Further consideration of Bill, as amended in the Public Bill Committee
New Clause 1
Funder of the last resort
“Notwithstanding the provisions of section 8, the Secretary of State shall make provision for a funder of last resort, to manage any cases where the Master Trust has insufficient resources to meet the cost of complying with subsection (3)(b) of that section.”—(Alex Cunningham.)
Brought up, read the First time, and Question proposed (22 March), That the clause be read a Second time.
Proceedings interrupted (Programme Order, this day).
Members will be aware that when the House previously considered the Bill on Wednesday last, the sitting was suspended, and subsequently the House adjourned, during a Division on the Question that new clause 1 be read a Second time. I shall begin proceedings on the Bill today by again putting that Question to the House.
Question put forthwith (Standing Order No. 83E), That the clause be read a Second time.
The Deputy Speaker then put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).
New Clause 2
“(1) By a date to be set by the Secretary of State in regulations, approved Master Trust Schemes must ensure that at least a third of the trustees of the scheme are Member Trustees.
(2) Member Trustees must be individuals who are—
(a) members of the Master Trust scheme; and
(b) not members of senior management of a company that is enrolled in the Master Trust scheme.
(3) Member Trustees must be appointed by a process in which—
(a) any member of the scheme who meets the condition in subsection (2) is to apply to be a Member Trustee,
(b) all the active members of the scheme, or an organisation which adequately represents the active members, are eligible to participate in the selection of the Member Trustees, and
(c) all the deferred members of the scheme, or an organisation which adequately represents the deferred members, are eligible to participate in the selection of the Member Trustees.
(4) Member Trustees should be given sufficient time off by their employer to fulfil their duties.
(5) For the purpose of this clause “senior management”, in relation to an organisation, means the persons who play significant roles in—
(a) the making of decisions about how the whole or a substantial part of its activities are to be managed or organised, or
(b) the actual managing or organising of the whole or a substantial part of those activities.”—(Alex Cunningham.)
This new clause requires Master Trusts to make provision for some form of member representation within Master Trusts.
Question put, That the clause be added to the Bill.
Systems and processes requirements
Amendment proposed: 1, page 8, line 13, at end insert—
“( ) A minimum requirement of annual reporting of administration, fund management costs and transaction costs for each asset class, drawdown product and for active and passive asset management strategies.”—(Alex Cunningham.)
This amendment would introduce annual reporting and inclusion of transaction costs requirements for Master Trusts.
Question put, That the amendment be made.
I beg to move, That the Bill be now read the Third time.
We return to this Bill after last Wednesday’s traumatic events. My thoughts and sympathies, and those of all the House, are with those who were affected. I take this opportunity to thank hon. Members from both sides of the House and the House staff for their support and professionalism in what was a very difficult time for us all.
I am pleased to see Madam Deputy Speaker in the Chair, as she has not heard any of this before. This Bill focuses on master trusts, introducing a new authorisation regime for them and setting out how they must satisfy the Pensions Regulator of certain criteria before they can begin, or continue, to operate.
The criteria were developed in discussion with the industry, and respond to specific key risks. Although the Bill provides some detail, more will be set out in regulations after further consultation with the industry and others. The Bill gives the regulator new powers to supervise master trusts, and to step in when schemes risk falling below the required standards. It also gives the regulator additional powers when a master trust experiences a key risk event. A scheme that has experienced such an event will be required either to resolve the issue or to wind up. As well as giving the regulator new powers, this Bill supports continuity of savings for members, protects members when a scheme is to wind up, and supports employers with their automatic enrolment duties.
To protect members of existing schemes, some aspects of the regime will have effect from 20 October 2016. Schemes are required to report triggering events to the regulator, and there are restrictions on certain charges until the event is resolved. The Bill also amends existing legislation so that regulations can override relevant contract terms that are inconsistent with those regulations. We intend to use this provision, along with existing powers, to make regulations that cap early exit charges and ban member-borne commission in some occupational pension schemes.
