Pension Schemes Bill [Lords] Second Reading 8.55 pm
The Secretary of State for Work and Pensions (Damian Green) I
beg to move, That the Bill be now read a Second time. Let me
start by placing the Bill in the context of the Government’s
overall record on pensions. This Government have delivered radical
and much-needed changes to our...Request free trial
Pension Schemes Bill [Lords]
Second Reading
8.55 pm
-
The Secretary of State for Work and Pensions (Damian
Green)
I beg to move, That the Bill be now read a Second time.
Let me start by placing the Bill in the context of the
Government’s overall record on pensions. This Government
have delivered radical and much-needed changes to our
pensions system to make savings easier, fairer and safer
for all. Since 2010 the pensions landscape has seen a
revolution not only in state support, but in the ways in
which people can save and access their pension savings.
We have removed the default retirement age, helping people
to live fuller working lives. That is good for people’s
wellbeing and their retirement income, and it benefits
individuals, employers and the economy. We have made it
easier for them to understand their state pension, and by
setting the full amount at £155.65 a week we will lift more
pensioners out of means-testing in the future. Together
with the reviews of the state pension age, those changes
are creating a sustainable system as a foundation for
people’s private retirement saving.
We have increased private long-term savings by introducing
automatic enrolment. More than 7 million people have
already been automatically enrolled into a workplace
pension, and more than 370,000 employers have declared that
they have met their automatic enrolment duties. This is the
cornerstone of our private pension reforms and it reverses
the decade-long decline in pension savings prior to its
introduction. It is a programme that works and it helps
people achieve a more financially secure later life.
I am grateful to the many independent observers who have
commented on the success of the policy. The Work and
Pensions Committee has recognised that automatic enrolment
has been a “tremendous success”. The National Audit Office,
reporting on automatic enrolment in November 2016, found
that the
“programme is also on track to deliver value for money in
improving retirement incomes in the longer term”.
Findings of a report by the Institute of Fiscal Studies,
which was also published in November 2016, suggest that
automatic enrolment is having a huge relative impact on
those with the lowest participation rates in workplace
pensions before its introduction, in particular those aged
between 22 and 29—a group that has seen a 52.1 percentage
point increase in pensions saving—and those in the lowest
incomes quartile, who have seen a 53.9 percentage points
increase. Moreover, the institute found that automatic
enrolment is having an effect well beyond our target
eligible group, in particular those earning under the
£10,000 threshold, and that some employers are paying above
minimum contribution rates.
Women are benefiting, too. In 2011, only 39% of eligible
women employed in the private sector were in a workplace
pension; by 2015, the figure had increased to 70%. By 2018,
we estimate that 10 million workers will be newly saving or
saving more into a workplace pension as a result of this
change, generating about £17 billion in additional pension
saving each year by 2019-20.
The Government’s introduction of pension freedoms in April
2015 allows those aged 55 and over to access their pension
savings with more flexibility. People with defined
contribution pension schemes can now choose to use those
funds in the way that is most suited to their
circumstances, whether by drawing down the income, taking
out an annuity, taking a lump sum or using some combination
of those options. Since the introduction of pension
freedoms, more than 1.5 million payments have been made,
with £9.2 billion withdrawn flexibly in the first 21
months.
That is the landscape; let me turn to the Bill. Our focus
now is to make sure that the regulatory landscape continues
to be effective in protecting members so that everyone can
have confidence in their pension scheme. Automatic
enrolment requires employers, small and large, to provide
pensions for their workers, in many cases for the first
time. Automatic enrolment is helping to ensure that
tomorrow’s pensioners have greater security and an asset
base in later life. Many employers have selected master
trust pension schemes because they can offer scale, good
governance and value for members.
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(Birkenhead) (Lab)
I am grateful to the Secretary of State for giving way and
for his earlier comments. Although we may have differences
on the adequacy of the Department’s responses to some of
the Select Committee’s reports, its response to our report
on this issue is immensely encouraging. I think that some
Members of the Committee will want to endorse the Secretary
of State’s proposals, which implement some of our
recommendations to defend the hard-earned savings that many
people are making, sometimes for the first time, by
auto-enrolment. We do not want the cowboys to get hold of
those funds.
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I am extremely grateful to the right hon. Gentleman for his
words. Throughout his intervention, I was expecting “but”
to appear at any moment, and it did not. We can be as one
on the matter, and I will seek to improve our responses to
future reports of the Committee that he chairs.
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(Arfon) (PC)
I am grateful to the Secretary of State, but—if I may use
that word—would he accept that the Bill is a missed
opportunity to put right the severe problems in the
plumbing and mechanical services industry pension scheme?
For example, my constituent Chris Stuhlfelder wants to pass
on his business to his employees after a lifetime of work
in the industry, but he risks losing the lifetime rewards
of that work just in order to secure the pension scheme for
liabilities that are not directly his. Will the Minister
table amendments to deal with that?
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I acknowledge the problem faced by the hon. Gentleman’s
constituent and others in the same scheme. The
Parliamentary Under-Secretary of State for Pensions, my
hon. Friend the Member for Watford (Richard Harrington),
has met the hon. Gentleman’s constituent. We are looking,
with representatives of the employers and the scheme, to
see what we can do about the issues that they have raised,
and we are exploring alternative methods to help employers
in such schemes to manage their employer debt. The hon.
Gentleman will be aware that this is a complex area of
legislation, so it is important that we get it right. As I
hope he knows, we are on the case.
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(Solihull) (Con)
I really welcome this legislation, but I am not the only
one. I do not know whether the Secretary of State is aware
of the comments of Morten Nilsson, the CEO of NOW:
Pensions, a huge master trust. He has said:
“When we entered the market we were shocked at how easy it
was to set up a master trust. It was simply a case of
sending a form off to HMRC and The Pensions Regulator,
nothing more.”
I am very glad that the Government are looking to address
that serious issue.
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My hon. Friend raises an important point, which is at the
heart of the legislation. The strong and quick growth of
master trusts in response to the success of automatic
enrolment has been in danger of running ahead of the
regulatory system. In the Bill, we are catching up and
making sure that the regulatory system is adequate to deal
with these trusts, which will be hugely important in 20
years’ time. We hope and expect that auto-enrolment will
carry on, so the funds under management will increase
hugely in the decades to come. It is really important to
have the regulation right from the early days of the new
system.
Automatic enrolment requires employers to provide a pension
for their workers. It is, as I have said, helping to ensure
that tomorrow’s pensioners have greater security and an
asset base. Many employers have selected master trust
pension schemes because they offer scale, good governance
and value for members.
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(Rochford and
Southend East) (Con)
As well as being equitable for employees, will the schemes
be equitable for employers? In the past, one of the
problems of pooled defined benefit funds was that employers
had ongoing liabilities beyond their initial contributions.
Will the master trusts include only defined contributions
and limit employers’ liability in the longer term, so that
it is just an amount that will be put in, rather than an
ongoing liability?
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The purpose of the regulatory system we are introducing in
the Bill is precisely to ensure that there are checks and
balances to avoid some of the problems we have seen in
traditional schemes. My hon. Friend may be aware that we
are about to produce a wider consultation on defined
benefit schemes, so some of the problems he rightly
identifies will be addressed in that consultation.
There has been very fast growth in the use of master trust
schemes. In 2010, there were about 200,000 members in
master trust schemes in the UK. By December 2016, there
were over 7 million members, and £10 billion of assets in
87 master trusts. The schemes are regulated by the Pensions
Regulator in accordance with occupational pensions
legislation, but that legislation was developed mainly with
single employer pension schemes in mind. The master trust
schemes have different structures and dynamics, which give
rise to different risks. We have worked closely with the
Pensions Regulator and engaged with other stakeholders to
see what essential protections are needed. We believe that
the measures in the Bill, while proportionate to the risks,
will provide those protections.
The Bill introduces a new authorisation regime for master
trusts. Under the new regime, the trusts will have to
satisfy the regulator that they meet certain criteria
before operating, or achieve those criteria if they are
already operating. The criteria have been developed in
discussion with the industry, and they include the same
kind of risks that the Financial Conduct Authority
regulation addresses in relation to group personal
pensions, with which master trust schemes have some
similarities.
Master trusts will now be required to demonstrate five
things: that the persons involved in the scheme are fit and
proper; that the scheme has financial sustainability; that
the scheme funder meets certain requirements; that the
systems and processes relating to the governance and
administration of the scheme are sufficient to ensure that
it is run effectively; and that the scheme has an adequate
continuity strategy. The Bill sets out these criteria so
that it is clear to master trusts and other stakeholders
what the new regime will entail. Schemes will have to
continue to meet the criteria to remain authorised. The
regulator will also be given new powers to supervise master
trusts, enabling it to intervene where schemes are at risk
of falling below the required standards.
The Bill also places certain key requirements on master
trusts and provides additional powers for the regulator
where a master trust experiences key risk events, such as
the scheme funder deciding to withdraw from its
relationship with the scheme. The Bill requires a scheme
that has experienced such an event to resolve the issue or
to close. This requirement, along with the regulator’s new
powers, supports continuity of savings for members,
protects members where a scheme is to wind up or close, and
supports employers in continuing to fulfil their automatic
enrolment duties.
On the introduction of the Bill in the other place, the
Pensions Regulator said:
“We are very pleased that the Pension Schemes Bill will
drive up standards and give us tough new supervisory
powers…ensuring members are better protected and ultimately
receive the benefits they expect.”
