House of Lords
Tuesday 30 June 2020
The House met in a Hybrid Sitting.
Prayers—read by the Lord Bishop of Coventry.
Arrangement of Business
My Lords, the Hybrid Sitting of the House will now begin. A limited number of Members are here in the Chamber, respecting social distancing. Other Members will participate remotely but all Members will be treated equally, wherever they are. For Members participating remotely, microphones will unmute shortly before they are to speak; please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays as we switch between physical and remote participants. Oral Questions will now commence. Please can those asking supplementary questions keep them short and confined to two points? I also ask that Ministers’ answers are kept brief.
Marriage and Religious Weddings
To ask Her Majesty’s Government, further to the Integrated Communities Strategy Green Paper, published on 14 May 2018, what progress they have made on their commitment to “explore the legal and practical challenges of limited reform relating to the law on marriage and religious weddings”.
My Lords, the Government continue the exploration of limited reform and non-legislative options that they began in detail last spring. We are doing so with the greatest care. Any proposals affecting how religious groups are permitted to conduct marriages must be thoroughly assessed for their fairness to all religious groups, and for how far they could achieve the change of practice intended.
My Lords, I remain deeply concerned because we have seen no evidence of any significant progress since I asked a similar Oral Question nine months ago, on 23 October. Given the strong recommendations of the Casey review, the sharia law review and the Parliamentary Assembly of the Council of Europe, and given the number of Private Members’ Bills that I have submitted since 2011 with cross-party support and the support of Muslim women’s groups, will the Minister give an assurance at last that government legislation will be introduced as a matter of urgency? So many Muslim women in this country are suffering in ways which are unacceptable and make our suffragettes turn in their graves.
My Lords, I am not in a position to give such an undertaking. The issues raised are considered in the Integrated Communities Action Plan.
My Lords, to what extent does the right to practise one’s religion, subject to a proviso, affect the right to maintenance and property during marriage and on divorce or separation?
My Lords, if a religious ceremony of marriage or purported marriage does not conform to the requirement of Lord Hardwicke’s Act of 1753 or the marriage Act of 1836, then there will be no marriage. In these circumstances, a couple would be regarded as cohabiting and that would clearly have an impact upon any circumstances in which they ceased to cohabit.
My Lords, it is seven years next month since the same-sex marriage Act was passed, enabling Governments to bring about legal recognition for humanist marriages by ministerial order. Since then, successive Ministers have been very supportive but have had a series of reviews rather than taking action. Meanwhile, 6,000 couples who have had humanist weddings have also been required to have a second marriage ceremony with a registrar to get legal recognition of their ceremony. This cannot be justified. Will the Minister help to achieve legal recognition of humanist marriages, which has the support of the majority in all religious groups?
My Lords, the Law Commission is proposing to look at the matter of where and in what circumstances marriage should be celebrated. I understand that its consultation document will be available in September.
My Lords, following the question of the noble Baroness, Lady Meacher, can I press the Minister on this issue? Provision for legally recognised humanist marriages was overwhelmingly supported in the government consultation. What are the real obstacles to our having equal rights with Scotland?
The major obstacle is the fundamental difference between the law of marriage in Scotland and that in England. The law of marriage in England and Wales, as determined since Lord Hardwicke’s Act, depends upon the place of celebration as well as the celebrant. That is not the position in Scotland, where it is not necessary to identify the location for the marriage ceremony.
My Lords, is there any evidence of girls being married before reaching the legal age at which marriage is permissible, particularly during the Covid emergency of recent times, and is the situation regularly monitored here and abroad to ensure that this does not happen to girls settled in the United Kingdom?
My Lords, any purported marriage to a person under the age of 16 would be void and of no effect. A marriage of an individual between that age and the age of 18 would of course require parental consent.
My Lords, for some years, I have spoken in this House in support of the Register Our Marriage campaign led by Aina Khan OBE, whose commendable work has established the urgent need for legal recognition of any marriages conducted with religious ceremonies. This is not the case at present, as noble Lords have said, which significantly impacts many vulnerable women, who often only become aware when the marriage dissolves that they have little or no marital and financial rights. Will the Minister agree to meet—even on Zoom—with me, interested Members of Parliament and the legal and community experts of the ROM team, to gain greater insight into resolving these outstanding anomalies and eradicating their harmful impact, given that the laws on marriage are due to undergo further and imminent changes?
My Lords, the position is that there is a very real social issue, but not a legal issue, with regard to this matter. It is not possible simply to say that we will acknowledge all religious ceremonies of marriage, of any kind, as legally enforceable. That would actually expose people to greater harm in the long term. I am perfectly content to meet with the noble Baroness and others to discuss this matter. It would be sensible to defer such a meeting until we have the Law Commission’s terms of reference and consultation document in September of this year.
My Lords, I am sure my noble and learned friend accepts that the role of politicians and indeed government is to ensure that the law responds to the needs of a changing community. Therefore, could he explain why, despite 10 years of government policy consensus on religious marriages—that Muslim women in particular deserve the same protection as other married women—the Government still fail to put that protection in place?
First of all, those who undergo only a sharia ceremony are not in marriage; that is the source of the problem we have to face here. That is more a social issue than a legal one, and it requires education and information more than legislation.
Do the Government not realise how urgent reform is in this area? Not only are religious marriages continuing to take place, with all the drawbacks outlined by my noble friend Baroness Cox—the Minister is right to say that this must be stopped by education—but lockdown has shown the need for simpler weddings and more certainty in formalities, to increase choice, lower cost and ensure legality. Will the Government make time for statutory reform soon, encompass those reforms and whatever the Law Commission comes up with in its timely work on weddings, which has a broader scope but will include discussion of religious-only marriages and the consequences for couples who do not comply with the requirements?
My Lords, the Law Commission review will consider the law on how and where marriages may take place in England and Wales. The terms of reference for that project have already been published and we look forward to the consultation paper and the results of that consultation.
My Lords, the evidence is not only that underage marriage is sanctioned by parents, but that any woman defying parental orders can suffer violent death. We have to understand that it is not just a matter of the law of marriage but of the legal human rights of underage children, especially girls, to have protection from their families. The Government must do something about that part of the law and not just wait for the Law Commission.
My Lords, there is an issue to be addressed with regard to what amounts to forced marriage. Since 2014 that has been a specific criminal offence, and since 2017 we have ensured that those who come forward in these circumstances receive lifelong anonymity.
May I ask the Minister how the Government measure the effectiveness of awareness campaigns to educate socially isolated Muslim women and girls on the benefits of a civilly registered marriage?
My Lords, there is no absolute means by which one could accurately measure that, so it is necessary to engage with these communities and to analyse feedback from them in order to ascertain the extent of the problem. I readily acknowledge that there is a very real issue with regard to the Muslim community’s tendency, in many cases, to undergo a sharia ceremony rather than a legal marriage.
My Lords, the time allowed for this Question has now elapsed.
To ask Her Majesty’s Government what support they are providing to universities to assist them in dealing with the impact of the COVID-19 pandemic.
I beg leave to ask the Question standing in my name on the Order Paper, and in doing so I declare an interest as Chancellor of Cardiff University.
My Lords, in May we announced a package of stabilisation measures to ensure that we continue to look after the best interests of students, as well as supporting our world-class higher education system. We are bringing forward £2.6 billion of forecast tuition fee payments to help universities manage cash flow and provide support to students, and £100 million to help protect vital university research activities in England. We have also established a ministerial task force on research stabilisation.
My Lords, the Government’s recent announcement provides little new money, and 75% of that will be in loans. Universities’ research is heavily subsidised by international student fee income, which is predicted to drop by £2 billion this year. Many universities have made massive contributions of equipment, research and staffing to the fight against coronavirus. Does the Minister accept that they now need a much more ambitious package of support, because they are making research and staff cutbacks at this moment?
The noble Baroness is absolutely right to point out the vital contribution that universities are making to solving the pandemic, which is putting pressures on them as well as on everybody else. She referred to the further package of support which the Government announced this weekend. In addition to bringing forward the tuition fee payments which I mentioned in my Answer, the Government are providing a package of support to universities to continue research and innovation. That includes £280 million of taxpayer funding available to sustain UK Research and Innovation and national academy grant-funded research, which is available immediately. From the autumn, there is a further package consisting of low-interest loans with long payback periods and supplemented by a further amount of government grants. I am therefore not sure that I accept what she says about the Government’s response being inadequate.
My Lords, universities make a significant contribution to their local communities and economies, particularly smaller institutions that attract a larger proportion of students from disadvantaged backgrounds. These make a significant contribution to their local context, particularly in this pandemic. In particular, several Cathedrals Group universities during the 2018-19 academic year had 20% undergraduate students from low-participation—POLAR4—backgrounds. How will the Government work with higher education institutions to maintain the widening of access and retention of students, especially those preparing for key public service roles that have been so important during this pandemic crisis?
The right reverend Prelate is absolutely right to point out the vital contribution made by smaller and specialist higher education providers; I know there are a number in his own diocese, as there are around the country. He is right too to point out the importance of encouraging people from all backgrounds to continue to go to university and to avail themselves of the benefits that it can bring. That is why I am pleased that higher education providers can draw on existing funding, which is worth around £23 million a month at the moment, to provide hardship funds and support for disadvantaged students who are particularly affected by Covid-19.
My Lords, I declare my interest as chairman of the Royal College of Music. Music conservatoires have been particularly seriously impacted by the emergency. As small institutions, they do not have the scale, financial headroom or borrowing capacity of the large universities, or significant research income, and are highly dependent on tuition fees, including from a high proportion of international students. As the future on that front is so uncertain, does my noble friend agree that there is an overwhelming case for a temporary increase in the specialist institutional funding which is essential to their sustainability? That would be a clear sign of the Government’s commitment to music and the wider creative economy.
My noble friend is absolutely right to draw your Lordships’ attention to the huge value of small and specialist providers such as music conservatoires, which have such benefits for society, our culture and indeed our economy. As chairman of the Royal College of Music, he is a redoubtable champion for such institutions. Like all higher education providers, these institutions are eligible for the business support schemes, like any other business. However, I hope I can reassure him that the Government are working closely with higher education providers of all shapes and sizes to make sure that things such as our visa regulations are as flexible as possible for international students in these unprecedented circumstances.
My Lords, many university students in England have been missing tuition and access to libraries, laboratories and other university facilities, and may face financial hardship. The Minister says that the Government will not cut the amount paid to universities in tuition fees, but will they reduce sums to be recovered from formerly affected students in later life?
The noble and gallant Lord is right to point out some of the many ways in which the university experience is being affected by this pandemic with regard to access to libraries, laboratories and so on. I am pleased that universities across the sector have responded swiftly and creatively to ensure that they remain open and that students can continue to avail themselves of high-quality education. Universities are autonomous and responsible for setting their own fees, and of course, as they approach the forthcoming academic year, if they decide to charge full fees, they will want to ensure that they can continue to deliver courses which are fit for purpose and which help students to progress their qualifications. However, any matter regarding the level of those fees and refunds is first and foremost for the providers and those who apply to them.
My Lords, I declare my interest as a trustee of LAMDA. In the absence of more appropriate emergency grant funding to compensate for irrecoverable loss of revenues, the Government have encouraged universities to apply for business interruption loans. How does the Minister think these loans, designed for profit-making companies, can be repaid by non-profit HE institutions, other than at the expense of the quality of courses for future generations of students?
The noble Viscount rightly points out that universities, like other businesses, whether they make profits or not, are eligible to apply to the Government’s business support schemes. However, he is also right to point out the wider societal benefits that universities bring, which is why the Government brought forward the additional package of measures which I outlined in my Answer.
My Lords, what plans do the Government have to reform student and university funding to enable a greater number of people, especially mature learners, to undertake short higher education courses and build up to a full degree in a way that suits them? That will be increasingly important as individuals reskill post Covid.
The noble Baroness is absolutely right that many mature students and others may wish to consider courses of different lengths and varieties, and the Government are glad to see that wide range of courses offered. As she says, that will be particularly important over the coming months. The package of support which the Government have announced is of course available to providers irrespective of the length and format of the courses they offer.
My Lords, I declare an interest as an academic at the University of Hull and as chair of the Higher Education Commission, which produced a report on the value to the United Kingdom of the export of higher education. Given how crucial that export is and that from next year EU students will no longer be subject to home fees, will the Government consider extending the new graduate route post-study work visa to three or four years to ensure that the United Kingdom has a competitive offer to international students?
My noble friend draws attention to the new graduate route which comes into effect from next summer, which allows people graduating from UK universities to stay here in work of any level and any remuneration for up to two years— an increased and very generous offer. That is part of the Government’s ambition to increase the number of international students coming to study here in the United Kingdom.
My Lords, the time allowed for this Question has now elapsed.
Covid-19: Women’s Sport
To ask Her Majesty’s Government what plans they have to support women’s sport after the COVID-19 pandemic.
My Lords, it is vital that we continue to strive for greater equality and opportunity in sport. I am keen that we maintain the focus on women’s sport and build on the fantastic progress of the last few years. That is why on 29 May we wrote to the Football Association, the Rugby Football Union, the Rugby Football League, the Lawn Tennis Association and the England and Wales Cricket Board to ask about their plans to promote sport at the elite level and to grow women and girls’ wider participation, and how we can support them to do that.
I thank my noble friend for her Answer. I declare an interest as a trustee of the Saracens Sport Foundation. We know that many girls drop out of sport and physical activity by the age of 14. What does my noble friend think can be done to improve the situation?
My noble friend is right that more needs to be done to tackle the decline of physical activity through secondary school. One way we are approaching that is through Sport England, which is providing free training for two teachers in every secondary school in England to help foster positive attitudes towards physical education and sport. We recently announced a £17 million investment so that that additional support can go to primary schools as well across the country.
My Lords, I declare an interest as a director of Carlisle United. Recent years have been very exciting for women’s sport, including football. As the Minister knows, many of the lower Football League clubs have given great encouragement to women’s football locally. Now of course they find themselves in great financial difficulty themselves. Will the Minister do her best to ensure that none of this valuable contribution and co-operation is lost?
The noble Lord is absolutely right. As I have declared previously in this House, I am a shareholder in Bath City Football Club—so we are as one on the importance of grass-roots sport and football, and the Government are clear and committed that that part of the fabric of our community should be maintained.
My Lords, community sports centres have proved to be key in getting women involved in sport and keeping them there. What will the Government do to encourage them to open up as quickly as possible?
The Government have been working very closely through the recreation and leisure task force, as the noble Baroness may be aware, to plan for the reopening of community sports centres. They play a crucial role in keeping everyone active, including younger and older women. My right honourable friend the Secretary of State indicated that our aspiration is to open those centres in mid-July, if it is safe to do so.
My Lords, is it not the case that one of the best ways of improving the opportunities for women and generally diverse communities is by changing the structure of the governing bodies of so many sports? Could my noble friend consider recommending to governing bodies that they adopt something similar to the Rooney Rule to enhance their diversity?
My noble friend is absolutely right. Women now make up an average of 40% of board members across bodies funded by Sport England and UK Sport. Three-quarters of these sports have already achieved the gender benchmark of 30%, as set out in the Code for Sports Governance. My noble friend may have seen that on 11 June the Sports Minister announced his intention to review the code more broadly, with a view to introducing a target for more black, Asian and minority-ethnic representation on the boards of sports governing bodies.
My Lords, does the Minister agree that one of the biggest steps forward has been that it is normal to see elite-level female competitors taking part on our TV screens? Will the Government look at why, in great football matches of the past, the women’s competitions that were shown were not given more prominence?
This is a highly relevant topic. The noble Lord is right about the opportunity to broadcast some of the inspiring women’s games that have taken place. Obviously, the editorial independence of broadcasters is key, but we are also clear that the visibility of women’s sport is critical.
My Lords, I declare an interest as president of Northamptonshire County Cricket Club. Will the Minister recognise the enormous progress that has been made in cricket, particularly women’s and girls’ cricket, in recent years? Will she also listen sympathetically to any proposals that come from the ECB, in light of the financial constraints this summer, and look urgently at getting club cricket, in particular for girls and boys, on the pitches, because at the moment they cannot even start to play the game?
I am sure that my noble friend also was pleased to see the appointment of Clare Connor as the first female president of the MCC. There is a great commitment to getting cricket started again. The county cricket season starts at the beginning of August; the ECB is committed to staging women’s cricket during 2020. Thanks to Sky’s coverage of the women’s game, we will see free-to-air coverage of women’s cricket return on the BBC later this season.
My Lords, women’s sport depends on getting girls and young women active, but they frequently have a negative association with sport, especially as they go through the changes of adolescence, because the physical exposure too often leads to body shaming. Does the Minister agree that the pressure on female athletes, laid bare by Mary Cain’s brave testimony, is the tip of the iceberg in a culture in which body shaming is all too prevalent? What are the Government doing to educate sports coaches about the negative impact of body shaming and to drive this harmful practice out of the sports arena?
The noble Baroness raises an important issue. I point to the campaign This Girl Can, of which I am sure she is well aware. It has highlighted and celebrated how normal girls and women look and has inspired 3.9 million women and girls to get active since it started in 2015. That has been an important part of this, but the body shaming issues she raises are real, and I think are even more so for women of colour, who can feel pressure to whiten their bodies as well as reshape them.
My Lords, as a Lady Taverner, I too welcome the appointment of the former captain of the England women’s cricket team as the first woman president of the MCC. Does the Minister think that one way forward in women’s sport is to appoint more women to high-level posts and to increase funding to the level of men’s games?
I think the noble Baroness knows the answer to her question. Of course senior role models are absolutely critical, and we are fortunate to have several in this House, including the noble Baroness, Lady Grey-Thompson, and the noble Baroness, Lady Campbell, with her leadership role in women’s football at the FA. However, we need role models at every level in sport, not just the most elite, and that is part of what we are working on with all the different bodies involved.
The Minister has acknowledged that young sportswomen need opportunities. What financial support are this Government willing to provide to improve these opportunities?
Particularly in relation to Covid, we have made a generous funding package available. More broadly, we are working with the governing bodies of all sports to make sure that resources are committed to the women’s game and that the positive momentum we have seen in recent years is continued.
My Lords, the time allowed for this Question has now elapsed.
To ask Her Majesty’s Government what assessment they have made of the situation on the border between North Korea and South Korea; and what residual responsibilities they have, if any, in relation to the 1953 Korean Armistice Agreement.
My Lords, we are concerned by North Korea’s recent confrontational rhetoric and actions. We urge North Korea to act responsibly when dealing with South Korea and the international community. The UK works multilaterally and with partners to seek peace and prosperity for the Korean peninsula, and we are an active member of the United Nations Command, which continues its important work to maintain the armistice agreement.
I thank the Minister for his Answer. Seventy years ago this Friday, HMS “Triumph” and an American carrier made the first carrier strikes against North Korean airfields. This was only five days after Prime Minister Attlee agreed that Britain could operate with the US on behalf of the UN, proving once again the versatility of carrier strike and that prompt, resolute action against an aggressor ensures the survival of free and democratic nations. The war lasted three years, with 3 million deaths, and an armistice was signed but there was no peace treaty.
With the failure of President Trump’s three on one high-profile summits, North Korean aggressive statements, the blowing up of the joint liaison ops in Kaesong, renewed missile testing, threats to remilitarise the border, et cetera, is the whole peace process now lost or is there hope? Have the UK Government tried to bring the parties back together, using our membership of the Military Armistice Commission as a lever? Does the Minister agree that worsening US-China strategic competition in the post-coronavirus era will make negotiations on North Korea’s denuclearisation, which is the key to a peace agreement, more difficult?
My Lords, the noble Lord summarises the situation very well. The challenges are immense, not least given the current and most recent actions taken by the North Koreans, including blowing up the building where negotiations were continuing to take place on a daily basis. We remain positive about the need to seek resolution to this issue, which has gone on for far too long. We continue to support American efforts in this regard, including support given to the US and the South Koreans on a recent statement issued, and we implore all sides, including those who support the North Korean regime, to ensure that both North Korea and South Korea can resume their discussions, which had borne fruit in certain respects.
My Lords, the armistice agreement, which was signed by an American lieutenant-general, was of course signed on behalf of the United Nations Command. The period since then has been punctuated by hostile provocations, which have occurred on both sides although it is much easier to see the absurdity of the North Korean regime, its bellicose nuclear threats and its recent actions, including blowing up the building. It is true that there has been fault on both sides, including the United States’ abrogation of paragraph 13(d) of the agreement in 1956.
I wonder whether, as a permanent member of the United Nations and—
My Lords, I am afraid that the noble Lord, Lord Triesman, is inaudible, so the Minister will write—if he would like to write—with the supplementary answer.
My Lords, what assessment has been made of the spread of coronavirus in North Korea, for example through satellite assessment and attendance at clinics, and do the Government think that conflict with the south is a deflection from that?
My Lords, the noble Baroness is right to draw attention to the situation in North Korea on both the humanitarian and human rights front. Yes, the challenge remains to understand what support we can provide. Although we of course support sanctions, she will be aware that humanitarian support continues to be delivered through the UN avenues. We called on North Korea to make an assessment of its situation domestically on Covid-19 and allow support to its citizens.
My Lords, as the Minister has acknowledged, the Korean War never really ended in 1953; indeed, it is still going on, with the actions from an erratic and hereditary autocrat who may or may not have nuclear weapons and the means to deliver them. The Minister mentioned support to allies. It is important that, when we support allies in the region and fellow democracies such as Japan and Australia—and, indeed, down in the South China Sea —we have the means to support them. I fear that we need to look closely at how much we are spending on defence, not because we want some conflict with North Korea—or, indeed, anyone else in the region—but because we must be taken seriously by countries such as North Korea.
My Lords, let me assure my noble friend that we take our role as part of the UN Command very seriously. Most recently on the specific issue of deployment and support, the Royal Navy deployed ships to the north-east Asia region in 2018, through HMS “Sutherland” and “Albion”, and in 2019, as my noble friend may be aware, through HMS “Enterprise”.
The APPG on North Korea would particularly like to ask the Minister about two issues. First, what assessment has been made by our ambassador in Pyongyang of the widespread reports of food insecurity, even famine? Secondly, is anything known about the size of any listening audience to the BBC World Service’s Korean service and whether it is in fact helping to break the information block?
My Lords, I will write to the noble and right reverend Lord on his second question. On his earlier question, we retain a mission, of course, but as he may be aware, we drew that down due to concerns around the Covid pandemic; we are working to restore the ambassador to North Korea at the earliest opportunity. As I said in response to an earlier question, the situation on the humanitarian front remains very dire within North Korea.
My Lords, this is a dangerously escalating situation and the noble Lord has mentioned our acting multilaterally. However, the two key players in this are obviously the US and China. What direct contact have we made with both of those players to ensure that we move to de-escalation? Also, I read in the FT recently that we would be targeting by using the Magnitsky powers in relation to North Korea. Before the Recess, the Minister promised that those statutory instruments would be put before us. Can he give an update of when that will be, because obviously this situation demands urgent action?
My Lords, I can assure the noble Lord that we continue to work to ensure peace on the peninsula. He is quite right to say that both the United States and China have a key role to play. We continue to liaise with both nations bilaterally and, more importantly, through the Security Council. On his second point about Magnitsky sanctions and the regime, as I said earlier, we are proposing to bring those forward before the Summer Recess, and we are in the final stages of doing that now.
My Lords, the Minister has talked about the Government supporting sanctions but also about providing humanitarian aid. What assessment have the Government made of the relative balance between the two in the context of North Korea?
My Lords, the sanctions are not targeted against the North Korean people, and we will continue to support delivery of humanitarian aid to the most vulnerable in that country. Denuclearisation will assist in that respect.
My Lords, what is the Government’s assessment of the likely success of the US negotiation strategy of maximum pressure based on “denuclearise first, reward later”, including the effectiveness of the UN sanctions and their impact on North Korea’s humanitarian crisis?
