension schemes. This Government have also taken forward other changes so that the future private pension landscape delivers high-quality, value-for-money pensions for members. For example, regulations are being brought forward so that, subject to parliamentary approval, from April 2015 there will be a charge cap in the default funds of qualifying schemes—schemes used for automatic enrolment—and new requirements for independent governance committees and trustees to report on costs and charges.

The market is therefore growing, and employers and the pension industry are already thinking about future pension provision. These Bills further encourage a flourishing private pensions market that provides greater choice for business on the pensions offered and for individuals on how they access their pension savings. Taking no further action is simply not an option. Despite government action, the Department for Work and Pensions estimates that there are 11.9 million people below state pension age who are not saving enough to provide adequately for their retirement.

I turn to the Taxation of Pensions Bill. My noble friend Lord Newby is the pilot of this legislative craft, but let me say a few words by way of introduction. The Taxation of Pensions Bill contains measures to make the tax system fairer by ensuring people have more choice about how they access their savings, to prevent this new flexibility being exploited by individuals to gain unintended tax advantages and to ensure the taxation of pension savings on death remains fair and appropriate under the new system. The Bill will mean that, from April 2015, individuals from the age of 55 will be able to access their money purchase pension savings flexibly if they wish, subject to their marginal rate of income tax, rather than the current 55% tax charge. In addition to the Government’s consultation after the Budget, we also published draft legislation for technical consultation in August.

I will talk about these changes in a little more detail, starting with measures to ensure people have more choice about how to access their savings. This Bill is about ensuring that people have greater choice at the point of retirement. The current system restricts choice at the point of retirement. Those with the smallest and largest amounts of pension savings have flexibility, but those with a moderate amount of savings have very limited options. The measures in this Bill will change that by extending this flexibility, such that it applies regardless of the size of the pension pot, thereby ending the effective compulsion to annuitise.

The Bill also introduces a new method to allow people to access their pension flexibly. The “uncrystallised funds pension lump sum”, or UFPLS—the clumsiest acronym I have ever seen in my life—is a new option. This will give individuals the flexibility to take one or more lump sums from their pension fund, with 25% of each payment tax free and 75% taxed at their marginal rate, without having to enter into draw-down or take all of their tax-free lump sum in one go. The Bill also increases choice by introducing changes to encourage innovation in the retirement income market, allowing providers scope to make annuities much more flexible products in line with consumer needs.

[Lord Beecham (Lab)]

I am grateful to the noble Lord for giving way. Could he tell us how much and for how long the Treasury will gain from the changes in the Taxation of Pensions Bill as people draw down or take their pensions early?

[Lord Bourne of Aberystwyth]

The noble Lord is right if he is inferring that there is a tax saving. Estimates have been made, but of course we cannot be certain of them. I have the estimates and I will ensure that I send them to the noble Lord—I do not have them to hand —but suffice it to say that this is not the thrust of the legislation. I think we will see that it is perfect in terms of providing what pensioners want, it gives a boost to the pensions industry and it probably saves the Exchequer money, although these are only estimates. However, that is not the main intention. As I say, it is to give consumers and members, after consultation, a very fair deal.

The Bill also contains measures to ensure that the new system cannot be exploited by individuals to achieve unintended tax advantages. If the Government were to put in place no protections, an individual over the age of 55 could divert their salary each year into their pension, take it out immediately and receive 25% of it tax free, thus avoiding income tax and national insurance contributions on their employment income. This is not the intention of the reforms. However, in the context of automatic enrolment, it is also important that any solution preserves the incentive for those aged over 55 to save after accessing their pension flexibly.

As a result of extensive consultation, the Government decided that introducing a £10,000 money purchase annual allowance for those who have accessed their pension flexibly strikes the right balance. On the one hand it allows people the flexibility to withdraw or contribute to their pension as they choose from the age of 55, while on the other it ensures that individuals do not use the new flexibilities, which are intended to provide people with greater access to their retirement savings, to avoid paying tax on their current earnings. It will also avoid unnecessary complexity for both consumers and pension providers when the new system comes into places in April 2015. As stated in the Government’s response to the consultation, we will be closely monitoring behaviour under the new system and will work closely with industry to ensure that it remains fair and proportionate.

