Pension Schemes Bill [ Lords ] (Fourth sitting)

Neil Gray Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Thursday 5th November 2020 Public Bill Committees

[The Chair]

I understand that there is an agreement that all the remaining new clauses should be debated together. Is that correct? [Hon. Members: “Yes.”]

New Clause 1

Auto-enrolment

“(1) The Pensions Act 2008 is amended as follows—

(a) in section 3, in subsection (1)(a) leave out ‘22’ and insert ‘18’;

(b) in section 13, leave out subsection (1)(a).

(2) The Secretary of State shall, not later than two months after the day on which this Act is passed, lay before Parliament a statement containing a timetable for the implementation of these changes.”—(Neil Gray.)

This new clause would lower the age threshold for auto-enrolment from 22 to 18, and remove the lower limit of the “qualifying earnings” band, so that contributions are payable from the first pound earned. It would also require the Secretary of State to lay before Parliament a timetable for implementing these changes.

Brought up, and read the First time.

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

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

[The Chair]

With this it will be convenient to discuss the following:

New clause 2—Pensions Advisory Commission—

“(1) The Pensions Regulator shall establish a committee to be known as the Pensions Advisory Commission.

(2) The Commission shall consist of—

(a) members of the Regulator as provided under section 2(1) of the Pensions Act 2004, and

(b) five other persons appointed by Her Majesty on the recommendation of the Secretary of State.

(3) A person appointed under subsection (2)(b) shall exercise only functions in pursuance of the duties in subsections (5) and (6).

(4) The Commission shall be chaired by a person appointed under subsection (2)(b).

(5) It shall be the duty of the Pensions Advisory Commission to submit to the Secretary of State each calendar year, beginning with the year 2022, a report setting out the Commission‘s views on—

(a) the impact of provisions in Parts 1, 2 and 4 of this Act on—

(i) persons in different parts and regions of the United Kingdom,

(ii) equal treatment of men and women in access to pension provision, and

(iii) persons with a protected characteristic under section 4 of the Equality Act 2010; and

(b) the effectiveness of the powers in Parts 1 to 3 of this Act in enabling the Pensions Regulator to achieve its objectives under section 5 of the Pensions Act 2004.

(6) It shall also be the duty of the Commission to report to the Secretary of State by 31 October 2021 its views on when commercial operators should be able to enter the market for provision of a pensions dashboard service.

(7) The Secretary of State must lay before Parliament a copy of every report received from the Commission under this section.”

New clause 3—Employer debt: trustees’ discretion—

“The following changes are made to the Occupational Pension Schemes (Employer Debt) Regulations 2005 (SI 2005/678)—

‘(1) In regulation 2, in the definition of ‘scheme apportionment arrangement’—

(a) in sub-paragraph (f)(ii), after ‘apply’, insert ‘but not if the circumstances in paragraph (h) apply’;

(b) at end, insert—

‘(h) the consent of the remaining employer or employers shall not be required under (f)(ii) above where all of the following conditions apply—

(i) the departing employer’s debt was treated as becoming due prior to the coming into force of this provision; and

(ii) the departing employer’s debt was less than 0.5% of the scheme’s overall liabilities, as estimated by the trustees or managers on advice of the scheme actuary, as if the whole scheme had been winding-up at the time the debt was treated as becoming due, and

(iii) the employer in question was operating as an unincorporated business during his participation in the scheme, and

(iv) the trustees or managers consider that, in the context of the scheme overall, it would not be in the scheme’s interests to seek recovery of the employer’s liability share from the departing employer.’

(2) In regulation 9, after paragraph (14B), insert the following new paragraph—

‘(14C) Condition L is that a debt was treated as becoming due from him under section 75 of the 1995 Act but is excluded under this Condition because—

(a) the employer’s debt was treated as becoming due prior to this Condition coming into force; and

(b) the employer’s debt was less than 0.5% of the scheme’s overall liabilities, as estimated by the trustees or managers on advice of the scheme actuary, as if the whole scheme had been winding-up at the time the debt was treated as becoming due, and

(c) the employer in question was operating as an unincorporated business during his participation in the scheme, and

(d) at or before the applicable time, the trustees or managers have made a determination not to pursue the debt on the grounds that, in the context of the scheme overall, seeking recovery represented a disproportionate cost to the scheme.’”