My Lords, I believe that I have partly answered the question put by the noble Lord already. On the specific issue of the US sanctions, the US is demonstrating patience and has adopted a sense of willingness in its approach, although success is not guaranteed. Enforcing sanctions which have been agreed unanimously in the UN Security Council in response to North Korea’s nuclear ballistic missile testing does help to create the conditions to incentivise change on the part of North Korea, while of course keeping the humanitarian corridor open.
My Lords, following the invasion of South Korea by North Korea, 16 UN member nations, including the United Kingdom, sent fighting units to the peninsula under the auspices of the United Nations—we sent more than 100,000 servicemen. The United Nations command provided core military strategic direction. Subsequently, the UN has passed resolutions and applied sanctions. In 1953, an armistice agreement was signed, but no formal peace agreement has ever been signed. Recently, the situation in North Korea has deteriorated. I would like to ask my noble friend the Minister if the UN can play a more active role in achieving peace. Can we influence this in any way?
My Lords, we continue to implore that we work with the UN Security Council in pursuit of that objective.
My Lords, I have visited the Republic of Korea and gone to the 38th parallel, but it was one of the most scary experiences that I have had in my life. The Republic of Korea is a stable, democratic country, and we have a responsibility to support it. Will Her Majesty’s Government raise the threats being made by North Korea at the United Nations Security Council in an effort to get both Russia and China to help calm the North Koreans?
My Lords, the noble Lord has raised an important point. I believe that it is through the UN Security Council, as I have just said in response to my noble friend Lord Sheikh, that will provide the real route for North Korea to come back to the table and to continue with its denuclearisation and demilitarisation effort. That will bring more stability to the Korean peninsula but to the wider world as well.
My Lords, the time allowed for this Question has now elapsed. That concludes the Hybrid Proceedings on Oral Questions.
Arrangement of Business
My Lords, the proceedings will now commence. Some Members are here in the Chamber, others are participating virtually, but all Members will be treated equally. I ask noble Lords to be patient if there are any short delays as we switch between physical and remote participants. The usual rules and courtesies of debate apply.
Private Notice Question
To ask Her Majesty’s Government (1) when they expect David Frost to be introduced to the House; and (2) whether he will be accountable to the House in relation to his duties as (a) the Prime Minister’s Europe Adviser and the United Kingdom’s Chief Negotiator of Task Force Europe, and (b) the Prime Minister’s National Security Adviser.
My Lords, the Prime Minister has recommended David Frost for a life peerage. Her Majesty the Queen has graciously approved the recommendation. He will be introduced to the House in due course, in the usual way. The Prime Minister has appointed David Frost as National Security Adviser; he is not a Minister and will be accountable to Parliament in the usual way for officeholders—for example, appearing before Select Committees where necessary and appropriate.
My Lords, I thank the Minister for his reply but, sadly, it raises many more questions than answers. Do the Government not recognise that the post of National Security Adviser was designed for giving impartial advice in the national interest? By appointing a Conservative Peer as the National Security Adviser, it will instead be political advice in the Conservative interest. I first ask the Minister this: will Mr Frost, as a Member of this House, simply sit silently on the red Benches, while the business of the National Security Council is debated here?
Secondly, Mr Frost is, at present, in charge of the negotiations on our future relations with the European Union—perhaps the most important negotiations in our lifetime. Will he again be sitting here silently or will he regularly report on the progress of the negotiations to the House, of which he will be a Member? The public outside will see this Government not reforming the system in a thought-through way, but introducing yet another partisan way of politicising our remarkable Civil Service.
My Lords, there were a number of questions there; I am not sure I remembered them all by the end. The post of National Security Adviser has only existed since 2010 and it is an evolving role. Mr Frost is a career diplomat of 25 years’ distinguished service to this country. He is perfectly capable of giving dispassionate and wise advice. His role as an outstanding negotiator with the EU will continue as now. He will be ready to appear before your Lordships’ Select Committees, as he has already.
My Lords, the politicisation of this and other posts at the top of government is a significant change in the constitutional settlement of this country. When and how will the Government seek democratic approval for this decision?
My Lords, I do not believe that a single appointment constitutes the politicisation of the Civil Service, for which Her Majesty’s Government have a very high regard. Reform of public service was in the Government’s manifesto and we will carry out that pledge.
My Lords, both the Prime Minister and Michael Gove cited President Roosevelt as the model for this Government’s approach. When I was first a student in the United States, I was invited to seminars given by three former members of President Roosevelt’s cabinet, all of whom emphasised the efforts Roosevelt made to carry cross-party support in both Houses of Congress for his New Deal. Are this Government similarly committed to building support across the parties and in both Houses of Parliament or do they prefer, as Dominic Cummings suggests, to move fast and break the conventions?
My Lords, this Government, who have a great public mandate, want to carry the widest possible support and, indeed, increase their support across this nation. I welcome the support given by Sir Keir Starmer to the principle of heavy investment in infrastructure, which the Prime Minister is announcing.
My Lords, watching Washington provides daily lessons on the perils of a politicised public service, and the Iraq inquiry reminded us of the dangers when politics and intelligence assessment overlap. Mr Frost is a man of proven resilience and stamina—he used to work for me—but he is being put in a very difficult position. Will the Minister reassure us that the Government understand that the primary role of the National Security Adviser is speaking truth to power, co-ordinating and presenting to Government the considered collective advice of the council, welcome or unwelcome, and not acting as a delivery mechanism to impose policies born in a back shop in No. 10?
My Lords, the noble Lord slightly lost my sympathy in the last few words of his question. I welcome his endorsement of Mr Frost’s qualities—I cannot judge how many he learned from the noble Lord—but assure him that anybody in public service, even a Minister, has the duty to speak truth to power. I am sure Mr Frost will be mindful of that.
Could the Minister confirm that, when David Frost is elevated to the peerage, he will, at the very least, be given an earldom or possibly be made a Marquis, in recognition of his brilliant letter of 19 May of this year to Michel Barnier and his superb negotiating with the EU? That led to the EU understanding that it cannot continue to treat this country as a colony of an empire run from Brussels.
My Lords, I am glad to have that endorsement of Mr Frost from the other side of the river to the previous noble Lord. Her Majesty is the fount of all honour, but I fear that if my noble friend’s suggestion were followed, Mr Frost might find himself on the expulsion list of the noble Lord, Lord Grocott. Perhaps we should be satisfied by a simple life peerage.
My Lords, this is really quite extraordinary: a political appointment has been made into a Civil Service job. We have not seen the like of this before. I wonder whether the Minister has really considered both the practical and constitutional issues that this raises. As the noble Lord, Lord Kerr, said, the National Security Adviser is there to tell truth to power. We all fear that there is a concentration of power in Downing Street that does not like either challenge or scrutiny. Will the Minister confirm whether Mr Frost, when he comes into your Lordships’ House, will take the Conservative whip and be allowed to speak on security issues or EU negotiation issues?
My Lords, I repeat what I said about speaking truth unto power. I assure the noble Baroness that Mr Frost will be supported by the normal substructure of government, which remains. We are talking here about one appointment. It is my understanding that he may be introduced as a Conservative Peer, but I cannot confirm that to your Lordships today.
My Lords, in the Times today, Rachel Sylvester quotes a former Permanent Secretary saying of this Government that
“basic propriety and ethics have gone out the window, and the decision-making is a shambles.”
Does not giving someone with no expert knowledge of terrorism, intelligence or defence responsibility for national security, as well as for the Brexit negotiations, confirm this?
No, my Lords. Mr Frost has extensive diplomatic experience, and the previous four incumbents as National Security Adviser also emerged from a diplomatic career.
My Lords, will the Minister explain how, in this intense phase of the Brexit negotiations—the tunnel—our chief negotiator will have the time for his induction into his new role? Does he accept that there is a strong risk that the Brexit negotiations will not be concluded by the end of September, and that the undivided attention of the chief negotiator is needed until they are concluded?
My Lords, I do not agree that there will be a difficulty. The announcement suggests that Mr Frost will take up his appointment around the end of August, and, as the noble Lord said, there will be a period of handover. Mr Frost will remain chief negotiator for the EU talks until agreement is reached, or until they end. That will remain his first priority. As I have already said, he will also be ready to answer to Select Committees of the House in that period.
My Lords, does my noble friend agree that, when Mr Frost becomes a Peer, this House will be very lucky, because we will gain a new Member with huge experience—as my noble friend has outlined—and with complete dedication and commitment to the success of the UK outside the EU?
My Lords, I do agree and I am very grateful, as I am sure Mr Frost will be, for what my noble friend said. It is striking that, right across the House, among those with different views, there has been a unanimous acceptance of Mr Frost’s abilities and calibre.
My Lords, as the Government’s first National Security Adviser, I welcome the moving words of the Chancellor of the Duchy of Lancaster at Ditchley Park over the weekend about the need for reform in the Civil Service to ensure the “mastery of deep knowledge”. Since Mr Frost has not, as far as I know, worked on defence, security or intelligence matters in the way that each of his predecessors had done, how is Mr Gove’s dictum about reform of the Civil Service to be read in the light of Mr Frost’s appointment?
My Lords, I pay tribute to the noble Lord, who was, as he told us, the first National Security Adviser. Each of those, although coming from a diplomatic background, has had different and diverse experience—the noble Lord had a particular role as chairman of the JIC. Where I do agree with him is that the Prime Minister has decided that the role of the National Security Adviser and that of the Cabinet Secretary should be divided. That will give the incumbent time to display his dedication and skills, as I have no doubt he will, in carrying out this important role.
My Lords, in his own words, the Prime Minister recently said that we have embarked on the most significant reassessment of the UK’s position in the world, its allies and alliances, and its defence, security and intelligence needs. Subsequently, the Wuhan virus struck, so the task is doubly complicated. This huge job is being led and co-ordinated by someone with almost no background in defence, intelligence and security. Now, we find that the other key figure in all of this work—the most important work since the Second World War—the new National Security Adviser, Mr Frost, similarly has no experience in any of these key areas. I am only a simple sailor and I would like the Minister, who I understood severed as a spad in various guises for many years, to make it clear whether he preferred advice with political spin from someone with little expertise in their field, or unbiased expert advice, particularly where the security and safety of our nation and people depended on the outcome?
My Lords, again, I do not agree with the characterisation of the presumed danger. The Prime Minister is responsible for the integrated review, as chair of the National Security Council. Mr Frost will be involved, but there will be a cross-Whitehall process. Even as a humble special adviser, I felt it part of my duty often to give unwelcome advice to a Prime Minister, and I am sure that any decent public servant, political or otherwise, would always feel the same.
Does my noble friend agree that David Frost will be a valuable Member of this House and welcomed by all noble Lords, even those who may be embarrassed by his presence, given that they firmly declared he would never succeed in reopening the withdrawal agreement, dropping the original Irish protocol or completing negotiations by the end of November, and who now object to the robust way in which he is negotiating to achieve the mandate of the British people, democratically asserted in the referendum and the last general election? We should sympathise with their embarrassment but not allow it to mute our welcome for his presence.
I strongly agree with what my noble friend has said. Mr Frost has shown remarkable skill in negotiations so far, and I am sure will continue to do so. He will be a vital and important Member of this House for many years to come.
My Lords, the time allocated for the Private Notice Question has elapsed. The House will now adjourn until 12.30 pm for questions on an Answer to an Urgent Question asked in the House of Commons on Monday 29 June.
Arrangement of Business
My Lords, some Members are here in the Chamber, others are participating virtually, but all Members will be treated equally. I ask noble Lords to be patient if there are any short delays between physical and remote participants. The usual rules and courtesies in debate apply. Please ensure that questions and answers are short.
Covid-19: Support and Accommodation for Asylum Seekers
Commons Urgent Question
The following Answer to an Urgent Question was given on Monday 29 June in the House of Commons.
“My thoughts and those of the Home Secretary and, I am sure, the entire House are with the victims of the appalling knife attack that happened in Glasgow on Friday afternoon. I would like to pay tribute to the brave first responders who, as always, ran towards danger to protect the public. They include Police Scotland hero David Whyte, who very sadly was seriously wounded. The suspect has been named as Badreddin Abadlla Adam, a 28-year-old asylum seeker originally from Sudan. The House will appreciate that I am able to provide only limited information on this case while the investigation is under way, but I can talk about the United Kingdom’s proud history of supporting asylum seekers.
Last year, the United Kingdom made 20,000 grants of protection or asylum, one of the highest numbers of any country in Europe. We welcomed more than 3,000 unaccompanied asylum-seeking children, the highest number of any country in Europe. Indeed, it made up 20% of Europe’s UASC intake.
The UK has a statutory obligation to provide destitute asylum seekers with support while their case is being considered. While asylum cases are being considered, asylum seekers who would otherwise be destitute are provided with free accommodation. The utilities and council tax are paid for and free healthcare on the NHS is available. Free education is available for those with children, and there is a cash allowance to cover other essential living needs, which recently increased by 5%—considerably more than inflation. The package must be viewed as a whole.
During the coronavirus pandemic, we have stepped up the help available to go beyond the statutory requirements that I have just laid out. We have paused the usual practice of asking people to move on from supported accommodation when their asylum claim is decided either positively or negatively, so that they can remain in supported asylum accommodation. As a consequence of that decision, which was implemented on 27 March, around 4,000 more people are in supported accommodation than was the case at the end of March, because people are still coming into the system but nobody is moving on. We have therefore been frantically procuring additional accommodation around the country to meet that additional need. The circumstances in Glasgow are slightly different, but I suspect we will come on to the specifics of Glasgow, so I will answer those questions in due course.
Where we have procured additional hotels, we provide full-board accommodation, including laundry services, personal hygiene products and feminine hygiene products. Wrap-around services are also provided, including welfare support, healthcare and access to mental health services. Asylum seekers also have 24-hour-a-day access to assistance via Migrant Help through a freephone number.
We are working at pace to increase the available accommodation so that we can move asylum seekers from hotels into more permanent accommodation as quickly as possible, which I think we would all agree is more suitable. Efforts are currently under way to do exactly that. Over time and in due course, we will be returning to a business-as-usual approach in a phased, proportionate and careful way.
We are committed to ensuring that vulnerable asylum seekers are provided with all the support they require. As our nation has been battling coronavirus, we have continued and will continue to look after asylum seekers. We will continue to drive forward the reforms required to support those asylum seekers who are in genuine need. I commend this Statement to the House.”
This UQ has been prompted by the tragic events in Glasgow on Friday. I express our best wishes for a full recovery to those injured, not least to PC David Whyte, and our thanks to our emergency services for their professionalism and dedication.
I have two questions. First, asylum seekers are interviewed, including about vulnerabilities, at the point when their asylum claim is made. It appears that the 321 who were moved into hotels in Glasgow at the beginning of the lockdown did not have a further vulnerability risk assessment on being moved. What ongoing vulnerability assessments of asylum seekers are required, and in what circumstances? Secondly, is it correct that the limited daily allowance for asylum seekers is withdrawn when they are moved into hotel accommodation? If so, how are such asylum seekers able to pay even for items such as postage stamps, personal telephone calls or a non-prescription cough mixture, and how does that contribute to their general well-being?
My Lords, I join the noble Lord in paying tribute to all the emergency services and in sending our best wishes to those injured, including PC David Whyte, for a swift recovery.
The noble Lord is right: people get an initial assessment. Regarding further vulnerabilities, 24-hour healthcare is available to anyone who may need it who is in this or any other type of asylum accommodation. On the lack of cash for those in hotel accommodation, it is important to point out that anyone in hotel accommodation gets all essential living needs and costs met in terms of food, toiletries, hygiene products and healthcare, so there are no additional costs that they might need to meet. People can apply for additional assistance, should they need it.
My Lords, 5% of very little is almost nothing. I refer of course to the recent increase of 26p per day in the allowance for necessities for asylum seekers who are not in hotel accommodation. Even if the Government will not increase the allowance, why can it not be paid fortnightly or, even better, monthly? That would allow for more efficient shopping, would cost no more and perhaps would save on administration and even allow a smidgen more dignity to asylum seekers.
My Lords, the Government are looking into the frequency with which the allowance is paid. The increase is quite a bit above inflation, even though it may not seem like much. The assessment of the amount of money needed to purchase sufficient food is based on data from the ONS, looking specifically at expenditure on essential living items by people in the lower 10% of income groups, and is supplemented by market research.
My Lords, many children of asylum seekers have been severely disadvantaged during lockdown because their parents do not have and cannot afford the broadband or wi-fi connection, or the equipment needed, to access online schooling. The daily living allowance of a little over £37 barely covers essential needs. Does the Minister agree that for asylum seekers’ children, online education is also essential right now, and will she agree to look at an immediate and backdated uprating to reflect that?
I totally agree with the noble Baroness that children have been disadvantaged in their education during Covid, whether they are the children of asylum seekers or not. All hotels provide wi-fi, and I am almost certain that online learning can be provided. Of course, it is essential when people arrive here that they have a good grasp of English before they can learn anything at all. It is one of the things that is most important to people’s assimilation into this country.
My Lords, vulnerability assessments are so important. There are questions about when they happen and the need for them to be ongoing and serious. There is also a question about how. Is the Minister satisfied that the vulnerability assessments are sufficiently tuned to the experiences and needs of asylum seekers in their extremity, and take into consideration the whole person and the impact of the ongoing experience of lockdown?
My Lords, the health service generally, whether in Scotland or here, has had to find new ways of working through the pandemic, so assessments probably happen remotely, as they do for the general population. He is right to ask whether they take into account the specific needs of people who perhaps have fled war-torn countries to seek asylum and refuge here. This pandemic has seen the very best of our NHS. I am fully confident that when assessments happen, NHS doctors and nurses are well trained to take into account the vulnerabilities and traumas that these people may have faced.
My Lords, in her reply last week to my Written Question on the asylum process, the Minister said:
“Individual applications are referred to Ministers where they are identified as potentially sensitive”.
Unfortunately, she was unable to give me any information on how often this happens. Does she agree that in determining an asylum application, the authorities must always consider potential risks to national security, which may require balancing the risk to the asylum seeker with that to the UK, and may mean that asylum seekers must be detained in custody? Of the 10 serious terrorist attacks since March 2017, some have been associated with an asylum seeker. Is she prepared to review the cases where asylum and permanent UK residence have been granted, and where the seeker has been convicted of terrorist offences in other jurisdictions?
My noble friend makes some valid points. He is absolutely right that we need to balance the claim of the asylum seeker with any danger that they might pose and also the genuine nature of the claim. My honourable friend Chris Philp, a Minister in the House of Commons, said yesterday there how important it was to weed out the genuine from the—shall we say?—non-genuine asylum seeker. I am sure that the services do analysis like that all the time, examining the type of behaviour experienced after someone is granted asylum, their vulnerability and the things that might cause it.
My Lords, following directly from those last points, I say that indefinite detention of asylum seekers is generally acknowledged to be one of the most stress-inducing and unjust disposals. The Home Office was forced in January to release 350 of the 1,225 asylum seekers held in detention, but how many of those remaining have now been reviewed, as was promised? Will the Government cut down the maximum period to 28 days, as was recommended by the parliamentary committee?
My Lords, it is unlawful to detain someone indefinitely, and the danger in seeking 28 days is that it encourages behaviour such as running down the clock with various appeals. It is important that people do not spend months and months in detention and that their claims are seen to swiftly and expeditiously. Certainly, that is what is best for the asylum seeker and for the system itself.
My Lords, time allocated for this Urgent Question is now up and I can call no more speakers.
Arrangement of Business
My Lords, a limited number of Members are here in the Chamber, respecting social distancing, and if the capacity of the Chamber is exceeded, I will immediately adjourn the House. Other Members will participate remotely, but all Members will be treated equally wherever they are. For Members participating remotely, microphones will unmute shortly before they are to speak—please accept any on-screen prompt to unmute. Microphones will be muted after each speech. I ask noble Lords to be patient if there are any short delays as we switch between physical and remote participants. I should remind the House that our normal courtesies in debate still very much apply in this new hybrid way of working.
A participants list for today’s proceedings has been published and is in my brief, which Members should have received. I also have lists of Members who have put their names to the amendments in each group or expressed an interest in speaking on them.
I will call Members to speak in the order listed. Members’ microphones will be muted by the broadcasters except when I call a Member to speak. Interventions during speeches or “before the noble Lord sits down” are not permitted and uncalled speakers will not be heard.
Other than the mover of an amendment or the Minister, Members may speak only once on each group. Short questions of elucidation after the Minister’s response are permitted but discouraged; a Member wishing to ask such a question, including Members in the Chamber, must email the clerk.
The groupings are binding, and it will not be possible to degroup an amendment for separate debate. A Member intending to press an amendment already debated to a Division should have given notice in the debate. Leave should be given to withdraw amendments. When putting the Question, I will collect voices in the Chamber only. If a Member taking part remotely intends to trigger a Division, they should make this clear when speaking on the group.
Pension Schemes Bill [HL]
Relevant documents: 4th, 7th, 8th and 16th Reports from the Delegated Powers Committee and 2nd Report from the Constitution Committee
Clause 11: Fit and proper persons requirement
1: Clause 11, page 7, line 16, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 7, line 18, make all regulations under Clause 11(3)(a) subject to affirmative resolution procedure (see Clause 51(5)).
My Lords, perhaps I may start by addressing the government amendments. I recognise that in Committee and in subsequent meetings, some noble Lords expressed concern over the regulation-making powers in Part 1 and how they might be used. I have considered those arguments carefully and am persuaded that your Lordships are, in many instances, right. Following your Lordships’ helpful comments, I am now persuaded that it would be more appropriate to make certain regulation-making powers subject to the affirmative procedure on all usages. I recognise that CDC schemes are a totally new form of pension provision in the UK and it is right that Parliament is, as a matter of course, able to debate changes to key parts of the regulatory framework surrounding them.
Your Lordships will recall that Clauses 11 to 17 set out the authorisation framework that all CDC schemes must meet. I know that the House was concerned by the delegated powers in respect of these clauses, as they provide for the core foundations of the authorisation regime. I am pleased, therefore, to announce that those delegated powers which were subject to the affirmative procedure only on first use will now be subject to the affirmative procedure on each use. In addition, the transfer-related regulations for CDC schemes, introduced by Clause 25, will now always be subject to the affirmative procedure rather than the negative procedure.
The relevant provisions contain two powers to amend the timeframes set out in primary legislation which govern when action must be taken by trustees once a transfer out of the scheme has been requested. First, there is a power to extend the time in which trustees must facilitate a request to transfer out of a CDC scheme to a period longer than the specified six months. Secondly, there is a power to amend the three-week “cooling-off” period, during which trustees may not facilitate the requested transfer unless they receive written instruction from the member to do so. Given the importance a decision to transfer out of a CDC scheme may have for a member, it is right that regulations in respect of the timeframes for related action are debated in Parliament under the affirmative procedure as a matter of course.
Amendments 35 to 38 make changes to Clause 47 to make it clearer that this power is not as wide as it may have appeared on first reading. I understand noble Lords’ concern about this clause: it contains a Henry VIII power and as such it should be as clear as possible when and for what purpose it can be used.
Our amendments make it very clear that the power can be used only to provide for non-employer established schemes, such as master trusts, and other non-connected multi-employer CDC schemes as and when concrete scheme designs come to light over the next few years. Noble Lords may recall that the Work and Pensions Select Committee in its report on CDC schemes called for our legislation to be extended to provide for CDC master trusts at the earliest opportunity, and organisations from commercial pension providers to trade unions and even the Church of England have made similar requests.
However, there are clear administrative differences between a scheme with one closely involved employer and a master trust with many more distant employers. The authorisation and supervision legislation will therefore need to be tailored to reflect the risks posed by such schemes and providers so that members and participating employers are to be adequately protected.
This is what Clause 47 seeks to do. It is intended to allow us to make the necessary changes via regulations in a timely fashion so that master trusts and other non-connected multi-employer CDC schemes can be up and running as soon as possible, and employers and employees can benefit at the earliest opportunity. Without this clause, it is likely that the extension of CDC provision to master trusts and other non-connected multi-employer models would be delayed.
