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House of Lords

Tuesday, 27 January 2015.

2.30 pm

Prayers—read by the Lord Bishop of Leicester.

Fixed-term Parliaments Act 2011


2.36 pm

Asked by Lord Grocott

To ask Her Majesty’s Government what assessment they have made of the impact on Parliament of the next general election date having been fixed as 7 May 2015 since the enactment of the Fixed-term Parliaments Act 2011.

Lord Wallace of Saltaire (LD): My Lords, it is a little too soon to reach definite conclusions on fixed-term Parliaments. The Government believe that the Fixed-term Parliaments Act has a number of benefits. It curbs prime ministerial and, therefore, executive power by preventing the Prime Minister of the day from calling an election on his or her own schedule. It has also assisted with Parliament’s work planning. The Prime Minister of the day will be required to appoint a reviewer to evaluate the Act in 2020.

Lord Grocott (Lab): My Lords, I wonder whether the Minister shared the nation’s palpable sense of gloom this morning when the broadcasters and the newspapers united in reminding us that there are 100 days of campaigning left until the general election. Do fixed-term Parliaments not inevitably lead to inordinately long election campaigns, as many of us predicted, and, I am afraid, to the past its sell-by date House of Commons that we have at present, with very little to do in either House? Does the Minister at least acknowledge that there is a growing view, on both sides of this House and in the Commons, that the passing of the Fixed-term Parliaments Act was a serious mistake?

Lord Wallace of Saltaire: My Lords, the noble Lord may perhaps have missed the report from the Political and Constitutional Reform Committee last year, which stated:

“Our evidence has overwhelmingly argued that the greater certainty about the length of a Parliament provided by the Fixed-term Parliaments Act 2011 is a positive development, and in particular has created opportunities for better planning by the Government and Civil Service”.

I cannot understand why he prefers the situation of 1964-66, which led to the putting off of decisions and the devaluation of 1967; the two elections of 1974, which led to a Labour Government entering into an IMF programme; the dithering by Mr Callaghan in 1978; or that wonderful experience in 2007 when Gordon Brown kept changing his mind as different opinion polls came out. That was not good Government.

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Lord Cormack (Con): My Lords—

Lord Tyler (LD): My Lords—

The Lord Privy Seal (Baroness Stowell of Beeston) (Con): My Lords, we have plenty of time. When two noble Lords stand up, perhaps one of them could be courteous to the other and decide to give way.

Lord Cormack: My Lords, I am most grateful to my noble friend Lord Tyler. As one who fought all the elections to which my noble friend the Minister referred, will he accept that those of us with that sort of experience have evaluated? We do not need to wait until 2020. This is a disservice to the constitution and the sooner it is consigned to the legislative rubbish tip the better.

Lord Wallace of Saltaire: My Lords, the noble Lord demonstrates that his conservatism on constitutional matters is as deep as that of the noble Lord, Lord Grocott. It was in the Labour Party’s manifesto for the last election that it would legislate on a fixed-term Parliament—as indeed in others. This transfer of, what was after all, executive power to Parliament was, one would have thought, an extension of our democratic system and a limit on prime ministerial power.

Baroness Hayter of Kentish Town (Lab): My Lords, the Minister said that it is too soon to decide whether this is a good thing. The sad thing is that the other place seems to be working part-time, so why are the Government not using their planning for better use of Parliament during the extended period?

Lord Wallace of Saltaire: My Lords, that is something that we need to learn about five-year Parliaments. There are some very good proposals from the Institute for Government and from the Political and Constitutional Reform Committee about how best to use the fifth year of a Parliament to discuss some of the issues that any Government will have to deal with—for example, Green Papers on the future of the National Health Service, et cetera. That is something which, in a future five-year Parliament, perhaps with another stable coalition Government, we might do. We have delivered stable government through difficult economic times for five years, unlike the Labour Governments of 1974 to 1979, and others. That is a very major advantage.

Lord Tyler: My Lords—

Lord Foulkes of Cumnock (Lab): My Lords—

Baroness Stowell of Beeston: My Lords, the noble Lord knows that we follow several conventions. We have had one already, which is about giving way to each other. There is another about the sides taking turns as we go around the House. We have just heard from the Labour Front Bench, so it is now the right time to hear from the noble Lord, Lord Tyler.

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Lord Tyler: My Lords, will my noble friend confirm that there are 19 government Bills still in play in this Session and a further 14 government-backed Private Members’ Bills? There are a number of draft Bills and more than 90 statutory instruments, so this Parliament still has a lot of work to do. Does he agree that anyone who attended our very interesting debate yesterday on the Counter-Terrorism and Security Bill or indeed the debate on the Infrastructure Bill in the other House can see that Parliament is working really hard at the moment? Any suggestion that this is a zombie Parliament is ridiculous. Has my noble friend also noted that the Labour Opposition in the other House constantly complain that they have not enough time whenever a programme Motion is recommended?

