Pension Schemes Bill [Lords]

Craig Mackinlay Excerpts

2nd reading: House of Commons
Monday 30th January 2017 Commons Chamber

[Craig Mackinlay (South Thanet) (Con)]

The House will be rather pleased that I will focus purely on the Bill, which I very much welcome and have no hesitation in supporting.

It may be helpful briefly to explain the framework and history of master trusts. Such pension plans were historically designed primarily for single employers, or a group of related sponsoring employers with an in-built paternalistic and altruistic nature of management. However, the world of workplace pensions has changed rapidly and for the good, with the introduction of workplace pensions under auto-enrolment following the Pensions Act 2008. As we have heard from the Secretary of State, the latest figures suggest that more than 7 million employees are now enrolled across 370,000 employers. As we reach the final phase of the staging dates roll-out across smaller employers over the coming year, the number will expand massively, approaching 10 million people across possibly 1 million employers. The figure for current assets under management is at more than £10 billion a year and will grow rapidly. It could easily be the case that, over the next 30 years, master trusts contain assets exceeding £1 trillion.

The larger employer may already have had an employer scheme in place, but those are likely to have been contract based, whereby a pension provider—often an insurance company—is appointed to run an individual scheme. It is the smaller employer, under auto-enrolment obligations, that will be using the other possible course of action, which is the trust-based defined contribution scheme, whereby a number of employers—perhaps tens of thousands of smaller individual employers—will take part in an individual scheme. The new legislation will apply to those new trust-based schemes, ensuring that they are well run, financially sound and subject to appropriate oversight by the Pensions Regulator. It is essential that employees have confidence that schemes will protect their assets. After all, it is perfectly likely that an employee’s pension fund, after their house, will be the primary life asset upon which so much will depend.

The Select Committee on Work and Pensions, in its report of 15 May last year, devoted some time to highlighting the risks under the current limited regulatory arrangements for master trusts, amounting to little more than Her Majesty’s Revenue and Customs registration that practically anybody could overcome—loose arrangements that suited the original purpose of trust-based schemes, but which are wholly insufficient in the new auto-enrolment world. I pay tribute to the work of former Pensions Minister, Baroness Altmann, who similarly highlighted the lack of regulation of master trusts.

Following investigations, including one by the BBC, there were reports of unregulated applicants to the master trust market—notably, a promotion by MWP Pension Ltd, a company owned by former sports fashionwear traders that formerly traded as Wide-Boys R Us. With that type of background, new legislation is urgently needed, otherwise this area could easily become the financial scandal of the future.

Far from being overdue, it is a tribute to the ability of our legislative framework that risks have been recognised and the Government have acted quickly. The market itself has recognised the risks of the current lightweight regime. The Pensions Regulator, working with the Institute of Chartered Accountants in England and Wales—as my hon. Friend the Member for Amber Valley (Nigel Mills), a chartered accountant like myself, mentioned—created the master trust assurance framework, with a list available to all on the Pensions Regulator’s website. The list now includes 13 institutions that are complying with good practice. Before the Bill becomes law, I urge smaller employers considering their options as their staging dates approach to use any of those recognised schemes; do not use any other.

I welcome other aspects of the Bill, as it proposes triggering events, pause orders and an appropriately draconian penalty fine of up to £10,000 a day for non-compliance. I welcome the proposals and, with others, will examine their extent in Committee. Finally, and to the delight of all, the Bill gives authority to the Secretary of State to restrict charges, mirroring in part the provisions applying to the charges structure introduced within personal plans under the Bank of England and Financial Services Act 2016, and extending the Pensions Act 2014. As all Members will know, it is purely due to the effect of compounding that, over 40 years, a fund can grow by 50% or more with a simple fee-charging difference of just 0.75%. I certainly hope that the Secretary of State will use these powers to reduce charges as appropriate.

This Bill comes at the right time before contributions under auto-enrolment escalate over the years come, and I will support it.