However, I assure noble Lords that any such changes required would be considered carefully and consulted on thoroughly before being brought before the House to ensure that they covered the right ground. Such changes would also be subject to the affirmative procedure, which would give the House opportunity to scrutinise the regulations.
The amendments before the House are intended to address concerns in key areas— authorisation, transfers and the provisions relating to the future expansion of CDC—and I am grateful for the informed and thoughtful comments that have led us to this point. The points that I have made also apply to the corresponding Northern Ireland provisions in Part 2 of the Bill. I hope that noble Lords are reassured by the amendments. I beg to move.
My Lords, I shall speak briefly to government Amendments 1, 3 to 7, 9 to 12 and 14 to 31, as well as to my related Amendment 2. First, I thank the Minister and her team for their close engagement with us on the Bill and their time, patience and occasional willingness to change their minds.
The government amendments are a good example of mind-changing. As the Minister said, they remove the instances in Part 1 of first-use-only affirmative procedures; that is a very good thing. The DPRRC’s report on the Bill in February this year was concerned about the use of these procedures. It pointed out that the powers in the regulations remain exactly the same on subsequent use. In Committee, I strongly urged the Government to remove this type of procedure; I very much welcome the fact that they have now done this. All the subsequent uses of the negative procedure have been withdrawn by these amendments.
However, one negative procedure remains: what is left of Clause 11(8) in line 18 on page 7. This is the subject of my probing Amendment 2. Subsection (8), as amended by government Amendment 3, prescribes the negative resolution procedure for regulations under Clause 11(2)(e). Subsection (2)(e) seems a little opaque. It seems to allow the Secretary of State to add persons or categories to those whose fitness and propriety TPR must assess. On 22 June, the Government confirmed to me in writing that this was the case. They believed that this was largely an operational matter and that the negative procedure provided
“appropriate scrutiny as well as opportunity for debate if desired”.
This is a mischaracterisation of the negative procedure, which in practice barely merits the label “scrutiny” at all. Possibly because I did not ask them to, the Government did not address why subsection (2)(e) was necessary at all or give examples of what kind of persons or categories of persons are envisaged in subsection (2)(e) and what role they may play in the schemes themselves. Any additional involvement of these persons or categories of persons may give them significant influence over the conduct of the schemes.
It is obviously desirable to have these new entrants assessed for fitness and propriety. The issue here is the Secretary of State’s decision to add persons or categories to the list without constraint, restriction or proper scrutiny. I would be grateful if the Minister could address these points when she replies.
My Lords, I very much welcome the Government’s amendments to this Bill and congratulate my noble friend on her initial speech, in which she so clearly explained what the Government intend to do. I also congratulate her on the way in which she has engaged with Members across the House and, together with the Bill team, has listened to the concerns expressed at previous stages of this Bill. I particularly welcome the change from the originally proposed first-use-only affirmative procedure and the comments made by my noble friend on the importance of, for example, the cooling-off period before pension transfers occur.
I must admit that I also support Amendment 2 in the name of the noble Lord, Lord Sharkey. I share his concerns and would welcome an explanation, such as he has requested from my noble friend when she comes to respond, of why only this area—assessment of whether somebody is fit and proper to run a CDC scheme—should be left to the negative resolution procedure and be wholly at the discretion of the Secretary of State without what we would normally consider to be appropriate parliamentary scrutiny in this important area. The CDC framework is completely new for this country. I therefore think that colleagues across the House who have expressed the same concerns are right in suggesting that it is important that we have as much scrutiny as possible.
I have an amendment in this group—Amendment 13—regarding the accuracy of pensions data that needs to be submitted to a CDC scheme. I will not move it at this stage; I will come back to this subject during debate on a later group with my other amendments.
I welcome the current government proposals and hope that my noble friend will listen to some of the concerns expressed. I look forward to hearing contributions from other noble Lords and colleagues as we go forward in this debate.
We will move on because we cannot hear the noble Baroness, Lady Bennett. We will perhaps try to get her back later. I call the noble Baroness, Lady Janke.
I took my name off the list.
I did not have a note of that. I call the noble Lord, Lord Balfe.
My Lords, this is the first time for two months that I have been in this Chamber. It is a bit emptier than normal but it is good to be back.
I hoped to speak after the noble Baroness, Lady Bennett, because I want to say a few words about her Amendment 33, which is about trustees. It seeks to require trustees to take age, gender and ethnicity into account. I will certainly not support or oppose this amendment but I want to make a few points on trustees and where I think she is trying to get us to. The fact of the matter is that the whole area around the appointment of trustees could do with a close look.
There are a number of problems. The first problem for any pension scheme, particularly a small one, is getting trustees from among the membership. You can always get a professional trustee because they are normally paid £1,000 or more a day for coming to the meeting, so it is not too difficult. The difficulty is getting representatives of the pensioners. The second and even greater difficulty is getting representatives of the pensioners who actually know what they are talking about, because many people are completely bewildered by pensions.
When I read through both this amendment and the amendments about ESG and environmental safeguards, I was reminded very much of pensioners who come to me and say, “All I want, Richard, is for you to pay my pension. I couldn’t care less where it comes from.” I say, “Presumably you wouldn’t like us to invest in gas ovens,” and they say, “Well, no, but you’ve got enough common sense not to do that. You don’t need me to tell you.”
So I come to the point that, when we are looking at the age, gender and ethnicity of trustees, we also need to look at their qualifications and the way in which they are allowed to come forward, because some trustee boards are effectively self-perpetuating because they govern who is allowed to stand. You are invited to apply to become a trustee, and then you are assessed as to whether you are able to become a trustee. Often, people who come forward are not highly professionally qualified, but they are qualified in one thing, which is common sense. My experience of pensions, which goes back quite a long way, is that certainly some members on a board—not a majority—who can demonstrate common sense are extremely good.
I would also like to say that dealing particularly with gender and ethnicity can lead you into many problems. My wife gets a pension from the Workers’ Educational Association pension fund. It got itself tied into complete knots trying to deal with ethnicity and gender. It ended up asking people to vote for trustees who were anonymised. They were anonymised by taking out not only their name, age, gender and ethnicity but also most of the other things about them. So the great game in this case was to look back at previous reports and try to work out which trustee was the anonymised one. Of course, that gets you nowhere and in fact is a bit of an insult to the members who have applied.
So I say to the noble Baroness, Lady Bennett, and to the Minister that this is a subject that is much wider than this amendment, but it is certainly one that needs looking at. The way in which pensioners are represented on the governing boards of pension funds is haphazard, to put it mildly. It varies enormously between funds. Although there is a great cry from professional trustees that you clearly need professionals in the room, I counsel the Minister and everybody else to beware of the cry for the professional. It is very easy to get a professional to sit there and give you advice as an employee or if they are hired for the purpose. You do not necessarily need more than the odd one of them actually on the board. They have nothing great to add than cannot be added by a professional adviser. They do not need a place on the board, although sometimes—note the word “sometimes”—having a professional trustee as a chair can add a certain amount of discipline, knowledge and structure to the way that debates go. But it can be overestimated and, particularly since the pensions industry is dominated by the professionals, there is a great danger that it gets overemphasised because it is precisely the people who write in the pensions papers who are the experts and who then promote themselves for the jobs.
So I welcome the amendment in the name of the noble Baroness, Lady Bennett; I see it just as a probing amendment, laying down a few guidelines that we could look at. I say to the Minister that when there is an opportunity, it would be well worth while to set up some sort of study or working group to look at the way in which trustees are chosen or appointed, how they work and how they are remunerated.
My Lords, I thank the Minister for the way in which she introduced these amendments, and particularly for the concessions that she granted on affirmative procedures for the issues that are contained in the government amendments. This is a very welcome response by Ministers to the feeling that was in the House.
I will speak to Amendment 1 and associated amendments in the name of the Minister concerning the authorisation criteria for collective money purchase schemes. I warmly welcome the introduction of these schemes, also known as collective defined contribution—CDC—schemes, as they represent an attractive third way in workplace pension provision, with a capacity to deliver significantly better outcomes for savers than individual DC—direct contribution—schemes. However, in order for the CDC schemes to be widely trusted, we need to get the legislative and regulatory framework right. To give one example, it is vital that the authorisation criteria are appropriate. A balance must be struck in ensuring that requirements are not so cumbersome as to deter employers who might offer these schemes from doing so, while ensuring that there are robust protections in place for employees saving in these schemes.
If we can get this right, there is a significant prize to be had in the introduction of CDC schemes, and the case for this is only strengthened by the current Covid-19 crisis. The virus has had many negative consequences for our society and economy. One of those consequences is directly relevant to the Bill before us today: there has been significant negative impact on the defined contribution pension savings of many individuals as a result of the financial markets’ reaction to Covid-19. I am afraid that, as the noble Baroness, Lady Altmann, so compellingly pointed out, the Bank of England’s recent injection of quantitative easing will make this much worse. A drop in asset values and bond yields has led to more expensive annuities and resulted in pension reductions of around 8% to 10%. This has caused much consternation and led a significant number of people to defer their retirement during this period.
In my remarks at Second Reading, I welcomed the introduction of CDC schemes and cited, among other factors, their enabling of the pooling of risk between savers. This can, in turn, enable higher-yield investment strategies, as well as less volatility and greater predictability for savers. It begs the question, therefore, of how CDC schemes might have fared in comparison with individual DC schemes in the light of the recent crisis and the sharp economic downturn that has so negatively impacted DC pension savers.
Royal Mail, which in conjunction with the communication workers—CWU—has been leading the push for the introduction of CDC for its 143,000 employees, asked its actuarial advisers to look at precisely this question. The resulting analysis, carried out by pension consultants Willis Towers Watson, was conducted in the context of the 20% fall in the global equity market in the first quarter of this year. The modelling looked specifically at how the CDC scheme design proposed by Royal Mail would have been affected. The conclusion reached by Willis Towers Watson was that the CDC would have performed significantly better than an individual DC scheme. In this scenario, a scheme member close to retirement would have been able to retire as planned, with no reduction in their retirement income. This is because the Royal Mail scheme is designed with a certain amount of headroom in contributions, intended to fund future pension increases. As Willis Towers Watson has written,
“it is only if the funding health suffers very materially that the headroom could run out and pensions would be reduced … in the vast majority of scenarios, it would only be the level of future pension increases that would be at risk.”
Even with the severe level of market shock experienced in quarter one of this year, therefore, the modelling shows no effect on current pension levels for CDC scheme members, and that is very welcome. Future pension increases would be impacted, but only by a modest 0.25% per year, as this market shock was nowhere near severe enough to remove the significant headroom that the scheme would hold. In contrast, an individual DC pension saver, due to retire by starting to draw down benefits in the near future, would expect their pension pot to have fallen in value by approximately 10% over the quarter. While they would have the option to keep the pot largely invested, this saver would potentially have to rethink their retirement plans, such as changing their planned pace of drawdown, or even deferring their retirement altogether for a period. Those considering an annuity would find that the price levels had increased by around 8% over the quarter.
This analysis provides a timely and powerful illustration of just one of the benefits that CDC schemes will bring to savers through the pooling of risk and the capability to build up significant headroom to smooth out the impact of shocks, even those as severe as we have recently experienced. CDC therefore represents an attractive third way in workplace pension provision, offering better value and greater certainty for savers than individual DC schemes. With that in mind, I welcome the Government’s commitment to ensuring that the appropriate processes will be in place around authorisation criteria. I commend the Bill to noble Lords, and I hope that we will see its swift passage through its remaining stages in this House and its early introduction and passage through the other place.
My Lords, I join other noble Lords who have already spoken in saying how pleased I am to see that my noble friend the Minister has listened to many of the recommendations made by the Delegated Powers Committee, which were warmly endorsed by the committee to which I belong, the Constitution Committee. We have had two powerful committees of one mind, so I am extremely pleased by this turn of events. Perhaps I may make one or two points because I know that the chairman of the Delegated Powers Committee, my noble friend Lord Blencathra, is to come in later in this debate, and I am sure that he will want to go into much more detail than I am minded to do.
The first-time-only procedure has happily now been abandoned in Clauses 11 to 17. It is not simply that the current Administration may well want subsequently to bring forward massive changes, but that they cannot know what use a future Administration might make of them. That is all the more reason to be careful about what powers are given to any Government.
I confess to some disappointment about the negative procedure being used where urgent changes need to be made. The Government seem to be suggesting that that is absolutely essential because otherwise delay would be difficult. Have they not heard of the “made affirmative” procedure, which allows a Government to put a regulation into action immediately, and then after 40 days Parliament has the opportunity to confirm it or possibly to reject it altogether? I hope that the Government, and the departments which support them, will no longer continue to use this weak argument in favour of the negative procedures. That said, I am pleased with the way things have gone and I offer my noble friend a bouquet—a modest bouquet—for what she has done.
My Lords, it is entirely appropriate that I should first declare my interest. I am a trustee of the Parliamentary Contributory Pension Fund; I have been one for the best part of 20 years. I am also 83, and all I can say in reflection is that I was formerly the chairman of three financial companies, and I have been a pension trustee on two schemes prior to the one—the only remaining one—that I am on now. It is not my intention to comment too much on the Bill; rather, I see my role in the interests of the membership—I am a member and there certainly will be others in Parliament who are members—to keep a watching brief and, if appropriate, to make some comments to my noble friend on the Front Bench. I should also say to her that I was the Chairman of Ways and Means in another place and I too was not in favour of the negative procedure for really serious things. She has taken a very wise decision on Amendment 1; I am sure that it is the right one and should be applauded on all sides.
I will listen to my noble friend’s answer on Amendment 2 because, if it is right in the round, there would need to be a specific reason for its not being appropriate in leaving out subsection (8). Amendment 33 is in this group and has been commented on. I have given my age and I think that my gender is obvious, as is my ethnicity. It is appropriate that every set of trustees should have a range of people as regards age, experience, gender and so on, but in my judgment the key issue is commitment. We are very lucky on the Parliamentary Contributory Pension Fund because the members, almost to a man and a woman, turn up regularly to meetings, ask good questions and are good advisers, so that, at the last point, as a fund we were very much in positive territory. As I say, I am not going to make too many comments, so without further ado I once again congratulate my noble friend on the Front Bench.
My Lords, I congratulate my noble friend on the Front Bench on the clarity with which she has introduced this Report, and I thank her and the Bill team for the time, effort, care and consideration they have taken with Members, which is best illustrated by the number of government amendments which have rightly been brought forward at this stage in our proceedings. She has clearly demonstrated what can be achieved collaboratively in the legislative process when it is approached with such openness. She and her team absolutely epitomise a truth that everyone should constantly remind themselves of: two ears, one mouth.
The pensions proposition is one of the greatest creations of civilisation, but just in my lifetime—without giving away my age, I am only slightly younger than my noble friend Lord Naseby—we can see that the proposition has changed, not so as to be unrecognisable but significantly. It started out with a commitment by employers to have defined benefits where they would take the risk. The fund was rightly separated from the employer under the governance model of a trust. That clear separation of powers was eminently sensible because something as significant as someone’s retirement nest egg should be separated from the corporate entity so that if, God forbid, anything should happen to the corporate entity, the pension fund would remain. What has occurred in recent years is an extraordinary shift of that risk, if not a wholesale one, from the employer to the employee, hence the explosion of defined contribution schemes. In reality, neither position is where an individual, a group or even a society would wish to be, given that so much of the risk falls on to one or other of the parties. That is why CDCs have a lot to recommend them, not just in the combining of resources and the pooling of risks, which is a great advantage, but in the positive implications that the initials “CDC” have in other areas of our lives. Let us consider the Commonwealth Development Corporation and the United States Centers for Disease Control and Prevention. We should take something from the positivity of the acronym because it has a lot to recommend it.
This would certainly not be necessary had we not seen some of the changes, not least to how schemes were funded and how the funds were treated, particularly from the taxation point of view. That was one of the biggest nails in the coffin of defined benefit schemes. However, that is water long under the bridge. CDC schemes will become increasingly significant to pension provision as we go forward. They are a positive contribution to this area and I wish this Bill a speedy passage through your Lordships’ House, and its equally speedy consideration and passage through the other place.
My Lords, I, too, thank the Minister for her introduction and for returning to her usual helpful mode on this occasion, unlike during questions the other day. I hope that it does not do her any harm with her Whips, but we are very grateful to her.
I want to speak in support of Amendment 33, which has not yet been moved, although I hope that we will hear later from the noble Baroness, Lady Bennett of Manor Castle. I nearly said “Barnard Castle” but that is a more notorious place.
Diversity, whether based on ethnicity, gender, sexual orientation, age, socioeconomic background or disability, continues to be a key issue facing our society today. Indeed, diversity is still lacking across many FTSE companies in key sectors such as engineering, science, technology and banking, not to mention in this House and the other place.
In the pensions sector, many pension fund trustees and the top levels of executive teams also lack diversity. Some progress has been made. Nevertheless, data from the Pensions and Lifetime Savings Association indicates that, overwhelmingly, private sector pension fund trustees are male. The Pensions Regulator also found that about half of the chairs and a third of the trustees are over 60 years old. With no disrespect to my noble friend Lord Naseby—whom I must be nice to as he is doing a good job on the board of the Parliamentary Contributory Pension Fund, in which I must declare an interest—I think that this is a bit of an imbalance.
Of course I am concerned. In other areas, older people are discriminated against on grounds of age, but in this instance it is younger people who are underrepresented on boards, which make decisions of importance to them as well. With the introduction of auto-enrolment, which has brought about more and more young savers, as well as a greater focus on those in society who are “under-pensioned”, such as women and ethnic minorities, it is important that trustees managing the increasingly diverse pension profile also become increasingly diverse to reflect these savers. Requiring pension schemes to provide information on the diversity of the boards helps to provide some form of greater transparency and opportunities for the better governance of pension schemes.
To add to that, I believe that, although reporting on diversity is important, it may be of equal, if not greater, importance for schemes to be required to provide plans on how they hope to achieve better diversity on their boards of trustees. I hope that the Minister will continue in the helpful manner with which she started and that she will give the House, and me, some encouragement in this direction in her reply.
My Lords, it is a pleasure to follow the noble Lord, Lord Foulkes. I should say that I grew up near Barnard Castle and it was not notorious at that time.
I echo the tributes that have been paid to my noble friend the Minister. It plays to her strength, charm, innate graciousness and wisdom that she has listened to the concerns expressed at the earlier stages of the Bill. Therefore, I, too, pay tribute to her and thank her most warmly for the work that she and her team have done in this regard.
I also echo the comments about the remaining instruments that will be taken by the negative procedure, particularly where they have an impact and perhaps have to be taken urgently. It is always important to have proper parliamentary scrutiny of these instruments.
For a year—I think at the invitation of my noble friend Lord Blencathra or his successor—I was asked to look at, and shadow, the impact on women’s pensions. During that time, I learned how difficult it is for women to seek advice at the earliest possible stage. I take this opportunity to ask the Minister to reassure the House today that, not just on the face of the Bill but particularly in the regulations that we are empowering under it, trustees, board members and all those concerned, including financial advisers, will be asked to urge women —particularly younger women at the start of their careers—to take advice at the earliest possible opportunity. Never is that more appropriate than with CDC schemes, which are a new form of pension scheme. Echoing the thoughts of my noble friend Lord Holmes of Richmond, I suppose that pensions from defined benefit schemes were deemed to be a sort of deferred income. Now, the situation is completely different with defined contribution schemes and with a generation coming through, many of whom will have student loans to repay and difficulty in entering the workplace at this time.
I confess that I am a beneficiary of the two pension schemes represented by those who have already spoken, but I feel personally disadvantaged by the WASPI legislation. I believe that it has cost the Conservative Party dear to ask women, at the end of their working life, to wait longer for their state pension. I am in a very fortunate position. I am in receipt of other pensions, so will not be completely dependent on my state pension when, if ever, I am entitled to claim it. When the debate was had in your Lordships’ House, the noble Lord, Lord Turner, made the point that 10 years’ preparation is required for any pension, but in this instance I do not think that 10 years was allowed for.
There is much in the Bill, and particularly in the government amendments which my noble friend has so eloquently spoken to today, that I support. My main concern is to ensure that the issue of women entering the pensions market is addressed in the Bill and in the enabling regulations.
My Lords, I will speak to this group and pass observations briefly on other issues raised by the Delegated Powers Committee that are covered by other amendments, so that I do not have to speak again and take up the time of the House.
I begin by saying how nice it is to see my noble friend and roommate Lord Naseby back in the Chamber. I also see that we share the same non-barber. In contradiction to the noble Lord, Lord Foulkes, I want pensioners, not youngsters, on my pension board.
As chair of the Delegated Powers and Regulatory Reform Committee, I give a very warm welcome to these concessions from the Government in Clauses 11 to 17 and Clause 25. As noble Lords will know, our report was highly critical of a number of delegated powers in the Bill, and it would be churlish of me not to acknowledge that the Government, and particularly my noble friend the Minister, have listened to quite a bit of what we recommended. I am sure that the whole committee would be delighted if the Minister would go one step further and accept our remaining recommendations, but that might be a bridge too far for her.
The government amendments to Clauses 11 to 17 now mean that all regulations, and not just the first ones, made under the provisions will have to be affirmative. We said in our report that the Government had failed to justify the first-time affirmative regime. We accept that there will be measures where the first regulation is major and should be affirmative and that subsequent ones might be just little tweaks where the negative procedure might be appropriate. However, that is not always the case, and we see a growing tendency among government departments, in addition to bunging highly inappropriate Henry VIII clauses into every Bill, to use this ploy of applying the first-time affirmative procedure and then the negative procedure for all subsequent regulations. The subsequent regulations here could be as important as the first regulation and I thank the Minister for making the change. The same reasoning applies to Clause 124, and I regret that the Government will not make that affirmative too.
We all accept that speed is often essential, but there is an alternative to the negative procedure which is just as speedy: the made affirmative procedure, whereby the Government lay the regulation, it comes into force immediately and then Parliament has 40 days to confirm it. That is a far better procedure than the Opposition having to put down a Motion against a negative resolution. This procedure would deal also with the amendment of the noble Lord, Lord Sharkey, on the negative procedure. I pay tribute to my illustrious predecessor, my noble friend Lady Fookes, as chair of the Delegated Powers Committee. Today, she made very telling points on the made affirmative procedure and first-time affirmatives.
I welcome the government amendment to Clause 25 too. We generally deplore Henry VIII powers, and for very good reasons: they deprive Parliament of the opportunity to scrutinise properly legislation that should go through all the procedures applied to Bills and Acts of Parliament. It is quite wrong to use the negative procedure, where there is no discussion whatsoever, for Henry VIII powers. At least with the affirmative procedure there is 90 minutes of debate.
As for the government amendment to Clause 47, we said:
“The fact that the Government have not yet worked out how multiple-employer collective money purchase schemes should be regulated has led to very wide powers being conferred by clause 47(3) to (5). Subsection (3) confers a power on the Secretary of State to make further provision in regulations about multiple-employer collective money purchase schemes. Although specific things are mentioned in subsection (3) as to what the powers may be used for. These are not exhaustive of the things which may be dealt in the regulations.”
We therefore recommended that the delegation of powers was inappropriate.
My noble friend the Minister’s amendment goes some way to flesh out the details of the plans, but we are still concerned that they give extensive powers to the Secretary of State. I was going to award the department and my noble friend eight out of 10, but in view of her generosity of spirit, graciousness and courtesy today, I will upgrade that to nine out of 10. While I would have liked all our recommendations to have been accepted, I congratulate the department and my noble friend for moving on so many of them when other Ministers and departments have obstinately refused to budge on anything.
I thank your Lordships’ House for allowing me to speak. I apologise for the earlier confusion. I also apologise in particular to the noble Lord, Lord Balfe, for upsetting the rhythm of his speech. I thank him and other noble Lords for providing an introduction to Amendment 33. I must pay tribute to the campaign group ShareAction, which has done a lot of work on the amendment. I know that it has informed other noble Lords about it.