In welcoming the Bill, the Pensions and Lifetime Savings
Association commented that
“tighter regulation of master trusts is essential to
protect savers and ensure that only good master trusts
operate in the market”.
It went on:
“This is an important Bill that will provide the
appropriate safeguards for the millions of people now
saving for their retirement through master trusts.”
As I have said, we continue to engage with stakeholders on
aspects of the detail to be made in regulations. We
anticipate the initial consultation to inform the
regulations will take place in the autumn, and it will be
followed by a formal consultation on the draft regulations.
Our intention is to lay the regulations during the summer
of 2018, and the authorisation and supervision regime is
likely to be commenced in full that year.
However, the Bill also contains provisions that, on
enactment, will have effect back to 20 October 2016, the
day on which the Bill was published. These provisions
relate to requirements to notify key events to the Pensions
Regulator, and constraints on charges levied on or in
respect of members in circumstances relating to key risk
events or scheme failure. That is vital for protecting
members in the short term and will ensure that a backstop
is in place until the full regime commences.
The Bill makes a necessary change in relation to the
existing legislation on charges. We are keen to remove some
of the barriers that might prevent people from accessing
pension freedoms.
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(Tonbridge and Malling)
(Con)
I am pleased that my right hon. Friend has come to the
section about charges. He will know of the transparency
campaign I have been pushing. I am extremely grateful for
the efforts that he and the Under-Secretary of State for
Pensions, who is sitting to the left of the Secretary of
State, have made in introducing more openness into pensions
schemes. I should be grateful to hear more on how he will
approach that.
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I congratulate my hon. Friend on his campaign. Transparency
is a key area. Hidden costs and charges often erode savers’
pensions. We are committed to giving members sight of all
the costs that affect their pension savings. He asks for
more detail. We plan to consult later in the year on the
publication and onward disclosure of information about
costs and charges to members. In addition to the Bill,
other things are clearly required to give greater
confidence in the pensions system. Greater transparency is
clearly one of the steps forward. I completely agree with
him on that.
As I was saying, we are keen to remove some of the barriers
that might prevent people from accessing pension freedoms.
The Financial Conduct Authority and the Pensions Regulator
indicate that significant numbers of people have pensions
to which an early exit charge is applicable. The Bill
amends the Pensions Act 2014 to allow us to make
regulations to restrict charges or impose governance
requirements on pension schemes. We intend to use that
power alongside existing powers to make regulations to
introduce a cap that will prevent early exit charges from
creating a barrier for members of occupational pension
schemes who are eligible to access their pension savings.
The FCA will introduce a corresponding cap on early exit
charges in personal and stakeholder pension schemes in
April this year.
The Government intend to use that power together with
existing ones to make regulations preventing commission
charges from being imposed on members of certain
occupational pension schemes when they arise under existing
contracts entered into before 6 April 2016. We have already
made regulations that prohibit such charges under new or
amended contracts agreed on or after that date. That will
fulfil our commitment to ensure that certain pension
schemes used for automatic enrolment do not contain
member-borne commission payments to advisers.
In conclusion, we believe that the Bill is an important and
necessary legislative step to ensure that essential
protections are in place for those saving in master trust
pension schemes. With many millions of members enrolled in
such schemes, it is important that we act now to ensure
that members are protected equally whatever type of scheme
they are in. The measures proposed in the Bill have been
developed in constructive consultation with the industry
and other stakeholders, so we have confidence that they are
proportionate to the specific risks in master trusts and
will provide that necessary protection. In turn, that helps
to maintain confidence in pension savings, and particularly
in automatic enrolment. By making it easier for people to
save through a workplace pension, the Government are
building a culture of financial independence and long-term
saving.
The Bill will also ensure that people are not unnecessarily
dissuaded from taking advantage of the pension freedoms by
high early exit charges. The Government have given people
greater flexibility to take their pension savings,
rewarding those who have worked hard and saved for their
future. This is a focused Bill that specifically
concentrates on the action we must take to cement the
reforms we have already made, and I commend it to the
House.
9.13 pm
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(Oldham East and
Saddleworth) (Lab)
I thank the Secretary of State for outlining the content of
the Bill. In addition, I pay tribute to my colleagues in
the other place who have already scrutinised the Bill.
The Opposition recognise and support the need to ensure
that there is adequate regulation for master trusts as they
have developed since the introduction of auto-enrolment,
but the point made about the missed opportunity was right.
As the Secretary of State set out, the Bill focuses on
defined contribution occupational pension schemes alone,
defining regulation of master trust schemes which provide
centralised workplace pension funds for several companies
at the same time and have largely emerged as a result of
the development of auto-enrolment in pensions. It gives the
Pensions Regulator responsibility to authorise those
schemes that meet certain criteria. It also provides for a
funder of last resort in cases where a master trust fails.
Sadly, this is something we hear too much about with too
many other pension schemes. Finally, the Bill gives the
Pensions Regulator the ability to withdraw authorisation
from a master trust and sets out the criteria for
triggering such events should a master trust face
difficulty.
As I said, the measures in the Bill are slightly overdue.
In April 2014, it was estimated that master trusts
accounted for two-thirds of people who had been
auto-enrolled. Master trusts operate on a scale that is
unprecedented in occupational pensions and most are run on
a profit basis. Currently, however, they are not subject to
the same regulation as contract-based workplace pensions.
There is no requirement for a licence to operate and
limited barriers to entry. There is also little guidance on
who can become a trustee and no infrastructure in place to
support the wind-up of a failed trust.
Given that the savings and pensions of millions of
employees and their employer contributions are at risk, we
cannot allow this to continue. We support the Bill, which
is vital to putting the auto-enrolment system on the
strongest possible footing, but we will look to strengthen
it where we can, for example by building on our amendment
on the funder of last resort. By protecting members from
suffering financial detriment, while promoting good
governance and a level playing field for those in the
sector, the Bill should ensure that the system is a secure
and trusted means of saving in the future.
Before I come on to specific elements of the Bill, I would
like to expand on how disappointed I am, and how millions
of others will be, with how limited the Bill is. Perhaps
the Secretary of State will surprise us, but I think this
is likely to be the only pensions Bill in this Parliament.
Significant issues are already arising relating to both
state and occupational pension provision. It is therefore
disappointing, if we are to see no other Bill, that those
issues are not being addressed.
One key issue is that of the WASPI women: the Women Against
State Pension Inequality Campaign. These women, and some
men, have been left behind by the Government’s poorly
managed accelerated equalisation of the state pension age.
Over 2.5 million women born in the 1950s made their plans
for retirement only to find that their retirement age had
been quietly pushed back by the coalition Government.
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Madam Deputy Speaker (Natascha Engel)
Order. I gently remind the hon. Lady that we are discussing
what is in the Bill, and not what is not in the Bill. It is
quite a narrow Bill.
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I am grateful to you for reminding me, Madam Deputy
Speaker. It was a debating point in the House of Lords. As
I said, it is not likely that there will be another
pensions Bill in this Parliament, so I hope you will give
me some latitude.
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There was a hope among some of us on either side of the
House that the Bill might be blocked tonight, temporarily,
until we got justice for the WASPI women. Unfortunately, as
I understand it, Labour was not willing to do that and the
Scottish National party in particular was not willing to do
that, as they are pleased with the Bill and want it to go
through. May I make a plea to my hon. Friend that, should
the next pensions Bill come, as it assuredly will, and
before all the WASPI women are taken up to the new state
retirement age, Labour thinks tactically about trying to
get them justice, rather than merely talking about it, as I
have to?
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I am grateful to my right hon. Friend for his remarks. We
recognise the importance of the Bill in tightening the
regulation—or lack of it—on master trusts and the
vulnerability that that lack places on the millions of
people who are being auto-enrolled. It is therefore
important that the Bill goes through. My point is that if
it is the only pensions Bill in this Parliament, it has
serious omissions. Those omissions should be on the record,
as should our objection to the fact them. If I could just
have a few moments to mention—
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Madam Deputy Speaker
Order. The hon. Lady has made the point that she feels
those issues have been omitted, but they are not in the
Bill. If she could now move on, I would be very grateful.
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I am grateful for that ruling, Madam Deputy Speaker.
Although we have made significant improvements in terms of
pensioner poverty, I have to say it is a disappointment
that there are still outstanding problems. Under our
pension system, of which we should be guardians, one in
seven pensioners still unfortunately lives in poverty. We
are the fifth richest country in the world, so we should be
able to ensure that our pension system provides dignity and
security in retirement. Currently, it does not. For me,
this a significant failure of our pension system and
highlights a particular failure in the Bill.
I could also talk about the missed opportunities
surrounding the Cridland review of the state pension age,
which has not been brought to this place, and there are
lost opportunities when it comes to the defined benefit
Green Paper. It was due later this year, but it has now
been decided that it will not be brought to this place for
scrutiny in connection with this Bill.
I will move on, Madam Deputy Speaker, because I know I am
testing your patience. [Interruption.] That is a bit
unkind. Closer to home and in relation to the Bill, it does
very little to build—[Interruption.] Do any Conservative
Members want to intervene? Okay, I will carry on.
The Bill does very little to build on the success of
Labour’s auto-enrolment policy by ensuring that saving into
master trusts is accessible and encouraged for a number of
groups currently excluded from auto-enrolment provision. I
recognise that the Government have announced a review of
auto-enrolment, but again, why is this not in the Bill?