I turn now to the changes made by this Bill to the taxation of pensions at death. As set out in the original consultation document which the Government published alongside the Budget, it is likely that the 55% tax charge which currently applies to pensions on death would apply to more people under the new system. If it were retained, it could provide an incentive for individuals to remove their savings from their pension in order to avoid the 55% tax charge. Consequently, the Government have amended the Bill to ensure that taxation of pensions at death remains fair and appropriate under the new system. The changes to the Bill will allow individuals who die with pension funds remaining to pass them on to anyone they choose. These funds can be paid tax free if the individual dies before the age of 75. If the individual dies having reached the age of 75 and the funds are paid out as a pension, they will be taxed at the beneficiary’s marginal rate, or at 45% if they are paid out as a lump sum. The aim of these changes is to ensure that individuals who have made sacrifices to save over the course of their lives can pass on their pension savings without worrying about those funds bearing excessive tax charges when they die. They will also preserve the incentive for individuals to keep money in their pension without fear of their beneficiaries being hit by a 55% tax charge.

Additionally, the Chancellor announced in the Autumn Statement that these changes will extend to annuities. Death benefit payments from joint life and guaranteed-term annuities will also be tax free when the policyholder dies under the age of 75, and such death benefits will be able to be paid to any beneficiary. This will also apply when an individual uses uncrystallised or draw-down funds to buy a dependant’s annuity. These changes will be legislated for in due course, although not through this Bill. The Taxation of Pensions Bill will therefore increase choice for the 320,000 people retiring each year.

The Taxation of Pensions Bill deals with the tax changes and the Pension Schemes Bill, which I will turn to shortly, deals with changes to enable the flexibilities to work as the Government intend. There are differences in the definitions of money purchase benefit in tax legislation and in pensions legislation which we have had to address. Tax legislation provides a definition of money purchase which in essence covers all forms of accrual that result in a cash amount. The pensions legislation definition is narrower, as it focuses only on those forms of benefit in which a deficit cannot arise. This is to ensure that the correct funding and member protection regime applies. In order to ensure that the provisions of both Bills work correctly together, the Pension Schemes Bill contains a new definition of “flexible benefit” which fits within the pensions legislation context and captures the forms of benefit to which the tax flexibilities apply. We also define the term “safeguarded benefits”, which are, in the main, forms of benefit to which the flexibilities do not apply but to which other provisions do. I will explain the context in which the term is used shortly.

I turn now to the Pension Schemes Bill. This Bill will make the changes required to pension legislation as a result of the freedom and choice created by the Taxation of Pensions Bill. This will include a legislative framework for a guidance service providing individuals who benefit from the new pension flexibilities with access to free, impartial guidance so that they are clear on the range of options available to them at retirement. The Bill places a duty on the FCA to ensure that the providers it regulates make people aware of their right to guidance and signpost them to this service, and the Department for Work and Pensions will ensure that the equivalent duty is placed on pension schemes regulated by the Pensions Regulator.

It is important to note that there is a fundamental distinction between advice and guidance. Providing advice on investments, including pensions, is an activity regulated by the FCA. A financial adviser will usually make a full assessment of a consumer’s circumstances and make a specific recommendation, and may sometimes sell a product, based on what is most suitable for that person. The guidance service will not aim to replicate this. Instead, it will provide tailored information to consumers regarding the options available to them but, unlike financial advice, it will not recommend specific products or providers. The guidance is designed as a first step for consumers, to support their decision-making and to empower them to make their own choices. Having had the guidance, it is expected that many people may wish to go on to seek financial advice to help them with their decision, and the guidance will help them to access the service they need.

The Government will continue to allow members of private sector schemes offering safeguarded benefits—that is, benefits other than money purchase or cash balance benefits—the freedom to transfer to other types of scheme. However, in the vast majority of cases where a member has safeguarded benefits, it will continue to be in the best interests of the individual to remain in their scheme. Therefore, two additional safeguards will be introduced to protect individuals and schemes. First, there will be a new requirement for individuals transferring safeguarded benefits out of a scheme to take advice from a financial adviser before a transfer can be accepted. Secondly, there will be new guidance for trustees of schemes on using their existing powers to delay transfer payments and taking account of scheme funding levels when deciding transfer values.