Lord Wallace of Saltaire: My Lords, I think that we stand a good chance this time of avoiding the dreadful experience of the wash-up which we have had when elections are called at short notice and the rushed election campaigns which follow.

Lord Elystan-Morgan (CB): Will the Minister accept, putting the matter as neutrally as one can, that there must be some dubiety as to whether there was the slightest justification in constitutional law for the Fixed-term Parliaments Act in that since the Second World War there was no instance of a Government running to the country in the short term without justification—that was true in 1951, in 1966 and in 1974—but there were instances of Governments who went right up to the buffers —in 1997 and 2010? Is not the true reason for the Fixed-term Parliaments Act that the coalition Government were desperately anxious to give security of tenure to the Liberal Democrat party?

Lord Wallace of Saltaire: My Lords, I do not accept any of the noble Lord’s premises.

Lord Foulkes of Cumnock (Lab): Is the Minister aware that my noble friend Lord Grocott has more parliamentary experience than Nick Clegg, David Cameron and Ed Miliband put together? He therefore deserves to be listened to carefully.

Lord Wallace of Saltaire: My Lords, I have infinite respect for the ancient wisdom of the noble Lord, Lord Grocott.

Boko Haram


2.45 pm

Asked by Baroness Quin

To ask Her Majesty’s Government what recent assistance they have given to the rescue and recovery of the Nigerian girls abducted by Boko Haram.

Lord Wallace of Saltaire (LD): My Lords, the abduction of the Chibok schoolgirls was an appalling example of Boko Haram’s brutality. Since their abduction we estimate that another 900 or more individuals have been abducted by Boko Haram in separate incidents. The UK, along with international partners, has increased its support for the Nigerian Government to help locate

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the girls and to tackle the broad threat posed by Boko Haram. We are providing a substantial package of UK military, intelligence and development support to Nigeria.

Baroness Quin (Lab): My Lords, Holocaust Memorial Day seems a particularly poignant time to remember the Nigerian schoolgirls, and indeed the others who are victims of Boko Haram’s violence and persecution of religious communities in Nigeria and now in neighbouring countries. Is the Minister aware that the African Union summit is being held this weekend? It originally planned to focus on the vital issue of the empowerment and education of women but will now also include the need to unite against Boko Haram. In the light of that, will the Government give urgency to their consultations with our European, Commonwealth and North American partners to see how international assistance can be stepped up?

Lord Wallace of Saltaire: My Lords, my noble friend Lady Northover is at the African Union summit this week, and will no doubt be taking part in some of those conversations. We are consulting not only with our North American and Commonwealth colleagues; Niger and Cameroon are directly affected. The French, British and American Governments, in particular, are working with all the countries in that region because Boko Haram, as noble Lords know, does not respect borders.

Baroness Falkner of Margravine (LD): My Lords, does my noble friend agree that, given the pivotal role of the Commonwealth—with two affected countries, Nigeria and Cameroon, being members—it is appalling that the Commonwealth Secretary-General took four months before he responded to the abduction in the first instance; and can the Minister tell the House a little more about what efforts we are taking within the Commonwealth to step up efforts to defeat Boko Haram?

Lord Wallace of Saltaire: We are working very closely with Nigeria. I am not fully briefed on how far the rest of the Commonwealth is involved, but we have a training team and an intelligence team working with the Nigerians on coping with the pressure from Boko Haram, which now occupies a substantial chunk of north-eastern Nigeria.

Baroness Kinnock of Holyhead (Lab): My Lords, the Minister may be aware that Boko Haram has very strong ties with Islamic State and, indeed, with al-Qaeda. Does the Minister agree that the insurgency currently taking place in Nigeria is a direct result of the bad governance and the systemic corruption of President Goodluck Jonathan’s Government?

Lord Wallace of Saltaire: My Lords, my briefing is that Boko Haram is much more a Nigerian phenomenon than a global one such as ISIL. There are some links but that is what I understand. I also stress that the origins of Boko Haram go far back beyond President Goodluck Jonathan’s Government. It dates from the

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noughties, so to speak. Things have been getting worse recently but it is rooted in a range of underdevelopment problems in north-eastern Nigeria, such as overpopulation and government neglect.

The Lord Bishop of Leicester: My Lords, will the Minister join me in expressing his appreciation of those moderate Muslims who have spoken out in this country against Boko Haram and in emphasising the continuing need to be proactive in drawing together those communities that would easily find themselves pitched against each other in our towns and cities?