When this Bill was introduced in the other place last October, it was welcomed across the pensions industry as an essential piece of legislation that would protect the millions of people now saving for their retirement through master trusts. I am pleased to say that the Bill has been broadly welcomed by those in all parts of both Houses. We have listened to the points raised in both Houses, and have continued to engage with stakeholders. I can confirm that we have brought forward a number of Government amendments to address their concerns. In the other place, amendments in Committee mainly related to how the regulator would enforce the new authorisation regime.
Amendments on Report in the Lords focused on regulation-making powers in the Bill, in acknowledgement of the report from the Delegated Powers and Regulatory Reform Committee. One amendment inserted a power to make limited consequential changes to legislation to ensure that the law works as it should. We also made a change to allow the provisions on fraud compensation in the Pensions Act 2004 to be modified for master trusts.
On Third Reading in the Lords, we made one minor technical change to clarify that regulations on scheme funders’ accounts may require them to be audited. In Committee in this House, we agreed further changes. First, the Committee removed a clause that had been inserted after a narrow vote on Report in the other place, which provided for a scheme funder of last resort to meet the costs when a master trust is being wound up without the necessary funds to transfer the accrued benefits. We discussed that once again on Report last week, when the House accepted the Government’s argument that this additional provision is unnecessary.
In response to a point raised in the other place about an unintended consequence of the Bill, we made amendments to enable a scheme funder to engage in activities in relation to any part of the scheme, not just the money purchase section. The original requirement in the Bill that the scheme funder be a separate legal entity, and carry out only activities directly relating to the master trust scheme in question, was amended to address concerns about the impact of the requirement on business. The amendments enable scheme funders to operate more than one master trust, and also give the Secretary of State the flexibility to make exceptions to the requirement that scheme funders’ activities be limited to the master trusts of which they are the scheme funder or prospective funder.
I thank hon. Members on both sides of the House for their contributions, including the shadow spokesman, the hon. Member for Stockton North (Alex Cunningham), and the hon. Member for Ross, Skye and Lochaber (Ian Blackford)—not least because I can now say the name of his constituency without reading it. I particularly thank the Bill team from the Department for Work and Pensions, and everyone who has contributed to making this Bill an excellent piece of legislation.
As we know, the passage of the Bill was interrupted this time last week as a result of the horrendous attack that took place just metres from this place. I echo the Minister’s remarks, and express my condolences to everyone who is grieving for a loved one, or who is recovering from their injuries. I also express my gratitude to the emergency services, and especially to the incredible support team working in and around this amazing place. I want to say how treasured they all are.
On to the Bill. I want to put on the record my thanks to my hon. Friend the Member for Stockton North (Alex Cunningham) for his unstinting work on this Bill, to our colleagues in the other place, who, as has already been mentioned, kicked this whole process off, and to all our teams for all the hard work they put in to try to ensure that the Bill, which is about closing the gaps in the regulatory framework for master trusts and increasing protections for their savers, is as effective as possible.
It will come as no surprise to the Minister to hear that I regret that he has been a little intransigent in failing to accept our amendments. He might have been constrained, but I wish we could have done more, as it would have strengthened the Bill and protected savers further. However, the Bill as it stands goes some way to increasing protections for master trust savers, the vast majority of whom were automatically enrolled through their sponsoring employer.
This has not been the easiest Bill to scrutinise. The content is, of course, technical, and an unusual amount of legislation is left to secondary regulations, which is a concern. That is becoming a hallmark of this Government and is entirely regrettable. It has not only brought criticism to the Government from the Select Committee on Public Administration and Constitutional Affairs, which has suggested that the Government are writing legislation in lieu of policy, but has made it difficult for this House to get a full picture of how the legislation will operate in practice.
Nevertheless, we are about to point out a number of significant gaps in the Government’s approach to the legislation, as well as some parts that we believe require further thought. As my hon. Friend the Member for Stockton North mentioned last week, we tried to table amendments in Committee to enact our commitment to the WASPI—Women Against State Pension Inequality—women to extend pension credit to those worst affected, ensuring that hundreds of thousands of those women became eligible for up to £156 a week. Sadly, the amendments were not selected. It is a real disappointment that the Government did not use the Bill to address the plight of these women. Labour has a clear, costed plan targeted towards the most vulnerable women, and we are exploring further options to help as many as we can.