I moved the amendment in Committee. In response, the Minister pointed to the consultation on the future of trusteeship, which concluded that, due to a lack of consensus on how to address the issue, it would look at setting up, and is setting up, an industry working group to look at the diversity of pension boards. While this is welcome, we need the data to inform that work. I ask the Minister to consider incorporating this into future versions of the Bill.
A further development has happened since we last debated the Bill. There has of course been a great upswelling of frustration and understandable anger, represented by the Black Lives Matters movement. The issue of ensuring that all voices in our society are heard and have decision-making powers is particularly pressing. I urge Members of your Lordships’ House to consider it.
In response to the amendment in Committee, the Minister stressed that she wanted the pensions dashboard to focus on the provision of basic information. That is why the amendment has been amended so that it does not refer to this information being on the pensions dashboard, but rather that it would simply be reported. Information on diversity could be published elsewhere. That might be on the Pensions Regulator’s website, or as an annexe to its planned SIP repository.
Other noble Lords have referred to the level of inequality in our society and the lack of diversity. I will finish by reflecting on what the noble Baroness, Lady McIntosh, said, and the fact that a 2016 survey showed that on average 83% of pension boards are male and that a quarter are all male. That reflects another crucial disparity: we all know that there is a very large pay gap between men and women, but the pensions pay gap, at 40%, is double the pay gap. These inequalities have to be tackled in our society along with levels of inequality and poverty. We have had a lot of discussions about intergenerational fairness, but we must not forget that there are already a lot of people at pension age now who really are struggling to get by in this difficult world.
I thank your Lordships’ House for the debate that we have had thus far and I look forward to further debates.
My Lords, like other noble Lords, I appreciate the government amendments to make regulations by the affirmative procedure. Having thanked the Minister for that, I will move on to speak on noble Lords’ amendments.
Amendment 2, in the name of my noble friend Lord Sharkey, would delete reference to negative procedure regulations being used to change the rules around fit and proper persons. It has been laid out how that might change who becomes a fit and proper person. My question is: would it also affect who might not become a fit and proper person and potentially elaborate further if it is found that people are doing things that should disqualify them? I sense that that might be a possibility. Although, under Clause 11(3)(b), regulators can take into account other such matters as they consider appropriate—I presume that that can be in the negative sense as well as the positive—it would be useful to know whether such powers in other areas as well as this are, in general, used. I detect that regulators are often reluctant to go beyond things that they can specifically point to in regulations. If that is the case, maybe the Minister has an excuse to have these powers. That is the area that I am interested in, but it would certainly be a much more significant move for this to be made by the affirmative, rather than the negative, procedure.
The noble Baroness, Lady Altmann, has tabled an amendment about data that I support, but like her I think that it is probably best to have just one debate on data. I will make my intervention on that later.
I also support the intention of Amendment 33 on diversity. I recognise, as the noble Lord, Lord Balfe, did, that it links to the wider issue of how trustees are appointed and where from. Many trustee appointments will link back to present or former workforces and therefore carry through any historical lack of diversity for quite a long time. Despite the fact that there might be costs to professional trustees, I still think that there should be scope to ensure that there are more additional independent external trustees, without necessarily going to people who are so embroiled in the making of regulations. It should be possible to find objective people who are not necessarily charging the equivalent of full professional rates.
Finally, my Amendment 45 is a simple one that says that regulations may not create a regulator. That might not be the intention, but Clause 51(3)(a) says that regulations may
“confer a discretion on a person”.
A discretion to do what: to allow, not allow or approve certain things? What kind of things and what kind of person? That could be wide enough to allow or disallow the doing of things regarded as being a regulator, yet there are none of the constraints in the Bill that would normally appear in such circumstances. I therefore seek some clarification about what “discretion” means and what powers it might conceal or cover.
My Lords, I should declare a historical pecuniary interest as a former independent director of the Financial Ombudsman Service. I should also declare that my home is in Durham so I have often visited Barnard Castle, but solely for the purpose of visiting the wonderful Bowes Museum. My eyesight is okay for the moment. I will save my remarks on data issues until a later group, but I will briefly address the other two issues raised by amendments in this group.
On regulations, concerns were expressed on all sides in Committee about the use of Henry VIII powers and the skeleton nature of much of the Bill, especially Part 4, but I am grateful that the Minister has engaged with us throughout this process on these and other issues. I think that it will make for a better Bill in the end.
I am grateful to have had sight of the draft regulations under Part 1, even if I would have preferred to see all the remaining draft regulations before Report. I am very glad to see the government amendments clarifying the scope of some of the regulations and those which make regulations affirmative or confirmatory. If nothing else, it saves me from tabling endless Motions just to ensure adequate scrutiny. However, I will be interested to hear the Minister’s answers to the points raised by the noble Lord, Lord Sharkey, the noble Baroness, Lady Fookes, and the noble Lord, Lord Blencathra, about the retained use of the negative procedure and other matters related to delegated powers.
Amendment 33 was tabled by the noble Baroness, Lady Bennett, on actions taken to ensure diversity in trustee boards. We had a really good discussion on these issues in Committee and I will not repeat my remarks from then or the comments of my noble friend Lord Foulkes of Cumnock. We all know that there is an issue with diversity on pension boards: the noble Baroness was right to reference Black Lives Matter and the need for appropriate representation on trustee boards.
There is also an issue with gender. I have never quite recovered from the PLSA finding that in 2016, a quarter of trustee boards had only men on them and that, on average, 83% of trustees were male. That is extraordinary. The regulator decided not to go ahead with a requirement similar to what is in this amendment because there was no consensus. Instead, TPR’s equality objectives for this year are: to establish a diversity and inclusion committee and to develop a four-year diversity and inclusion strategy and action plan. It is good to see action, but is the Minister confident that there is enough urgency in this approach to tackling the serious lack of diversity on pension scheme boards? I look forward to her reply.
I start by responding to some of the points that noble Lords have made, for which I thank them. On the point raised by my noble friend Lady Altmann, who questioned whether it should be for Ministers to decide who is running a scheme under negative procedures, let me clarify that the power in Clause 11(2)(e) does not determine who is running a scheme. It simply means that such people as prescribed are subject to regulatory scrutiny.
My noble friend Lady Fookes is obviously highly regarded on the issue of delegated powers. The “made affirmative” procedure is for use where there is a need to legislate in an emergency; here, we are talking about acting urgently, so the negative procedure is appropriate. I also thank her for the bouquet.
I agree with the noble Lord, Lord Hain, about getting regulations right, especially on authorisation. On the points made about the recent market changes and the impact on pension schemes, we will have to keep that under constant review but his support for CDC schemes is much appreciated. He also raised how pension members’ benefits would be impacted by the recent downturn—I have already referred to this—in asset values during the coronavirus pandemic under Royal Mail’s proposed CDC scheme. Like the noble Lord, I welcome the fact that the latest modelling conducted by Royal Mail’s actuaries, based on market performance during the first quarter of 2020, indicates that the downturn in the value of its anticipated asset portfolio would not have resulted in cuts to pension benefits and had only a small impact on next year’s inflation increase.
My noble friend Lord Naseby is not in favour of the negative procedure. This point was made by many noble Lords across the House and I can say only that we have listened. This brings me to the contribution of my noble friend Lord Holmes. The Bill team has been outstanding—they have been very patient with me—and I liked his reference to two ears and one mouth. We have definitely used our ears on this. On the comments of my noble friend Lady McIntosh of Pickering, we would of course urge everybody to take advice before committing to a pension scheme.
I am really pleased that my noble friend Lord Blencathra is pleased, and I am grateful for the increased mark of nine out of 10. I am sorry that I have not pleased the noble Lord, Lord Foulkes, this week but I promise to try harder.
My noble friend Lord Blencathra and other noble Lords raised the point about Clause 47 still being a Henry VIII power and asked why we have not changed it. A Henry VIII power to amend the CDC framework through regulations is necessary if we wish to see CDC provision opened up to master trusts and other non-connected multiple employer schemes sooner rather than later. I can confirm to the House that all regulations made under this power will be subject to the affirmative procedure. We would not want to make any regulations under this clause without proper debate.
My noble friend Lord Blencathra referred to Clause 124. As the supplementary delegated powers memorandum explains, the Government need to be able to respond to the constant development of industry best practice. It is expected that the Government will periodically amend requirements to ensure that they reflect those developments. These updates will focus not on a fundamental redesign of the policy, but evolution in light of emerging methodologies. We therefore believe that the negative procedure is appropriate.
The noble Baroness, Lady Bowles, mentioned Clause 11(2)(e) and queried the power for people to be excluded from regulatory scrutiny. No—the power can be used to include people but not to exclude them from scrutiny.
The noble Baroness, Lady Sherlock, asked whether there is enough urgency about increasing the diversity of boards. I will talk in my concluding remarks about the work that we want to do on diversity. We must inject as much energy as we can.
The amendment tabled by the noble Lord, Lord Sharkey, to Clause 11 is intended to enable discussion of the Government’s retention of the negative procedure in relation to regulations made under its subsection (2)(e). I have already demonstrated our willingness to listen to and address the concerns expressed about delegated powers in Part 1 of the Bill. We are confident that the list of persons, as set out in Clause 11(2), will capture necessary persons who should be subject to this test. However, should it become evident during live running that a person who has a significant role in the scheme is not captured, we would want to address this omission promptly so that members and their pensions are not put at risk. The power in subsection (2)(e) allows regulations to extend the reach of the “fit and proper persons” requirement to other people acting in a specified capacity in relation to a CDC scheme. It is in the interests of members for the regulator to have the power to assess the fitness and propriety of such persons without unnecessary delay. Time may be critical, and it is right that the fit and proper requirements apply effectively. We therefore consider that the negative procedure is appropriate in this instance.
My noble friend Lord Balfe raised the issue of the quality of trustees. The Government’s primary focus is on ensuring that trustees in all occupational pension schemes meet the standards of honesty, integrity and knowledge appropriate to their role. However, the Government are aware that the regulator plans to establish a working group aimed at developing additional guidance and supporting material to help the diversity of trustees. We welcome this development and look forward to seeing the outcome of this work.
Amendment 33, tabled by the noble Baroness, Lady Bennett, and supported by the noble Lord, Lord Foulkes, and my noble friend Lord Balfe, is intended to promote diversity in trustee recruitment. As I mentioned in Committee, the Pensions Regulator will look at trustee board diversity across all schemes and, as I have said, is planning to set up an industry working group to help pension schemes and employers improve the diversity of scheme boards. Unfortunately, the launch of this working group has been interrupted by Covid-19, as the regulator’s resource has had to be diverted quickly to deal with emerging issues from the pandemic.
I believe it was my noble friend Lord Balfe who talked about a study to see how trustees were performing and how they were doing. I will certainly take that back to the department and I endorse the point raised by the noble Baroness, Lady Bowles, about independent and objective trustees. I hope noble Lords will understand this delay to the working group, given the unprecedented situation we find ourselves in. However, I have been assured by the regulator that it intends to move forward with the working group as soon as is practical. I recognise the importance of diversity; however, it would be premature to pre-empt the outcome of the regulator’s work in this area. We will of course consider any outcomes from the working group as the CDC regulations are developed.
Finally, I turn to Amendment 45, tabled by the noble Baronesses, Lady Bowles and Lady Janke. This amendment seeks to ensure that regulations in Part 1 of the Bill cannot be used to set up a new regulator. I recall that the noble Baroness, Lady Bowles, was concerned that the powers in Clauses 47 and 41 in particular could be used for this purpose. I hope that the amendment to Clause 47 that I have just discussed has reassured both the noble Baronesses, Lady Bowles and Lady Janke, on this point. Clause 47 cannot be used to establish a new regulator. Clause 51 cannot be used to create a new regulator. The power it gives to confer a discretion on a person cannot be used for the purposes of setting up a regulator. The powers in Clause 51 are intrinsically linked to the specific powers in the Bill under which the regulations are made, and they do not permit an unrestricted power of delegation. This power is commonly found across pensions and other legislation; it is not wider than normal. More widely, I repeat the assurance I gave the noble Baroness in Committee: there is no need to rule out the creation of a regulator through regulations, as there are no powers in this Bill to create a regulator.
I apologise for the length of my response and hope that the explanations I have provided will help noble Lords not to press their amendments.
Amendment 1 agreed.
Amendment 2 not moved.
3: Clause 11, page 7, line 18, leave out “Subsequent regulations under subsection (3)(a), and”
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 7, line 16.
Amendment 3 agreed.
Clause 12: Scheme design requirement
Amendments 4 and 5
4: Clause 12, page 7, line 30, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 7, line 32, make all regulations under Clause 12(2)(b) subject to affirmative resolution procedure (see Clause 51(5)).
5: Clause 12, page 7, line 32, leave out subsection (5)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 7, line 30.
Amendments 4 and 5 agreed.
Clause 13: Viability report
Amendments 6 and 7
6: Clause 13, page 8, line 28, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 8, line 30, make all regulations under Clause 13(3) subject to affirmative resolution procedure (see Clause 51(5)).
7: Clause 13, page 8, line 30, leave out subsection (9)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 8, line 28.
Amendments 6 and 7 agreed.
Clause 14: Financial sustainability requirement
8: Clause 14, page 9, line 9, at end insert—
“(c) specifying requirements to be met by an employer using or intending to use a qualifying scheme under section 3(3) in respect of the costs under subsection (2) of this section.”Member’s explanatory statement
This amendment would give a power to the regulator to seek a contribution from an employer, using or intending to use a qualifying scheme, to the financial resources available to meet the costs of setting up and running the scheme or resolving a triggering event.
My Lords, I refer to my interests in the register. I move Amendment 8 in my name and that of my noble friend Lady Sherlock and the noble Baroness, Lady Bowles of Berkhamsted. Collective money purchase schemes—CMPs—seek to share risk collectively and more efficiently between their members. There is no employer promise under- pinning that risk. The Bill currently restricts CMP schemes to those set up by an employer or connected employers such as the Royal Mail. It would require the Secretary of State, exercising powers under Clause 47, to extend the qualifying definition to include CMP schemes that cover a lot of unconnected employers.
A function of the legislation is to understand the risks that members face in a CMP scheme, and to put in place appropriate measures to mitigate them. One of those risks is that a scheme becomes financially unsustainable and has insufficient resources to meet the costs of dealing with a triggering event where it occurs, and the cost of continuing to run on the scheme for a period while the problem is dealt with. These costs may include the cost of transferring members’ assets to another pension scheme and winding up.
Amendment 8 gives a power to the regulator to seek a contribution, from an employer using or intending to use a qualifying scheme, to the financial resources available to meet the costs of setting up the scheme or resolving a triggering event. A triggering event that would raise the alarm bells on financial sustainability could include the main employer becoming insolvent, declining in size or choosing to withdraw from the scheme—thereby cutting off the future supply of contributing members, which would undermine the collective risk-sharing approach—as well as a major administrative failure or governance failures that lead the regulator to rescind authorisation.
The resolution of these failures can incur significant costs. The risk of a scheme becoming financially unsustainable may be higher in a scheme that is used by only one employer or unconnected employers than in a scheme that has many unconnected employers participating. Where only one or connected employers are using the scheme, the actions or circumstances of that employer are much more likely to materially affect the financial sustainability of the scheme.
The financial sustainability requirement in Section 14 is intended to protect against that risk if a scheme experiences a triggering event. The Bill does provide restrictions on the imposition of member-borne charges during a triggering-event period, but my concerns remain that the Bill as drafted means that the only source of financial resource to deal with a triggering event could be restricted to the scheme’s fund.
My amendment does not seek to prescribe how exactly the pension regulator will implement the requirement that a scheme has sufficient financial resources to meet the financial sustainability requirement of meeting the costs of setting up a scheme or resolving a triggering event. What it does is to provide for the regulator to have the power to seek a contribution, from an employer using or intending to use a qualifying scheme, to the financial resources available to meet the costs of resolving a triggering event. Where, or whether, that power is used would be a matter for the regulator in the authorisation and supervision of each collective money-purchase scheme.
I have raised this issue on several occasions, which I am sure is a source of some frustration for the Minister and the department, but I have not received a clear answer. Can I ask the Minister to give clarity as to who can be required under the Bill to contribute to meeting the costs of resolving a triggering event? Clause 14(3) requires the regulator to satisfy itself that it has sufficient evidence that the financial sustainability criterion is being met and that members are protected. The Minister advised in Committee on 24 February that this would include
“evidence of any financial commitment by the establishing employer or connected employers ... that the scheme has access to the financial resources it needs, including in the event of employer insolvency.”—[Official Report, 24/2/20; col. 16GC.]
Although the evidence that the regulator will take into account is of interest, it does not give or specify that the pensions regulator will have the power to seek a contribution from an employer using or intending to use it as a qualifying scheme to the financial resources available to meet the costs of resolving a triggering event. That is the intent of my Amendment 8 and I beg to move.
My Lords, I have signed my name to both these amendments, which follow on from significant debate in Committee. I agree with what the noble Baroness, Lady Drake, said about how Amendment 8 bolsters the importance of ensuring adequate finance for the administration of a scheme in all circumstances. It is necessary to have certain requirements specified and agreed in advance rather than to rely on negotiation at what might be a difficult time or, indeed, where it might be impossible. I therefore wholeheartedly support Amendment 8.
Amendment 32 is important and reflects the matter of general fairness and, in particular—although it is not specified—intergenerational fairness, which was discussed in Committee. My noble friend Lord Sharkey will explain further, but I wish to make the point that we should remember that CDCs have shared risk, that their strength is that returns can be more predictable, and that there is intergenerational solidarity so that good times and bad are to some extent smoothed. That solidarity cannot be undermined by allowing market highs to be carried away by those who may chose to leave the scheme. It surely must be possible to devise mechanisms, whether by way of buffers, conservative valuations, a delayed retained part or something else, to prevent the problem that those wishing to transfer their pensions out essentially ruin what is left for everybody else. The point is that fairness has to extend over more than a snapshot in time. That is the only way that you will have fairness in the sense of shared risk to all the members.
My Lords, I wish to support Amendment 32, tabled by the noble Lord, Lord Sharkey, to which I have added my name. I should add that I also wholeheartedly support Amendment 8, but I will restrict my comments to Amendment 32.
While there seems to be general support for the introduction of this new type of pension—collective money purchase schemes, or CMPs; I am going to try very hard not to call them CDCs as we go through this—they are not without risk. As we discussed at some length in Committee, one of the greatest risks that is often raised in respect of CMPs relates to intergenerational fairness. Indeed, at the extreme, in a situation where no returns are being earned but pension levels are maintained for existing pensioners, the pensions being paid would be dependent on the funds being put by new joiners, as in a Ponzi scheme. That is very extreme, as I say, but it demonstrates that there is the possibility of one cohort being disadvantaged by the treatment of another cohort. If existing pensioners are paid too much, those currently paying in will suffer, and if the scheme is overcautious in what it pays out to pensioners, pensioners will suffer and current workers will gain.
This is not theoretical. We only need to look at what is happening in the Netherlands to see that the question of whether to cut benefits when returns are not as good as expected is a real and current issue. In a standard defined contribution scheme, the risk is not pooled, so the issue does not arise. In a defined benefit scheme, the matter is dealt with by the employer making up the difference. However, in a CMP, there is no possibility of that happening. If you want to maintain the level of pensions when returns are low, the future pensions of those still contributing will be impacted and vice versa, so the issue of intergenerational fairness is specific to CMP schemes.
It is also worth pointing out that CMPs have implications for not only intergenerational fairness but fairness more generally. For example, as the noble Baroness, Lady Bowles, pointed out, if someone wants to transfer their fund out of a scheme, how do you value their share? The benefits that arise from the scheme are uncertain, being targets only, so if you value a transfer based on the target benefits, which seems to be what is proposed, that will not take account of the risk that those benefits may not be achieved. In that situation, the person transferring out is getting a better deal than those staying, unless that risk is taken into account in the transfer valuation. The issue is complicated further because of the pooling of longevity risk in a CMP. For example, if someone has just a couple of years to live, there would be a strong incentive for them to take their money out to the detriment of those staying in.
Given that fairness is the single most commonly raised risk that relates to CMPs, it is curious that there is no explicit mechanism in the Bill to deal with it. In our previous discussions, we were pointed in the direction of Clause 18 to see how the matter is dealt with, but in fact that clause sets out only how benefits and so on will be calculated and says that regulations will be made in that respect; nowhere does it mention the critical question of fairness. I imagine that that is because it has been based on other pension legislation, which, as I said, does not suffer from this risk.
Amendment 32 introduces as very simple means by which to ensure that intergenerational fairness and fairness more generally must be assessed by the trustees. Given the importance of this issue, I urge the Minister to consider it really seriously.
My Lords, I have enormous sympathy with the aims of the two amendments in this group. Amendment 8, in the names of the noble Baronesses, Lady Drake, Lady Sherlock and Lady Bowles, was expertly moved by the noble Baroness, Lady Drake, and deals with situations where a pension scheme may not have enough money to meet its obligations and there is a risk that it will need to draw on the funds in the members’ pension pot rather than have money coming in from outside.
As I mentioned in debate on earlier stages of the Bill, I am particularly concerned about the situation where a scheme has had a triggering event or is winding up and may not have sufficient administrative budget to cope with, for example, a significant IT failure in which member records are lost or transposed from one to another so that it is an enormous job to unscramble each member’s entitlement. The costs of that work can be significant; if no reserves are in place to meet those costs and the employer is in financial difficulties, what will a CMP scheme be able to do to fund the costs of sorting out the records? It is true that the aims of the CMP scheme as set out in the Bill will be to have central estimated assumptions for guiding benefit adjustments to ensure that there is no difference of treatment between different members, but on the particular issue that I am referring to and that Amendment 8 refers to, the continuity strategy outlined in the Bill is supposed to have money to meet a triggering event, including its costs, but may not do so.
Therefore, as I understand it, the thrust of this amendment is to ensure that the Pensions Regulator requires a separate capital buffer, or that an insurance arrangement will cover the costs incurred in winding up, or that, in exceptional circumstances, the costs required to administer the scheme are met other than from members’ funds. When we set up this new regime, it is important that we make sure that we cater for eventualities that we do not expect to happen but which we know could in theory happen. Having seen with defined benefit schemes the devastating impact of scheme wind-up without sufficient resources and the amounts of money taken out of defined benefit schemes when an employer has failed or walked away from the scheme—those cases have reduced the amounts available for pensioners, in some cases to zero—there is a real need to look at some catastrophe insurance, disaster-type insurance or capital buffer of some kind to make sure that we have catered for that before it happens.
I think it would be wise for my noble friend to consider what else might be done over and above what is in the Bill. I also look forward to her answer to the specific question asked by noble Lords about what would happen in practice should a scheme require money that does not currently exist within the fund, other than in members’ entitlement pots, to cover the costs of wind-up. Of course CMP does not give each person an individual pot, but if the overall assets have to be raided to meet these costs, their pensions will be impacted.
That brings me to Amendment 32 in the names of the noble Lords, Lord Sharkey and Lord Vaux, and the noble Baroness, Lady Bowles. Again, I think it is true that the aim of the CMP system is to make sure that the benefit adjustments are fair to different cohorts of members. That is the crucial term—“cohorts of members”. My concern revolves around the position, as explained by the noble Lords, Lord Sharkey and Lord Vaux, of those who decide to become non-members. There is a real issue that trustees are required to assess that the scheme operates fairly but they also need to reduce the risk of a certain class of current members—in particular, those who decide that they wish no longer to be members—to select against those who remain members of the scheme. This selection can be either deliberate or inadvertent.