Lord Wallace of Saltaire: My Lords, I will happily join in that. Boko Haram has almost certainly killed more Muslims than it has Christians. It is very much a radical Muslim movement, which is as opposed to the Sultanate of Sokoto and the moderate Muslims in the north as it is to others.

Baroness Afshar (CB): My Lords, in their negotiations, are the Government aware that everything Boko Haram is doing is contrary to the teaching of Islam, to the textual teaching of the Koran, which demands the education of women, and to the practice of the Prophet, who favoured his wives and daughters to be educated?

Lord Wallace of Saltaire: My Lords, I am well aware of that. But, as the noble Baroness well knows, radical movements of this sort, made up of the young, discontented and jobless, tend to latch on to whatever ideologies they can find.

Baroness Morgan of Ely (Lab): My Lords, we understand that up to 100 British soldiers are being lined up for a mission to train the Nigerian military in its fight against the Islamic extremists of Boko Haram. Will the Government ensure that human rights training is included in this initiative?

Lord Wallace of Saltaire: My Lords, I am not going to comment on operational numbers. We have a military mission there and we are also sending people in on short-term secondments to help with the training. Of course human rights is a part of this, as I mentioned.

Baroness Hussein-Ece (LD): My Lords, does my noble friend agree that speaking out against the horrendous Boko Haram has nothing to do with religion? We speak out against it, whether we are Christian, Muslim, Jewish, Hindu or whatever. It is an aberration that has nothing to do with any religion.

Lord Wallace of Saltaire: My Lords, I entirely agree.

Lord West of Spithead (Lab): My Lords, in support of my noble friend Lady Kinnock, is it not clear that the Government in Nigeria have focused much more on the coming election and the wealth down in southern Nigeria and have ignored northern Nigeria; and, further, that local government and the police are corrupt and on occasions, as we know, have been helping Boko Haram? Are we putting pressure on the Nigerian Government

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to correct those faults? Without doing that we cannot really gain any momentum in the other areas the Minister has talked about.

Lord Wallace of Saltaire: My Lords, of course we are working closely with the Nigerian Government on a whole range of issues such as this. The north-east of Nigeria has been neglected compared to the north-west—not only to the south—and the noble Lord knows well the extent to which the oil wealth is now in the south but the northern elite that used to think it ran Nigeria feels excluded. There are many levels of different tensions that are reflected in this.

Lord Lea of Crondall (Lab): My Lords, given that we do not run Nigeria like we did until about 1960, and given that we have to be sensitive about the views of the Nigerian Government on overseas countries, of which we are one, being party to all the security concerns within the country, will the Minister comment on the degree to which he feels that the Nigerian Government are being open to other countries that wish to be of assistance, whether on a bilateral or multilateral basis?

Lord Wallace of Saltaire: My Lords, we are working very closely with the Nigerian Government. Of course, we are not trying to pretend that we are a colonial power coming in. We are an ally and we are concerned about the security of the whole of the broader Sahel region.

Alcohol Consumption


2.53 pm

Asked by Lord Harrison

To ask Her Majesty’s Government, in the light of policies to reduce alcohol consumption, what discussions they have had with supermarkets about the range of strengths of alcoholic drinks they supply.

Baroness Jolly (LD): My Lords, the Government have long worked with the alcohol industry to reduce health and social harm. Supermarkets are committed to all relevant alcohol pledges under the public health responsibility deal, and have contributed to removing 1.3 billion units of alcohol from the market by reducing strength; 80% of labels now have the correct health information; and there is the promise not to sell any carbonated drink with more than four units of alcohol in a single-serve can.

Lord Harrison (Lab): To help supermarkets communicate with their customers, will the Government consider providing a legal definition of lighter wine, as well as exploring duty differentiation in wines to provide a service that will enable people to choose lighter wines? Finally, will the Government encourage the average strength of house wine to be lowered where such house wines are sold in pubs, restaurants and, indeed, here in the House of Lords?

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Baroness Jolly: The noble Lord is right in that all the major supermarkets and chains have worked really hard to reduce the amount of alcohol in the wine, beer and spirits that they sell. However, one thing they are not particularly good at—with the exception, perhaps, of Morrisons and Asda—is having separate spaces within each supermarket where wines with lower levels of alcohol are displayed. On the question of the House wine, I am happy to have a word with the Secretary of State about that.

Baroness Gardner of Parkes (Con): My Lords, is the Minister aware that some time ago we were told that the calorific value of a glass of wine would be published? Why is that not proceeding, because it is quite an incentive for people who are not too worried about the alcoholic effects but are concerned—as we all should be—about obesity?