Given that we understand that this will be the only pensions Bill in this Parliament—the Pensions Minister can put me right on that—there are many other pensions issues that should have been included in a more comprehensive Bill. As we have said before, this was a wasted opportunity.
Let me move on to the specifics of the Bill. It is a shame that the Government did not heed the advice of our noble Friends in the other place and provide for a funder of last resort. Our amendment would have ensured that scheme members were protected in the event of a master trust becoming insolvent, and would have offered them a clear route for the drawdown of their savings. The Minister believes that the new regulatory framework provides sufficient protection to make this provision unnecessary, yet he seemed unwilling to give a guarantee that no future master trust would go bust. I am glad that he has such faith in the regulatory regime, and I genuinely hope, for the sake of scheme members, that his faith is justified.
We hope to improve the clauses relating to pause orders. Under the legislation, the regulator can step in following a triggering event to halt accumulation and decumulation from a failing master trust. The Government have made an exception for people getting divorced to allow them to access funds held under a pause order, but they did not see fit to offer the same opportunity to, for example, disabled people or those in ill health. This is likely to cause distress to those who desperately need to draw down their savings. The Government did little to consider what would happen to savers affected by a pause order who wished to continue putting aside contributions from their salary and their sponsoring employer for retirement. Our amendment suggested that the employer take responsibility for holding on to these savings until the pause order ended or a new master trust was found. The Government again unfortunately rejected this practical suggestion.
The lack of transparency of costs and charges is a scandal of the pensions industry, and there have been Government promises to tackle it for years. I remember, several years ago, as a member of the Select Committee on Work and Pensions, one of the Treasury Ministers in the last Parliament promising that this would be done, but we are still waiting. It is one of those issues that we are taking far too long to tackle. I appreciate that a review will be published at the end of the year, but that will be too late for legislation. Again, it will be up to the industry to determine what, how and when it will publish its costs.
The matter of charges is a real scandal. I wonder whether anybody here knows the charges on their pension scheme. The charges affecting all savers have been estimated at up to £120 billion a year. We need to decide whose side we are on. Are we going to look after savers or prop up the pensions industry? We tried to raise the issue of opaque costs and charges being applied to members’ savings pots by investment managers and brokers, but again, the Government failed to respond. For too long, people have been encouraged to put their faith and, more importantly, their money in a distant savings pot, with very little information about where that money is invested, the performance of their savings and, importantly, the costs and charges incurred on the investment. In short, neither the scheme trustees nor the scheme members have been able adequately to ascertain whether they are getting value for money on their investments. In almost every other market, people looking to purchase goods or services are provided with basic information about performance and cost in advance of their purchase. This is a necessary requirement to ensure that they are getting value for money, yet this basic principle is not operating in our pensions system.
Part 2 of the Bill makes a small step towards greater transparency regarding the charges applied for those hoping to make the most of pension freedoms and to remove their savings from a master trust, but we maintain that it is not enough. Much more could have been done to shine a light on transaction costs applied to investment returns. The Minister committed the Government to implementing the recommendations of the Financial Conduct Authority’s report on the asset management market. Surely this would have been a great opportunity for the Government to make a start.
There is a lot of work to be done to tackle the problem of opaque and excessive costs and charges being extracted from workers’ savings by investment managers. This Bill merely scratches the surface. The question of governance also remains unanswered by the Government, despite the Opposition’s attempts to clarify. We believe that the Bill should have increased member representation on trustee boards. Their money is being invested, and they should be involved. The Pensions Act 1995 introduced the requirement for company pension schemes to have member-nominated trustees. If the scheme’s sole trustee is a company including the employer, rather than an individual, scheme members will have the right to nominate directors to that company.
The Pensions Act 2004 enshrined the right to have at least a third of the trustees of a trust-based scheme nominated by scheme members. That stems from the basic democratic principle that those for whom decisions are being taken should have a say in those decisions. The Pensions Regulator agrees that master trusts are covered by that legislation, which is why some already have member-nominated trustees.