We will also ensure that the taxpayer and Exchequer are protected. First, transfers will not, other than in very limited circumstances, be allowed from unfunded public service defined benefit schemes into schemes from which flexible benefits can be obtained. Secondly, for funded public service schemes, Ministers will have a power to reduce cash equivalent transfer values in circumstances where there is a risk to the taxpayer.

The Pension Schemes Bill also makes other changes to the transfer requirements allowing individuals to access pension savings. We will do this by extending the current transfer rights for those with flexible benefits up to and beyond their schemes’ normal retirement age, and applying statutory transfer rights at benefit category—rather than scheme—level.

We will also make three technical changes to existing pensions legislation. The first will allow pension schemes to offer the new flexibilities to their members and will ensure that these flexibilities operate as intended in relation to those with cash balance benefits. The second will allow members to take one or more lump sums from their money purchase funds after the minimum age is reached. The third will prevent the conversion or replacement of non-money purchase benefits with money purchase benefits when a scheme winds up or during a Pension Protection Fund assessment period.

As the flexibilities will come into force on 6 April next year, we are making the relevant regulatory changes that are necessary to deliver these significant reforms by that date. The Department for Work and Pensions and the Treasury are co-ordinating a structured engagement with the industry on the drafting of regulations to ensure that final decisions are informed by stakeholder views.

With these changes, the Taxation of Pensions Bill and the Pension Schemes Bill together give the individual greater choice and flexibility in how they access their pension savings. The Pension Schemes Bill also introduces legislation to enable greater risk sharing between the employer and the saver—and, indeed, third parties—and risk pooling between savers, thus encouraging greater innovation in the private pensions market.

I now turn to the measures that grant pension providers greater flexibility in the sort of pension schemes they offer. The Queen’s Speech announced a radical reshaping of pensions legislation to ensure that it remains relevant for future generations. The Pension Schemes Bill reflects, recognises and encourages innovation in response to demand. It does this by creating a clear space for shared risk or defined ambition—as they are sometimes called—pensions and enables the provision of collective benefits in the United Kingdom. Those are two quite separate concepts.

With increased participation in saving, the Government are keen to support greater innovation in the products offered to savers, based on employer and member demand. Consumer trust in the pensions industry is relatively low, and although we can protect beneficiaries against risks of high charges or poor governance, our research shows us time and again that many individuals want more stability and more certainty. They want to know something about what their savings will give them and some protection from the worst of the vagaries of the market.

Many employers have found the increasing costs of longevity—welcome though it is—and investment risk too heavy to bear in traditional final salary defined benefits schemes, but if defined contribution schemes are the only alternative, outcomes for members and savers will be less certain and more volatile than for earlier generations, making it much harder for future generations of savers to plan for later life.

Although some forms of risk sharing can already happen, the current legislation is based on a binary structure, leading to a tendency for schemes to polarise into schemes in which either the member or the employer is bearing all the risks. While both of those types of pension can be the right product for many, we do not think it is right that the only future for pensions that our legislation explicitly recognises or encourages is either where the individual member or the employer takes on the full financial risk of such long-term savings.

Therefore, the Pension Schemes Bill introduces three categories of pension scheme and enables a new type of collective benefit along with requirements to ensure that there is appropriate regulation in relation to such benefits. The scheme categories are based on the type of promise that the scheme provides to savers during the saving phase about the benefits that will be available to them at retirement. The Bill includes new definitions of defined benefits, where the member receives a full benefit and the employer takes the risk, defined contributions, where the member takes the risk, and shared risk, or defined ambition, the third category of pension scheme.

The shared risk, or defined ambition, definition describes a middle ground between the defined benefits and defined contributions definitions. It creates a distinctive space to encourage innovation in pension design that provides for more certainty for individuals than defined contributions schemes, in which there is no promise during the savings phase, by sharing risks between employers, employees and third parties.