Baroness Jolly: We should all be concerned about the alcoholic effects as well. Currently, not all wine bottles have calorific labelling, although there is labelling that relates to anxiety about pregnant women, but I will have to come back to Peers on that.

Lord Turnberg (Lab): My Lords, is the Minister aware that whenever the price of alcohol goes up—above the level of inflation—the incidence of deaths from liver disease goes down? Will the Government consider increasing taxation on alcohol to take it above the level of inflation so that we will see a reduction in liver disease?

Baroness Jolly: The noble Lord is right. Alcohol consumption has fallen, as has the number of alcohol-related deaths, due to the increase in taxation on alcohol by this Government and possibly previous Governments. Nevertheless, harmful effects such as liver disease, as well as social impacts linked to alcohol, such as crime and domestic violence, remain much too high.

Baroness Cumberlege (Con): Does my noble friend agree that there is great merit in keeping the pubs open and that single men who are lonely and depressed are very often welcomed into pubs? Their spirits are raised—in all senses of the word—and they then are not a burden on the National Health Service.

Baroness Jolly: I am not quite sure. I can tell noble Lords about licensing. We are actively working with Public Health England on the practicalities of how health-related objectives for the licensing of premises selling alcohol would work at a local level.

Lord Brooke of Alverthorpe (Lab): My Lords, while we welcome the reduction in the amount of alcohol being sold in certain areas, is it not true that growth is taking place in other areas? In particular, the drinks industry is trying to get its brands into the heads of young people. Is the Minister content to see supermarkets now selling alcoholic lemonade that is stronger than many beers? Is she content to see them selling ginger beer and other soft drinks with more alcohol than is contained in many beers? Should we not be doing something about that?

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Baroness Jolly: Yes, indeed, and that has been done already. There is a commitment on the amount of alcohol that can be contained in fizzy, canned drinks.

Lord Krebs (CB): My Lords—

Lord Phillips of Sudbury (LD):My Lords—

The Lord Privy Seal (Baroness Stowell of Beeston) (Con): My Lords, when I am up, everybody has to sit down; that is the usual convention. As we have not heard from the Cross Benches on this Question, we will go to the Cross Benches, and we should have time for my noble friend, Lord Phillips of Sudbury, after that.

Lord Krebs: My Lords, can the Minister give us some information on the Government’s current assessment of the public health benefits of a 50 pence per unit minimum price for alcohol, which has been recommended by the Chief Medical Officer, among many others?

Baroness Jolly: We are keeping the developing evidence on minimum unit pricing under review. It has only ever been one part of the Government’s strategy, which, as I have explained, includes a wide range of national and local actions, including partnership with industry and increased powers for local communities to take action.

Lord Phillips of Sudbury: Will my noble friend assure the House that the Government will continue to resist the temptation of yet more legislation in this area and rely on persuasion? Secondly, can she tell us whether the existing law is being enforced? My suspicion is that it is extremely patchy.

Baroness Jolly: I know that as part of the responsibility deal there has been a big move by Public Health Ministers at the Department of Health to drive down the number of alcohol units being sold. As I have said, that number has been significantly reduced—by 1.3 million units.

Baroness Armstrong of Hill Top (Lab): Is the Minister satisfied that supermarkets have done enough—it is voluntary, as she said—to reduce the amount of high-value alcohol products being sold cheaply as loss leaders?

Baroness Jolly: There is always more to be done in this area.

NHS: Finances and Services


3 pm

Asked by Lord Hunt of Kings Heath

To ask Her Majesty’s Government what assessment they have made of the latest King’s Fund quarterly monitoring report on the situation of National Health Service finances and services.

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Baroness Jolly (LD): We agree with the King’s Fund that very real financial and operational challenges face our health and care services. However, we are committed to a sustainable future for our NHS. This is demonstrated by our protection of NHS funding and our further funding commitment for 2015-16. This will begin to deliver the vision for transformation set out in the NHS Five Year Forward View.

Lord Hunt of Kings Heath (Lab): My Lords, the King’s Fund quarterly monitoring report of NHS finance directors shows a worrying picture of 42% of NHS trusts facing a financial deficit this year, services under pressure, operations cancelled and a 50% increase in the wait for packages of care by patients in hospitals. Finance directors describe the situation as critical. What specific action are the Government taking to respond to this crisis? Are the Minister and her Liberal Democrat colleagues now prepared to say that they regret their role in helping the passage of the 2012 Act, which has caused so much damage and fragmentation?