As the Institute and Faculty of Actuaries points out in its briefing, there are different ways to define fairness, but if we set up a system where either those members who are unwell, as the noble Lord, Lord Vaux, outlined, or those who decide that the markets are at record highs so they would like to cash in their pot right now and take the value as of today are able to select against the remaining members of the scheme, the principle of CMP is to some extent undermined. This type of scheme was originally proposed before the pension freedoms were introduced in the old environment, which it would have been much less likely for members to choose to transfer out of. In the current environment, many members may decide that they wish to transfer because of other benefits associated with pensions.
Therefore, whether or not the amendment is worded correctly—the concept of “fairness” is of course open to interpretation—we need to ensure that there is some kind of risk adjustment or long-term margin taken from those who wish to become non-members of a scheme, so that there is a buffer against future bad markets or unexpected changes in the parameters on which pension values are currently based for these schemes to become more sustainable in the long term. I look forward to my noble friend’s response and, possibly, reassurance.
My Lords, I will not detain the House for very long. I draw attention to the interchange and interface between the insolvency legislation that has now passed into law, on which I spoke a short time ago, and this Bill. The reason for that is that we are at a moment of the trigger events being more likely than in our recent history. The noble Baroness, Lady Altmann, referred to the pension freedoms. It struck me as I was listening to the debate today how relevant that is because five years ago the then Chancellor decided to provide a stimulus to the economy as PPI out-payments were drawing to a close, and he did so with an understanding that that would not destroy the pension entitlement or, as provided in Amendment 32, the balance of fairness between generations.
I am supporting both Amendment 8, moved extremely well by my noble friend Lady Drake, and Amendment 32. Anything that puts people and the wider scheme at risk, including these CMP schemes, is dangerous not only to the individuals concerned but in the dislocation of something broader—that is, the commitment that I commenced when my noble friend Lady Drake, along with John Hills and the chair of the commission back in 2005, Adair Turner—the noble Lord, Lord Turner—proposed auto-enrolment.
We are at a moment when, following the withdrawal of the furlough schemes, we face enormous unemployment, great insecurity and risk. At this moment we need to be able to secure not just the present but the future, and that future has to be about those young people contributing, as has already been said in relation to Amendment 32, and the danger that those who find themselves in temporary need of funding will withdraw funds at a moment that is deeply inappropriate for the viability of the programme as a whole. I hope that the Minister will respond positively and, if not, that we will press Amendment 32 to a vote.
My Lords, I support Amendment 8 but I will address my remarks to Amendment 32. The amendment seeks to ensure fairness for all members of CDC schemes, especially between different generations who may stand to gain or lose from future circumstances, as noble Lords have already referred to.
In Committee we debated this issue at length and a number of issues emerged. The Bill states that the scheme provides for intergenerational fairness among its members, specifically in connection with the amount of benefits paid to pensioners, proposed adjustments to annual benefits and cash-equivalent values provided to members wishing to transfer out of the scheme. A requirement of collective money purchase schemes requires outperformance or underperformance to be reflected in the benefits paid to all members. However, there is usually a reluctance to deliver pension cuts, as in the Netherlands example that the noble Lord, Lord Vaux, described in Committee: when the Government intervened temporarily to avoid a cut in pensions, younger members of the scheme lost out as pensions were kept higher than the scheme could afford.
CDC schemes are required to agree a pension target rather than a firm outcome, and the expectation of pensioners may be different in the event of the underperformance of investments over time. So unless pensions were to be cut, which is a decision that is largely avoided, younger members of the scheme could lose out in the interests of existing pensioners. In the instance of a large number of people choosing to cash in their pensions, as others have said, there is a risk to new and younger entrants to the scheme, particularly if the value of the scheme is significantly reduced.
Our Amendment 32 seeks to press the Government into being more explicit and much clearer in their commitment to fairness across the board to all members of the scheme by requiring the trustees to make an assessment of the fairness of the scheme. The amendment addresses the interests of transparency and fairness and the welfare of all members of the scheme, and I support them.
I think the amendments have been extremely well aired and I await the response from my noble friend on the Front Bench.
My Lords, I will restrict my remarks to Amendment 32, which is in my name and the names of the noble Lord, Lord Vaux of Harrowden, and my noble friend Lady Bowles. I thank them for their support. In Committee, we spent a long time discussing intergenerational fairness in CDC schemes. We did this partly because we knew from the Government’s excellent briefing note that concern about intergenerational fairness was raised by many respondents to the consultation and because it seemed clear that the risk to intergenerational fairness was an almost inevitable feature of such schemes.
We pressed the Government to legislate the requirement for intergenerational fairness into the schemes. We knew that the Government themselves were deeply concerned about the issue and seemed to be choosing mechanisms for intergenerational fairness over benefit stability; but as I remarked at the time, it was hard to tell how they might work, since the mechanisms for bringing this about were not yet explicit and no real assessment of effect was possible.
In her response, the Minister made it clear that she shared our commitment to ensuring intergenerational fairness and that the mechanisms for achieving it would be introduced, after extensive consultation, by regulations under Clause 18. This will be long after the Bill has become an Act, and leaves open the question of how we will assess the success or otherwise of these mechanisms. It also leaves open the question of how the assessment of any such mechanisms will be communicated to members and potential members of the scheme.
Our Amendment 32 proposes a way of addressing these issues. It provides that, whenever TPR issues a notice requiring a scheme to submit a supervisory return, the notice must include a requirement that the trustees
“make an assessment of the extent to which the scheme is operating in a manner fair to all members.”
The amendment speaks of fairness. Intergenerational fairness is a critical subset of fairness, but there are other kinds of fairness, too. For example, there is gender fairness, and single versus married status and the fairness implicit in that, or not. The amendment makes no attempt to define fairness; it relies on the trustees to do that, as they should in the normal operation of the scheme. Their definitions and assessments will help members of all classes, and potential members, understand the working of their scheme and the success of the trustees in operating it fairly in the interests of all members.
As I mentioned in Committee, AJ Bell noted that the DWP leaves little doubt that it will not allow schemes to be skewed in favour of one cohort of members over another. I am sure that is the intention, but AJ Bell also noted that fairness could make outcomes in CDCs less predictable and raises the spectre of pension cuts. It goes on to say:
“The DWP itself notes any reductions in benefits will not be well received, and so clear communication of this – not just upfront but on an ongoing basis – will be absolutely essential.”
Our amendment will bring some communication and transparency to the balancing required to produce, and to the consequences of producing, fairness across all member cohorts.
In Committee, the Minister explained how the proposed headroom mechanism for the Royal Mail scheme would be fairer than a capital buffer. All classes of members and potential members of the scheme need to know how well this headroom mechanism or other mechanisms generated by Clause 18 are working. Our amendment will require the trustees to explain these things and to assess their success in managing the scheme fairly for all members.
Given the acknowledged risks to fairness inherent in the scheme, and that Parliament’s opportunity to influence the mechanisms that might arise in regulation will be as small as usual, it is vital that scheme trustees are open and transparent about their success in producing fair outcomes for all members. That is what our amendment would help bring about, and I intend to test the opinion of the House.
My Lords, I say at the outset that Labour supports Part 1 of the Bill and the move to create CMP schemes, provided, of course, that they are not used as a means of downgrading good DB schemes. The two amendments in this group deal with different concerns that have been expressed about CMP schemes. Amendment 32 acknowledges that there may be a divergence of interests between different sets of members in a scheme of this kind. It does not prescribe any particular action but it does require trustees to surface the issue and to assess the extent to which the scheme is fair to all members.
Meanwhile, my noble friend Lady Drake has clearly explained the concern that lies behind Amendment 8, in our names. There are risks in this kind of scheme, and we are concerned about what happens if a CMP scheme becomes financially unsustainable and cannot meet the costs of dealing with a triggering event—for example, supporting the scheme while the problem is sorted or, if it cannot be sorted, covering the costs of wind-up or transferring members’ assets to another scheme. All Amendment 8 does is give an explicit power to the regulator to seek a contribution from an employer sponsoring a CMP scheme, so that money is there not just to meet the costs of setting up the scheme, but to resolve a triggering event, if it happens.
My noble friend Lord Blunkett was right to stress the dangers of our current economic state, and my noble friend Lady Drake gave various examples of the problems that could arise. A key risk is that the main employer goes bankrupt or downsizes significantly. Both risks, as my noble friend Lord Blunkett pointed out, are all the greater given the fallout from the Covid pandemic. Alternatively, the employer may want to withdraw from the scheme or there may be some failure of administration or governance, which would cause the scheme to lose authorisation. As was pointed out by the noble Baroness, Lady Altmann, dealing with the fallout of events such as that could be seriously expensive. If there are no other employers or only ones connected to the business, who picks up the tab? The scheme cannot raise members’ charges during a triggering event, which leaves us with a core question: if money is needed to cover essential costs, where else would it come from other than members’ funds?
This is not a prescriptive amendment at all. All it does is to make it clear that the regulator can seek a contribution from an employer to provide for the costs of resolving a triggering event. Whether that power is used would be a matter for the regulator in the authorisation and supervision of each scheme. That is our issue. Unless the Minister can demonstrate that my noble friend Lady Drake’s compelling case is wrong and there is some other way that those costs can be covered, there are only two ways the Minister can respond to this. The first is to say the regulator already has such a power, so the amendment is not needed; and the second is to say the regulator does not have the power and the Government do not want it to have it. I very much hope that the answer is the former, but I look forward to the Minister telling us which it is.
My Lords, I begin by addressing the amendment to Clause 14 tabled by the noble Baronesses, Lady Sherlock, Lady Bowles and Lady Drake. In doing so, I want to stress that ensuring members are treated fairly has been a central part of our work on CDC schemes since we began. As I explained in Committee, and in more detail in the letter sent to your Lordships on 5 March, the financial sustainability requirement will mean that CDC schemes are established on a sound financial basis and members are adequately protected from unfair and excessive administration charges.
I understand the intention behind this amendment but I do not consider it to be a necessary addition. For the financial sustainability requirement at Clause 14 to be met, the trustees must provide evidence that they can access sufficient financial resources to cover the costs associated with setting up and running the scheme, as well as those associated with dealing with triggering events. If the regulator is not satisfied about the security of these resources and that they can be accessed as needed, the requirement will not be met and the scheme will not be authorised. It may well be that, in the early days of a CDC scheme, initial funding comes from the employer, but our approach does not just rely on employer-provided financial support; it enables trustees to draw on other options, including funds held in escrow, insurance policies or contingent assets. These should be available to cover any costs arising from a triggering event.
The noble Baroness, Lady Drake, asked who can be required to meet the cost of triggering event. The regulator will work with the trustees, employees and others connected to the scheme to ensure that the scheme always has secure access to sufficient assets so that members’ funds are not affected. My noble friend Lady Altmann made the point that transfer values should be adjusted for future risk. Our legislation will require benefits and transfer values to be calculated based on long-term factors such as longevity, inflation and investment returns. This has the effect of smoothing outcomes and will mean that transfer values will not suddenly rise and fall, making cashing-in not as attractive as my noble friend suggests.
Once authorised, the scheme will need to continue to have access to sufficient financial resources so that it continues to meet the financial sustainability requirement. The regulator will monitor this through ongoing dialogue between the trustees, intelligence work and the significant events framework in Clause 28. This will ensure that it can intervene if it is concerned about a scheme’s financial sustainability and that, where necessary, a scheme could be de-authorised and wound up using the financial reserves. Our approach means that a CDC scheme must remain financially sustainable and able to deal with situations such as an employer withdrawing from the scheme or becoming insolvent.
As we set out in the letter that we sent to noble Lords, we are also taking additional steps to protect members. The CDC charge cap will help to protect members from excessive administration charges if the usual running costs of a scheme increase significantly for any reason. In addition, the continuity strategy at Clause 17, the implementation clause at Clause 39, and the prohibition on increasing charges during a triggering event at Clause 45 are all designed to protect members’ interests when things go wrong.
I now move on to address Amendment 32, tabled by the noble Lords, Lord Sharkey and Lord Vaux, and the noble Baroness, Lady Bowles, which is about intergenerational fairness—a matter raised by many noble Lords and the subject of extensive discussions. We have been mindful of the problems that other countries have experienced, for example in their approach to adjusting benefits. We have learned from these. That is why envisaged regulations under Clause 18 will mean that the CDC’s scheme rules must require that there is no difference in treatment between different cohorts or age groups of scheme members when calculating benefits and applying benefits adjustments.
The noble Baroness, Lady Janke, raised a point about issues experienced by CDC schemes in the Netherlands. We have been mindful of the problems that other countries have experienced. UK CDC schemes will not be required to have a buffer to smooth out fluctuations in the value of the benefits. Members’ benefits will be adjusted each year in light of the most recent actuarial valuation. This protects members from the need to fund a surplus and means that adjustments to benefits are provided for each year rather than hidden and stored up.
I welcome the sentiment behind the proposed amendment; it is something to which we want to give further consideration. We need to give careful thought to how such reporting might work in practice and would want to work with trustees, administrators and the regulator to ensure that any such requirement is proportionate, appropriate and clear. We would also want to consult on any such approach to make sure that it is effective. I reassure all noble Lords that we will give this matter careful consideration. Should we need to bring forward such a requirement in regulations, we already have sufficient powers in existing legislation to require schemes to report on fairness in CDC schemes if warranted. This includes powers under Section 113 of the Pension Schemes Act 1993 and Clause 46 in Part 1 of the Bill. There are also equivalent Northern Ireland provisions. For the reasons that I have set out, I ask the noble Baroness to withdraw the amendment.
My Lords, I support Amendment 32, but I shall direct my comments to the Minister’s response to Amendment 8. The Minister has been very courteous in the face of my persistence on this issue and I have listened carefully to what she has said. In listening, I noted four things: first, that the powers in the Bill mean that the regulator can require initial funding from employers in the setting up of a CMP scheme; secondly, that those funds can be used to buy an insurance policy or be put into an escrow account; thirdly, that they can be available to fund triggering-event costs; and fourthly, should a triggering event occur, the regulator will work with both the employer and the trustees to ensure that sufficient financial resources are available to meet the costs of a triggering event. That is my understanding of what the Minister has said; I would, of course, expect the final regulations presented to Parliament to reflect that. On that understanding, I shall not push Amendment 8 to a vote. I beg leave to withdraw it.
Amendment 8 withdrawn.
Amendments 9 and 10
9: Clause 14, page 9, line 10, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 9, line 12, make all regulations under Clause 14(3) subject to affirmative resolution procedure (see Clause 51(5)).
10: Clause 14, page 9, line 12, leave out subsection (6)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 9, line 10.
Amendments 9 and 10 agreed.
Clause 15: Communication requirement
Amendments 11 and 12
11: Clause 15, page 9, line 41, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 9, line 43, make all regulations under Clause 15(4)(a) subject to affirmative resolution procedure (see Clause 51(5)).
12: Clause 15, page 9, line 43, leave out subsection (7)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 9, line 41.
Amendments 11 and 12 agreed.
Clause 16: Systems and processes requirements
Amendment 13 not moved.
Amendments 14 and 15
14: Clause 16, page 10, line 29, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 10, line 31, make all regulations under Clause 16(2) subject to affirmative resolution procedure (see Clause 51(5)).
15: Clause 16, page 10, line 31, leave out subsection (6)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 10, line 29.
Amendments 14 and 15 agreed.
Clause 17: Continuity strategy requirement
Amendments 16 and 17
16: Clause 17, page 11, line 18, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 11, line 20 make all regulations under Clause 17 subject to affirmative resolution procedure (see Clause 51(5)).
17: Clause 17, page 11, line 20, leave out subsection (11)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 11, line 18.
Amendments 16 and 17 agreed.
Clause 62: Fit and proper persons requirement
Amendments 18 and 19
18: Clause 62, page 47, line 6, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 47, line 8, make all regulations under Clause 62(3)(a) subject to confirmatory procedure (see Clause 102(5)).
19: Clause 62, page 47, line 8, leave out “Subsequent regulations under subsection (3)(a), and”
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 47, line 6.
Amendments 18 and 19 agreed.
Clause 63: Scheme design requirement
Amendments 20 and 21
20: Clause 63, page 47, line 20, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 47, line 22, make all regulations under Clause 63(2)(b) subject to confirmatory procedure (see Clause 102(5)).
21: Clause 63, page 47, line 22, leave out subsection (5)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 47, line 20.
Amendments 20 and 21 agreed.
Clause 64: Viability report
Amendments 22 and 23
22: Clause 64, page 48, line 19, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 48, line 21, make all regulations under Clause 64(3) subject to confirmatory procedure (see Clause 102(5)).
23: Clause 64, page 48, line 21, leave out subsection (9)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 48, line 19.
Amendments 22 and 23 agreed.
Clause 65: Financial sustainability requirement
Amendments 24 and 25
24: Clause 65, page 49, line 1, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 49, line 3, make all regulations under Clause 65(3) subject to confirmatory procedure (see Clause 102(5)).
25: Clause 65, page 49, line 3, leave out subsection (6)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 49, line 1.
Amendments 24 and 25 agreed.
Clause 66: Communication requirement
Amendments 26 and 27
26: Clause 66, page 49, line 31, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 49, line 33, make all regulations under Clause 66(4)(a) subject to confirmatory procedure (see Clause 102(5)).
27: Clause 66, page 49, line 33, leave out subsection (7)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 49, line 31.
Amendments 26 and 27 agreed.
Clause 67: Systems and processes requirements
Amendments 28 and 29
28: Clause 67, page 50, line 20, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 50, line 22, make all regulations under Clause 67(2) subject to confirmatory procedure (see Clause 102(5)).
29: Clause 67, page 50, line 22, leave out subsection (6)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 50, line 20.
Amendments 28 and 29 agreed.
Clause 68: Continuity strategy requirement
Amendments 30 and 31
30: Clause 68, page 51, line 7, leave out “The first”
Member’s explanatory statement
This amendment and the Minister’s amendment at page 51, line 8, make all regulations under Clause 68 subject to confirmatory procedure (see Clause 102(5)).
31: Clause 68, page 51, line 8, leave out subsection (11)
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 51, line 7.
Amendments 30 and 31 agreed.
Clause 27: Requirement to submit supervisory return
32: Clause 27, page 18, line 10, leave out “The notice” and insert “Any such notice must include the requirement that trustees make an assessment of the extent to which the scheme is operating in a manner fair to all members and”
Member’s explanatory statement
This amendment would require any notice from the Secretary of State to CDC scheme trustees to include a requirement to report on the fairness to members of the operation of the scheme.
My Lords, I wish to test the opinion of the House on Amendment 32.
30 June 2020
Division conducted remotely on Amendment 32
Amendment 32 agreed.View Details
Clause 46: Publication of information
Amendment 33 not moved.
We now come to the group beginning with Amendment 34. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or any other amendment in this group to a Division should make that clear during the debate.
34: Clause 46, page 37, line 14, at end insert—
“( ) require information to be published relating to actions taken by the scheme with regard to how scheme investments take environmental, social, and governance factors into account.”Member’s explanatory statement
This amendment adds requirements for reporting on broader environmental and social issues. It does not require it to be included on the dashboards, but it could be published elsewhere.
My Lords, I rise—at least metaphorically—to speak to Amendment 34. I will also refer to Amendments 73 and 79, to which I have attached my name. I pay tribute to the Minister, who has been very generous with her time on those two later amendments addressing the climate emergency. Her department has paid a great deal of attention to them; this is an area on which progress has been made, which is appreciated. It is a positive sign.
However, Amendment 34 addresses the fact that the climate emergency is only one of the critical factors facing our society today. “Environmental, social, and governance” is one of those buzz-phrases that does not exactly trip off the tongue. It means this: how does a company perform as a steward of the natural world and as a part of the society from which it makes, hopefully, its profits? What is its impact on its employees, suppliers, customers and the community in which it operates? We are talking about systems thinking of the kind that lies behind the sustainable development goals, to which this Government and most others around the world have signed up. It means having a decent life within the physical limits of this one fragile planet.
You might say that that is a pretty good goal that we should write into pensions legislation anyway. Even if you do not think that it is something this legislation should try to achieve, if you consider the narrower situation of the direction and risks of investments, there is increasing awareness in the investment community that environmental, social and governance issues are also a very good measure of risk. In some of the great financial and natural disasters of recent times, such as the BP Deepwater Horizon oil well blow-out in 2010 that had such enormous environmental impacts and the Volkswagen “Dieselgate” scandal, we have seen a problem with a company’s actions, but with a narrow focus on the climate emergency and not considering other factors that proved to be a real issue.
On the technicalities of this amendment, I stress that it has taken on board the Minister’s comments in Committee. The amendment then suggested that this information be included in the pensions dashboard; it now proposes that it could be included elsewhere when supplied to the Pensions Regulator—perhaps on its website or the SIP repository.
I know that the noble Baroness, Lady Ritchie of Downpatrick, will say later in the debate on this group of amendments that some of the amendments relate to Northern Ireland and that pension Bills have previously been left to the Assembly. I would appreciate it if the Minister would address that in her response. I would also appreciate a response on the fact that, while the climate emergency is one of the critical issues we face, we are in an age of shocks. There are many others: the nature crisis, the social emergency and the big impacts some of our largest companies are having around the world, as we see in the protests and extreme distress in garment factories in countries such as Bangladesh, India and Cambodia. Pension investors should be able to take account of these issues.
I suggest to your Lordships’ House and the Minister that taking account of the climate emergency is a necessary condition in this Bill, but for the Bill to be sufficient for the 21st century, we also need to include the broader environmental, social and governance issues. I beg to move.
My Lords, I thank the noble Baroness, Lady Bennett, for her speech and her amendment. I also thank the noble Baroness, Lady Hayman, for her work on this issue and the Minister for all her work in achieving the government amendments on this important matter. While I recognise the major progress that has been made, I shall speak in support of Amendments 72 and 74, which are signed by my noble friend Lord Sharkey and myself. I shall speak also in support of Amendments 73 and 79 from the noble Baronesses, Lady Hayman, Lady Jones and Lady Bennett. I had also intended to sign these amendments and I apologise for not doing so.
In Amendments 72 and 74, the intention is to strengthen the obligation to ensure that the regulations of the scheme reflect the importance of the issue. Replacing “may” with “must” in the amendments to the Pensions Act strengthens the requirement on trustees to ensure that there is effective governance of the scheme with respect to the effects on climate change.
Amendment 73 strengthens the regulations and adds to our Amendments 72 and 74 by ensuring that relevant information in relation to climate change must be considered as part of the regulations.
Amendment 79 aims to ensure that the regulations place an obligation on trustees or fund managers to report on and publish how they have taken into account relevant treaties and other government commitments on climate change. The improvements to the Bill already made are very much welcomed, and we support these amendments today in the spirit of strengthening them. It has been well documented that more and more savers are keen that their savings should serve to strengthen ethical policies, particularly on climate change. As a result, they require more transparency on how their savings are invested.
Pension funds have huge economic power and must play their part in meeting our 2050 targets. UK pension funds hold more than £1.6 trillion in assets. The size and influence of pension schemes means they have a vital role to play in ensuring that the UK meets its climate commitments. It is essential that the Bill enables that to happen.
My Lords, I remind the House of my interests as a co-chair of Peers for the Planet. I should perhaps also declare that my son works for a new campaign, Make My Money Matter, which is being launched today by Mark Carney and Richard Curtis. It encourages all of us to be more active to ensure that our pension schemes reflect our values and that they protect both our financial and environmental future—an indication perhaps that consumer pressure on issues like climate change in relation to pensions is on the rise from that described by the noble Lord, Lord Balfe. In that context, perhaps I should warn the noble Lord, Lord Naseby, that as a pensioner under the parliamentary fund, I may come and discuss these issues with him later.
As the noble Baroness, Lady Janke, said, I have Amendments 73 and 79 in this group, which are cross- party. I will also speak to government Amendments 75, 76, 77 and 78, which cover the same ground—I know that the Minister would say “cover that ground more comprehensively”.