This new clause is intended to enable pension scheme trustees to exercise discretion not to pursue employer debt (“section 75 debt”) following an employer’s exit from a pension scheme where such debt is below a de minimis threshold. This aims to support unincorporated employers who are now retired for business and for whom there are no easements within the current regulation.

New clause 4—Employer debt: deferred debt arrangement—

“The following changes are made to the Occupational Pension Schemes (Employer Debt) Regulations 2005 (SI 2005/678)—

(1) In regulation 6F—

(a) in paragraph (1), leave out ‘A’ and insert ‘Subject to the provisions of paragraph (8) below, a’;

(b) at end, insert—

‘(8) In relation to a frozen scheme, the trustees or managers of the scheme may agree to a deferred debt arrangement where the employment-cessation event occurred at a time prior to the scheme becoming a frozen scheme, providing the conditions of paragraph (3) are met at the time the deferred debt arrangement is entered into.’”

This new clause would permit employers in a pension scheme closed to future accrual to apply for a deferred debt arrangement, providing they meet the other statutory tests. This aims to support employers who are still trading but were not able to use the existing deferred debt easement.

New clause 5—Review of automatic enrolment—

“(1) The Secretary of State must, by regulations made by statutory instrument, make any amendment to, or repeal or revoke any provision of, this Act, the Pensions Act 2008 or any other primary or secondary legislation in order to implement the recommendations of the Automatic Enrolment Review 2017.

(2) Any regulations made under subsection (1) must be laid before Parliament within six months of the day on Royal Assent is given to this Act.

(3) No regulations shall be made under subsection (1) unless a draft of the regulations has been laid before, and approved by, a resolution of both Houses of Parliament.

(4) Before the end of a period of two years from the day on which Royal Assent is given to this Act, the Secretary of State must lay before Parliament the report of a further review of the operation of automatic enrolment.

(5) The report under subsection (4) must make a recommendation as to whether the Government should bring forward further legislation to implement the findings of the review.”

This new clause would require the Secretary of State to implement the recommendations of the Automatic Enrolment Review 2017 and require a further review of automatic enrolment within two years.

New clause 6—Occupational pension schemes: review of support—

“(1) The Secretary of State shall undertake a review of the level of support available under the Financial Assistance Scheme to any member of an occupational pension scheme which is a qualifying pension scheme under Regulation 9 of the Financial Assistance Scheme Regulations 2005 (S.I., 2005, No 1986), regardless of whether the employer in relation to that scheme was solvent or insolvent.

(2) The Secretary of State shall lay the review before Parliament no later than—

(a) the day which is six months from the day on which this Act receives Royal Assent, or

(b) if neither House of Parliament sits on the day specified in (a), the first day on which either House sits after that day.”

This new clause would require the Secretary of State to carry out a review of the support available to Financial Assistance Scheme qualifying members, including the former ASW steelworkers.

New clause 7—Regulation of pension superfunds—

“(1) The Secretary of State shall publish a statement on proposals for primary legislation in relation to a duty on the Pensions Regulator to regulate pension superfunds.

(2) For the purposes of this section, a pension superfund is a defined benefit pension scheme that allows for the severance of an employer’s liability towards a defined benefit scheme and one of the following conditions applies—

(a) the scheme employer is replaced by a special purpose vehicle (SPV) employer, or

(b) the liability of the employer to fund the scheme’s liabilities is replaced by an employer backed with a capital injection to a capital buffer.

(3) The statement under subsection (1) shall be laid before Parliament before the end of a period of six months from the day on which this Act receives Royal Assent.”

This new clause would require the Secretary of State to publish within six months of Royal Assent proposals for primary legislation to place a duty on the Pensions Regulator to regulate pension superfunds.

New clause 8—Trustees’ voting rights and engagement activities: publication of information—

“(1) Schedule 18 to the Pensions Act 2014 is amended as follows.

