Pension Schemes Bill [HL]

Viscount Eccles Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Viscount Eccles (Con)]

My Lords, it is a pleasure to follow my noble friend Lord Flight. He mentioned equity release, and about 20 years ago he assisted me with a major chunk of equity release when I moved from a house into a flat. I am very grateful; it certainly eased my way to comparatively old age.

Of course, I come from the defined benefit era. I would have had an interest to declare, being trustee and chairman at various times of several pension schemes, and I have a SIPP—probably about the purest money purchase scheme you can possibly have. There are no contributions from anybody else except the Chancellor of the Exchequer and the taxpayer, and those contributions were immensely welcome.

I will concentrate on Part 1, which is welcome. The pooling of assets has a very long history, all the way back to tontines. It is a framework Bill; I suppose we have become quite used to framework Bills. Yes, there are a lot of regulations—about 30 in Part 1. Only one of them has a “must”—most have a “may” and some are silent—so I suppose we can take some guidance from the master trusts Act, which was on a similar scheme, and from my noble friend, whom I welcome on the Front Bench. She has just arranged to send a 120-page document to the Delegated Powers Committee setting out all the proposed regulations and the reasons for them, so I am sure we will return to that and find out more about how this part of the Bill will be implemented and over what time.

There seem to be a lot of people involved: predominantly the employers in this case; the union; the trustees; the members; the Secretary of State with his many powers, some of which I suspect are to be held in reserve—sort of “if it happens” powers—the Pensions Regulator; the Financial Reporting Council; the Institute and Faculty of Actuaries; the Money and Pensions Service; and potentially the Prudential Regulation Authority. I hope these bodies do not trip over each other. I rather agree with the noble Lord, Lord Hutton, that there is quite a possibility that they will.

I will concentrate on the actuary, a shadowy body not much mentioned in the Bill and not much referred to in this debate. I have a memory; of course, as my noble friend Lord Young of Cookham may find out, memories are quite risky. I recall an actuary saying to a board of trustees, which then informed the employer: “You don’t have to make any more contributions for a considerable number of years.” This was in a defined benefit scheme, and its investment experience had been very good. However, some short period afterwards, the same actuary came and said: “Things have changed. Not only do we need to continue with contributions, but I want a one-off special contribution from the employer.” The reason was that outside intervention had entirely altered the business plan of that organisation and put it in a completely different position. If it had not been for the professionalism and strong-mindedness of the actuary, the correction might never have been made.

Of course, in those days and perhaps—I do not know —even now, sometimes employers agitate for positive changes. It may be that they would like the rules of the scheme improved because they see it as a recruiting tool. They go to the trustees, who go to the actuary, and the actuary says: “I hope you all realise how much this will cost and what this might mean to the contribution rate.” That applies in defined benefit schemes.

As has been much referred to today, all sorts of negative things may happen that the actuary has to assess and report on. The actuary’s job is complex, important and difficult. In the Bill, the two phrases he has to bear in mind as he gives his advice to trustees are

“the available assets of the scheme”

and “the required amount”. In those few words, you have what he has to try to do—and, of course, he is doing it over a very long timescale.

I admit that I have been a member of a pension scheme for 65 years—not the state pension scheme but a private one. I have no intention of doing so, but if I were—rather belatedly—to marry somebody 30 years younger than me, I suppose the timeframe would become 100 years in today’s circumstances. That is a very difficult period of time for anybody to deal with when they sit down to work out

“the available assets of the scheme”

against the rules of the scheme, and “the required amount”. In that period, there are huge social changes, enormous economic changes and all sorts of unexpected events.

Although sometimes things can be done positively with the rules of a scheme, sometimes you run into negative circumstances such as a market disappearing. Let me cite deep-mined coal as an example. All the firms that used to supply a lot of equipment to the deep coal mines of this country no longer have a market in this country. In these circumstances of rapid and complicated change, there is always tension between the employer, the trustees and the actuary. The actuary is in the most difficult position of the three, because he is a paid servant of the trustees and has to nerve himself on some occasions, I suspect, to convey some of the news that he needs to convey as he does his professional calculations.

