Committee (3rd Day)
Relevant documents: 4th Report from the Delegated Powers Committee and 2nd Report from the Constitution Committee
My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Clause 118: Qualifying pensions dashboard service
38: Clause 118, page 105, line 7, at end insert “or any person named as a beneficiary under that individual’s pension scheme”
My Lords, Amendment 38 in my name endeavours to fulfil the objectives of the pensions dashboard by ensuring people have access to all their pension entitlements. At the moment, they will be able to access entitlements under schemes only in their own name; they will not be able to access information about entitlements they may have because their husband, wife or partner has named them as a beneficiary under another scheme. More and more couples are both at work, and most pension schemes enable a beneficiary to provide for a surviving spouse. My amendment would enable a named beneficiary to access a dashboard where they had an interest. Without that information, that beneficiary will not know whether they have made adequate provision for their old age, which is a primary objective of the dashboard.
There may be other ways of achieving this objective. When a policy is taken out, beneficiaries could be sent a copy; I do not think this happens at the moment. They could be sent an annual statement, as the main policyholder is, or the main policyholder could be given the option of ticking a box so that beneficiaries can access the relevant dashboard with their consent. The point made in the amendment is a simple one: if the dashboard is to give people a complete picture so they can make informed judgments, they need to have access to this relevant information.
Amendment 43, supported by my noble friend Lord Flight, and Amendment 44 have a similar objective in enabling someone to see whether they have made enough provision for their old age by including relevant assets that can provide a pension income on the dashboard. The helpful policy brief says on page 45:
“Putting individuals in control of their data, dashboards should support engagement in pensions and planning for retirement.”
Planning for retirement involves more than pensions. Each Sunday, the Money section of the Sunday Times has a “Fame and Fortune” feature, in which there is a standard question:
“What’s better for retirement—property or pension?”
Yesterday, the Olympic medallist Sharron Davies said “Property.” The question makes the point that, for many people, there is a choice of how to provide for retirement. This amendment is a permissive one, which would enable a pension provider with a dashboard to include information on the equity locked up in someone’s home.
For millions of people, the equity in their home is worth more than their pension pot. Increasingly, that equity can be and is unlocked to provide an income stream in retirement. According to the ONS, we have £14.6 trillion in wealth—perhaps a little less following the slump on the stock exchanges last week—within which private pension wealth makes up 42% of national wealth, while net property wealth is not far behind at 35%. Arguably, equity release should play a higher role in proactive financial planning. Potentially, it is a valuable source of supplementary retirement income, particularly for pensioners on low incomes in homes that they own.
Many pension providers also provide equity release: for example, Aviva, Liverpool Victoria, Scottish Widows and Legal & General. It would make sense for them to be able to include illustrations about equity release alongside the pensions dashboard. Equity release is regulated by the FCA and can be sold only through a financial adviser. It is now one of the most highly regulated financial service products in the UK. In many ways, the decision whether, when and how to access equity release is not unlike the decision to access a pension pot. Independent advice is necessary, taking all considerations into account. I repeat what I said at Second Reading: I do not want to do anything to slow down the introduction of the dashboard, but I want to ensure that, when it is up and running, it can be used by those providing it to give customers a comprehensive view of assets and options, rather than a partial one.
I turn finally to Amendment 45, which deals with the verification process before one is allowed to access the dashboard. This is the weakest link in the chain. The ABI website—incidentally, it still proclaims that the Government’s objective
“is for the service to be available to consumers by 2019”—
says this about verification:
“The process to confirm the identity of users is based on the gov.uk/verify system which has already proved to be a secure portal for people accessing personal information.”
That could be an understatement. So secure is the portal that, as I will come on to in a moment, 56% of those who try to verify that they are who they are fail to do so and hence would be unable to use the dashboard.
There are risks in building the dashboard on the shaky foundations of Verify—one of the Government’s least successful IT initiatives—from which it is hastily disengaging, leaving its future in doubt. The NAO described Verify in March last year as
“intended to be a flagship digital programme to provide identity verification services for the whole of government ... In its 2016 business case, GDS identified the following key targets and expectations for the platform: 25 million people would use Verify by 2020, and 46 government services would be accessible through Verify by March 2018.”
As of 13 February, 22 government services use Verify—fewer than half the number expected by March 2018—and only 5.8 million people have signed up. There is a verification success rate of 44%, against an initial target of 90%. I failed twice to verify who I was.
In July 2018, the Infrastructure and Projects Authority recommended that Verify be closed as quickly as practicable. In a recent report, the NAO concluded:
“Even in the context of GDS’s redefined objectives for the programme, it is difficult to conclude that successive decisions to continue with Verify have been sufficiently justified.”
The Institute for Government’s Whitehall Monitor recently commented that the scheme continued to be “mired in issues”, had fallen short of targets and had
“failed to build its intended user base and it is not delivering the efficiencies that the government sought.”
In October 2018, the Cabinet Office announced that the Government would stop funding the scheme in March 2020. Against the background of the unpromising progress of the scheme, the then Minister for Implementation stated, in words that could have been crafted by the scriptwriter of “Yes Minister”, that it was
“now sufficiently mature to move to the next phase of its development.”—[Official Report, Commons, 9/10/18; col. 3WS.]
The intention is that the private sector will take over responsibility for the scheme, despite the NAO finding that the Government have failed to make the scheme self-funding and the Government failing to convince their own departments to use the scheme. What will the private sector do with the scheme? With no government support, the providers of the service may have to increase the charges to government departments, which the NAO warns may make it unaffordable for them to use. Of the 22 that use it, half have alternative means of accessing the services provided.
This is what the whole dashboard depends on. Will the private sector continue with it? If so, will it be free for consumers, as at the moment? What happens if there is no Verify process? On charges, the policy brief says on page 51:
“Government is clear that accessing basic information via pensions dashboards must be free at the point of use for consumers.”
I ask this in passing: where in the Bill is that commitment legislated for, and what is the point of making it free to access the dashboard if the verification process has a charge? I appreciate that my noble friend the Minister is dependent on the Cabinet Office for support on this issue, as that is where responsibility for Verify rests, but she has an obligation to satisfy the pension industry and pensioners that the system proposed in the Bill is fit for purpose.
Finally, at the moment, many pension providers have websites that customers can access and where they can get information about their individual pension pot. They can not only access that information but top up their pot, withdraw sums and switch investments. But under the Government’s proposals, if that pension provider then provides a dashboard, existing customers will not be able to access it using their usual log-on procedure; they will have to go down the Verify route first. Perhaps the Minister can confirm that that is indeed the case.
So, we have the odd situation where a purely passive site such as the dashboard, which can provide only information and is not interactive—Amendment 39 secures that—has a different and higher standard of security than the pension provider’s site, which is interactive. I do not understand why a pension provider that has satisfied itself about the bona fides of a customer to the extent that it will respond and pay drawdown cannot allow access to a dashboard on its site, which is purely passive, without obliging the customer to go through a cumbersome verification process. Perhaps that could be looked at as well. I beg to move.
My Lords, I support Amendments 43 and 44 in the name of the noble Lord, Lord Young. He made the point that equity release is a growing source of income for people later in life. I would say it more strongly than that: I can imagine it being the biggest source of income for such people in 20 years’ time. I understand that the financial advisers who advise otherwise on pension fund matters are not qualified to advise generally on equity release. That has been substantially cleaned up, as it were, over the past 10 years so it is not a problem, but if the dashboard cannot include equity release, it does not meet its objective of setting out what people have to live on in older age. We do not want to delay wider progress but if equity release is not included quite speedily in the dashboard, it will not do its job.
My Lords, the purpose of Amendment 39 is to contain the delegated powers in the Bill so that they do not provide the power to authorise commercial dashboards to engage in transactional activities. Any authorisation regime to permit transactions should be addressed in a future Bill.
In a previous contribution, I sought to set out the policy still to be settled when the dashboard is focused on enabling individuals to view their pensions information in one place. When functionality is extended to the ability to transact on a commercial dashboard, the challenges and potential risks are even greater; there are multiple ways in which detriment to savers can occur. We should again remind ourselves that the dashboard project can extend to the whole of the UK pension system—public and private—embracing many millions of people. Allowing transactions over dashboards needs separate and clear consideration. It cannot be implicitly tucked into the delegated powers in this Bill.
Issues of private and public good will be impacted by whether the dashboard is fit for purpose when it comes to transactions: private good at the individual level and public good at the whole pension system level. I have yet to see the behavioural outcomes strategy associated with the dashboard. I assume the Government are not agnostic on the matter, given that the state supports the long-term saving system with some £45 billion of tax relief, so they will have a direct interest in knowing that the outcomes are good.
The delegated powers in this Bill are pretty open-ended, but Parliament needs to be satisfied that as the dashboard transitions, adding more functionality, the controls and supports are in place for good consumer outcomes to be achieved, and that the aggregate outcome of the decisions made by individuals as a result of the dashboard service makes a positive contribution to retirement outcomes for the public good in the UK. The evolution of the dashboard beyond the initial mandatory find, release and view of information should come back to the Houses of Parliament for proper scrutiny.
The long-term saving market is particularly susceptible to consumer detriment, and the evidence and informed opinion, including all relevant regulators, is that the consumer demand side is weak and increasingly focus has to be on provider supply-side controls to protect consumer interests. I shall illustrate the spirit of that comment. Commercial dashboards would make it much easier for firms who have attractive front-end offerings to capture consumer assets through encouraging easy consolidation of pension pots via mobile apps, but sometimes the business models of those firms mean charges on those assets will be considerably higher.
The Bill may set a framework for deciding what information should be on a dashboard, but the presentation of that information is hugely important. For example, some dashboard providers could have an incentive to present information on certain pension schemes more favourably, either because the dashboard provider is also a pension provider or because their business model is based on helping some pension schemes to attract customers. Value-for-money assessments are as variable as the criteria against which assessments are made, and the weightings given to each criterion making comparisons are extremely difficult. As a trustee, I am directly involved in trying to deliver value-for-money assessments under our regulatory obligations, so I feel confident in making that assertion.
Dashboards are not a silver bullet for removing the risk of consumer detriment. The evidence demonstrates that most individuals will not proactively engage with their pensions until they have to. When they do, they can be price insensitive and vulnerable to judgments detrimental to retirement incomes. Noble Lords do not need to take it from me. There is a heavy weight of evidence from regulators such as the FCA which supports that. In fact, it is evidence that the FCA contributed to with its report on the drawdown market.
The regulation of consumers granting delegated access through the dashboard will need careful consideration, because any exposure through a weak delegated access system could be much greater when all the information is available at one point. It is important because the current body of evidence reveals that consumer behavioural biases have more impact on financial capability than lack of knowledge and information. They take what the FCA describes as the path of least resistance, even in the face of information available to them.
The provision of dashboards may be a regulated activity, and therefore the FCA’s FiSMA powers come into play. However, there is the issue of whether the FCA will require additional powers to impose supply-side controls in order to protect consumer interests, particularly given that we do not yet know what government policy will be on many issues, including the pricing model for commercial providers, which the noble Lord, Lord Young, referred to.
The FCA conduct rules have not prevented repeated failures or scandals. The failure of support to the Port Talbot steelworkers is just a recent example on the continuum stretching from the personal pension mis-selling scandal of the late 1980s. Any brief reading of the FCA reports on the functioning of the financial advice market to support pension savers does not leave one with a high level of confidence.
However, clarity on the model of liability, including that carried by the state which is mandating the release of data, will be essential if transactions are allowed over the dashboard. The FCA will not be the only regulator with an interest. Protecting the data and its holding, access and use in a transactional model of dashboards will be of major importance, given the scale of harm to consumers that could occur if it is not done properly. Parliament should have the opportunity to scrutinise to satisfy itself about what is being proposed.
The dashboard, properly implemented, can empower and inform individuals and contribute to them making better decisions. However, the long-term savings sector as a whole is not that far up the digitalisation curve, the good examples excepted, and it should harness the positives of financial technology to the benefit of customers. But the scale of the project and the consolidation of an individual’s data in one space can also enhance the scale and consequences of consumer detriment if the risks are not properly addressed and a high level of confidence provided.
This amendment is not forcing a debate about whether transactions should or should not be allowed over the dashboard. It seeks to limit the delegated powers in the Bill so that authority cannot be given to allow transactions across the dashboard service. Transactional activity is so significant that it should be approved by Parliament, through another Bill, in receipt of reports as to why the Government have a level of confidence that transactional activity could now be added to the functionality on the dashboard.
I reiterate: the dashboard project potentially can extend to the whole UK workplace pension system, embracing many millions of people. The impact on public good outcomes is in danger of being lost in the debate. Parliament has a right, and indeed the responsibility, to put them centre stage.
My Lords, I will make a few observations about this suite of amendments. It strikes me that the demands to add even more to the current proposal for the dashboard are fraught with danger from the customer perspective. I agree that, from a strategic, overall macro perspective, if one is looking to plan one’s retirement income, it will be most helpful to have as many sources reflected in any dashboard that will contribute to that income. However, the problem we face in getting this dashboard up and running is that there are so many different types of pension and of scheme that we already face a monumental task in just trying to list people’s pensions and make sure that the dashboard reflects all the elements attached to them over the many decades: the different tax regimes they have been under; whether they have a guaranteed annuity or protected tax-free cash; a guaranteed return of some kind; whether benefits have to be taken at specified ages, otherwise certain things are lost; whether there is any extra insurance in there that might be attached to the pension from old-style schemes; protected rights, and so on. And that is just for defined contribution, before we even get on to the defined benefit records.
Equity release has significant dangers for any consumer who is considering it. My worry is that, if consumers look at this information on a dashboard, they will not understand those dangers and will think that the money is available. Recently I have seen very many cases where individuals or their families have taken out an equity release loan for something like 25% of the value of the equity of their home, with an interest rate rolling up at 6% per annum for 20 or 30 years, meaning not only that, if they were to pass away, no value would be left in the home but, more worryingly, if they needed to sell the home and move to a smaller one—if they took out equity release in their 50s or 60s and, in their 80s, needed to downsize for reasons of care or convenience—they would be unable to do so because there would be no equity left for them to use.
Therefore, I caution significantly against trying to go more broadly. I think that we have enough of a challenge in trying to get pensions alone on to a dashboard. I completely agree that it is important to have the state pension on there and, in that regard and in speaking to amendments in the name of my noble friend Lord Flight to which I have added my name, we want people to be able to see what their projected state pension will be. However, we will need an electronic system so that people can go online to check their state pension. If Verify is not the gateway to that, we will need to develop an alternative secure gateway. We need to make sure that the dashboard has a standardised protocol and standardised systems so that every pension provider has to use the same IT structure that can then be securely fed to a dashboard.
With the state pension, you already get from social services advice on what your pension will be about a year before you draw it, so it strikes me that the state pension information is just sitting there waiting to be used by the dashboard.
I thank my noble friend. Of course, he is absolutely right but the point of the dashboard is that much younger people can plan their future pension income. The current procedure is to encourage people to log on to the state pension checker, where they can verify their future predicted state pension income so that, as they get into their 50s and closer to retirement, they will be able to make more meaningful financial planning. However, as my noble friend Lord Young pointed out, there are significant security concerns with the current gateway system that allows you to find out what your state pension is. Therefore, if we want the state pension to be on the dashboard, we will need a certain level of security.
The aims of the amendments are correct. We want to be able to see the state pension and a comprehensive list of pensions, but I caution against trying to go more broadly. I also caution against commercial dashboards which might use their own IT systems that lock people out of checking their pensions on other providers’ systems and which try to encourage people to merge their pensions. Indeed, we have seen that the systems of some pension providers do not always flag up the guarantees that can be very valuable for individuals. If people are being not advised but merely guided, or if it is merely information and they are not aware of the guarantees, they could lose out and have no comeback.
My Lords, I was not intending to speak to these amendments, but it has been quite an interesting debate to listen to. In some ways, I have changed my mind during the course of the debate. I found the notion of having everything all in one place, as put forward by the noble Lords, Lord Young and Lord Flight, an interesting idea. Of course, it can already be done, but for historic reasons—because I have been self-employed for most of my life, as has my husband, and we have quite a lot of pension schemes around—I am well versed on various different platforms. Yes, I do a lot of mystery shopping, as I call it, on these things. I have loaded up information and practised telling lies as well—putting in overvaluations of my house or saying what other things I have—to see how a platform projects what my income will be, so it is difficult to get right. I wonder about the house valuations that people might be tempted to put in, because there is a tendency to be optimistic when it comes to that.
In this last week, I was looking at one platform, thinking, “Where is the sell-all button for absolutely everything?” I could not do it; I had to go through several times, so I very much take the point made by the noble Baroness, Lady Drake, that you will take the path of least resistance when there is something that you think is urgent. If I can fall for that kind of wanting something to be there, others will too, but when I went through everything and had to think, “Do I really want to sell that or don’t I?”, I made different decisions from those I might have made if I had had a sell-all, transfer-all button. Given that I like to think that I know a thing or two about these things, I would rather err on the side of caution, as the noble Baroness, Lady Drake, pointed out. I do not want to interfere with people’s freedoms, but it has to be good to have a certain number of hurdles to give people a pause to think.
I tend to agree that equity release will have to be a big part of the future, and I wonder whether some of the people already taking out lump sums are thinking that way as well. Perhaps that is safer left until we can more broadly investigate what is going on there and make a rather safer and better environment, though I acknowledge that that there have been improvements that I have not tested yet.
