I beg to move, That the Bill be now read a Second time.
Let me start by placing the Bill in the context of the Government’s overall record on pensions. This Government have delivered radical and much-needed changes to our pensions system to make savings easier, fairer and safer for all. Since 2010 the pensions landscape has seen a revolution not only in state support, but in the ways in which people can save and access their pension savings.
We have removed the default retirement age, helping people to live fuller working lives. That is good for people’s wellbeing and their retirement income, and it benefits individuals, employers and the economy. We have made it easier for them to understand their state pension, and by setting the full amount at £155.65 a week we will lift more pensioners out of means-testing in the future. Together with the reviews of the state pension age, those changes are creating a sustainable system as a foundation for people’s private retirement saving.
We have increased private long-term savings by introducing automatic enrolment. More than 7 million people have already been automatically enrolled into a workplace pension, and more than 370,000 employers have declared that they have met their automatic enrolment duties. This is the cornerstone of our private pension reforms and it reverses the decade-long decline in pension savings prior to its introduction. It is a programme that works and it helps people achieve a more financially secure later life.
I am grateful to the many independent observers who have commented on the success of the policy. The Work and Pensions Committee has recognised that automatic enrolment has been a “tremendous success”. The National Audit Office, reporting on automatic enrolment in November 2016, found that the
“programme is also on track to deliver value for money in improving retirement incomes in the longer term”.
Findings of a report by the Institute of Fiscal Studies, which was also published in November 2016, suggest that automatic enrolment is having a huge relative impact on those with the lowest participation rates in workplace pensions before its introduction, in particular those aged between 22 and 29—a group that has seen a 52.1 percentage point increase in pensions saving—and those in the lowest incomes quartile, who have seen a 53.9 percentage points increase. Moreover, the institute found that automatic enrolment is having an effect well beyond our target eligible group, in particular those earning under the £10,000 threshold, and that some employers are paying above minimum contribution rates.
Women are benefiting, too. In 2011, only 39% of eligible women employed in the private sector were in a workplace pension; by 2015, the figure had increased to 70%. By 2018, we estimate that 10 million workers will be newly saving or saving more into a workplace pension as a result of this change, generating about £17 billion in additional pension saving each year by 2019-20.
The Government’s introduction of pension freedoms in April 2015 allows those aged 55 and over to access their pension savings with more flexibility. People with defined contribution pension schemes can now choose to use those funds in the way that is most suited to their circumstances, whether by drawing down the income, taking out an annuity, taking a lump sum or using some combination of those options. Since the introduction of pension freedoms, more than 1.5 million payments have been made, with £9.2 billion withdrawn flexibly in the first 21 months.
That is the landscape; let me turn to the Bill. Our focus now is to make sure that the regulatory landscape continues to be effective in protecting members so that everyone can have confidence in their pension scheme. Automatic enrolment requires employers, small and large, to provide pensions for their workers, in many cases for the first time. Automatic enrolment is helping to ensure that tomorrow’s pensioners have greater security and an asset base in later life. Many employers have selected master trust pension schemes because they can offer scale, good governance and value for members.
I am grateful to the Secretary of State for giving way and for his earlier comments. Although we may have differences on the adequacy of the Department’s responses to some of the Select Committee’s reports, its response to our report on this issue is immensely encouraging. I think that some Members of the Committee will want to endorse the Secretary of State’s proposals, which implement some of our recommendations to defend the hard-earned savings that many people are making, sometimes for the first time, by auto-enrolment. We do not want the cowboys to get hold of those funds.
I am extremely grateful to the right hon. Gentleman for his words. Throughout his intervention, I was expecting “but” to appear at any moment, and it did not. We can be as one on the matter, and I will seek to improve our responses to future reports of the Committee that he chairs.
I am grateful to the Secretary of State, but—if I may use that word—would he accept that the Bill is a missed opportunity to put right the severe problems in the plumbing and mechanical services industry pension scheme? For example, my constituent Chris Stuhlfelder wants to pass on his business to his employees after a lifetime of work in the industry, but he risks losing the lifetime rewards of that work just in order to secure the pension scheme for liabilities that are not directly his. Will the Minister table amendments to deal with that?
I acknowledge the problem faced by the hon. Gentleman’s constituent and others in the same scheme. The Parliamentary Under-Secretary of State for Pensions, my hon. Friend the Member for Watford (Richard Harrington), has met the hon. Gentleman’s constituent. We are looking, with representatives of the employers and the scheme, to see what we can do about the issues that they have raised, and we are exploring alternative methods to help employers in such schemes to manage their employer debt. The hon. Gentleman will be aware that this is a complex area of legislation, so it is important that we get it right. As I hope he knows, we are on the case.
I really welcome this legislation, but I am not the only one. I do not know whether the Secretary of State is aware of the comments of Morten Nilsson, the CEO of NOW: Pensions, a huge master trust. He has said:
“When we entered the market we were shocked at how easy it was to set up a master trust. It was simply a case of sending a form off to HMRC and The Pensions Regulator, nothing more.”
I am very glad that the Government are looking to address that serious issue.
My hon. Friend raises an important point, which is at the heart of the legislation. The strong and quick growth of master trusts in response to the success of automatic enrolment has been in danger of running ahead of the regulatory system. In the Bill, we are catching up and making sure that the regulatory system is adequate to deal with these trusts, which will be hugely important in 20 years’ time. We hope and expect that auto-enrolment will carry on, so the funds under management will increase hugely in the decades to come. It is really important to have the regulation right from the early days of the new system.
Automatic enrolment requires employers to provide a pension for their workers. It is, as I have said, helping to ensure that tomorrow’s pensioners have greater security and an asset base. Many employers have selected master trust pension schemes because they offer scale, good governance and value for members.
As well as being equitable for employees, will the schemes be equitable for employers? In the past, one of the problems of pooled defined benefit funds was that employers had ongoing liabilities beyond their initial contributions. Will the master trusts include only defined contributions and limit employers’ liability in the longer term, so that it is just an amount that will be put in, rather than an ongoing liability?
The purpose of the regulatory system we are introducing in the Bill is precisely to ensure that there are checks and balances to avoid some of the problems we have seen in traditional schemes. My hon. Friend may be aware that we are about to produce a wider consultation on defined benefit schemes, so some of the problems he rightly identifies will be addressed in that consultation.
There has been very fast growth in the use of master trust schemes. In 2010, there were about 200,000 members in master trust schemes in the UK. By December 2016, there were over 7 million members, and £10 billion of assets in 87 master trusts. The schemes are regulated by the Pensions Regulator in accordance with occupational pensions legislation, but that legislation was developed mainly with single employer pension schemes in mind. The master trust schemes have different structures and dynamics, which give rise to different risks. We have worked closely with the Pensions Regulator and engaged with other stakeholders to see what essential protections are needed. We believe that the measures in the Bill, while proportionate to the risks, will provide those protections.
The Bill introduces a new authorisation regime for master trusts. Under the new regime, the trusts will have to satisfy the regulator that they meet certain criteria before operating, or achieve those criteria if they are already operating. The criteria have been developed in discussion with the industry, and they include the same kind of risks that the Financial Conduct Authority regulation addresses in relation to group personal pensions, with which master trust schemes have some similarities.
Master trusts will now be required to demonstrate five things: that the persons involved in the scheme are fit and proper; that the scheme has financial sustainability; that the scheme funder meets certain requirements; that the systems and processes relating to the governance and administration of the scheme are sufficient to ensure that it is run effectively; and that the scheme has an adequate continuity strategy. The Bill sets out these criteria so that it is clear to master trusts and other stakeholders what the new regime will entail. Schemes will have to continue to meet the criteria to remain authorised. The regulator will also be given new powers to supervise master trusts, enabling it to intervene where schemes are at risk of falling below the required standards.
The Bill also places certain key requirements on master trusts and provides additional powers for the regulator where a master trust experiences key risk events, such as the scheme funder deciding to withdraw from its relationship with the scheme. The Bill requires a scheme that has experienced such an event to resolve the issue or to close. This requirement, along with the regulator’s new powers, supports continuity of savings for members, protects members where a scheme is to wind up or close, and supports employers in continuing to fulfil their automatic enrolment duties.
On the introduction of the Bill in the other place, the Pensions Regulator said:
“We are very pleased that the Pension Schemes Bill will drive up standards and give us tough new supervisory powers…ensuring members are better protected and ultimately receive the benefits they expect.”