(2) After paragraph 2, insert—

‘2A The Secretary of State may by regulations make provision requiring the publication of information about—

(a) the exercise of the rights (including voting rights) attaching to the investments of the scheme, by or on behalf of, the trustees of the scheme; and

(b) engagement activities undertaken by or in respect of the investments, by or on behalf of, the trustees of the scheme’”

(3) In paragraph 3, omit “1 or 2” wherever it appears and insert in its place ‘1, 2 or 2A’.”

This new clause would give the Secretary of State the power to create regulations requiring pension schemes to publish information about how voting and other engagement activities have been carried out.

New clause 9—Duty to publish information on the statement of investment principles—

“(1) The Pensions Act 2004 is amended as follows.

(2) In section 244, at end insert—

‘(8) The most recent version of the scheme statement of investment principles must be made available to the Pensions Regulator for publication every three years.’”

This new clause is to ensure all scheme SIPs are made available to TPR.

New clause 11—Pension accounts—

“(1) A jobholder to whom section 3 of the Pensions Act 2008 applies may by notice require an employer to arrange for the jobholder to receive into a pension account any contribution which would otherwise be made by the employer into an automatic enrolment scheme.

(2) A contribution by a jobholder or by their employer into the jobholder’s pension account shall be invested in a pension scheme offered by an approved pension provider.

(3) The Secretary of State may by regulations make provision—

(a) about the form and content of a notice given under subsection (1), or

(b) about the arrangements that the employer is required to make.

(4) The Secretary of State may make regulations to set criteria by which a pension provider may be approved for the purposes of subsection (2).

(5) Regulations under this section shall be made by statutory instrument and may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”

New clause 12—Duty to state how non-financial factors are taken into account—

“(1) The Occupational Pension Schemes (Investment) Regulations 2005 are amended as follows.

(2) In sub-paragraph (3)(b) of regulation 2 (statement of investment principles), leave out sub-sub-paragraph (vii) and insert—

‘(vii) how non-financial factors are taken into account in the selection, retention and realisation of investments’.”

This new clause would create a duty in the OPSR 2005 for schemes to state how non-financial factors such as beneficiaries’ views are considered in the development of investment policies, replacing the existing duty to state “the extent (if at all) to which” such factors are taken into account.

[Neil Gray]

It is good to see you back in the Chair, Mr Robertson. I wish to speak to the remaining clauses that stand in the name of the Scottish National party, and to support those tabled by other Members as part of this group. My hon. Friend the Member for Gordon will speak to proposed new clauses 3 and 4.

As we have repeatedly said, we are fully supportive of automatic enrolment. We think it has been a big success in getting people saving for their retirement who otherwise would not have, and it does so earlier, which has a compound impact on those people’s ability to save for a dignified retirement. That said, there are issues, some unintended and others relating to the speed of roll-out, that we wish to see addressed. Our new clauses in this group build on the success of automatic enrolment by seeking to expand eligibility to those who were left out earlier and to address issues related to small or micro-sized pension pots.

This Bill is a clear opportunity to address inadequate lifetime savings and inequalities such as the gender pension gap by building on the successes of automatic enrolment. While we wholeheartedly support the premise, far too many have been left behind and still cannot benefit from this important measure, so we want to see the UK Government remove the lower earnings limit and the lower age limit well before the mid-2020s, so that contributions are payable from the first pound earned at the earliest opportunity for savers. We also want to see the Government have much greater ambition in raising contributions beyond 8%, but we understand, in deliberations with the excellent Clerks to the Committee, that that is not within the scope of this particular Bill.

Our amendment would lower the age threshold for auto-enrolment from 22 to 18 and remove the lower limit of the qualifying earnings band so that contributions are payable from the first pound earned. While we welcome the Pensions Minister’s commitment on Second Reading that the UK Government have set a mid-2020s timetable to implement these changes, our new clause would require the Secretary of State to lay this timetable before Parliament. Automatic enrolment should be available to those currently left out at the earliest opportunity. The UK Government need to be accountable to Parliament in implementing these changes to prevent further delays.

As women disproportionately populate low-income and part-time jobs, they would disproportionately benefit from the Government’s getting on with reaching more people with auto-enrolment. Similarly, by removing the qualifying earnings band, low-income workers, who otherwise have little prospect of having a decent private pension, will also benefit. We additionally support Labour’s new clause, which would require the Secretary of State to implement the recommendations of the automatic enrolment review and require a further review of automatic enrolment within two years. That would do a similar job to our new clause 1 and would keep the pressure on Ministers to be far more ambitious. Why wait? We know and have trumpeted the benefits of auto-enrolment as enthusiastically as the Minister himself. Why wait for women and low-income workers to benefit?