My Lords, I will speak to the three amendments in my name in this group and respond to the others. Amendment 39 in my name, and that of my noble friend Lady Drake, would, as she indicated, prevent the powers granted under the relevant sections of this Bill from being used to extend dashboards into becoming transactional. My first question, therefore, is whether that is necessary: will transactions be permitted? The noble Earl, Lord Howe, said last Wednesday:
“We also intend all dashboards to start with a limited functionality until we better understand how individuals interact with their information. ”—[Official Report, 26/2/20; col. GC 183.]
Does that rule out transaction? I think not specifically. The excellent policy brief from the DWP says this:
“Dashboards will present simple information, without the ability to carry out transactions.”
That seems really clear: no transactions. A bit later on, however, it says:
“In future we expect that dashboards should be able to provide a greater level of functionality and information.”
So here is the rub: does functionality include transactions? Will the Minister tell the Committee plainly: is it the Government’s intention ever to allow transactions at any point on the dashboards? If not, then let us make that clear on the face of the Bill. If they do, then, as my noble friend Lady Drake said, they should have to come back to Parliament and seek further authorisation before going down that road. The reason is simple: we are being asked to authorise the establishment of a service that will be based on the compulsory release of data about the assets of some 22 million people, with no clarity about what is being created.
In the debate on the last group of amendments last week, my noble friend Lady Drake offered the Committee a short list of some of the matters not yet resolved. The Minister—the noble Earl, Lord Howe—said:
“It is not that the policy is not settled but that the implementation of the policy is not settled.”—[Official Report, 26/2/20; col. GC 190.]
Obviously, it depends where one thinks policy stops and implementation begins. If the policy is, “Have at least one dashboard with some pension information on it”, I acknowledge that the policy is settled. If it is much beyond that, we are into murkier water.
Let me add my shortlist of a few things we do not yet know. We do not know how many dashboards there will be. We do not know who will run them. We do not know what information will be provided on them or in what form. We do not know what uses of the information will be permitted. We do not know how the whole system will be governed and regulated. We do not know where liability will lie for each of the links in the chain. Without that, we do not know how complaints about failure and compensation for detriment arising at each point will be handled. We do not even know who will get to make rules for the dashboards, because the regulations provide for that to be literally anyone.
There are so many points in the information and action chain where something could go wrong: data loss or leakage; errors in data being supplied to the dashboard, by either the state, TPR-regulated schemes or FCA-regulated firms; compliance failures in displaying it inappropriately; transactions on or off screen, regulated or unregulated, where the consumer ends up with a poorer outcome than should have been the case.
Last week, the Minister defended the proposed delegated powers, saying to my friend Lady Drake that they were needed to provide momentum to the process of co-operation that would be required to develop the dashboard infrastructure. But the Constitution Committee addresses that specifically in its comments on Part 4 and the use of broad regulation-making powers. It said:
“There is a need for some of these powers in order to commence the work on pensions dashboards and facilitate the sharing of data to make them function. However, the rest of the powers could have been omitted until the policy had been prepared and sample regulations produced for consideration as part of a future bill. We have observed previously that ‘Skeleton bills inhibit parliamentary scrutiny and we find it difficult to envisage any circumstances in which their use is acceptable. The Government must provide an exceptional justification for them’”.
Can the Minister tell us what the exceptional justification is?
The case for not allowing regulations to be made under the Bill to allow transactions is overwhelming. Having thought about it over the weekend, I now think it is even stronger than when we tabled the amendments, because the debate in Committee last week surfaced more information about the Government’s plans for dashboards. We have learned that they are committed to MaPS providing a dashboard service, but we also learned that they are open to anyone who can meet the criteria running a qualifying dashboard and that they have no idea how many people that will be.
We learned that the Government think that having multiple dashboards running right from the launch would actively be a good idea because they think it would increase reach, and we learned that they are relaxed about commercial dashboards being there first and MaPS coming in, if necessary, some time later. If MaPS took a long time to get a dashboard up and running, which is not impossible, there could be years in which the only way the consumer could view the data on her own pension, the release of which the Government had mandated, would be on a commercial dashboard. I asked the Minister last week if the Government think that it is a good thing to have a public dashboard, and if so why. I ask him that again now. If he thinks it is a good thing, why are the Government relaxed about there potentially being a period of years when there is no public dashboard yet the mandated data has been released? I should be interested to hear the answer to that.
Also last week, the Minister said that accessing the information on dashboards will remain free. That is good news, but it means that, as my noble friend Lady Drake said, we need to understand the charging model of commercial dashboards. If they cannot charge you to look at it, why would they do it unless they can make money at it some other way? We need to understand what those other ways are. I do not know; I can only speculate. Are they hoping to find a way to monetise the access to data that the dashboard gives? Would that be allowed? Will they want to use the dashboard to show a consumer her various assets and encourage her to consider a more efficient way of organising them? For example, “Look, it is all spread over here. Would it not be tidier if you brought it all over in this fund over here, which—oh look?—my firm happens to run?” That way, the firm might stand to make money either from transactions or from the scheme itself. What about through advertising? Perhaps when a user logs on to her dashboard, up pops an advert that either encourages her to engage with a firm or asks, “Have you thought about equity release? Would not that be a better way of going about what you do?” Or even, as my noble friend said, there could be careful presentation of the data that seems to privilege some kinds of assets over others, depending on who is running the scheme. This is potentially a really powerful tool and we need to place some firm limits on its use until the market is much clearer.
Amendments 49 and 50, in my name, specify that regulations may require the provision of information on likely retirement income and administrative charges. I put these out as probing amendments to find out what information will be on the dashboard. What will consumers see? Without an estimate of their likely income on retirement, many consumers who do not have the skills and knowledge of the noble Baroness, Lady Bowles, may have no idea of what the size of a fund will mean in terms of an income on retirement, and without some guide they may struggle to understand that. Often, it should be possible to provide that, because for occupational DC schemes that are used for auto-enrolment, trustees must produce a chair’s statement with value-for-money assessments which include illustrations on the likely retirement income. Presumably, if schemes are doing this properly, that data can be uploaded to the dashboard.
There should also be transparency on charges, but the presentation of charges to members often does not distinguish between the many kinds of charges that can be levelled on a fund. This amendment would require the disaggregation of investment and administration charges, so individuals could readily see the administrative charges that they face on the scheme in which their savings are held. Schemes can differ a lot in their administrative efficiency, and consumers should be able to see at a glance which schemes are levying high administrative charges.
Can the Minister confirm that this information—indeed, the requirement to be on the dashboard at all—will not apply to any legacy private schemes or new private pensions not covered by auto-enrolment? That leaves out quite a chunk of the market where transparency would be particularly important because a lot of those old schemes are very inefficient, with very high charges. Do the regulations permit the Government at some point to force those schemes to come on board? If so, do the Government intend to use that power?
I understand that any dashboard developed by MaPS would have a liability model developed alongside it. I asked about the liability model and the Minister said that he would come back to it this week; I cannot remember if he is coming back to it now or later, but I look forward to hearing about it at some point today. That would be marvellous. I would also like him to answer this question: if it is to be developed alongside the MaPS dashboard, and that is delayed, will there none the less be a liability model in place before any dashboard goes live, so that we are not waiting for the public dashboard?
Amendment 57, from the noble Baroness, Lady Altmann, requires that the projected state pension on retirement be available on the dashboard. It is important that people can readily access information on the state pension, which for many of them will be a core part of their retirement income. The challenge is that it will change at different points in their life depending on choices made, working patterns, et cetera, but it seems quite hard for the DWP to mandate everyone else to provide their data, and not do it themselves. It will have to go into that space.
After the comments between the noble Baroness, Lady Altmann, and the noble Lord, Lord Young of Cookham, I am interested to hear the Minister’s response on questions of identity verification. I found his comments on the challenges of some of the services very interesting. I take her point that, if one is to get personal data, some verification process will be needed. His points about beneficiaries are important as well.
I am a little more nervous on the point about equity release. The FCA has just started to look into this market. The noble Lord, Lord Flight, said that it has cleaned itself up, and certainly some practices which were standard 10 years ago, such as negative equity, are no longer standard. However, there are still a lot of questions about this, and a number of people are concerned that we are seeing patterns of commission-driven decisions; these have raised concerns in other markets in the past. Certainly, if any noble Lord has the misfortune to find themselves self-isolating for coronavirus and watching daytime television, they may at some point see advertisements for equity release, because a lot of advertising on this is going out in different forms.
One of the main arguments for having all the bits of pension on the dashboard is that you know where they are. Most people, even if they do not have the expertise of the noble Baroness, Lady Bowles, know where their house is, are reasonably confident that it is there, have some idea of its value and could find out readily if not. I take the point about people wanting to look at the whole of their assets, but, given some of the nervousness around this market, before we dive too firmly into that area I would be interested in the Minister’s view on this—as I am in in his view on all the amendments.
My Lords, I am grateful to all noble Lords who have spoken to this group of amendments. Perhaps I can start by addressing the questions raised by the noble Baroness, Lady Sherlock, in the context of the issues posed by the Constitution Committee. I appreciate the points she and the noble Baroness, Lady Drake, made on this. The Constitution Committee raised the skeletal nature of the provisions in this part of the Bill and sought clarification on how, and by whom, some of the powers might be exercised. Notwithstanding that, as I have pointed out previously, the committee accepts the need for some of the powers, even if in skeletal form. The noble Baroness was kind enough to concede that.
The noble Baroness picked me up on the distinction I made last week between policy and policy implementation. The policy in this area is developed: we are clear about what we want to achieve and what needs to occur for that to happen. There was a full and thorough government consultation. Following that, a government response was published and our policy aims were set out. As we have made clear throughout this process, further work on the technical development must be carried out and in due course, we will bring forward the affirmative regulations that provide much of the detail that noble Lords seek.
I would like to explain why it was necessary to bring the Bill forward at this point. The noble Baroness asked me why we think dashboards are a good thing. In our government consultation, there was overwhelming support across consumer groups, individuals and industry for our proposal to introduce a legislative framework in order to,
“deliver dashboards within a reasonable timeframe”.
Our experience over the past five years of trying to make progress on this matter—a long time, as noted by my noble friend Lord Young—is that without the clarity of our commitment brought by legislation, it would prove impossible to bring together the industry in a way to develop the service that consumers require and have said they want.
We have asked the industry delivery group, under the guidance of the Money and Pensions Service, to develop the infrastructure required to provide dashboards by working with a range of stakeholders, including pension scheme providers. This process will inform the content of the delegated powers. The alternative approach would be to table a Bill once all the technical work has been completed but, as I have just outlined, we would struggle to get industry to engage with us to enable this technical work to complete. We took the view that that course of action would be impractical and simply further increase the time that consumers need to wait for a dashboard service.
I am the first to recognise the Constitution Committee’s reservations about the use of delegated powers but, in this instance, we consider their use to be entirely appropriate and in keeping with the committee’s suggestion that they meet “an exceptional justification”. As to that justification, the reasons for the nature of the delegated powers are fully set out in the delegated powers memorandum. This recognises the need for a degree of flexibility while creating a digital service solution in order to ensure that the service provided remains up-to-date, secure and accurate. Technical requirements and user needs change and the legislative framework needs to be able to adapt at pace to meet those requirements.
The committee also referred to Clause 118 and asked the Government to explain who might be prescribed by the Secretary of State as someone who can publish standards, specifications or technical requirements for a qualifying pensions dashboard service. Pensions dashboards fit with wider government aims to give consumers access to and control over their own data, particularly across financial services. The Government’s approach is therefore to ensure that dashboards are fit for purpose over the long term, which includes recognising that ownership of the dashboard infrastructure and responsibility for the setting of standards may need to change over time, as explained in paragraph 1.364 of the delegated powers memorandum. It is not possible to set out now who might be asked to take on this responsibility in future, nor to state now the mechanisms of accountability to Parliament. That would need to be determined according to the circumstances but, as we have already set out, such changes will occur within the wider legislative framework, which offers multiple layers of consumer protection.
Perhaps I should already know this, but will it be possible, in the additional technical work, for an individual to decline to have the information about his or her pension position put on to a dashboard? If past history is any guide, some people will always prefer not to join such a system. They might feel that they do not need it. Therefore, I express the hope that it will be possible to opt out.
It will be entirely up to the consumer to decide whether they wish to have a dashboard showing all the information relating to their pension entitlements. Nobody will be forced—
At one level it is entirely up to the consumer, but if somebody hacks into the system or steals their identity, that is not under the control of the consumer.
I will come on to the question of identity in a second when I address the amendment tabled by my noble friend Lord Young. Clearly, we want to do our utmost to ensure that the system is secure and that data can be accessed only by those entitled to access it.
I share the aim of noble Lords to make dashboards as useful as possible to individuals planning for their retirement. To that end, we are considering many of the aspects in these amendments as potential features of pensions dashboards in the future. Having said that, I need to come back to a point that I made earlier. The development of a pensions dashboard service that gives consumers a single point of access to their pensions information is a complex undertaking.
I remind the Committee that there are over 40,000 schemes, around 25 million people with private pensions wealth and a huge amount of state pension information. My noble friend Lady Altmann was absolutely right to stress that. It is why we have asked the industry delivery group to work with representatives from the pensions industry and consumer groups to ensure that the service is accurate, secure and consumer focused. Once again, I underline the word “secure”. I have to sound a cautionary note to noble Lords who want to broaden out the service in short order. Again, my noble friend Lady Altmann is quite right: adding any further complexity at this stage, however well intentioned, risks delaying the delivery of pension dashboard services to individuals.
I am sure we can agree that it is important that the design of this service is consumer focused. It must consider potential risks to the consumer and provide benefits to individuals planning for their retirement. The industry delivery group will undertake further user research and testing to ensure that that is the case. Any additional functionality should be made available only if three conditions are met: a clear consumer need should have been identified; safeguards and protections must be in place; and any functionality must be controlled and tested.
With those thoughts and aims in mind, I turn, first, to the amendments tabled by my noble friend Lord Young. In Amendment 45, he raises the important point of identity verification. This is crucial in giving consumers and pension providers confidence in the security of their data. In order to ensure a consistent consumer experience, the dashboard infrastructure should have one digital identity standard agreed across the industry. The level of identity verification used must be consistent with the internationally recognised standard published by government—the good practice guidance on identity proofing and verification. The good practice guidance is designed to be as inclusive as possible, so that as many people as possible are able to securely access the online services.
The creation of a digitally secure identity is complex. Last year, the Government introduced the digital identity unit, which is now leading work to develop a digital identity solution that can be used across the public and private sectors. The industry delivery group will work with the digital identity unit to enable the delivery of a secure, effective and inclusive identity service for users of the pensions dashboard. I understood what my noble friend said about Verify, and I assure him that the industry delivery group has this issue squarely on its radar. It is being informed by industry experts and consumer groups, and it will carefully consider available options and make recommendations on the best identity solution for pensions dashboards. The solution may not be Verify.
ID verification will have to meet the standards for all parties, including state pension, and that requires a high level above that for an individual scheme. Whatever happens, I can assure my noble friend that dashboards will be free at the point of use for consumers; that includes identity verification. Digital identity remains a priority for government and we are considering ways in which to continue this work with departments across government. We hope to make announcements on that in due course.
On Amendment 38, the Government fully support beneficiaries with entitlements having access to their pension information via dashboards. I can tell my noble friend Lord Young that this clause, as already drafted, enables this to happen. The delivery of this facility will be considered by the industry delivery group. However, his amendment does not distinguish between beneficiaries with entitlements and potential beneficiaries, without current entitlements to the scheme. Creating provision for a person with a potential entitlement introduces considerable legal and technical challenges about data protection and confidentiality in relation to the principal scheme member. The members themselves should have control of the access to such information, and this should happen only with consent. We should be wary of undermining confidence that an individual’s own pensions data will be kept safe, confidential and secure.
On Amendments 43 and 44, the Government recognise that some people will have a range of assets, including their homes, which could be used to form part of an individual’s retirement income. I understand all that my noble friend said in favour of adding to the dashboard in this way. However, I question whether such amendments are either wise or necessary. Many income projection tools are available through independent financial advisers to support individuals with this. The amendments open up the possibility of financial advisers being able to add information and make calculations directly on to a dashboard. This would significantly extend the scope of pensions dashboards, adding more complexity and risk to delivery.
That cautionary note is quite a good segue into Amendment 39 in the name of the noble Baroness, Lady Sherlock, on financial transactions. The document Pensions Dashboards: Government Response to the Consultation sets out that qualifying pensions dashboard services will not initially have the capability to facilitate transactions. They will start with a “find and view” function, allowing only individuals to see their information. Further functionality will be carefully considered, taking into account the potential risks to consumers alongside the potential benefits.
It may reassure the noble Baroness, Lady Drake, that although the Government have been clear that we want to enable consumer-focused innovation in the long term, this does not necessarily lead to transactions on dashboards. I also respectfully remind her of the mantra that we have uttered many times: that the consumers’ interests must come first. We set out in our consultation document three overarching design principles, which underpin the pensions dashboard ecosystem. These are: first, to put the consumer at the heart of the process by giving people access to clear information online; secondly, to ensure that consumers’ data are secure, accurate and simple to understand; and, thirdly, to ensure that the consumer is always in control over who has access to their data.