In welcoming the Bill, the Pensions and Lifetime Savings Association commented that
“tighter regulation of master trusts is essential to protect savers and ensure that only good master trusts operate in the market”.
It went on:
“This is an important Bill that will provide the appropriate safeguards for the millions of people now saving for their retirement through master trusts.”
As I have said, we continue to engage with stakeholders on aspects of the detail to be made in regulations. We anticipate the initial consultation to inform the regulations will take place in the autumn, and it will be followed by a formal consultation on the draft regulations. Our intention is to lay the regulations during the summer of 2018, and the authorisation and supervision regime is likely to be commenced in full that year.
However, the Bill also contains provisions that, on enactment, will have effect back to 20 October 2016, the day on which the Bill was published. These provisions relate to requirements to notify key events to the Pensions Regulator, and constraints on charges levied on or in respect of members in circumstances relating to key risk events or scheme failure. That is vital for protecting members in the short term and will ensure that a backstop is in place until the full regime commences.
The Bill makes a necessary change in relation to the existing legislation on charges. We are keen to remove some of the barriers that might prevent people from accessing pension freedoms.
I am pleased that my right hon. Friend has come to the section about charges. He will know of the transparency campaign I have been pushing. I am extremely grateful for the efforts that he and the Under-Secretary of State for Pensions, who is sitting to the left of the Secretary of State, have made in introducing more openness into pensions schemes. I should be grateful to hear more on how he will approach that.
I congratulate my hon. Friend on his campaign. Transparency is a key area. Hidden costs and charges often erode savers’ pensions. We are committed to giving members sight of all the costs that affect their pension savings. He asks for more detail. We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system. Greater transparency is clearly one of the steps forward. I completely agree with him on that.
As I was saying, we are keen to remove some of the barriers that might prevent people from accessing pension freedoms. The Financial Conduct Authority and the Pensions Regulator indicate that significant numbers of people have pensions to which an early exit charge is applicable. The Bill amends the Pensions Act 2014 to allow us to make regulations to restrict charges or impose governance requirements on pension schemes. We intend to use that power alongside existing powers to make regulations to introduce a cap that will prevent early exit charges from creating a barrier for members of occupational pension schemes who are eligible to access their pension savings. The FCA will introduce a corresponding cap on early exit charges in personal and stakeholder pension schemes in April this year.
The Government intend to use that power together with existing ones to make regulations preventing commission charges from being imposed on members of certain occupational pension schemes when they arise under existing contracts entered into before 6 April 2016. We have already made regulations that prohibit such charges under new or amended contracts agreed on or after that date. That will fulfil our commitment to ensure that certain pension schemes used for automatic enrolment do not contain member-borne commission payments to advisers.
In conclusion, we believe that the Bill is an important and necessary legislative step to ensure that essential protections are in place for those saving in master trust pension schemes. With many millions of members enrolled in such schemes, it is important that we act now to ensure that members are protected equally whatever type of scheme they are in. The measures proposed in the Bill have been developed in constructive consultation with the industry and other stakeholders, so we have confidence that they are proportionate to the specific risks in master trusts and will provide that necessary protection. In turn, that helps to maintain confidence in pension savings, and particularly in automatic enrolment. By making it easier for people to save through a workplace pension, the Government are building a culture of financial independence and long-term saving.
The Bill will also ensure that people are not unnecessarily dissuaded from taking advantage of the pension freedoms by high early exit charges. The Government have given people greater flexibility to take their pension savings, rewarding those who have worked hard and saved for their future. This is a focused Bill that specifically concentrates on the action we must take to cement the reforms we have already made, and I commend it to the House.
I thank the Secretary of State for outlining the content of the Bill. In addition, I pay tribute to my colleagues in the other place who have already scrutinised the Bill.
The Opposition recognise and support the need to ensure that there is adequate regulation for master trusts as they have developed since the introduction of auto-enrolment, but the point made about the missed opportunity was right.
As the Secretary of State set out, the Bill focuses on defined contribution occupational pension schemes alone, defining regulation of master trust schemes which provide centralised workplace pension funds for several companies at the same time and have largely emerged as a result of the development of auto-enrolment in pensions. It gives the Pensions Regulator responsibility to authorise those schemes that meet certain criteria. It also provides for a funder of last resort in cases where a master trust fails. Sadly, this is something we hear too much about with too many other pension schemes. Finally, the Bill gives the Pensions Regulator the ability to withdraw authorisation from a master trust and sets out the criteria for triggering such events should a master trust face difficulty.
As I said, the measures in the Bill are slightly overdue. In April 2014, it was estimated that master trusts accounted for two-thirds of people who had been auto-enrolled. Master trusts operate on a scale that is unprecedented in occupational pensions and most are run on a profit basis. Currently, however, they are not subject to the same regulation as contract-based workplace pensions. There is no requirement for a licence to operate and limited barriers to entry. There is also little guidance on who can become a trustee and no infrastructure in place to support the wind-up of a failed trust.
Given that the savings and pensions of millions of employees and their employer contributions are at risk, we cannot allow this to continue. We support the Bill, which is vital to putting the auto-enrolment system on the strongest possible footing, but we will look to strengthen it where we can, for example by building on our amendment on the funder of last resort. By protecting members from suffering financial detriment, while promoting good governance and a level playing field for those in the sector, the Bill should ensure that the system is a secure and trusted means of saving in the future.
Before I come on to specific elements of the Bill, I would like to expand on how disappointed I am, and how millions of others will be, with how limited the Bill is. Perhaps the Secretary of State will surprise us, but I think this is likely to be the only pensions Bill in this Parliament. Significant issues are already arising relating to both state and occupational pension provision. It is therefore disappointing, if we are to see no other Bill, that those issues are not being addressed.
One key issue is that of the WASPI women: the Women Against State Pension Inequality Campaign. These women, and some men, have been left behind by the Government’s poorly managed accelerated equalisation of the state pension age. Over 2.5 million women born in the 1950s made their plans for retirement only to find that their retirement age had been quietly pushed back by the coalition Government.
Order. I gently remind the hon. Lady that we are discussing what is in the Bill, and not what is not in the Bill. It is quite a narrow Bill.
I am grateful to you for reminding me, Madam Deputy Speaker. It was a debating point in the House of Lords. As I said, it is not likely that there will be another pensions Bill in this Parliament, so I hope you will give me some latitude.
There was a hope among some of us on either side of the House that the Bill might be blocked tonight, temporarily, until we got justice for the WASPI women. Unfortunately, as I understand it, Labour was not willing to do that and the Scottish National party in particular was not willing to do that, as they are pleased with the Bill and want it to go through. May I make a plea to my hon. Friend that, should the next pensions Bill come, as it assuredly will, and before all the WASPI women are taken up to the new state retirement age, Labour thinks tactically about trying to get them justice, rather than merely talking about it, as I have to?
I am grateful to my right hon. Friend for his remarks. We recognise the importance of the Bill in tightening the regulation—or lack of it—on master trusts and the vulnerability that that lack places on the millions of people who are being auto-enrolled. It is therefore important that the Bill goes through. My point is that if it is the only pensions Bill in this Parliament, it has serious omissions. Those omissions should be on the record, as should our objection to the fact them. If I could just have a few moments to mention—
Order. The hon. Lady has made the point that she feels those issues have been omitted, but they are not in the Bill. If she could now move on, I would be very grateful.
I am grateful for that ruling, Madam Deputy Speaker. Although we have made significant improvements in terms of pensioner poverty, I have to say it is a disappointment that there are still outstanding problems. Under our pension system, of which we should be guardians, one in seven pensioners still unfortunately lives in poverty. We are the fifth richest country in the world, so we should be able to ensure that our pension system provides dignity and security in retirement. Currently, it does not. For me, this a significant failure of our pension system and highlights a particular failure in the Bill.
I could also talk about the missed opportunities surrounding the Cridland review of the state pension age, which has not been brought to this place, and there are lost opportunities when it comes to the defined benefit Green Paper. It was due later this year, but it has now been decided that it will not be brought to this place for scrutiny in connection with this Bill.
I will move on, Madam Deputy Speaker, because I know I am testing your patience. [Interruption.] That is a bit unkind. Closer to home and in relation to the Bill, it does very little to build—[Interruption.] Do any Conservative Members want to intervene? Okay, I will carry on.