As I alluded to earlier in the Committee’s deliberations, we also recognise that an unintended consequence of auto-enrolment is the increasing number of people who move jobs frequently, such as agency workers, and therefore build up a number of small or micro-sized pension pots. Some of those pots might be small as £50 or £100, in which case hard-earned savings could be quickly wiped away by charges, fees and levies.

The Pensions Policy Institute reports that the number of deferred pension pots in the UK defined-contribution master trust market is likely to rise from 8 million in 2020 to around 27 million in 2035, but member charges often erode small deferred member pots over time and small pots can be uneconomic for providers to manage. Extra management charges and costs may eventually be passed on to members through increased charges, and financial instability in master trust schemes arising from too many small ports could, in extreme circumstances, result in trustees’ triggering an event to wind up the scheme.

Our new clause 11 proposes a solution to that by providing for individual pension accounts for people to invest in their own schemes with DC providers. Where someone has earned from more than one employer, rather than having multiple employers make contributions to different schemes on behalf of the worker, the worker could set up an account with a provider and request that their employer allocate their auto-enrolment contributions to that account. That would stop their multiple plots being eaten into by charges and give greater control to the person in whose name the investments are actually being made.

We hope that the Government review pushed for by the Select Committee on Work and Pensions will come up with an answer, not just to the problem of charges that we had an opportunity to address earlier in this Committee, but also with regard to micro-sized pots. This could be an answer, and we look forward to hearing the Minister’s considered perspective.

I briefly referred earlier to our new clause 2, which would see a commission established to cover the terms of this Bill. Hon. Members will know, as they have heard it long enough from SNP parliamentarians, that we support the establishment of an independent standing pensions and savings commission. At another time, when the Minister did not have a majority behind him, he may have looked at versions of some of our suggestions throughout the Bill. We are in a different place, and reasonable cross-party amendments put forward to support stakeholders across the market are being voted down. We reiterate our call for the establishment of an independent pensions and savings commission to look holistically at pension reform, focus on existing inequalities and pave the way for a fair universal pension system.

The entire pension landscape is in need of fundamental reform, particularly given the pressing need to review and enhance automatic enrolment. We ask that the commission start its work by reviewing parts 1, 2 and 4 of the Bill and their impact on different parts of the UK, equal treatment of men and women, and persons with protected characteristics—that is where our attention is focused in new clause 2—and when commercial dashboards should enter the market. That would be the responsible way to take these issues forward.

As I said earlier, time is the wisest counsellor of all, and by taking the time on commercial dashboards, the Minister could consult and take stock with independent experts to ensure that they work for all. We want to see the Money and Pensions Service dashboard as quickly as possible. The Minister seemed to suggest the other day, when we said he needed to take time, that we wanted him to slow down the MaPS dashboard, but that is just not true. The success of the MaPS dashboard is not dependent on commercial dashboards entering the market or arriving at the same time—quite the contrary, unless there has been a deal done or a quid pro quo whereby commercial providers are incentivised to provide their data for the MaPS dashboard in return for them being allowed to develop their own commercial dashboards independently and immediately.

New clause 2 would allow us to take the time to ensure that people are protected. That would ensure that we get it right, and would bring people in on a cross-party basis. That is how the best policy is developed.

[Ms Karen Buck (Westminster North) (Lab)]

It is a pleasure to conclude our consideration of the Bill under your chairmanship, Mr Robertson. As the Committee has agreed, I will make a short contribution on new clauses 5, 6, 7 and 8. New clause 5 is on the theme of auto-enrolment, and I will echo a number of the comments of the hon. Member for Airdrie and Shotts. The new clause would require the Secretary of State to implement the recommendation of the 2017 auto-enrolment review and conduct a further review three years on.

It is a source of great pride that the previous Labour Government introduced auto-enrolment, which transformed the pensions landscape and reversed a long-term decline in pension savings. We now have 10 million more people saving into a pension at work. The policy is widely agreed to have been a success and is praised on both sides of the House. It is a model of good policy making, rooted in consensus.

