Pension Schemes Bill [HL] Third Reading 3.08 pm Clause 11:
Scheme funder requirements Amendment Moved by Lord Henley
Clause 11, page 7, line 16, at end insert— “( ) The
regulations may include provision— (a) setting out requirements
relating to the audit of accounts;(b) applying some or all of the
provisions of Parts 15 and 16 of the Companies Act 2006 (accounts
and report;...Request free trial
Pension Schemes Bill [HL]
Third Reading
3.08 pm
Clause 11: Scheme funder requirements
Amendment
Moved by
Clause 11, page 7, line 16, at end insert—
“( ) The regulations may include provision— (a) setting out
requirements relating to the audit of accounts;(b) applying some
or all of the provisions of Parts 15 and 16 of the Companies Act
2006 (accounts and report; audit), with or without
modifications.”
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The Parliamentary Under-Secretary of State, Department for
Work and Pensions (Lord Henley) (Con)
My Lords, this is a technical amendment and simply
clarifies the scope of the regulation-making power in
Clause 11 to ensure it meets the policy intention. Clause
11(4) provides that the Secretary of State may make
regulations setting out requirements relating to a scheme
funder’s accounts. The Government have always intended that
the power would enable regulations to be made requiring
scheme funders to produce full audited annual accounts, if
they are not otherwise required to do so—for instance, in
accordance with the Companies Act 2006. This is set out in
the delegated powers memorandum, which has been published.
However, it was brought to our attention that specific
provision about audit in existing legislation might cast
doubt on the breadth of the power, so this amendment is
intended to put that position beyond any doubt.
The Secretary of State will be able to require in
regulations, where appropriate, that scheme funders’
accounts must be audited. This is an important
clarification because the scheme funder’s accounts, along
with the scheme accounts and the business plan, will
provide key financial information on which the Pensions
Regulator will base its assessment of the master trust’s
financial sustainability. The scheme funder’s accounts will
enable the regulator to monitor the scheme funder’s
financial position and assess the strength of any financial
commitment to the master trust set out in the business
plan. Requiring the accounts to be audited ensures that the
scheme funder’s financial position is independently
verified by a qualified auditor.
The amendment makes it clear that the regulation-making
power may be used to apply some or all of the provisions in
Parts 15 and 16 of the Companies Act 2006, which relate to
the preparation and auditing of accounts and other related
matters in respect of different types of scheme funders.
Having this flexibility will enable the Secretary of State
to take account of the range of master trust structures and
financial arrangements with their scheme funders.
Before I conclude, I offer my thanks to the noble Lord,
Lord McKenzie, and other noble Lords who have taken part in
the debate for the generally positive approach they have
taken during the passage of the Bill. I appreciate that my
noble friend has already offered
his thanks to all who have been involved in the Bill.
However, as he moves on to pastures new, I echo those
thanks and offer my thanks to him and to my noble friend
for the
help they have given me and for ensuring that I was
appropriately briefed for this final and, I hope, rather
short stage. We all trust that another place will be able
to give it equally effective scrutiny, as it always manages
to do.
To conclude, the amendment is intended to ensure that the
scope of the regulation-making power in Clause 11(4) is
wide enough to enable the policy to operate as intended. On
that basis, I beg to move.
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(Con)
My Lords, I welcome the amendment from Her Majesty’s
Government, as I very much welcome the Bill. However, it
still raises the outstanding problem in Clause 10, on
scheme funding. The point is that a master trust can, if it
so chooses, be treated as a separate legal entity and, as
the Bill stands, can still transfer the risk to another
entity. That remains one of the problem areas, because
solvency for any of these master trusts is absolutely vital
to current and future pensioners. I place on the record
that although what we have heard this afternoon is an
improvement, it does not solve that problem.
While I am on my feet, there is still concern from
insurance companies that run master trusts that, under the
Bill, they may be required to keep separate solvency
requirements for the master trust element of their business
when the majority must already comply with Solvency II
financial regulations, which are extremely stringent and
ought to be enough to cover any of the required security
for their master trust business.