The Bill does very little to build on the success of Labour’s auto-enrolment policy by ensuring that saving into master trusts is accessible and encouraged for a number of groups currently excluded from auto-enrolment provision. I recognise that the Government have announced a review of auto-enrolment, but again, why is this not in the Bill?
Let me speak briefly about the issue of low-income savers’ access to saving in master trusts. Under the policy of auto-enrolment developed by my party, working people would be automatically enrolled in a master trust scheme once their earnings cross the trigger of just over £5,000. The logic of this proposal was that people would begin to save towards an occupational pension at the same earnings level at which they began to pay national insurance contributions. The coalition Government increased this earnings threshold to £10,000, denying millions of low earners the automatic right to save towards a relatively low-cost occupational pension through a master trust. Given the generational crisis developing in our pension system, we believe that more needs to be done to include low earners in savings provision and encourage retirement planning.
That is also true for the self-employed. Self-employed people currently make up to 15% of the workforce, and since 2008 have accounted for over 80% of the increase in employment. There is much evidence to suggest that the self-employed are not saving as much as other sectors of the workforce. Research by the Association of Independent Professionals and the Self-Employed found that four in 10 self-employed people did not have a pension. Despite that worrying evidence, there is little obvious means by which a self-employed person could begin to develop a savings pot within a master trust. Once again, this is not sorted out in the Bill. There are other examples, such as people with multiple jobs and carers, of those who do not have access to, and the benefit of, an occupational pension scheme.
The Secretary of State has just announced that there are gaps in the Bill, relating to its failure on a number of different issues. We are shocked by the vast amount of detail missing from the Bill, when that detail is necessary to achieve what the Government have set out to do. The Secretary of State mentioned that secondary regulations will not be laid before the end of the year. Once again, the Government are, in respect of some important protections, presenting a skeleton Bill, with much of the detail left to secondary legislation.
Although we generally support the Bill, despite its narrow scope, there are a few aspects that we will look to strengthen and a few gaps that we believe need to be plugged. These can be considered broadly under three themes: improved governance, strengthened member engagement and greater transparency. The Bill includes a number of clauses that provide a framework for the effective governance of master trusts. We welcome, in particular, the authorisation criteria set out in the Bill. However, it does not address a number of core principles, the first being scheme member representation.
Unlike defined benefit schemes, defined contribution schemes provide for the risk of saving and investment to be borne by the scheme member. On that basis, we believe that scheme members should be represented among the trustees of master trust pension funds. It is, after all, their money, and they have a direct interest in ensuring that a sound and sustainable investment strategy is delivered at good value. That surely stems from the basic democratic principle that those on whose behalf decisions are being made should have a say in those decisions. It would also be a necessary step towards greater transparency in the pensions system, which the Under-Secretary of State for Pensions himself confirmed that the Government would pursue following Labour’s campaign.
Furthermore, providing for a certain number of member-nominated trustees would not be a particularly new or unique arrangement. Mandated member representation already exists in the pensions system: trust-based pension schemes are required to ensure that at least a third of the board of trustees is member-nominated. Why should master trusts not be subject to the same requirement, especially in the light of the increased risk borne by scheme members?
Let me say something about transparency. For too long, people have been encouraged to put their faith—and, perhaps more important, their money—in a distant savings pot, and have been given very little information about where the money is invested, the performance of their savings, and, importantly, how much the investment is costing, in terms of the costs and charges that they will incur. Neither the scheme trustees nor the scheme members have been able to ascertain adequately whether they are getting value for money. I remember that in 1915, the former Financial Secretary to the Treasury promised the Work and Pensions Committee that if there was not openness about costs and charges, the Government would introduce legislation. Well, it has come a little bit late. Why has it taken so long?
In almost any other market, people wishing to purchase goods or services are given basic information about performance and costs before they do so. That basic principle is a necessary requirement to ensure that they receive value for money, but it is not operating in our pensions system. The Financial Conduct Authority has therefore published an interim report, which recognises a number of significant failings in the competitiveness of the asset management market. Its recommendations have important implications for the transparency of pension funds, especially in relation to the costs and charges being extracted from pension savings by investment managers.
We are pleased to see that part 2 of the Bill attempts to prevent excessive fees from being applied should a scheme member wish to take advantage of the Government’s pensions freedom reforms. However, the Bill does not refer to transaction costs, the charges applied by asset managers when they are making new investment decisions. There is a great deal of work to be done to tackle the problem of opaque and excessive costs and charges being extracted from workers’ savings by investment managers. Currently, the Bill merely scratches the surface. It must become a stronger vehicle for change in this regard.
We believe that, alongside member-nominated trustees, a member engagement strategy is required to ensure that master trusts are communicating properly with those whose money they are investing, and that they play their part in driving informed saver choices on a bedrock of transparent information. The Pensions Regulator’s voluntary code of practice for defined contribution schemes asks trustees to provide “accurate, clear and relevant” communications for scheme members as good practice. We believe that proper member engagement should not merely be a voluntary requirement placed upon trustees, but should form part of the regulatory framework. That would help to ensure that scheme members can make rational and informed choices about their pension savings, creating a more sustainable system.
There are other elements in the Bill whose purposes we want to strengthen or clarify: for instance, the definition of the scope of a master trust, what happens to non-money purchase benefits under this Bill, a number of issues relating to the pause clause, and the status of the scheme funder as a separate entity.
We welcome the Bill, but we see it as a wasted opportunity. So much is being introduced after the event. There will be no opportunity for another pensions Bill; the provisions will be delegated to statutory instruments.
How do you know?
That is what we have been told. That is what we have been led to believe by the Government. Given how long overdue this Bill is, this is likely to be the only opportunity that we have to raise this, and it should have been brought to this House.
We need to develop a sustainable and secure pension system that drives down pensioner poverty and delivers dignity in retirement for all, and I am afraid that this Bill falls well short of that.
It is a pleasure to follow the hon. Member for Oldham East and Saddleworth (Debbie Abrahams). It is probably a fair sum-up to say that we might have liked the Bill to address most of the things that she complained about and most of the things that I might not like, rather than the measures actually in it, which I think get a broad and generous welcome. None the less, this is a necessary Bill that contains the right measures, and we hope it will have a speedy passage through this House.
I want to start by saying that the master trusts, or the more extensive use of them, are a welcome development in the pension landscape. It is hard to see how auto-enrolment would have worked if we had not had the extensive use of master trusts, because what we would not have got is especially small employers setting up their own pension scheme and trying to manage and administer it, or at least act as trustees of it. What we had to see in this situation was much larger trusts in the market that employers could effectively sign up to but not incur the ongoing costs and complexity of trying to be involved in their day to day running. So these things are attractive, but it is right that we make sure they are well regulated and we do not create situations where savers are disadvantaged by them.
It is probably quite brave in the pension world to have tried voluntary regulation or self-regulation, but that is effectively what we have had since 2014 with the master trust assurance framework. I perhaps should declare a sort of interest. The framework was drawn up by the Pensions Regulator with the Institute of Chartered Accountants in England and Wales, of which I am a member. It is disappointing that, having had that assurance framework in place, so few of the master trusts in the market signed up to it and followed all the requirements. Indeed, very few of them went through the full audit process required. So it was clear that we had to move to full and proper regulation set out in statute for these master trusts.
This is particularly important in a situation where effectively we in Parliament and the Government are perhaps not quite forcing people to save into these trusts, but strongly encouraging that, and two thirds of those who have been auto-enrolled have ended up in one of these trusts. It is therefore key that we make sure they are in high-quality schemes that look after their interests and we do not let them either be ripped off or just be a victim of a poor-quality trust that delivers poor returns. While there has perhaps been no sign of that from the major master trusts, anyone who has experience of the pensions industry will know that if we do nothing they will eventually become a problem. So it is absolutely right that the measures in this Bill ensure that trusts are set up and operated by people who have the skills and expertise to do that, and that there is a process for managing trusts, checking their performance, and making sure no issues arise as the years go on. That is because it is not realistic to think that either the employers that have signed up their employees for these schemes or the members themselves will have the skills, the ability, the time or the inclination to be doing that ongoing monitoring. That needs to be done by qualified people. That again is an advantage that master trusts have over insurance-based products. There are some skilled people here whose job is to represent the members. The advantage of having a trust is that there is at least that protection: when decisions need to be taken, there are some people who should have the right skills to act in the savers’ interests.