Let me speak briefly about the issue of low-income savers’
access to saving in master trusts. Under the policy of
auto-enrolment developed by my party, working people would
be automatically enrolled in a master trust scheme once
their earnings cross the trigger of just over £5,000. The
logic of this proposal was that people would begin to save
towards an occupational pension at the same earnings level
at which they began to pay national insurance
contributions. The coalition Government increased this
earnings threshold to £10,000, denying millions of low
earners the automatic right to save towards a relatively
low-cost occupational pension through a master trust. Given
the generational crisis developing in our pension system,
we believe that more needs to be done to include low
earners in savings provision and encourage retirement
planning.
That is also true for the self-employed. Self-employed
people currently make up to 15% of the workforce, and since
2008 have accounted for over 80% of the increase in
employment. There is much evidence to suggest that the
self-employed are not saving as much as other sectors of
the workforce. Research by the Association of Independent
Professionals and the Self-Employed found that four in 10
self-employed people did not have a pension. Despite that
worrying evidence, there is little obvious means by which a
self-employed person could begin to develop a savings pot
within a master trust. Once again, this is not sorted out
in the Bill. There are other examples, such as people with
multiple jobs and carers, of those who do not have access
to, and the benefit of, an occupational pension scheme.
The Secretary of State has just announced that there are
gaps in the Bill, relating to its failure on a number of
different issues. We are shocked by the vast amount of
detail missing from the Bill, when that detail is necessary
to achieve what the Government have set out to do. The
Secretary of State mentioned that secondary regulations
will not be laid before the end of the year. Once again,
the Government are, in respect of some important
protections, presenting a skeleton Bill, with much of the
detail left to secondary legislation.
Although we generally support the Bill, despite its narrow
scope, there are a few aspects that we will look to
strengthen and a few gaps that we believe need to be
plugged. These can be considered broadly under three
themes: improved governance, strengthened member engagement
and greater transparency. The Bill includes a number of
clauses that provide a framework for the effective
governance of master trusts. We welcome, in particular, the
authorisation criteria set out in the Bill. However, it
does not address a number of core principles, the first
being scheme member representation.
Unlike defined benefit schemes, defined contribution
schemes provide for the risk of saving and investment to be
borne by the scheme member. On that basis, we believe that
scheme members should be represented among the trustees of
master trust pension funds. It is, after all, their money,
and they have a direct interest in ensuring that a sound
and sustainable investment strategy is delivered at good
value. That surely stems from the basic democratic
principle that those on whose behalf decisions are being
made should have a say in those decisions. It would also be
a necessary step towards greater transparency in the
pensions system, which the Under-Secretary of State for
Pensions himself confirmed that the Government would pursue
following Labour’s campaign.
Furthermore, providing for a certain number of
member-nominated trustees would not be a particularly new
or unique arrangement. Mandated member representation
already exists in the pensions system: trust-based pension
schemes are required to ensure that at least a third of the
board of trustees is member-nominated. Why should master
trusts not be subject to the same requirement, especially
in the light of the increased risk borne by scheme members?
Let me say something about transparency. For too long,
people have been encouraged to put their faith—and, perhaps
more important, their money—in a distant savings pot, and
have been given very little information about where the
money is invested, the performance of their savings, and,
importantly, how much the investment is costing, in terms
of the costs and charges that they will incur. Neither the
scheme trustees nor the scheme members have been able to
ascertain adequately whether they are getting value for
money. I remember that in 1915, the former Financial
Secretary to the Treasury promised the Work and Pensions
Committee that if there was not openness about costs and
charges, the Government would introduce legislation. Well,
it has come a little bit late. Why has it taken so long?
In almost any other market, people wishing to purchase
goods or services are given basic information about
performance and costs before they do so. That basic
principle is a necessary requirement to ensure that they
receive value for money, but it is not operating in our
pensions system. The Financial Conduct Authority has
therefore published an interim report, which recognises a
number of significant failings in the competitiveness of
the asset management market. Its recommendations have
important implications for the transparency of pension
funds, especially in relation to the costs and charges
being extracted from pension savings by investment
managers.
We are pleased to see that part 2 of the Bill attempts to
prevent excessive fees from being applied should a scheme
member wish to take advantage of the Government’s pensions
freedom reforms. However, the Bill does not refer to
transaction costs, the charges applied by asset managers
when they are making new investment decisions. There is a
great deal of work to be done to tackle the problem of
opaque and excessive costs and charges being extracted from
workers’ savings by investment managers. Currently, the
Bill merely scratches the surface. It must become a
stronger vehicle for change in this regard.
We believe that, alongside member-nominated trustees, a
member engagement strategy is required to ensure that
master trusts are communicating properly with those whose
money they are investing, and that they play their part in
driving informed saver choices on a bedrock of transparent
information. The Pensions Regulator’s voluntary code of
practice for defined contribution schemes asks trustees to
provide “accurate, clear and relevant” communications for
scheme members as good practice. We believe that proper
member engagement should not merely be a voluntary
requirement placed upon trustees, but should form part of
the regulatory framework. That would help to ensure that
scheme members can make rational and informed choices about
their pension savings, creating a more sustainable system.
There are other elements in the Bill whose purposes we want
to strengthen or clarify: for instance, the definition of
the scope of a master trust, what happens to non-money
purchase benefits under this Bill, a number of issues
relating to the pause clause, and the status of the scheme
funder as a separate entity.
We welcome the Bill, but we see it as a wasted opportunity.
So much is being introduced after the event. There will be
no opportunity for another pensions Bill; the provisions
will be delegated to statutory instruments.
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The Economic Secretary to the Treasury (Simon Kirby)
How do you know?
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That is what we have been told. That is what we have been
led to believe by the Government. Given how long overdue
this Bill is, this is likely to be the only opportunity
that we have to raise this, and it should have been brought
to this House.
We need to develop a sustainable and secure pension system
that drives down pensioner poverty and delivers dignity in
retirement for all, and I am afraid that this Bill falls
well short of that.
9.30 pm
-
(Amber Valley)
(Con)
It is a pleasure to follow the hon. Member for Oldham East
and Saddleworth (Debbie Abrahams). It is probably a fair
sum-up to say that we might have liked the Bill to address
most of the things that she complained about and most of
the things that I might not like, rather than the measures
actually in it, which I think get a broad and generous
welcome. None the less, this is a necessary Bill that
contains the right measures, and we hope it will have a
speedy passage through this House.
I want to start by saying that the master trusts, or the
more extensive use of them, are a welcome development in
the pension landscape. It is hard to see how auto-enrolment
would have worked if we had not had the extensive use of
master trusts, because what we would not have got is
especially small employers setting up their own pension
scheme and trying to manage and administer it, or at least
act as trustees of it. What we had to see in this situation
was much larger trusts in the market that employers could
effectively sign up to but not incur the ongoing costs and
complexity of trying to be involved in their day to day
running. So these things are attractive, but it is right
that we make sure they are well regulated and we do not
create situations where savers are disadvantaged by them.
It is probably quite brave in the pension world to have
tried voluntary regulation or self-regulation, but that is
effectively what we have had since 2014 with the master
trust assurance framework. I perhaps should declare a sort
of interest. The framework was drawn up by the Pensions
Regulator with the Institute of Chartered Accountants in
England and Wales, of which I am a member. It is
disappointing that, having had that assurance framework in
place, so few of the master trusts in the market signed up
to it and followed all the requirements. Indeed, very few
of them went through the full audit process required. So it
was clear that we had to move to full and proper regulation
set out in statute for these master trusts.
This is particularly important in a situation where
effectively we in Parliament and the Government are perhaps
not quite forcing people to save into these trusts, but
strongly encouraging that, and two thirds of those who have
been auto-enrolled have ended up in one of these trusts. It
is therefore key that we make sure they are in high-quality
schemes that look after their interests and we do not let
them either be ripped off or just be a victim of a
poor-quality trust that delivers poor returns. While there
has perhaps been no sign of that from the major master
trusts, anyone who has experience of the pensions industry
will know that if we do nothing they will eventually become
a problem. So it is absolutely right that the measures in
this Bill ensure that trusts are set up and operated by
people who have the skills and expertise to do that, and
that there is a process for managing trusts, checking their
performance, and making sure no issues arise as the years
go on. That is because it is not realistic to think that
either the employers that have signed up their employees
for these schemes or the members themselves will have the
skills, the ability, the time or the inclination to be
doing that ongoing monitoring. That needs to be done by
qualified people. That again is an advantage that master
trusts have over insurance-based products. There are some
skilled people here whose job is to represent the members.
The advantage of having a trust is that there is at least
that protection: when decisions need to be taken, there are
some people who should have the right skills to act in the
savers’ interests.
It is timely to be moving forward with these proposals as
we suspect that by the time we get them fully in place we
will have completed the first phase of auto-enrolment. We
might find in the industry that people have set them up but
do not have the number of members they thought and
therefore not the level of income they thought. Perhaps the
charge cap means that they do not have the income to be
sustainable, or perhaps the changes that give people choice
when they retire mean that they will not hit retirement
date and then move their money into an annuity—that they
will just leave the pot and not draw it down for a while.
That would still be a cost on those schemes which needs to
be addressed.
-
My hon. Friend is making the important point that we have
to avoid zombie funds being created as a result of the
master trusts, and one way of doing that is through the
role of the Pensions Regulator. Does my hon. Friend agree
that the fact that a master trust will have to prove that
its business model is sustainable is key to that
interaction with the Pensions Regulator?