Baroness Jolly: To take the last point first, I do not regret that. I do not regret parity of esteem for mental health. I do not regret health and well-being boards in local authorities. On the noble Lord’s first set of points, we have seen rising demand in emergency and waiting lists, a reduction in unplanned financial support, and focus on safer staffing ratio guidance. Various things are happening. The noble Lord, Lord Carter, one of the noble Lord’s noble friends, is looking at procurement within hospitals. Right across the piece, local NHS and foundation trust boards are concentrating on how they can restructure services to improve the situation.

Lord Fowler (Con): On the financial position, did my noble friend hear the interview given this morning on the “Today” programme by the Labour health spokesman, Mr Burnham? Given the pressure on health budgets, which we all accept, would it not be idiotic, as he advocated, to turn our backs on the sensible economies that can be achieved from the contracting out of ancillary services?

Baroness Jolly: This brings us, I think, to Section 75. We are absolutely clear that no contracting out or commissioning should be done unless it is in the interests of the patient.

Baroness Tyler of Enfield (LD): My Lords, a recent report from the Nuffield Trust on the state of NHS finances showed that spending on agency and contract staff had increased by roughly 20%. Given that this increased reliance on temporary staff has significant costs attached, as well as raising concerns about quality and continuity of care, can my noble friend say what the Government plan to do about it?

Baroness Jolly: Agency staffing cost the NHS £2.5 billion last year. This is nothing new. For as long as I have been involved in the NHS, there has been a hefty agency bill. The Government established Health Education England to ensure that the NHS has access to the right number of staff, with the right skills and available at the right time. The Department of Health expects trusts to have a strong grip on their finances.

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Baroness Howarth of Breckland (CB): My Lords, does the Minister accept that, until we have a system in which care and health are linked together, we will never manage to get a secure system? Does she not agree that we are in real difficulties when hospitals are blamed for not having good-quality staff, because those cost money, and yet are blamed for overspending when they do have the quality staff?

Baroness Jolly: This Government have introduced the better care fund, which aims to produce seamless care across health and social care. There are also 150 local plans, 120 of which are fully approved. We shall watch those pilots with interest.

Baroness Farrington of Ribbleton (Lab): Would the Minister care to comment on the fact that cuts in local authority spending are spoiling the chance of getting proper care in the community? The Government’s allocation of targets and grants is disadvantaging most of all the most deprived parts of England.

Baroness Jolly: I understand that local authorities have to struggle very hard to put together packages of care; I have even spoken to my own local authority very recently. We have to do the best with what we have. Currently, that is where we are.

Lord Forsyth of Drumlean (Con): My Lords, can my noble friend help me and explain why it is that the health service both in Scotland and in Wales, where it has more money, is doing considerably less well than the health service in England under this Administration?

Baroness Jolly: My noble friend makes a very interesting point. Perhaps they should look at some of the examples that are actually used in the NHS in England.

Lord Brooke of Alverthorpe (Lab): Is it not true that in Scotland and in Wales, there are more chronic, long-term sick patients than there are in the UK generally? Will the Minister say why, each time a Minister replies to questions on the failing performance, they pray in aid the number of additional patients who are now going into the NHS? Is this coming as a great surprise? Is it a surprise that people are getting older? What is the projection for the next five years about the numbers that we have to deal with? Surely this should be planned for.

Baroness Jolly: Indeed it should be planned for. There are now a million more people over 65 than there were at the beginning of this Parliament, but at the beginning of this Parliament there were no plans to cope with that onward growth.

Baroness Tonge (Ind LD): My Lords, does the Minister agree with me that chaos is reigning in the health service at the moment? We really must stop this piecemeal approach of throwing bits of money at it and putting on patches where it is failing, and have a proper all-party conference to discuss the future of the health service and how we are going to fund it. That is the only thing that the general public would respect.

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Baroness Jolly: I am not sure whether that will happen, but there is an awful lot of agreement across the main political parties about what should happen. In particular, we all agree that health and social care should be joined together.

Crime and Courts Act 2013 (Consequential Amendments) Order 2015

Police and Criminal Evidence Act 1984 (Codes of Practice) (Revision of Code A) Order 2015

Motions to Approve

3.07 pm

Moved by Baroness Williams of Trafford

That the draft orders laid before the House on 25 November and 5 December 2014 be approved.

Relevant documents: 15th and 17th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 22 January

Motions agreed.

Microchipping of Dogs (England) Regulations 2015

Motion to Approve

3.08 pm

Moved by Lord Gardiner of Kimble

That the draft regulations laid before the House on 11 December 2014 be approved.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 13th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 22 January

Motion agreed.

Films (Definition of “British Film”) Order 2015

Motion to Approve

3.08 pm

Moved by Lord Gardiner of Kimble

That the draft order laid before the House on 4 December 2014 be approved.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 22 January

Motion agreed.