Having said that, individuals wishing to use dashboards will be able to delegate access to Money and Pensions Service guiders or FCA-authorised and regulated financial advisers via the dashboard. But individuals will, as I have just said, always have control over who has access to their data and will be able to revoke that access permission at any time.
Woe betide anyone who infringes the rules. The FCA has said that it is willing to use a range of compliance measures. The FCA’s rules are legally binding and, if a firm contravenes them, it may be subject to enforcement action. The FCA has a range of sanctions available to it. The level of service provided by dashboards will be set out in regulations under the Bill. I remind the Committee that those regulations are all subject to public consultation and the affirmative resolution procedures, with the parliamentary scrutiny that this involves. Dashboard services will need to meet the requirements and standards set out in these regulations before they can connect to the dashboard infrastructure. We are well aware that each additional level of functionality needs to be approached with care.
It is of course very important that individuals access advice and guidance before making decisions on undertaking significant pensions transactions. Regulations are already in place on this, and we will consider how best to use dashboards to signpost sources of information and guidance. For example, we could require qualifying dashboards to signpost to free and impartial guidance through the Money and Pensions Service. Consumers will also be able to consent to authorised, independent financial advisers or Money and Pensions Service guiders having time-limited, delegated access to their information on a dashboard, as I indicated a moment ago.
Amendments 50, 53, 62 and 67 were tabled by the noble Baroness, Lady Sherlock, and my noble friend Lord Flight. These cover the provision of information on an estimated retirement income, and costs and charges to the individual via a dashboard service. The Government share the desire that this information is shown in the future. The Bill already allows us to require schemes, via secondary legislation, to provide projections of retirement income and costs and charges. We must recognise that costs and charges are not the sole indicator of value for money; they need to be understood alongside other factors. Further, schemes have different ways of applying costs and charges, so information provided on the dashboard may not be easily comparable. We need to consider what information is shown, and how, as we would not wish for individuals to make decisions about their pensions based on costs and charges alone.
In the same vein, we need to make sure that any information on projected retirement income is easily understood and consistent. We also need to understand how an individual interacts with such information, so we can ensure it does not prompt decisions that potentially have poor outcomes. This applies equally to Amendments 53 and 63, tabled by my noble friend Lord Flight. Requiring the publication of a plan within six months of these measures coming into force risks decisions being made to meet a legislative deadline, rather than in the best interests of the consumer.
Finally, I turn to Amendments 40 and 57, tabled by my noble friend Lady Altmann. I share her aim that a forecast of state pension income is presented on dashboards as soon as it is appropriate and practical. We are currently working with Her Majesty’s Revenue and Customs on a technical solution to ensure that state pension information is provided by dashboards. The ability to provide forecasted state pension income information is being considered in the design of this solution. Consumers are currently able to view their forecast state pension income on the Government’s online service, Check Your State Pension. The design of this service reflects the considerable user testing that was undertaken to understand what was important for individuals.
Our intention is to learn from the experience gained and the user research carried out during the development of the Check Your State Pension service, alongside any specific recommendations made by the industry design group. I can confirm to my noble friend that all dashboards will be supported by the same digital infrastructure and as a result will display the same level of pensions information from the same number of schemes.
I hope that noble Lords appreciate the need for a balance here between specifying detailed information in legislation now and the impact that this might have on consumer interests and the delivery of the dashboard. With apologies for having spoken for so long, I hope that those remarks will have clarified why the Government have approached these issues as we have. I also hope that I have thrown light on the detailed issues raised by noble Lords during the debate.
Perhaps I may put three questions to the Minister in response to his comments. First, he opened by pointing out the overwhelming support for the dashboard that was evident in the consultation; I have no argument with that. Does he accept that the consumer focus groups, taken in the broadest sense, actually lined up behind the Government’s starting with a public-owned dashboard and had quite strong views about proceeding without one? Does he accept that when one disaggregates the responses to the consultation, that is a correct summary? I am quite happy to name the organisations on which I base that view.
Secondly, the Minister actually gave a very good explanation of why one should not run into transactions on the dashboard: not just because of the technical and IT requirements to building a safe dashboard, but because of the whole behavioural market- weakness issues that come into play. However, I do not think I heard him say that, as a result of recognising that, the issue would come back to the Houses of Parliament through another Bill before proceeding to transactions. That was the assurance. I do not think that simply a discussion on regulations would meet Parliament’s need to scrutinise such a big transition. To push again, will he confirm that the Government would need to come back to Parliament before proceeding to transactional activity?
Thirdly, the Minister mentioned delegated access, about which I am deeply concerned. I have no issue with MaPS having delegated access, because it was set up on a certain basis where it was implicit that the dashboard would improve the efficiency of the guidance service. Financial advisers are an issue of some substance. The FCA’s report and actions on the market in financial advice to pensioners is not good reading. Just by September 2018—and the up-to-date figure will be greater—the transfer advice in DB covered assets worth £82.8 billion. In terms of the recommended product, the regulator found 35% were suitable, 24% were unsuitable and 40% were unclear. They produced other reports to express their deep concern. I put a simple question: in the case of Port Talbot, if advisers did not advise those steel-workers well and delegated access to all their pension-pot assets, how great would the detriment have been to those steel-workers? It is not a principle that delegated access may be given to advisers at some point when there is a high level of confidence down stream, but evidence provided by the regulator—not anecdotal evidence from me—says that this market is not working well, which fills it with deep concern.
My Lords, I want to ask a couple of questions so that the Minister does not need to come back to us twice.
My noble friend Lady Drake powerfully picked up the points on transactions that I wanted to make. I heard the Minister say that the Government’s intention is to proceed to transactions at some point—I would be grateful if he could correct that if I misunderstood—but I did not hear him say why they feel that this is a good idea. I heard him say carefully that they would want assurances to protect consumers, but I did not hear anything about the positive driver for doing so that outweighs the risks that manifestly come with it, which my noble friend just articulated.
I apologise; I have two more questions. I should say that I am hugely grateful for the Minister’s thorough response; I appreciate him taking the time to give us that. It may be that, in all that, I missed the answers to a couple of my questions; I apologise if he gave them and I did not pick them up.
First, am I right in understanding that the dashboard will not cover legacy private pensions and new private pensions not covered by auto-enrolment? If so, do the regulations, as they stand, allow those to be included subsequently, and do the Government have any views on whether they were going to do so?
The Minister touched on my second question but did not answer it. On Wednesday, he said that
“we entirely understand the importance of having a dashboard run by a public body without any commercial interest.”—[Official Report, 26/2/20; col. GC 182.]
Why do the Government think that that is a good idea? Why are they not worried that there could be a long period when there are only commercial dashboards and no public dashboard?
My Lords, on the final point made by the noble Baroness, it is fair to say that our debate last Wednesday gave my colleagues and me considerable food for thought as to the scheduling of all this. The strong wish expressed by noble Lords to prioritise a publicly funded and owned dashboard was duly noted. I hope to provide her with further thought on this as we go forward. I will come back to her in writing on her specific question on the inclusion of auto-enrolment schemes and so on.
The noble Baroness, Lady Drake, asked whether the consumer groups expressed a particular preference for the MaPS dashboard coming before any others. I bow to her on that. I will have to check whether that is a fair reading; I do not doubt that it is if she says so. I do not have the specific information to hand. The majority of respondents suggested and supported multiple dashboards, not just one. I can only repeat that the rollout of dashboards will be considered as part of a carefully controlled implementation plan.
I do not believe that I expressed a categorical government intention to include transactions on the dashboard. I said that we would make that incremental step only after the most careful consideration and public consultation, and assessment of all the risks. I freely acknowledge that risks exist in that quarter. If we venture into that sphere relating to dashboards, we must be absolutely certain that the risk of abuse, scams, misleading nudges and so forth is as minimal as it can be. Each incremental step will require further parliamentary scrutiny. The noble Baroness, Lady Drake, believes that this should be through primary legislation. I have to differ with her on that. We have made provision for secondary legislation by affirmative procedure, which provides a good measure of parliamentary scrutiny, preceded by public consultation which will inform parliamentary scrutiny. She and I have to part company in this area.
On delegated access, of course there are risks attached, but again I say that until we are absolutely content that the system for delegated access represents a secure one that consumers can be confident in and are not liable to be misled by, we will not use it. No doubt the nature of those risks and what we have to guard against will be made clear as we proceed through the consultation. We need to look at all responses from all groups as we go forward.
My Lords, the noble Baroness, Lady Sherlock, talked about the business model of these dashboards. The noble Earl has just talked about multiple commercial dashboards. There must be a reason why people will wish to create these things, and therefore there must be a business model behind them. What is the Government’s vision for that?
The Government’s vision is for consumers to have access to their own information if they wish, and a multiplicity of ways to achieve that. We believe that more is better in this context. That is not to make comparisons between one provider and another, but multiple dashboards will give consumers more choice in where they access their pensions information, and will drive innovation to meet what are bound to be the varied needs of those 25 million people with private pension wealth who are not yet in receipt of their pension.
My apologies: my question was not clear. I was asking specifically about the business model behind this. What is the incentive for commercial providers to create these things? Is it advertising? We have talked about transactions, et cetera. If we are going to have this multiplicity of them, there must be a multiplicity of reasons. Do the Government have a view on the best model and controls around that, whether it might be advertising, transactions or charges to funds?
Scheme providers have been absolutely clear that they are keen for this to happen, mainly because the more exposure that the information has to the particular consumer, the more opportunities there may be for a dialogue between the consumer and the scheme provider—“Are you saving enough? Can we do more for you?”, that sort of thing. They see marketing opportunities in this, but that is very distinct from allowing the dashboard to enable them to enter into transactions. I hope that I have already covered that point satisfactorily.
My Lords, is there not the point that, with people having on average 11 different jobs during their career and potentially 11 different pension pots, particularly those they were part of when they were younger, many of them have no information at all about it. They do not even know who the manager or the provider is. Already, the amount of unclaimed financial assets in this country is colossal. Without what is happening under this legislation, the problem will get worse, and we urgently need to sort out the ownership of lesser pension schemes, going back a long time.
My Lords, this has been a long debate, and I do not propose to lengthen it much more. I am grateful to all noble Lords who have taken part, in particular my noble friend Lord Howe, who gave a very full response to the many issues raised. I was particularly encouraged by what he said a few moments ago—that the debate we had last Wednesday, and the view of the Committee that it would be best if the MaPS scheme was up and running before the other ones, had made some impact. I noted that he said that he hoped to come back to us with more news on that in the future.
I will say just a word on Amendment 39, in the name of the noble Baroness, Lady Drake. I read page 56 of the policy brief, which says:
“Dashboards will present simple information, without the ability to carry out transactions.”
As I understand it from what my noble friend said, that has been qualified and, subject to all the reservations and safeguards that he mentioned, it may be that under this existing legislation, transactions could be provided—I think that is where we ended up. In that case, the wording in the policy brief, if it is by any chance ever reprinted, might be qualified. At the moment it is quite stark:
“Dashboards will present simple information, without the ability to carry out transactions.”
I am being given a look; I am not quite clear what it means, but I will move on.
I was grateful to my noble friend Lord Flight for the support he gave to my amendment on equity release. However, I take the overall view that, while it makes sense at some point to have the opportunity to take a picture of all the assets available that can form a pension income stream, perhaps using the pensions board to do it up front is not the right place. I was reassured by what my noble friend Lord Howe said—that in future, we could consider some embellishments to the scheme, but the top priority was to move ahead as currently planned.
I am afraid that my concerns have not been satisfied at all on Verify. I was grateful to my noble friend for the assurances, first, that there would be no charge for accessing any pensions dashboard; and, secondly, that there would not be a charge for accessing the verification process. The Government have spent hundreds of millions of pounds and many years developing Verify, so I was slightly surprised when he said that the identification process for the pensions dashboard may not be Verify. If it will not be Verify, what will it be? There is no other game in town at the moment. As of yesterday, the Government lost all leverage over Verify by stopping any funding, so its development is now entirely in the hands of the providers. Given that the providers have now heard that Verify may not be the scheme for the pensions dashboard, that may weaken even further their incentive to develop it. What is the business model for Verify if you cannot charge the people who are having themselves verified?
There is therefore still a huge question mark over how we will get access to the pensions dashboard if there is some doubt, as I explained a few moments ago, about Verify, and no clarity at all about what this alternative system might be, which is not Verify and which will unlock the key to the dashboard. Having said that, I do not want to sound at all mealy-mouthed to my noble friend, who did a heroic job dealing with all the other amendments, but I still have some lingering doubts on that one. However, I beg leave to withdraw Amendment 38.
Amendment 38 withdrawn.
Amendments 39 and 40 not moved.
41: Clause 118, page 105, line 9, at end insert—
“( ) Requirements prescribed under subsection (2) must require that the provision of pensions dashboard services is an activity regulated by the FCA.”
My Lords, the amendments in this group stand in my name and those of my noble friend Lord Flight, the noble Baroness, Lady Sherlock, and the noble Lords, Lord McKenzie and Lord Hutton. A number of us have tabled amendments in this group on similar themes. I will leave other noble Lords to talk specifically to their amendments but the main concern that we are trying to address is that there should be proper protection for consumers when using these dashboards. What is proposed in different formats is that the Financial Conduct Authority should oversee any dashboards—particularly the commercial ones—as a regulated activity. We have not seen that specified in the Bill and feel that clear regulatory protection for any consumers using a pensions dashboard needs to be on the face of the Bill.
Obviously there are different ways in which the FCA may impose regulatory protection. However, if this is meant to be an activity that benefits consumers, then, given all the experience that we have had in pensions and the issues that have arisen for consumers from time to time when there is an asymmetry of information and pension providers, and providers of different products are able to take advantage of the fact that consumers are not always totally au fait with the information on their pensions that they are presented with, it is really important, for example, that the FCA makes sure that the information is clear and that there is a recognised standard for a dashboard so that it cannot be misleading for consumers in some way, as might sometimes be the case. Sometimes providers do not intentionally try to mislead consumers but the language that they use every day is natural vernacular for them, although it does not mean a thing to a consumer. A provider might think that they have explained something very clearly for anyone who knows all about pensions but, on reading it, the customer might get totally the wrong idea or not understand what is being presented and perhaps take an incorrect conclusion from it.
Amendment 68 suggests that the provider of a pensions dashboard should have a fiduciary duty to the user of the dashboard. There is merit in our considering that as an extra layer of protection so that, once again, the provider of the dashboard is required to consider what the consumer might understand and need, and the provider therefore has a duty to help them rather than take advantage of them in some way, whether intentionally or not.
I am not sure that I need to take up the time of the Committee any further. That is the thrust of the intent behind these amendments, and I look forward to hearing from other noble Lords on this issue.
My Lords, the point that I want to make is that there are four cases where the FCA is the regulator but no reference is made to where the Pensions Regulator will provide the regulatory task. It might be readily understood by the industry why regulation is divided but there is a question mark over whether citizens will automatically know to go to the FCA for certain things and to go to the Pensions Regulator for others. I am sure that there are sound reasons for it but I would be interested to hear the Government’s view on what the regulatory model should be.
My Lords, I shall speak briefly to Amendment 68. I put my name to it and raised the issue at Second Reading in the Chamber. We have had a long debate this afternoon, and I think most of us are pretty clear that pension dashboard services are going to provide a significant service to pension scheme members. We might be able to track down £20 billion-worth of lost pension scheme assets, and we might be able to encourage more people to save for their retirement if it becomes clear to them through accessing a pensions dashboard that they may not be in possession of all the means they might wish to have in their retirement. However, we must not lose sight of one very important risk, which is that although I hope that pension dashboard services will bring significant advantages, they could also be the route through which potential harm is done to pension scheme members by bad or sharp commercial practice or whatever else. It is particularly important that we consider ensuring that a safety-first approach is adopted when it comes to the establishment of these new services.
I cannot think of anything more fundamental—this is what I think Amendment 68 is trying to flush out—or more important than to place on the shoulders of those responsible for running these schemes a duty to act in the best interest of pension scheme members. I am sure that through these regulations and other provisions a welter of regulation will bear down on to the shoulders of those services, but the idea is that they have a direct legal responsibility to pension scheme members to act in their interests when they are accessing data on the pensions dashboard. A very clear line of legal responsibility will go a very long way in establishing the right overall governance and attitude of mind that should be at work when these schemes come into operation. Those who are running pension schemes have similar fiduciary duties and therefore it is entirely appropriate. If this amendment is not accepted, there may be some other more effective approach. I hope the Government will give some consideration to how this further level of accountability and aid to the good governance of these new services is best advanced.
My Lords, the six amendments in this group in my name and that of my noble friend Lord McKenzie of Luton are probing amendments designed to get Ministers to reassure the Committee that there is a robust system of regulation and supervision for those involved in the dashboards. Rather than go through them one at a time, as there are overlapping amendments from other noble Lords, it might be easier if I simply ask the Minister to clarify some of the key aspects of the supervision and regulatory regimes which the Government have in mind.
I was delighted last week when the Minister indicated that the Government have acceded to the request from my noble friend Lady Drake and many others around the Committee:
“we shall be introducing a new regulated activity under the Financial Services and Markets Act 2000 to reflect the provision of dashboard services.”
Hurrah, say I. That is marvellous. The Minister continued with only very slightly less certainty:
“Clause 118 provides the power to set out detailed requirements ‘for qualifying pensions dashboards’. It is also likely that this will be linked to the new regulated activity outlined by the Financial Conduct Authority.”—[Official Report, 26/02/20; col. GC 183.]