Recently, there has been much comment and criticism of the present arrangements for actuaries. Following a report written by Sir Derek Morris in 2005, action was taken and a memorandum of understanding entered into between the Institute and Faculty of Actuaries and the FCA. That is coming on for 15 years ago, and in 2018, a powerful report was produced by Kingman, who said that the memorandum of understanding is not going well. He made radical proposals for reform, in the sixth chapter of his report, entitled “Other Matters”. It is quite short, but he thinks that the system for regulating the actuaries and for taking responsibility for measuring their performance should be moved from where it is now to part of the Bank of England. In response to Kingman, the Government said—motherhood and apple pie—that they would reflect on these recommendations and bring forward proposals in due course. Will my noble friend on the Front Bench tell me where this is getting to?

My experience, as a trustee of pension schemes, is that the actuary was the most important person, and the one with whom I spent most time to assess whether or not our scheme really was in a circumstance with which we could be content for the time being—and only for the time being. It seems to me that there is a strong argument for saying that the actuaries are unlikely to be in the best place at the moment to discharge their complicated responsibilities and ensure accountability for performance. I look forward to hearing why this has not been included in this current pensions legislation—2018 is a fair time ago. What is the Government’s intention?

Pension Schemes Bill [HL]

Viscount Eccles Excerpts

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

[Baroness Janke]

My Lords, I support the amendment. My noble friend Lord Sharkey raised this matter at Second Reading and in subsequent briefings. I alluded to transparency earlier; there is also the issue of accountability. We have heard about the recommendations of the DPRRC. I note that the Constitution Committee agrees with the DPRRC that the use of Henry VIII powers is inappropriate in this Bill, regrets the inclusion of skeletal provision and notes that

“complexity is not an excuse for taking powers in lieu of policy development”.

It is an august committee, so we should treat its recommendations seriously. I support the amendments and would like to the hear the Minister’s response to the recommendations of the DPRRC.

[Viscount Eccles (Con)]

My Lords, perhaps I might make a general comment. I support the way in which the noble Lord, Lord Sharkey, introduced his amendment. This is a problem with framework Bills. Why do we have framework Bills? It is because we do not know the answers to the problems posed, in this case by a particular kind of pension scheme. The results, if the Bill goes ahead as it is, will be quite worrying. I would not wish to be a trustee of this pension scheme. Why not? Because I would not have any powers. At any time, my efforts to play a proper role as a trustee of this pension scheme could be upscuttled by the Government changing their mind and introducing another piece of secondary legislation. All the fundamentals of this pension scheme—particularly in Clause 18, which the noble Lord referred to—are entirely in the hands of the Government of the day.

We have talked about all sorts of things that I am also thinking about from the point of view of the trustee. As a trustee, it would be my responsibility to try to ensure I had some sort of capital buffer, if I needed it. I would have to talk to the employer in a way that would give me some chance of success. With the Bill as it is now, the position of trustees is impossible or near to it.

--- Later in debate ---

[Baroness Altmann]

I support my noble friend’s proposed amendment. He has raised an important issue here. Once again, it is about pre-empting a problem that we have seen elsewhere and not importing it into brand-new legislation. The pause order and triggering events that might permit some protection against people transferring out inappropriately will arise only if the scheme is in trouble and the regulator has already picked that up. That will be a number of steps down the line.

I wholeheartedly agree with what my noble friend said. Before transferring out of a defined benefit scheme, one is required to take advice if one is losing a meaningful lifelong potential income—not guaranteed, but potential. That protects members and potentially the scheme. If there are risk margins in transfer values, members should also have somebody talk them through what they might imply for them. Given that the aim of the CDC scheme is to deliver a lifetime pension, having the same requirement for advice as we already have in defined benefit schemes does not seem overly draconian. I am not saying this is necessarily the right wording or optimal route for a CDC scheme, but the aim of this amendment to protect members has merit. I would be grateful if my noble friend and the department might consider introducing it.