At this stage, it is appropriate that I join others in thanking and praising both the Minister and her officials for the amount of work and careful consideration they have given to these issues and for their responsiveness to the issues that have been raised. We have moved some distance from the start of the Bill, from a position where there was no provision on climate risks to provisions for a regulatory framework that takes into account our objectives under the Paris agreement and which will ensure that trustees and managers are required to assess and report on their scheme’s alignment with the objective to keep global warming to 1.5 degrees centigrade. That includes assessing and reporting on how their schemes are exposed to the effects of climate change and on how the assets of the scheme themselves contribute to climate change.
Improving disclosure in this way is essential for consumers, who need to understand the risks attached to their personal investments. It is also essential for trustees, as greater transparency will help drive their behaviours and decisions, and trustees will need clarity on what is required of them and a clear signal of the long-term trajectory that the sector will need to follow if we are to achieve our net zero targets.
The two amendments that I have tabled are drafted very simply—some might say simplistically. They are broad and would apply to any regulations made under the Bill. Amendment 73 ensures that, in making regulations, the Government take account of international climate change treaties of which the UK is a signatory. It also ensures in turn that regulations require trustees or managers to take account of such treaties in addition to the existing general provisions to secure effective governance of a scheme with respect to the effects of climate change.
Amendment 79 ensures that regulations can place requirements on trustees or managers to publish information about how schemes have taken into account the objective to keep global warming well below 2 degrees centigrade or any other future targets under international treaties. That is critical, because disclosure will create pressure on trustees to reduce schemes’ contribution to climate change.
As I have said, the Minister has been extremely responsive, and we have had a constructive dialogue about these amendments. She has put down Amendments 75 to 78, which are, I hope, more comprehensive but slightly less comprehensible to the lay person. I will ask a couple of more technical questions, which I would be very grateful if she could respond to.
The first question is on Amendment 75 and addressing climate risk. Although the most significant climate-related risks which pension schemes face long-term are not idiosyncratic to particular companies, sectors or geography, they arise from system-level macroeconomic and financial stability risks caused by the impacts of climate change and a disorderly transition. Yet in fact the three material climate risks to portfolios that managers identify tend generally to focus on the risks associated with the transition to a low-carbon economy over the physical risks of climate change. I therefore hope that the Government will confirm the broadest possible definition of the risks in the Bill, meaning transitional, physical, financial and systemic.
On Amendment 76, I would be grateful if the Minister could confirm that proposed new Clause 41A(4A) and (4B) apply across all the regulations to be made under the Bill, rather than applying only to regulations referred to in new Clauses 41A(3)(b). That is essential if consideration for international and other climate change goals is to permeate the regulatory framework as it should.
On Amendment 76, again I would like some confirmation. There is reference to
“or other climate change goal.”
Can the Minister confirm that that includes our domestic net zero target—I think that was very much the intention—and that there will not be any diminution of our targets?
On Amendment 77, again, the reference is to Article 2(1)(a) of the Paris agreement, but does that encompass provisions in Article 2(1)(c) as well, which relate to financial flows and therefore seem to be relevant?
Lastly—the Minister will be glad to know—on technical issues, can the Minister assure me that Amendment 78 does not limit publication requirements to information on the effects of climate change on schemes but that it also covers the contribution of the assets of schemes to climate change?
These amendments are welcome and important, and I hope that they will make a real difference. However, they are focused on effective scheme management and lean towards addressing the exposure of schemes. Longer term, there needs to be greater emphasis on schemes’ own contribution to climate change, as research indicates that companies’ engagement with their investee companies mainly focuses on disclosure and is much less likely to prioritise engagement to reduce a scheme’s impact on emissions.
There may be an overlap between measures that protect a scheme from the effects of climate change and measures that reduce the impact on climate change, but there could be a considerable gap in practice. It would be helpful, therefore, if the Minister could indicate whether this could be looked at when consulting on the regulations.
At various stages, we have discussed the lack of consistency between requirements placed on larger schemes and other schemes. The Minister has given us assurances that her department is working with the Financial Conduct Authority to deliver a joined-up approach so that the whole sector will be on a level playing ground. I hope she will be able to keep up the pressure on this.
We have had a very constructive dialogue and have taken an important step towards better disclosure via this Bill. However, in future, there will need to be substantial further changes to pension and wider investment policy if we are to avert the worst effects of climate change, not just on the planet but on the financial future of pensioners. We need to extend disclosure responsibilities to companies, and I am very glad that many companies are in fact taking their own action to disclose their plans to get to net zero by 2050. It will be important that, over time, we move on to capital allocation and to requiring schemes to set out how they plan to become Paris-aligned.
Last of all, the Bill highlights a bigger strategic point: the frustratingly piecemeal approach that we have to climate policy. Parliamentarians are having to challenge the Government Bill by Bill. It would be much preferable if the Government could start to assess all legislation for alignment with our Paris and net-zero goals as a matter of course.
I end by once again thanking the Minister and her officials for all they have done to improve the Bill substantially. I look forward to hearing her response on the issues I have raised.
My Lords, I am speaking to Amendments 73 and 79, to which I have added my name. I will also speak to the government amendments in this group.
We have come a long way since we first raised at Second Reading the issue of pension scheme obligations to address the risks associated with climate change. I say at the outset that, along with other noble Lords, we have been heartened by the response of the Minister, who, from the very start, has taken our concerns seriously and sought to address them.
Our aim all along has been to protect savers from the risks associated with climate change by requiring UK pension schemes to align their investment activities with the objectives of the Paris agreement, to which the UK Government are a signatory. This requires the Government to hold the rise in temperature to well below 2 degrees centigrade. Our amendments would require regulations to ensure that trustees take account of our international treaty obligations on climate change and publish information about how this is to be achieved.
There is an increasing realisation among financial regulation that such action is necessary, and a number of leading pension schemes are already taking action on this issue. They have already begun to follow the advice of the Task Force on Climate-related Financial Disclosures. This Bill enables us to raise the bar, so that the best practice becomes the standard practice and all funds play their part equally in delivering on their obligations.
Since we started the dialogue with the Minister and her advisers, we have made considerable progress. We very much welcome the government amendments that have now been tabled. They spell out in more detail how the funds should address their exposure to the risk of climate change and assess the impact of their assets on climate change. The most obvious example of this is investment in fossil fuels, but this would require a more comprehensive appraisal of which assets were adding to the problem of global warming and which were contributing to a low-carbon economy.
The government amendments also require schemes to undertake scenario planning on the impacts and risks of different outcomes as we move towards the Paris deadline. We see this as sending a clear signal to the regulators and the pension funds that the Government are not only paying lip service to this issue, but expecting clear change in governance and in investment strategies. Finally, on a similar theme to our amendment, the Government require clear transparency and accountability through reporting to scheme members and the public the actions taken. Again, we welcome this amendment.
Of course, all these requirements will need robust enforcement to ensure effective implementation. I hope that the Minister can clarify the plans of the Pensions Regulator to undertake these functions and can update the House on the progress made across the different types of pension schemes to create a level playing field in their obligations under these provisions.
These are the first steps in driving a UK investment strategy towards delivering on the Paris promise, but this is an important group of investors. I hope that this will send a wider signal throughout the financial markets that business as usual is not an option. There are huge calls for a green economic recovery plan as we grapple with the legacy of coronavirus. Let us hope that all these policies can come together to help deliver that green recovery. In the meantime, I am pleased to support our amendments and the government amendments to this clause.
In my last speech I omitted to declare my interests, not only those recorded in the register, but also as chair of the European Parliament’s Members’ pension fund—which has a number of beneficiaries in this House—and as manager of the House of Commons fund for former Members of the European Parliament. That is certainly not as big a fund as that of my noble friend Lord Naseby, but none the less is part of the pensions scenario in Westminster. I also advise a number of pension schemes, all fairly small. My amendment, Amendment 80, concerns how small schemes will deal with the duties that will be laid on them by this legislation, and asks the Minister to have their situation firmly in mind when making the regulations.
We often think of pension schemes as huge things, like the British Airways or Lloyds Bank schemes, but the great majority of schemes in this country are quite small. My amendment sets the quite arbitrary figure of £500 million in assets under management, a figure below which the onerous requirements of the amendments put forward in the Bill would not apply. That does not mean that I think small schemes should be exempted from any social concerns. Most of my advice is based on advising small schemes to go into asset tracking, because the evidence, of which there is now a lot, is that active management costs a lot and does not work. The sensible thing, particularly for a small scheme, is therefore to invest in index trackers.
However, being an index tracker does not mean that you cannot have social responsibility. There are index trackers that follow the UN principles of responsible investment, and there are others. We are concerned in this Bill particularly with the environment; I personally am concerned with schemes that follow the principles of the ILO. It is fine to have a scheme which invests in a company that has many trees in its garden that workers paid low wages for long hours can shelter under, but there are many things in this world to concentrate on other than just the environment—I do not want to detract from that, but we need a broader set of principles.
Norway, which has the biggest public scheme in the world, has an ethics committee that looks right across the investment market and advises the Norwegian Government and the scheme on what sort of investment should be avoided. Within the past few days, it has identified as not fit for investment companies that make what are called “autonomous weapons”—in other words, killer robots. So, there are many areas where we need to look carefully at what sort of investments we make.
In the case of small schemes, this is difficult. I advised one such scheme recently. I went to see them and asked, “How many pensioners have you got?” They said, “Oh, 22.” I said, “How do you look after them?” They said, “Oh, X”—naming the person—“in the wages section pays their pension each month when she does the monthly salary run.” I said, “What about the rest?” They said, “Oh, well, the general secretary looks after that. We have a man who comes in twice a year and we pay him, and he keeps us on the right side of the regulator.” This was a scheme with barely three figures’ worth of members in it, and many schemes are like it. We need to look for a way in which such small schemes can transfer their assets without there being any residual liabilities.
One problem is that you can get someone to run your scheme, but if the overall master trust gets into trouble, it can come back to those who have put their schemes in it and make quite unreasonable demands of them. If the number of small schemes is to be slimmed down, there has to be a way of transferring them so that the benefits are guaranteed but there is no comeback for more money. The amount of money required would be actuarily calculated, but it should not be possible to say, “Oh, well, the whole scheme has run into trouble. We know you transferred X years ago, but we now need more money from you”, because it is a direct disincentive.
I shall give another example, of a quite rich London club which, again, has a small scheme. It could quite easily transfer it in—it has huge assets: it could sell one or two of its pictures and cover its pension fund deficit—but it is reluctant to do so in case it received subsequent bills which detracted from the members’ assets. Again, this is something that the Minister and the department could look at in the future. It is outwith this Bill, but it is part of how we need to sort out the pensions legislation and administration for small funds.
My plea to the Government is that when they make the regulations, they remember the small schemes, which probably will not be able to afford the type of administration and advice that big schemes can. They should be encouraged into index trackers, because they are cheap and easy to run and, frankly, return the market, whereas active management charges a lot and does no better. I ask the Minister to look kindly on this amendment. I have never thought of pushing it to a vote; I tabled it to make these points, because I know that she is a sympathetic Minister who would be happy to ask her department in due course to look at the points raised.
My Lords, I first declare an interest as a recipient of the parliamentary pension fund. I support the amendment in the name of the noble Baroness, Lady Bennett of Manor Castle. I will also refer to Amendments 85 to 88 in the Minister’s name, which make particular reference to Northern Ireland.
On Amendment 34, I firmly agree with the noble Baroness, Lady Bennett, that there is a need to ensure that pension schemes take account of climate change treaties such as the Paris Agreement, are fully resilient in relation to such matters and take on board the broader environmental, social and governance issues. As the noble Baroness said, we live in a world where there is a series of climate change shocks, and Covid and other issues with the wider environment and society. Pension schemes therefore have to be fully resilient to deal with these issues.
Pensions legislation in Northern Ireland is normally devolved. As a former Minister in Northern Ireland, with responsibility for benefits and pensions from 2007 to 2010, I used to bring forward similar legislation in the Northern Ireland Assembly, but it was the same because we adhered to the principle of parity. That goes back to the early 1920s when the original Northern Ireland Parliament was established. I worked closely on these issues with the noble Lord, Lord McKenzie, as he was the Minister at the time.
At Second Reading on 28 January, the Minister helpfully explained that the Northern Ireland Office and the Department for Communities wanted the Department for Work and Pensions to take forward combined legislation for Northern Ireland due to the absence of devolution at that time, when they were discussing the legislation back in 2019. It is interesting to note that on the date of the Second Reading in your Lordships’ House, devolution had been restored to the Northern Ireland Assembly. It was restored on 11 January. In fact, this Bill was presented to the Lords for its First Reading on 7 January. In that same week, the final negotiations for the resumption of the Assembly took place, which led to the first meeting of the restored Assembly on Saturday 11 January.
In view of that, I ask the Minister why the Government did not bring forward amending legislation in Committee to allow separate but similar pensions legislation in Northern Ireland. As an advocate of devolution, I firmly believe that should have taken place. We value devolution in Northern Ireland, now that it has been restored. I come from that tradition that was very angry when it was collapsed back in January 2017 and was glad when it was restored.
Did the Minister or her senior officials receive further correspondence from, or have meetings with, the equivalent Minister in Northern Ireland about wishing to bring forward that separate legislation, in view of the fact that devolution was restored? It is interesting that the first stage of the pensions Bill is coming to the Northern Ireland Assembly today, but not this current Bill because the provisions for Northern Ireland are in this legislation. It actually equates to Westminster’s Pension Schemes Act 2017. I can see fairly clearly that the problem is a matter of capacity and space in its timetable.
It is interesting to note that New Decade, New Approach, which dealt with the resumption of devolution, was all about restoring confidence in devolved government. How can this restore confidence in the ability of the local Assembly when it will not pass separate legislation? Very helpfully, the Minister’s amendments deal with the Paris Agreement, and she clearly recognises that pensions legislation must be resilient to those external shocks that have an impact on our environment, on society and on business in general.
It is also interesting to note that the Northern Ireland Assembly will introduce legislation and targets for reducing carbon emissions in line with the Paris climate change accord—as specified in New Decade, New Approach, which dealt with the resumption of devolution—so why could it not take on this new pensions Bill? I tried to raise this with the Northern Ireland Assembly Bill Office and did not get much response. Perhaps the Minister can provide some clarification for me today. I support her amendments and those of the noble Baronesses, Lady Jones of Whitchurch and Lady Bennett of Manor Castle.
My Lords, as a trustee of the Parliamentary Contributory Pension Fund, I see it as my duty to take into account anything that may have an impact on the long-term financial performance of the fund and on Members’ pensions. I expect to communicate that to the membership in our annual report, or alternatively when requested.
I do not wish to comment on any of these amendments in detail, but I particularly warm to Amendment 75 from the Government, which seems entirely appropriate.
My Lords, the noble Baroness, Lady Bennett, opened the debate on this group with a request for more detailed information from collective money purchase schemes, particularly on the environment. That is entirely right and very appropriate when we move on to Clause 124, which is quite another matter. It builds on the 1995 and 2004 Acts, which refer to injunctions on trustees to produce statements of funding. That is a wide request; one can imagine all sorts of matters that trustees would wish to put into their statements.
It is not the same thing at all, however, as focusing on the risk of climate change, which is a much more accurately aimed request. The change risk, of course, is against the background that climate change, as in the use of the English language, is neutral, but I do not think that that is what we have come to mean by climate change. We should be careful not to use language inaccurately. I think that what we really mean is man’s contribution to, or effect on, the climate and what actions the world’s population have taken that affect the climate. That is considered in general to be something about which we should be very concerned. When it comes to considering the environment, who can avoid being incredibly concerned?
In the Government’s approach to how to deal with this matter, climate change is defined in the Bill as relating to Paris, its two-degrees limit on the rise in temperature from pre-industrial periods and other climate change goals. This is potentially a demanding and widely drawn comparison with things that have applied to trustees to date. We have to take care in our expectations of what it is reasonable for trustees to decide as they carry out their role in the interests of their members. They rely very heavily on advice. Their actuaries, who are often rather disregarded figures in the world of pension management and in our debates on pensions, have a wide knowledge of what is going on in pensions as a whole and why it is the way it is.
Trustees have to take very professional investment advice, of course. Like my noble friend Lord Balfe, they may decide that trackers are the best thing for them, but in many schemes, the investment decisions will be very detailed and always based on advice. Those advisers—the investment industry as a whole—can safely be assumed to know that there are huge issues relating to climate change and the environment, so their advice will be shot through with that understanding. Of course, there is also in the life of the trustees the employer, who can also be judged as knowing what is going on and understanding how he would like to see his trustees view these complicated matters.
Noble Lords should rest assured that these are complicated matters. It has been a long time since I was a pension trustee; nevertheless, there was always a huge debate about how to balance your portfolio, what to hold in it and what not to hold. The environment is not a thing for the future, of course; it is a thing for today. It is already part of our life; it affects our daily lives, to the extent that the world is already warmer. Those effects are connected to the temperature that we experience and the environment in which we live. When we come to consider the responsibilities of trustees to their scheme members, however, we need to be a bit cautious about how far down this complicated road we expect trustees to go when their members will be much more focused on their daily lives than on the way in which the powers that be are tackling these very difficult issues.
The Government’s stall is set out in Clause 124 and Amendments 75 to 78, which contain discretionary powers. They leave the opportunity to observe events and gauge responses to the problems we face before taking too much action, and they leave flexibility, as in their reference to other climate policies.
The position taken by the Opposition in their amendments in this group is very different. They want us to move immediately to mandatory conditions, as the two changes from “may” to “must” show very clearly. The references to treaties are not confined to a fairly narrow definition, with the option of other climate change policies; they are very specific. Indeed, if Amendment 79 is agreed to and enacted, it will bring about a major increase in trustees’ responsibilities in times when they will have a very large number of different things to think about because there is such a measure of uncertainty and doubt about where we are. Indeed, when one comes to the specifics, with the Paris Agreement and much else, where would trustees now get advice that they could rely on, and from whom, about the right position to adopt on these difficult issues?
I suppose that there is a difference here between the Government’s approach and the Opposition’s amendments, and that illustrates our dilemma as we manoeuvre our way forward in our complex, consenting democracy. Do we make the conduct of pension affairs more and more a matter of law or do we rely on the knowledge and behaviour of those responsible, retaining the ability to intervene when necessary? As the Prime Minister has been wont to say, common sense, not legal enforceability, should be relied upon to the greatest extent. If we were to have a lot more law, would it be enforceable or would that become something of an illusion?
I support the Government’s cautious approach. I welcome it and I think that it is the right way to go forward for the time being.
My Lords, I shall speak to Amendments 72 and 74 in this group. Neither amendment in any way alters any of the important climate change amendments in the group, except in one respect: they require the Government to make something happen.
What the amendments would do is very straightforward: they would simply impose a binding legal obligation on the trustees or managers of an occupational pension scheme of a prescribed description with a view to securing effective governance of the scheme with respect to the effects of climate change. They would also impose an obligation to include, in particular, the risks arising from steps taken because of climate change, whether by the Government or otherwise, and opportunities relating to climate change.
All those things are word for word in the Bill except that they are all governed by the word “may”. Our amendments would replace the two references to “may” with “must”. As the Bill stands, the Government are not actually obliged to do any of those things, or indeed anything at all, in this clause. The word “may” in subsections (1) and (2) is permissive, not directive—a point made by my noble friend Lady Bowles and me in Committee.
The Minister kindly wrote to us all in response on 5 March. She confirmed that the Government intend to take action and were wholly committed to legislating for effective governance of occupational pension schemes with respect to climate change. She concluded by saying:
“Changing the legislation to ‘must’ would therefore make no practical difference, because as a Government we are committed to making regulations under new sections 41A, 41B and 41C introduced by the Government’s amendment.”
This argument works both ways, of course. What can be the basis of the Government’s objection to “must” if they are committed to doing it anyway? What possible reservations, hesitations or changes of mind are being contemplated here? What can be wrong with having legal certainty that what has been promised will actually happen?
There is a parallel in this Bill to our discussions on the MaPS pensions dashboard. The Committee asked why the provision for MaPS to provide a public dashboard was only a “may”, not a “must”. In reply, the noble Earl, Lord Howe, confirmed that the Government were absolutely committed to MaPS providing a qualifying dashboard service. Several Members, including the noble Baronesses, Lady Drake and Lady Sherlock, noted that the Government being committed to MaPS producing a dashboard is not the same thing as saying that they will ensure that there is a MaPS dashboard. The noble Baroness, Lady Drake, made the point that a little amendment—“may” to “must”—would capture the Government’s assurances
“so that the next Secretary of State does not change their mind.”—[Official Report, 26/2/20; col. GC 186.]
This argument clearly convinced the Government. They have now introduced their own amendments to make a MaPS dashboard a “must” rather than a “may”. I know that we are all very pleased about that.
Can the Government accept the same logic here? If it was right to change “may” to “must” for a pensions dashboard, why is it not right to do the same thing for climate change? I look forward to the Minister’s eager acceptance of the precedent and these amendments.
My Lords, I am grateful to all noble Lords who raised climate issues in relation to pension schemes during our proceedings, especially those involved in the cross-party talks led by the noble Baroness, Lady Hayman, and my noble friend Lady Jones of Whitchurch. I also thank the Minister for listening and moving on from the broad government amendments brought forward in Committee.
This Bill has been on a journey. When it was first published there was no reference to climate change at all. Indeed, from having been given advice from the Library, I understand that climate change has never been included in domestic pensions legislation before in this country, so we are making history here today.
The Labour Benches had two priorities on this: first, to provide clarity on climate risk by ensuring that the Paris Agreement is referenced; and secondly, to ensure that trustees and managers take international climate treaties into account when making decisions. The word “account” is clearly significant. It recalls the Court of Appeal judgment that found that the Government had failed to take into account the Paris Agreement when permitting the Heathrow expansion. That was a good example of the need to make sure that positive action on the international level to combat climate change is not forgotten when Ministers make domestic policy decisions.
Our priorities are reflected in Amendments 73 and 79, but because we have secured cross-party consensus with the Government, they are also reflected in the government amendments in this group, especially Amendments 75 and 76. I will be interested to hear the Minister’s reply to the questions from the noble Baroness, Lady Hayman, about whether these refer also to the physical impacts of climate change and the impact of steps taken to transition towards a low-carbon economy, and for clarification that Amendment 76 includes the UK’s net-zero target.
However, as my noble friend Lady Jones said, we are only at the beginning of a journey to net zero. Divesting pension funds away from fossil fuels is a big challenge. The Government and the industry need to go further and quicker, with aligning investment strategies with domestic and international targets being the ultimate goal. For this Bill, we have reached a good place with broad cross-party support. I look forward to the Minister’s reply.
My Lords, government Amendments 75, 76, 77 and 78 seek to amend new Sections 41A and 41B of the Pensions Act 1995, which are to be inserted by Clause 124, introduced by the Government in Committee. The amendments would allow regulations to require that the trustees and managers of occupational pension schemes explicitly consider climate change goals, including the Paris Agreement temperature goal, for the purpose of ensuring the effective governance of their schemes with respect to the effects of climate change. The UK Government and others are committed to the Paris Agreement’s goal of holding the increase in the average global temperature to well below 2 degrees above pre-industrial levels. In fact, the UK is leading the way globally and has committed in law to the target of net-zero greenhouse gas emissions by 2050. We are completely committed to that.
The Covid-19 emergency has triggered the devaluation of many assets across the globe, affecting many investors. Climate change has the potential to bring about a greater, more permanent devaluation that pension schemes need to be prepared for. The Government intend to deliver a recovery from the current Covid-19 emergency that results in an economy that is more sustainable and resilient. Tackling climate change will be a win-win, as many of the actions we need to take to reach our UK climate targets, net zero included, will also support our economy as we emerge from the Covid-19 emergency. The ultimate achievement of the Paris Agreement goal and other climate goals, along with the steps taken by the Government and others to achieve them, are now of greater importance for pension schemes to consider in their overall governance of risk. These amendments would enable regulations to require that scheme trustees and managers take climate change goals and the steps taken to meet them into account.