I think we are being told that this means providing a dashboard service will be added to the regulated activity order. I am assuming that is what that means.
Those requirements in Clause 118 may include
“what … information is to be provided”
“how the ... dashboard service is to be … operated.”
They may also,
“require a dashboard service to comply with standards, specifications or technical requirements published … by ... the Secretary of State ... The Money and Pensions Service”
or another specified person. Crucially they may,
“require the provider of the pensions dashboard service to be a person approved … by … the Secretary of State … the Money and Pensions Service”
or another specified person. The last of those is crucial.
If running a dashboard service is to be an FCA-regulated activity, should that not mean that those running it have to be approved by the FCA—in which case, ought that not to be made clear? It could be another body, but the bodies named do not include the FCA. If the activity is on the ROA, does that mean that the FCA will then be able to use its full range of FiSMA powers of supervision and regulation on anyone providing dashboard services? Can the Minister further confirm that that would mean that complaints about anything to do with the dashboard could be made to the Financial Ombudsman Service?
This is the train I am trying to establish. It is great that the activities are regulated by the FCA. Will the people running it have to be FCA approved and therefore subject to the full range of FiSMA powers? It seems that that is where the real firepower is located. Alternatively, are the Government envisaging that a dashboard service might be run by an organisation that was not FCA approved, supervised or regulated? Would there be a real risk of consumer detriment if the FCA cannot use its full range of powers on anyone using a commercial dashboard?
Provision of information to a dashboard also needs to be subject to a scheme of regulation and compliance. Information will come from various sources. Will the provision of information from trust-based schemes to a dashboard be regulated by the TPR? What about the information provided from contract schemes? Will that come from via the FCA? Will it be directly under FCA supervision or by the fact that they regulate the firms providing the information? Who will oversee the provision of information from the state and make sure it is accurate? Where does the consumer go to complain about their data? At the moment, if a bank misuses your data, the ICO will deal with the bank, but the consumer will go to the Financial Ombudsman Service to deal with detriment. What will happen here?
My biggest concern is what will be done with data provided on dashboards and the potential for mis-selling. Amendment 68 would require that those providing dashboard services would have to act in the fiduciary interest of savers. My noble friend Lord Hutton just made a compelling case for that. Our argument is that this is a special situation where the state has mandated that consumers’ data should all be gathered together in one place. That is helpful, but it is a little like saying, “Rather than having them wandering freely across the hillside, all the lambs have been gathered into one pen”. In that case, you want to be pretty sure that there is a good lock on the gate and that anyone coming along pretending to be a shepherd can be spotted early and—“Stop. Enough of this analogy. Ed.” I think the point is made.
Because of this higher challenge, there should be a higher duty of care to the consumer. If an organisation running a dashboard service is regulated by the FCA, it will be subject to the “treating customers fairly” FCA standard, but this goes higher. It becomes even more important if it is possible that any of those people will not be subject to the full range of FCA supervision and regulation powers. There should be a duty of care to the consumer. We can see the benefit of gathering information/lambs in one place, but it of course makes the information/lambs much easier to access. Can the Minister give us some reassurance on those points?
My Lords, the amendments in this group are designed to ensure that consumers are placed at the heart of dashboards and that the Financial Conduct Authority is given responsibility for certain aspects of that. I say straightaway that I wholeheartedly agree with this aim. What I cannot agree with is the way of achieving it proposed in the amendments.
The Government are persuaded that a strong regulatory regime is key to maintaining public confidence in dashboards. There are existing powers which we will use to introduce a new regulated activity for dashboard providers. We can do this by amending the regulated activities order set out in Section 22 of the Financial Services and Markets Act 2000. This will bring the provision of a qualifying dashboard service within the regulatory and supervisory the remit of the FCA. There is no need for the new dashboard-specific regulated activity to be in the Bill.
We are working with Her Majesty’s Treasury and the FCA to agree the nature and scope of the changes. Legislation amending the order will be brought forward in due course. I can also confirm that the Financial Services and Markets Act covers Northern Ireland, meaning that any new regulated activity would also extend to Northern Ireland. It is important to note that the new regulated activity will apply only to dashboard providers. Pension scheme trustees and operators are already within the regulatory remit of either the Pensions Regulator or the FCA. The requirement on pension schemes relating to the provision of information via dashboards will be set out in regulations and FCA rules pursuant to this Bill.
The noble Baroness, Lady Sherlock, asked whether the FCA will be able to use its full range of powers; yes, it will. All the FCA’s existing powers will be available where a dashboard provider must be FCA-authorised. To answer the noble Lord, Lord Hutton, the Financial Conduct Authority has an existing framework to ensure that authorised firms take the interests of customers into account. The Government will again set out in regulations the conditions that a dashboard will have to meet. This will be supported by new, dashboard-specific regulated activity, as I have just explained.
Strong consumer representation on the industry delivery group, alongside new regulations and a new, dashboard-specific regulated activity, will ensure that the design is in the interests of consumers and that they are protected. The regulatory framework for the new regulated activity will be proposed in the FCA’s consultation on the corresponding handbook rules and guidance.
I hear what the Minister is saying and am very grateful for the thoroughness with which he is responding to these issues, but will pension scheme members have any direct legal redress against a dashboard services operator should things go wrong? As I am hearing him, most of the remedies seem to lie in the hands of regulators or others, but if my data is misused or I feel that some problem has occurred as the result of the inappropriate organisation of a pensions dashboard service, where do I stand?
Consumers will have various modes of redress available to them if they are not served legally or properly by their scheme provider or the dashboard provider. Our response to the consultation on dashboards highlighted the need for a clear liability model for the whole dashboard system. The objective is to enable users to identify easily where to raise a complaint or a dispute if a dashboard fails to work, or if they fail to receive their pension information. We have asked the Money and Pensions Service, through the industry delivery group, to consider how this might operate and to make recommendations. The Pensions Regulator and the FCA will regulate compliance by pension schemes and the Information Commissioner will have a role in ensuring that the disclosure of pension information takes place in accordance with data protection legislation. Only FCA-approved bodies can provide a qualifying dashboard. Only qualifying dashboards can connect to the infrastructure, and they will fall under the full regulatory regime.
New Section 238G, introduced by Clause 119, ensures that the regulator will be able to monitor and enforce compliance with the new requirements, in keeping with the existing regulatory regime. The FCA also has the power to enforce rules that it will make under this legislation. Part 14 of the Financial Services and Markets Act 2000 allows the FCA to enforce any requirement on authorised persons, including those setting up or operating a personal stakeholder pension.
Turning now to the need for dashboard providers to act in the best interests of their customers, I agree that the needs of customers must be taken into account, but not through fiduciary duties as proposed in Amendment 68. The FCA has an existing framework to ensure that authorised firms, which will include dashboard providers, take the interests of customers into account. This includes the principle of paying due regard to the interests of customers and treating them fairly. Fiduciary duties arise out of fiduciary relationships —those of trust and confidence—mainly in relation to prudently taking care of money or other assets for another person. Providers of dashboards will not be in a fiduciary relationship with dashboard users as they are merely an intermediary facilitating access to information about people’s pension savings.
I thank my noble friend for his very thorough response to this group of amendments. Is it not possible that without a comprehensive, overarching regulatory framework for all dashboard activities, consumers could fall between different cracks, and the provider of the dashboard that has provided them with misleading or incorrect information could then say, “Well, it was the person who gave us the data who was misleading: it wasn’t us. We are just providing information.”? Or could this activity in some way be related to unregulated lead generation, which is part of the pensions landscape and has been so damaging to consumers? Therefore, what I hoped we might achieve with my amendment was an overarching regulated activity for anybody participating in or providing data to the dashboard and for the dashboard provider providing the data to a customer.
We come back to the question of a liability model. I might as well deal with that now. We set out in the consultation response that we expect the industry delivery group to make recommendations on a robust liability model that ensures that there are clear roles and responsibilities and a clear process for dealing with complaints. The point made by my noble friend that there is a risk that something might fall through the cracks is a very good one. The best that I can do at the moment is to say that, as the service is developed, the detail of where liability exists will emerge. She will agree with me that we are not dealing with new data or with new financial transactions, but yes, potential service risks might emerge. The IDG will, as I have said, recommend robust liability models, and the framework of any new liability arrangements will be set out in regulations. That is one of the reasons why we need delegated powers in this area.
I think that the industry delivery group is the best forum to build a liability model to which all parties are signed up and that takes into account good practice and lessons learned from open banking. While I realise that there are many differences, there are certainly lessons that we can draw from that sphere.
My Lords, is not the big issue in this territory that when people have discovered that they have four, five, six or seven different pension funds, they will want advice as to what to do with them? There is the whole problem of who can give advice, guidance or help in that area, but unless arrangements are determined about how to deal with this question, I can see all sorts of regulatory issues arising.
My noble friend is quite right. The industry delivery group has these matters squarely on its agenda. I can go no further than to say what I have said thus far on his points, but I will consider the matter further and write to him if necessary.
The liability model has not been settled. That is perfectly understandable; I do not rush to criticise it because there is a lot to do. All I would say, because I cannot resist doing so, is that it goes to the argument that one should start with a public dashboard. My question follows on from that asked by my noble friend Lord Hutton. On reading Clause 118, clearly powers are given to certain parties to set requirements—with the exclusion of the Secretary of State, who is in a totally different position. Can the Minister confirm that no such powers under Clause 118 can override the FCA’s existing powers? He may not be able to answer that yet but it would give clarity.
I believe that to be so but I need to take advice; I will write to the noble Baroness on that point.
On a related point, I tried hard to listen to what the Minister said because I am particularly interested in whether somebody can run a dashboard service if they are not FCA-authorised. I heard him say that the full range of FiSMA powers could be used, so a dashboard must be FCA-authorised, but I think I heard him say also that only FCA-approved bodies can run dashboard services. Is that right?
Excellent. In that case, I am trying to relate that to New Section 238A(5)(c), to be introduced by Clause 118(2), on page 105 of the Bill. It states that requirements prescribed under subsection (2) may, in particular,
“require the provider of the pensions dashboard service to be a person approved from time to time by—
(i) the Secretary of State,
(ii) the Money and Pensions Service, or
(iii) a person specified or of a description specified in the regulations”.
If, as the Minister just said, the FCA must authorise someone to run a dashboard, does it not make more sense for a government amendment to come forward to make that clear in the regulations, rather than naming two bodies—neither of which is the FCA—and having a catch-all for the third?
While I am on my feet—hey, why waste an opportunity?—and the Minister reflects a little more on that point, I want to ask about the duty of care and the fiduciary duty. I take the Minister’s point about the wording there, but are the Government resistant to the underlying point made by my noble friend Lord Hutton and me: that, in these particular circumstances, there should be a higher duty of care to the consumer on the part of the organisation running the dashboard services than would be the case in the general mêlée of the FCA? Treating customers fairly and related things may suit that generic environment but this is a very particular circumstance; the Government have initiated this and put all this information in one place and mandated its release. If it were more felicitously worded, would the Government resist the notion of a higher duty of care in this circumstance than the one that prevails generally in FCA supervision?
I will certainly go away and consider that point, even if “fiduciary” is not the appropriate word, and look in conjunction with my officials at whether there is a mechanism that would achieve that aim without inventing some new legal status. I am grateful to the noble Baroness and the noble Lord, Lord Hutton, for their points.
The question posed by the noble Baroness, Lady Drake, boils down to this: if MaPS or another specified person sets the data standards, how will they be accountable to Parliament? As I said, the regulations enable parliamentary scrutiny and debate on any specific future proposal as they come forward.
We need to ensure that dashboards are fit for purpose over the longer term. That cannot happen in a summary way. Delegating the ability to set and update standards and technical specifications support through secondary legislation will, in our view, ensure that dashboards remain beneficial and relevant to consumers.
Our approach recognises that ownership of the dashboard infrastructure and the responsibilities for the setting of standards may need to change over time, but I reiterate that, taking into account the good practice that exists, the industry delivery group will develop and make recommendations on a robust liability model to ensure that there are clear roles and responsibilities in the event of a breach. That includes a clear consumer redress mechanism. In answer to the noble Baroness, Lady Sherlock, the policy intent is that the FCA should authorise dashboard providers and that this should be achieved by order.
The FCA takes seriously the need to consult the public. It has a general duty to consult the public by publishing draft rules. This duty will apply equally in this case. The FCA will also consult the Secretary of State and Her Majesty’s Treasury prior to public consultation on draft rules. That will ensure that the rules have regard to the regulations that place obligations on trust-based schemes, which will provide a consistent and coherent approach.
We have covered quite a lot of ground, but I hope that I have effectively explained the role of the FCA in protecting consumers and provided the assurance that noble Lords are seeking that we will bring dashboard services within the FCA’s scope. If I have not covered all the ground, I hope that I can rely on meetings with noble Lords following Committee so that, by Report stage, I am able to come up with any further and better particulars that they seek. With that, I hope that for the time being the noble Baroness will feel comfortable in withdrawing the amendment.
I thank my noble friend for his detailed response and the broadness of his willingness to consider the points that we have made on this important issue. I am delighted that he agrees that we all seem to have the same aim, which is to protect the consumer. However, I would be grateful if he went back to the department and perhaps wrote to me and other interested noble Lords about this. We all aim to have consumer protection but, if that is to be put in via a series of regulations with a liability model that we do not yet quite have, would there be any specific harm in putting in the Bill the regulatory framework and the requirement for FCA authorisation and protection for consumers, so that there is a comprehensive, overarching framework?
My concern is that, although this is portrayed as an information dashboard, we know that the provision of guidance and information has no consumer protection whatever—it is a matter of caveat emptor. If, for example, those dashboards carry advertisements that may be perceived as enticing people to buy products but they do not fall under such a regulation in FCA terms, we might be well advised at this stage to place an overriding emphasis from the consumer perspective on regulatory protection and authorisation for the entire framework, rather than relying on liability being proven later and redress being provided to the customer after a problem has occurred. For the moment, however, I beg leave to withdraw the amendment.
Amendment 41 withdrawn.
Amendments 42 to 45 not moved.
46: Clause 118, page 107, line 28, at end insert—
“( ) Any regulations made under section 238A or this section which make provision for privately owned or commercial providers of pensions dashboard services to enter service must include provision about—(a) designation of the responsible regulators for—(i) operators of the pensions dashboards,(ii) displayed dashboard information,(iii) conduct relating to the use of data,(iv) advertising, and(v) revenue generation from the pensions dashboard service for the provider, including revenue from advertising;(b) redress mechanisms and designation of the responsible body for claims arising from harm to users of a pensions dashboard service including for loss or improper use of data;(c) mechanisms to mitigate the risk of fraud;(d) rules about type of content, presentation of information, assumptions regarding predicted pension income, valuation, projections, risks and comparisons;(e) rules about advertising on the pensions dashboard service and any revenue generated from the pensions dashboard service for the provider of the pensions dashboard service or any third party;(f) display of charges or any commission received by the dashboard provider for any services, transfer of funds or purchases available through the pensions dashboard service, and(g) display of the projected cash effect on expected pension income or lump sum outcomes of any services, transfer of funds or purchases available through the pensions dashboard service.”
My Lords, I am conscious that, in the two groups we have already discussed, we have touched quite thoroughly on the background that inspired my amendment. The Minister has explained several times that it is the intention that this legislation is flexible, that because of the ability to make regulations it can develop over time and that many of the things that noble Lords have already been pressing for are potentially in the mind of government. There was a similar discussion at an all-Peers meeting a couple of weeks ago, which several noble Lords—in particular, the noble Baroness, Lady Sherlock—were at and which inspired this probing omnibus amendment that puts together all the things we discussed in that meeting and a few more. I do not see that it in any way competes with the amendments about the content of regulations or the SCA being the dashboard regulator.
The purpose of this amendment is to discuss how to make certain that there will be joined-up, end-to-end coverage by the regulator and the regulations—or in supervision, as the noble Baroness, Lady Sherlock, expressed it. Again, I am sure that it is the intention for a lot of this to happen—there are certainly enough powers in the Bill to do it—but there is nothing yet in the Bill to make it certain. I acknowledge that things have been said but that is not the same as having something in the Bill.
It has been said that a lot of these things might develop as a result of consultations with industry groups. If industry groups decide that they do not want some of this, what happens? There needs to be a basic obligation that these things will be covered—in particular, as my amendment envisages, if we are getting to the point where we have commercial dashboards. If these things are not resolved by the time we get them—it looks as if we might be getting them anyway, not after a delay—I do not think that it is satisfactory to have nothing in the Bill.
To ensure end-to-end regulatory coverage for the process of loading information on to dashboards to the dashboard itself and for any consequential actions arising from the dashboard, my wish list, or probing list, covers: dashboard operation; information; data; advertising and revenue generation; redress mechanisms; fraud mitigation, which the Minister has already mentioned; content; presentation; assumptions; valuations; projections; risk; comparison; third-party revenue charges; and commissions and their effect on projections.
Noble Lords said on the previous group that it is difficult to have information about charges because they are done in different ways and are the be-all and end-all. That in particular is why I have said that the effect of the charges should be given because that is where you can assess them. If there are lots of different mechanisms and they can make things weaselly wordy or look wrong, they should not be able to disguise the cash effect of the charges that can be extracted. That is probably more important than saying what the charges are. I do not think that this is in conflict with anything else that has been said today.