[Viscount Eccles]

My Lords, I say in support that, if I were a trustee of a pension scheme, and one, two or more people wanted to transfer out, I would be extremely unhappy if they had not taken independent financial advice. I would see that as a necessary condition of coming to the deal that we were possibly coming to.

[Lord McKenzie of Luton]

My Lords, we should thank the noble Lord, Lord Young, for bringing this amendment which, as he said, mirrors other aspects of pensions legislation. I was unclear whether this sits alongside the pause and triggering events or would supersede it. I hope the former, as it would be the quickest and easiest way to deal with it. Intrinsic to the wording are challenges that have been met in other pension environments about how to deal with or define “advice”, “adequate” and all that, but it is not beyond the wit of noble Lords to cover that off.

Pension Schemes Bill [HL]

Viscount Eccles Excerpts

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

[Earl Howe (Con)]

My Lords, I am grateful to all noble Lords who have spoken to this group of amendments. Perhaps I can start by addressing the questions raised by the noble Baroness, Lady Sherlock, in the context of the issues posed by the Constitution Committee. I appreciate the points she and the noble Baroness, Lady Drake, made on this. The Constitution Committee raised the skeletal nature of the provisions in this part of the Bill and sought clarification on how, and by whom, some of the powers might be exercised. Notwithstanding that, as I have pointed out previously, the committee accepts the need for some of the powers, even if in skeletal form. The noble Baroness was kind enough to concede that.

The noble Baroness picked me up on the distinction I made last week between policy and policy implementation. The policy in this area is developed: we are clear about what we want to achieve and what needs to occur for that to happen. There was a full and thorough government consultation. Following that, a government response was published and our policy aims were set out. As we have made clear throughout this process, further work on the technical development must be carried out and in due course, we will bring forward the affirmative regulations that provide much of the detail that noble Lords seek.

I would like to explain why it was necessary to bring the Bill forward at this point. The noble Baroness asked me why we think dashboards are a good thing. In our government consultation, there was overwhelming support across consumer groups, individuals and industry for our proposal to introduce a legislative framework in order to,

“deliver dashboards within a reasonable timeframe”.

Our experience over the past five years of trying to make progress on this matter—a long time, as noted by my noble friend Lord Young—is that without the clarity of our commitment brought by legislation, it would prove impossible to bring together the industry in a way to develop the service that consumers require and have said they want.

We have asked the industry delivery group, under the guidance of the Money and Pensions Service, to develop the infrastructure required to provide dashboards by working with a range of stakeholders, including pension scheme providers. This process will inform the content of the delegated powers. The alternative approach would be to table a Bill once all the technical work has been completed but, as I have just outlined, we would struggle to get industry to engage with us to enable this technical work to complete. We took the view that that course of action would be impractical and simply further increase the time that consumers need to wait for a dashboard service.

I am the first to recognise the Constitution Committee’s reservations about the use of delegated powers but, in this instance, we consider their use to be entirely appropriate and in keeping with the committee’s suggestion that they meet “an exceptional justification”. As to that justification, the reasons for the nature of the delegated powers are fully set out in the delegated powers memorandum. This recognises the need for a degree of flexibility while creating a digital service solution in order to ensure that the service provided remains up-to-date, secure and accurate. Technical requirements and user needs change and the legislative framework needs to be able to adapt at pace to meet those requirements.

The committee also referred to Clause 118 and asked the Government to explain who might be prescribed by the Secretary of State as someone who can publish standards, specifications or technical requirements for a qualifying pensions dashboard service. Pensions dashboards fit with wider government aims to give consumers access to and control over their own data, particularly across financial services. The Government’s approach is therefore to ensure that dashboards are fit for purpose over the long term, which includes recognising that ownership of the dashboard infrastructure and responsibility for the setting of standards may need to change over time, as explained in paragraph 1.364 of the delegated powers memorandum. It is not possible to set out now who might be asked to take on this responsibility in future, nor to state now the mechanisms of accountability to Parliament. That would need to be determined according to the circumstances but, as we have already set out, such changes will occur within the wider legislative framework, which offers multiple layers of consumer protection.