Amendment 75 makes a minor change to subsection (4) of new Section 41A to make explicit provision for two types of assessments that may be required under subsection (3)(b). Amendment 76 inserts new subsections (4)(a) and (4)(b) into Section 41A. Subsection (4)(a) makes explicit that regulations may require scheme trustees and managers to take into account the different ways in which the climate might change and the steps that might be taken because of those changes. This allows for the assessment of physical and transitional risks respectively—the typical description of risk used by industry. Subsection (4)(b) provides that regulations made under subsection (4)(a) may require trustees and managers to adopt prescribed assumptions about achievement of the Paris Agreement goal and other climate change goals, or the steps that may be taken to achieve them.
The third amendment, Amendment 77, defines the meaning of “the Paris Agreement goal” by specific reference to Article 2.1a of the Paris Agreement. I would like to assure the noble Baroness, Lady Hayman, that Amendment 78 does not limit publication to the effects of climate but includes the effects of assets that contribute to climate change. Pension schemes already have a fiduciary duty to steward their assets, and all schemes have a duty to report on their stewardship policy, including engagement and voting, while from October of this year they will be required to report on how they have implemented their policies.
Finally, Amendment 78 to Section 41B would ensure that trustees and managers may be required to publish information relating to the assessments they make by reference to the Paris Agreement goal or other climate change goals under Section 41A. This includes publication of the contribution of schemes’ assets to climate change referred to in Section 41A(4)(b) as a way of measuring the extent of Paris alignment. Amendments 85 to 88 make corresponding changes to paragraph 12 of Schedule 11 for Northern Ireland.
I turn to Amendment 80. We believe that it is inappropriate to limit the scope of the legislation in this way. I should like to talk about the points made by my noble friend Lord Balfe about smaller schemes. I have been given assurances about such schemes and I can also reassure my noble friend that none of these measures would prevent pension scheme trustees investing in index trackers or seeking to drive schemes towards higher-cost active management. Innovation in the market has led to a blossoming of index-tracking products that take account of climate change risk in different ways. If the trustees of schemes of any size wish to take advantage of these, they can. Members of occupational schemes rarely have a choice of where they save, and they have a right to benefit from the effective governance and reporting of climate change risk, regardless of their employer’s chosen scheme. However, I can reassure my noble friend that these measures are intended to protect benefits through better consideration and management of climate risk.
It is not the Government’s intention to impose needless burdens on schemes. I have already indicated our intention to begin with large schemes and then consider costs and benefits carefully before we extend any requirements to smaller schemes. This also aligns with the direction of travel of the United Nations Principles for Responsible Investment initiative, referred to in the amendment, which already requires signatories to carry out some TCFD-based reporting and has recently consulted on extending reporting requirements.
In relation to Amendment 34, which applies only to collective money purchase schemes, the Government have already legislated to require schemes with 100 or more members to have a policy on financially material considerations, including environmental, social and governance considerations. Schemes offering money purchase benefits will already be required to report annually on how they have followed these policies from October 2020. The Government announced during Committee their intention that collective money purchase schemes will be subject to the same requirements on environmental, social and governance factors, including climate change, as other defined contribution schemes.
On Amendments 72 and 74, the Government have been absolutely clear on a number of occasions, including before the House, that we will be making regulations in this area. The Government produced amendments at speed to introduce this important policy into the Bill in time for consideration in Committee. The reason why Clause 124 exists at all is that the Government wish to take action with regulations to require schemes to have effective governance of climate change.
The noble Lord, Lord Sharkey, raised the issue of changing “may” to “must”, which has been the subject of much discussion in our various meetings. Our position is that such a change is unnecessary and would have no impact on the Government’s course of action.
Finally, I turn to Amendments 73 and 79 in the names of the noble Baronesses, Lady Hayman, Lady Jones and Lady Bennett. I confirm that the government amendments go further than their amendments and achieve the intended clarification of the policy much more effectively. First, the government amendments do not restrict consideration of climate change goals to international treaties to which the UK is a signatory. They will also enable goals set domestically by the UK, including the commitment to net-zero greenhouse gas emissions by 2050, to be taken into account. Secondly, I draw attention to subsection (4B)(a) in the Government’s amendments. While Amendments 73 and 79 seek to require consideration of the Paris Agreement, the Government’s amendments go further and would enable us to require consideration of steps taken towards achieving that temperature goal. This will ensure that the schemes can be asked to consider the likely effects of transition to a low-carbon economy, not just the final-outcome achievement of the Paris goal.
Finally, these amendments require consideration of the entire UN framework convention on climate change in addition to the Paris Agreement, which was adopted under it. This would include treaty objectives that are not relevant to the operation of a pension scheme. Rather, it is the temperature goal of the Paris Agreement, and the steps that Governments and others take as a result, that are of key importance for pension schemes to consider. Our amendments deliver that.
I thank the noble Baroness, Lady Bennett, for reminding us about the social development goals and the importance of climate emergency impacts as well as social impact, which I think is very important. She talked about focusing on the economic recovery from the emergency. The Government’s view is that the economic recovery and our continued commitment to the climate goals are not mutually exclusive. We have grown our economy by 75% while cutting emissions by over 43% over the past three decades. As the economy recovers, not only can schemes continue to take advantage of green investment opportunities that align with the achievement of the Paris agreement goal, but they should—as is the focus of this amendment —protect members against the risks of climate change.
The noble Baroness, Lady Bennett, asked why measures applied in Northern Ireland. Paragraph 12 of Schedule 11 makes provision for Northern Ireland that is equivalent to the provision made for Great Britain by Clause 124. This will ensure that, in accordance with the long-standing principle of parity, the single system of pensions across the UK is maintained, as such agreements made in relation to the proposed amendments to Clause 124 apply equally to the amendments proposed to paragraph 12 of Schedule 11.
The noble Baroness, Lady Hayman, gave me lots of homework, and I hope I am going to get 10 out of 10 for this. She raised the matter of pensions schemes being required to take into account not just the risks outlined in new Section 41A(2)(a) but all climate risks, including those that are systemic, both financial and transitional. The risk referred to in new subsection (2)(a) is not intended to be an exhaustive list; it merely makes clear that risks arising from the effects of climate change include those arising from steps taken because of it. We acknowledge the systemic risk of climate change to industries, national economies and financial markets. Subject of course to consultation, we intend to make provision in regulations for scheme trustees to consider all relevant risks arising from the effects of climate change. Indeed, new Section 41A(3) refers to
“risks of a prescribed description”
for precisely this reason. The Government are minded, subject to consultation, to prescribe the whole range of risks cited in the TCFD’s recommendations as those which asset owners should consider.
The noble Baroness, Lady Hayman, also talked about the amendment which brings Article 2.1a into the Bill, but Article 2.1c is also relevant to the pension scheme. The Government consider that Article 2.1a is of primary relevance to pensions schemes and there is an understanding of what taking it into account would mean for trustees and managers. However, our amendments make it clear that regulations may require scheme trustees and managers to take account of other climate change goals as part of ensuring effective scheme governance. This could include the goal in Article 2.1c. The amendments will allow the Government to make regulations that ensure that the whole system of pension saving and investment effectively takes into account a future low-emissions world.
The noble Baroness, Lady Jones, asked me to clarify the Pensions Regulator’s plans to ensure that pension schemes are not paying lip service to ESG requirements. The chief executive of the Pensions Regulator has written to the DWP to confirm that it is taking action. It will follow up on breaches of compliance.
The noble Baroness, Lady Ritchie, asked why Northern Ireland was included in the Bill. Although pensions are a devolved matter, this is an area where Northern Ireland has long maintained parity with Great Britain. There is in effect a single system of pensions across the UK with many pension schemes and, indeed, the regulator, the Pensions Ombudsman, the Pension Protection Fund et cetera operating on a UK-wide basis. Devolved government in Northern Ireland has now been restored. On 1 June, the Northern Ireland Assembly approved the legislative consent Motion on the Bill as introduced. A further legislative consent Motion will be necessary to cover amendments to the Bill which the Northern Ireland Minister for Communities has agreed should extend to Northern Ireland. The process for an additional legislative consent Motion is a shortened procedure and we look forward to receiving the Assembly’s further consent in due course.
The noble Baroness, Lady Ritchie, asked a number of questions about further correspondence and, if I may, I will write to her.
I thank my noble friend Lord Eccles for his many pertinent and well-made points.
The Paris Agreement is clearly central to how we as a nation and a global economy tackle climate change. The Government have been clear on a number of occasions that pension schemes have their part to play. These amendments help to clarify the part that the Government expect them to play, to take account of progress towards the achievement of the Paris and other climate goals in measuring, monitoring and managing the risks and opportunities for their members’ benefits and to publish how they have done so. Even in the current period of uncertainty, tackling climate change must remain the top priority. The Government’s amendments and the associated powers remain as urgent as they are important. I hope that, in the light of the explanations I have provided, noble Lords will not move their amendments.
I have received no requests from any noble Lord to speak after the Minister, so I call the noble Baroness, Lady Bennett.
I thank the Minister for her answer. Amendment 78 refers to this covering not just the effects of assets but of climate. I will leave it to others to assess the technical details of that, but I have a specific question for her. She referred to the need for larger funds to report on ESG matters. She does not have to give me an answer now, but I wonder whether there will be also a requirement to publish that, so that it is easily accessible by the public and can be publicised.
This has been a very productive and useful group of amendments. I am sure that the House will join me in paying tribute to the noble Baronesses, Lady Hayman and Lady Jones of Whitchurch. They have clearly done an enormous amount of work, some of which I have seen first hand, to get the Government to this point.
The noble Baroness, Lady Hayman, made a very important point when she said that your Lordships’ House would love not to have to challenge the Government, Bill by Bill, to see the climate emergency recognised in legislation and government action. In this aspect, it is crucial to look at the Committee on Climate Change progress report to Parliament from last week. The Minister made reference to the 43% cut in our territorial emissions of climate change gases. That report highlights the impact of consumption emissions, and the reduction is considerably lower when that is factored in.
The noble Baroness, Lady Jones of Whitchurch, said that we want to see best practice become standard practice. There is an acknowledgement that that has to be legislated for and cannot just be assumed. The noble Lord, Lord Sharkey, referred to elements of the Bill still being permissive and not directive. I am sure that that is an issue that the House will return to again and again when we come to the Agriculture Bill. We need to see direction to all to act, because the climate emergency and the biodiversity crisis, along with so many other factors, such as the state of our economy and society, impact on all.
The noble Baroness, Lady Sherlock, referred to Britain’s international role. Understandably, with the impact of Covid-19, attention has swung away from our crucial global role in COP 26. I therefore suggest to the House that everything we do should hold that in consideration. We are in a position where we need to be a global leader, and the world needs us to be a global leader.
In conclusion, it is not my intention to push Amendment 34 to a vote. I beg leave to withdraw the amendment.
Amendment 34 withdrawn.
Clause 47: Powers to extend definition of qualifying schemes
Amendments 35 to 38
35: Clause 47, page 37, line 31, leave out subsection (2)
Member’s explanatory statement
This amendment and the Minister’s other amendments to Clause 47 are intended to make clear that regulations under the Clause may only be made in connection with collective money purchase schemes established by non-employers, or used by multiple employers not all of whom are connected with one another.
36: Clause 47, page 37, line 35, leave out “relevant schemes” and insert “collective money purchase schemes that could not be qualifying schemes, or sections of qualifying schemes, but for regulations under subsection (1) (“relevant schemes”)”
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 37, line 31.
37: Clause 47, page 37, line 36, after “of” insert “relevant”
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 37, line 31.
38: Clause 47, page 38, line 4, leave out subsection (5) and insert—
“(5) The provision that may be made under subsection (1) or (2) may be made by—(a) modifying or amending this Part;(b) making consequential modifications or amendments of any other enactment.”Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 37, line 31.
Amendments 35 to 38 agreed.
Clause 98: Powers to extend definition of qualifying schemes
Amendments 39 to 42
39: Clause 98, page 77, line 25, leave out subsection (2)
Member’s explanatory statement
This amendment and the Minister’s other amendments to Clause 98 are intended to make clear that regulations under the Clause may only be made in connection with collective money purchase schemes established by non-employers, or used by multiple employers not all of whom are connected with one another.
40: Clause 98, page 77, line 28, leave out “relevant schemes” and insert “collective money purchase schemes that could not be qualifying schemes, or sections of qualifying schemes, but for regulations under subsection (1) (“relevant schemes”)”
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 77, line 25.
41: Clause 98, page 77, line 30, after “of” insert “relevant”
Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 77, line 25.
42: Clause 98, page 77, line 42, leave out subsection (5) and insert—
“(5) The provision that may be made under subsection (1) or (2) may be made by—(a) modifying or amending this Part;(b) making consequential modifications or amendments of any other statutory provision.”Member’s explanatory statement
See the explanatory statement for the Minister’s amendment at page 77, line 25.
Amendments 39 to 42 agreed.
Schedule 3: Collective money purchase benefits: minor and consequential amendments
43: Schedule 3, page 130, line 4, at end insert—
“3A_ In section 186 (Parliamentary control of orders and regulations), in subsection (3) (statutory instruments subject to affirmative resolution procedure), after paragraph (f) insert “, or(g) regulations under section 99(2)(c), or(h) regulations under section 99A(2)(b),”.”Member’s explanatory statement
This amendment makes regulations under sections 99(2)(c) and 99A(2)(b) of the Pension Schemes Act 1993 (inserted by Clause 25(4)(c) and (5) of the Bill) subject to the affirmative resolution procedure described in subsection (3) of section 186 of that Act, subject to the exceptions in subsection (4) of that section.
Amendment 43 agreed.
Schedule 6: Collective money purchase benefits: minor and consequential amendments for Northern Ireland
44: Schedule 6, page 138, line 30, at end insert—
“3A_ In section 181 (Assembly, etc. control of regulations and orders), in subsection (2) (regulations and orders subject to confirmatory procedure), after “20B(5)” insert “, 95(2)(c), 95A(2)(b)”.”Member’s explanatory statement
This amendment makes regulations under sections 95(2)(c) and 95A(2)(b) of the Pension Schemes (Northern Ireland) Act 1993 (inserted by Clause 76(4)(c) and (5) of the Bill) subject to the confirmatory procedure described in subsection (1) of section 181 of that Act, subject to the exceptions in subsection (3) of that section.
Amendment 44 agreed.
Clause 51: Regulations
Amendment 45 not moved.
Clause 107: Sanctions for avoidance of employer debt etc
46: Clause 107, page 90, line 36, at end insert “, and
(d) the person was—(i) an employer in relation to the scheme, or(ii) a person connected with or an associate of the employer.”Member’s explanatory statement
This amendment confines the criminal offences in Clause 107 to persons connected with the pension scheme employer.
My Lords, in moving Amendment 46, I shall also speak to Amendments 47 to 49, which are in my name and those of my noble friends Lady Altmann and Lady Neville-Rolfe. There was a wide-ranging debate in Committee on the two new criminal offences and two new financial penalty powers in Clause 107. Unfortunately, I was unable to be present for that debate, but my amendments were moved by my noble friend Lady Neville-Rolfe, and I have read the record in Hansard.
The scope of the offences and penalties is very widely drawn and, while they do not apply if there is a “reasonable excuse”, there is no clarification of that term in the legislation. My noble friend Lord Howe spoke at length and helpfully in Committee, but it remains the case that there is considerable anxiety from pensions professionals and from companies about the impact of these provisions on ordinary commercial transactions. In Committee, the Government resisted attempts to define “reasonable excuse” and preferred to leave this to non-binding guidance from the Pensions Regulator—that may or may not be forthcoming as there is no obligation on the regulator to produce any guidance—and ultimately to the decision of the courts. We therefore have the classic formula for uncertainty for all those who might be affected by Clause 107, and that uncertainty could of course last many years, until enough cases establish the boundaries of the new offences and penalties.
My amendments today take a different approach from that in Committee and seek to limit the offences and penalties in the same way as the contribution notice regime in the Pensions Act 2004—namely, to the employer or to an associate or connected person of the employer. In Committee, my noble friend Lord Howe gave some examples of the people that the Government intended to be covered by Clause 107. On my reading of the scope of the contribution notice regime, all those mentioned by my noble friend would indeed have been covered by the amendment. If the Government think that the contribution notice’s scope is inadequate, I would have expected them to amend that scope in this Bill; after all, the contribution notices are there to make sure that defined benefit schemes are adequately funded. Criminal penalties and financial sanctions might make everyone feel better, but they do nothing directly to protect scheme funding.
I suspect that the Government intend these new provisions to apply to more people than are covered by contribution notices. In that case, it would seem to me essential that the Government set out clearly who they want to be covered by Clause 107. It cannot be right to create criminal offences without such clarity. However, even if the Government will not do that, I hope that the Minister can be clear about who they do not intend to be covered by Clause 107.
I shall concentrate my remarks on two groups—lenders and landlords—but the problem is wider and extends to all commercial counterparties. I should at this stage declare my interests as recorded in the register, including my directorship of the Royal Bank of Scotland.
I start with an employer who has a loan from a bank. That could fall due for repayment, because its term has ended or covenants have been breached. If the bank seeks repayment of a loan or decides not to renew it, that may cause financial difficulties for the employer. At one end of the spectrum, it could impair the employer’s ability to continue to trade as a going concern. In less extreme cases, it could impact, for example, the employer’s ability to meet payments under an agreed deficit repair plan. In either case, the result is material detriment within the terms of Clause 107. A bank should be well aware of this, because lenders have to know basic financial facts about their customers, including their pension commitments. That is clear within the language of Clause 107, but is it what the Government intend? If not, will the Minister say that clearly?
Similarly, a landlord may decline to renew a lease or decide to enforce early termination due to breaches of covenants. This can cause or amplify financial stress in an employer and have a knock-on impact on its ability to support its related defined benefit scheme. Is the landlord within these new offences and penalties or not? In the case of landlords and banks, there is no commercial or other nexus between them and the defined benefit scheme, yet they are drawn within the net of Clause 107 because their actions or conducts could indirectly impact the benefits payable by the scheme.
I remind my noble friend that we have not even begun to see the impacts of the coronavirus pandemic on businesses. The wonderful financial support provided by the Government in these early days of the pandemic will soon come to an end. Many businesses will be facing an uncertain future and are likely to have taken on additional debt. They may need more debt to survive. Many have chosen not to make quarterly rent payments this year. Their pension scheme deficits will almost certainly have worsened, due to extremely low interest rates and weak asset prices—a double whammy. The noble Lord, Lord Hain, referred to this in an earlier group of amendments. Banks and landlords will be making big decisions about enforcing existing loans or leases, as well as making new ones.
The impact could go beyond concerns about particular commercial transactions, with a chilling effect more widely. Defined benefit scheme employers may well become untouchables as counterparties, if there is major uncertainty about the implications for those who deal with them. My preference would have been for the Government to be clear about what counts as a reasonable excuse for the purposes of Clause 107. My Amendments 46 to 49 have instead concentrated on the persons who are intended to be covered by the new offences and penalties in order to invite the Government to provide certainty to third parties about whether they can expect to be covered by Clause 107. I beg to move.
My Lords, I have added my name to these amendments in the names of my noble friends Lady Noakes and Lady Neville-Rolfe. I congratulate my noble friend Lady Noakes on the way she introduced this amendment.
There are valid concerns around the wording of the good intentions of this Bill to introduce criminal offences or financial penalties for avoiding employer debt or risking member-accrued benefits. But it is right to express some concerns that this should apply only if the person is either an employer or associated with the employer, so that professional advisers cannot be held criminally liable, nor banks just making loans in the ordinary course of business, nor even insurers for mistakes made in underfunding the pension scheme.
I welcome the long-overdue extension of the Pensions Regulator’s powers contained in this Bill, which can punish wilful or reckless behaviour and non-compliance with contribution notices and so on. I also welcome the intention to deter bad practice by scheme employers, and indeed scheme trustees from undermining their pension scheme. It is right to have a criminal offence, but, as currently written, the provisions under Clause 107 could criminalise anyone who deals with a pension scheme. I do not believe that is the intention, and it could leave parties reluctant to deal with a business because of its pension scheme, which could in turn jeopardise the ongoing solvency of the company. Therefore, I would welcome some reassurance from the Minister that this will not be the outcome of this legislation.
Some might say that advisers should surely share the responsibility were there to be attempts to avoid pension debt. I have some sympathy with this. So, once again, will my noble friend reassure us that this Bill will not see those acting in good faith being caught out by the actions of an employer, or even perhaps of complicit trustees who might act in ways that are detrimental to the scheme? I hope that this reassurance can be forthcoming.
My Lords, I support my noble friends Lady Noakes and Lady Altmann and the strong case they have made for these amendments. Noble Lords may recall that at Second Reading on 28 January I expressed some doubts about the scale and nature of the penalties in this Bill, which include a civil penalty of up to £1 million. I am still concerned that increasing them, especially the new criminal element, will deter the respectable people we need from becoming pension scheme trustees.
The world has been changed by the challenges of the coronavirus, as we have just heard. According to Patrick Hosking in the Times yesterday, using figures from pension experts Barnett Waddingham, FTSE pension deficits have soared by £45 billion to £210 billion since the start of the year, so that companies that have a deficit are now a good deal further away from closing it. This is an enormous strain on mostly well-run companies and schemes and reflects years of low interest rates caused by QE and turbulent equity markets. Who would want to get involved in pension administration? Yet its success is at the heart of the British savings system and vital to the future livelihoods of millions of hard-working people, often of modest means, up and down the country.
The Bill rightly reflects the need to plug a hole revealed by the Philip Green case and the furious debate in Parliament before Sir Philip was persuaded to pay up. However, as is often the case with legislation that responds to scandals, it is wide-ranging and takes enormous powers. It goes too far in my view towards burdening business at the expense of other stakeholders. The result will be less willingness to become a trustee and more administrative and other costs for pension schemes paid for, in the end, by the unfortunate pensioners, and the risk of more businesses being pushed into the Pension Protection Fund. This is the background to my unease with Clause 107 and why I moved an amendment in Committee with the help of my noble friend Lady Noakes, and why I now support her and my noble friend Lady Altmann with these amendments.
The criminal offences in Clause 107 are widely drawn. They try to catch bad behaviour by anyone who might be involved. But I maintain that this may have appalling perverse effects, injecting great uncertainty into what is permitted behaviour by those involved in pensions administration. My principal concern is with trustees, having been one and knowing what fine judgments one is called to make, but also with financial advisers, actuaries, accountants, insurers, property consultants and even secretarial support, all acting in good faith. It is one thing to provide for criminal sanctions against an employer, but wrong to extend this in such a vague and general way. A number of suggestions were made in Committee as to how one might tackle this, but disappointingly the Government have not listened—or not so far.
These new criminal offences will have a chilling effect on trustees and others involved, as my noble friend Lady Noakes explained, and I ask my noble friend the Minister to agree to think again and to narrow the very wide offences in this Bill to provide some comfort, either in this House or when it proceeds to the other place.
Lord Naseby has withdrawn, so I call Lord Blencathra. No? I gather that there have been some problems, so I call the noble Viscount, Lord Trenchard.
My Lords, while the Bill has generally been welcomed by the pensions industry and members of pension schemes, I worry that it may give the Pensions Regulator too much power. The new criminal offences contained in Clause 107 affect not only employers and senior associates of pension schemes. They could apply to anyone involved in such schemes: for example, trustees, banks and insurers. I therefore support Amendments 46 to 49, proposed by my noble friend Lady Noakes so eloquently and so well supported by my noble friends Lady Altmann and Lady Neville-Rolfe, which confine the new criminal offences to the employer and persons connected with the employer. It is absolutely right that the Government have acted to ensure that failures such as that of Carillion and BHS will no longer have a negative effect on members of pension schemes.