The regulator has, however, turned a blind eye to this matter, on the basis that having multiple sponsoring employers presents a barrier. That is not acceptable, and we have urged the Government to clarify and apply the law in this regard. Scheme members should be represented among the trustees of master trust funds—it is, as I said, their money, and they have a direct interest in ensuring there is a sound and sustainable investment strategy that delivers good value. It is disappointing that the Government did not take up this matter, which requires urgent action. Nor was a convincing argument given as to why master trusts should not have to meet their statutory requirements, especially in the light of the increased risk being borne by scheme members.
It is also disappointing that the Bill does nothing to build on the success of Labour’s policy on auto-enrolment by ensuring that saving into master trusts is accessible and encouraged for a number of groups that were excluded from auto-enrolment by the Government’s changes to the eligibility criteria. Throughout these debates, we have recognised that the Government have announced a review of auto-enrolment, but we have not yet heard an explanation of why it comes after the Bill. The self-employed, women, those working multiple jobs, carers and people on low incomes could all benefit hugely from an enhanced opportunity to save towards their retirement. Although the Government did not feel they could commit to a proper statutory basis for their review, we shall hold them to account in the review itself to ensure it properly serves excluded groups.
To conclude, we of course welcome legislation to strengthen the regulatory footing of master trusts. We have, however, tried throughout these debates to address a number of serious issues through pragmatic engagement with the Bill, and by highlighting its many gaps. One would think that the Government would have had time to include much more detail on this piece of primary legislation to allow for proper scrutiny in both Houses. It seems, however, that they were unable to get their act together on this aspect of pensions. [Interruption.] There is some chuntering from the Government Benches—I think there is dissent there. However, we hope that, through these debates, we have at least drawn attention to these important issues, and to the need to create further security and dignity in retirement for working families across the UK.
May I associate myself with the remarks made by the Minister and the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) about the events of last Wednesday? We should reflect on the fact that those events were unfolding outside this Chamber while we were having our debate. Our thoughts are very much with those who, in the line of duty, defended our interests, including the police officer who lost his life, as well as with the others who lost their lives, those who have been injured and all those who have been affected.
As we have this debate, we should reflect on the responsibility that all Members have to build an architecture that creates a climate in which consumers around the UK can safely invest in pension schemes and savings, and in which there is an element of trust. I broadly welcome the Bill’s role in improving the landscape. It is an important step forward in so far as it puts in place the necessary protection for those who are investing through auto-enrolment. It is crucial that we have the regulation in the Bill.
Like the Labour spokesperson, the hon. Member for Oldham East and Saddleworth, I would have been happier if the Government had accepted some of our amendments. Having said that, I was very much encouraged by the Minister’s response last week, particularly to an amendment I tabled regarding section 75 of the Pensions Act 1995. I welcome the commitment to revisiting this issue. As has been said, the Bill has to be seen in the wider context of what we are seeking to achieve on pensions.
Two of my new clauses were not selected for debate, one of which was on the establishment of a pensions and savings commission. I still believe that the Government should consider that proposal, because an awful lot is going on in this landscape, some of which was described by the hon. Member for Oldham East and Saddleworth. There is the forthcoming review of auto-enrolment. We have had the Cridland review, the Green Paper on defined-benefit pension schemes and the FCA paper. I think that there is a willingness among all of us to work collegiately to improve the interrelationship of all these factors. I look forward to the debates that we will have in taking this forward. This all comes back to my point about how we can create further confidence so that we get effective saving in the pensions landscape.
I put this in the context of the Green Paper, one of the most striking features of which is the indication at its beginning that the average defined-benefit pot is £7,000. We all have to accept that pension savings are not at an appropriate level. We all want people to save to such an extent that they can have dignity in retirement through both their workplace pension and the state pension provision. I look forward to working with the Government on the review of auto-enrolment. While we are improving the protection for today’s consumers, we need to do more to protect other people, particularly a lot of women who have been excluded, such as those in part-time jobs who are below the threshold, and the self-employed.
I applaud the Government for what they are doing. While the Bill is a very necessary step forward, there is much more that we can do by working together for the mutual benefit of those who invest in pension schemes.
Question put and agreed to.
Bill accordingly read the Third time and passed, with amendments.