-
Yes, that is the point I was trying to make. Even master
trusts that have been set up entirely properly and with the
best of intentions could find, by the end of
auto-enrolment, that they were not going to be viable in
the long run. We need to ensure that there is a clear, well
managed route so that, rather than having zombie funds
sitting around delivering a poor return, we can get them
moved into the higher quality, better performing ones. We
need to ensure that this market works for everyone.
One element that people might not have considered is that
we have not yet found a solution for people who end up with
multiple very small pots spread across the landscape. I
suspect that that could present a cost to the system that
we will want to manage our way out of in order to create a
sustainable situation. Overall, master trusts are a good
thing, but they will need to be well regulated if they are
to create confidence in the system and ensure that savers
do not get a bad deal.
There are a few other things that I think I can just about
sneak in as being within the scope of the Bill. We have
ended up with slightly different arrangements for master
trusts and insurance-based products, and I wonder whether
it is sensible to have so many different regulators in the
industry trying to do the same thing. Should the Pensions
Regulator really be responsible for regulating all pension
schemes, however they are structured, rather than letting
the Financial Conduct Authority do some? Should we try to
get equivalence between schemes that are trying to do the
same thing but end up having subtle differences? Perhaps it
would be better to say to all savers and all members of
pension schemes, “Your scheme is regulated by the Pensions
Regulator. Yes, there will be a cut-off with the FCA at
some point.” That would be better than having uncertainty
about who is responsible for which scheme.
Looking at master trusts more generally, there is a need to
think through the position in the decumulation phase. The
market might already be seeing that master trusts can be
used for decumulation as well as accumulation. Decumulation
is a very different model, and it is perhaps harder to see
the business case for that than for the accumulation phase,
with its ever-growing pots and more income. With
decumulation, we have ever-dwindling pots and seemingly
less income from the fees. We need to think through whether
master trusts are intentionally aimed at the decumulation
phase where members treat them as a kind of bank account
from which they can draw money when they want to. The
secret will be to ensure that savers have access to the
right advice, and it is a pity that the Bill does not
address the future of the various advice schemes, but I am
sure that we will get to that at some point. In summary,
this is a welcome and necessary Bill, and I am sure that it
will be very effective. I look forward to its making
progress in the House.
9.38 pm
-
(Ross, Skye and
Lochaber) (SNP)
It is a pleasure to follow the hon. Member for Amber Valley
(Nigel Mills), who has made some good points about the
importance of advice and about the decumulation phase. I
hope that we will have an opportunity to come back to those
matters at a later stage.
I welcome the Government’s initiative in bringing forward
the Bill. A desire to create trust in pensions savings
should unite us across the House. We want all workers to be
able to attain a standard of living that will be consistent
in allowing them to save while in work in order to have
dignity in retirement, secure in the knowledge that a
regular income from a state pension and a workplace pension
will allow them to enjoy their retirement without financial
worry and without living in pensioner poverty. In our view,
pensions savings are the best way for most workers to
achieve that dignity in retirement. We need to deliver the
appropriate level of protection for savers, and the Bill is
an important step forward in that regard, albeit one that
could be enhanced through constructive amendments in
Committee.
Given the growth in master trusts and the desire to ensure
that we protect savers’ interests, the Bill is overdue in
some regards. Auto-enrolment has led to a significant
increase in the use of master trusts. The impact assessment
published this month informs us that some 200,000 savers
were in master trusts in 2010, increasing to 4 million by
2015. According to estimates from the Pensions Regulator,
that may now have risen to 4.3 million savers with around
£8.1 billion of assets in master trusts. When we take into
account the Government estimate that 10 million workers
will be in auto-enrolment schemes by 2018 and that they
will be saving as much as £17 billion by 2019-20, with the
vast bulk of them in master trusts, the need for robust,
effective protection is clear.
The master trust market has grown rapidly, with as many as
84 such trusts in operation today. While there are a small
number of larger trusts, it is clearly a fragmented market,
with risk of failure in certain cases. Indeed, the Work and
Pensions Committee called for stronger regulation in March
2016 when it concluded that:
“Gaps in pension law and regulation have allowed
potentially unstable trusts onto the market. Should one of
these trusts collapse, there is a real danger that ordinary
scheme members could lose retirement savings. There is a
risk that faith in auto-enrolment as a whole will be
undermined.”
That is a stark warning and underscores the requirement to
take this Bill forward. We need to regulate to remove the
prospect of inadequately resourced schemes collapsing and
to offer protection against scammers entering the
marketplace. The warning signs are already there. Two small
schemes have already collapsed, affecting 7,500 members. It
is currently extremely easy for anyone to set up a master
trust and accept savers’ funds, and there is no established
mechanism for responding to the collapse of a master trust.
The rules of many schemes currently allow the use of
members’ funds to wind up a scheme should it collapse. That
is simply not acceptable. As a consequence of the Bill,
there will be a requirement for master trusts to be
approved, requiring minimum standards of trustees and
obliging schemes to prove access to capital that can be
used in case of wind-up. There has been widespread support
for the need for such a Bill. The Pensions Regulator
welcomed the announcement of new powers to regulate master
trusts and said:
“We have been calling for a significantly higher bar
regarding authorisation and supervision, and we are pleased
that today’s announcement proposes to give us the power to
implement these safeguards.”
The ABI has said:
“We have previously called for tighter regulation of Master
Trusts, and are supportive of the proposed direction set
out in the Bill.”
The Pension and Lifetime Savings Association welcomed the
Bill as
“essential to protect savers and ensure that only good
Master Trusts operate in the market.”
I concur with all those remarks.
Some of the Bill’s requirements may have unintended
consequences and require further attention. As the Bill
represents a significant change in the role of the Pensions
Regulator, the Government must ensure that the regulator is
adequately resourced to deliver accordingly. Addressing
some of the following concerns could go some way to getting
the Bill watertight and satisfying the concerns of many
stakeholders. My first point relates to clause 8. If a
scheme funder is an FCA and PRA-authorised insurer, the ABI
contends that it will already have to comply with solvency
II and therefore the regulations under clause 8 should not
apply as they would be onerous and costly. The Government
should clarify whether they have assessed that potential
impact and whether the additional regulation adds a further
safeguard, making the provision necessary.
Clause 9 requires the Pensions Regulator to be satisfied
that a master trust has sufficient financial resources to
meet the costs of setting up and running the scheme and to
protect members in the event of wind up. A master trust
must therefore hold capital equivalent to six to 24 months’
worth of running costs. However, it is argued that there is
little clarity over how that provision would be applied.
The TUC argues that there is an assumption that other
master trusts would have an appetite to absorb a collapsed
rival’s book of business, but that may not always be the
case, particularly if costs are involved. Some savers are
more attractive to providers than others. In the absence of
greater clarity over the robustness of the proposed capital
regime, the TUC contends that clause 9 should be retained.
It was accepted in the Lords and provides that the
Secretary of State can
“make provision for a funder of last resort, to manage any
cases where the Master Trust has insufficient resources to
meet the cost of complying with subsection (3)(b)”
after a triggering event. I would support that as a
principle.
On clause 10, concerns have been expressed about the
additional costs that master trusts could face, such as
those offered by insurers due to duplicated regulation
enforced by the Pensions Regulator. The ABI has said that
that would be to the detriment of existing scheme members,
as these schemes already operate under stringent FCA and
PRA regulation.
The key issue raised by the ABI is the definition of a
“scheme funder” in clause 10. Concerns centre on the fact
that the Government state that the clause is intended
better to enable the Pensions Regulator to assess the
financial sustainability of the scheme by increasing
transparency on the assets, liabilities, costs and income
of the master trust. The ABI is concerned that the clause
does not meet the policy intent of providing transparency
because, as a separate legal entity, master trusts can
still transfer risk to other entities.
That issue was raised in the Lords, and the ABI continues
to ask that, in order to protect the benefits to scheme
members and minimise costs, the requirements under clause
10 should not apply where the scheme funder is an FCA and
PRA-authorised insurer. There is also a need for greater
transparency on fee charging, which needs to encompass
transaction costs as well as any ongoing administration
fees.
It is welcome that the Government are placing a 1% cap on
exit fees for current members and no exit fee for new
members. We know that large fees have been charged on exit
in the past, and it is clear that we need to protect
savers, although if new members are to be excluded from
exit fees why should it be permissible for exit fees to
remain in place for existing plan holders?
Under clause 12, at least one third of trustees of
single-employer workplace pension schemes have to be
member-nominated. There is no such obligation on master
trusts. The Bill presents an opportunity to explore member
involvement, and I hope we can pick up that topic in
Committee.
Clause 32 creates a new power enabling the Pensions
Regulator to make a pause order requiring certain
activities to be paused once a master trust has experienced
a triggering event. That includes accepting new members,
making payments, accepting contributions and discharging
benefits. There is concern about the impact of a pause
order on a member’s savings, as there are no mechanisms in
place to allow ongoing contributions to be collected and
held on behalf of a saver. It is unacceptable that a member
should be penalised and, in effect, lose wages in the form
of employer contributions due to events out of their
control. The Government should clarify whether they intend
to take action to protect savers in that area.
We look forward to clarification from the Government on
those issues, and we will work in the next stages, where
necessary, to improve the Bill. This is therefore a
pressing matter and, on behalf of the Scottish National
party, I signal our intent to work with the Government to
deliver a Bill of which we can all be proud.
The Bill, however, is a missed opportunity to undertake
much-needed major reform of the pensions system, rather
than patchwork attempts to plug holes in the system. We
need a fundamental overhaul of the pensions system, and the
UK Government need to introduce more ambitious plans on
pension reform. We are disappointed not to have a Bill that
looks at the issues with the state pension, particularly
the need to address state pension age inequality for the
WASPI women.