However, what happens if there is a data breach? That might be a matter for the Information Commissioner. It might be automatic or a matter for redress by the financial ombudsman. These mechanisms are all out there. How will they join up? We want to know for certain that they will. Nothing in my amendment suggests how this must be done; it just says that it must be done.
While mentioning the FCA, we need to be clear that unless it is told categorically in legislation or regulations that something is regulated, it will not consider it as within the regulatory perimeter. As I have said previously, it regards that as a matter for government and Parliament to authorise. An example is that although the FCA covers conduct in banks—which, as we well know, are also heavily regulated by the Prudential Regulation Authority—banks can do quite a lot that, although they have that heavy regulation, falls outside the regulatory perimeter for conduct. Commercial lending is one example. People tend to trust regulated entities but then do not realise that things that do not have that supervisory and conduct backing can be done. It is necessary to dot the “i”s and cross the “t”s here.
For example, it might be that the phrase “Click here to transfer your pension” would be covered, but as the noble Baroness, Lady Altmann, hinted in her previous suggestions, would it be against the regulations to say, “Click here and buy a Maserati”? It was once suggested that that might happen with pensions freedoms. What about equity release for double glazing and conservatories, which feature heavily in the advertising about equity release? If we do not cover advertising and the FCA does not, who does? It must be covered. It cannot be left open. My amendment aims to draw attention to these matters through my list. I will obviously be interested to hear the reply.
However, when it comes to drafting regulations—again, this has relevance because the Minister has already mentioned it—there should not be too much left to the regulatory rules. They can create holes, especially after the regulator has consulted the people it is attempting to regulate. I touched on that in a debate last week, when I explained how regulators’ rules—FCA rules, to be precise—had watered down the generality of “fit and proper” as a test for behaviour. It is by no means the all-encompassing test that was originally intended; it was narrowed down by the rules of the regulator.
When it comes to pensions, I therefore want a belt-and -braces approach. As I said, I have attempted to draft something that sweeps together all the concerns in a probing, omnibus-type way; I will not go through the list because quite a lot of it has already featured in our debate today on previous amendments. I do not aim to say how it is to be done but I suggest that when there is to be a commercial dashboard, the regulations must be done for all these things. I believe that that is what the Government say they will do, but it is better to have it on a piece of paper inside the Bill. I beg to move.
My Lords, my noble friend’s amendment, among other things, speaks about advertising. The underlying question about advertising, however, is surely why allow it at all? That was touched upon by the noble Lord, Lord Vaux, and the noble Baroness, Lady Altmann. You can see the benefit, obviously, to commercial dashboard providers: another revenue stream and/or the cross-selling of their products. However, it is hard to see why the customer would want yet another advertising channel while there are already thousands—perhaps tens of thousands—of advertising channels. What really is the benefit to the consumer; or perhaps more accurately, what really is the risk-benefit balance for the consumer created by the existence of advertising on commercial dashboards? What assessment have the Government made of this risk-benefit balance? If the answer is none, perhaps they should consider doing exactly that. I am curious about whether the Government have, in fact, indicated to potential commercial dashboard providers that they will be able to run ads on their dashboards. Is there some implicit quid pro quo going on here?
My Lords, I have some sympathy with the noble Baroness’s amendment in wanting to set out in regulation, rather than rely on regulatory rules, some of the things that will be required to make the dashboard function well. I suspect that there are three drivers behind that sentiment. One is that, in this market, the providers are particularly dominant: there is not an equality of arms when it comes to seeking people’s opinion or influencing government policy. Secondly, the FCA itself recognises that it is very difficult to get a functioning market and that it needs to think more and more about intruding in controlling providers’ supply-side behaviour. Thirdly, although the Government understandably want to rely on consultation, those consultations can be dominated by the providers in this market.
Very often, some of the raw consumer issues somehow do not come to the surface and the consumer groups often do not have sufficient resources to do the kind of detailed analysis that a submission requires to pull out some of the fault lines when these things are looked at through a consumer perspective. Members of the public are not going to participate because they simply do not understand what the issues are in relation to their interests until they experience them. I therefore have a lot of sympathy, leaving aside the precise wording of this amendment. The Government need to understand that sense of those three sentiments that often drive many of these amendments: the providers are over-dominant; even the FCA recognises the need for greater intrusion on providers in the supply-side; and consultation is often not an effective remedy for sufficiently capturing the consumers’ interests. Therefore, the more that is put in regulation, the better.
My Lords, I am grateful to the noble Baroness, Lady Bowles, for having opened up this territory. She is a creative inventor of amendments: she has drawn out here a good selection of the kind of things that regulations would need to cover. Will the Minister tell the Committee—whether or not he wants to accept this amendment—whether it is the Government’s intention to cover those matters within regulation? Are any of these items on the list matters that the Government think are inappropriate for regulations to cover them?
The noble Baroness also made a strong case in general for end-to-end regulation. The Minister has described the process that the Government are going through to develop a liability map. I presume that in this, there will also be a similar kind of regulatory map. There also needs to be a redress map to ensure that there are no gaps down the middle of all of those things. It is also particularly important that there is not a regulatory gap. In terms of redress, it is important that there are no gaps; if things overlap, that does not matter so much. For example, there are times when a pension complaint could go either to the Pensions Ombudsman or the Financial Ombudsman service. They judge things by slightly different criteria and in different ways: fair or reasonable versus the legal position. However, it does matter that nothing falls down the cracks. If a complaint is submitted to an organisation such as the Financial Ombudsman Service and there is any possibility that it is out of scope, firms will, and do, regularly take them to court to try to stop the complaint being heard, and exactly the same thing will happen with the regulators.
Therefore, it is really important that somebody has gone through the regulatory map incredibly carefully and made sure that either the regulator already has all the powers and the full scope necessary to cover all these matters or that it will be granted them. I am sure that that is already happening but it would be helpful if the Minister could reassure us about it.
My noble friend Lady Drake made a very strong point about both the drivers of the need for this change and the inequality of arms. The latter is also very strong on the advocacy side. Many times I have seen that there has been a lot of money behind those advocating on behalf of the firms but very little resource behind those advocating on behalf of the consumer. Therefore, it will be very important to make sure that one amplifies the voices that speak up for the consumer interest as well as those that speak for the provider interest.
My Lords, I fully appreciate that the noble Baroness is trying to ensure that consumers are properly protected and have confidence in the dashboard infrastructure. Indeed, an aspect of this is the need for robust supervision, and I share her belief that it is important to make clear who will be responsible for oversight of the different aspects of the infrastructure. I do not think that much divides the noble Baroness and me on the objective to be achieved.
I recognise the need for a strong supervisory and regulatory regime for dashboard providers. I also agree with the thoughts expressed by many noble Lords at Second Reading about a new regulated activity being key to maintaining public confidence in dashboards. As I explained earlier, we intend to do this by amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.This will bring the provision of a qualifying dashboard service within the regulatory remit of the Financial Conduct Authority. Unauthorised firms will neither be able to connect to the supporting infrastructure nor be able to provide a dashboard service.
Once the amendment to the order has been made, the regulatory framework for the activity will be proposed in the FCA’s public consultation on the corresponding handbook rules and guidance. This will allow the public and the industry a chance to comment. The FCA must have regard to any representations made to it during the consultation period. This framework can be used to set out any expectations regarding the behaviour of dashboard providers and, in this way, will supplement any conditions imposed on dashboard providers set out in regulations. I would argue that this is where we dot the “i”s and cross the “t”s, as the noble Baroness put it.
I note that the amendment also refers to revenue generated by both dashboard providers and third parties. It might not be necessary for me to do so but I want to reassure the Committee that all qualifying dashboard services, like the dashboard provided by the Money and Pension Service, will not be allowed to charge simply for consumers to see their own information. The provision of financial services and products by firms that are dashboard providers will remain subject to FCA regulation. Fundamentally, our aim in allowing multiple dashboards is only to give customers more options in accessing their information, not different information.
The mention of information should remind us that pension information is the lifeblood of a sustainable dashboard. Dashboards will work within the existing framework established by the general data protection regulation and the Data Protection Act 2018. Dashboard providers will be subject to penalties under these laws should they fail to meet required standards of consumer and data protection. One of the key principles in the design of the dashboard is that the individual will always be in control over who has access to their data. Qualifying dashboard service providers will not be able to see information about the individual’s pension rights.
The responsibility for the provision of accurate data falls on pension schemes. The Pensions Regulator will be responsible for ensuring occupational pension schemes’ compliance with requirements. The FCA will regulate personal and stakeholder pension schemes. Enforcement options, including fines, will be among the tools available to the regulators if requirements are not met.
The role of these regulators will be complemented by the Money and Pensions Service, which will establish and maintain the dashboard infrastructure. While it will not act as a regulator, it will work with the regulators to enable their compliance activity. It is also obliged, as part of its consumer protection function under the Financial Guidance and Claims Act, to report to the FCA where regulated persons are behaving in a manner detrimental to customers.
That leads me to the issue of redress. If an individual wishes to seek redress, any queries around possible incorrect information should be directed to the scheme in the first instance. Schemes are already required to have dispute resolution processes. To come back to a question asked earlier by the noble Baroness, Lady Sherlock, if people are not satisfied with the outcome of the internal dispute resolution procedure, they can take their case to the relevant ombudsman.
The amendment covers the need for regulations around assumptions, projections and comparison of costs and charges. I reiterate that we expect that the initial information provided on dashboards will be simple in the first phase. Adding further information, such as projected pension income and costs and charges, requires consideration on the delivery and consumer protection aspects of these proposals, as we have discussed. I am not ruling out the possibility of including such information, but the industry delivery group should be allowed to consider the implications fully and make its recommendations. To commit to regulations around possible assumptions and comparisons before then would be premature.
Of course, as the noble Baroness will be aware, individuals can already access information on costs and charges. The DWP has consulted on simpler annual benefits statements; the noble Baroness may like to know that it will publish a response on that subject in the spring. The consultation looks at the presentation of costs and charges and how projections are calculated. It acknowledged the crucial need for simpler statements to be consistent with the work on dashboards. We will consider how insights from the consultation can be incorporated into dashboards.
The noble Baronesses, Lady Drake and Lady Sherlock, emphasised the need for adequate consumer representation. The Money and Pensions Service has brought together an industry delivery group whose job it is to ensure that the design of pensions dashboards is informed by industry experts and consumer groups. Membership of its steering group was announced in September last year. It includes a strong representation of consumer groups, including representation from Which? and an independent representative with significant experience in consumer protection. There will also be opportunities for other consumer representatives to take part in working groups, which will help to ensure that the final design is on what information and features consumers value.
The noble Lord, Lord Sharkey, asked specifically about the need to include advertising on a dashboard. I can do no other than refer back to my earlier points. Rules on advertising are as those around any other incremental addition to the dashboard, and rules on the parameters around the use of data will be looked at very carefully. They will be developed by the Government in conjunction with the FCA, which will work with industry and consumer representatives on the delivery group to make sure that if we go down that path, it is with our eyes open and with the risks minimised. We will of course consult on any rules surrounding that issue.
I hope that I have given sufficient reassurance around consumer protection to show that the dashboard infrastructure will build on existing regulatory frameworks. That, with the need to keep dashboards simple, means that while I understand the rationale of the amendment, I consider it unnecessary. I hope that, on reflection, the noble Baroness will feel that she is comfortable in withdrawing her amendment.
My Lords, I thank the Minister for his response. As I said, this is a probing amendment but also an attempt to indicate a framework that could be constructive, perhaps in particular around some of those issues on which all noble Lords have spoken. It covers things such as advertising; it may be that the regulation that one would want around advertising is that there cannot be any of it, but that would still be a regulation to prohibit. I feel that there is a need for an explanation of this vision, somehow all in one place. Yes, a lot of it could be extracted from today’s debate and the reassurances that have been given. However, it would be much better at the very least if it was all put together, perhaps in an Explanatory Memorandum. I still tend to think that there should be something in the Bill, even if more dilute than what I have proposed.
I very much thank the noble Baroness, Lady Drake. This inequality of arms is extremely important. When it comes to FCA consultations, how many members of the public respond? I am not sure whether I am a member of the public, but I have done it from time to time, and I can tell your Lordships that, even for somebody like myself who is well used to this kind of thing, the way it is composed and constructive can be jolly difficult to get your head around. It can be difficult to get yourself organised to put it in, unless you happen to be an industry specialist who does these kinds of things all the time. I therefore very much doubt that you get members of the public responding; you may get some of the consumer organisations, but again, I doubt that they have the familiarity that is necessary always to be able to nail the point.
As was also suggested, there is a tendency with consultations to weigh the responses: X% says this, and Y% says that, and the ones who struggle and have difficulty, which is always on the consumer side, are outweighed. An awful lot of people with a financial interest from the industry side will respond. There needs to be a better mechanism for communicating with, if you like, the public and their representatives. One thing that could be done is for the FCA to obligingly inform Parliament when it is coming out with its consultations. I do not camp on the FCA’s website, looking for its consultations, and if I do not, I do not know how many members of the public will. This is a work in progress. I have to come back again on the costs.
In my previous life as chair of the Economic and Monetary Affairs Committee in the European Parliament, I had a calculator that showed the effects of charges and commissions on a variety of funds at the various levels. Every five years, the charges were the effect of a stock market crash. The end computation was that more money had been extracted in charges and commissions than had built up as added profit in the pensions. This was about fund management in general rather than pensions, but the same point applies, and probably even more so. To get somewhere with the projections is the only way to show the member of the public—the saver—the effect of these charges. It does not look very much when it is a fraction of a percent, other things happen only when there is overperformance and there has been a lot of improvement in this area, but the deductions that your end value suffers are still extraordinarily high. This is not a subject that I intend to let go easily. Work should be done to make this more publicly available.
I doubt that an industry delivery group will say how wonderfully easy it is, but maybe something like the calculator that I had could be put up there, because that shows how these fractions add up over 20 or 30 years. I welcome the reassurances and agree with the noble Earl that there is no difference in the objectives. For now, I will beg leave to withdraw my amendment, but I may wish to return to it at Report.
Amendment 46 withdrawn.
Amendments 47 and 48 not moved.
Clause 118 agreed.
Clause 119: Information from occupational pension schemes
Amendments 49 to 53 not moved.
54: Clause 119, page 111, line 45, at end insert—
“238FA Accuracy of occupational pension scheme informationRegulations must impose requirements on the trustees or managers or administrators of a relevant occupational pension scheme to ensure that information held in respect of each member which may be submitted to a pensions dashboard service is regularly checked for accuracy and any errors are corrected within six months.”Member’s explanatory statement
This amendment aims to ensure that those running pension schemes must check data for accuracy and any errors are corrected regularly to prevent incorrect and misleading information appearing on a user's pensions dashboard.
My Lords, I rise to speak to Amendments 54 and 65, both of which are on the same topic. I beg the Committee’s indulgence. This is such an important issue that I want to expand on some of the areas involved and my reasons for tabling these amendments.
Accurate and complete member data is surely an essential prerequisite for the success of any pensions dashboard. I was struck by the Minister remarking that pension information is the lifeblood of the dashboard, which is absolutely right. These are probing amendments; I do not claim that they are the perfect answer to the issues that I am raising, but I have tried to insert into the Bill specific requirements that must be imposed on trustees, managers and administrators of occupational pension schemes to ensure that the information submitted to the dashboard has been checked regularly for accuracy. I have suggested that errors must be corrected within six months. That may not be a reasonable timeframe, but it is a start. That is Amendment 54.
Amendment 65 seeks to do the same kind of thing for personal and stakeholder pensions which Amendment 54 is seeking to do for occupational schemes. I am not sure whether I need to mention this each time I speak in Committee, but I draw noble Lords’ attention to my interests as set out in the register. Auto-enrolment has been a great success as all UK employers have set up pension schemes for their staff. Workers will be building towards a better retirement, which is a force for good, but it cannot be right that there are currently no formalised requirements that data records are verified as accurate regularly.
In the past, pensions have been plagued by data problems. Recently a number of pensioners have had to repay some of their pensions and face future pension cuts as they have been told that past errors in their pension entitlement have been discovered, many decades later in some cases. Records were not regularly updated or corrected. In the past there was manual record-keeping, which was prone to human error, and failure to ensure robust data reconciliation had been regularly carried out meant that errors were not discovered promptly, and they persisted over time without people knowing.
For any dashboard initiative to work, consumers have to be able to trust that their pension contribution records are accurate. This is a particular problem because the complexity of pension rules makes it almost impossible for individuals, especially workers enrolled in auto-enrolment schemes, to know whether the amounts being paid in on their behalf are correct. The complex calculations must calculate the employee contribution, the employer contribution, the tax relief, and potentially the national insurance relief as well. The member would naturally assume that their employer or their pension provider was ensuring that the amounts being recorded on their behalf were accurate, but unfortunately this has not been the case in the past and it is still not the case for new pension schemes. For example, a study I was involved in last year which analysed data representing more than 1 million contributions from more than 100,000 schemes—these were small employers —showed that the data had a 50% initial error rate. Some 50% of some aspects of the information was incorrect and had to be sent back for correction. Those error rates did not persist, but the data was not necessarily checked as thoroughly as it could have been.
