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House of Lords

Wednesday, 26 February 2014.

3 pm

Prayers—read by the Lord Bishop of Wakefield.

Death of a Member: Lord Bilston


3.07 pm

The Lord Speaker (Baroness D’Souza): My Lords, I regret to inform the House of the death of the noble Lord, Lord Bilston, on 25 February. On behalf of the House I extend our condolences to the noble Lord’s family and friends.

Sri Lanka


3.07 pm

Asked by Lord Naseby

To ask Her Majesty’s Government, further to the remarks by the Prime Minister on 16 November 2013 that the United Kingdom would allow Sri Lanka until March to begin credible investigations into allegations of war crimes before taking steps through the United Nations, why they are already working to influence the United Nations Human Rights Council to call for an international investigation.

Lord Naseby (Con): My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as chairman of the All-Party British-Sri Lanka Group.

The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con): My Lords, the Prime Minister said that we will use our position on the UN Human Rights Council to call for an international investigation if credible domestic accountability processes have not begun properly by March. As with any resolution ahead of the March UNHRC, we are discussing the Sri Lanka resolution with members. The UN High Commissioner for Human Rights said this week that there were limited and piecemeal domestic steps towards accountability and recommended an international investigation.

Lord Naseby: I thank my noble friend but, as we are still in February, will she recognise that three things have happened recently? First, on war crimes, will the Foreign and Commonwealth Office study the evidence of the new Tamil film, “The Last Phase”? Secondly, will the Minister read Professor Moorcraft’s new book? Thirdly, on the book, Corrupted Journalism, there is now conclusive evidence that that film from Channel 4 features two key independent female witnesses, so alleged, who were in fact fully paid up members of the Tamil Tigers? Will my noble friend now publish the dispatches from our military attaché from Colombo, who witnessed the final stages of the war? Finally, will she encourage the work that South Africa and Sri Lanka are doing to construct a truth and reconciliation commission?

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Baroness Warsi: My Lords, I note the further books and videos that have come to light in relation to these matters. Although my noble friend refers to progress that may have been made in the past two weeks, he will note that these matters have been ongoing for some five years. We have yet to see a meaningful, time-bound, independent, domestic-led political process with clear milestones in this matter. Of course, should a genuine and credible truth and reconciliation commission get under way, the UK would be prepared to support it.

Lord Bach (Lab): My Lords, the Opposition support the Government’s response to this question. We ask only this: as close as we are to March now, can the Minister confirm to the House that the Prime Minister will be true to his word on this—as I am sure he will be—and that the Government will continue to work closely with the United States Administration and others at the forthcoming session of the United Nations Human Rights Council in Geneva, to which she has already referred, in order that an independent international inquiry can be set up at the earliest possible time?

Baroness Warsi: I thank the noble Lord for his comments. He will be aware that we co-sponsored the resolutions in 2012 and 2013. On this resolution, which goes further than those resolutions and calls for an independent investigation, we are working with like-minded members.

Lord Avebury (LD): My Lords, as the Minister has reminded us, five years have elapsed since the end of hostilities and no progress has been made towards setting up a credible independent investigation into the killing of an estimated 40,000 civilians during the final weeks of the civil war. The Prime Minister is to be warmly congratulated on taking a leading role in setting the scene for the resolution at the Human Rights Council next month. Do we have confidence that we have the votes to get the resolution through, and how will the inquiry be constituted?

Baroness Warsi: I thank my noble friend for his support. It would be wrong for me to predict at this stage how the voting will turn out. My right honourable friend the Minister, Hugo Swire, plans to be at the Human Rights Council high-level session on Monday. We have been working with a number of countries that have indicated strong support for the resolution, but it would be wrong for me to predict at this stage what the outcome of the vote will be. We continue to work incredibly hard to make sure that we get the resolution.

Lord Singh of Wimbledon (CB): My Lords, I, too, congratulate the Government on their single-minded pursuit of an international inquiry into the allegations of human rights abuse in Sri Lanka. In view of the recent disclosures about Mrs Thatcher’s Government giving support in 1984 to the Indian Government in their ruthless suppression of Sikhs, will the present Government make amends by backing growing calls, in India, here and other parts of the world, for a similar UN-backed international inquiry into the Indian

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Government-backed massacre of Sikhs in 1984? It is not generally known in this House or outside that in only three days more Sikhs were killed in India than the total number of those who were killed or disappeared in the 17 years of General Pinochet’s rule.

Baroness Warsi: The noble Lord’s question goes slightly beyond the remit of this Question. I spent an hour and a half with the noble Lord and members of the community yesterday discussing exactly this issue and what follow-up work could be done post that report. I will, of course, write to him in due course as a follow-up to that discussion.

Lord Foulkes of Cumnock (Lab): I welcome what the Minister has said about the appalling human rights record in Sri Lanka. Is it not therefore rather strange that the President of Sri Lanka has been invited to participate in the ceremony in Glasgow Cathedral at the end of the Commonwealth Games to commemorate the start of the First World War? Would it not be wise to reconsider this invitation, as many organisations in Scotland are already asking?

Baroness Warsi: I am of the view that it is important for us maintain constructive engagement with the Government of Sri Lanka. I acknowledge that there has been some progress in relation to demining and resettlement, and that there has been some economic progress. I do not feel that completely disengaging from the Government is the right way in which to move them forward. I was not aware of that particular invitation but, at this stage, constructive engagement is the right way forward.

Lord Howell of Guildford (Con): What consultations have we had with other Commonwealth Governments about the atrocities in Sri Lanka.

Baroness Warsi: I am not sure what specific consultations we have had with individual Commonwealth countries. It would be wrong for me to detail individually what discussions there have been. However, I can write to my noble friend and give him the details.

Succession to the Crown Act 2013


3.14 pm

Asked by Lord Lexden

To ask Her Majesty’s Government when the Succession to the Crown Act 2013 will be brought into effect.

The Advocate-General for Scotland (Lord Wallace of Tankerness) (LD): My Lords, the Succession to the Crown Act will be commenced when each Commonwealth realm has taken all steps necessary to give the changes effect in its jurisdiction.

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Lord Lexden (Con): I thank my noble and learned friend, who is the master of the intricacies of this legislation. Can he reaffirm that it is absolutely essential that this modernising constitutional change is implemented—and implemented fully—in all 16 realms of which Her Majesty is head of state to ensure that the Crown descends in exactly the same way in all of them. Does my noble and learned friend have any reason to anticipate that any of the realms might ultimately default on their obligations under the Perth agreement?

Lord Wallace of Tankerness: My Lords, I entirely agree with my noble friend that it is important that all 16 realms agree. Indeed, the intention is that when they all have put in place the necessary legislation there will be a simultaneous order to give effect in each of the realms. I make it clear that all realms that took the view that legislation is required have passed the requisite legislation, with the exception of Australia. As I informed your Lordships’ House at Third Reading, the Council of Australian Governments agreed that respective states would legislate first, requesting that the Commonwealth legislation be brought forward by the Canberra Government. To date, three states have enacted legislation; two have introduced legislation; and South Australia has yet to introduce legislation because it is in the middle of an election campaign.

The Earl of Clancarty (CB): My Lords, although the new succession arrangements are to be welcomed, does the Minister not believe that it is wholly inconsistent not to similarly reform all hereditary titles so they are gender equal?

Lord Wallace of Tankerness: My Lords, this issue was raised during our debates. It was indicated that numerous issues would arise with regard to hereditary titles which did specifically arise with regard to the succession to the Crown—and indeed I think my noble friend Lord Lucas has a Private Member’s Bill which has had one day in Committee, where there was an opportunity to debate that issue.

Lord Marks of Henley-on-Thames (LD): My Lords, with the birth of Prince George some of the urgency has gone out of the need to implement Section 1 of the Act. Does my noble and learned friend agree that it is still important, and indeed urgent, to bring Section 2 into force to start to implement the dismantling of the discrimination against Roman Catholics that has been embedded in our constitution and therefore in those of Her Majesty’s other realms for well over 300 years?

Lord Wallace of Tankerness: My Lords, I entirely agree with my noble friend. He is right to say that the birth of Prince George has taken away the immediacy of that particular matter, but he is also right to point out that the Act also allows someone in the line of succession to become sovereign to marry a Roman Catholic. It also removes the requirement of the heirs of George II to seek Her Majesty’s approval before they can marry—it will now be confined to first six in line to the throne.

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Baroness Hayter of Kentish Town (Lab): My Lords, it is for exactly those reasons that the Opposition very much welcomed the Bill. If I understand it, it is only Australia for which we now wait. We just hope that before the Duke and Duchess of Cambridge get to Australia, it may have done the necessary. Although their first born is a son, were they to have a brace that come further, the order of succession may still be important for those subsequent children. Can the noble and learned Lord perhaps use his good endeavours to see this speedily enacted?

Lord Wallace of Tankerness: My Lords, it is fair to say that all the state premiers in Australia have indicated their support for this measure, and that the Commonwealth Government of Australia stand ready to put in place the necessary legislation once each of the states has enacted its legislation.

Lord Lang of Monkton (Con): My Lords, does the Minister agree that this Bill, which was always a sensitive measure, becomes more sensitive with every day that passes without agreement? When the Bill passed through this House it was emphasised to us that the Bill was urgent and unamendable because all the other realms had agreed to all the principles underlying it—all the more reason, therefore, to urge my noble and learned friend to ensure that representations are made to ensure the speediest outcome in those realms that have not yet completed the process.

Lord Wallace of Tankerness: My Lords, as I indicated, there is only one realm that has still to legislate. Some realms took the view that, under their own laws, legislation was not required. I have indicated the position in Australia and have no reason to believe that anything other than good endeavours are being used to get the necessary legislation in place.

Travel to School: Rural Areas


3.19 pm

Asked by Lord Storey

To ask Her Majesty’s Government what support is given to young people living in rural areas to enable them to travel to school or college.

Baroness Northover (LD): My Lords, all local authorities must provide free transport to children with special educational needs or a disability who are unable to walk to school, and to children aged five to 16 whose nearest suitable school is more than two miles away for children under eight and more than three miles for those aged eight to 16. There is additional support for children from lower-income families. Students over 16 can benefit from a range of discretionary or subsidised travel from the local authority and local operators and from the 16-19 Bursary Fund.

Lord Storey (LD): My noble friend will be aware that young people have to stay in education or training to the age of 18 now. She will also be aware that 46% of local authorities have cut funding for bus transport. In rural areas, how does a young person who has to

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perhaps travel a bus journey of a couple of hours to their college, on an often infrequent service, afford these extra costs? Does she have any idea where this money could come from, as many of them now face crippling bills?

Baroness Northover: My Lords, it is clearly very important that young people attend college or school and we recognise that it can indeed be very costly for them to travel, especially in rural areas. Local authorities set out annually the arrangements for transport in their area. Typically, that is for young people to pay an annual fee—a fixed amount. I have a number of details of what is provided. It can be especially good value for those who live in rural areas and for particularly disadvantaged young people, as I mentioned, there is the bursary fund.

Lord Brooke of Alverthorpe (Lab): My Lords, is the noble Baroness aware that there are similar problems in cities, particularly for the young unemployed, who often have great difficulties finding the money to get to interviews that they have been required to attend to ensure they get their benefits? Given there is a possibility that benefits may be withdrawn from those over 18, is it not time to have a complete review of the way in which assistance with travel to work, to interviews, to college or to schools is given? There are many people in the country who are in receipt of benefits—I am thinking of people such as myself—who, quite frankly, do not need assistance with travel on public transport. We could have a fairer or more equitable distribution of the money, particularly for those who are unemployed or going to school or college.

Baroness Northover: We keep this whole area under close review. New guidance has just been issued to local authorities so that they work out with enormous care what is required in their area and assess the needs that the noble Lord has pointed to. He obviously points to an important area.

The Lord Bishop of St Albans: My Lords, the Church of England is deeply involved with hundreds of tiny rural schools in sparsely populated areas and is acutely aware of some of the financial difficulties that they face. When such a school has to close, what advice do Her Majesty’s Government give on the educational, financial and environmental issues—to do with sustainability—of transporting these pupils, sometimes very long distances, to the next nearest school?

Baroness Northover: I will write to the right reverend Prelate with details about what happens when these schools are closed. There is a special premium for rural schools of the type that he describes, which have fewer pupils than you might find elsewhere, but I will write with further details.

Baroness Hughes of Stretford (Lab): My Lords, does the Minister accept that since the Government abolished the education maintenance allowance and the adult learning grant, the problems young people in the 16 to 19 age group face in getting to college,

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training and apprenticeships have become much worse? As she said, the role of the local authority in supporting travel costs in particular is discretionary. Although some fund significant subsidies, others do very little. In fact, in the past few weeks alone, Cumbria, North Yorkshire and Lancashire—all with extensive rural areas—have announced further cuts in their travel subsidies for young people. Why can the Government not ensure that all local authorities provide at least a minimum level of support for travel costs for young people, especially in rural areas, where costs are much higher, but also in urban areas, where there are also problems?

Baroness Northover: I do not accept what the noble Baroness said about the education maintenance allowance because the way that it is organised now focuses on the young people who are most at need and provides them with more generous support than was the case before. Therefore, a yearly bursary of up to £1,200 is available to young people from specific vulnerable groups. A number of these young people—roughly half—do indeed receive travel passes or tickets. The councils she mentioned still offer special discounts to students and young people even though in some instances they have increased the charges that they are making.

Lord Bradshaw (LD): My Lords, I wonder whether the Minister might look at the supply side rather than the demand side of this equation. There are very strict rules about the operation of part-time buses and the collection of fares—all sorts of terrible regulations—which make it extremely difficult for communities to organise bus services to meet the needs which are quite obvious in rural areas.

Baroness Northover: My noble friend makes a good point. However, I would point him to the local authority guidance, which has just been reissued, because one of the things that local authorities need to do is to analyse what provision is there, what is needed and where the deficits might be.