Madam Deputy Speaker, I take your comments about the WASPI
women but, given that the SNP was traduced by the Chair of
the Select Committee on Work and Pensions, I make the point
that the SNP has raised the issue of the WASPI women at
least 44 times in this House and has commissioned
independent research. It is completely disingenuous for
anyone to suggest that the SNP has refused to support the
campaign. A reasoned amendment to kill the Bill was
suggested. However, that would help no one and would only
remove the Bill’s helpful regulation provisions relating to
master trusts.
-
I am grateful to the hon. Gentleman for giving way. The
plan was not to kill the Bill but just to hold it up for a
bit so that we could hopefully highlight the position of
WASPI pensioners, for soon they will all be retired and the
horror will have been completed. We have no other weapon
against the Government, because they have made it plain
that they are going to sit out this issue. The Scottish
nationalists were not prepared to form an alliance with
those of us who want to block the Bill in order to actually
raise this issue and perhaps implement the recommendation
of a previous Select Committee report.
-
Madam Deputy Speaker (Natascha Engel)
Order. I appreciate that the right hon. Gentleman is Chair
of the Work and Pensions Committee—
-
I am not going to be speaking tonight.
-
Madam Deputy Speaker
I also appreciate that he is not going to be speaking in
tonight’s debate, but I just want to say that it is a very
narrow Bill about something very specific and this is not
the forum for discussing all that. People might be very
disappointed that we are not debating transport policy, but
we are not; we are debating master trusts, so I ask the
hon. Member for Ross, Skye and Lochaber (Ian Blackford) to
keep just to that. I know he is trying to skim over things,
but if he could skim away from other issues and get back to
the main point, we would all be very grateful to him.
-
I will endeavour to skim away, Madam Deputy Speaker. You
made the point that this is a narrow Bill, which is exactly
why it would have been impossible to amend it to take
account of the WASPI case. The right hon. Gentleman should
know that an attempt to kill the Bill would have done
exactly that, and we do not solve the problem faced by
WASPI women by defeating this Bill, which is so necessary
to protect pension savers. Frankly, he should be thoroughly
ashamed of himself; he does no justice for the WASPI women
with his campaign and the remarks he is making.
Let me conclude the remarks I was making. The sheer fact
that the Cridland review is currently looking at the state
pension age, without looking at the existing problems,
limits the ability to learn and develop a more progressive
outlook, which could safeguard dignity in retirement for
pensioners. Generally, the threat of pensions scams and
transfers from pensions to high-risk schemes needs to be
urgently addressed. [Interruption.] I have got to the bits
I am not allowed to say any more. [Laughter.]
We reiterate our call for the establishment of an
independent pension and savings commission to look
holistically at pension reform, focusing on existing
inequalities and paving the way for a fair, universal
pensions system. The entire pensions landscape is in need
of fundamental reform, particularly with a pressing need
now to review and enhance auto-enrolment. The Government
are set to review auto-enrolment this year, but reports
seem to suggest there may not be substantial changes from
the review, and with many missing out on auto-enrolment we
need to ensure that this policy is moved forward. Although
7 million workers have been auto-enrolled, a further 6
million workers have missed out. The Pensions Policy
Institute revealed that 3.3 million of the people excluded
from auto-enrolment had been excluded because they earned
less than £10,000 a year. It also found that three quarters
of the employees earning less than the auto-enrolment
trigger were women.
We believe that lowering or removing the auto-enrolment
trigger would significantly increase the number of people
saving through auto-enrolment and in master trusts. It
would also go some way to alleviating some of the
historical inequalities women face, whereby their
occupational pension savings are already well below those
of men. There are clear disadvantages here, particularly
for part-time and the low-paid workers. For example,
somebody earning £10,000 per annum will not benefit from
the 8% contribution; they will benefit by only 3.4% because
over half the earnings are excluded. Although self-employed
workers are growing vastly in number, they have fewer
incentives to save. If the Government were to review
auto-enrolment sufficiently, they could consider moving to
a flat rate of pension tax relief and allowing
self-employed people to deduct pension contributions from
profits to end the disparity.
Looking at the age at which auto-enrolment is triggered
could also be more progressive. Just on 26 January, Zurich
Insurance called on the Government to take
“a steady approach to increasing minimum auto-enrolment
contributions above 8%”.
While there is an acceptance that the levels need to rise,
it must be done in a way whereby workers do not opt out.
In conclusion, I welcome this Bill. It contains much we can
support and we will work constructively with the Government
to enhance it further. I hope that when the Minister winds
up he will join with us in that spirit of consensus.
9.53 pm
-
(Southampton, Itchen)
(Con)
I hope that Members will forgive me for not going into as
much detail as the hon. Member for Ross, Skye and Lochaber
(Ian Blackford). My comments will be considerably shorter,
which will give people some comfort tonight.
If we are able to have the financial resources in the
future to spend on things our constituents rightly take for
granted, such as our NHS and our children’s education, one
challenge for the Government is to rebalance the economy
away from an over-reliance on the state. Where it is
possible and appropriate to do so, the individual and their
employers should take more responsibility for their future
financial security. The national living wage, which was
introduced by this Government—and at a far higher rate than
that proposed by the Labour party—has helped to shift the
burden back on to employers and away from the state, which
had found itself topping up wages through in-work benefits.
Many in-work benefits did nothing more than subsidise
hugely wealthy businesses at the expense of the British
taxpayer. With the introduction of the national living
wage, employers will now be required to take more
responsibility for paying their employees properly.
I see automatic enrolment in a pension scheme in the same
way as I see the national living wage. It is a way of
helping working people to save for their future and a
dignified, funded retirement. Auto-enrolment requires
employers to pay into a pension scheme along with their
employees, and the Government do their bit by giving tax
relief on employee contributions. I expected employers to
be less than enthusiastic about auto-enrolment and the
additional costs it would mean for their business, but if
anything I have found that businesses in my Southampton,
Itchen constituency are very supportive. In fact, one
business even suggested making auto-enrolment compulsory to
ensure that its staff are saving for their future and not
choosing to opt out, as up to 50% of them currently do.
As with all legislation, it is sensible to review how
auto-enrolment operates in practice and to improve it where
possible. The Bill does that. It contains particular
provisions on the role of master trusts and those who
operate them. Master trusts are the favoured financial
product for investing employees’ pension contributions for
the majority of small businesses in the UK. Many of them,
including the National Employment Savings Trust, operate
within the Pensions Regulator’s guidelines and have the
quality assurance mark. However, there is widespread
agreement that regulation for trust-based pension schemes
in general is inadequate. The Bill aims to address that
and, in so doing, give comfort to savers and protect their
retirement savings.
There seems little in the Bill that anyone can disagree
with, although some Members have said that it does not go
far enough. We insist that our taxi drivers pass a fit and
proper person test so that they can carry passengers, but
until now there has been no such requirement on all those
who operate master trusts and are potentially responsible
for a worker’s entire retirement savings. The Bill will
ensure that those responsible for running master trusts
have to demonstrate their suitability to do so—not before
time, in my humble opinion.
The Bill also requires schemes to prove their financial
sustainability—something that most investors would assume
was already a requirement—and will give the regulator new
powers to supervise master trusts and intervene if a scheme
is at risk of falling below the required standards. With
more than 10 million workers estimated to be saving in
auto-enrolment schemes by 2018 and more than £17 billion of
extra workplace pension saving per year by 2020, it is
imperative that master trusts, which will be responsible
for much of that investment, are more tightly regulated
than is currently the case.
Once the Bill is passed, a consultation process will begin.
When he responds to the debate, will the Minister inform
the House of any specific regulations that will be
presented in the consultation document? How frequently will
those regulations be reviewed by the Secretary of State?
9.58 pm
-
(Swansea East)
(Lab)
I can beat the hon. Member for Southampton, Itchen (Royston
Smith) on length of speech, because, not wishing to draw
the wrath of Madam Deputy Speaker, I have crossed out 95%
of my speech.
As the newly elected chair of the all-party group on state
pension inequality for women, I feel obliged to say to the
Government that they have missed the opportunity to make
provision for that women group of women we have come to
know fondly as WASPI, although many other pressure groups
with different names are also lobbying for the same cause.
I have promised those women that I intend to work with
every group to fight this injustice and give them a voice.
I will come to the Chamber at every given opportunity to
speak up for them until they get justice. All they ask for
is a simple transitional payment to support them
financially until they reach state pension age. I say to
the Government that the problem is not going away. The Bill
does not do what it should have done, which was look after
the WASPI women, and I fear the Government will regret
that.
9.59 pm
-
(South Thanet)
(Con)
The House will be rather pleased that I will focus purely
on the Bill, which I very much welcome and have no
hesitation in supporting.
It may be helpful briefly to explain the framework and
history of master trusts. Such pension plans were
historically designed primarily for single employers, or a
group of related sponsoring employers with an in-built
paternalistic and altruistic nature of management. However,
the world of workplace pensions has changed rapidly and for
the good, with the introduction of workplace pensions under
auto-enrolment following the Pensions Act 2008. As we have
heard from the Secretary of State, the latest figures
suggest that more than 7 million employees are now enrolled
across 370,000 employers. As we reach the final phase of
the staging dates roll-out across smaller employers over
the coming year, the number will expand massively,
approaching 10 million people across possibly 1 million
employers. The figure for current assets under management
is at more than £10 billion a year and will grow rapidly.