[Viscount Eccles (Con)]

Perhaps I should already know this, but will it be possible, in the additional technical work, for an individual to decline to have the information about his or her pension position put on to a dashboard? If past history is any guide, some people will always prefer not to join such a system. They might feel that they do not need it. Therefore, I express the hope that it will be possible to opt out.

[Earl Howe]

It will be entirely up to the consumer to decide whether they wish to have a dashboard showing all the information relating to their pension entitlements. Nobody will be forced—

Pension Schemes Bill [HL]

Viscount Eccles Excerpts

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

[Lord Naseby]

My Lords, as a trustee of the Parliamentary Contributory Pension Fund, I see it as my duty to take into account anything that may have an impact on the long-term financial performance of the fund and on Members’ pensions. I expect to communicate that to the membership in our annual report, or alternatively when requested.

I do not wish to comment on any of these amendments in detail, but I particularly warm to Amendment 75 from the Government, which seems entirely appropriate.

[Viscount Eccles (Con)]

My Lords, the noble Baroness, Lady Bennett, opened the debate on this group with a request for more detailed information from collective money purchase schemes, particularly on the environment. That is entirely right and very appropriate when we move on to Clause 124, which is quite another matter. It builds on the 1995 and 2004 Acts, which refer to injunctions on trustees to produce statements of funding. That is a wide request; one can imagine all sorts of matters that trustees would wish to put into their statements.

It is not the same thing at all, however, as focusing on the risk of climate change, which is a much more accurately aimed request. The change risk, of course, is against the background that climate change, as in the use of the English language, is neutral, but I do not think that that is what we have come to mean by climate change. We should be careful not to use language inaccurately. I think that what we really mean is man’s contribution to, or effect on, the climate and what actions the world’s population have taken that affect the climate. That is considered in general to be something about which we should be very concerned. When it comes to considering the environment, who can avoid being incredibly concerned?

In the Government’s approach to how to deal with this matter, climate change is defined in the Bill as relating to Paris, its two-degrees limit on the rise in temperature from pre-industrial periods and other climate change goals. This is potentially a demanding and widely drawn comparison with things that have applied to trustees to date. We have to take care in our expectations of what it is reasonable for trustees to decide as they carry out their role in the interests of their members. They rely very heavily on advice. Their actuaries, who are often rather disregarded figures in the world of pension management and in our debates on pensions, have a wide knowledge of what is going on in pensions as a whole and why it is the way it is.

Trustees have to take very professional investment advice, of course. Like my noble friend Lord Balfe, they may decide that trackers are the best thing for them, but in many schemes, the investment decisions will be very detailed and always based on advice. Those advisers—the investment industry as a whole—can safely be assumed to know that there are huge issues relating to climate change and the environment, so their advice will be shot through with that understanding. Of course, there is also in the life of the trustees the employer, who can also be judged as knowing what is going on and understanding how he would like to see his trustees view these complicated matters.

Noble Lords should rest assured that these are complicated matters. It has been a long time since I was a pension trustee; nevertheless, there was always a huge debate about how to balance your portfolio, what to hold in it and what not to hold. The environment is not a thing for the future, of course; it is a thing for today. It is already part of our life; it affects our daily lives, to the extent that the world is already warmer. Those effects are connected to the temperature that we experience and the environment in which we live. When we come to consider the responsibilities of trustees to their scheme members, however, we need to be a bit cautious about how far down this complicated road we expect trustees to go when their members will be much more focused on their daily lives than on the way in which the powers that be are tackling these very difficult issues.

The Government’s stall is set out in Clause 124 and Amendments 75 to 78, which contain discretionary powers. They leave the opportunity to observe events and gauge responses to the problems we face before taking too much action, and they leave flexibility, as in their reference to other climate policies.