Baroness Farrington of Ribbleton (Lab): My Lords, I declare an interest as a former member of Lancashire County Council. The noble Lord, Lord Greaves, is in the Chamber: we introduced the first education maintenance allowances. Is the noble Baroness aware that I heard with some scepticism her reply that bursaries have replaced EMAs and that EMAs were too generous to young people who did not need it—none of which is true—and is she aware that in Lancashire the staying-on rate in areas such as Skelmersdale at the beginning of the 1980s shot up by 40% and those young people had to attend regularly and work hard?

Baroness Northover: The noble Baroness may have misunderstood or misheard what I said. What I emphasised was that the bursaries that are now given are more generous. They are targeted at those who are most vulnerable. She may very well feel that the others who do not now get the EMA may have a need that she identifies, but I am pointing out to her that the

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bursary is better targeted in that it is focusing on the most vulnerable and it is providing more to them, which I am sure noble Lords would support.

Baroness Perry of Southwark (Con): Following on from the right reverend Prelate’s intervention, does my noble friend agree that rather than closing rural schools it might sometimes make sense to bus the children from an overcrowded city school and take them out to the pleasant air of a country school so that they could enjoy the very good teaching that one often finds in small rural schools?

Baroness Northover: That is a novel and interesting idea and I should think the children would welcome that. But as I said earlier, we have special funding to try to keep open some of these rural schools. In doing my research for this, one thing that I was encouraged by was the fact that 48% of primary schoolchildren in Britain walk to school, and I think that is excellent.

Baroness Maddock (LD): My Lords, I wonder whether my noble friend, when looking at the review she talked about, could look at what has happened in north Northumberland. When the Liberal Democrats took over the council, they instigated free transport for those aged over 16. We have a very low level of take-up of further and higher education in this part of the country and I hope she will look at this because it increased the numbers of students who took up further education. I hope that, like me, she is rather concerned that now the council is being run by Labour, it is proposing to do away with this.

Baroness Northover: I will indeed take that example back. As I said at the beginning, it is extremely important to keep young people in education and training. Having just come back from India, I am well aware that we are part of a global situation, and we have to ensure that our children are as best educated and skilled as possible.

NHS: General Practitioners


3.29 pm

Asked by Lord Hunt of Kings Heath

To ask Her Majesty’s Government what action they are taking to ensure that patients can get an appointment with their general practitioner.

Lord Hunt of Kings Heath (Lab): My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and refer noble Lords to my health interests in the register.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con): My Lords, the GP patient survey showed that the vast majority of patients are satisfied with their GP and rated their experience of making an appointment as good. To improve access further we have announced a £50 million fund to support GP practices in improving services and access

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for their patients. We have also reduced the quality and outcomes framework, the QOF, by more than a third. This will free up space for GPs to provide more personalised care. In addition, by March 2015, all practices will have the facilities to offer online appointment booking and repeat prescription services, increasing ease of access to GP services.

Lord Hunt of Kings Heath: My Lords, the noble Earl will know that the analysis by the Royal College of General Practitioners at the weekend showed, according to its work, that 10% of patients were finding it difficult to find an appointment with their general practitioner. Can the noble Earl tell the House what the Government are going to do about that? Does he agree that as hospitals are now moving to full seven-day working, the accessibility of primary care must be improved?

Earl Howe: I do agree with the noble Lord’s final comment in particular. We know that GPs are hard pressed. GP consultation rates have risen by 40% since 1995. We therefore need to take several steps to address that. One is in the medium to longer term: we need more GPs, and we have tasked Health Education England to ensure that at least 50% of medical students move to the GP specialty. In the immediate term, there are the measures that I mentioned relating to the GP contract and the £50 million fund, both of which are designed to make the use of GPs’ time a lot more productive than it is at present.

Lord Forsyth of Drumlean (Con): Can my noble friend tell me whether the previous Labour Government’s negotiation of the GP contract, which resulted in GPs being less available but being considerably better paid, may have something to do with the difficulties that we are now experiencing?

Earl Howe: My Lords, the resources that have been devoted to GP practice and primary care have gone up by a third in real terms since 2002. A lot of that was due to the revised GP contract. Unfortunately, that contract also allowed GP practices to opt out of out-of-hours care which, over time, has meant that patients have found it more difficult to access their GPs at evenings and weekends.

Baroness Meacher (CB): My Lords, very much respecting the point about out-of-hours care, I am aware of a number of practices that are finding it extremely difficult now to recruit GPs. Will the Minister undertake a review of the impact of the now falling GP pay on recruitment and therefore on the capacity of patients to obtain appointments?

Earl Howe: The noble Baroness raises a very important issue. I can tell her that the department and Health Education England have commissioned an in-depth review of the GP workforce looking towards a more sustainable solution for the longer term. The final report will be published in the summer. The preliminary report suggests that increasing the supply of practice nurses and greater collaboration with specialists may help to improve effective workforce supply.

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Baroness Wall of New Barnet (Lab): I follow on from the question of my noble friend Lord Hunt and the Minister’s acknowledgement that the effectiveness of primary care needs to be improved. I agree with what the Minister said about the improvement in some GP services, but still many individuals come to A&E at all times, whether the surgery is open or otherwise, which makes things very difficult. For instance, Barnet Hospital received 117 ambulances yesterday, which made it extremely difficult to deal with people who had walked in, who probably could have had their treatment somewhere else.

Earl Howe: The noble Baroness is quite right. The NHS is seeing an extra 1 million patients in A&E compared to three years ago. Despite the additional workload, it is generally coping very well although we know that departments are under strain. This is not just about A&E, as the noble Baroness will be aware, but about how the NHS works as a whole: how it works with other areas, such as social care, and how it deals with an ageing population and more people with long-term conditions. Dealing with all that means looking at the underlying causes, and that work is going on at the moment in NHS England.

Lord McColl of Dulwich (Con): Does the Minister agree that it was very unfortunate indeed that certain politicians, who shall remain nameless, said to the general practitioners: “We know what you’re doing. You should have been working but you were on the golf course and, from now on, we’re going to pay you only for what you do”? The general practitioners thought this was a rather good idea, because it resulted in a substantial pay rise.

Earl Howe: My Lords, there is no doubt that the general practitioners bit the Government of the day’s hand off, 10 years ago, and they had every reason to do so with the money that was being offered to them. However, while a feature of that contract was the quality and outcomes framework, which was a good idea in itself, it has resulted in a lot of box-ticking for GPs and it is that element which we have drastically reduced in the contract for next year. That will be helpful in freeing up GPs’ time.

Baroness Finlay of Llandaff (CB): My Lords—

Lord Grocott (Lab): My Lords—

The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford) (Con): My Lords, it is the turn of the Labour Party.

Lord Grocott: As the Minister was tempted, perhaps a little unwisely, to go down memory lane by way of explaining the current circumstances in the health service, perhaps I could tempt him to go a little further back down it by reminding him that it was the Labour Party which built the National Health Service in the teeth of Tory opposition. If you want to have the health service maintained in future, the secret is to get a Labour Government.

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Earl Howe: My Lords, the current Government have maintained funding for the National Health Service; that is contrary to the Labour Party manifesto of 2010, which promised to cut funding to the National Health Service.

Baroness Manzoor (LD): My Lords, I am fortunate that I am registered with an excellent GP practice which is well run, accessible and innovative. Over the last 30 years, I have seen significant improvements, and not only in the range of services that the practice provides. Who is responsible for ensuring that GPs are learning from other GPs the excellent practices which are available across the country?

Earl Howe:My Lords, there is a variety of means to ensure that GPs have continuous professional development. It is partly up to Health Education England to see that that happens and that there is peer-to-peer learning and review. Clinical commissioning groups also have an interest in ensuring that the quality of service provided by every member practice is of an equally high standard.

Public Bodies (Merger of the Director of Public Prosecutions and the Director of Revenue and Customs Prosecutions) Order 2014

Motion to Approve

3.38 pm

Moved by Lord Faulks

That the draft order laid before the House on 16 December 2013 be approved.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 27th Report from the Secondary Legislation Scrutiny Committee.Considered in Grand Committee on 24 February.

Motion agreed.

Electoral Registration and Administration Act 2013 (Transitional Provisions) (Amendment) Order 2014

Electoral Registration (Disclosure of Electoral Registers) (Amendment) Regulations 2014

Motions to Approve

3.38 pm

Moved by Lord Wallace of Saltaire

That the draft order and regulations laid before the House on 30 January and 3 February be approved.

Relevant document: 21st Report from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 24 February.

Motions agreed.

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Industrial Training Levy (Engineering Construction Industry Training Board) Order 2014

National Minimum Wage (Amendment) Regulations 2014

National Minimum Wage (Variation of Financial Penalty) Regulations 2014

Motions to Approve

3.39 pm

Moved by Viscount Younger of Leckie

That the draft order and regulations laid before the House on 18 December 2013 and 14 January be approved.

Relevant document: 19th Report from the Joint Committee on Statutory Instruments.Considered in Grand Committee on 24 February.

Motions agreed.

Pensions Bill

Report (2nd Day)

3.39 pm

Clause 33: Automatic transfer of pension benefits etc

Amendment 23

Moved by Baroness Sherlock

23: Clause 33, page 16, line 37, leave out “of which the person is an active member”

Baroness Sherlock (Lab): My Lords, I remind the House of my registered interest as the senior independent director of the Financial Ombudsman Service. Amendment 23 stands in my name and in the names of my noble friends Lord Hutton and Lady Drake. In moving Amendment 23, I shall speak also to the other amendments in this group. These amendments may look lengthy but their aim is remarkably precise.

Amendment 23 is very simple. It would retain the power of the Secretary of State to put into place the consolidation of small pots but would remove the part of the sentence that limits this to the “pot follows member” form of consolidation. This sounds technical but really it is not; it is about fairness. As the state is enrolling people into a pension scheme without their explicit consent, surely it has a very high duty of care to them to ensure that the money they are putting aside is not lost through excessive charges or poor investment choices driven by inadequate governance.

“Pot follows member”, or PFM in the jargon, is the Government’s solution to a problem. I shall comment on the problem, demonstrate why I believe that the Government’s proposed solution is flawed and propose an alternative. The Government believe that action is needed to address the large number of dormant small pension pots that arise under auto-enrolment when employees move to new jobs, which they do on average

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11 times in their career. We on these Benches agree that action is needed but we do not agree with the form of action proposed. The impact assessment confirms that the Government considered two default transfer options: first, pot follows member, where the small pension pot would follow the member to their new employer’s pension scheme; secondly, an aggregator scheme, where small pension pots would be transferred to an aggregator, such as NEST. The Government had two options but I believe that they chose the wrong one. However, I do not propose to substitute my judgment for that of the Government; rather, this amendment would simply increase the choice available to them. As it stands, Clause 32 allows only for pot follows member. Our amendments would enable the possibility of the Government using an alternative default aggregator model without the need for new primary legislation.

I would like to set out the context. The core issues of trust and confidence are still centre stage in getting people to start, and continue, saving for their retirement. This Bill, and auto-enrolment itself, should give people the confidence they need to save for their old age, but how can we demand that people save if they do not trust the savings vehicles and do not trust the pensions market as offering value for money? The pensions market is not a typical retail market where the consumer chooses the product. Under auto-enrolment, the consumer does not choose the product; the employer does. The only choice for the employee is either to stay in or to opt out and lose the employer’s contribution to their pension. There are also many intermediaries in the pension supply chain. Pensions are complex products, lacking transparency. While many large employers may have the resources to pay for good product advice or assessment of fund performance, SMEs may not. The demand side is weak.

3.45 pm

The pensions market has some very big players that offer pension fund products but also asset management and annuities. The OFT says that the four largest players have 61% of the members, 68% of the assets and 76% of the schemes. The results are predictable. The combination of a concentrated supply side and a weak demand side is bad for savers and allows the conflicts between the two to go unresolved, against the interests of savers. These characteristics of the pensions market combine, as the OFT’s excellent report says, to make the market dysfunctional. The OFT concluded that,

“competition cannot be relied upon to ensure value for money for savers in the DC workplace pensions market”.

Later amendments deal with other criticisms raised by the OFT, but Amendment 23 and its associated amendments deal specifically with the challenges of small pension pots created by auto-enrolment. The Government themselves estimate that 50 million pension pots will be created by auto-enrolment by 2050, 12 million of them under £2,000. Already one person in six has lost track of their pension pots, and there are 1 million unclaimed pension pots with less than £3,000 in them. The Government estimate that pot follows member will result in 27% of the workforce having more than five pension pots. The evidence is clear that a default consolidation mechanism is needed for those people who do not make an active choice to transfer their

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pension at the point of movement. The point at issue is how best to do this. The Government have chosen pot follows member but, given the state of the market, so well captured in the OFT report, pot follows member carries some really significant risks. There are major challenges associated with setting up and administering it. There have also been some significant criticisms of the pot follows member model of consolidation, as my noble friend Lady Drake explained very cogently at Second Reading. The National Association of Pension Funds concluded that the pot follows member system,

“could harm members’ savings and would be disproportionately complex for the industry to implement. We estimate that savers could lose a sizeable proportion of their savings if they move from a good scheme, with low charges and good governance, into a bad scheme with high charges and poor governance. This approach also exposes individuals’ entire savings to market risk when they transfer”.

We need to find a solution that helps savers but does not expose them to unnecessary risks. I should be very grateful if the Minister would respond in detail to those criticisms of pot follows member when he replies today.

I also invite him to tell the House which organisations in the field of pensions are backing pot follows member as a solution to this problem. I believe that the Association of British Insurers is, but will he list the other organisations for us today? Will he also tell us why he does not seem to have given any weight to consumer opinion? The DWP’s survey showed that 61% of respondents would choose an aggregator. That is the alternative. By contrast, the National Association of Pension Funds, the Cass Pensions Institute, Which?, the CBI, the EEF, Age UK, the TUC and the Centre for Policy Studies all prefer an aggregator model of consolidating pension funds. That is a pretty broad church of employers, staff representatives, consumer interest groups, academics and independent experts. They all believe that aggregators will meet the needs of savers better and, I suggest, the needs of employers.