It is timely to be moving forward with these proposals as we suspect that by the time we get them fully in place we will have completed the first phase of auto-enrolment. We might find in the industry that people have set them up but do not have the number of members they thought and therefore not the level of income they thought. Perhaps the charge cap means that they do not have the income to be sustainable, or perhaps the changes that give people choice when they retire mean that they will not hit retirement date and then move their money into an annuity—that they will just leave the pot and not draw it down for a while. That would still be a cost on those schemes which needs to be addressed.
My hon. Friend is making the important point that we have to avoid zombie funds being created as a result of the master trusts, and one way of doing that is through the role of the Pensions Regulator. Does my hon. Friend agree that the fact that a master trust will have to prove that its business model is sustainable is key to that interaction with the Pensions Regulator?
Yes, that is the point I was trying to make. Even master trusts that have been set up entirely properly and with the best of intentions could find, by the end of auto-enrolment, that they were not going to be viable in the long run. We need to ensure that there is a clear, well managed route so that, rather than having zombie funds sitting around delivering a poor return, we can get them moved into the higher quality, better performing ones. We need to ensure that this market works for everyone.
One element that people might not have considered is that we have not yet found a solution for people who end up with multiple very small pots spread across the landscape. I suspect that that could present a cost to the system that we will want to manage our way out of in order to create a sustainable situation. Overall, master trusts are a good thing, but they will need to be well regulated if they are to create confidence in the system and ensure that savers do not get a bad deal.
There are a few other things that I think I can just about sneak in as being within the scope of the Bill. We have ended up with slightly different arrangements for master trusts and insurance-based products, and I wonder whether it is sensible to have so many different regulators in the industry trying to do the same thing. Should the Pensions Regulator really be responsible for regulating all pension schemes, however they are structured, rather than letting the Financial Conduct Authority do some? Should we try to get equivalence between schemes that are trying to do the same thing but end up having subtle differences? Perhaps it would be better to say to all savers and all members of pension schemes, “Your scheme is regulated by the Pensions Regulator. Yes, there will be a cut-off with the FCA at some point.” That would be better than having uncertainty about who is responsible for which scheme.
Looking at master trusts more generally, there is a need to think through the position in the decumulation phase. The market might already be seeing that master trusts can be used for decumulation as well as accumulation. Decumulation is a very different model, and it is perhaps harder to see the business case for that than for the accumulation phase, with its ever-growing pots and more income. With decumulation, we have ever-dwindling pots and seemingly less income from the fees. We need to think through whether master trusts are intentionally aimed at the decumulation phase where members treat them as a kind of bank account from which they can draw money when they want to. The secret will be to ensure that savers have access to the right advice, and it is a pity that the Bill does not address the future of the various advice schemes, but I am sure that we will get to that at some point. In summary, this is a welcome and necessary Bill, and I am sure that it will be very effective. I look forward to its making progress in the House.
It is a pleasure to follow the hon. Member for Amber Valley (Nigel Mills), who has made some good points about the importance of advice and about the decumulation phase. I hope that we will have an opportunity to come back to those matters at a later stage.
I welcome the Government’s initiative in bringing forward the Bill. A desire to create trust in pensions savings should unite us across the House. We want all workers to be able to attain a standard of living that will be consistent in allowing them to save while in work in order to have dignity in retirement, secure in the knowledge that a regular income from a state pension and a workplace pension will allow them to enjoy their retirement without financial worry and without living in pensioner poverty. In our view, pensions savings are the best way for most workers to achieve that dignity in retirement. We need to deliver the appropriate level of protection for savers, and the Bill is an important step forward in that regard, albeit one that could be enhanced through constructive amendments in Committee.
Given the growth in master trusts and the desire to ensure that we protect savers’ interests, the Bill is overdue in some regards. Auto-enrolment has led to a significant increase in the use of master trusts. The impact assessment published this month informs us that some 200,000 savers were in master trusts in 2010, increasing to 4 million by 2015. According to estimates from the Pensions Regulator, that may now have risen to 4.3 million savers with around £8.1 billion of assets in master trusts. When we take into account the Government estimate that 10 million workers will be in auto-enrolment schemes by 2018 and that they will be saving as much as £17 billion by 2019-20, with the vast bulk of them in master trusts, the need for robust, effective protection is clear.
The master trust market has grown rapidly, with as many as 84 such trusts in operation today. While there are a small number of larger trusts, it is clearly a fragmented market, with risk of failure in certain cases. Indeed, the Work and Pensions Committee called for stronger regulation in March 2016 when it concluded that:
“Gaps in pension law and regulation have allowed potentially unstable trusts onto the market. Should one of these trusts collapse, there is a real danger that ordinary scheme members could lose retirement savings. There is a risk that faith in auto-enrolment as a whole will be undermined.”
That is a stark warning and underscores the requirement to take this Bill forward. We need to regulate to remove the prospect of inadequately resourced schemes collapsing and to offer protection against scammers entering the marketplace. The warning signs are already there. Two small schemes have already collapsed, affecting 7,500 members. It is currently extremely easy for anyone to set up a master trust and accept savers’ funds, and there is no established mechanism for responding to the collapse of a master trust.
The rules of many schemes currently allow the use of members’ funds to wind up a scheme should it collapse. That is simply not acceptable. As a consequence of the Bill, there will be a requirement for master trusts to be approved, requiring minimum standards of trustees and obliging schemes to prove access to capital that can be used in case of wind-up. There has been widespread support for the need for such a Bill. The Pensions Regulator welcomed the announcement of new powers to regulate master trusts and said:
“We have been calling for a significantly higher bar regarding authorisation and supervision, and we are pleased that today’s announcement proposes to give us the power to implement these safeguards.”
The ABI has said:
“We have previously called for tighter regulation of Master Trusts, and are supportive of the proposed direction set out in the Bill.”
The Pension and Lifetime Savings Association welcomed the Bill as
“essential to protect savers and ensure that only good Master Trusts operate in the market.”
I concur with all those remarks.
Some of the Bill’s requirements may have unintended consequences and require further attention. As the Bill represents a significant change in the role of the Pensions Regulator, the Government must ensure that the regulator is adequately resourced to deliver accordingly. Addressing some of the following concerns could go some way to getting the Bill watertight and satisfying the concerns of many stakeholders. My first point relates to clause 8. If a scheme funder is an FCA and PRA-authorised insurer, the ABI contends that it will already have to comply with solvency II and therefore the regulations under clause 8 should not apply as they would be onerous and costly. The Government should clarify whether they have assessed that potential impact and whether the additional regulation adds a further safeguard, making the provision necessary.
Clause 9 requires the Pensions Regulator to be satisfied that a master trust has sufficient financial resources to meet the costs of setting up and running the scheme and to protect members in the event of wind up. A master trust must therefore hold capital equivalent to six to 24 months’ worth of running costs. However, it is argued that there is little clarity over how that provision would be applied. The TUC argues that there is an assumption that other master trusts would have an appetite to absorb a collapsed rival’s book of business, but that may not always be the case, particularly if costs are involved. Some savers are more attractive to providers than others. In the absence of greater clarity over the robustness of the proposed capital regime, the TUC contends that clause 9 should be retained. It was accepted in the Lords and provides that the Secretary of State can
“make provision for a funder of last resort, to manage any cases where the Master Trust has insufficient resources to meet the cost of complying with subsection (3)(b)”
after a triggering event. I would support that as a principle.
On clause 10, concerns have been expressed about the additional costs that master trusts could face, such as those offered by insurers due to duplicated regulation enforced by the Pensions Regulator. The ABI has said that that would be to the detriment of existing scheme members, as these schemes already operate under stringent FCA and PRA regulation.
The key issue raised by the ABI is the definition of a “scheme funder” in clause 10. Concerns centre on the fact that the Government state that the clause is intended better to enable the Pensions Regulator to assess the financial sustainability of the scheme by increasing transparency on the assets, liabilities, costs and income of the master trust. The ABI is concerned that the clause does not meet the policy intent of providing transparency because, as a separate legal entity, master trusts can still transfer risk to other entities.
That issue was raised in the Lords, and the ABI continues to ask that, in order to protect the benefits to scheme members and minimise costs, the requirements under clause 10 should not apply where the scheme funder is an FCA and PRA-authorised insurer. There is also a need for greater transparency on fee charging, which needs to encompass transaction costs as well as any ongoing administration fees.