It could easily be the case that, over the next 30 years,
master trusts contain assets exceeding £1 trillion.
The larger employer may already have had an employer scheme
in place, but those are likely to have been contract based,
whereby a pension provider—often an insurance company—is
appointed to run an individual scheme. It is the smaller
employer, under auto-enrolment obligations, that will be
using the other possible course of action, which is the
trust-based defined contribution scheme, whereby a number
of employers—perhaps tens ofusb thousands of smaller
individual employers—will take part in an individual
scheme. The new legislation will apply to those new
trust-based schemes, ensuring that they are well run,
financially sound and subject to appropriate oversight by
the Pensions Regulator. It is essential that employees have
confidence that schemes will protect their assets. After
all, it is perfectly likely that an employee’s pension
fund, after their house, will be the primary life asset
upon which so much will depend.
The Select Committee on Work and Pensions, in its report of
15 May last year, devoted some time to highlighting the
risks under the current limited regulatory arrangements for
master trusts, amounting to little more than Her Majesty’s
Revenue and Customs registration that practically anybody
could overcome—loose arrangements that suited the original
purpose of trust-based schemes, but which are wholly
insufficient in the new auto-enrolment world. I pay tribute
to the work of former Pensions Minister, , who similarly
highlighted the lack of regulation of master trusts.
Following investigations, including one by the BBC, there
were reports of unregulated applicants to the master trust
market—notably, a promotion by MWP Pension Ltd, a company
owned by former sports fashionwear traders that formerly
traded as Wide-Boys R Us. With that type of background, new
legislation is urgently needed, otherwise this area could
easily become the financial scandal of the future.
Far from being overdue, it is a tribute to the ability of
our legislative framework that risks have been recognised
and the Government have acted quickly. The market itself
has recognised the risks of the current lightweight regime.
The Pensions Regulator, working with the Institute of
Chartered Accountants in England and Wales—as my hon.
Friend the Member for Amber Valley (Nigel Mills), a
chartered accountant like myself, mentioned—created the
master trust assurance framework, with a list available to
all on the Pensions Regulator’s website. The list now
includes 13 institutions that are complying with good
practice. Before the Bill becomes law, I urge smaller
employers considering their options as their staging dates
approach to use any of those recognised schemes; do not use
any other.
I welcome other aspects of the Bill, as it proposes
triggering events, pause orders and an appropriately
draconian penalty fine of up to £10,000 a day for
non-compliance. I welcome the proposals and, with others,
will examine their extent in Committee. Finally, and to the
delight of all, the Bill gives authority to the Secretary
of State to restrict charges, mirroring in part the
provisions applying to the charges structure introduced
within personal plans under the Bank of England and
Financial Services Act 2016, and extending the Pensions Act
2014. As all Members will know, it is purely due to the
effect of compounding that, over 40 years, a fund can grow
by 50% or more with a simple fee-charging difference of
just 0.75%. I certainly hope that the Secretary of State
will use these powers to reduce charges as appropriate.
This Bill comes at the right time before contributions
under auto-enrolment escalate over the years come, and I
will support it.
10.05 pm
-
(Aberdeen North)
(SNP)
I have recently taken an interest in the issue of pensions
in this House, but I had already had a fair amount of
interest in it for a fair amount of time. Despite being a
fair distance off the state pension age, or general pension
age, I would quite like to have a pension, and so would
most people of my age. It is really important that younger
people do take an interest in this and think about it going
forward. That is one of the reasons this provision is
really important. We need to ensure that young
people—millennials like me—will have access to decent
pensions. The Government did a study that produced results
in 2013 suggesting that only just over half of people who
are currently of working age will have a pension that will
be able to keep up their living standards. That is not an
acceptable situation. I appreciate that the Government have
undertaken reforms such as auto-enrolment to ensure that
those numbers can be increased. We do not want everybody to
be hitting state pension age and realising that in fact
they cannot afford to do all the things that they intended
to do. It is therefore really important to make changes to
this.
In order for people to continue not to opt out of
auto-enrolment and for it to continue to be as successful
as it has been so far, we need to ensure that there is
trust in the scheme. People must know that their money will
grow at a reasonable rate and that they will get the right
amount of money that they expect to get when they hit
pension age. In order for that to happen, the Government
need to have appropriate regulation in place, because, in
the main, people are not by themselves going to read all
the clauses and schedules of the regulations that come with
the scheme that they are enrolled into. They need to trust
that the Government have appropriately regulated these
schemes so that if they fail, for example, there is
security for them. Otherwise, auto-enrolment will not
continue to work at the rate that it has done. It is really
important that we have things like the new regulation that
is coming through, and that we have recognised the rise of
master trusts and how important they are for people who are
involved in auto-enrolment.
I am pretty supportive of a lot of this, but I want to
raise a couple of things. At the tail end of last year, I
held a couple of public meetings in Aberdeen to ask people
about pensions, and I was really surprised at the strength
of feeling about pension regulation. I was expecting them
to talk mainly about some of the well-known issues such
WASPI, the frozen pension, and the lifetime ISA, which is
not a scheme that I am particularly supportive of because
it has far too many shortcomings. I think we are going to
see a lot of negative ramifications in future with the
change to pension schemes that encourages people to draw
down. There is also the fact that people who enrolled in
pension schemes before 1997 are not entitled to an
inflationary uplift in those schemes. That was brought up a
couple of weeks ago in a debate in Westminster Hall. I was
also expecting the ever-increasing rise in the state
pension age to come up, because I know that people are
worried about that. I will not be getting my state pension
until I am at least 68, under the current projection.
I was expecting all those things to come up, but in fact
the biggest issue raised was the lack of appropriate
regulation around some of the private pension schemes that
exist. I was really surprised about that, but this is a
real issue for people of all ages. People are really
worried as a result of high-profile issues relating to
schemes not paying out the expected amount. It is important
that the Government are increasing trust in pension
schemes, so that people of my age know that they will pay
out.
For all of auto-enrolment’s many benefits, it has a number
of shortcomings. My hon. Friend the Member for Ross, Skye
and Lochaber (Ian Blackford) mentioned how it disadvantages
women, purely because they tend to be on part-time
contracts. There is also an impact on people with multiple
jobs, who tend to be on lower incomes; they earn a small
amount in each job, so they do not get auto-enrolled.
Self-employed people cannot be involved in auto-enrolment,
and only 14% of self-employed people pay into a pension
scheme. That is not enough. If we expect those people to be
able to support themselves when they hit retirement age,
more of them need to be paying into a pension scheme and
the Government need to make changes to ensure that they are
more likely to do so.
Age is another big issue that has not been raised today.
People are not auto-enrolled until they are 22 years old,
but a number of people are leaving school, starting work
and hitting full-time employment earlier than that. If they
are enrolled in a pension scheme when they hit 22, they
will get a shock and think, “Hang on a second.” If we
enrolled them earlier, I think they would be more likely to
continue with the scheme. The Government need to look at
that big issue.
I appreciate that the Government are continuing to make
moves. This year’s Green Paper on defined-benefit schemes
will be really important and the review of auto-enrolment
will be fundamental. We need to look at how the scheme has
worked, because it has been more successful than intended
when the Government conceived it. It needs to be looked at
with fresh eyes in the light of that.
At present, 24% of people have no pension scheme when they
hit retirement age, but as a result of the changes that
figure will be only 12% by 2050. That is much better and it
shows that there have been positive developments.
My hon. Friend the Member for Ross, Skye and Lochaber and
the shadow Secretary of State, the hon. Member for Oldham
East and Saddleworth (Debbie Abrahams), have referred to
clause 9, which provides a fall-back position in the event
of a master trust failing. The issue relates to master
trusts that may not be attractive enough to be taken on by
other master trusts. The Government could have avoided the
situation that that creates. It would have been easier for
us to support the clause if, rather than saying that they
will introduce the provision through secondary legislation,
the Government had outlined their position and given
themselves the flexibility to amend it with secondary
legislation. As it stands, schemes have to have between six
and 24 months’ worth of cash in the bank in order to cover
themselves, but there is no clarity on how that would work
and it is left to the Government to introduce secondary
legislation. If the Government had provided more clarity,
this would have been a better Bill and they could have
amended it as circumstances changed.
I appreciate being given the opportunity to speak and I
thank the Minister for taking the time to meet us last week
to give us a briefing, which helped my understanding of the
Bill.
10.14 pm
-
(Witney) (Con)
I am conscious that some Members may be worried that they
will be collecting their pension before we have finished
debating the Pension Schemes Bill, but I promise that I
will not detain the House long. That is a light-hearted
start to a speech on a serious issue. It is a great
pleasure and honour to speak in this debate, and to follow
the hon. Member for Aberdeen North (Kirsty Blackman), who
made the important point that for many years there has been
a lack of saving and pension provision in society at large.
Members of the public turn to pension saving later than
perhaps they ought to have done, and—dare I suggest
it?—some Members of Parliament may have done the same. That
is what the Bill is designed to address.
This is an important and often neglected policy area, and
the Government’s strides towards automatic enrolment have
gone a great way towards putting wrong that right. There is
a need for further work, however, which the Bill is
designed to address. We have heard about the types of
master trust available, and I will not take the House
through them all again. They are important, particularly
for small and medium-sized enterprises. I am made aware of
that every time I go around my constituency and meet those
in charge of small businesses, of which we have a great
many in Witney. Their main concerns are regulation and the
steps that they have to go through. Master trusts give them
a way to deal with those matters very quickly, because
administration costs are pooled and one group of trustees
manages a scheme. Not all employers will wish to set up
their own scheme, so master trusts help them greatly. As
has been said in the other place, master trusts are a neat
solution for smaller employers, for whom setting up an
individual scheme would be a burden.