There are different ways to pursue aggregators. We know that the NEST model works well. Cass and the NAPF have other ideas about ways to do it. I have carefully not sought to prescribe an aggregator in detail in this amendment, although I think we should take the opportunity to hardwire into aggregators features that will inspire trust and confidence and reassure savers who are understandably sceptical of the pensions industry, including the certification of aggregators and a public service obligation which would require them to accept automatic transfers in from pension schemes. The NAPF advocates a robust regulatory framework for aggregators and suggests that quality standards could be set so high that it is likely that only a small number of aggregators would be accredited.

We all want the consolidation of small pension pots and we all want an automatic transfer system. Our preference is for an aggregator model, but all we are asking for in our amendments is to allow further work to be done and for the possibility of aggregators to be the choice rather than what the Government have done, which is to restrict the choice only to pot follows member. If our amendment were accepted, the Government would have the opportunity for further investigation without the need for additional primary legislation.

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I think many in this field suspect that the Pensions Minister came to a fork in the road and chose the wrong fork. I understand that. I have done it myself in my time. I suspect the Minister realises now that he made a mistake, but he may just feel that he is too far down that road to turn back. We have the chance to build a bridge back to the main road where he can reflect further on the choices available to him. If he then decides he wants to stay with pot follows member, he may do so, but let us give him the chance to think again, not for our sake, but for the sake of all those workers who are doing the right thing and, despite cost of living pressures, are managing to put aside hard-earned money towards the cost of their retirement. I beg to move.

Baroness Drake (Lab): My Lords, I speak to Amendment 23 and the associated amendments to Schedule 17. I declare my interests as a trustee of both the Santander and Telefónica pension schemes, and as a member of the NAPF pension quality mark board.

It is clear that the Government are right that a solution is needed for millions of dormant small pots arising under auto-enrolment because of the large number of workplace schemes and the frequency with which workers change employers. The Government are right that neither scheme members nor providers benefit from workers leaving behind small pots as they move from job to job. The Bill gives the Secretary of State the power to make regulations to transfer automatically small pots to form, and keep track of, bigger, more efficient pots. The contentious issue is what the default transfer solution should be.

The Government, as my noble friend has said, has chosen pot follows member, whereby a small pension pot automatically follows a member to their new employer’s pension scheme, rather than the alternative of small pots being transferred to an aggregator scheme which consolidates all the small pots accumulated by an individual each time they change their employer. The Association of British Insurers supports this view but, as my noble friend has pointed out, many others—the Confederation of British Industry, the NAPF, the Cass Pensions Institute, Which?, EEF, Age UK, the TUC, the centre for pension studies and others—believe that pot follows member has a number of inherent risks and weaknesses.

The amendment retains the power of the Secretary of State to make regulations to transfer small pots automatically, but not the requirement that this must be through PFM. It allows time for further consideration by the Government without excluding any particular solution, as the consequences of getting this wrong are absolutely huge. PFM cannot be implemented without raising quality standards, or the Government risk transferring the savings of millions of ordinary people into many thousands of different schemes over which they have very little quality control.

Confidence that quality standards would be raised sufficiently has also been dented by the decision to defer introducing a charges cap, increasing the risk of saver detriment. PFM also increases the risks of charges and transaction costs being incurred on the whole pension pot as it moves with each job change, rather than on the incremental amount saved with the previous employers.

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Savings would be switched out of investment assets into cash, then reinvested with every job change, exposing workers to repeated transaction costs, extra investment risk and the risk of being switched out of low-risk lifestyle funds as they approach retirement. The more frequent the change of job, the greater the risks—risks that an aggregator could reduce.

The impact assessment acknowledges that individuals may be better or worse off, depending on the charges or the performance of the investment fund into the scheme into which they are transferred. However, the DWP expects,

“the gains and losses from differences between scheme charges and investment performance to cancel out on average”.

However, there is no consolation for individuals if their higher charges on transfer are off-set by another’s lower charges. An automatic transfer solution, using a limited number of aggregators, can require them to deliver a low-charge, high-quality standard, so mitigating the risk of saver detriment overall on transfer.

All qualifying automatic enrolment schemes should meet minimum standards, but regulating for differences in quality between schemes is impossible. There will always be a wide range between minimum standards and best practice. PFM fails to work for everyone, as it only transfers a pension pot into a workplace scheme of which an individual is an active member. It fails those who leave the workforce or become self-employed, as they are no longer active in an employer’s scheme. Their small pots are left to flounder. Employers may even default their small pot into a poorer-quality personal pension because they simply do not allow ex-employees to remain in their existing scheme. By comparison, an aggregator does not require a worker to be an active member, so it can cater for more people. PFM increases administrative burdens on employers, obliging every workplace scheme to be capable of communicating with every other scheme. Aggregators reduce this burden as there would be only a few schemes in which to transfer. Auto-enrolment was intended to carry a lighter regulatory burden on employers, especially SMEs. However, PFM rows in the opposite direction.

DWP modelling suggests that for any pot size, the aggregator will achieve slightly less consolidation with PFM, and that irrespective of pot size limit, the aggregator model would achieve at best only half of the net present value of the economic benefit of the PFM approach. DWP modelled pot follows member and aggregator over a range of pot size transfer limits, initially setting a £2,000 pot limit for aggregators while modelling PFM up to £20,000. After protests, it issued an ad hoc release, modelling the limit for aggregators up to £20,000. The Government argue that an aggregator solution would require transfers to be restricted to pots of £2,000 or less rather than the £10,000 intended for pot follows member, a figure suggested by providers to ensure that aggregators did not dominate the market and upset competition. The whole analysis underpinning auto-enrolment, the building of NEST and the need to regulate value for money is based on massive market failure and the inability to rely on fair competition. A hypothesis that dominant aggregators might emerge is not a valid argument against aggregation at higher pot levels.

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The assertion that the aggregator model would achieve only half of the net present value of the PFM approach assumes a one-off cost of £105 to transfer a pot and a PFM, and a saving of £20 each year from not having to administer annually a transferred pot. However, if that saving and assumption, an uncertainty in itself, turns out to be lower, the economic advantage of PFM also falls.

The DWP assumes that an aggregator cannot hold live pots, but if employers were also allowed to use a good-quality aggregator as their scheme, it could provide pension portability to many members, removing the need for transfers at all when they change jobs, and the costs that would go with it. The Government impact assessment accepts that it would be more efficient to use existing schemes as aggregators because,

“active members would be saving in the scheme that also holds their dormant pots”,

but they fail to reflect this concession in their own modelling.

As my noble friend said, there are significant delivery challenges with PFM. The Government believe that in the long term PFM will deliver low charges for savers due to efficiency savings made by the industry having to manage fewer small pots. However, those savings are by no means assured. The impact assessment acknowledges that,

“there is a risk that some providers will not experience the resource savings projected”,


“trying to estimate the cost of administrative processes many years ahead is fraught with difficulties and is a key uncertainty over the estimated cost savings”,

and that the,

“wide range of estimates provided … in discussions with stakeholders suggests there may be some genuine variation across providers”.

To be successful and to be delivered, PFM requires pan-industry collaboration. There are significant technical challenges for it to be delivered. The DWP is working with providers to find an industry-led IT solution. However, what happens if the direction of travel gets too tough and they disagree with the Government or with each other—not an infrequent occurrence? Do we get another deferral?

The unresolved weaknesses in the pot follows member solution are apparent in the inherent risks, the uncertainties in key assumptions and the delivery challenges. The transfer solution chosen by the Government must give greater confidence to mitigating saver detriment. This amendment reflects the very real concerns that not only I but many others have expressed, but it retains the power of the Secretary of State to make regulations automatically to transfer small pots while allowing him to give more time to detailed consideration on the model of the solution.

4 pm

Lord Turner of Ecchinswell (CB): My Lords, we have before us this afternoon a series of interconnected issues —the one of aggregation versus pot follows members, the issue of charge caps and the issue of transparency of charges. They are all related, because they are all to do with the absolute importance of getting value for money for pensioners. When we did the work of the Pensions Commission some eight years ago, the

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commissioners had two main concerns about the existing system of private pension provision. The first was a low level of participation and savings, and the second was very poor value for money—the phenomenon of many people, particularly those working for small and medium-sized enterprises and on a lower income, who paid fees such that by the time they came to retirement 25%, 30% or even 40% of their entire pension pot had disappeared in the fees charged to them.

Auto-enrolment addresses the issue of participation and, to a degree, that of cost, because it has removed some of the selling costs involved. It is essential to address the other issues driving costs, of which one is the proliferation of pots and the administration cost that comes with it. Therefore, it is good that there is a strong consensus that we need some form of policy intervention to arrive at a better consolidation of pots. I would accept that it could be done either way—by pot follows member or by aggregators—but I have not been convinced by the arguments that pot follows member is the superior route.

Part of the logic originally put forward, as the noble Baroness, Lady Drake, has said, was I think completely false—the idea that, if we had aggregation, we had to limit the transfer of the pots to only £2,000 versus a much higher transfer amount that would be allowed for pot follows members. There was absolutely no logic to that assumption. Indeed, I stress the point that there is no logic in any limit on transfers at all. The logic put forward by the impact assessment is that we need to avoid too much concentration of provision in this industry, so that a cap on transfers makes sure that the business is shared around in a fair fashion for lots of different providers. But it is very clear from the OFT work that this is not a market in which market competition works well, and the aim is not to have competition for its own sake; having a large number of competitors for its own sake is not an end. Competition is a good thing if it produces better value for consumers. If it is the case that aggregation into a relatively small number of aggregators will result in lower costs to savers, that should be our preferred route—one that is best for customers, not one that tries to spread the business around as a form of fairness to those already providers in the market. As a very thoughtful paper produced by the Centre for Policy Studies put it:

“The proposed pot size limit on transfers serves no consumer purpose: it should be scrapped”.

If we accept the logic that we should be allowing full transfers of whatever amount people have to enable us to get to what the Secretary of State called one big fat pot, that highlights one of the real dangers in pot follows member and makes it even greater—the danger that people can see their funds transferred into a higher charge scheme. Suppose someone has been in a NEST-administered scheme with one employer, paying 50 basis points—0.5%—for a default fund investment and then changes jobs and moves to a new employer who has chosen a scheme with a higher charge rate—perhaps 75 or 100 basis points. They will have originally made a decision to accept auto-enrolment on the basis of one set of charges but now we decide, in an Act of Parliament, to transfer them to somewhere where they will face higher charges in a way which, as I highlighted

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earlier, has not just a marginal but a huge effect on the amount of money they pay in charges and, therefore, on their pension for the whole of their retirement.

If we were committed to having in place very robust rules on the charge cap—this is why the issues before us this afternoon are somewhat linked—so that, for instance, we were confident that, if you had pot follows member, you would be going from a 50 basis point fund in NEST to a 50 basis point fund in where you had been transferred to, I accept that the decision might be a bit more balanced, although I think the other arguments that the noble Baroness, Lady Drake, put forward would still apply. However, we do not have that robust commitment in relation to the principle of a charge cap, let alone that it should be set at something like 0.5%. In the absence of that, we should not preclude the option of aggregation, which may well prove a more effective route to get to the low costs that we require above all for savers.

Lord Hutton of Furness (Lab): My Lords, I am happy to have the opportunity to make a brief contribution to the debate on this amendment. It is the first time that I have put my name to an amendment in this House. I have done so because I believe that this is a very important point in the progress of the Bill. Clause 33 is to be welcomed in principle. It is the first time that a Government have addressed the problem of the large number of small pension pots that are out there. We need a solution to that problem, so I absolutely welcome the Government’s attention to this policy. We all know that one of the by-products of auto-enrolment —it is a very good policy which clearly at this early stage is encouraging more people to save—is that we will see many more of these small pots created. It is certainly not in the interests of pension savers for these small pots simply to stay where they are.

I do not want to repeat the very able arguments put by my noble friend on the Front Bench, by my noble friend Lady Drake and, indeed, by my noble friend Lord Turner, but I will make a slightly different point. Your Lordships’ House has heard the technical arguments, which are complicated and difficult to digest. I come at this debate from a slightly different angle, having been a former Pensions Minister. There are many other former Ministers in this House and I hope that the international fraternity of former Ministers, who are represented so well in this House, will understand this point. There comes a moment in the gestation of any policy when it is necessary to take a step back to be sure about it and to satisfy yourself that the policy is the right one—particularly given the fact that, as my noble friend Lord Turner said, if we do not amend the Bill, we will make the transfer of these pension pots compulsory and run the risk that people could lose out. That is a real hazard of which we need to be aware. In my experience, the best time to take that pause is before you take that step; you should not to do so once you are committed to it, perhaps irrevocably, and when some people will lose out as a result.

I have been in this House and another place long enough to know the difference between a destructive amendment and a helpful one. I definitely would not have put my name to this amendment if I thought that

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it was in any way a torpedo below the waterline of the Government’s policy. It gives the Government the opportunity to take stock of the situation. There are serious concerns about the impact assessment undertaken to support the policy. Many others have spoken of their concerns about the impact assessment. It would be a misstep on the part of this House to take a decision on the basis of what we have been presented with. The impact assessment is simply not reliable enough.

All the amendment does is invite the Government to take another look at this policy. It does not rule out pot following member, if that is what the Government are committed to doing; it simply gives them the opportunity, without coming back to this place, to follow the path of aggregation. Many of us believe that the opportunities of aggregation have not been fairly and fully explored by the Government. We should look again at the issue of aggregation, but I do not want to mandate that as a policy for the Government. That would not be right, but it would be absolutely sensible and in the interests of millions of pension savers for us, at this very late hour, to take a step back—not to rule out the possibility that this might be the eventual path that we follow, but to allow us, and Ministers in particular, to take another look at the benefits of aggregation. I genuinely think that that would be the right course of action for Ministers to take at this moment, and I hope that the House agrees with that.