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Recall of MPs Bill

Order of Consideration Motion

3.09 pm

Moved by Lord Wallace of Saltaire

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 6, Schedule 1, Clauses 7 to 10, Schedule 2, Clauses 11 to 16, Schedules 3 to 5, Clauses 17 to 20, Schedule 6, Clauses 21 to 25.

Motion agreed.

Deregulation Bill

Order of Consideration Motion

3.09 pm

Moved by Lord Wallace of Saltaire

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 3, Schedule 1, Clauses 4 to 8, Schedule 2, Clause 9, Schedule 3, Clauses 10 to 13, Schedule 4, Clauses 14 to 18, Schedule 5, Clause 19, Schedule 6, Clauses 20 to 26, Schedule 7, Clause 27, Clauses 42 to 44, Schedule 12, Clause 45, Schedule 13, Clauses 46 to 50, Schedule 14, Clause 51, Schedule 15, Clause 52, Schedule 16, Clause 53, Schedule 17, Clauses 54 and 55, Schedule 18, Clauses 56 to 72, Schedule 19, Clauses 73 to 83, Schedule 20, Clauses 84 to 87, Schedule 21, Clauses 88 to 91, Clauses 28 to 35, Schedule 8, Clause 36, Schedule 9, Clause 37, Schedule 10, Clause 38, Schedule 11, Clauses 39 to 41, Clauses 92 to 96.,

Motion agreed.

Pension Schemes Bill

Pension Schemes Bill


3.09 pm

Amendment 1

Moved by Lord McAvoy

1: After Clause 18, insert the following new Clause—

“Fiduciary duty of trustees

(1) The Secretary of State may by regulations—

(a) require any pension scheme, which is not already overseen by independent trustees, to appoint a board of independent trustees; and

(b) set out the powers and duties of a board appointed under paragraph (a).

(2) Regulations under this section—

(a) shall be made by statutory instrument, and

(b) may not be made unless a draft of the instrument has been laid before, and approved by resolution of, each House of Parliament.

(3) The board of independent trustees shall have a fiduciary duty towards members of the scheme overseen by them.

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(4) The fiduciary duty set out in subsection (3) shall take precedence over any duty to—

(a) the shareholders in, or

(b) other owners of,

the operators of the scheme.

(5) In relation to any matters of member interest, decisions of the board of independent trustees shall be binding on the board of directors or other analogous bodies.”

Lord McAvoy (Lab): My Lords, the amendment stands in my name and that of my noble friend Lord Bradley. It is our contention that the Bill does not go far enough to address the governance of defined contribution pension schemes. We have consistently argued on the Bill and the previous Bill that all workplace pension schemes must be run by independent boards of trustees. Those trustees would have a fiduciary duty that would take precedence over any duty owed to shareholders. In proposing the amendment, we are setting out a clear responsibility that all those looking after someone else’s money or advising on investments should be subject to fiduciary standards of care. That will mean that conflicts of interest must be resolved in the beneficiaries’ interest. That omission from the Bill is perhaps surprising given the findings of the government consultation document entitled, Reshaping Workplace Pensions for Future Generations. Paragraph 22 states:

“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”.

The Bill sets up a new model of collective pensions. This will have a form of independence within the governance arrangements, with an alignment of interests. It falls short of our proposal for independent trustees with a clear fiduciary duty to act in savers’ interests, but is an acknowledgement of the principles underpinning good governance. The Government have failed to take the opportunity to require that independence in the governance of all pension schemes.

In Committee, the noble Lord, Lord Bourne of Aberystwyth, said:

“I do not think that we are miles apart on our desired outcome, but we believe that working with the industry, consumer groups and pension groups to achieve the best interests is the right way forward. If we can achieve the same end without making it mandatory, we believe that that is the right approach. It is probably at the root of the difference between the two parties that we believe that we are achieving the result without having to make it mandatory”.—[Official Report, 7/1/15; cols. 381-2.]

In response, we say to the Minister: how long should we give the industry to change? How much evidence do we need to prove that government action is needed and that it is our responsibility to act? Enough is enough.

During the past three years alone, the failures of the pension industry have been well documented. Market studies have been produced by the Office of Fair Trading and the Financial Conduct Authority and reports produced by the Pensions Institute and the Centre for Policy Studies, among others, as well as by journalists from the Times, the Telegraph, the Mail and the Guardian, through to Channel 4 documentaries, to name but a few. There can hardly be a literate adult in the UK who does not understand that there is something seriously

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amiss with our pension industry. Nor should we ignore the fact that many of those commentators and financial experts have called on the Government to take action because of the failure of regulation, the failure of parts of the market to follow ABI codes of practice or adopt best practice. It has been given a chance to improve for the past decade or more, and even the mis-selling scandals that have cost the industry dear have not been enough to prompt the change that we all believe is necessary.