The offences created in Clause 107 are serious. They carry a potential seven years’ imprisonment and a civil penalty up to a maximum of £1 million. It is therefore right that these offences should apply as broadly as they do, but they should be limited in effect to the employer and the trustees of the pension scheme concerned. These penalties seem proportionate to the gravity of the crimes in certain cases, but both offences apply very broadly to “persons”, with no requirement for association with the pension scheme. The Government’s intention may be that the measures are there to catch wilful and reckless behaviour, but the problem is that their potential ambit is wider—much wider—than just the reckless.
As currently drafted, the criminal offences could impact ordinary pensions and business activity, and, in distressed situations, they might act as a disincentive to corporate or business rescue—for example, by encouraging directors to file for insolvency to avoid the risk of criminal liability that might arise through seeking a turnaround plan or a pension scheme compromise. So far, attempts at making the measures clearer and more targeted have not succeeded. Regulator guidance on how the new powers will be used has been promised, but this has no special status in law.
The Pensions Regulator is not the only possible prosecutor in Clause 107 offences, as the noble Lord, Lord Hutton, eloquently pointed out in Committee. My noble friend Lord Howe explained that the Secretary of State would prosecute only as a last resort, such as if the regulator ceased to exist or changed. I find it hard to envisage that in such circumstances the whole of the current pensions legislation would not be changed.
I think that it is necessary to confine those who might commit these two new offences to connected parties; otherwise, many other persons might unwittingly, or unintentionally, become exposed to prosecution. For example, the fund manager of a pension scheme, in handling investments entrusted to him by the trustees of the scheme, might make investments or realise sales that negatively affect the value of a pension fund’s assets.
I think that these amendments are very sensible and I look forward to hearing the Minister’s reply.
The noble Baroness, Lady Sherlock, has withdrawn. Have we had any success in finding the noble Lord, Lord Blencathra? Alas, no, in which case I call the Minister, the noble Earl, Lord Howe.
My Lords, I am grateful to my noble friend Lady Noakes for tabling these amendments to Clause 107 and for the helpful conversations that we have had about them in recent days.
I start by saying that the Government understand the genuine concerns that have been raised during Committee and by my noble friend through these amendments. The first point that I would like to make —I think that it is necessary for me to make it—is that, in introducing the new criminal offences, the aim is to target individuals who intentionally or knowingly mishandle pension schemes or endanger workers’ pensions by behaviours such as chronic mismanagement of a business or avoiding pension liabilities. It is not the aim to frustrate legitimate business activities where they are conducted in good faith.
The key point is the one that I made in Committee: that it is an offence only if the person intended to harm the scheme or should have known that the conduct would have that effect and they have no reasonable excuse for their actions. The decision on whether a person does or does not have a reasonable excuse and ultimately did or did not commit an offence in a particular case is a matter for the courts. However, in coming to such a verdict, the courts will have paid due regard to all the circumstances in the individual case in question. That, of course, includes coming to a view on whether the person’s excuse for acting in that way was a reasonable one. The burden of proof on that question falls on the Pensions Regulator. In other words, the Pensions Regulator would need to prove that the actions of the individual were unreasonable.
The other dimension of the issue is that it is important that, where the elements of an offence are met, no matter who has committed it, the regulator should be able to respond appropriately. Any restriction of the persons potentially in scope would create a loophole for those people to act in such a way.
Having said all that, we are aware of the concerns raised by industry and by noble Lords. To address those concerns, I draw the House’s attention to the general prosecution policy which the regulator already publishes and which sets out the matters that it considers when using its prosecution powers.
My noble friend mentioned the regulator’s guidance. The regulator has stated that it will also issue further specific guidance explaining its approach to prosecuting the new offences under Part 3. Before it does so, the regulator will consult the industry on the contents of the guidance for the new offences, and it expects to publish this guidance prior to the commencement of these provisions.
My noble friend asked why we are not defining “reasonable excuse” in the Bill but leaving it to the regulator. I come back to the point that what is reasonable in a set of circumstances will be dependent on the individual facts of the case. It is therefore a difficult thing to define but, on a broader point, it is obvious that no government policy should be immune from events. The Government accept that case law develops and it is for this reason that they keep all policies under review to ensure that they continue to meet their intended objectives. I hope from what I have said that my noble friend will be confident that the regulator is well seized of the issues that she has justifiably raised and that there will be a process to ensure that its guidance is refined and clarified.
It is clear that the majority of those involved with pension schemes want to do right by the members. However, I hope no one would disagree with the proposition that there should be sufficient safeguards to protect members’ pensions from the minority who are willing to put them at risk. If the scope of the offences as introduced in Clause 107 were to be narrowed, then the deterrent and the safeguards provided by the offences would, without a shadow of a doubt, be weakened. With that in mind, and in coming back again to the point I made a moment ago that this is in no way about trying to frustrate legitimate business activities conducted in good faith, I would hope that my noble friend feels sufficiently reassured to withdraw her amendment.
My Lords, I first thank all noble Lords who have taken part in this short debate. I was pleased to get support from my noble friends Lady Neville-Rolfe, Lady Altmann and Lord Trenchard.
I am grateful for what my noble friend the Minister has said, in particular that Clause 107 is not aimed at legitimate business activities conducted in good faith. He went on to say that there were other activities which might harm the defined benefit scheme but that they would be caught only to the extent that there was not a reasonable excuse. We will come back to that being the heart of the problem because there is no real comfort about what is included in “reasonable excuse”. We are invited to rely on future guidance on prosecution issued by the Pensions Regulator and guidance on how the regulator would approach the reasonable excuse.
I say to my noble friend that the pensions advisory industry has not always found guidance issued by the regulator helpful in guiding, as opposed to giving warnings about what the Pensions Regulator does not like. I do not think there is a lot of hope that that guidance will necessarily put an end to the uncertainty—and, at the end of the day, we are left with major uncertainty hanging over business until cases come before the courts and we see what the Pensions Regulator does in practice.
Having said that, as my noble friend knows, I never intended to divide the House and am grateful for what he has been able to say today. I will want to reflect on it further with those who have helpfully provided briefing on this. I know that some parts of the industry may want to stay in dialogue with the Government as the Bill goes forward. We will obviously have Third Reading in your Lordships’ House, but the Bill is a Lords starter and it will be taken in another place. So, while for today I will withdraw my amendment, and while I believe that we have made a lot of progress, we may not have made quite enough in making people comfortable that the range of transactions which could potentially be caught by this will not unintentionally fall within the ambit of Clause 107. With that, I beg leave to withdraw the amendment.
Amendment 46 withdrawn.
Amendments 47 to 49 not moved.
We now come to the group beginning with Amendment 50. I remind noble Lords that Members other than the mover and the Minister may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or the other amendment in this group to a Division should make that clear in the debate.
Clause 109: Duty to give notices and statements to the Regulator in respect of certain events
50: Clause 109, page 95, line 15, at end insert—
“( ) In particular, the declaration of a share buy-back by the employer is a notifiable event for the purposes of subsection (1) if the value of the assets of the scheme is less than the amount of the liabilities of the scheme.”Member’s explanatory statement
This amendment makes the declaration of a share buy-back by a company notifiable to the Pensions Regulator if the scheme is in deficit.
My Lords, in moving Amendment 50 I will also speak to Amendment 51 in my name. I thank the noble Baronesses, Lady Bowles and Lady Altmann, for their support and the Minister and officials for the time they have given to discuss the issue on a number of occasions.
Both these amendments relate to a similar concern: shareholders of companies with pension deficits removing excessive value from companies and thereby increasing the risk relating to their pension schemes. We had a long discussion about this in Committee, so I shall try not to duplicate that too much, but I will briefly explain the issue for those coming to this for the first time. I suggest that events since Committee have conspired to make the matter more rather than less relevant.
The Bill introduces a requirement that the regulator should be notified in advance of notifiable events and that the notification should be accompanied by a description of how the notifiable event might impact the pension scheme and what is being done to mitigate that impact. The Bill does not say what those notifiable events will be; they are to be prescribed in future.
However, it is understood that the Government intend these to be, first, the sale of all or a material proportion of the assets or business and, secondly, the granting of security on a debt in priority to a debt of the scheme. An email I received from the regulator describes the purpose of the notifiable event regime as being to act as an early warning system so that it is alerted to corporate actions that may have a detrimental impact on the scheme and that it may otherwise not have been aware of.
The easiest way for shareholders to remove value from a company is through either a dividend or a share buyback. While the regulator will be able to find out about these after the event, it has no way of seeing them in advance. Once the money has gone, it is too late; it is very hard to recover, especially if it has gone abroad. We have seen high-profile examples of companies going under after large dividends have been paid, leaving pension schemes with deficits—BHS and Carillion being just the two most high-profile ones. It is not a theoretical risk and, sadly, recent events have made such situations only more likely.
The Government rightly argue that we should not restrict the payment of normal, reasonable dividends; I completely agree with them. Restricting the payment of normal, non-excessive dividends could have a negative effect on the company and therefore on the pension scheme. Anyway, many dividends end up in pension schemes. It is only excessively high dividends, compared with the deficit repair payments, that I am trying to catch here. Even then, I am asking only that they be notified in advance so that the regulator can consider whether they have a negative impact on the pension scheme. I am not trying to block them, despite some noble Lords wishing that were the case.
Secondly, the Government also rightly argue that we should not overburden the regulator with too many unnecessary notifications. Again, I agree with them, so I have changed the amendment we discussed in Committee so that Amendment 51 now allows the regulator to set the level of dividend at which it should be notified. Share buybacks are a less common action, so I suggest that they should always be a notifiable event.
Amendment 50 simply says that any company with a pension deficit should notify a share buyback to the regulator in advance. Amendment 51 says that a company with a deficit should notify the regulator in advance if the dividend is bigger than the deficit repair contribution and the deficit repair period is longer than a period to be specified by the regulator.
It is interesting to note that if a company borrows more than £50 million under the Coronavirus Large Business Interruption Loan Scheme, the Government forbid it to pay dividends, make a buyback or pay a bonus. They have taken that view presumably because they are worried that if it pays a dividend or a buyback it will increase the risk of non-payment of the loan.
By contrast, we are allowing companies that owe large sums to their pension schemes and deferred salaries to their employees to pay whatever they want without even a notification. That feels slightly like “one rule for us”. I do not think that the Minister will accept these amendments, and I would prefer not to push them to a Division. The Bill allows the Government to prescribe events as notifiable events in the future. The noble Baroness, Lady Stedman-Scott, has kindly confirmed to me that the Government will keep the issue of dividends and share buybacks under review, and take appropriate action if they or the regulator feel that they are becoming a potential problem. If the Minister could kindly confirm that understanding for the record, I will not seek to divide the House over these amendments. I beg to move.
My Lords, I am grateful to the noble Lord, Lord Vaux, for moving these two important amendments. I have added my name to Amendment 50, which requires share buybacks to be notified to the regulator if a company is responsible for a pension scheme in deficit.
The case for accepting this amendment seems quite overwhelming. The noble Lord has been extremely reasonable in only requiring notification of a buyback. Equity buybacks are sometimes used by companies to distribute to shareholders what is considered surplus cash where management believes that it has no better use for that money. That suggests that sometimes, management believes that the current share price is undervalued. Of course, the buyback improves reported earnings per share and flatters financial statements, but these measures are sometimes used as a yardstick to determine top executives’ pay or bonuses. Many receive a large element of their compensation in the form of stock options, and a buyback can offset the dilution of existing share values and any potential reduction in earnings per share that might otherwise come from their options. Therefore, buybacks could be considered a ploy to boost reported earnings per share or share price levels.
It should be remembered that although the buyback may increase earnings per share, it does not increase the fundamental value of the company. Even more worrying, sometimes, companies engage in buybacks funded by increased borrowing. One of the reasons given for taking on the increased debt to fund such a buyback is that it is more efficient, because the interest on the debt is tax-deductible, unlike with dividends. However, clearly, this will reduce the financial resilience of the company when the debt must be repaid or the gearing level rises, leaving less money available to fill a pension deficit.
A company’s financial difficulty results from lack of cash, not lack of profits, and for a company which sponsors a defined benefit pension scheme with a deficit, the buyback would allow shareholders to enjoy rewards at the expense of pensioners. Ultimately, if the cash has gone into buying shares, it is no longer available to fill the deficit. The buyback itself cannot be argued to generate future growth, because a company’s investing its cash in the business would be a reason to suggest that it will be better off as a result of that decision. However, where spare cash is simply given to shareholders to boost share prices and potentially boost management remuneration, this requires some oversight by the regulator.
Therefore, Amendment 50 is even more relevant in the current global coronavirus crisis. If the company is spending cash on buying its own shares and reducing the cash for other investments or emergencies such as today’s, it is clear that less resource will be available and the pension scheme will be weakened. I must admit that, in my view, a buyback is rarely a wise strategic move, but in the context of the Bill, I believe that if there is spare cash, the Pensions Regulator and trustees should seriously question why it would be correct to approve this payout rather than use it to fill a hole in the pension scheme. The suggestion from the noble Lord, Lord Vaux, that this should be at least notified to the regulator and that it should have a chance to investigate the situation is almost unarguable. I would very much welcome my noble friend’s comments on how the Government might justify not putting this in the Bill.
On Amendment 51, which I support but have not added my name to, it is again clear that there are reasons why the regulator may have concerns. The case is not quite as strong as with buybacks, since it could be argued that an ongoing dividend stream might be vital to ensure that a company is still an eligible investment for certain important types of institutional investor—income funds, for example—and that the ongoing strength of the company could be negatively impacted by failing to pay a dividend. However, as I have explained with the case of buybacks, no such rationale can seemingly be advanced.
I hope that my noble friend will feel able to reassure the House or even perhaps accept Amendment 50, if not now then perhaps at Third Reading. I congratulate the noble Lord, Lord Vaux, on tabling these amendments. I look forward to the Minister’s response.
I shall be brief. I indicated that I want to speak on these amendments because I am concerned about the impact that they would have on companies’ ordinary transactions. Part of the problem would be that there is no distinction between ordinary dividends and something that might be regarded as an excessive dividend.
The noble Lord, Lord Vaux, has taken the approach of saying that share buybacks are always less common and always have to be referred to the regulator but other distributions of capital by way of dividend are not. Life is never that simple; if you are sitting in a boardroom deciding on dividend policy, there is clearly an approach to ordinary ongoing dividends. Then there is what you do with surplus capital, which can go by way of either a special dividend or a share buyback. I do not know how this amendment could possibly differentiate between those.
When one gets into the detail of Amendment 51, which tries to set a level at which so-called ordinary dividends would trigger the potential interest of the regulator, we could potentially get into problems. I do not think that it would be healthy to have major uncertainty hanging over companies undertaking their ordinary approach to the distribution of profits alongside what might well already be a well-defined deficit repair plan with contributions already agreed with the pension trustees, and then have something on top be required to go to the Pensions Regulator. The definition of what the regulator should be interested in will end up with a lot of things being notified to the regulator that, frankly, cause no concern at all. I do not think that that is an efficient way to approach life.
The noble Lord, Lord Vaux, has adapted his amendments to meet some of the concerns that we all expressed in Committee, for which I thank him, but I am afraid that I am still not happy with the two amendments that he has tabled. For example, nearly all pension schemes are in deficit. Amendment 50 would allow the Pensions Regulator basically to stop all buybacks, which is a matter not for this Bill but for a governance Bill—following proper review and consultation—because buybacks can be justified in some circumstances and we have not had a chance to debate that.
The coronavirus measures, with which a parallel was drawn, are unique and different—that has been made clear in parliamentary agreement to them—so it is better to leave the arrangements to ministerial discretion, as the noble Lord, Lord Vaux, suggested. We have to remember that, however good the regulator is, he or she introduces delay and uncertainty, so we need to make sure that the powers are used with care.
My Lords, I declare my interests as in the register: I am a non-executive director of London Stock Exchange plc, which has a pension scheme of which I am not a member.
I have signed both amendments, which are about getting priorities right on the matter of how a company uses spare cash and the importance of paying down deficits, especially if it is over too long a time. If there is spare cash around, deficit reduction should rank ahead of share buybacks and be balanced with regards to dividends. Both those issues have already been well elaborated, especially by the noble Baroness, Lady Altmann, and the noble Lord, Lord Vaux.
The amendments would not prohibit either of those eventualities; they would make them notifiable events. The regulator could then exercise discretion about whether there were good reasons; for example, checking that, in the circumstances, the quantum of the dividend was acceptable. I am less certain about good reasons for buybacks, but if there were any, they could be discussed. I therefore support the amendment. To deem it excessively cautious would not be to take it as it is intended. Although we say that the matter would need to be investigated, we would expect the Pensions Regulator to be reasonable in all the circumstances. For example, if everybody had fallen into big deficits, obviously the situation would be different, because of what was going on in the markets, from where a company was being a laggard in making up its deficits. However, we must not forget that if those deficits are not repaid and the company is under stress, it will be the workers and the pensioners who lose out in the end. They cannot always be put at the end of the queue.
My Lords, I am grateful to the noble Lord, Lord Vaux, for returning to this issue. We all know that there are some DB schemes with significant deficits and employers who could be doing more to clear them more quickly. Let us not forget the work done by LCP, which showed many firms paying out dividends 10 to 20 times their pension deficit payments, or the regulator’s annual DB funding statement last year, which raised concern about the disparity between dividend growth and stable deficit repair contributions.
The problem will not disappear. As more DB schemes have closed, they will soon be paying out more in pensioner payments, leaving them less to invest and with a need to de-risk their remaining investments.
The Covid pandemic is going to make things worse. The Pensions Regulator reports that, so far, only around 10% of schemes have agreed a temporary suspension or a reduction in DRCs post Covid, but more trustees and employers are in the process of discussing possible requests to suspend or reduce contributions. We all know that the full force of the economic storm has yet to hit us.
The noble Lord, Lord Vaux, mentioned the no-dividend rules for Covid business loans. The regulator’s Covid-19 guidance on defined benefit scheme funding and investment says that, if trustees face requests to suspend or reduce contributions, then they should seek mitigations. It gives an example, saying:
“All dividends and other forms of shareholder distribution to stop throughout the period of suspension and not to start again until the deferred or suspended contributions have been paid.”
TPR will still require trustees to report agreements to suspend or reduce contributions and provide information on the mitigations.
Ministers say that the regulator can chase employers if resources are taken out that should not be taken, but we know what the danger is if action is taken only after a dividend has been paid out. If the dividends are paid out by a UK employer to an overseas parent, it can be very difficult to get them back. It is entirely possible, in these difficult times, that if a company is in trouble and its parent company is based overseas, there may well be a move to repatriate assets to the home state. These amendments seek to tackle that problem not by stopping dividends or even buybacks where there is a deficit but by making them a notifiable event in certain circumstances.
The noble Lord, Lord Vaux, has softened his amendments, but he has still made a compelling case. Therefore, if the Minister does not want to accept these amendments, can he tell the House how he will ensure that the next BHS or Carillion scandal will not be a company with a foreign parent seeking to repatriate assets before abandoning its obligations to the pension scheme? I look forward to his reply.
My Lords, I am grateful to the noble Lord, Lord Vaux, for tabling these amendments to Clause 109, which brings us back to an issue that we debated at some length in Grand Committee. It would be helpful to consider these amendments together, as they seek to make the declaration of a dividend or share buyback the subject of a notice and accompanying statement to the Pensions Regulator and trustees of the pension scheme. In the case of a share buyback, this notification would be required where the value of the assets of the scheme was less than the amount of the liabilities. In the case of a dividend, notification would be required if the amount of the dividend exceeded the annual deficit repair contribution and the amount of the annual deficit repair contribution was less than a percentage of the scheme’s deficit. That percentage would be specified by the Pensions Regulator.
I understand where the noble Lord is coming from, but I will address his concern with an explanation of Clause 109. The purpose of the clause is to make sure that the Pensions Regulator and trustees of a defined benefit pension scheme have prior knowledge about corporate transactions or events of which they would otherwise have been unaware and that pose a risk to the scheme and ultimately the Pension Protection Fund. The clause would also ensure that the trustees work with employers to mitigate the effect of such risks.
The Pensions Regulator and the trustees of the pension scheme are able to access information about dividends and share buybacks already. There are well-established processes whereby the regulator is able to get the information that it needs on dividends and similar payments as it assesses covenant strength and the ability of the employer to make contributions to deal with any deficit. Adding additional notifications of the kind that the noble Lord is suggesting is unlikely to be of any help. What it would certainly do is put an unnecessary burden on both employers and the regulator.
The regulator simply would not have the resources to deal with these additional notifications. That is not a trivial point: let us remember that it is a risk-based regulator and must focus its resources where it can do most good. We think that this focus is best directed at ensuring that recovery plans are robust. That is the best way to ensure that schemes are treated fairly. It is the strength of the recovery plan that is key here. Of course there will be occasions when dividends are paid without the regulator’s knowledge, but even if the regulator had been able to prevent that from happening, that would not help the scheme. That is because there is no requirement for the sponsoring employer to pay anything into any scheme deficit other than what is set out in the recovery plan.
That is why we think a robust recovery plan is the key to ensuring that the scheme is treated fairly. Furthermore, where the pension scheme is detrimentally affected, the regulator could engage its anti-avoidance power. There is little evidence that companies not being able to pay their deficit repair contributions as a result of dividends or share buybacks is a systemic issue. Where this does happen, it impacts a whole range of creditors and not just the pension scheme; it happens rarely because there are already legal safeguards concerning the payment of dividends and share buybacks. What is more common is that seemingly excessive dividends are paid, and the scheme is treated unfairly, because the recovery plan is not tough enough. That is where we think the regulator’s efforts need to be concentrated—and we are taking action in two ways to ensure that that can happen.
Measures in Clause 123 and in Schedule 10 to the Bill will strengthen existing provisions by providing for clearer funding standards, including powers to define more clearly in secondary legislation what is an appropriate recovery plan for scheme funding deficits. Additionally, the regulator’s revised funding code will set clear expectations on what is an acceptable recovery plan and will include guidelines on recovery plan length and structure. The secondary legislation will be informed by the regulator’s consultation on the revised code and will support the regulator in enforcing these standards. Provided that the sponsor has an appropriate recovery plan—by which I mean a plan that balances the need for sustainable growth with the need to return the scheme to full funding in a reasonable period—it is right that how it chooses to deploy the remaining resources is a matter of business priorities.
Where an employer is unable to support its pension scheme, the Pensions Regulator has made it clear in the guidance it issues for employers and trustees that dividends should not be paid, and it will take action to ensure that sponsoring employers treat their schemes fairly. We are, however, aware that excessive dividends can, in some circumstances, cause significant detriment to the scheme; particularly in these economically uncertain times, this is something we need to keep closely in touch with. I can therefore give a further clear undertaking that the Government will be keeping the situation under review in consultation with the Pensions Regulator. If evidence emerges that it would be helpful for the regulator to be notified of the payment of dividends or share buy-backs in certain circumstances, we will consider doing that through secondary legislation.
However, for all the reasons that I have given, the face of this Bill is certainly not the way to try to do that. I hope your Lordships will recognise that the measures elsewhere in this Bill, taken together, are a far better way to tackle the problem of employers who do not direct an appropriate proportion of available resources to managing the pension scheme deficit. With that plea, and in the light of all that I have explained, I urge the noble Lord to withdraw his amendment.
My Lords, I thank all those who have taken part in this short debate. While I do not entirely agree with the Minister on everything he said, I do agree that a strong recovery plan is the most critical element of making sure that deficits are dealt with. I part company with him on the idea that taking excessive dividends out does not impact on the ability of companies to strengthen the deficit repair plans. However, I thank him for the confirmation that he has given, which I asked for in my earlier speech. On that basis, I am content to beg leave to withdraw Amendment 50 and not to move Amendment 51.
Amendment 50 withdrawn.
Amendment 51 not moved.
My Lords, we now come to the group beginning with Amendment 52. I remind noble Lords that Members other than the mover and the Minister may speak only once, and that short questions of elucidation are discouraged. Anyone wishing to press this amendment, or any other amendment in the group, to a Division should make that clear in debate.
Clause 118: Qualifying pensions dashboard service