Lord Stoneham of Droxford (LD): My Lords, it is a good thing that in this debate no one disputes the need to consolidate pension pots to ensure that savers keep track of their pension savings and get the best return with the lowest charges. Nor does anyone dispute that inertia is an accepted principle to encourage savings through auto-enrolment, and should now be followed to encourage consolidation of pension pots. Let us remind ourselves that this measure covers people who do not want to opt to do things according to their own decision. It deals with people who are not at the moment making a decision as to what to do with their pension pots and it runs the risk of leaving them stranded.

We have to make a choice between two options—pot follows member to their new employer or the aggregator system. Let us also remember that this amendment merely delays a decision in order to allow more consideration. I do not want to make a political point, but this issue should have been addressed earlier and the problem is mounting. We know that in Australia, for example, as a result of changes made 20 years ago, there are 30 million stranded pension pots. That demonstrates that the sooner we get a consolidation process in place the better.

I have spent the past couple of weeks since Committee looking at the alternatives. One thing I think that we have to challenge is the ongoing closed nature of the pension sector, which relies on passive, uninformed and, sadly, often uninterested consumers, while the providers have a self-interest in prolonging obscurity and lack of information, leading to higher charges and lower performance.

The aggregator model basically assumes that competition and greater accountability cannot open up this marketplace. However, there is no clear proposition of what the aggregator model will actually be like. Will

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it rely on a small number of large schemes dominating the market, or will there be an unlimited aggregator model in which any scheme that meets certain criteria on charges and governance can act as an aggregator? There is no clarity about who will be responsible for selecting the aggregator scheme for the individual’s pot as it is to be transferred on moving jobs. Would it be done by the individual’s old employer, the old scheme, the new employer, the new scheme or by some form of automatic allocation?

The aggregator model is promoted as a safe haven for accumulated pension savings, with the implication that higher governance standards and restricted charging will offer greater security than pot follows member. I have to say that there is a difference in outlook on the process of reform between the two sides of the House on this issue. The aggregator model, by breaking the link with the employer’s current live scheme, will make it more difficult for individuals to understand where their money is and to engage with their retirement savings. An aggregator model will be a further distortion of competition in the pensions sector. We know that the sector is overconcentrated at the moment; we will merely be making it worse. Size also promotes complacency and inefficiency, and could increase risk where competition is weaker. It does not seem logical to attack regulated cartels in the energy and banking sectors but promote them in the pensions sector. The aggregator model will exploit inertia, too. Once the aggregator has the worker’s first pot, it is likely to receive subsequent pots because the consumer will make no active choice and there will be no incentive to innovate or improve performance.

In the member follows pot proposal we are providing two countervailing forces. There will be greater transparency for the consumer, who will remain close to their pot and will have a greater opportunity to understand the pension provision they are making, as well as its return and its charges. The employer will also be motivated to make the best provision for their staff in order to motivate them and keep them. The pot follows member proposal would be a more natural evolution of the market. An aggregator would be an irreversible sea change, as so much money would be concentrated in aggregator schemes that you would not be able to change the consolidation model without breaking up the aggregators.

4.15 pm

Are we also saying that we could accept two standards of regulation: one for the aggregators and minimum standards for the rest? I do not think that that would be acceptable. We need good, not minimum, standards throughout the sector, and employers and employees would be more interested in achieving this if they were both directly involved. Pot follows member is simpler to understand for the consumer, and surveys suggest that it is what the consumer wants. There is a dispute about the questions being asked but I think that simpler is always better than complexity.

Of course, we still need to see the regulation standards that will be set. We will need an economic and practical transfer system. We will need to cope with consumers leaving employment and going off into self-employment. We also need to deal with the current backlog of

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stranded pots. However, above all, we need to move forward on this before the problem gets greater and the advances of auto-enrolment are undermined by a vast number of lost and unaccountable pension pots.

Lord Flight (Con): My Lords, the noble Lord, Lord Stoneham, has made some very good arguments in favour of pot follows member, but I want to start—and I want to be sure that there is absolute clarity here—on the question of individuals having a choice about where they consolidate their pension savings. We are talking about the default option in discussing pot follows member versus aggregator and no more than that. When an individual joins a company scheme on moving jobs, it is quite important that he is able to choose where to consolidate his pension.

In terms of the default option, first, I have always felt strongly that the argument against the aggregator arrangements is: who chooses? That point was made by the noble Lord, Lord Stoneham. I cannot really see who is in an appropriate position to choose if we go to aggregators. Secondly, aside from the cartel point, the larger the amounts of money, the more difficult it becomes to manage that money. A whole lot of potential investments almost get ruled out because the market capitalisation of firms is not sufficiently large. Therefore, I do not see there being a huge virtue in having a limited number of colossal managers. I might add that NEST’s charges do not seem to be particularly competitive, particularly for the earlier years of membership.

To a certain extent, I believe that there are arguments for keeping all doors open but I do not feel that the case for the aggregator has by any means been won. On balance, I think that pot follows member is a better solution, essentially for the reasons given by the noble Lord, Lord Stoneham, although I shall not repeat them.

Lord German (LD): My Lords, I shall try not to repeat the remarks of my noble friends Lord Stoneham or Lord Flight, but my noble friend Lord Flight makes a very important point about the default choice which is before people. That is what this amendment must seek to address but I think that it fails to do so. Noble Lords will recognise that what we have before us is a debate about either pot follows member or the aggregator; it is not a debate about choice. Except for the noble Lord, Lord Turner, who said that under certain conditions, the balance might be right, it is clear that those on the Labour Benches want to see an aggregator policy.

I accept that that is the purpose behind the amendment but that is why it is important to examine these issues. I shall say a few words about why we must have some form of automatic transfers of pensions. The main beneficiaries of automatic transfers are those people who, for the first time, are saving for their retirement, following automatic enrolment into a workplace pension, and then move jobs, leaving behind a small pension pot. A system of automatic transfers is necessary to stop the proliferation of small pots that will ensue as a by-product of automatic enrolment. The average worker in this country will have 11 jobs in the course of their working life. Automatic enrolment by 2018 will probably have 9 million people within it, and maybe even 10 million by 2020 who are new savers, saving more for their

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retirement than their work-based pensions. These are people who are being automatically enrolled. If we took no action the projection is that there will be around 50 million dormant workplace defined contribution pension pots within the system by 2050.

A successful system must focus on the interests of the member, allowing them to consolidate their pension savings. I notice that the noble Lord, Lord Monks, is not in his place but he is a trustee of the NOW: Pensions fund. His fund conducted research of more than 2,000 21 year-old plus people with at least one workplace pension. The result was quite clear: 39% of the individuals surveyed said that pot follows member was their preferred option compared to just 6% for the aggregator model. It was suggested that the aggregator model is so difficult to understand that people chose the easier one because they recognised its simplicity. Is it not the case that we are looking for simplicity? People were asked, “Do you want your pension to follow you, or do you want it placed somewhere else, which will be some distance from you both in employment terms and in being able to influence what it does?” People in that survey, which is probably one of the most comprehensive that we have had, said, given the choice, they preferred to have their pot following them when they changed jobs.

That suggests that explaining an aggregator model to the public, who do not understand the pensions market well anyway, would be much more of a challenge. People will not understand what is being made of their pension, seeing it going away to a distant aggregator, compared to the idea that their pension moves with them to their new employer. I do not believe that there is evidence that the interests of individuals would be best served by the undefined aggregator system. It will be difficult to administer, as my noble friend Lord Stoneham said, and will lead to the market being dominated by a few large schemes and providers, and where everyone will be guaranteed to have two pensions rather than one.

The issue raised by the noble Lord, Lord Turner, and by the noble Baroness, Lady Drake, about quality is crucial. I recognise, as we all do, that the OFT in its report on DC pension schemes said clearly that competition was not driving good value for money for all savers. That is precisely why the Government intend to legislate, and we are seeing some of that today at Clause 43 and Schedule 18, which the Government are dealing with. The whole process of raising the standard is crucial—most importantly, perhaps on charges. Perhaps my noble friend can confirm that it is the Government’s intention to introduce matters in relation to charging before the end of this Parliament.

I believe, too, that we have to consider the choices that people will have to make. Who will decide where an aggregator policy for them will be placed? How would the allocation process work? Would it be by a random list, a computer allocation or perhaps names in a hat? These are all unknowns. What happens to people’s pensions which are forced on them when they move jobs under the aggregator system is very unsatisfactory. Far better that they should have a simple system in which they have one contract with one pension which they take through with them.

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However, the crucial factor is the standards that each of these pensions schemes have applied to them. That is why I welcome the Government’s initiative. I know that by the end of this year they will introduce proposals to ensure that the standards are right. As my noble friend Lord Stoneham said, we are looking for high standards, not a minimum standard, in this process.

We have before us a choice. We already have 2 million new savers as a result of automatic enrolment, and waiting will mean that many of the people being enrolled will be denied this opportunity as another scheme would have to be worked up and compared with the one proposed. The pension funds are already working with government in order to work the scheme up and to get it ready and in place. Can my noble friend tell me what progress has been made already to ensure that pot follows member is in a fair and fit state to be introduced rapidly?

We have to make a choice. It seems to me that we should choose the pot-follows-member position and thereby give greater power and greater pension outcome to millions of new savers. We should not accept the amendment.

Lord Turnbull (CB): My Lords, I have not previously intervened in this debate. I declare an interest as a director of a life insurance company, the Prudential, which is not a big player in this market, but the views I will express are my own.

My first point relates to the high rate of change in our economy and society, which was remarked upon by the noble Lord, Lord Hutton. People are increasingly likely to adopt more flexible employment patterns. Does a seasonal worker—let us say he is a county cricketer who is not good enough to have a central contract with the England team but plays cricket in the summer and works in a fitness centre in the winter or, like Alec Bedser, humps bricks and builds up his strength—alter his provider season by season? How would you make that kind of system work? The pension pot follows member would not necessarily work for those kinds of people.

Secondly, the life expectancy of employers is not as great as one might think. Only 18 of the original FTSE 100 members are still in the index—some of them have gone out of business or been taken over and broken up—and turnover is likely to be even greater at the SME level. So relating pensions to one’s employer is not necessarily the best thing to do.

The noble Lords, Lord Stoneham and Lord German, have tried to argue that the aggregator model will provide a comfortable ride for the existing incumbents and will create mega-providers. However, who are the providers of pot follows member? They are the existing pension providers. We should not make the easy assumption that one model is anti-competitive and will produce a concentrated market and the other will create a highly diverse and competitive market. They each have their own faults and we should not attribute a monopoly of virtue to pot follows member.

That is why this amendment, which provides a degree of choice, is valuable. It would give us a chance to rethink the circumstances in which aggregator is better and to answer the many questions that have been raised, and to rethink the circumstances in which pot follows member is the superior solution.

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4.30 pm

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con): My Lords, I feel rather privileged to have been here this afternoon to hear a pantheon of some of the leading pension thinkers in the country concentrate on an issue. As a result it has been a very interesting debate. Clearly we all agree that this is a very important topic. We need to find a solution to the issue of small pots and I will make a case for why the Government believe that automatic transfer is the right solution and why we do not need any alternative provision.

We are clear that the pot-follows-member model, with small pension pots automatically moving and being combined with the individual’s current live workplace pension, will lead to increased consolidation of pension pots, better outcomes in retirement and better member engagement, as well as administrative savings for the industry. The pot-follows-member model builds on the essential foundation of automatic enrolment —the employer/employee relationship that is proving so successful in driving retirement saving, including among those who have never had a pension before. Employees identify with this relationship and with the idea of pots following them to their new employer.

My noble friend Lord German mentioned the research carried out by NOW: Pensions. It showed that 39% of individuals would like their pot to follow them automatically compared with 6% who wanted their pot sent to an aggregator scheme. For the purposes of that research, NOW: Pensions defined the aggregator model as a pot that is automatically moved to a central scheme that meets certain standards. This definition, although high level, is helpful because otherwise we have no clear sense of what an aggregator actually is. Indeed, these amendments do not help define what an aggregator is or how it would work. In fact, these amendments—which have been revised since we discussed them in Grand Committee—appear to be even less workable than before. For instance, they appear to give the decision about where to move the pot to the ceding scheme. By definition, the ceding scheme is the scheme with the least interest in the individual and their outcome in retirement because it is losing the pot.

This seems entirely counterintuitive when compared with the successful current account switching service—CASS—that helps customers move banks. This service puts the onus on the new bank to ensure that the switch happens, because it was recognised that the bank gaining the account will have more interest in making the move as smooth as possible than the old one. It is perhaps not unreasonable that when people move employers and join a new pension scheme they will expect the new scheme to do the work of transferring the pot for them, as happens when they switch their current account, but this would not be true under a push transfer model which these amendments would introduce.

I agree with my noble friend Lord Flight, who points out a real problem with the proposed aggregator model. It really is not clear who chooses where the pension is aggregated. There are other fundamental flaws, such as the lack of any provisions to ensure that the same scheme is used each time—someone could end up with pots in multiple aggregators, undermining

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the core aim of consolidation. Moreover, there is no definition of what an aggregator is, who could set one up and what the criteria for doing so would be. This lack of clarity will not help the industry in driving forward the development of the implementation model. Noble Lords may say that this detail can be worked out at a later date, but it is exactly this detail that needs to be resolved before any measure can be put on the statute book.

I have real concerns that the House is being asked to accept a theoretical concept, with all the details to be entirely devolved to secondary legislation, but I also have issues with the concept itself. The Government welcome the recent Office of Fair Trading report and accept its conclusions. The OFT was damning of the pensions market, saying that,

“the combination of a complex product and weaknesses in the buyer side of the market means that competition cannot be relied upon to drive value for money for all scheme members”.

We have heard the argument that the introduction of automatic transfers into aggregators will shake up the market and essentially skew it in favour of consumers by ensuring that all can save into large schemes that provide excellent value for money. However, I believe that the aggregator model would skew the market in favour of large providers and would reinforce the dominance of a few big players.