One further matter should be considered: the success of auto-enrolment. Auto-enrolment has proved attractive and more people have remained in the schemes to date than we had dared hope. We have helped people to do the sensible thing, but that will not be sustained if we do not protect savers from excessive charges, poor returns, poor management practices, mis-selling scandals and the like. People need to trust the private sector pensions industry. As my noble friend Lady Drake said in Committee:

“It will be a major regulatory failure of public policy if millions of citizens are auto-enrolled into pension schemes but Parliament has not ensured that sound governance is in place.—[Official Report, 7/1/15; col. 378.]

I beg to move.

3.15 pm

Lord German (LD): My Lords, before I listen to answers from the Benches opposite, I shall ask the Minister a few questions. If he feels that it is not appropriate for him to reply, perhaps members of the Labour Front Bench might give me the answers.

My understanding is that the number of schemes without trustees—those referred to in this amendment—is of the order of 40,000 to 47,000. I have no problem with independent trustees or trust-based pension schemes: my question is about the scale of the impact of this amendment. If 46,000 or 47,000 schemes—if that is the number of schemes required by this amendment to set up boards of independent trustees—are required to find trustees, there would, first, be a drag on finding that number of suitably-qualified people to fulfil those roles. I wonder where such people might be found.

Secondly, is there a cost to such a change? Changing these schemes is bound to cost them money. Given that the Government have put in place the 0.75 per cent cap, which means that more than 99 pence in the pound of every pension contribution goes towards the benefit—the pension that comes out at the other end—is there any way that that cost would have to fall on the member benefits? In other words, would the need to pay the costs of so many changes to a large number of schemes reduce people’s pensions?

My final question relates to the role of the independent governance committees that are set up. My understanding —perhaps my noble friend could confirm it—is that these committees were set up as a result of the report of the Office of Fair Trading and are a government response to that request. If that is so, perhaps my noble friend could tell me what the role and responsibilities of the IGCs are which can be fulfilled, and which would perhaps fill the trustee role in the schemes where there is no trust-based system as required by this amendment?

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Lord Bourne of Aberystwyth (Con): My Lords, I first thank the noble Lord, Lord McAvoy, for his contribution. I will do my best to answer his points and those of my noble friend Lord German.

I welcome the opportunity to debate this amendment again, having discussed it at length in Committee. It is fair to say—as the noble Lord said in opening—that, in philosophical terms, there are differences between the Government and the Opposition on this issue. However, we certainly want the freedoms that the new system contained in the Pension Schemes Bill offers. To that extent, we are united. However, we are certainly coming at it from different angles.

The noble Lord, Lord Bradley, suggested in Committee that all workplace pension schemes should be run by trustees and have a legal duty to prioritise members’ interests. In the same debate the noble Baroness, Lady Drake, made a broader case for extending a fiduciary duty to all who have the discretion to manage other people’s money. The Government share the concerns of the noble Lord and the noble Baroness that pension schemes should be well run. As I said in Committee, the Government are committed to ensuring that all workplace pension schemes are well governed, with members’ interests at the heart of everything they do. That is why, in March last year, we set out our proposals for strengthening the governance of occupational pension schemes that are money purchase schemes, and to the money purchase benefits provided by other schemes, in the Command Paper, Better Workplace Pensions: Further Measures for Savers. I should add that the majority of stakeholders supported these proposals by saying that they represented a positive change, intended to drive the right behaviours.

As noble Lords will be aware, in that publication last October we put these proposals on a sure footing by consulting on draft regulations to place minimum governance standards on, broadly, all occupational pension schemes which are money purchase or have money purchase elements to them. That consultation has now ended; we will shortly be publishing the Government’s response and laying the final draft regulations before Parliament, to come into force this April. For workplace personal pension schemes, the FCA has also completed its consultation on draft rules for independent governance committees, which were referred to by my noble friend Lord German and which will ensure oversight of these schemes in members’ interests from April 2015, and aims to publish its policy statement by early February of this year. That probably answers my noble friend’s point: these committees are essentially supervisory rather than day-to-day, which would be the role of trustees.

In respect of the governance of collective benefits, I can reassure noble Lords that we have a number of provisions in Part 2 that enable us to make requirements in regulations about some of the key aspects of running a scheme offering collective benefits. These are specifically tailored to such schemes and reflect key differences in the rights that members have in collective benefits, compared to money purchase benefits. We may also make regulations under a power in Part 3 to require certain decisions in respect of collective benefits, and in relation to defined ambition schemes, to be made in

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the best interests of members to ensure appropriate safeguarding of members’ interests. This reflects the different nature of the decisions being made on behalf of members in these types of pensions, compared to money purchase pensions.