It is welcome that the Government are placing a 1% cap on exit fees for current members and no exit fee for new members. We know that large fees have been charged on exit in the past, and it is clear that we need to protect savers, although if new members are to be excluded from exit fees why should it be permissible for exit fees to remain in place for existing plan holders?
Under clause 12, at least one third of trustees of single-employer workplace pension schemes have to be member-nominated. There is no such obligation on master trusts. The Bill presents an opportunity to explore member involvement, and I hope we can pick up that topic in Committee.
Clause 32 creates a new power enabling the Pensions Regulator to make a pause order requiring certain activities to be paused once a master trust has experienced a triggering event. That includes accepting new members, making payments, accepting contributions and discharging benefits. There is concern about the impact of a pause order on a member’s savings, as there are no mechanisms in place to allow ongoing contributions to be collected and held on behalf of a saver. It is unacceptable that a member should be penalised and, in effect, lose wages in the form of employer contributions due to events out of their control. The Government should clarify whether they intend to take action to protect savers in that area.
We look forward to clarification from the Government on those issues, and we will work in the next stages, where necessary, to improve the Bill. This is therefore a pressing matter and, on behalf of the Scottish National party, I signal our intent to work with the Government to deliver a Bill of which we can all be proud.
The Bill, however, is a missed opportunity to undertake much-needed major reform of the pensions system, rather than patchwork attempts to plug holes in the system. We need a fundamental overhaul of the pensions system, and the UK Government need to introduce more ambitious plans on pension reform. We are disappointed not to have a Bill that looks at the issues with the state pension, particularly the need to address state pension age inequality for the WASPI women.
Madam Deputy Speaker, I take your comments about the WASPI women but, given that the SNP was traduced by the Chair of the Select Committee on Work and Pensions, I make the point that the SNP has raised the issue of the WASPI women at least 44 times in this House and has commissioned independent research. It is completely disingenuous for anyone to suggest that the SNP has refused to support the campaign. A reasoned amendment to kill the Bill was suggested. However, that would help no one and would only remove the Bill’s helpful regulation provisions relating to master trusts.
I am grateful to the hon. Gentleman for giving way. The plan was not to kill the Bill but just to hold it up for a bit so that we could hopefully highlight the position of WASPI pensioners, for soon they will all be retired and the horror will have been completed. We have no other weapon against the Government, because they have made it plain that they are going to sit out this issue. The Scottish nationalists were not prepared to form an alliance with those of us who want to block the Bill in order to actually raise this issue and perhaps implement the recommendation of a previous Select Committee report.
Order. I appreciate that the right hon. Gentleman is Chair of the Work and Pensions Committee—
I am not going to be speaking tonight.
I also appreciate that he is not going to be speaking in tonight’s debate, but I just want to say that it is a very narrow Bill about something very specific and this is not the forum for discussing all that. People might be very disappointed that we are not debating transport policy, but we are not; we are debating master trusts, so I ask the hon. Member for Ross, Skye and Lochaber (Ian Blackford) to keep just to that. I know he is trying to skim over things, but if he could skim away from other issues and get back to the main point, we would all be very grateful to him.
I will endeavour to skim away, Madam Deputy Speaker. You made the point that this is a narrow Bill, which is exactly why it would have been impossible to amend it to take account of the WASPI case. The right hon. Gentleman should know that an attempt to kill the Bill would have done exactly that, and we do not solve the problem faced by WASPI women by defeating this Bill, which is so necessary to protect pension savers. Frankly, he should be thoroughly ashamed of himself; he does no justice for the WASPI women with his campaign and the remarks he is making.
Let me conclude the remarks I was making. The sheer fact that the Cridland review is currently looking at the state pension age, without looking at the existing problems, limits the ability to learn and develop a more progressive outlook, which could safeguard dignity in retirement for pensioners. Generally, the threat of pensions scams and transfers from pensions to high-risk schemes needs to be urgently addressed. [Interruption.] I have got to the bits I am not allowed to say any more. [Laughter.]
We reiterate our call for the establishment of an independent pension and savings commission to look holistically at pension reform, focusing on existing inequalities and paving the way for a fair, universal pensions system. The entire pensions landscape is in need of fundamental reform, particularly with a pressing need now to review and enhance auto-enrolment. The Government are set to review auto-enrolment this year, but reports seem to suggest there may not be substantial changes from the review, and with many missing out on auto-enrolment we need to ensure that this policy is moved forward. Although 7 million workers have been auto-enrolled, a further 6 million workers have missed out. The Pensions Policy Institute revealed that 3.3 million of the people excluded from auto-enrolment had been excluded because they earned less than £10,000 a year. It also found that three quarters of the employees earning less than the auto-enrolment trigger were women.
We believe that lowering or removing the auto-enrolment trigger would significantly increase the number of people saving through auto-enrolment and in master trusts. It would also go some way to alleviating some of the historical inequalities women face, whereby their occupational pension savings are already well below those of men. There are clear disadvantages here, particularly for part-time and the low-paid workers. For example, somebody earning £10,000 per annum will not benefit from the 8% contribution; they will benefit by only 3.4% because over half the earnings are excluded. Although self-employed workers are growing vastly in number, they have fewer incentives to save. If the Government were to review auto-enrolment sufficiently, they could consider moving to a flat rate of pension tax relief and allowing self-employed people to deduct pension contributions from profits to end the disparity.
Looking at the age at which auto-enrolment is triggered could also be more progressive. Just on 26 January, Zurich Insurance called on the Government to take
“a steady approach to increasing minimum auto-enrolment contributions above 8%”.
While there is an acceptance that the levels need to rise, it must be done in a way whereby workers do not opt out.
In conclusion, I welcome this Bill. It contains much we can support and we will work constructively with the Government to enhance it further. I hope that when the Minister winds up he will join with us in that spirit of consensus.
I hope that Members will forgive me for not going into as much detail as the hon. Member for Ross, Skye and Lochaber (Ian Blackford). My comments will be considerably shorter, which will give people some comfort tonight.
If we are able to have the financial resources in the future to spend on things our constituents rightly take for granted, such as our NHS and our children’s education, one challenge for the Government is to rebalance the economy away from an over-reliance on the state. Where it is possible and appropriate to do so, the individual and their employers should take more responsibility for their future financial security. The national living wage, which was introduced by this Government—and at a far higher rate than that proposed by the Labour party—has helped to shift the burden back on to employers and away from the state, which had found itself topping up wages through in-work benefits. Many in-work benefits did nothing more than subsidise hugely wealthy businesses at the expense of the British taxpayer. With the introduction of the national living wage, employers will now be required to take more responsibility for paying their employees properly.
I see automatic enrolment in a pension scheme in the same way as I see the national living wage. It is a way of helping working people to save for their future and a dignified, funded retirement. Auto-enrolment requires employers to pay into a pension scheme along with their employees, and the Government do their bit by giving tax relief on employee contributions. I expected employers to be less than enthusiastic about auto-enrolment and the additional costs it would mean for their business, but if anything I have found that businesses in my Southampton, Itchen constituency are very supportive. In fact, one business even suggested making auto-enrolment compulsory to ensure that its staff are saving for their future and not choosing to opt out, as up to 50% of them currently do.
As with all legislation, it is sensible to review how auto-enrolment operates in practice and to improve it where possible. The Bill does that. It contains particular provisions on the role of master trusts and those who operate them. Master trusts are the favoured financial product for investing employees’ pension contributions for the majority of small businesses in the UK. Many of them, including the National Employment Savings Trust, operate within the Pensions Regulator’s guidelines and have the quality assurance mark. However, there is widespread agreement that regulation for trust-based pension schemes in general is inadequate. The Bill aims to address that and, in so doing, give comfort to savers and protect their retirement savings.
There seems little in the Bill that anyone can disagree with, although some Members have said that it does not go far enough. We insist that our taxi drivers pass a fit and proper person test so that they can carry passengers, but until now there has been no such requirement on all those who operate master trusts and are potentially responsible for a worker’s entire retirement savings. The Bill will ensure that those responsible for running master trusts have to demonstrate their suitability to do so—not before time, in my humble opinion.