I believe the assumption is that aggregators would in some way be licensed and that schemes would have to meet certain standards to be able to act as aggregators. This would favour current large schemes that have the business model to enable them to accept large numbers of pots from individuals with employers they have previously had no contact with. Alternatively, if the large players in this market do not take the challenge, the Government would have to subsidise an aggregator scheme, which would raise state aid issues in Europe.

Aggregator schemes would enjoy a huge advantage over the rest of the market. They would be the default destination for almost all pots and, as the consumer would not be making an active choice, there would be no incentive to innovate. We have estimated that there will be three-quarters of a trillion pounds in lost pots by 2050, which is a lot of money—

Lord Hutton of Furness: I am very grateful to the Minister for giving way. Can he tell us what assumptions underpin the figure that he has just given to the House?

Lord Freud: Those figures are pretty detailed and I will write to the noble Lord with them if I do not get a detailed breakdown in the next minute or two—which I might. It is a huge amount of money, which the noble Lord will appreciate as well as anyone else, and it is a lot of money to have in a complacent and stagnant market. If, as the noble Baroness, Lady Drake, suggested, employers could choose the aggregators, and these aggregators were to become open to active members, this market dominance would be complete.

Baroness Drake: I do not think I said that the employer could choose the aggregator. I said that if the aggregator was able to have active members as well as aggregated members, that would enhance portability,

26 Feb 2014 : Column 945

particularly in some industries, which would reduce the need for transfers and the consequential costs. I do not think I actually said that the operating model would mean the employer chose the aggregator—I left that to the departmental assessment.

Lord Freud: Well, if they started moving to active members as well, whatever the route, it would give this group of organisations an enormous market position. I confirm to the noble Lord, Lord Hutton, that I will have to write to him.

It seems strange that, in response to the OFT’s conclusion that there is a lack of competition in the pensions market, the Opposition are calling for the creation of a market dominated by a few big master trusts. We need only to look at other industries, such as the energy market or banking sector, to see that dominance by a few powerful players can result in real concerns for consumers. If we were to press on regardless with enabling these large aggregators to come into being, we would need to be clear that there would be no turning back. It would be extremely difficult to reverse the process if we found that an aggregator model was not sustainable, and to tackle the vested interests if consumers were getting a poor deal.

We have heard—for example, from the noble Baroness, Lady Sherlock—that the Government are alone in supporting pot follows member. It is not true that few people support it but I agree that there is a powerful lobby supporting the aggregator model. It is hardly surprising that those who are shouting the loudest are those who are lobbying on behalf of master trusts that could come to dominate the market under an aggregator model.

The ABI itself supports pot follows member, as do many groups within it—Aviva, Fidelity, Friends Life, HSBC, Origo, Scottish Life and Scottish Widows—as well as non-members of the ABI such as Alexander Forbes, Altus, Buck, Foster Denovo, the Investment Management Association, JLT and the National Federation of Occupational Pensioners.

This Government’s starting point is the consumer—and it is the individual who wants to see their pension follow them to their new employer, as the research from NOW: Pensions, which we have already touched on, underlines. The ABI’s consumer research showed that 58% of individuals said that the pot should follow them automatically to the new job; 10% were in favour of a new central scheme, the aggregator; 15% said the pot should stay where it is and it is up to you to move it; and 17% said it should be visible with all other pension pots at a central place online. That is the sentiment among consumers.

I appreciate that some consumer groups have concerns. I say to them that we are listening to those concerns and that low charges and scheme quality are top of our agenda, not just for automatic transfers but for all schemes. We want these groups to work with us and the industry now to deliver pot follows member in the simplest, safest way for consumers.

The noble Baronesses, Lady Drake and Lady Sherlock, raised concerns about consumer detriment. I remind the House about the work the Government are doing to ensure that all schemes are good schemes. Uniformity

26 Feb 2014 : Column 946

is not good for consumers, but only if all aggregators had identical charges and standards would we completely remove the risk of an individual moving to a worse scheme. The noble Lord, Lord Turner, made the point about the interconnectedness of these issues. The Minister for Pensions has confirmed that he remains “strongly minded”—I think that is fairly parliamentary language —to introduce a charge cap. My noble friend asked about the DWP response to the OFT and the consultation on charges. That response is coming soon and we will be discussing that later this afternoon.

Baroness Hollis of Heigham (Lab): Can the Minister tell us what the department has in mind as an appropriate charge cap?

4.45 pm

Lord Freud: Various figures have been talked about, but I do not think I can pre-empt the answer to that question, which will be issued very soon.

In contrast to legislating radically to change the market, we see pot follows member as a way of building on the existing automatic enrolment structure quickly to reach a point where transferring pots is an integral part of the industry. Pot follows member does not prevent industry from innovating in future. Indeed, as individuals become more engaged in pension saving, they may want to be more involved in deciding where their pension pot is and in choosing a preferred scheme.

In response to the point made by the noble Lord, Lord Hutton, there is even scope to introduce an aggregator in future if there is demand for it, so we are not closing any doors by pursuing this route now.

Lord Flight: I think that the Minister just said it, but can he confirm what I view as a crucial point, which is that the individual is still free to choose where he might wish to place his consolidated pension savings and that we are talking only about the default option? Therefore, as people become more informed, some may choose not to consolidate in their employer’s scheme.

Lord Freud: I can confirm my noble friend’s question—or I can give the answer to confirm it.

At this point in time, when we are just starting out with automatic enrolment and successfully getting people saving for the first time, we need to make it as easy as possible for them to build their pension. We need to use inertia in the right way. That means moving a small pension pot to the current live pot where the individual can see it growing, rather than sending it off to a scheme with which the individual has no engagement and in which they have no interest.

Now is not the time to break the link between the individual and his or her employer. Automatic enrolment is going well, with 3 million individuals newly saving and less than 10% opting out. It is reinforcing the workplace pension as a key element of the benefit package that employers offer their staff after decades of decline in occupational pensions.

I have heard the argument that these amendments are designed to give the Government another option, which appears on the surface to be a generous approach.

26 Feb 2014 : Column 947

Providing the Government with greater flexibility is one thing, but listening to the debate today, I suspect that few on the Opposition Benches want the Government to have the flexibility to chose anything but the aggregator model.

In practice, the amendments will leave us in limbo and bring back uncertainty at a time when industry is beginning to get behind, and position itself to deliver, pot follows member. As my honourable friend in the other place announced on Monday, officials are currently exploring the feasibility of using HMRC’s PAYE data and system to help us to deliver a secure, efficient and straightforward pot-matching element to implement the process.

In response to the assertion of the noble Baroness, Lady Sherlock, that pot follows member would be hard to set up, we have recently had some very positive workshops with industry representatives and HMRC. The model is already inspiring some exciting and innovative approaches to transferring money with an employee as they move jobs. The cost of the transfer was specifically mentioned by the noble Baroness, Lady Drake. It will be the same for an aggregator as for pot follows member. Altus has challenged the claim that pension transfers are too hard and too expensive by stating that transfers for ISAs and funds cost £1 or less, and that this can be replicated for pension transfers.

After two years of discussion and debate on this issue, even if we cannot agree with the Opposition on the right delivery model, I hope that we can agree that we need to take a positive step forward. On the “pause to reflect” point made by the noble Lord, Lord Hutton, I do not believe that we are rushing into this measure. We first consulted more than two years ago and followed up with two policy papers. We also held extensive discussions with industry and consumer groups within that period. I urge the noble Lords to withdraw their amendment to allow us to work together, and work with industry, to make automatic transfers a reality.

Baroness Sherlock: My Lords, I thank all noble Lords who have contributed to what has been another classic House of Lords debate. I particularly thank my co-signatories to this amendment, my noble friends Lord Hutton and Lady Drake. The Minister referred at the outset to a pantheon of pensions expertise, and indeed it has been. The noble Lord, Lord Bates, joked in Grand Committee that the Pensions Commission was almost quorate since two of its three members were gathered there. I say to the Minister, as I said then to the noble Lord, Lord Bates, that if I were sitting where he was and this pantheon was sitting opposite me and telling me that I was wrong, I would be pausing, just as my noble friend Lord Hutton suggested.

A number of arguments have been made today. The Minister says that the Government have been discussing this for two years but this House has not. When we discussed it in Grand Committee, I do not recall hearing a single supportive speech for pot follows member. I am glad that the researchers of the noble Lord, Lord Stoneham, moved him from his position then to the position that he articulated so clearly today, but I do not think that anyone in this House has heard those arguments made until today. I am glad that we have

26 Feb 2014 : Column 948

heard them, and very glad that the Minister has been doing work with the industry to get it ready to deliver what will be this Act. However, it is still a Bill; it is not an Act and this House has every right to make its own decisions. Whatever decisions Parliament makes, I have no doubt that at that point the Minister and his colleagues will go out there to deliver.

What arguments have we heard today against our enabling amendment? First, we have heard that it is not clear what the choice is. Well, that is the point: the amendment says to the Government, “Go back and think again. We will work with you if necessary, but think again”. It is said that there will be a delay. Yes, there will be a delay, but the wrong thing would be to rush ahead and make a decision because you want it now, if the consequences would be very serious because it is the wrong decision. This is too serious to rush into. A lot of criticisms have been made so far. For example, the Minister says that the way in which this amendment is constructed would leave the choice of the aggregator with the outgoing employer. If the Minister looks again at Amendment 23J, he will find in fact that it says that regulations may do one of two things. There is a big “or” between the two; it is either push or pull. Everything about these amendments is constructed to say that we recognise there are choices to be made but think that the Government have not given enough thought to what should be the right way forward for consumers.

We have heard nothing to counter the arguments made across the Benches here. What about all those who leave employment? What about the self-employed, who make up the fastest-growing sector: where do their pension pots go? What happens to the pension pot of the seasonal cricketer mentioned by the noble Lord, Lord Turnbull? I am sorry, but I live in Durham and our cricketers are mostly in the England teams, so I cannot advise him there. However, I can tell him that that person would really struggle under pot follows member. What about all those people in mini-jobs who will find themselves in a position of not having a single employer? Much has been said about the relationship between employer and employee, but the truth is that every model of pension scheme struggles with employee engagement. As the noble Lord, Lord Flight, pointed out, the whole point of this is that it addresses only the position of those who make no active choice themselves, yet those are the people to whom the state owes the greatest responsibility. These are the people whose funds we are moving, without their explicit consent, from one employer to another.

Much has been made of the fact that we want all the schemes to be of the best quality, but let’s get real—the OFT has already said that the market is not working. The noble Lord, Lord Turner, has described the challenges they found: people are learning when they come to retire that between 25% and 40% of their pension pot has gone in charges. If the Government really are committed to tackling charges I would invite the Minister to intervene again and to give a proper answer to his noble friend, the noble Lord, Lord German, about when the Government will cap pension charges. If he will not tell us now, I have a very simple solution for him—he can vote for our amendment in the next group and cap the charges tomorrow.

26 Feb 2014 : Column 949

Lord Freud: I really do need to take up the invitation. I think that we have made it clear that we will deal with this within this Parliament, which I think means by a date some time in May. I think that that is fairly clear.

Baroness Sherlock: It is interesting, my Lords. What has happened—without wishing to pre-empt the next debate—is that the Opposition pushed the Government to do this but the Government said that it was not necessary. The Minister then went out to consultation and suddenly seemed to get cold feet, and he put it on hold for a year. There is a very small window but I am delighted to hear it. But the Minister can vote for our amendment and need not wait. The Government are again being invited to do it, and my noble friend Lord Hutton has very powerfully made the case for why they should.

I have been careful to try not to put my personal preference in the proposals, but I would be happy to join the Minister in a proper cross-party, consensual discussion about the way forward. The Labour Party introduced auto-enrolment and I pay tribute to the Government for taking it forward. We all share a common objective: to get as many people as possible saving for retirement. They can do so only if they have trust and confidence in the pensions market and in the schemes they are investing in. If they do not have that confidence they will not save and we will all be the poorer. The best way to do it is to ensure that there are schemes in which people can have confidence. I believe this is the right way forward and I wish to test the opinion of the House.

4.56 pm

Division on Amendment 23

Contents 201; Not-Contents 252.

[See col. 981 for explanation of mistake in voting figures.]

Amendment 23 disagreed.

Division No.  1


Aberdare, L.

Adams of Craigielea, B.

Ahmed, L.

Alton of Liverpool, L.

Anderson of Swansea, L.

Andrews, B.

Bach, L.

Bakewell, B.

Bassam of Brighton, L. [Teller]

Beecham, L.

Berkeley, L.

Billingham, B.

Blackstone, B.

Boateng, L.

Boothroyd, B.

Borrie, L.

Bragg, L.

Broers, L.

Brooke of Alverthorpe, L.

Brookman, L.

Browne of Belmont, L.

Browne of Ladyton, L.

Campbell-Savours, L.

Carter of Coles, L.

Clancarty, E.

Clark of Windermere, L.

Clinton-Davis, L.

Collins of Highbury, L.

Corston, B.

Crawley, B.

Davies of Coity, L.

Davies of Oldham, L.

Dean of Thornton-le-Fylde, B.

Deech, B.

Donaghy, B.

Donoughue, L.

Drake, B.

Dubs, L.

Eatwell, L.

Elder, L.

Elis-Thomas, L.

Elystan-Morgan, L.

26 Feb 2014 : Column 950

Evans of Temple Guiting, L.

Farrington of Ribbleton, B.

Faulkner of Worcester, L.

Fellowes, L.

Foster of Bishop Auckland, L.

Foulkes of Cumnock, L.

Gale, B.

Gibson of Market Rasen, B.

Glasman, L.

Gordon of Strathblane, L.

Gould of Potternewton, B.

Grantchester, L.

Grenfell, L.

Grey-Thompson, B.

Griffiths of Burry Port, L.

Grocott, L.

Hannay of Chiswick, L.

Hanworth, V.

Harries of Pentregarth, L.

Harris of Haringey, L.

Harrison, L.

Hart of Chilton, L.

Hastings of Scarisbrick, L.