We need the Bill, because the previous reforms have led to
the master trusts being a great success. So far, more than
7 million people have been enrolled in a workplace pension
by more than 370,000 employers, and total assets of £10
billion are being managed. As the programme rolls out to
smaller employers during 2018, we expect that to increase
so that an estimated 10 million workers will be newly
saving, or saving more, in those workplace pensions. That
will have generated £17 million per annum in additional
pension savings by 2019-2020.
Action must be taken now, because the increased saving is
taking place against a legislative and regulatory framework
that was designed for 2010, when some 200,000 members were
taking part in master trust schemes; now the figure is some
7 million. The regulatory framework was designed with
single-employer schemes in mind, but master trusts operate
on a different scale and with very different dynamics. The
first part of the Bill, which I support, will help to deal
with that.
The second part of the Bill deals with early exit charges.
In 2014, the Government brought in major changes to
pensions, which have allowed 232,000 people to access
flexible payments and exercise their right to use their
money in the way they see fit. More than 1.5 million
payments have been made, with £9.2 billion withdrawn in the
first 21 months. Some schemes impose costs on people when
they withdraw their money to use as they see fit, and the
Bill is designed to address that.
In conclusion, I support the Bill. It will, I submit,
increase confidence in saving and confidence in pensions.
It will protect savers, and it will enable them to take
full advantage of the new pension freedoms that they have
been granted by the Government. It is a reforming Bill that
amends the existing framework, and it will be of benefit to
all. I urge the House to support it.
10.18 pm
-
(Gloucester)
(Con)
It is a great pleasure to join in the debate. May I say how
nice it was to have two such constructive contributions
from the SNP? My friend the hon. Member for Ross, Skye and
Lochaber (Ian Blackford) and the hon. Member for Aberdeen
North (Kirsty Blackman) spoke from the perspectives of
considerable industry knowledge and the view of a younger
generation, which were extremely valuable in tonight’s
debate.
I rise to congratulate the Government on introducing a Bill
with the simple and absolutely correct objectives of
providing essential protections for people saving in master
trusts and giving those people the same security as members
of single-employer schemes. That is the key thing. Many
people listening to this debate will wonder what on earth a
master trust is. The simple way to explain it is that it is
a multi-employer occupational pension scheme. The question
that many people will be asking is: why do these things
exist in the first place? The answer is of course that they
have advantages of scale. That means that small employers
do not have to create their own trust; they can join an
existing master trust, which can reduce their costs,
administration and overall hassle, and that is incredibly
important for a small employer.
The downside, unfortunately, is that master trusts do not,
as a mandatory requirement, have to pursue the best
interests of the scheme members. They can take a purely
commercial approach to generating profit. Their trustees do
not have to pass the fit and proper persons test, the
master trust does not have to be authorised, and there is a
question mark over what would happen to the assets in the
case of the master trust failing.
For all those reasons, the Select Committee, under the
chairmanship of my distinguished colleague the right hon.
Member for Birkenhead (Frank Field), looked at this issue
in some detail last year. In effect, it made three key
recommendations: first, that a pensions Bill should
establish minimum finance and governance standards;
secondly, that there would be ongoing requirements for
master trust schemes and for compliance; and thirdly, that
there should be measures to protect member assets in the
event of a master trust winding up.
The report, which was written last May, was accompanied by
a letter from the Chairman of the Select Committee to the
Chancellor at the time, asking him to make sure that there
would be a pensions Bill in the Queen’s Speech. To be fair,
the Government have delivered precisely that. In fact, the
previous Pensions Minister said she wanted a pensions Bill
to provide stronger regulation of master trusts, and the
current Parliamentary Under-Secretary of State for Pensions
is now taking that forward and delivering the promised
Bill.
I felt that the hon. Member for Oldham East and Saddleworth
(Debbie Abrahams) was a little curmudgeonly to say that the
Bill was long overdue. In fact, it is being delivered
surprisingly fast. As other Members have pointed out,
although there have been a couple of cases of small master
trusts failing, they have been taken over very swiftly and
easily, and as far as we are aware, nobody has lost any
money so far. The Bill is therefore slightly ahead of the
curve in dealing, we hope, with the problem ahead and
providing the necessary framework and structures.
The industry has responded constructively to the changes.
If we look at the three main bodies that have responded—the
Association of British Insurers, the Pensions and Lifetime
Savings Association and NOW: Pensions, which is the
snappily named pensions provider of Danish origin—we can
see that all three have made constructive comments. Some of
the comments will need to be taken up in the Public Bill
Committee, but they have broadly supported the ideas that
the Bill is putting forward.
In essence, the Government have focused on three separate
items. First, there are the master trusts, which will have
to be authorised. Secondly, there are the people—the
trustees—who will have to pass the fit and proper persons
test. Thirdly, there are the assets, which will have to be
ring-fenced and protected. Those are all good things,
although they raise one major question to which I hope my
hon. Friend the Under-Secretary will respond in his
winding-up speech. They require the Pensions Regulator to
do a lot of important work, and there is a question mark
over whether that body has the right resources. He will no
doubt be able to tell us more about his discussions with
the regulator and what they have agreed on resources.
Without the right resources, these important changes will
clearly not be implemented effectively.
There we have it: it is a simple and important Bill that
everyone should support. The tone of this debate has been
constructive. There will, however, be details to go through
at the next stage of the Bill’s progress. For example, the
PLSA has raised questions about whether the requirement for
the scheme funder to be an independent entity is too
onerous. NOW: Pensions has noted that only four master
trusts have actually passed the master trust assurance
framework full audit, which is disappointing. The ABI has
questioned whether master trusts attracting members not
connected to an employer—in other words, those in what is
known as the decumulation phase—should be regulated by the
FCA. Those three issues can be considered at the Bill’s
next stage.
In closing, I just want to say that the Bill is important,
and I am grateful to the Government for bringing it
forward. Some good issues have been raised, and I will
support the Bill.
10.25 pm
-
(Brecon and Radnorshire)
(Con)
I am delighted to follow my hon. Friend the Member for
Gloucester (Richard Graham)—what a speech! The speech of
the night, I would say. Pensions are an issue of vital
importance to my constituents in Brecon and Radnorshire,
and to all, young and old, throughout the country. As we
live longer and grow older as a nation, it is imperative
that everyone in the UK can support themselves in
retirement. That is something on which we have all agreed,
and that is why I am pleased that the Bill is before the
House.
There are three key parts to the Bill, which emphasise the
need for it: the protection of consumers, the incentives
for responsibility, and the ending of anti-competitive
practices. There are several points in the Bill with which
I take issue, but slight tweaks will make it totally
perfect. I was going to go through those points, but time
is against us, and I have the wonderful pleasure of having
been invited on to the Bill Committee, so I look forward to
bringing those matters to the Minister’s attention over the
next few weeks.
Overall, the Bill seems much needed. We must ensure that
our constituents have confidence in our pension system, and
the Bill seeks to do that. As we have heard too often, and
throughout the debate, we need to ensure that responsible
master trusts that work in the interests of their members
are supported, and again the Bill seeks to ensure that. We
need to ensure that our constituents have security for
their retirement nest eggs, and the principles in the Bill
seek to do just that. I therefore support its Second
Reading and encourage all right hon. and hon. Members to do
the same.
10.26 pm
-
(Stockton North)
(Lab)
We have had a good, almost conciliatory debate, but we have
also rightly focused on the opportunity that the Government
have missed to bring forward an appropriate Bill that
addresses the issues surrounding pensions. The Chamber
again heard from my hon. Friend the Member for Swansea East
(Carolyn Harris) on the plight of the thousands of WASPI
women left stranded by this Tory Government, who selfishly
and needlessly accelerated the state pension age, leaving
many women no time to make alternative provision for
themselves in their 60s. If one line was added to the Bill
to extend pension credit to the WASPI women—that is our
policy—it would have gone a long way to pacifying us this
evening.
-
Mr Deputy Speaker (Mr Lindsay Hoyle)
The hon. Gentleman has got his mention in; let’s stick to
the Bill.
-
So I suppose, Mr Deputy Speaker, that you do not want me to
mention the fact that we do not have parity on the state
pension age, either. The Government have already said that
they do not have a long-term commitment to the triple lock;
we would like to know what their plans are, both on that
and, more importantly, for many of our people who work in
the most demanding physical jobs, and suffer ill health
much earlier in life than those who spend their life behind
a desk.
I will not test your patience any further, Mr Deputy
Speaker, but we have drifted away from the principles of an
effective pension scheme to a muddled view of saving for
retirement. Indeed, such is the political hostility towards
pensions that they do not get a mention in the latest
leaflet produced by the Treasury, “Ways to save in 2017”.
There are lots of mentions of different types of individual
savings account—cash, junior, help to buy, lifetime and
stocks and shares—but not one mention of the word
“pension”, or of auto-enrolment.