The new scheme categories will apply to existing occupational and personal pension schemes. They do not make any additional requirements about benefit design and do not change any current legislative requirements, such as occupational scheme funding or member protections.

The definitions work at scheme level, rather than the benefit level, so the wider legislative requirements that apply to certain benefit types still apply, regardless of the scheme category. That includes, for example the new Budget flexibilities, and the collective benefit requirements, to which I shall come shortly. The definitions are formulated very specifically and, along with the regulation-making powers, they ensure that current and new scheme designs will fall into the correct categories to reflect the member experience of certainty during the savings period.

The Bill also provides for a new definition of collective benefits. These are different from shared risk schemes, although shared risk schemes may include collective benefits. The collective benefit definition enables a new form of risk pooling among scheme members that can provide greater stability in outcome for members—partly by virtue of scale. Collective pension schemes are a key part of some other countries’ pension systems—for example, the Netherlands and some of the provinces of Canada—and they are recognised internationally as being of high quality. As we aspire to develop a pension system that is rated among the world’s best—we hope the best—it is only right that the United Kingdom should also have pension schemes offering these types of benefits. We also have the advantage of providing protections at the outset which address issues that have arisen in relation to these types of schemes overseas. The regulation-making powers are key to the success of collectives, ensuring appropriate safeguards can be applied and developed in discussion with industry, employers, and members’ representatives. The Bill enables collective benefits to be part of a defined contributions scheme or a shared risk scheme. The intent is that members of schemes offering collective benefits would be able to access their collective benefits flexibly, either directly or by transferring to a money purchase scheme.

The Bill makes changes to existing legislation in order to reflect the new scheme categories and collective benefits. It also provides for additional governance protections for these new types of pensions, reflecting the new types of decisions that are being made on behalf of members. We also intend to use regulation-making powers in other legislation in respect of governance and disclosure as appropriate. We have engaged extensively with stakeholders across the pensions industry and found there is appetite for legislation that allows for greater risk sharing and risk pooling. There are employers that would welcome the greater flexibility to create pension schemes that suit the needs of their workforce. Pension providers want the flexibility to design and offer pensions that provide greater certainty and more options for sharing risk, and individuals value greater certainty than that provided by defined contributions pension schemes and the greater stability that collective benefits may provide. All these are considerable advantages.

I turn to the other changes to private pensions legislation made by the Pension Schemes Bill. These are relatively minor in terms of the main thrust of the legislation. The Bill contains two clauses from the Ministry of Justice concerning judicial pensions. One corrects the Judicial Pensions and Retirement Act 1993, regarding the funding of pensions shared on divorce, to ensure that the Act works for cases where pension sharing is activated after a person has left judicial office. The second allows a pension scheme to be established for fee-paid judges, as required by relatively recent case law. It is aimed at old and transitional cases. Pensions for fee-paid judges will in the future be governed by a new scheme under the recent public service pensions legislation.

In addition, the Bill contains a minor and technical measure on the Remploy pension scheme. The legislation will allow the Department for Work and Pensions to fund the Remploy pension scheme directly rather than via the company, should this be required in the future.

Furthermore, the Bill contains an amendment to extend a regulation-making power in the Pension Schemes Act, relating to survivors’ benefits in the case of certain gender-change cases, to Scotland. Finally, the Pension Schemes Bill contains a provision the effect of which will be to permit schemes to increase the maximum age at which a pension credit, following a pension share on divorce, must be put into payment if the highest normal pension age for benefits payable under the scheme is higher than 65.

These are very radical reforms that build on this Government’s previous changes to improve pensions in the United Kingdom. Giving people greater choice is at the heart of these reforms—greater choice for business on the pensions they offer and greater choice for individuals on how they can access their pension savings. These are important changes to allow the private pensions market to flourish too. I commend these Bills to the House. I beg to move.

Budget Statement

Lord Bourne of Aberystwyth Excerpts

Thursday 27th March 2014 Lords Chamber

[Lord Bourne of Aberystwyth (Con)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Hunt of Chesterton, who spoke with such authority on science and technology. I should also tell him that I am very familiar with the railway line that he referred to and, thankfully, it still does go through many a marginal constituency.