Hayman, B.

Hayter of Kentish Town, B.

Healy of Primrose Hill, B.

Henig, B.

Hilton of Eggardon, B.

Hollick, L.

Hollis of Heigham, B.

Howarth of Breckland, B.

Howarth of Newport, L.

Howe of Idlicote, B.

Howie of Troon, L.

Hoyle, L.

Hughes of Stretford, B.

Hughes of Woodside, L.

Hunt of Kings Heath, L.

Hutton of Furness, L.

Hylton, L.

Irvine of Lairg, L.

Joffe, L.

Jones, L.

Jones of Moulsecoomb, B.

Jones of Whitchurch, B.

Jordan, L.

Judd, L.

Kennedy of Cradley, B.

Kennedy of Southwark, L.

King of Bow, B.

Kirkhill, L.

Knight of Weymouth, L.

Lane-Fox of Soho, B.

Layard, L.

Lea of Crondall, L.

Leicester, Bp.

Leitch, L.

Levy, L.

Liddell of Coatdyke, B.

Liddle, L.

Lipsey, L.

Lister of Burtersett, B.

Low of Dalston, L.

Luce, L.

Lytton, E.

McAvoy, L.

McConnell of Glenscorrodale, L.

McDonagh, B.

Macdonald of Tradeston, L.

McFall of Alcluith, L.

McIntosh of Hudnall, B.

MacKenzie of Culkein, L.

McKenzie of Luton, L.

Mandelson, L.

Mar, C.

Martin of Springburn, L.

Masham of Ilton, B.

Massey of Darwen, B.

Maxton, L.

Meacher, B.

Mendelsohn, L.

Monks, L.

Moonie, L.

Morgan of Ely, B.

Morgan of Huyton, B.

Morris of Handsworth, L.

Morris of Yardley, B.

Morrow, L.

Moser, L.

Noon, L.

Nye, B.

O'Neill of Bengarve, B.

O'Neill of Clackmannan, L.

Palmer, L.

Parekh, L.

Patel of Bradford, L.

Pendry, L.

Pitkeathley, B.

Plant of Highfield, L.

Ponsonby of Shulbrede, L.

Prashar, B.

Prosser, B.

Quin, B.

Radice, L.

Ramsay of Cartvale, B.

Ramsbotham, L.

Rea, L.

Reid of Cardowan, L.

Rendell of Babergh, B.

Richard, L.

Robertson of Port Ellen, L.

Rooker, L.

Rosser, L.

Rowlands, L.

Royall of Blaisdon, B.

Sandwich, E.

Sawyer, L.

Scotland of Asthal, B.

Sherlock, B.

Simon, V.

Smith of Basildon, B.

Smith of Finsbury, L.

Snape, L.

Soley, L.

Stern, B.

Stevenson of Balmacara, L.

Stoddart of Swindon, L.

Stone of Blackheath, L.

Symons of Vernham Dean, B.

Taylor of Blackburn, L.

Taylor of Bolton, B.

Temple-Morris, L.

Thornton, B.

Tomlinson, L.

Tonge, B.

Touhig, L.

Triesman, L.

Tunnicliffe, L. [Teller]

Turnberg, L.

Turnbull, L.

Turner of Camden, B.

Turner of Ecchinswell, L.

Uddin, B.

Wall of New Barnet, B.

Walpole, L.

Warner, L.

Warwick of Undercliffe, B.

Watson of Invergowrie, L.

West of Spithead, L.

Wheeler, B.

Whitaker, B.

Whitty, L.

Wilkins, B.

Williams of Elvel, L.

Wills, L.

26 Feb 2014 : Column 951

Wood of Anfield, L.

Young of Hornsey, B.

Young of Norwood Green, L.

Young of Old Scone, B.


Addington, L.

Ahmad of Wimbledon, L.

Alderdice, L.

Anelay of St Johns, B. [Teller]

Armstrong of Ilminster, L.

Ashdown of Norton-sub-Hamdon, L.

Astor of Hever, L.

Attlee, E.

Baker of Dorking, L.

Bakewell of Hardington Mandeville, B.

Bates, L.

Benjamin, B.

Berridge, B.

Bichard, L.

Bilimoria, L.

Black of Brentwood, L.

Blencathra, L.

Bonham-Carter of Yarnbury, B.

Borwick, L.

Bottomley of Nettlestone, B.

Bourne of Aberystwyth, L.

Bowness, L.

Brabazon of Tara, L.

Bradshaw, L.

Brinton, B.

Brooke of Sutton Mandeville, L.

Brougham and Vaux, L.

Brown of Eaton-under-Heywood, L.

Browning, B.

Burnett, L.

Butler-Sloss, B.

Caithness, E.

Carlile of Berriew, L.

Carrington of Fulham, L.

Carswell, L.

Cathcart, E.

Chalker of Wallasey, B.

Chidgey, L.

Clement-Jones, L.

Colville of Culross, V.

Colwyn, L.

Condon, L.

Cope of Berkeley, L.

Cormack, L.

Cotter, L.

Courtown, E.

Coussins, B.

Craig of Radley, L.

Craigavon, V.

Crathorne, L.

Cumberlege, B.

De Mauley, L.

Deighton, L.

Dixon-Smith, L.

Dobbs, L.

Doocey, B.

Eaton, B.

Eccles, V.

Eccles of Moulton, B.

Elton, L.

Falkner of Margravine, B.

Faulks, L.

Feldman of Elstree, L.

Fink, L.

Finlay of Llandaff, B.

Flight, L.

Fookes, B.

Forsyth of Drumlean, L.

Fowler, L.

Framlingham, L.

Freud, L.

Garden of Frognal, B.

Gardiner of Kimble, L.

Gardner of Parkes, B.

Garel-Jones, L.

Geddes, L.

German, L.

Gold, L.

Goodlad, L.

Grade of Yarmouth, L.

Greaves, L.

Greenway, L.

Grender, B.

Griffiths of Fforestfach, L.

Hamilton of Epsom, L.

Hamwee, B.

Hanham, B.

Harris of Peckham, L.

Harris of Richmond, B.

Henley, L.

Heyhoe Flint, B.

Higgins, L.

Hill of Oareford, L.

Hodgson of Abinger, B.

Hodgson of Astley Abbotts, L.

Hollins, B.

Holmes of Richmond, L.

Home, E.

Hooper, B.

Horam, L.

Howard of Lympne, L.

Howe, E.

Howell of Guildford, L.

Humphreys, B.

Hunt of Wirral, L.

Hurd of Westwell, L.

Hussain, L.

Hussein-Ece, B.

Inglewood, L.

James of Blackheath, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jones of Cheltenham, L.

Jopling, L.

Kilclooney, L.

King of Bridgwater, L.

Kirkwood of Kirkhope, L.

Knight of Collingtree, B.

Kramer, B.

Laming, L.

Lamont of Lerwick, L.

Lang of Monkton, L.

Leigh of Hurley, L.

Lester of Herne Hill, L.

Lexden, L.

Lichfield, Bp.

Lingfield, L.

Linklater of Butterstone, B.

Livingston of Parkhead, L.

Loomba, L.

Lothian, M.

Lucas, L.

Lyell, L.

McColl of Dulwich, L.

Macfarlane of Bearsden, L.

MacGregor of Pulham Market, L.

Maclennan of Rogart, L.

McNally, L.

26 Feb 2014 : Column 952

Maddock, B.

Magan of Castletown, L.

Mancroft, L.

Manzoor, B.

Marks of Henley-on-Thames, L.

Marland, L.

Marlesford, L.

Miller of Chilthorne Domer, B.

Montrose, D.

Moore of Lower Marsh, L.

Morris of Bolton, B.

Moynihan, L.

Naseby, L.

Nash, L.

Neville-Jones, B.

Neville-Rolfe, B.

Newby, L. [Teller]

Newlove, B.

Noakes, B.

Northover, B.

Norton of Louth, L.

Oakeshott of Seagrove Bay, L.

O'Cathain, B.

Oppenheim-Barnes, B.

Paddick, L.

Palumbo of Southwark, L.

Pannick, L.

Parminter, B.

Patel, L.

Patten, L.

Perry of Southwark, B.

Phillips of Sudbury, L.

Plumb, L.

Popat, L.

Purvis of Tweed, L.

Randerson, B.

Rawlings, B.

Razzall, L.

Redesdale, L.

Rennard, L.

Ridley, V.

Risby, L.

Roberts of Llandudno, L.

Rodgers of Quarry Bank, L.

Roper, L.

Rowe-Beddoe, L.

Sassoon, L.

Scott of Needham Market, B.

Seccombe, B.

Selborne, E.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharp of Guildford, B.

Sharples, B.

Sheikh, L.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shipley, L.

Shrewsbury, E.

Shutt of Greetland, L.

Skelmersdale, L.

Slim, V.

Smith of Clifton, L.

Spicer, L.

Stedman-Scott, B.

Steel of Aikwood, L.

Stephen, L.

Stewartby, L.

Stirrup, L.

Stoneham of Droxford, L.

Storey, L.

Stowell of Beeston, B.

Strasburger, L.

Strathclyde, L.

Suttie, B.

Taverne, L.

Taylor of Goss Moor, L.

Taylor of Holbeach, L.

Taylor of Warwick, L.

Tenby, V.

Teverson, L.

Thomas of Gresford, L.

Thomas of Swynnerton, L.

Thomas of Winchester, B.

Tope, L.

Trees, L.

Trefgarne, L.

Trenchard, V.

Trimble, L.

True, L.

Trumpington, B.

Tugendhat, L.

Tyler, L.

Tyler of Enfield, B.

Verjee, L.

Verma, B.

Wakeham, L.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Walton of Detchant, L.

Warnock, B.

Warsi, B.

Wei, L.

Whitby, L.

Wilcox, B.

Williams of Crosby, B.

Williams of Trafford, B.

Willis of Knaresborough, L.

Wrigglesworth, L.

Younger of Leckie, V.

5.10 pm

Schedule 17: Automatic transfer of pension benefits etc

Amendments 23A to 23P not moved.

Clause 38: Automatic enrolment: powers to create general exceptions

Amendment 24

Moved by Lord Freud

24: Clause 38, page 19, line 12, at end insert—

“( ) But the regulations may not provide for an exception for employers of a particular size.”

26 Feb 2014 : Column 953

Lord Freud: My Lords, it was Parliament’s original intention that everyone should be automatically enrolled, subject only to age and earnings criteria. This has the advantage of a very simple approach. It made it clear that all employers, whatever their size or the nature of their business, would be covered. It relied on individuals to opt out if pension saving was not right for them.

We can now see that automatic enrolment into a workplace pension is working and we are seeing reassuringly low opt-out rates. However, we also recognise that there are some very limited situations in which automatic enrolment simply does not make sense for the jobholder. Opt-out is effective but it does not take away the need for employers and pension schemes to go through the enrolment processes and for the individual then to opt out, even where it clearly makes no sense for that individual to be put into pension saving. This is a waste of employers’ time and frustrating for individuals.

We continue to receive evidence from stakeholders of instances in which it makes no sense automatically to enrol individuals. Our consultation of March 2013, Technical Changes to Automatic Enrolment, sought views on how the automatic enrolment process could be improved and invited views on whether there were certain categories of workers whom it might make sense to exclude from automatic enrolment. The responses strengthened our view that in certain circumstances automatic enrolment is not appropriate and that, for these individuals, the most suitable option is to give their employer the option not to enrol them in the first place.

On 12 February, we published a response to the consultation on how the power to make exceptions to the automatic enrolment duty might be used and identified four situations which merit further consideration: first, people who could face tax charges if they make further pension savings; secondly, people serving a period of notice; thirdly, people about to leave their employment on retirement; and, fourthly, people who have already left their pension scheme following contractual enrolment.

As noble Lords know, Clause 38 gives us the scope to provide broad exceptions to the employer duty, but we have made it clear on more than one occasion that we will not use it to exclude large numbers of employers based solely on size or the nature of the employer’s business. We do, however, acknowledge that the power could, in theory, be used to exclude small and medium-sized employers and we understand the concerns raised by the Opposition on this point. We are content to limit the power so that it cannot be used in this way. Amendment 24 therefore specifies that regulations cannot exclude an employer from their automatic enrolment duties on the basis of size. I beg to move.

5.15 pm

Lord McKenzie of Luton (Lab): My Lords, we should thank the noble Lord, Lord Freud, for bringing forward this government amendment, which as far as it goes is a restriction on the power to create exceptions to the employer automatic enrolment duty. It responds in part, as the noble Lord has acknowledged, to the amendment moved in Committee by my noble friend

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Lady Sherlock and by Gregg McClymont in another place. We are grateful for the Government’s movement on that.

As we have heard, this amendment narrows the circumstances in which regulations can be deployed, and precludes them being used to provide an exemption for employers of a particular size. This will therefore appear to deny the exemption, whether size is determined by numbers of employees, profitability, turnover, capitalisation or asset base, or some other size criteria. Perhaps the Minister can confirm that that is how he sees it. Nevertheless, the Bill would still leave scope to carve out exemptions on a fairly wide basis. That could be by reference to a description of worker, “particular circumstances”, or “in some other way”, as the Bill provides—for example, by sector.

We accept entirely the assurances of current Ministers that the purpose of the government amendment is to offer employers more flexibility in a limited number of specific situations that affect only a small number of workers. However, even as amended the Bill is not so tightly drawn and opens up the prospect in the future of a wider impairment of the employer duty, which is the foundation on which auto-enrolment is built.

We acknowledge that the Government have consulted widely on the issue and rejected a number of suggested easements to the employer duty. Other than for four specific circumstances, the Government in their response to the consultation have concluded:

“We remain confident that the right to opt out remains the most suitable option for all other workers who do not wish to remain in pension saving”.

We agree with that.