The Bill also requires schemes to prove their financial sustainability—something that most investors would assume was already a requirement—and will give the regulator new powers to supervise master trusts and intervene if a scheme is at risk of falling below the required standards. With more than 10 million workers estimated to be saving in auto-enrolment schemes by 2018 and more than £17 billion of extra workplace pension saving per year by 2020, it is imperative that master trusts, which will be responsible for much of that investment, are more tightly regulated than is currently the case.
Once the Bill is passed, a consultation process will begin. When he responds to the debate, will the Minister inform the House of any specific regulations that will be presented in the consultation document? How frequently will those regulations be reviewed by the Secretary of State?
I can beat the hon. Member for Southampton, Itchen (Royston Smith) on length of speech, because, not wishing to draw the wrath of Madam Deputy Speaker, I have crossed out 95% of my speech.
As the newly elected chair of the all-party group on state pension inequality for women, I feel obliged to say to the Government that they have missed the opportunity to make provision for that women group of women we have come to know fondly as WASPI, although many other pressure groups with different names are also lobbying for the same cause. I have promised those women that I intend to work with every group to fight this injustice and give them a voice. I will come to the Chamber at every given opportunity to speak up for them until they get justice. All they ask for is a simple transitional payment to support them financially until they reach state pension age. I say to the Government that the problem is not going away. The Bill does not do what it should have done, which was look after the WASPI women, and I fear the Government will regret that.
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 ofusb 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.
I have recently taken an interest in the issue of pensions in this House, but I had already had a fair amount of interest in it for a fair amount of time. Despite being a fair distance off the state pension age, or general pension age, I would quite like to have a pension, and so would most people of my age. It is really important that younger people do take an interest in this and think about it going forward. That is one of the reasons this provision is really important. We need to ensure that young people—millennials like me—will have access to decent pensions. The Government did a study that produced results in 2013 suggesting that only just over half of people who are currently of working age will have a pension that will be able to keep up their living standards. That is not an acceptable situation. I appreciate that the Government have undertaken reforms such as auto-enrolment to ensure that those numbers can be increased. We do not want everybody to be hitting state pension age and realising that in fact they cannot afford to do all the things that they intended to do. It is therefore really important to make changes to this.
In order for people to continue not to opt out of auto-enrolment and for it to continue to be as successful as it has been so far, we need to ensure that there is trust in the scheme. People must know that their money will grow at a reasonable rate and that they will get the right amount of money that they expect to get when they hit pension age. In order for that to happen, the Government need to have appropriate regulation in place, because, in the main, people are not by themselves going to read all the clauses and schedules of the regulations that come with the scheme that they are enrolled into. They need to trust that the Government have appropriately regulated these schemes so that if they fail, for example, there is security for them. Otherwise, auto-enrolment will not continue to work at the rate that it has done. It is really important that we have things like the new regulation that is coming through, and that we have recognised the rise of master trusts and how important they are for people who are involved in auto-enrolment.
I am pretty supportive of a lot of this, but I want to raise a couple of things. At the tail end of last year, I held a couple of public meetings in Aberdeen to ask people about pensions, and I was really surprised at the strength of feeling about pension regulation. I was expecting them to talk mainly about some of the well-known issues such WASPI, the frozen pension, and the lifetime ISA, which is not a scheme that I am particularly supportive of because it has far too many shortcomings. I think we are going to see a lot of negative ramifications in future with the change to pension schemes that encourages people to draw down. There is also the fact that people who enrolled in pension schemes before 1997 are not entitled to an inflationary uplift in those schemes. That was brought up a couple of weeks ago in a debate in Westminster Hall. I was also expecting the ever-increasing rise in the state pension age to come up, because I know that people are worried about that. I will not be getting my state pension until I am at least 68, under the current projection.
I was expecting all those things to come up, but in fact the biggest issue raised was the lack of appropriate regulation around some of the private pension schemes that exist. I was really surprised about that, but this is a real issue for people of all ages. People are really worried as a result of high-profile issues relating to schemes not paying out the expected amount. It is important that the Government are increasing trust in pension schemes, so that people of my age know that they will pay out.
For all of auto-enrolment’s many benefits, it has a number of shortcomings. My hon. Friend the Member for Ross, Skye and Lochaber (Ian Blackford) mentioned how it disadvantages women, purely because they tend to be on part-time contracts. There is also an impact on people with multiple jobs, who tend to be on lower incomes; they earn a small amount in each job, so they do not get auto-enrolled. Self-employed people cannot be involved in auto-enrolment, and only 14% of self-employed people pay into a pension scheme. That is not enough. If we expect those people to be able to support themselves when they hit retirement age, more of them need to be paying into a pension scheme and the Government need to make changes to ensure that they are more likely to do so.
Age is another big issue that has not been raised today. People are not auto-enrolled until they are 22 years old, but a number of people are leaving school, starting work and hitting full-time employment earlier than that. If they are enrolled in a pension scheme when they hit 22, they will get a shock and think, “Hang on a second.” If we enrolled them earlier, I think they would be more likely to continue with the scheme. The Government need to look at that big issue.
I appreciate that the Government are continuing to make moves. This year’s Green Paper on defined-benefit schemes will be really important and the review of auto-enrolment will be fundamental. We need to look at how the scheme has worked, because it has been more successful than intended when the Government conceived it. It needs to be looked at with fresh eyes in the light of that.
At present, 24% of people have no pension scheme when they hit retirement age, but as a result of the changes that figure will be only 12% by 2050. That is much better and it shows that there have been positive developments.
My hon. Friend the Member for Ross, Skye and Lochaber and the shadow Secretary of State, the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), have referred to clause 9, which provides a fall-back position in the event of a master trust failing. The issue relates to master trusts that may not be attractive enough to be taken on by other master trusts. The Government could have avoided the situation that that creates. It would have been easier for us to support the clause if, rather than saying that they will introduce the provision through secondary legislation, the Government had outlined their position and given themselves the flexibility to amend it with secondary legislation. As it stands, schemes have to have between six and 24 months’ worth of cash in the bank in order to cover themselves, but there is no clarity on how that would work and it is left to the Government to introduce secondary legislation. If the Government had provided more clarity, this would have been a better Bill and they could have amended it as circumstances changed.
I appreciate being given the opportunity to speak and I thank the Minister for taking the time to meet us last week to give us a briefing, which helped my understanding of the Bill.
I am conscious that some Members may be worried that they will be collecting their pension before we have finished debating the Pension Schemes Bill, but I promise that I will not detain the House long. That is a light-hearted start to a speech on a serious issue. It is a great pleasure and honour to speak in this debate, and to follow the hon. Member for Aberdeen North (Kirsty Blackman), who made the important point that for many years there has been a lack of saving and pension provision in society at large. Members of the public turn to pension saving later than perhaps they ought to have done, and—dare I suggest it?—some Members of Parliament may have done the same. That is what the Bill is designed to address.
This is an important and often neglected policy area, and the Government’s strides towards automatic enrolment have gone a great way towards putting wrong that right. There is a need for further work, however, which the Bill is designed to address. We have heard about the types of master trust available, and I will not take the House through them all again. They are important, particularly for small and medium-sized enterprises. I am made aware of that every time I go around my constituency and meet those in charge of small businesses, of which we have a great many in Witney. Their main concerns are regulation and the steps that they have to go through. Master trusts give them a way to deal with those matters very quickly, because administration costs are pooled and one group of trustees manages a scheme. Not all employers will wish to set up their own scheme, so master trusts help them greatly. As has been said in the other place, master trusts are a neat solution for smaller employers, for whom setting up an individual scheme would be a burden.
We need the Bill, because the previous reforms have led to the master trusts being a great success. So far, more than 7 million people have been enrolled in a workplace pension by more than 370,000 employers, and total assets of £10 billion are being managed. As the programme rolls out to smaller employers during 2018, we expect that to increase so that an estimated 10 million workers will be newly saving, or saving more, in those workplace pensions. That will have generated £17 million per annum in additional pension savings by 2019-2020.
Action must be taken now, because the increased saving is taking place against a legislative and regulatory framework that was designed for 2010, when some 200,000 members were taking part in master trust schemes; now the figure is some 7 million. The regulatory framework was designed with single-employer schemes in mind, but master trusts operate on a different scale and with very different dynamics. The first part of the Bill, which I support, will help to deal with that.