Pension administration is the Cinderella of pensions. It is the low-margin end. It is not the sexy end. It is under cost pressure, and administrators seem to have been expected to absorb often very complex changes. Sometimes pension providers change their data requirements and their payroll software is not updated to reflect the latest version, so administrators then manually adjust spreadsheets to try to make sure that they have some data recorded. Data includes incorrect contribution amounts, contributions made for workers who did not belong to the scheme or who had already opted out, wrong identifiers for the pension scheme, inaccurate postcodes, incorrect pay period dates and so on and, for example, incorrectly believing that a pension scheme operates on a relief at source basis when it is net pay or the other way around so the amounts are simply not right.
Unfortunately there are no regulatory checks to ensure that data is verified for accuracy. What we have seen in legacy schemes is the detriment that this can cause to pensioner members, and if we have a pensions dashboard that people are relying upon to make their retirement plans, it is not good enough that administrators will just to try to make sure that by the time people reach retirement and get their pension all the errors are corrected because people will need that all along. For example, the auto-enrolment declaration of compliance does not have accuracy checks built in. Employers are asked to confirm that they have paid the right amount but nobody ensures that that is the case.
If they want to check, many pension providers currently do not collect the information that they need to verify because they are not getting the pensionable pay data sent over to them; they just get an amount of money and are told that it is correct, and that is that. We are in the middle of pensions master trust authorisation. Again, there is a risk of records being incorrect but the authorisation does not entail robust checks on data accuracy or proof that proper processes are in place to discover and correct errors.
I was trying to put into the Bill a mechanism whereby we can draw a line at a point in time and make sure that the pensions dashboard data has been through a process of cleansing and verification as a requirement for submitting the data. I am not saying that this will be simple or easy, but as more schemes emerge it will be more difficult to go back and try to reconcile past records. We have an opportunity now to put that sort of requirement into the Bill.
I quote from the Pensions Administration Standards Association, a body that oversees pensions administration and has been directly involved in some of these areas:
“Data cleansing is costly, so in low margin operations there is little appetite to invest in either clean data or in digitisation which depends on the quality of data. There is no incentive to do better than your competitor, as you are all in the same boat. Customers do not demand improvements and where they do trustees choose to ignore the calls either because of cost, resource constraints or other priorities for the scheme.”
It goes on:
“There is an expectation that introducing mandatory data provision as part of the dashboard project will act as an incentive to schemes and providers to clean up data that has been in a poor state for decades … The uncomfortable truth is that while compulsion will encourage some clean up, it will only be to the minimum level needed to show some data in a field, which essentially means that the presence of a data item will take precedence over the accuracy of it. Schemes already report 90% compliance with common data standards set by the Pensions Regulator. This should mean 90% of schemes will be able to present data that identifies an individual, but of course we know this is not reality, because it has been self-reported and not robustly checked.”
We have an opportunity to recognise the poor quality of data. This is not a blame game; it is about trying to put into the legislation a mechanism through which providers and everyone involved in the dashboard know that they can no longer rely on other people not correcting their data and no longer not attend to this themselves.
Of course, it will never be possible to ensure 100% accuracy, but having processes in place that constantly check and which allow errors to be corrected promptly is urgently required. Random regulatory checks, mystery shopping and systematic accuracy verification by an independent body would be of value and is surely a vital ingredient of any dashboard on which consumers are expected to rely.
As I said, I am not suggesting that the wording of the amendments is appropriate, in the right place or expressed correctly, but I hope that my noble friend the Minister can give us some information on and consideration of whether this could be built into a dashboard requirement. I beg to move.
The noble Baroness paints a bleak picture; I do not doubt that she is absolutely right.
Is there not a role in all this for the auditors, and a body whose feet can be held to the flames for not doing its job and not checking the systems, for example? It would not be a solution, but presumably it would contribute to an improvement.
The noble Lord raises an important point which highlights that I have not necessarily covered all the areas to be dealt with on this. Including auditors and having a requirement for them to verify the accuracy of data is indeed another way of approaching the issue. I went to trustees and scheme managers widely, but auditors are another area which might be considered.
My Lords, I do not want to say very much, but I have a couple of questions on the back of what the noble Baroness, Lady Altmann, has said.
Can the Minister tell the Committee a little about what the regulators and the Government are doing to ensure that companies are ready to clean up data ready for transferring to the dashboard? Is there any intention for providers to check that members recognise the accuracy of the data at any point? Regarding what the noble Baroness described, if data had been wrong for decades, perhaps the member would not have known the details, but they might have known if they were not in a scheme, were in a different one, or if the basics were different.
The Cheviot Trust said that it was concerned that deferred members’ data would be less accurate. Is this on the DWP’s horizon? If so, what is being done about it?
My Lords, I completely appreciate my noble friend’s desire to ensure that the information on the dashboard is accurate and secure. I absolutely agree that accurate information is essential to the effectiveness of a pensions dashboard. The answer ultimately must lie with appropriate regulations and sanctions. The Government believe that these protections are in existing regulations, and that the relevant regulators have the powers to intervene if compliance is not maintained. Having said that, I shall explain in a minute what work is going on in relation to this set of proposals.
In relation to personal and stakeholder pensions, rule 9.1.1 in the FCA’s senior management arrangements systems and controls sourcebook requires pension providers to
“arrange for orderly records to be kept of its business and internal organisation, including all services and transactions undertaken by it, which must be sufficient to enable the FCA … to monitor the firm’s compliance”.
If a scheme fails to meet these requirements, the FCA will select the most appropriate regulatory tool in the circumstances. Responses are proportionate and could include supervisory intervention.
Where enforcement action is deemed appropriate, the FCA aims to ensure that the sanction is sufficient to deter the firm or individual from reoffending and deter others from offending. Where it takes disciplinary action against a firm or an individual, it will consider all its available sanctions, redress and restitution powers, including public censure, financial penalty, prohibition, suspension or restriction orders; it has quite an armoury.
Regarding occupational pension schemes, trustees and managers are also required under existing legislation to put processes in place to ensure that the data they hold is accurate. Section 249A of the Pensions Act 2004 and the internal controls regulations 2005 require occupational pension scheme trustees to establish and operate internal controls that are adequate to ensure that the scheme is administered and managed in accordance with scheme rules and the law.
If a pension scheme fails to administer the scheme to a sufficient standard, or to comply with any other aspect of pensions legislation, the Pensions Regulator is able to issue an improvement notice. Where trustees fail to comply with an improvement notice, the regulator can issue a fine of up to £5,000 in the case of an individual or £50,000 in other cases.
My noble friend and the noble Baroness, Lady Sherlock, stressed the importance of promoting data quality on dashboards to scheme providers. Pension trustees and providers have been aware of our intention to introduce dashboards for some time now. We have been clear that they should start preparing their data now. The Pensions Regulator has increased its scrutiny of scheme records in recent years, and launched a specific targeted initiative in October 2019. It will take time to resolve data issues, which have in some cases been ongoing for decades, but the regulator is seeing good results from its engagement. There is still work to do, as my noble friend will be the first to agree.
An in-depth understanding of the challenges that pension schemes and providers will face in complying with compulsion is essential. The industry delivery group has therefore commissioned specialist independent and qualitative research. This will be conducted on a completely anonymous basis and will explore the challenges of meeting the requirements on data through deep-dive interviews with sample pension providers and schemes. This builds on the Pension Regulator’s insight. It will inform the delivery group’s recommendations for data requirements, taking into account the needs of different scheme types. It may be helpful to my noble friend if I note that, as part of the delivery group’s activity, a priority is to consider these specific items of people’s pensions data, which pension providers and schemes should supply for dashboard displays.
Experiences from other countries with dashboards indicate the importance of agreeing data standards with all industry stakeholders and the benefits of using the widest possible consumer research. The industry delivery group, working with its steering group, is developing a data-scope paper, which will highlight its latest thinking on dashboards’ data across the whole pensions industry. The IDG plans to publish this paper in due course, asking industry for feedback and, in particular, its provision of additional evidence where it exists.
The first iteration of the industry working group on data will effectively involve the whole industry before a small, focused working group will then refine this data thinking as we move on through the spring. I therefore hope that my noble friend can be reassured that the process that we have in mind has several stages to it, that they are logical stages, and that they should tease out the issues that she has very rightly drawn attention to in her remarks.
I hope that I have illustrated that the current obligations placed on schemes by the FCA and TPR, together with the enforcement powers which both regulators have, combined with the work that I have just described, are sufficient to ensure that the schemes will provide accurate data to the dashboard. I hope, therefore, that my noble friend will feel able to withdraw her amendment at this stage.
I thank my noble friend very much for his response. I said that this was a probing amendment, and I recognise that, in theory, such powers appear to exist. In practice, they do not seem to be used and there seems to be rather a reliance on self-reporting, which clearly has not produced the accuracy that one might wish. I am delighted that our honourable friend the Pensions Minister has been raising the issue of the need for accurate contributions. We need to encourage pension schemes to get going on cleansing the data. They do not need to wait for any regulations or legislation. If they already have the duty, perhaps they should just get going.
I also accept, and am delighted to hear, that the industry delivery group is working on some qualitative research and data standards. I have to express my concern that in 2015, there was an agreed data standard practice; unfortunately, the industry decided not to adopt it. I hope that there will be a different attitude this time to the importance of pension scheme data.
I beg leave to withdraw the amendment but I hope that this debate has at least raised the issue. Perhaps it may encourage some schemes to get on with data cleansing and have the regulators looking more closely at it.
Amendment 54 withdrawn.
Clause 119 agreed.
Amendments 55 and 56 had been withdrawn from the Marshalled List.
Clause 120 agreed.
Schedule 9: Pensions dashboards: Northern Ireland
Amendments 57 to 63 not moved.
Schedule 9 agreed.
Clause 121: Information from personal and stakeholder pension schemes
Amendments 64 to 69 not moved.
Clause 121 agreed.
Clause 122: The Money and Pensions Service: the pensions guidance function
Amendments 70 and 71 not moved.
Clause 122 agreed.
72: After Clause 122, insert the following new Clause—
“Pension dashboards: impact assessment
Within six months of the passing of this Act the Secretary of State must lay an impact assessment before each House of Parliament setting out the expected costs of the provisions of this Part for businesses, and governmental and non-profit organisations.”
My Lords, Amendment 72 would require the Secretary of State to lay an impact assessment before Parliament, once the Bill becomes an Act, setting out the expected costs of our pension dashboard proposals for businesses, government and not-for-profit organisations. I envisage the assessment covering business pensions, civil service pensions—of which I am lucky enough to be a beneficiary—and other government unfunded schemes such as the old-age pension, which we were discussing, along with funded government schemes, such as the universities pension scheme, and the pensions of non-governmental bodies: charities such as Oxfam or small not-for-profits such as Red Tractor, which I chair.
I start by thanking the Minister for the helpful briefing that she arranged with the Bill manager and the DWP team on the Pension Schemes Bill 2020 impact assessment. They have tried hard to respect the spirit of impact assessment, which allows Ministers and Parliament to address costs alongside the case for new legislation. The page numbering is confusing, but I found the document, particularly the section on dashboards, which is more than half way through, timely and informative. That is not always the case with the legislation that we scrutinise, so well done.
My concern today is that not enough attention is being given in our discussions to the costs of the new dashboards and that all the debates so far in this Committee—everything stretching from the climate change provisions debated last week to the long list in Amendment 46 in the name of the noble Baroness, Lady Bowles—are likely to increase them further.
Let me try to summarise my concerns. We are talking about costs—both once-off and ongoing—amounting to at least many hundreds of millions of pounds on a discounted basis. We are dealing with large and growing sums, the burden of which must fall somewhere; of course, as we have heard, some of a new regulatory regime is in the hands of the FCA, whose requirements are notoriously—and often rightly—burdensome. There is a substantial cost to business. Then we need to add the costs involved in making governmental information on pensions available electronically in the dashboard. They are more modest but the money must still be found by the public sector.
Where schemes have the resources to be professionally run, as is the case with bigger schemes—that do a lot to clean up their data—which cover about 90% of pension members in the private sector, administration of the dashboard system will be relatively easy. However, there are uncertainties that will carry administrative costs, which I am not sure we have allowed for. For example, what is to be done with staff who have worked overseas or staff who benefit from overseas schemes, such as the parallel ones in the Netherlands and Germany?
More significant is the problem of small players. As with much new legislation, where bodies are small, concerns pile up and the cost imposes a much bigger relative burden. I know from my work with small business that it is always kept busy with a plethora of demands and cost pressures. For today’s purposes, I have in mind not only small and micro-companies but smaller charities and micro-employers, such as plumbers or an independent coffee shop. Some of us will remember the debates about how small groups could deal with the challenges of the data protection laws. I have similar concerns here, and I am not sure how they are being addressed.
On data protection, there is the threat of the large fines required under the EU law we were implementing. Here, the penalties are self-imposed. It is not entirely clear how all this will be organised, nor exactly how enforcement will work. I credit my noble friend the Deputy Leader, who gave us some useful information on how the enforcement system will work. The trouble is that although every new burden may be justified in some sense, as we have heard, they pile up, erode our competitiveness and job creation, and hit small operators.
New burdens must also be well communicated and explained with time to adopt them. I know that the Minister will learn from the hostility we saw towards the introduction of auto-enrolment, which was important, from the groups that I have described. We need to take steps to minimise the fear of bureaucracy, cost and fines in this kind of change.
I am speaking today because I want the department to be under pressure to maximise simplicity—my noble friend Lord Howe made a rather positive point about that earlier—and minimise costs as far as it can. The costs of the dashboard are substantial and will be paid for largely by pension schemes, and therefore often by pensioners themselves in due course. That is what one has to remember. In aggregate, the total costs over 10 years now feel to me to be likely to be closer to the £2 billion mentioned by my noble friend Lady Noakes—a well-known accountant—at Second Reading than my earlier estimate of £1 billion.
There are of course benefits in bringing pension information into one place, but I am not convinced that they are commensurate with this huge compliance cost, and one perverse effect, unfortunately, could be that more retired people will be encouraged to take money out of their schemes—the equity release that my noble friend Lord Young referred to earlier—to give it to their children, perhaps lose it or, as my noble friend Lady Altmann, suggested, run it down completely. This could compound the long-term problem that we have in society of unaffordable care for the elderly.
We have to be careful about how we tackle the dashboard issue and make sure it is as cost-effective as possible. One cannot help wondering whether a single government-run scheme might, after all, be the simplest and cheapest way forward. It might at least be best to prioritise this to try to get the dashboard off the ground in a simple, cost-effective way.
I have tabled an amendment which would require Ministers to review the estimated costs in the light of the forthcoming consultation on the dashboard detail and to publish a new impact assessment six months after the passage of this legislation, once the future details are clearer. I look forward to the Minister’s comments on this area.
I certainly agree with the spirit behind the amendment—that transparency is a good thing and that the costs should be known—but I just hesitate over how the costs are looked at. One would think from some of the debates that I have participated in that I am reluctant to harness financial technology, but that is absolutely not the case. I am very pro it; I just want it done well.
I spoke at an industry event the other day. I will not name the person but it was the first time I had heard the CEO of a major financial organisation say, absolutely correctly, that a single piece of public policy—auto-enrolment—brought billions of pounds into the financial services industry which providers themselves did not achieve. I am conscious that the industry is very aware of its costs but it benefited hugely from a simple piece of public policy, and I found it quite rewarding that there was recognition of that. I have often said that all this money is coming in because the state took the decision to use the private sector to deliver a second-tier pension and therefore it has a wider responsibility for delivering a big piece of public policy.
I am not saying how one should do it, but it would be wrong not to attribute to the cost of the pension dashboard costs that should be incurred anyway. Where you start in looking at costs influences what they aggregate to. Getting the data accurate in order for the dashboard to work has to be done anyway. You cannot make a profit on inaccurate data. I know that that has been the model for a long time but it is not the correct model; it is a dysfunction in the market. On the trust-based side, the Pensions Regulator is driving, and is required to drive that occupational trust-based schemes and master trusts increase the accuracy of their data. If you are auto-enrolling somebody into a product, the least you should do is provide them with accurate data about what they have accrued. I would not want to attribute to the costs of the dashboard something that the industry and pension schemes should be doing anyway, which is getting their data accurate. It is indefensible to say, “It’s an unacceptable cost to require us to get our data accurate.” If they were told, “You’ve got to get it 100% as opposed to 99.9% accurate,” that might be unreasonable within the timescale, but that should be at the heart of providing pensions, whether contractually, by trust or whatever.
Also, the sector has a duty to harness what is available in financial technology so that people can access more easily what is available. I agree that there should be this visibility, but I make a plea. Some of these things required by the dashboard should be done anyway, and some are being driven to be done by regulators. We must not overstate the costs attributable to the dashboard when they would be incurred anyway to meet other government priorities or the efficient operating of pension schemes or market providers. That is my only hesitation.
I am a big supporter of auto-enrolment, which has been transformative and helps with this long-term problem of providing for old age. The cleaning of data is not a big aspect of the impact assessment I read, although I am sure that we will be advised on that by the department. A lot of it is setting the things up. It is good that data is gradually being tidied up. We must ensure that the system is clean for the future.
I am staggered by the numbers on the cost of doing this that are bandied around. As far as I can see, the main work here is formatting data into a consistent format so that it can be uploaded to whichever platform it needs to be uploaded to. Frankly, the creation of a platform is pretty trivial stuff. It is not dramatically different to what happened with open banking in that respect; that was a question of formatting data and ensuring that it was in a consistent format. Do we have any idea of the open banking process costs so that we can compare them—and, if they are dramatically different, ask why?