The question therefore arises as to whether the four circumstances identified—and remember that that was after a very extensive trawl, including the experience of live running—warrant the potentially broad amendment which will remain in this legislation. The four circumstances referred to by the Minister—those with tax-protected status for existing pension saving, those on the brink of leaving employment, those who have given notice of retirement, and those who have recently cancelled membership after being contract joined—might well justify an exemption on automatic enrolment rather than rely on workers opting out, especially given the potentially large tax penalties which might arise for those with tax-protected status. However, until the practical consequences of putting this into effect are fully considered—and we welcome the commitment to consult on a draft instrument, albeit still a negative one—we cannot be certain that the “cure” is better than the “ailment”.

On reflection, a better way forward might have been to identify these four specific circumstances in primary legislation together with the power to introduce regulations for the exemption of the employer duty in all or any of these situations. This would have removed concerns over the Bill retaining the still potentially wide powers of exemption. If it is too late to consider this approach, as it might be, I hope that the Minister can give as much assurance on the record as to the intended use of what will remain of this clause.

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Lord Freud: Let me just deal with the first specific question raised by the noble Lord, on the issue of size and what we mean by that. Clearly, the Opposition were primarily concerned when we went through this in Grand Committee that a Government—this one or any other—should not be able to exclude small and medium-sized employers from their duties on automatic enrolment. The primary definition of size here is to prohibit an exception based on the number of workers, which is one central understanding of the size criteria, but it could also mean, as the noble Lord indicated, turnover, profit or VAT registration. We do not have the need to define it further in the Bill because whatever measure of size was used would be prohibited by the government amendment.

On whether there is a better way in which to limit the power, which is the thrust of the noble Lord’s question, we have identified these four circumstances. We are not confident that they are the only circumstances; more may come up. We have considered in legal terms that this is the best way to be able to respond in making sure that when other circumstances arise we can use this power. We believe that it is prudent to leave this Government and future Governments the flexibility to consider other criteria. However, I can say on the record that we have no particular situations in mind here; we are simply leaving ourselves the option to respond to new or changing circumstances.

On the four situations that have been identified, we will develop proposals for workable exceptions, and they may have to work in different ways in different circumstances. As the noble Lord said, we will consult with final proposals and draft regulations in due course, although of course regulations are contingent on Royal Assent.

I hope that with that set of explanations the noble Lord will greet with enthusiasm and delight this amendment in response to his concerns.

Amendment 24 agreed.

Clause 43: Work-based schemes: power to restrict charges or impose requirements

Amendment 25

Moved by Lord Freud

25: Clause 43, page 24, line 2, leave out “work-based”

Lord Freud: My Lords, in moving Amendment 25, I shall speak also to government Amendments 26, 30, 31 and 26A.

As my honourable friend the Minister for Pensions announced in a Written Statement in the other place at the start of this week, the Government remain firmly committed to ensuring that consumers receive value for money from their pension savings and to seeing this through during the life of this Parliament—a point that I made earlier. Our response to the consultation on charges, and further proposals on quality and transparency in defined contribution workplace pension schemes, will be published soon. We are taking action to ensure that those who are defaulted into pension

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saving through automatic enrolment can be confident that their money is invested in well governed and transparently managed schemes.

Amendment 26A demonstrates our firm belief that transparency of costs and charges is fundamental for good scheme governance and to enabling comparison between schemes. On this we are in complete agreement with my noble friend Lord Lawson and the thrust of the amendments which he has tabled on this subject. I take this opportunity to thank him for the helpful discussions we have had on this issue thus far and I look forward to engaging with him further on the detail of these provisions. We have always been clear that disclosure of transaction costs should be improved; that is why we sought views on the best way of doing this in our consultation following on from the Office of Fair Trading study of the defined contribution workplace pension market. In the consultation, we suggested using our existing permissive powers in the Pension Schemes Act 1993 to require improved disclosure of information. However, I am pleased that our Amendment 26A goes further than this and, for the avoidance of any doubt about our intentions, requires the Secretary of State to make regulations requiring greater transparency around the transaction costs incurred by work-based defined contribution schemes. It would also allow the Secretary of State to disapply that duty in limited circumstances in which he is content that there is an alternative regulatory regime in place for specified schemes. The intention is for this to provide for a situation in which the Financial Conduct Authority has made its own rules for disclosure of information about transaction costs in relation to contract-based schemes, in which case the Secretary of State may need to make regulations only for trust-based schemes which are regulated by the Pensions Regulator.

This amendment would provide for the types of transaction costs covered to be specified in regulations. Here again, we are in agreement with my noble friend Lord Lawson that the full range of transaction costs that may be borne by scheme members should be disclosed. I would like to reassure the House that we do have the powers to ensure that this happens, but the Government need the flexibility to require disclosure of types of costs that might become apparent over time. Government Amendment 26A has therefore been drafted specifically to provide this flexibility and to future-proof the legislation. We will formally consult before making the regulations but, at this stage, and in the first instance we would expect them to include costs such as stamp duty and bid-offer spreads. We would be more than happy to involve my noble friend Lord Lawson, and other noble Lords with an interest in this matter, in the discussion of what the regulations will cover.

The amendments of my noble friend Lord Lawson also provide for making information about transaction costs publicly available on a common basis. This is, again, a suggestion with which we fully agree and thank my noble friend for highlighting this issue. Making such information publicly available will surely support consumers, employers and others in making comparisons and deciding between schemes. Public comparison of charges is something on which we sought views in the recent charges consultation and will publish further

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proposals soon in the forthcoming government response. Our existing disclosure powers would enable us to regulate for information on transaction costs to be made public, but given the importance of this issue, I am happy to consider between now and Third Reading whether any changes can be made to primary legislation to reinforce and make explicit this commitment to provide for information to be made publicly available.

To touch briefly on the scope of the disclosure requirements, the duty that is created by this amendment applies to money purchase, or defined contribution, pension schemes only. This is narrower than the provisions of the existing power, which will remain, under which regulations can apply to all occupational and personal pension schemes. The reason why the Government are focusing the new duty on the defined contribution market in their package of measures on charges, scheme quality and transparency is that in defined contribution it is members who bear the risk of their investment, and members whose pension savings may be diminished by high or unclear charges. It is also the defined contribution market that the Office of Fair Trading has investigated and recommended action to reform.

Members of defined benefit pension schemes already enjoy a level of protection from such risks. However, the power to require greater transparency of scheme costs and charges could cover all schemes, and we will continue to consider whether we should use that power to require transparency in defined benefit as well as defined contribution schemes.

The new duties to disclose transaction costs will form one part of a wider package of measures to set minimum quality standards for all workplace defined contribution schemes, including taking action to control charges in default funds used for automatic enrolment.

We have, as I said, consulted on these measures and I expect the Minister for Pensions to respond formally soon. The Minister has been clear that we are committed to seeing this policy through during the life of this Parliament which, under the Fixed-term Parliaments Act, means before May 2015. For that reason, I see no need for Amendment 29. We have the power in Schedule 18 to restrict charges. I can reassure noble Lords that we would not have placed this power in the Bill if we did not intend to use it as soon as practicable. With regard to the precise timing of when these regulations shall be laid, I refer noble Lords to the Minister’s strong steer and I fully expect more detail to be available when the formal response is published.

5.30 pm

Before I conclude, I should like to explain to the House the purpose of Amendments 25, 26, 30 and 31. We have been clear that we want the ability to protect those in both trust-based and contract-based schemes and that this protection must extend to closed schemes, by which I mean schemes without any active members. However, the definition of “work-based” schemes currently used in Clause 43 and Schedule 18 does not extend to this group of schemes.

Members of the House may be aware that the Office of Fair Trading and Association of British Insurers have recently announced further details of

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the audit of high-cost and legacy schemes. This exercise will focus on those schemes that the Office of Fair Trading has identified as being at risk of offering poor value for money for members. Where the audit identifies changes that are needed to address shortcomings in these schemes, we expect these to be made on a voluntary basis. However, we think that it is important to have the ability to require improvements in these schemes, should this prove necessary. Government Amendments 25, 26, 30 and 31 therefore make technical changes to the definitions used in Clause 43 and Schedule 18, to ensure that this can be done.

This Government are committed to ensuring that consumers receive value for money from pension savings. I am pleased that, along with the existing powers in Clause 43 and Schedule 18, the amendments in my name will ensure that the Government have all the necessary powers to make this happen. I beg to move.

Lord Lawson of Blaby (Con): My Lords, I begin by welcoming very warmly what my noble friend has said. The Government have done the right thing and moved a long way since we debated this issue in Committee. We see government Amendment 26A as part of that move, but I am glad to say that the Minister has at the Dispatch Box this afternoon said that he will, quite rightly, go even further. I should therefore like to go over the points, perhaps for clarity. The Minister does need to go further, some of the reasons for which he has mentioned. I will not therefore speak to any of the amendments in my name as such because they have been overtaken by events. It is the substance that matters.

There seem to me to be four ways in which further improvement is needed beyond Amendment 26A, the first of which my noble friend has agreed to. That amendment would open the door to disclosure but to a limited number of categories. It is essential that there should be full public disclosure. This is important. For example, all potential members of pension schemes and workers should know what is happening, given that every -one knows that the costs of pension schemes vary enormously, as the noble Lord, Lord Turner, mentioned. This is not in dispute. It is a fact. Studies have shown that that variation bears no relation to performance, and some of the costs are absolutely enormous. In money purchase schemes, that is a direct cost to the pension that the beneficiary will get at the end of the day.

Nobody has mentioned this so far but I do not think that we should forget the press. There are sections of the press that give excellent consumer advice on financial matters, and not just the press: there is the excellent Paul Lewis, with his “Money Box” programme on the wireless. All these people need the information. They need to be the beneficiaries of disclosure if they are to be as effective as they might be for the benefit of members of pension schemes. Therefore, there should be total disclosure, and I suggest in my amendment that perhaps the best way of achieving that is for there to be disclosure to the Pensions Regulator, who publishes a public register which anybody can look at. However, there may be another way which the Government prefer and which is equally good. I was very glad to hear my noble friend say that there will be full public disclosure, which goes beyond that set out in Amendment 26A. That is what is needed.

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Another way in which Amendment 26A is inadequate is that it refers to “some or all” of the costs. My noble friend touched on that but it is of the first importance that it says “all costs” and that all the costs are itemised. It is obvious that if only some costs are disclosed, it will be easy for investment managers to load on to their costings costs which are not among those that need to be disclosed. That is a complete nonsense. It is absolutely essential that all costs are itemised and disclosed.

There is another thing that needs to be attended to and where further progress needs to be made, but again it seems that in the spirit of what my noble friend said he is prepared to go there. His amendment concerns disclosure of information about transaction costs. It refers exclusively to transaction costs and, again, that is not adequate; it has to be all costs. There are, for example, investment managers’ fees, performance fees and custody fees, all of which are not transaction costs. Indeed, the Investment Management Association has stated that it does not classify equity commissions as transaction costs. Therefore, clearly the limitation to transaction costs is an invitation to abuse. All costs that are incurred have to be included.

The final way in which the amendment needs to be improved is perhaps less important than the other three ways; none the less, it is still important. The present proposal—my noble friend made this clear—relates only to money purchase schemes. It does not apply to defined benefit schemes. Defined contribution schemes, money purchase schemes, or whatever one likes to call them, are more important because the proposal directly impacts on the benefit that the beneficiary of the fund or pension gets at the end of the day. If it is a defined benefit scheme, one could say, “Why does it matter?”, but I do not think that it is a matter of indifference. Investment managers can say, “We have to control our costs, and reveal our costs, on money purchase schemes and defined contribution schemes. We can get the money back by loading extra costs on to the defined benefit schemes”. That would be wholly unsatisfactory. Most defined benefit schemes may be closed to new members but they are still going on and are substantial. A further point is that on a number of occasions the Government have expressed concern about pension fund deficits. This proposal could have a direct effect on the size of pension fund deficits. Therefore, it is necessary to bring defined benefit schemes into this disclosure. Transparency should not be explicitly and exclusively confined to money purchase schemes.

Those are the four areas in which further progress needs to be made. My noble friend said that he would be happy to discuss how it will be done between now and Third Reading. I would be happy to take part with other interested parties in these discussions, following which we look forward to further proposals and amendments at Third Reading.

I have a further small point for clarification about something that is slightly obscure. I do not think that it has been mentioned yet—certainly not by the Minister. Subsection (6) of the proposed new clause in Amendment 26A states that,

“subsection (5) does not apply in relation to a scheme of a particular description if … as a result of another enactment, requirements are imposed relating to the disclosure of information about transaction costs of schemes of that description”.

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The only thing that I can assume—I hope my noble friend will clarify it, as I cannot believe that he has some other Bill up his sleeve—is that there may a European Union directive in the offing that may cover this area. That may be what is being alluded to. It would be helpful to the whole House if he explained precisely what lies behind this curious subsection.

Lord Browne of Ladyton (Lab): My Lords, it is a genuine pleasure to follow the noble Lord, Lord Lawson, and to engage in the debate on this group of amendments. The noble Lord has had an extremely distinguished career in both Houses of Parliament. I have seldom heard his name used with such strength by a Minister from the Front Bench—certainly not for a long time. It may be a lesson to others on the Benches behind the Minister on how to get that level of recognition.

Amendment 29 requires the Secretary of State to,

“lay before Parliament regulations to restrict such charges as soon as reasonably practicable and no later than 30th April 2015”.

We want to ensure that the promise to do so, and the commitment to see this through in this Parliament is not kicked further into the long grass, but is exercised,

“as soon as reasonably practicable”.

This may be redundant now, as the noble Lord, Lord Lawson, has indicated, but my noble friend Lady Sherlock and I support Amendments 27 and 28, which require full disclosure of management and transaction charges for each work-based pension scheme. Amendment 26B amends government Amendment 26A that is broadly to the same effect. Amendment 26B requires the information that the Government now belatedly agree should be disclosed to pension scheme members should also be disclosed to the pension scheme regulator who, in turn, must maintain a public register of all costs. Of course, I welcome Amendment 26A and I thank the Minister and congratulate him on having tabled it. I have the advantage of the Minister’s explanation about why, at this extremely late stage, the Government have—I will not say U-turned—but changed their position substantially by almost 180 degrees on the very issue of transparency and disclosure. I welcome the amendment. When the Minister was explaining this, his overconcentration on the amendments of the noble Lord, Lord Lawson, and his engagement with this process—airbrushing out the contribution of my honourable friend Gregg McClymont, who persistently raised this issue in amendments in the House of Commons—may have given some people the impression that the Government’s change of position is more to do with Conservative Party discipline than their commitment to disclosure and transparency in these issues in the interests of the saver.