The second part of the Bill deals with early exit charges. In 2014, the Government brought in major changes to pensions, which have allowed 232,000 people to access flexible payments and exercise their right to use their money in the way they see fit. More than 1.5 million payments have been made, with £9.2 billion withdrawn in the first 21 months. Some schemes impose costs on people when they withdraw their money to use as they see fit, and the Bill is designed to address that.
In conclusion, I support the Bill. It will, I submit, increase confidence in saving and confidence in pensions. It will protect savers, and it will enable them to take full advantage of the new pension freedoms that they have been granted by the Government. It is a reforming Bill that amends the existing framework, and it will be of benefit to all. I urge the House to support it.
It is a great pleasure to join in the debate. May I say how nice it was to have two such constructive contributions from the SNP? My friend the hon. Member for Ross, Skye and Lochaber (Ian Blackford) and the hon. Member for Aberdeen North (Kirsty Blackman) spoke from the perspectives of considerable industry knowledge and the view of a younger generation, which were extremely valuable in tonight’s debate.
I rise to congratulate the Government on introducing a Bill with the simple and absolutely correct objectives of providing essential protections for people saving in master trusts and giving those people the same security as members of single-employer schemes. That is the key thing. Many people listening to this debate will wonder what on earth a master trust is. The simple way to explain it is that it is a multi-employer occupational pension scheme. The question that many people will be asking is: why do these things exist in the first place? The answer is of course that they have advantages of scale. That means that small employers do not have to create their own trust; they can join an existing master trust, which can reduce their costs, administration and overall hassle, and that is incredibly important for a small employer.
The downside, unfortunately, is that master trusts do not, as a mandatory requirement, have to pursue the best interests of the scheme members. They can take a purely commercial approach to generating profit. Their trustees do not have to pass the fit and proper persons test, the master trust does not have to be authorised, and there is a question mark over what would happen to the assets in the case of the master trust failing.
For all those reasons, the Select Committee, under the chairmanship of my distinguished colleague the right hon. Member for Birkenhead (Frank Field), looked at this issue in some detail last year. In effect, it made three key recommendations: first, that a pensions Bill should establish minimum finance and governance standards; secondly, that there would be ongoing requirements for master trust schemes and for compliance; and thirdly, that there should be measures to protect member assets in the event of a master trust winding up.
The report, which was written last May, was accompanied by a letter from the Chairman of the Select Committee to the Chancellor at the time, asking him to make sure that there would be a pensions Bill in the Queen’s Speech. To be fair, the Government have delivered precisely that. In fact, the previous Pensions Minister said she wanted a pensions Bill to provide stronger regulation of master trusts, and the current Parliamentary Under-Secretary of State for Pensions is now taking that forward and delivering the promised Bill.
I felt that the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) was a little curmudgeonly to say that the Bill was long overdue. In fact, it is being delivered surprisingly fast. As other Members have pointed out, although there have been a couple of cases of small master trusts failing, they have been taken over very swiftly and easily, and as far as we are aware, nobody has lost any money so far. The Bill is therefore slightly ahead of the curve in dealing, we hope, with the problem ahead and providing the necessary framework and structures.
The industry has responded constructively to the changes. If we look at the three main bodies that have responded—the Association of British Insurers, the Pensions and Lifetime Savings Association and NOW: Pensions, which is the snappily named pensions provider of Danish origin—we can see that all three have made constructive comments. Some of the comments will need to be taken up in the Public Bill Committee, but they have broadly supported the ideas that the Bill is putting forward.
In essence, the Government have focused on three separate items. First, there are the master trusts, which will have to be authorised. Secondly, there are the people—the trustees—who will have to pass the fit and proper persons test. Thirdly, there are the assets, which will have to be ring-fenced and protected. Those are all good things, although they raise one major question to which I hope my hon. Friend the Under-Secretary will respond in his winding-up speech. They require the Pensions Regulator to do a lot of important work, and there is a question mark over whether that body has the right resources. He will no doubt be able to tell us more about his discussions with the regulator and what they have agreed on resources. Without the right resources, these important changes will clearly not be implemented effectively.
There we have it: it is a simple and important Bill that everyone should support. The tone of this debate has been constructive. There will, however, be details to go through at the next stage of the Bill’s progress. For example, the PLSA has raised questions about whether the requirement for the scheme funder to be an independent entity is too onerous. NOW: Pensions has noted that only four master trusts have actually passed the master trust assurance framework full audit, which is disappointing. The ABI has questioned whether master trusts attracting members not connected to an employer—in other words, those in what is known as the decumulation phase—should be regulated by the FCA. Those three issues can be considered at the Bill’s next stage.
In closing, I just want to say that the Bill is important, and I am grateful to the Government for bringing it forward. Some good issues have been raised, and I will support the Bill.
I am delighted to follow my hon. Friend the Member for Gloucester (Richard Graham)—what a speech! The speech of the night, I would say. Pensions are an issue of vital importance to my constituents in Brecon and Radnorshire, and to all, young and old, throughout the country. As we live longer and grow older as a nation, it is imperative that everyone in the UK can support themselves in retirement. That is something on which we have all agreed, and that is why I am pleased that the Bill is before the House.
There are three key parts to the Bill, which emphasise the need for it: the protection of consumers, the incentives for responsibility, and the ending of anti-competitive practices. There are several points in the Bill with which I take issue, but slight tweaks will make it totally perfect. I was going to go through those points, but time is against us, and I have the wonderful pleasure of having been invited on to the Bill Committee, so I look forward to bringing those matters to the Minister’s attention over the next few weeks.
Overall, the Bill seems much needed. We must ensure that our constituents have confidence in our pension system, and the Bill seeks to do that. As we have heard too often, and throughout the debate, we need to ensure that responsible master trusts that work in the interests of their members are supported, and again the Bill seeks to ensure that. We need to ensure that our constituents have security for their retirement nest eggs, and the principles in the Bill seek to do just that. I therefore support its Second Reading and encourage all right hon. and hon. Members to do the same.
We have had a good, almost conciliatory debate, but we have also rightly focused on the opportunity that the Government have missed to bring forward an appropriate Bill that addresses the issues surrounding pensions. The Chamber again heard from my hon. Friend the Member for Swansea East (Carolyn Harris) on the plight of the thousands of WASPI women left stranded by this Tory Government, who selfishly and needlessly accelerated the state pension age, leaving many women no time to make alternative provision for themselves in their 60s. If one line was added to the Bill to extend pension credit to the WASPI women—that is our policy—it would have gone a long way to pacifying us this evening.
The hon. Gentleman has got his mention in; let’s stick to the Bill.
So I suppose, Mr Deputy Speaker, that you do not want me to mention the fact that we do not have clarity on the state pension age, either. The Government have already said that they do not have a long-term commitment to the triple lock; we would like to know what their plans are, both on that and, more importantly, for many of our people who work in the most demanding physical jobs, and suffer ill health much earlier in life than those who spend their life behind a desk.
I will not test your patience any further, Mr Deputy Speaker, but we have drifted away from the principles of an effective pension scheme to a muddled view of saving for retirement. Indeed, such is the political hostility towards pensions that they do not get a mention in the latest leaflet produced by the Treasury, “Ways to save in 2017”. There are lots of mentions of different types of individual savings account—cash, junior, help to buy, lifetime and stocks and shares—but not one mention of the word “pension”, or of auto-enrolment.
Although this narrow Bill needs improvement, it is much needed, and we will work with the Government in Committee to help make it fully fit for purpose. Labour is proud of its achievements with auto-enrolment, but we are a long way from finishing the job. The sluggish response of this Government and the last to the development of a regulatory framework for auto-enrolment has left people’s savings at risk for too long. Given what the shadow Secretary of State, my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), said, our priorities for improving the Bill should be fairly obvious. There should be transparency: members must know what choices they are making, and how much those choices cost—and I mean all the costs in the investment chain. There seem to be conciliatory thoughts on that on both sides of the Chamber.
We also need improved governance and a pension system in which members are more engaged. I am glad to read in the media and published reports that in many cases the regulators and the Government agree with the Opposition. As I said on 9 January, I welcome the one-word commitment from Under-Secretary of State for Pensions to implement the FCA recommendations to improve transparency in the pensions industry. We will hold them to account for that.
I repeat that members must know how much things cost—they must know how much each investment costs and how much transactions cost. It is not good enough simply to say that a default fund is capped at 0.75% and that people should be content. The industry tells us that it is moving towards greater transparency across all its platforms. We will be pleased to see what it comes up with. I have no doubt that we need to help the industry with appropriate legislation.