I echo the words of the noble Baroness, Lady Drake. A number of elements of the expense shown in the impact assessment are elements that one would have hoped that the industry would take upon itself in any case. I sometimes need to remind providers that automatic enrolment has been an absolute gift to them. It has brought them 10 million new customers on a plate, with all the associated tax relief money. Surely they need to take an obligation upon themselves to modernise their processes and bring their IT into the 21st century. The standard answer is: “It’ll cost too much”, or, “We’ve got our own system, we don’t want to change to a new one”, but in Australia, the Government mandated a particular system that everybody had to adopt so that there was a common standard. It worked very well. My noble friend suggested that the industry delivery group is working on such a potential procedure, which would be excellent. It would incur costs but it would set the industry up for much more business in future on a long-term, sustainable basis.
I am grateful to my noble friend for raising this important issue.
The Government published impact assessments for each measure in the Bill at its introduction. As is usual practice, we will publish updated impact assessments when the Bill is enacted, setting out the impacts of any material amendments to the Bill. I assure my noble friend that for measures where regulations that are subject to consultation are required, we will publish impact assessments when those regulations are brought forward. This must be the most beneficial time to revisit the impacts, when further policy detail is set out and we are able to apply that element of further insight to our estimates of costs and benefits. I suggest that adding another impact assessment between Royal Assent and the laying of the regulations would not provide any further transparency.
Turning to dashboards specifically, the Government are well aware of the additional costs necessary to support the set-up and maintenance of pensions dashboards. As my noble friend knows, when we published an impact assessment that accompanied the Bill, we set out initial estimates of the possible costs. However, we should recognise that many schemes already provide similar levels of information directly to their consumer through annual benefit statements or digital platforms, so not all schemes will necessarily incur significant additional costs.
The impact assessment showed illustrative estimates suggesting that the total cost to business over 10 years could be within the range of £245 million to £1.48 billion, not including micro-schemes. The assessment recognised that it was not possible to provide more meaningful costs until the development of the system was more advanced; nor did it seek to estimate the potential significant benefits to consumers as a result of connecting to all of their pension savings or to business from more streamlined administration.
The noble Lord, Lord Vaux, asked whether we had any information from the open banking exercise. I will make suitable inquiries about that. I do not have the information to hand, but if I can get it to him, I will certainly do so.
The new impact assessment, which will be produced alongside the regulations, is the most appropriate place to set out these more detailed estimates of costs and benefits, since it will be able to reflect the detail of the proposed dashboard infrastructure as well as the information needed. However, I assure my noble friend that the number of qualifying dashboard services will have no impact on the cost to schemes; we believe that allowing multiple dashboards will maximise the potential benefits to consumers. Costs might arise from schemes ensuring that data is accurate, but they should already be doing this as part of data protection and disclosure legislation. Having accurate data is an essential feature of a healthy pensions landscape. As such pension schemes should routinely commit to making their data more accurate, my colleague in the other place, the Minister for Pensions, has repeatedly called for schemes to clean their data now instead of waiting for dashboard implementation.
I appreciate the importance of making it simple for schemes to connect to the service. That is why the Government have recommended that there be only one pension finder service. Smaller schemes, which may have more difficulty updating their systems, can consider the use of an integrated service provider, which may be able to facilitate connections and limit the changes required directly to the scheme’s IT infrastructure.
My noble friend emphasised her concerns about burdens falling on the smallest and poorest schemes. The industry delivery group commissioned PricewaterhouseCoopers to carry out further research with pension schemes. This will help to understand better what problems they might face in connecting to the dashboard infrastructure and the costs of such a change. Developing this research and understanding will also enable us to start to consider in what order schemes might move into the scope of the pensions dashboard and the issues and risks to be faced.
The Government recognise that there will be one-off implementation and ongoing maintenance costs for pension schemes and other developers of dashboards. As I have said, our impact assessment provides potential indicative implementation and ongoing costs over a 10-year window. However, by having a single supporting dashboard infrastructure that schemes must connect to, we have ensured that costs to industry are lower compared to if they had to connect to all dashboards individually. In addition, as I said, we recommended that there should be a single pension finder service in the initial phases of dashboards. That will help to minimise costs compared to having multiple pension finder services. Practical considerations of small schemes may also be taken into account as we develop our approach to staged onboarding.
The noble Baroness, Lady Drake, made the very sensible point that schemes should have accurate data anyway. I agree with her on that. As we stated in our consultation response, many respondents in industry saw the benefits to consumers as outweighing the potential costs to industry. The cost of data cleansing has not been taken into account in the impact assessment precisely because it should be done anyway.
My noble friend Lady Neville-Rolfe referred to the TCFD climate change amendment and asked whether it could increase the cost of the dashboard. We do not anticipate significant burdens on pension schemes because we will legislate for only the largest schemes in the first instance. The largest schemes should have governance and risk-management processes in place and have in-house resources that will allow them to comply readily. The climate change amendment will not have any business impact on the other measures in the Bill. However, I emphasise again that we will test our assessment of business burdens extensively when we consult on the policy detail following the passage of the Bill.
My noble friend also asked how we would stop pension schemes passing on to consumers the cost of meeting their dashboard requirements. Working with the industry delivery group, the regulators and others, we will continue to assess the potential impact of legislation relating to dashboards. As I said earlier, the implementation of dashboards is seen by many in the industry as a cost to be incurred for the long-term benefit of members. The charge cap limits the amount that auto-enrolment schemes can charge members invested in default schemes; that places an upper limit on the costs that could be passed on to members of pension schemes.
We recognise the scale of the challenge presented by providing simple pension information via a dashboard. We want to start to bring forward the consumer benefits as soon as possible by remaining focused on making an initial service offer deliverable without overcomplicating requirements, which would also drive up costs. The Government are committed to working with the industry delivery group to shape dashboard infrastructure. We are also committed to being transparent about the costs and benefits that will accrue as the result of the range of measures in the Bill.
I hope that this commitment to further assessments at the most appropriate time provides at least some reassurance to my noble friend and that she will feel able to withdraw her amendment.
As I said right at the beginning, I value the work that the department has already done on this matter and the thought that it has given to it. I very much agree about the value of the single pension finder which reduces multiple costs. On climate change, I was not really commenting on the Government’s amendment as much as on the additional amendments that have been suggested and on many amendments on different areas. The point I am making is that often things seem a very good idea, but when they are added together, they bring cost and complexity. I feel that the spirit of this discussion is that we should avoid that to the extent that we can and bring in a simple system in a staged way. As noble Lords know, I always worry about small businesses, small operators and small charities because they find these things very difficult. I am delighted to hear that the Government have brought in outside advice from PwC. We will be looking at that in terms of what might be done and how it might be sequenced. If the Minister would like any assistance, I have a lot of experience of difficult tales from small businesses. I thank my noble friend, and I beg leave to withdraw the amendment.
Amendment 72 withdrawn.
Clause 123 agreed.
73: After Clause 123, insert the following new Clause—
“Climate change risk
(1) The Pensions Act 1995 is amended as follows.(2) After section 41 insert—“41A Climate change risk(1) Regulations may impose requirements on the trustees or managers of an occupational pension scheme of a prescribed description with a view to securing that there is effective governance of the scheme with respect to the effects of climate change.(2) The effects of climate change in relation to which provision may be made under subsection (1) include, in particular—(a) risks arising from steps taken because of climate change (whether by governments or otherwise), and(b) opportunities relating to climate change.(3) The requirements which may be imposed by the regulations include, in particular, requirements about—(a) reviewing the exposure of the scheme to risks of a prescribed description;(b) assessing the assets of the scheme in a prescribed manner;(c) determining, reviewing and (if necessary) revising a strategy for managing the scheme’s exposure to risks of a prescribed description; (d) determining, reviewing and (if necessary) revising targets relating to the scheme’s exposure to risks of a prescribed description;(e) measuring performance against such targets;(f) preparing documents containing information of a prescribed description.(4) Regulations under subsection (3)(b) may, in particular, require assets to be assessed by reference to their exposure to risks of a prescribed description and may, for the purposes of such an assessment, require the contribution of such assets to climate change to be determined.(5) In complying with requirements imposed by the regulations, a trustee or manager must have regard to guidance prepared from time to time by the Secretary of State.41B Climate change risk: publication of information(1) Regulations may require the trustees or managers of an occupational pension scheme of a prescribed description to publish information of a prescribed description relating to the effects of climate change on the scheme. (2) Regulations under subsection (1) may, among other things—(a) require the trustees or managers to publish a document of a prescribed description;(b) require information or a document to be made available free of charge;(c) require information or a document to be provided in a form that is or by means that are prescribed or of a prescribed description.(3) In complying with requirements imposed by the regulations, a trustee or manager must have regard to guidance prepared from time to time by the Secretary of State.41C Sections 41A and 41B: compliance(1) Regulations may make provision with a view to ensuring compliance with a provision of regulations under section 41A or 41B.(2) The regulations may in particular—(a) provide for the Authority to issue a notice (a “compliance notice”) to a person with a view to ensuring the person’s compliance with a provision of regulations under section 41A or 41B;(b) provide for the Authority to issue a notice (a “third party compliance notice”) to a person with a view to ensuring another person’s compliance with a provision of regulations under section 41A or 41B;(c) provide for the Authority to issue a notice (a “penalty notice”) imposing a penalty on a person where the Authority are of the opinion that the person—(i) has failed to comply with a compliance notice or third party compliance notice, or(ii) has contravened a provision of regulations under section 41A or 41B;(d) provide for the making of a reference to the First-tier Tribunal or Upper Tribunal in respect of the issue of a penalty notice or the amount of a penalty;(e) confer other functions on the Authority.(3) The regulations may make provision for determining the amount, or the maximum amount, of a penalty in respect of a failure or contravention.(4) But the amount of a penalty imposed under the regulations in respect of a failure or contravention must not exceed— (a) £5,000, in the case of an individual, and(b) £50,000, in any other case.”(3) In section 116 (breach of regulations), in subsection (3)(b), after “10” insert “or under provision contained in regulations made by virtue of section 41C ”.(4) In section 175 (Parliamentary control of orders and regulations)—(a) in subsection (1), after “(2)” insert “, (2A)”;(b) after subsection (2) insert—“(2A) A statutory instrument which contains the first regulations made by virtue of section 41A or 41C must not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””Member’s explanatory statement
This amendment imposes requirements on trustees and managers of certain occupational pension schemes as regards taking into account the effects of climate change and publishing information relating to those effects.
Amendments 74 to 76 (to Amendment 73) not moved.
Amendment 73 agreed.
Schedule 10 agreed.
Clause 124: Exercise of right to cash equivalent
77: Clause 124, page 118, line 11, after “(d)” insert “, (2A)(a), (b) or (d)”
Member’s explanatory statement
This amendment extends to unfunded public service defined benefits schemes the requirement that prescribed conditions are satisfied before trustees or managers may use a cash equivalent to buy into other pension arrangements.
My Lords, Amendment 77 seeks to extend the scope of Clause 124 to include transfers from unfunded public sector schemes: those where the pension promised is underwritten by the Exchequer. This amendment ensures parity of protection for those members of unfunded public service schemes.
Clause 124 relates to cash equivalent transfer rights and amends Section 95 of the Pension Schemes Act 1993. It provides the Secretary of State with a power to make regulations that can place new conditions on a member’s statutory right to transfer their pension rights to another scheme. This amendment seeks to ensure that members of unfunded public sector schemes can exercise their statutory right to transfer only once the conditions to be specified in the regulations made under this clause are satisfied. The intention is to apply the same conditions to transfers from unfunded pension schemes as will be applied to transfers from other pension schemes. These conditions can include the member providing evidence or information about their employment link with a pension scheme or their residency overseas.
Pension transfers from unfunded public sector schemes are rare. No concerns in relation to scams were raised during the 2016 government consultation, so transfers from unfunded pension schemes were not included in the original draft clause. The Department for Work and Pensions has since been made aware of criminals trying to set up a scheme that can receive unfunded pension transfers, so we believe this amendment is necessary to safeguard members of unfunded schemes from fraud. Amendment 99 mirrors the provision for Northern Ireland in paragraph 12 of Schedule 11. It is essential to provide the same protection when transferring savings to members of unfunded public sector schemes as those saving in other pension arrangements. For these reasons, I beg to move Amendment 77 standing in my name.
My Lords, I support my noble friend’s amendment and will speak to my Amendment 78, which is grouped here. I fully agree with her that it is important to protect members’ pensions on transfer, whether they come from one type of scheme or another. I am delighted to see the government amendment and its intent.
My amendment would do something that I have sought for a time, and I wondered whether we might be able to get it into the Bill. It relates to partners of pension scheme members who transfer their pension from one scheme to another. One hears so often of a divorced couple where the wife has no pension of her own and has sometimes even had a pension-sharing order. However, when the member’s pension is transferred as a cash-equivalent transfer value, there is currently no mechanism to ensure that the spouse, who clearly has an interest in potentially half that amount, is made aware that that is happening. Of course, once the money has been transferred, should the previous partner have ill intent, it is possible that the spouse—usually the wife—will be left pensionless when in fact she had expected to share the partner’s pension.
This is a probing amendment. I support my noble friend’s amendments and would be grateful to hear whether any other Members of the Committee are interested in this type of protection, which we might be able to request be inserted in the Bill, so that if somebody calls up to transfer their pension, some procedure is in place before that is done to ensure that anyone else with an interest in the pension has given their consent or has at least been informed, which does not always happen.
I have some amendments which we will come to later concerning similar issues. I very much support this amendment. The briefing that we had from the ABI gave us quite an insight into the way that women suffer as a result of not having a proper pension settlement. I very much welcome Amendment 78, which seeks to get the spouse’s permission for the transfer of a pension.
My Lords, there are three amendments in this group. Amendment 78, in the name of the noble Baroness, Lady Altmann, focuses on the evidence of a member’s spouse’s consent when a transfer is to be made. We believe that this amendment has considerable merit and are supportive of it. Quite what the technicalities that come to confront us might be remain to be seen, but certainly we should seek to make progress on it.
Regarding the other two amendments in this group, Amendment 99 is simply the Northern Ireland equivalent of Amendment 77, which, as we have heard, deals with unfunded public service DB schemes. I am alarmed to hear that without this amendment they would be attacked by some source. That is rather worrying. Regarding the prescribed conditions that must be satisfied for the purposes of the provision, can the Minister outline what those might contain?
I thank my noble friend Lady Altmann for tabling her Amendment 78, which introduces further conditions to the right to transfer. It would require the consent of a current or ex-spouse or civil partner of the member before a trustee or scheme manager could transfer a member’s savings. This condition would apply where the member was getting divorced or dissolving their civil partnership or might do so in the future. It would therefore apply to all members who might seek to transfer and are married or in a civil partnership.
The amendment would introduce unnecessary and onerous conditions into new legislation. Options already exist for those who seek a financial settlement on divorce or the dissolution of a civil partnership. The law identifies when pensions should be taken into account as part of a financial settlement on divorce or dissolution of a civil partnership, and the courts will make the final decision if there is no agreed settlement.
Where a couple are negotiating a financial settlement on divorce or dissolution of a civil partnership, they are obliged to disclose all assets, including pensions. The process includes provisions to compel disclosure where the court is concerned that the financial disclosure might not be honest or complete. The amendment introduces a radical precedent where someone other than the member will determine the final use of their financial asset without a court order or notice being in place. It is not a requirement for individuals to seek their spouse or civil partner’s consent in respect of other financial assets, such as sole name bank accounts. Why then would we include such a requirement in pension legislation?
In addition, the amendment would place additional burdens on trustees to verify that the spouse or civil partner consents to the transfer. In doing so, it risks causing a conflict with the trustee or manager’s fiduciary duty to act in the best interests of members.
The noble Lord, Lord McKenzie, asked about types of pension and the name of the scheme, and said that people might lose out in a divorce settlement. Both persons in a couple are obliged to declare assets when coming to a financial settlement in the context of the dissolution of their relationship.
My question related to Amendment 77 and unfunded public service DB schemes where there is a requirement for prescribed conditions to be satisfied before trustees or managers can use the cash equivalent. I sought to determine what those prescribed conditions might be.
In the circumstances, I will write to the noble Lord if he will allow me.
In conclusion, for the reasons I have outlined, I ask the noble Baroness, Lady Altmann, to withdraw her amendment.
This has become more problematic because of pension freedom. Before that, you could not quickly rush to play Gauguin in Tahiti and disappear, taking all your money with you, because you could not get it out in that way. At the age of 55, you can now do that if the taxman can chase you for the marginal rate of tax. There were partners, particularly women, who had certain protections in DB. In DC, at least the requirement to annuitise left some mechanism to temper this problem, although it did not deal exclusively with it. Pension freedom has transformed that.
I know that we will come later to the issue of gender and pensions—where I suspect that we will come back to this issue, among others—but there is a real issue here for partners, particularly women. If the person with the pension chooses simply to take the cash and go, once that has happened, it is very difficult for the partner to protect themselves or do anything about it. That is the underlying tension.