However, it is always essential to keep such schemes under constant review and develop them if they are to keep pace with changing patterns in the workplace. We are therefore concerned that, even after 10 years, there are an estimated 12 million people under-saving for retirement. To look at the reasons for that and potential solutions, it was welcome that the Government commissioned a review of the policy in 2017. The review found that:

“Current saving levels risk a significant proportion of the working-age population not meeting their retirement expectations. In addition the current structure of automatic enrolment means there are gaps in coverage, in particular for those in low paid part-time jobs and younger workers”.

The review made two recommendations: that the age threshold for auto-enrolment be lowered from 22 to 18, and that the lower limit of the qualifying earnings band be removed so that contributions are payable from the first pound earned by an employee. They are yet to be implemented, so I would welcome some indication from the Minister as to whether he has a timetable in mind for these significant changes.

There is also the question of contribution rates and whether it will ultimately be necessary for them to be increased to ensure that individuals have adequate savings for their retirement. The 2017 review noted that the contributions of 8% are unlikely to give individuals the retirement to which they aspire. As my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) said,

“8% cannot be the summit of our ambition.”—[Official Report, 4 May 2020; Vol. 675, c. 471.]

I would welcome the Minister’s comments on what further work he hopes to do on contribution rates and when he will bring the matter forward to the House.

--- Later in debate ---

[Guy Opperman]

My note says early next year. I cannot elaborate further than that but I will write to the right hon. Gentleman before Report and set out in more detail the precise position in respect of the timetable and when we are expecting that to go.

Finally, I turn to new clause 12. I was not aware that it had been selected, so my response to it will be relatively limited. I know the organisation that is in favour of the proposal, but the best argument against it is that the Law Commission, which is definitely not Government and is an esteemed body, looked at this particular point on two occasions, and rejected it both times. There are reasons why. It takes the view that while it is entirely right and proper for the likes of ESG to influence investment, the individual decision-making processes of the trustees should not be influenced as is proposed by the proponents of this argument. I bow to the Law Commission on that, and it is certainly not DWP policy to take that way forward.

There is, however, a current requirement on trustees to disclose, via their statement of investment principles, how they take into account members’ views. Giving trustees the option not to follow those views, which may be from a subset of members, is appropriate and flexible. The regulations already allow trustees to consult members, ensuring that investment decisions are taken in the interest of the membership as a whole, and not driven in one direction by a small cohort of highly engaged individuals. I accept that there is a balance—the Law Commission took this view—between members being allowed to have their say and being involved in the process and a small cohort of particularly active members dictating a policy that would apply to the many. With respect, I rely upon the Law Commission in this, and invite colleagues to withdraw the new clause.

I think I have addressed all 11 new clauses and my voice is beginning to go. If I have not done so or have misspoken, because—as the Committee is aware—I am not able to take notes saying, “Minister please correct that for the record”, I will undertake to do that, as I will throughout this process. I therefore invite colleagues to withdraw the new clauses, except for those that they wish to put to a vote.

[Neil Gray]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 5

Review of automatic enrolment

“(1) The Secretary of State must, by regulations made by statutory instrument, make any amendment to, or repeal or revoke any provision of, this Act, the Pensions Act 2008 or any other primary or secondary legislation in order to implement the recommendations of the Automatic Enrolment Review 2017.

(2) Any regulations made under subsection (1) must be laid before Parliament within six months of the day on Royal Assent is given to this Act.

(3) No regulations shall be made under subsection (1) unless a draft of the regulations has been laid before, and approved by, a resolution of both Houses of Parliament.

(4) Before the end of a period of two years from the day on which Royal Assent is given to this Act, the Secretary of State must lay before Parliament the report of a further review of the operation of automatic enrolment.

(5) The report under subsection (4) must make a recommendation as to whether the Government should bring forward further legislation to implement the findings of the review.”—(Seema Malhotra.)

This new clause would require the Secretary of State to implement the recommendations of the Automatic Enrolment Review 2017 and require a further review of automatic enrolment within two years.

Brought up, and read the First time.

Question put, That the clause be read a Second time.