Although this narrow Bill needs improvement, it is much
needed, and we will work with the Government in Committee
to help make it fully fit for purpose. Labour is proud of
its achievements with auto-enrolment, but we are a long way
from finishing the job. The sluggish response of this
Government and the last to the development of a regulatory
framework for auto-enrolment has left people’s savings at
risk for too long. Given what the shadow Secretary of
State, my hon. Friend the Member for Oldham East and
Saddleworth (Debbie Abrahams), said, our priorities for
improving the Bill should be fairly obvious. There should
be transparency: members must know what choices they are
making, and how much those choices cost—and I mean all the
costs in the investment chain. There seem to be
conciliatory thoughts on that on both sides of the Chamber.
We also need improved governance and a pension system in
which members are more engaged. I am glad to read in the
media and published reports that in many cases the
regulators and the Government agree with the Opposition. As
I said on 9 January, I welcome the one-word commitment from
Under-Secretary of State for Pensions to implement the FCA
recommendations to improve transparency in the pensions
industry. We will hold them to account for that.
I repeat that members must know how much things cost—they
must know how much each investment costs and how much
transactions cost. It is not good enough simply to say that
a default fund is capped at 0.75% and that people should be
content. The industry tells us that it is moving towards
greater transparency across all its platforms. We will be
pleased to see what it comes up with. I have no doubt that
we need to help the industry with appropriate legislation.
In the past, pension fund providers and others involved in
fund management have often tried to dodge the issues when
asked direct questions about costs, including by saying,
“You should be happy to reward performance,” when we know
that lower costs give a better net performance. Other hon.
Members have spoken about that in the debate. They also
say, “We are incentivised to manage costs, so when your
funds do well, we get a bigger pay-off,” but we know that
80% of asset manager fees are based on just holding
members’ money rather than making it perform well. When
people realise that the average compensation of an asset
manager, from the most junior to the most senior employee,
is £225,000, people have the right to know how they are
using the scheme’s money.
The Opposition favour a change in reporting to ensure that
pension schemes must report to members on the three
headings: administration, investment costs and transaction
costs.
I know that the Minister values the cost-collection
template, which has been negotiated with the Investment
Association by the Local Government Pension Scheme Advisory
Board. We must encourage its use by all pension providers.
I hope the Minister will confirm his support for such an
approach for master trusts.
On member governance, all the investment risk lies with the
member and not with the sponsor or the provider. There is
an argument to be made that, since the pot belongs to the
member and the scheme-sponsoring employer bears no
investment risk, governance by scheme members should
prevail in number over employers. Some companies choose to
operate a trust-based defined-contribution scheme, but most
newer auto-enrolled members will not find themselves saving
into one. Instead, the vast majority of people will find
themselves saving into a master trust or a group personal
pension arrangement. In such schemes, member representation
on governance boards is far more rare.
We are in a new landscape—we have lost member-nominated
trustees, which we had believed to be a clear fiduciary
principle. A member perspective adds diversity, which
prevents the risk of group-think within boards. Ian
Pittaway, chair of the Association of Professional Pension
Trustees, has said:
“They’re brilliant in so many areas, they ask difficult
questions that other people might be frightened to ask,
they’re great on member issues, whether it’s changing
benefits of a death-in-service case or something like
that.”
In the defined-benefit world, as long as the scheme was
well governed and well administered, the member would end
up with a reasonable replacement ratio, but in the
defined-contribution world, a member’s outcome depends on a
host of factors that are currently beyond their control.
There may be resistance to member representation from
master trusts, with tens of thousands of schemes and
hundreds of thousands or even millions of members, but the
industry has proved that it is possible. We will address
that more in Committee. Whatever the route to better
representation, most in the sector agree that it can only
be beneficial for the defined-contribution landscape. There
is a clear argument and there are clear demands that the
Bill is the best place to start. We look forward to working
with the Minister to make it happen.
Yes, we could have debated equally if not more important
measures in the Bill, but sadly we are not. It could be
many years before we get a chance to pass legislation in
those areas. The Bill can both protect and empower the
people whose money is being invested on their behalf. The
Opposition are therefore happy to see the Bill progress to
Committee, where we hope the Minister will be open to the
improvements I am sure we can make to the Bill.
10.34 pm
-
The Parliamentary Under-Secretary of State for Pensions
(Richard Harrington)
I should point out to you, Mr Deputy Speaker, that your
predecessor in the Chair, the hon. Member for North East
Derbyshire (Natascha Engel), was very robust in her attempts
to reduce the content of Members’ speeches to that which is
relevant to the Bill. I will do my best to continue with that
tradition.
I was expecting some excellent contributions to this debate
and I have not been disappointed. I thank hon. Members on
both sides of the House for the general spirit of consensus
on the basics of the Bill. A number of hon. Members raised
issues that go beyond the authorisation of master trust
pension schemes and administration charges, the two issues
covered in the Bill, and I am itching to rebut them. However,
I realise, Mr Deputy Speaker, that I would be deemed to be
out of order as they are out of the scope of the Bill, so I
shall not do that. The Government were criticised by
Opposition Members on the grounds that the Bill’s scope was
not wide enough. I will address two points in particular.
On the scope of auto-enrolment, we will announce shortly a
statutory review in 2017. It is my intention to make that
review wider than the limited definition within the Bill.
That will report by the end of the year. It is not in the
Bill, which regulates master trusts, but it has not been
ignored by the Government and it will not be.
-
Mr Deputy Speaker (Mr Lindsay Hoyle)
I think I do need to help you, Mr Harrington. We all said
Members would get one hit and then they would have to get to
the Bill. Both Front Benchers have had one hit. Now we can
really get into the meat of the Bill.
-
I congratulate you, Mr Deputy Speaker, on continuing so well
the leadership and robustness started by your predecessor in
the Chair. I apologise for any offence caused to the Chair. I
actually thought I was speaking within the scope of the Bill,
but I will of course be led by the Chair and move on to the
substance of the Bill.
As I said, the points raised in the debate by Members on both
sides of the House have been broadly complimentary. The whole
purpose of the Bill is for the Government to be able to
respond very quickly to the phenomenal and exponential growth
in master trusts over the past two years. That growth was not
predicted by the Opposition, who take credit for
auto-enrolment—in fact, there was cross-party consensus—and
it was not predicted by either the coalition Government or
this Government. It happened very quickly and I believe the
Government are doing the right thing by responding quickly. I
do not accept that the Government have acted too slowly.
I was very glad to receive the support of the shadow
Secretary of State, and she made a very relevant point when
she explained her view about the expansion of master trusts.
We are not allowed to mention the “w” word, as the hon.
Member for Bootle (Peter Dowd) calls it from a sedentary
position, because that would be outside the scope of the
Bill. The regulation has been very considered. Both Labour
Front-Bench spokesmen and the SNP spokesman commented on the
large amount of secondary legislation. The reason is very
clear: we want to consult very quickly with industry and
responsible parties on the detail, but this process will not
take a long time. We have to get the detail absolutely right,
because this is a one-off chance to regulate. There will be a
chance for scrutiny by both Houses, because in the first
instance the regulations will be subject to affirmative
procedure.
Many Government Members, including my hon. Friend the Member
for Tonbridge and Malling (Tom Tugendhat), spoke about
transparency. We take this very seriously and we are
consulting on it. It is not in the Bill, but it is in the
spirit of the Bill, because the regulator will be provided
with many powers that will help to enforce transparency and
members’ rights, which have been discussed.
-
On the specific point of transparency, why is it necessary to
start consulting people when we should simply be saying, “We
want to know what all the costs are in the entire investment
chain”?
-
I must explain to the shadow spokesman that we believe in
democracy, and part of that is consulting to get it right. We
believe this is very important; it has gone on long enough;
it needs to be done right. I am sure that the hon. Gentleman
did not mean that the Government should just decide what to
do without consulting on this hugely complex area within the
industry. When it comes to the regulations, let me repeat
that we will consult on all of them. I apologise to the hon.
Gentleman if consulting is not correct, but we have to get
this absolutely right.
-
I certainly agree with consulting, but will the consultation
extend to the members of the master trusts and not just the
people who manage the members’ money?
-
I believe in full transparency and disclosure, but this is a
very complex issue. Brevity of disclosure is sometimes
clearer to people, helping them to understand all the costs
and charges within their pension, rather than giving them 10,
12 or 14 pages. I would like to move on.
One point was made eloquently by both the hon. Member for
Ross, Skye and Lochaber (Ian Blackford) and my hon. Friend
the Member for Gloucester (Richard Graham) on the question of
whether the Pensions Regulator will be properly resourced to
carry out the new duty. I can confirm that we have already
had extensive talks with the Pensions Regulator, and that it
is the Government’s fundamental view that we cannot enact a
Bill such as this which deals with improving and expanding on
the response without giving the regulator the proper
resources that it needs.
I am pleased to say that many Members of all parties have
explained that master trusts are an important part of the
pensions industry. The Government are filling a gap between
personal pensions and insurance-based pensions that are
regulated on the one side, and on the other side the
evolution of the trust system, for which there is ample
pensions law and regulations. There is a significant gap in
the market. We are pleased that master trusts have expanded
in the way they have, but they need some regulation and
attention because companies have been moving into this area
simply because there is that gap in regulation. That does not
mean that such trusts are a bad thing, and I am delighted to
report that we are carrying out this Bill from a position of
little failure. This is not a Government responding to
catastrophe or calamity when people have lost money; what has
happened has been successful, but we need to provide the
correct regulatory framework for it.
I can do no better than conclude my speech by citing my hon.
Friend the Member for Gloucester, who said that the Bill was
simple and important and that everybody should support it.
For that reason, I commend the Bill to the House and support
its Second Reading.
Question put and agreed to.
Bill accordingly read a Second time.
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