My Lords, I want to ask a question before the Minister comes back on this. In her reply, she gave a rather forceful defence of the current situation and directed the Committee’s attention to the courts as a means of settling this. However, she made the point that an agreement on pension sharing may already be in place. The problem is that this allows an agreement that had previously been reached to be frustrated by someone taking advantage of the pension freedoms. If the Minister does not like the way that this is being is sold, will she go back to the department and ask for some advice on whether there is a problem here? Then, when we come back on Wednesday, we can at least have a conversation about whether we agree that there is a problem here, and then we can think about the best way to address it.
The suggestion made by the noble Baroness, Lady Sherlock, is very helpful. I would be happy to do that before we come back to this on Wednesday.
I thank my noble friend for her reply, which does not come as a surprise to me. I also thank noble Lords for their useful contributions.
I believe that there may be an issue here. I hope that the department will consider it. As the noble Baroness, Lady Drake, specifically said, things are different now with pension freedoms, whether for DB or DC. If there is a pension-sharing order and a member transfers out of their DB scheme and takes a cash equivalent transfer value when their spouse had relied on a guaranteed pension income from half of that defined benefit pension, now that we have the freedoms, that pension could be dissipated. Certainly, a cash-equivalent transfer value, in terms of buying an annuity with an inflation protection to replace the income that could be lost, is not likely to be financially feasible. I accept that this would be an extra burden and that it would need careful consideration. I echo the request from the noble Baroness, Lady Sherlock, that the department considers this and sees whether there is a way of protecting these women. I beg leave to withdraw my amendment.
Amendment 77 agreed.
Amendment 78 not moved.
Clause 124, as amended, agreed.
79: After Clause 124, insert the following new Clause—
“Consumer protection on pension drawdown or transfer
(1) Pension scheme providers must not comply with an application of a member of a scheme to transfer their funds out of the scheme into another pension or to exercise the right to take a cash equivalent transfer (under section 94 of the Pension Schemes Act 1993) unless –(a) the member demonstrates that he or she has received independent financial advice from an authorised or regulated independent adviser pertaining to the proposed transfer out of the scheme or exercising the right to cash equivalent, or (b) 60 days have elapsed since the application was made in writing, or(c) the member has provided responses to approved questions laid down in regulations to ascertain whether the member has detailed knowledge of the scheme to which rights are being transferred and whether the provenance of the transfer request originated from an unsolicited phone call or other unsolicited communication.(2) The condition in subsection (1)(a) may be satisfied by written confirmation from Pension Wise that they have given guidance to the member either orally or by other means relating to this transfer or cash equivalent transfer request.”
My Lords, many of the problems faced by our pensions system are to do with drawdown and transfer, some of which we have just discussed. This amendment would introduce a cooling-off period to help to reduce these problems and increase the frequency of taking independent financial advice and Pension Wise guidance.
The FCA recently surveyed our pensions landscape in its excellent Sector Views, published two weeks ago. The introduction noted:
“Key issues causing consumer harm include unsuitable advice, the sale of unsuitable products, poor value across the value chain and pension scams.”
The gravity of these things led the regulator to conclude:
“From a wider perspective, the prospect that consumers may not get a retirement income that meets their needs or expectations remains the central challenge.”
This is entirely appropriate, given the scale of consumer harm.
The review estimates that unsuitable transfers out of DB schemes could collectively result in losses of up to £20 billion-worth of guarantees over five years, that consumers making unsuitable product choices in retirement could also collectively lose £20 billion from unsuitable investment strategies over five years, and that more than 15 million consumers of NWP pensions and retirement income products could be affected by poor value pension products. The compound effect of high charges could lead to consumer benefits being reduced by more than £40 billion over five years.
All this is worrying enough, but on top of this, there are the scams. Consumers who are scammed lose, on average, 22 years’ worth of pension savings. That is around £82,000 each. There are also warnings for the future from Australia’s more mature DC market. There we see that economies of scale are not being passed on to consumers and that poorly governed investments in alternative asset classes are leading to lower returns. There are also higher costs associated with the proliferation of small pots, created each time a worker moves jobs.
All these factors are at play now in the UK, and we have special factors of our own to contend with. For example, the FCA has found that 29% of pension transfer advice was unsuitable and that 23% was unclear— or, to put that another way, more than 50% of transfer advice was unsatisfactory. The FCA planned to write to 1,841 financial advisers about potential harm in their DB transfer advice. That is 76% of all advising firms—a truly alarming development and an unacceptably large number.
The problem with bad advice is a present and clear danger; so is the problem with unadvised and unguided drawdowns and transfers. Since we last addressed this problem in the Financial Guidance and Claims Bill, FCA data suggests that more than 645,000 people have accessed their pensions. Of these, only a tiny 15% are believed to have had a Pension Wise appointment before accessing their benefits. More than half of the pensions accessed by savers for the first time between April 2018 and March 2019 saw the saver withdraw the maximum amount. Perhaps even more worryingly, the FCA’s latest data shows that for retirees taking a regular income from their pensions, 40% were taking out cash at an unsustainably high withdrawal rate of 8%-plus. This 40% rises to 63% for those with funds of less than £50,000. That is the road to destitution.
All this is extremely worrying. It is true that the FCA and the Government are addressing some aspects of the problems. In January last year, the FCA announced a consultation on investment pathways, “wake-up” packs and disclosure of charges. It is to be commended for these initiatives and its determination to press ahead, but timing is the problem. When will we see any of this in the marketplace? How long will we have to wait as harm continues?
The Government have been active too. In line with the provisions of the Financial Guidance and Claims Act 2018, MaPS has in the field two pilot nudge programmes designed to make consumers more likely to seek advice or guidance. I understand that the results of these trials, or the latest news, are expected in the summer; that might run until next April, of course. In other words, there does not seem to be much prospect of any relief before mid-2021 at the very earliest. Moreover, there is the possibility that the MaPS nudge trials might fail, and that the investment pathway process might also fail or its implementation be delayed.
I mention these measures not only to give credit where it is due but because I expect the Government to use them to suggest that the amendment is unnecessary. Amendment 79 introduces a cooling-off period of 60 days between a member requesting drawdown or transfer and that drawdown or transfer taking place. It provides for three ways in which this 60-day moratorium can be waived. The first is by the provision of relevant independent financial advice from an authorised or regulated financial adviser. The second is by answering approved questions, demonstrating detailed knowledge of the scheme to which rights are being transferred and specifying whether the requested transfer originated in unsolicited communications. The third way of waiving the 60-day moratorium is by showing that the member has received guidance from Pension Wise.
I am not arguing that the amendment or something like it will solve the problems of ill-judged drawdowns or transfers; I am arguing that the amendment will help. We all know that Pension Wise satisfaction rates stand at 95%. I am also arguing that the amendment will help soon—as soon as this Bill becomes law, probably before the summer and certainly long before the FCA’s proposals see the light of day and before the MaPS nudges are in place. I beg to move.
My Lords, I have added my name to this amendment, which is a very important amendment in the context of consumer protection. As the noble Lord, Lord Sharkey, has so excellently explained, the amendment is an attempt to ensure protection, particularly against scams. What we tried and succeeded in doing during the passage of the Financial Guidance and Claims Act was to pass an amendment that would automatically see people before they transfer money out of a pension—or withdraw money from a pension—receiving at least the independent, impartial guidance that was originally intended to accompany the pension freedoms. When they were introduced, the aim was for everybody to be able to have this impartial guidance so they did not do the wrong thing and understood the risks of taking money out too quickly. This is another line of defence for the consumer given that that amendment, which was passed in the Lords, did not make it into the Bill. It was taken out in the Commons.
One line of defence would obviously be if someone has an authorised adviser or can demonstrate that they have received independent advice. A second line of defence would be the providers themselves asking a few very basic, approved questions: “Are you asking to transfer out because of an unsolicited communication of some kind?”, and, “Do you know anything about the scheme you are transferring into?”. The provider could ask two or three basic questions; should those questions raise red flags, there would be an opportunity to protect the member before they transferred out. Other than that, there is a 60-day limit because, again, scams normally require you to transfer your money very quickly.
I hope that there may be some consideration of the importance of this protection and the use of Pension Wise in the way that it was originally intended. As we look to introduce a new Pension Schemes Act, we might find ways in which we can enhance the consumer protection that I know my noble friend understands is so important.
My Lords, this amendment goes to the heart of protecting people’s pensions. We have touched upon a number of issues surrounding the same sort of concepts during debate on the Bill and in other legislation, such as financial guidance provisions. We should see whether we cannot get together a comprehensive note of how these things are covered. I am bound to say I am unclear as to what is and is not covered in all circumstances, so it seems that would be beneficial.
Concerning the specifics of the amendment, we clearly give it broad support. It raises practical issues, as I am sure the noble Lord, Lord Sharkey, would identify, particularly on responding to approved questions. I am not sure who is on hand when the questions are being asked. We have seen what happened with taxi licences and such things in the past. The provision could give rise to challenges but the thrust is right: it is another attempt to make sure that people are aware of the consequences of what they do, to the fullest extent possible. As I say, I am not sure whether we have a comprehensive arrangement yet across all pensions and circumstances. It seems that it would be worth some effort to try to get that into place. With those words, I am happy to it give broad support. When the Minister replies, I am sure there will be some stumbling blocks in it but if we do not keep pushing and shoving, we are not going to make progress on this.
My Lords, I am grateful to the noble Lord, Lord Sharkey, and my noble friend Lady Altmann for tabling this amendment because it provides me with an opportunity to update the Committee on the progress that the Department for Work and Pensions, the Financial Conduct Authority and the Money and Pensions Service have made on delivering the stronger nudge to pensions guidance. As noble Lords are aware, this is a requirement of Sections 18 and 19 of the Financial Guidance and Claims Act 2018.
Before that, however, I would like to talk briefly about the take-up of Pension Wise guidance, which is a very positive story. The service is on target to exceed 200,000 guidance sessions this financial year, more than tripling those in its first year of operation. Recent Financial Conduct Authority data suggests that 52% of personal and stakeholder pensions accessed for the first time in 2018-19 received either regulated advice or Pension Wise guidance. That clearly demonstrates that the work the Money and Pensions Service, Government and the industry are already doing to promote both Pension Wise guidance and regulated financial advice is working.
I would like to talk about the measures in the Financial Guidance and Claims Act 2018 which were designed to further increase the take-up of Pension Wise guidance. Sections 18 and 19 require the Government to deliver a stronger nudge to pensions guidance. As the Committee is aware, MaPS is testing options for the best way to do that, in a way that complements the suggestions made by the noble Lord, Lord Sharkey, during the passage of the Act that his amendment was
“designed to be a nudge, rather than any kind of probably unenforceable or counterproductive compulsion.”—[Official Report, 31/10/17; col. 1294.]
As noble Lords are also aware, the drafting of Sections 18 and 19 was influenced by the Work and Pensions Select Committee. Following trials, those sections will deliver a final nudge to consumers to consider taking guidance prior to accessing their pension.
The Government firmly believe that, to effectively prompt more people to take guidance before accessing their pension where it is appropriate, we need to understand the impact of the nudge, and ensure that we avoid creating perverse incentives. We do not disagree with the principles of the amendment—work is already under way to establish how best to ensure that people thinking about accessing their pensions are encouraged to take guidance. We believe it is essential to use the evidence base that the trials on a stronger nudge will provide, and to consult before implementing the primary legislation in the Act. We would welcome the thoughts of the noble Lord and my noble friend on the proposals in the consultation.
The trials to test the most effective way to deliver on Sections 18 and 19 are due to conclude shortly, and an evaluation report is expected to be published by MaPS this summer. We are working to deliver on the requirements of the Act as quickly as possible, and as such we are already preparing for a public consultation this year. The Financial Conduct Authority will also consult on rules that have regard to these regulations, to make sure that there is consistency between occupational pensions and personal and stakeholder pensions.
The noble Lord seeks to require a member to provide responses to questions before a transfer can proceed. The effect of the amendment is that trustees would have the power to refuse a transfer should members’ responses not meet the conditions which the amendment proposes should be set in regulations. I assure him that the Government are already introducing conditions that seek to safeguard members against the risk of being defrauded. That change will strengthen trustees’ discretion in respect of transfers. Transfers were discussed in the earlier debate on Clause 124. The Government are amending members’ statutory right to transfer, to allow conditions to be imposed for transfers between schemes. That is aimed at ensuring that transfers are made to safe destinations. Non-statutory transfers can still take place, if the scheme rules allow. However, the amendment puts responsibility on members, not trustees, to assess the appropriateness of the receiving scheme. If the questions to be asked of members are specified in regulations, as proposed new subsection (1)(c) requires, an unintended consequence could be that fraudsters will be enabled to game the system. Members could be coached to provide answers that lead to transfers that should have been refused.
As noble Lords will recall, we have banned cold calling on pensions in legislation and established Project Bloom: a joint task force between government, regulators and law enforcement to share intelligence, raise awareness of scams through communications campaigns, and take enforcement action when appropriate. The FCA and the Pensions Regulator launched the latest ScamSmart advertising campaign on 1 July 2019, which has targeted those approaching retirement, as they were identified as being most at risk from scammers. There is also an FCA warning list, an online tool that helps investors check if a firm is operating with the right authorisation and find out more about risks associated with investment.
The noble Lord raised a specific concern about transferring out of DB schemes. Since January 2018, following its work on the British Steel pension scheme, the FCA has been working closely with both the Pensions Regulator and the Money and Pensions Service to ensure that it monitors pension transfer activity in DB pension schemes that might be subject to increased transfer activity. Also since January 2018, the FCA has issued tripartite letters to over 50 defined benefit pension scheme trustees. The tripartite letter reminds scheme trustees of their responsibilities when issuing transfer values to members and requests them to provide data that allows it to monitor scheme activity. On 21 January 2019, the FCA published a new protocol for how the three organisations—the FCA, TPR and MaPS—will work together to share information and work with pension scheme trustees, and that protocol addresses many of the recommendations made in the Rookes report.
I want to touch on one other point raised briefly by the noble Lord, Lord Sharkey. He suggested that the new pension freedoms might be encouraging people to draw down savings too fast, putting them at risk of scams. In fact, the Financial Conduct Authority’s Retirement Outcomes Review did not find significant evidence of consumers drawing down their savings too fast. The study’s findings, published in June 2018, found that most of those withdrawing had some other form of retirement income or wealth.
Clearly, it is of the utmost importance that information and guidance are available to people and that they are aware of it. That is why there are now more opportunities for people to access guidance earlier in the pensions journey. Alongside the stronger final nudge trials, Pension Wise continues to run successful advertising campaigns across multiple channels, as well as working with employers nationally and locally to encourage them to engage with their employees at their place of work. The Financial Conduct Authority’s “wake-up” packs also encourage people to think about their pension options and include signposting to Pension Wise.
I reassure noble Lords that we are very aware of the importance of the need to make progress with implementing the requirements placed on government, the Money and Pensions Service and the Financial Conduct Authority, as set out in the Act. Our aim is to find an effective and proportionate way to do this.
To conclude, I accept that this work might not have progressed as quickly as perhaps noble Lords would like, but that is for a good reason. I believe it is very important to get this right and ensure that the policy is developed based on evidence. We always talk about evidence-based policy and this is a classic example of that. The trials will conclude very shortly and will be followed by an evaluation report. We will consult this year and will seek to lay regulations as soon as possible after that, alongside the rules that will be made by the Financial Conduct Authority.
For the reasons I have explained, I hope that the noble Lord will feel able to withdraw the amendment.
I am very grateful to the Minister for that very comprehensive answer. There are one or two observations that I would like to make about components of the answer. We seem to disagree about quite what the reach of Pension Wise is. The Minister quoted a composite figure of, I think, about 52% in Pension Wise and other advice. The figure that I had was, as I said earlier, about 15% using Pension Wise.
I was also interested in the comment about whether the current drawdown rate was sustainable. The Minister might recall that in the original discussions on the pension freedoms Bill, the foreseen sustainable drawdown rate was 3%. Now, it is running at 6% and 8% for pots under £50,000. Although I admit that I might be mistaken about this, I think that the FCA may in fact have said that 6% was not sustainable in the longer term either. Therefore, I think that there are warning signs about the rate of drawdown.
I had one other question about the nudge programme. I know that two schemes are being tested against each other, in an absolute sense as well, but when this programme was designed, did it incorporate a level of success at which a rollout would be justified? I would be interested to know if that were the case—I think it should be—and what the number was for these schemes. What would trigger a rollout nationally of these two small tests? I mentioned the FCA and the investment pathways initiative. Can the Minister write to me with more detail of what is happening with investment pathways; that sounded a very promising way of coming at the problem.
Finally, there is the question of timing. Timing is behind a lot of what I was saying. It is a long time since we started on the Financial Guidance and Claims Bill and debated all this thoroughly here and in the other place. We are still not in a position to do as much as we wanted about providing guidance or advice at drawdown. A very long time has elapsed, and I have demonstrated the harms being done to consumers in the meantime by ill-judged drawdowns or transfers. I continue to worry that these timetables will slip and the harms will continue. I am reassured by the Minister expecting a result from the nudges in summer—which I take to be ending in September—and then to move as quickly as we can to implement it, if it is a success. Perhaps he and I can have a conversation later; I would be interested to know what plan B is, because it is possible that neither of those nudge trials produces what is needed. Having said all that, I beg leave to withdraw the amendment.
Amendment 79 withdrawn.
Clause 125 agreed.
Committee adjourned at 7.36 pm.