I think that the central thrust of the Budget thinking is right: we must as a nation reduce the deficit; we must press down on the debt, otherwise we will saddle future generations with that debt.

In general, Budgets can be broken down into three categories: calamitous, of which there are a few; routine, of which there are many; and transformational, of which there are very few. There is a strong case for suggesting that this Budget is transformational. It makes fundamental changes to the tax and budgetary system applying to pensions. It deserves comparison with the Budget of my noble and learned friend Lord Howe of Aberavon abolishing exchange controls. Another such Budget was that of my noble friend Lord Lawson of Blaby abolishing higher rates of income tax.

The fundamental change to pensions—and I disagree fundamentally with the noble Viscount, Lord Hanworth, on this point—is to give people power over their pension pots. I accept that we need a system of good advice, a point which was well made by the noble Lord, Lord Hollick, and the right reverend Prelate the Bishop of Chester. It is certainly true that we need to ensure that proper advice is in place for people. Subject to that, however, surely it is right to give people control over their own pension pots which they have built up over time. For the first time people will be trusted to manage their own pension pots. It is a major transfer of power to the individual. In fairness, it has been widely welcomed by all political parties. The added beauty of the move is that it does not cost the Exchequer any money; indeed, it will add to the country’s coffers as the amounts paid through drawdown will exceed the amount paid on an annuity in the early years. Admittedly, however, that will smooth out over time.

The Budget is also good news for the nation’s economy in terms of savings in general. That point has been made by my noble friends Lord Flight and Lord Northbrook, who are not in the Chamber at present, in relation to ISAs and the increase of the limit. That increase is also very welcome. Successive Governments have for too long neglected savers. Fairly recently the World Economic Forum pointed out that that needs to be addressed, and I think that it now has been. Another factor, which has not been mentioned overmuch, is abolition of the 10p rate for lower-income savers. Again, it is sensible to help people on lower incomes with their savings income. In addition there is the pensioners bond, which has certainly been mentioned. These boosts are very welcome. One of the key aspects of the Budget is what we are doing for savers.

In addition to savers, this is a good Budget for business. Business means prosperity and jobs. Increasing the tax breaks on business investment by business, doubling it to £500,000 annually, provides a significant boost to investment, and the Chancellor has also extended the life of the scheme. Cutting energy costs for business will also boost enterprise.

In this debate there has rightly been much talk about needing to rebalance the economy in regional terms. In that context, it is worth noting that half of the businesses that benefit most from the carbon price floor are in the north of England, and a further third are in Scotland and Wales. That is good news. We should also welcome the extension of the life of the business rate relief and enhanced capital allowances in enterprise zones. I declare my interest as chairman of an enterprise zone in Wales. This, too, is a welcome incentive to business.

It is a good Budget for savers and for business, and it is also a good Budget for export. We have seen in this Budget a doubling of the amount that the Government are making available, to £3 billion, and also a cut in the interest rate for exporters. Surely that is good news, too.

In relation to housing, there were one or two comments suggesting that the Help to Buy scheme was something that we should be ashamed of, but I do not believe so at all. For too long, successive Governments in this country have not concentrated on housing. We should welcome not just the Help to Buy scheme extension but the help that is now being provided for the development of Ebbsfleet. The greatest concentration and problem is clearly in the south-east and so Ebbsfleet, the help for Barkingside and in the redevelopment of Brent Cross are measures that should be welcomed rather than otherwise. So in many respects, this Budget will help the economy. It is helping savers, business and exporters.

Perhaps I might also mention some of the micro aspects of the Budget, which are in danger of being overlooked but which provide assistance to our tourist industry, as well as to our well-being as a country. There is help for the 800th anniversary of the Magna Carta, and for cathedrals and theatres. These aspects should not be neglected as they also provide a boost for our tourism industry, our country and our economy.

I believe this is a good Budget in many respects. Its legacy will be for savers but it continues on the right course for the country: of deficit reduction and bearing down on the debt. In concluding, I add my support, as a relatively new boy here, for this House having a greater role in relation to the Budget. That point seems to have been very well made and I hope that we can pursue it in the future because we have a definite and positive role here.