In the past, pension fund providers and others involved in fund management have often tried to dodge the issues when asked direct questions about costs, including by saying, “You should be happy to reward performance,” when we know that lower costs give a better net performance. Other hon. Members have spoken about that in the debate. They also say, “We are incentivised to manage costs, so when your funds do well, we get a bigger pay-off,” but we know that 80% of asset manager fees are based on just holding members’ money rather than making it perform well. When people realise that the average compensation of an asset manager, from the most junior to the most senior employee, is £225,000, people have the right to know how they are using the scheme’s money.
The Opposition favour a change in reporting to ensure that pension schemes must report to members on the three headings: administration, investment costs and transaction costs.
I know that the Minister values the cost-collection template, which has been negotiated with the Investment Association by the Local Government Pension Scheme Advisory Board. We must encourage its use by all pension providers. I hope the Minister will confirm his support for such an approach for master trusts.
On member governance, all the investment risk lies with the member and not with the sponsor or the provider. There is an argument to be made that, since the pot belongs to the member and the scheme-sponsoring employer bears no investment risk, governance by scheme members should prevail in number over employers. Some companies choose to operate a trust-based defined-contribution scheme, but most newer auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare.
We are in a new landscape—we have lost member-nominated trustees, which we had believed to be a clear fiduciary principle. A member perspective adds diversity, which prevents the risk of group-think within boards. Ian Pittaway, chair of the Association of Professional Pension Trustees, has said:
“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits of a death-in-service case or something like that.”
In the defined-benefit world, as long as the scheme was well governed and well administered, the member would end up with a reasonable replacement ratio, but in the defined-contribution world, a member’s outcome depends on a host of factors that are currently beyond their control.
There may be resistance to member representation from master trusts, with tens of thousands of schemes and hundreds of thousands or even millions of members, but the industry has proved that it is possible. We will address that more in Committee. Whatever the route to better representation, most in the sector agree that it can only be beneficial for the defined-contribution landscape. There is a clear argument and there are clear demands that the Bill is the best place to start. We look forward to working with the Minister to make it happen.
Yes, we could have debated equally if not more important measures in the Bill, but sadly we are not. It could be many years before we get a chance to pass legislation in those areas. The Bill can both protect and empower the people whose money is being invested on their behalf. The Opposition are therefore happy to see the Bill progress to Committee, where we hope the Minister will be open to the improvements I am sure we can make to the Bill.
I should point out to you, Mr Deputy Speaker, that your predecessor in the Chair, the hon. Member for North East Derbyshire (Natascha Engel), was very robust in her attempts to reduce the content of Members’ speeches to that which is relevant to the Bill. I will do my best to continue with that tradition.
I was expecting some excellent contributions to this debate and I have not been disappointed. I thank hon. Members on both sides of the House for the general spirit of consensus on the basics of the Bill. A number of hon. Members raised issues that go beyond the authorisation of master trust pension schemes and administration charges, the two issues covered in the Bill, and I am itching to rebut them. However, I realise, Mr Deputy Speaker, that I would be deemed to be out of order as they are out of the scope of the Bill, so I shall not do that. The Government were criticised by Opposition Members on the grounds that the Bill’s scope was not wide enough. I will address two points in particular.
On the scope of auto-enrolment, we will announce shortly a statutory review in 2017. It is my intention to make that review wider than the limited definition within the Bill. That will report by the end of the year. It is not in the Bill, which regulates master trusts, but it has not been ignored by the Government and it will not be.
I think I do need to help you, Mr Harrington. We all said Members would get one hit and then they would have to get to the Bill. Both Front Benchers have had one hit. Now we can really get into the meat of the Bill.
I congratulate you, Mr Deputy Speaker, on continuing so well the leadership and robustness started by your predecessor in the Chair. I apologise for any offence caused to the Chair. I actually thought I was speaking within the scope of the Bill, but I will of course be led by the Chair and move on to the substance of the Bill.
As I said, the points raised in the debate by Members on both sides of the House have been broadly complimentary. The whole purpose of the Bill is for the Government to be able to respond very quickly to the phenomenal and exponential growth in master trusts over the past two years. That growth was not predicted by the Opposition, who take credit for auto-enrolment—in fact, there was cross-party consensus—and it was not predicted by either the coalition Government or this Government. It happened very quickly and I believe the Government are doing the right thing by responding quickly. I do not accept that the Government have acted too slowly.
I was very glad to receive the support of the shadow Secretary of State, and she made a very relevant point when she explained her view about the expansion of master trusts. We are not allowed to mention the “w” word, as the hon. Member for Bootle (Peter Dowd) calls it from a sedentary position, because that would be outside the scope of the Bill. The regulation has been very considered. Both Labour Front-Bench spokesmen and the SNP spokesman commented on the large amount of secondary legislation. The reason is very clear: we want to consult very quickly with industry and responsible parties on the detail, but this process will not take a long time. We have to get the detail absolutely right, because this is a one-off chance to regulate. There will be a chance for scrutiny by both Houses, because in the first instance the regulations will be subject to affirmative procedure.
Many Government Members, including my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), spoke about transparency. We take this very seriously and we are consulting on it. It is not in the Bill, but it is in the spirit of the Bill, because the regulator will be provided with many powers that will help to enforce transparency and members’ rights, which have been discussed.
On the specific point of transparency, why is it necessary to start consulting people when we should simply be saying, “We want to know what all the costs are in the entire investment chain”?
I must explain to the shadow spokesman that we believe in democracy, and part of that is consulting to get it right. We believe this is very important; it has gone on long enough; it needs to be done right. I am sure that the hon. Gentleman did not mean that the Government should just decide what to do without consulting on this hugely complex area within the industry. When it comes to the regulations, let me repeat that we will consult on all of them. I apologise to the hon. Gentleman if consulting is not correct, but we have to get this absolutely right.
I certainly agree with consulting, but will the consultation extend to the members of the master trusts and not just the people who manage the members’ money?
I believe in full transparency and disclosure, but this is a very complex issue. Brevity of disclosure is sometimes clearer to people, helping them to understand all the costs and charges within their pension, rather than giving them 10, 12 or 14 pages. I would like to move on.
One point was made eloquently by both the hon. Member for Ross, Skye and Lochaber (Ian Blackford) and my hon. Friend the Member for Gloucester (Richard Graham) on the question of whether the Pensions Regulator will be properly resourced to carry out the new duty. I can confirm that we have already had extensive talks with the Pensions Regulator, and that it is the Government’s fundamental view that we cannot enact a Bill such as this which deals with improving and expanding on the response without giving the regulator the proper resources that it needs.
I am pleased to say that many Members of all parties have explained that master trusts are an important part of the pensions industry. The Government are filling a gap between personal pensions and insurance-based pensions that are regulated on the one side, and on the other side the evolution of the trust system, for which there is ample pensions law and regulations. There is a significant gap in the market. We are pleased that master trusts have expanded in the way they have, but they need some regulation and attention because companies have been moving into this area simply because there is that gap in regulation. That does not mean that such trusts are a bad thing, and I am delighted to report that we are carrying out this Bill from a position of little failure. This is not a Government responding to catastrophe or calamity when people have lost money; what has happened has been successful, but we need to provide the correct regulatory framework for it.
I can do no better than conclude my speech by citing my hon. Friend the Member for Gloucester, who said that the Bill was simple and important and that everybody should support it. For that reason, I commend the Bill to the House and support its Second Reading.
Question put and agreed to.
Bill accordingly read a Second time.
Pension Schemes Bill [Lords] (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Pension Schemes Bill [Lords]:
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 21 February 2017.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Proceedings on Consideration and up to and including Third Reading
(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration or to other proceedings up to and including Third Reading.
(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Mark Spencer.)
Question agreed to.
Pension Schemes Bill [Lords] (Money)
Queen’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pension Schemes Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:
(1) any expenditure incurred under or by virtue of the Act by the Secretary of State; and
(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mark Spencer.)
Question agreed to.
Pension Schemes Bill [Lords] (Ways And Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Pension Schemes Bill [Lords], it is expedient to authorise:
(1) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting expenditure arising under any Act resulting from the Pension Schemes Bill [Lords] or any other Act; and
(2) the payment of sums into the Consolidated Fund.—(Mark Spencer.)
Question agreed to.