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(Con)
My Lords, I echo some of my noble friend’s concerns. I
welcome the Minister to his position and wish him much
success.
Obviously, I welcome the Bill, which is much needed. It is
vital that we protect members’ pensions and ensure that
accumulated savings are safe in the event that the master
trust scheme fails. Therefore, I broadly welcome the
measures in the Bill. However, having engaged with
Ministers to try to tidy up some important points to ensure
that the Bill works as intended and needed without serious
side-effects, I would like to place on record some issues
that still require attention.
3.15 pm
There are three substantive points now that the amendment passed
last time on tail-risk insurance is included and will go to the
other place. First, the provisions that could see master trust
members stripped of their pension rights during a pause order
need to be reconsidered. It cannot be right that just because the
regulator has some concerns about the scheme they are in, the law
should override members’ legal and contractual entitlements to
pension accrual and impose an effective pay cut on them. During
the pause order, members’ and employers’ pension contributions,
together with the tax relief, should still be collected and
accrued rather than lost forever, as the Bill would permit. Pause
orders could last for a long time, even if that is not the
intention.
Secondly, it is strange, as my noble friend has just indicated,
that the Government are not making special provisions for master
trusts already backed by an insurance company that meets PRA
capital adequacy and solvency requirements. These are tougher
than those that will be imposed by the regulator on master
trusts. Such insurance company master trusts can run at lower
costs and are generally more secure than they would be if backed
by a stand-alone business entity instead of a multi-pronged
larger business. As things stand, the Bill’s requirement for a
separate company to back each master trust will impose higher
costs on both providers and members, while in many cases also
reducing the security of insurance-backed master trusts.
Thirdly, the requirements in Clause 25(4)—which I know the
Government are consulting on—relating to bulk transfers, need,
perhaps, to be relaxed. For some time the pensions industry and
pensions lawyers have been calling for a more appropriate
transfer regime for DC schemes. However, the current wording
could make the DC to DC bulk transfer process much worse than the
current DB-based rules because it is so prescriptive.
Finally, there are two issues that have not been included in the
Bill at all, which is rather a missed opportunity. I will just
mention them here and hope that they may be followed up in the
other place. One is the plight of plumbers who are facing
personal bankruptcy due to the draconian Section 75 debt
requirements of non-associated multi-employer schemes, which
force remaining employers to buy annuities for workers they have
never employed, while other employers have walked away or left.
The second is the issue of net pay schemes, which impose an extra
25% charge on the pension contributions of their lowest-paid
members. While we are drawing up requirements for master trusts
and assessing their adequacy, surely we need to ensure that
master trusts treat their lower-paid workers equitably and find
ways to give the tax relief to these staff if they have a net pay
structure. The Treasury could also help here by allowing schemes
to claim tax relief for these low-paid workers; the current
situation, whereby the lowest earners can be denied the 25%
government bonus they would have in another scheme without being
warned, must be addressed.
On the whole I welcome the Bill and I thank the Ministers for
their hard work in putting it to the House.
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(LD)
My Lords, it is a pleasure to follow my friend of many
years’ standing, the noble Baroness, Lady Altmann. She is
an expert on these things and is right that opportunities
have been missed and there are still some bits of
unfinished business. However, the House has acquitted
itself well in the consideration so far. I welcome the
noble Lord, , to his post. Those
of us with long memories remember that he has been in this
role before, so he is not without experience in these
matters and our expectations of him are extremely high. I
wish him well in his new responsibilities. I am sure he
will continue his predecessor’s attempts at making sure
that Members of this House are fully briefed on some of the
technical provisions that we still have to deal with.
The Government were right to bring forward amendments to
change a lot of the first-time affirmative resolutions and
procedures for the statutory instruments that flow from
some of these provisions. In passing, I note that this
amendment to Clause 11 would introduce a negative
procedure. I hope that is sensible, because the more
affirmative instruments we get, the better our chance of
understanding what is being brought before us. Despite
that, I agree with the amendment as it stands.