5.45 pm

That may be an inappropriate interpretation but the fact that the Government ignored various amendments in the House of Commons which were similar to the amendment tabled in Committee by the noble Lord, Lord Lawson of Blaby—I am not looking for any name check from the Minister but my noble friend Lady Sherlock and I tabled an amendment in Committee in similar terms—needs explanation. This is particularly important given that only a few months ago the Pensions

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Minister, Steve Webb, was reported to have said at an NAPF conference that transparency gets you virtually nowhere.

On the public register issue, which is now embraced, I commend to the Minister columns 389 and 390 of the 12th Sitting of the Pensions Bill Public Bill Committee on Thursday, 11 July 2013. They contain an excoriating criticism of public registration of this information by the Pensions Minister when it was suggested by my honourable friend Gregg McClymont and proposed as an amendment to Clause 35 in similar words to those used by the noble Lord, Lord Lawson, in his amendment.

Why do I make so much of this in the face of this significant concession by the coalition Government? It is because—I shall construct this argument carefully—the reason for Amendment 29, and our support for it, is that it is difficult to follow exactly why the Government were so reluctant to go down this path, and why they have accelerated down it in such a way in the face of the intervention of the noble Lord, Lord Lawson, if they really believe that the process of capping charges and its transparency is in the interests of the saver and are going to see it through against the commitments that we have all been given.

I shall construct my argument and the Minister can respond to it. It has always been Labour’s position that it supports broadly the reforms contained in both halves of the Pensions Bill. As my noble friend Lady Sherlock made clear in her excellent speech at Second Reading on 3 December 2013, simplifying the complexity of the present state pension system into a single-tier pension is supported for many reasons, which include that it provides a predictable platform on which the individual is then encouraged to build, principally through private pensions.

My noble friend went on to argue that the success of the complementary private pension savings model is dependent upon automatic enrolment of all workers into a workplace pension scheme—which is moving well—provided that every one of the 10 million being auto-enrolled between 2012 and 2017 can be sure of getting value for money from that pension scheme. This necessity has driven every single one of Labour’s amendments to the private pensions part of the Bill and is at the forefront of our arguments today.

We all agree that pension charges have to be reasonable for people to have the necessary confidence to invest their hard-earned money into pension schemes, but from the evidence available now it is difficult to exaggerate how obscure the charging structure for pensions is and how dysfunctional the market is. For reasons we have debated repeatedly in this Bill, the market alone cannot address this challenge. It is a regret that the Government have been slow to understand the depth of the problems in the pensions market and now appear reluctant to take on the industry to solve them.

A short reminder of how we got to this better place of a cap on charges and disclosure of the detail of them is necessary. In July 2012 my right honourable friend Ed Miliband first raised this issue, identifying pensions as the next big scandal and warning that savers must be protected from hidden pension fees that

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strip them of huge percentages of their savings. He called for a new regime imposing a clear charging structure on pension funds and warned that fees needed to be capped. Disgracefully—and I use this word advisedly—the Pensions Minister joined industry voices who were then accusing my right honourable friend of “scaremongering”. Indeed, the Pensions Minister accused him of being “irresponsible”. In the lexicon of parliamentary language, scaremongering and irresponsible are quite high up the scale.

There followed the publication of reports from independent bodies that corroborated the basis of Ed Miliband’s concerns and in September 2013 he announced at the party conference that Labour would support an OFT inquiry into the pensions industry, put a cap on pension charges and force pension firms to stop hiding their charges and the full impact of them. The Government’s resistance to this agenda was palpable. Even in January 2013 when the OFT inquiry was announced, the Pensions Minister, Steve Webb, was still maintaining his scepticism about capping pension charges. More investigations followed. The OFT reported and, in the words of the Minister in the pot-follows-member debate, its report showed that the pensions market was utterly “dysfunctional”. In October 2013, almost on the day of the Report stage of the Bill in the Commons, and forced to do so by the findings of the OFT report, the Government U-turned on setting a cap on the maximum charges that can be levied on savings in default funds and announced the launch of a consultation. Finally, Labour had won the argument on the issue.

It is staggering that it has taken the Government so long when their own figures show that individual savers could be losing as much as £230,000 from their lifetime savings. The noble Lord, Lord Turner, in his intervention in the pot-follows-member debate, described in a very telling way the scale of the charges that can be charged, particularly on small pension savings pots. At this point, the Pensions Minister, Steve Webb, said that every passing month of delaying the introduction of pension cap charges,

“means another bunch of people who might not get put into a decent-quality scheme”.

I agree with him. In announcing the consultation and the choices for capping he quite deliberately attracted headlines that created an expectation that a cap would be introduced shortly, probably by April of this year and at less than 1%. In October 2013 he said, “Enough is enough” and in October 2013 it was enough.

Shamefully, his resolve now appears to have collapsed in the face of lobbying by pension companies. Days after we debated these issues in Grand Committee, in his response to the consultation the noble Lord, Lord Bates, dangled in front of us the prospect of some positive response in the Grand Committee the next Thursday when the Minister would make a public speech. I remember the response of the noble Lord, Lord Lawson, to this. What did we get? He kicked the cap down the road for at least another year. Now insurance companies require at least a year’s notice of a potential cap during which—using the Minister’s own phraseology—countless bunches of people will not get into a decent-quality scheme. The effect of our Amendment 29 is simple. If the new expectation that

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this will be done by April 2015 means anything, the Government should accept that and commit to making the necessary regulations for the cap no later than the last day of that month.

I digress for a moment. There has been a most interesting engagement between the noble Lord, Lord Stoneham, and the Minister over this issue—I am sorry, I mean the noble Lord, Lord German. The noble Lord, Lord Stoneham, always causes difficulties. The noble Lord, Lord German, who effectively speaks for the Liberal Democrats on these issues and must be very close to the Pensions Minister, had an expectation in the earlier debate that he would get a very clear assurance from the Minister that the cap would be in place by April 2015. He asked for that assurance in the pot-follows-member debate. The Minister used a very telling phrase. He said that the Pensions Minister was “strongly minded” to impose a cap. Everybody outside thinks that the Pensions Minister has decided to impose a cap because that is the impression that has been created. Later, in trying to get more specific answers from the Minister, he used various phrases including seeing this through in the life of the Parliament. Many of us have been at that side of the Dispatch Box and know the restrictions on Ministers in the use of language but we also know that the use of this language is decided to give flexibility. However, on this issue very few Members of your Lordships’ House want to see any flexibility. There is an expectation that this cap will be in place before the end of this Parliament and that expectation has been created, even if reluctantly, by the behaviour of the Government’s own Ministers.

In summary, on one interpretation of this history it can appear that the Government, despite their constant reassurance, have been dragged kicking and screaming to this point, all the while apparently being prepared to put the industry’s interest before savers’ when push comes to shove. This is the last opportunity for your Lordships’ House to make it clear that Parliament has a different set of priorities which are in favour of the saver and not the industry. It can do so simply by creating a statutory deadline to compel the use of the power to cap, which the Government reluctantly put in this Bill by way of an amendment following the OFT report, on the date that the Government are creating the impression that it will be used by.

I probably do not need to say this but I hope that the Minister will accept this amendment and if he does not I intend to test the opinion of the House. I am hopeful that right-minded Members of your Lordships’ House will want to put a marker down to show which side of this commitment they are on—to do this before this Parliament comes to an end or just to see it through before it comes to an end. I know how I will be voting.

Lord Turner of Ecchinswell: My Lords, I will speak in favour both of transparency as per the amendment from the noble Lord, Lord Lawson, and the Government’s amendment and also in favour of a clear commitment to a clear cap on scheme charges in line with Amendment 29 which also bears my name.

As I have already said this afternoon, the issue of total charges is fundamental to what we are trying to achieve with this Bill. The Government’s paper on

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charges makes it clear how important they are. Figure 2 says that if you are a saver throughout your life and you pay a charge of 0.5% when you get to retirement you will have given up 13% of your pot in charges. If the charge is 1.5%—which to the ordinary person might not seem all that much higher—you give up 34%. The difference between paying charges of 0.5% and 1.5% is that you will be 20% worse off throughout the whole of your retirement. This is not minor, but absolutely fundamental to how we achieve good provision for people in retirement.

Viscount Eccles (Con): Could the noble Lord be very kind and help me? Is he saying that the pot is a fixed figure and that therefore the percentage of charges has always to be related to the same end figure of the pot?

6 pm

Lord Turner of Ecchinswell: Obviously, it is possible that with higher charges there might be a higher return, but many of the variations that we see in charges in the industry are for things that clearly will not produce a different return. One sees, for instance, a wide spread of charges for index funds, where one knows that there will be no difference. We also know that, on average, active management does not add a return above index funds: that is a very strong empirical result from a lot of analysis. While it is possible that with higher charges come higher return, in a great many cases that is not so. One thing pension savers would be wise to concentrate on is the charges they face, because that is one of the few things that they can definitively influence, whereas the gross return is a promise that may or may not be delivered.

Those are the reasons that led the Pensions Commission to focus very strongly on the issue of cost and the variation of cost. We noted, for instance, that many people employed in the UK are in large trust-based schemes and already enjoy, on defined contribution schemes, total fund management charges of 20 basis points, 0.2%, or less. For those 20 basis points, they get fund management at the gross level quite as good as people paying 1.5%. If you pay 0.2%, by the end of your savings life, you would have given up only around 4% or 5% of your savings in the charges, which is probably about as low as we can get it, given the fundamental things that have to be done. Again, that is confirmed in the Government’s own consultation paper on charging, which illustrates that 10% of trust-based firms have annual management charges of 0.19% or less. That is possible, provided we get economies of scale, without giving up a significant choice of range of funds. However, at the other end of the scale, we noticed many SMEs were paying 1.5% and therefore, as per the Government’s consultation paper, losing 34%; or 1%, at which point you lose 24%.

That is why, as I said earlier, the recommendations of the Pensions Commission covered not just auto-enrolment, to use the inertia power to get people to save, but the design of the scheme, to ensure that access at the sort of low costs already enjoyed by employees of large firms can be enjoyed by employees of small firms. That was the reason for the design of NEST, which was designed by looking at detailed cost analysis and working out at what level it ought to be possible to deliver a default fund and also at models

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from elsewhere, such as Sweden. We became convinced that it ought to be possible to deliver to all people the opportunity to invest in a default fund—probably an index fund—with all explicit end costs of 0.3%. A set of decisions were subsequently made that the cost would have to be 0.5%, which is what it went forward as in the NEST environment. That at least establishes a benchmark and means that people who invest in NEST are only giving up 13% of their end-of-life savings pot in charges.

It is important that that should be the benchmark and that we have a charge cap. We know from the OFT’s and other analysis that this is simply not a market where the operation of individual customer choice is effective in driving cost-efficient competition. If that were the case, we would never have had to have the recommendations of the Pensions Commission and the auto-enrolment to which we are now committed. If we do not impose a charge cap, we will leave many savers, in particular lower-income people working for SMEs, facing unnecessarily high costs. I think they are unnecessary if, for a default fund, we are above 50 basis points, or 0.5%. I am therefore concerned that the two options the Government were looking at in their consultation paper on charging were 0.75% and 1%. If we come forward with a cap of 1%, we are giving to the ordinary saver the extraordinary promise that, on their behalf, we have made sure that their loss of pot at the end of their life is only 24%. I do not think that is a very compelling promise to give to people. I therefore strongly believe that we should make a clear commitment, by a clear date, to get on with this and have a charge cap in place, and that 0.5% is the appropriate figure.

Although a price cap on explicit costs is important, it is not sufficient. That is why I strongly support the sentiment of the amendment of the noble Lord, Lord Lawson, which seeks to cover all the other costs which are not covered in explicit fund management charges. The issue of these other costs was also one with which the Pensions Commission was concerned. We were concerned that, beyond what you can see in an annual management charge for a fund, there are lots of other costs involved. These are precisely the sort of costs described in Amendment 28, in the name of the noble Lord, Lord Lawson, which inlcude,

“fees and performance fees paid to investment managers … commissions and bid-offer spreads paid … fees, revenue splits and bid-offer spreads paid to custodian banks”.

These are very significant but are not well understood.

On the Pensions Commission, we sought to see whether research had been done on how big these were. Interestingly, there was one piece of research, which was sponsored by the FSA back in 2000 and written, after a lot of research, by a man called Kevin James. It tried to work out just how large these other costs were in the UK and in the US. We called them implicit costs in addition to explicit costs. There is a box in the first Pensions Commission report which explains that piece of analysis and how big they are. His analysis, which we interpreted, suggested that some of these costs might be as high as 90 basis points, on top of the overt, explicit costs. We ended up, for the purposes of modelling, believing that if we were to try to understand what got lost between the gross return on equities that you see by looking at the FTSE

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All-Share Index every year and what the saver gets, we had to allow, in addition to the explicit asset management costs, for 65 basis points on average going in these implicit costs—more for actively managed funds, less for index funds.

It is possible that those costs have come down since that analysis was done and since we looked at it—there has, for instance, been some compression of bid-offer spreads—but they are sufficiently large that it is incredibly important to focus on them, pay attention to them and, as it were, bring the disinfectant of transparency to bear on this bit of the cost base. Let us suppose that they were 65 basis points. That means that if somebody thought that they were paying 0.85% on an explicit annual management charge, between the gross return on equities in the market and what they actually get, they would be paying 85 basis points plus 65 basis points, which takes us back to the 1.5% per annum, which is 34% of their pot disappearing.