I hope—this is merely a request for a repeat of an
undertaking that was given earlier—that the Government will
bring forward an updated impact assessment when, later this
year and in 2018, we consider the secondary legislation
that flows from this primary legislation. The impact
assessment and the continuation of the consideration of the
fine print of the provisions are still required to make
sure that the Bill achieves its purposes in a way that is
fair to all. In the process, I hope that, as the noble
Baroness, Lady Altmann, said, the other place can pick up
some of the opportunities that have been missed during the
Bill’s consideration in this House. However, I wish the
Bill well and I hope we continue to have the constructive
and positive relationship with the noble Lord, , that we had with
his predecessor.
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(Lab)
My Lords, I begin by welcoming the noble Lord, , to his role, even
at this 12th hour on the Bill.
We certainly do not oppose the amendment. As explained, it
is intended to put beyond doubt the ability to introduce
regulations relating to audit, particularly in relation to
scheme funders, which under the Companies Act are not
required to provide audited accounts. Perhaps for the
record the Minister can set out the nature of scheme
funders which might fall into this category. Presumably
they could be partnerships, entities incorporated overseas
or smaller entities, although I am not sure how they might
feature in these arrangements. Can he also tell us whether
it is planned to use these powers differentially in respect
of scheme funders that fund benefits other than money
purchase benefits? As an adjunct to that, we very much
share the concerns expressed by the noble Lord, , about how Clause
11, as it will now be, will work.
As the Bill passes to the other place, it is time to offer
our thanks to the Minister, the noble Lord, , for the
courteous and inclusive manner in which he has handled the
Bill. We look forward to the same from the noble Lord,
, on subsequent
Bills. We have already given our thanks to the noble Lord,
, for the role that he
played. This is a narrow Bill but one with significant
implications, which is why we want to see it make speedy
progress. It has not been the easiest Bill to scrutinise,
given the combination of the technical nature of its
subject matter and the raft of regulation-making powers
that it contains, but we have seen a Government in
listening mode in some respects—although of course not all,
and the noble Baroness, Lady Altmann, identified some of
those.
I should take this opportunity to thank my noble friends
who have participated in our deliberations—in particular,
my noble friend Lady Drake for the expertise and precision
that she has brought to our work. We trust that the
important amendment concerning the scheme funder of last
resort which she pressed on the Government will endure.
I also express our thanks to the Liberal Democrats, led by
the noble Baroness, Lady Bakewell, the government Back
Benches for their constructive approach, and indeed the
Cross Benches. We have seen a Bill team who are thoroughly
on top of their brief and have patiently spent time
explaining to us aspects of the Bill which might otherwise
have fallen on stony ground. Taking this matter forward now
falls to the tender mercies of our colleagues in the other
place.
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My Lords, I thank noble Lords for their very kind words and
in particular, the noble Lord, Lord Kirkwood, for his high
expectations of me in replacing my noble friend . If I do only half as
well as my noble friend, I think I will be doing pretty
well—I hope the House accepts that I will try my best. I
can also confirm to the noble Lord that impact assessments
will be updated for the new regulations. The timing for the
formal consultation on the draft regulations will obviously
depend on a number of factors, but we would expect that the
initial consultation will take place some time in the
autumn of this year.
I am very grateful to the noble Lord, Lord McKenzie, for
not opposing the amendment. He had a number of questions,
particularly in relation to scheme funders and I would
prefer to write to him about those. He also asked whether
the Government were going to table an amendment on scheme
funders of a master trust that offers both money purchase
and non-purchase benefits. I can confirm that they intend
to table such an amendment and that can be a matter for
another place.
My noble friends and Lady Altmann
raised concerns that go wider than this simple amendment,
which merely relates to audit. Those matters can be
considered and no doubt, will be noted by my noble friends
when they take this Bill through another place. As I said
in my introductory remarks, I expect another place, as
always, to look at this Bill with its usual due diligence
and I am sure that it will take note of the comments made
by both my noble friends. If it can assist them, I shall
try to write to them before that, but everything they have
said will be noted by my honourable and right honourable
friends. With that, I echo the remarks of the noble Lord,
Lord McKenzie, in thanking all those who have been involved
in this Bill.
Amendment agreed.
A privilege amendment was made.
Bill passed and sent to the Commons.
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