I will refer now to another point made by the noble Lord, Lord Bradley, in Committee. He proposed that a trust-based approach is preferable to a contract-based one. I emphasise again that we must not assume that trust-based schemes are always better governed than contract-based workplace pension schemes. There is no evidence that one governance structure necessarily delivers better outcomes than the others. As I said in Committee, we consider that scale, good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust-based. But as I also emphasised, while we are interested in scale inasmuch as it may help schemes to improve quality and lower charges, it is not an aim in itself and bigger does not always mean better. The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the Treating Customers Fairly principles, which have formalised firms’ responsibilities to their customers.

The introduction of independent governance committees with a duty to act in members’ interests, from April 2015, will further strengthen the governance of contract-based schemes. Also from April of this year, the Government and the FCA are intending to introduce measures so that certain savers in, broadly, all occupational and contract-based schemes providing money purchase benefits which are used for automatic enrolment will not be subject to high or inappropriate charges. The positioning in the Bill of this amendment limits the powers to schemes with collective benefits. However, it is not clear whether this is the intention behind the amendment.

We would not want to single out collective schemes here and, as I have mentioned, there are powers in Part 3 covering the interests of members of collective schemes. If the noble Lord, Lord McAvoy, intended the amendment to apply to all schemes, I am not sure whether it would achieve this. As I explained in Committee, if this amendment were exercised across all schemes, it would require independent trustees to be recruited for tens of thousands of pension schemes. I believe that this answers a point raised by my noble friend Lord German. Data from the Pensions Regulator show that there are at least 47,680 private workplace schemes alone, although I accept that not all those will need to recruit independent trustees. My noble friend Lord German put a powerful case for not passing this amendment, as it is not clear whether it is intended to cover just collective benefit schemes or schemes more widely. Clearly, there will be a cost associated with it.

Lord McAvoy: I thank the Minister for giving way. The Minister has raised some objections that are less extreme than those of the noble Lord, Lord German—so there is a difference in fairness here. Our new Clause 13 was initially a response to the problem of having so many trustees. Let us not forget this direct quote from my honourable friend Gregg McClymont:

“Our new clause 13 would initiate a response to that problem, but let us not forget that of the 200,000 pension schemes in the

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UK the vast majority are group personal pensions under the management of four or five—no more than half a dozen—insurance companies. A governance board properly constituted of trustees attached to each one of those major insurance companies would deal with the vast majority of pension schemes in the UK. That is a very important point”.—[

Official Report

, Commons, Pension Schemes Bill Committee, 4/11/14; col. 324.]

Lord Bourne of Aberystwyth: I am grateful to the noble Lord opposite for that intervention, but the case remains there is clearly going to be a cost associated with this. This is an objection to it, but the prime objection is that we do not accept the principle that contract-based schemes need such a fundamental change. Though different in essence from the fiduciary nature of trustees’ duties and trust schemes, there are of course obligations placed on contract-based schemes, as I have tried to set out.

We all agree that good governance of pension schemes is essential. This is why the Government’s proposed new governance standards, applying across broadly all workplace pension schemes in respect of money purchase benefits will further protect members by ensuring that schemes are run in their interests. It is also why this Bill makes provision for targeted regulation-making powers in respect to the running and good governance of collective benefits and certain decisions in defined ambition schemes and in relation to collective benefits.

I accordingly and respectfully ask the noble Lord to withdraw this amendment.

Lord McAvoy: My Lords, maybe I am paranoid or maybe I just have a suspicious mind or maybe my mother knew what she was doing when she called me “Thomas”, but I do not believe that it is entirely coincidental that what someone called the Welsh mafia are in operation here, with certain facts—in inverted commas—being produced. Cost has been mentioned by the noble Lord, Lord German, and the Minister. Can anyone in this House give an exact figure for the cost to the members of pension schemes where there has not been proper fiduciary guarantees of independent governance? Can anyone give me a quote? Plenty of folk can quote instances where money has been lost through pension funds. I do not think that the principle that we are putting forward here is as unreasonable as has been portrayed, particularly by the noble Lord, Lord German. We will return to scale at a later stage. In the mean time, we will try to find an estimate of how much has been lost to ordinary members of pension schemes through a lack of governance.

In the mean time, however, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Clause 45: Rules about modification of schemes

Amendment 2

Moved by Lord Bourne of Aberystwyth

2: Clause 45, page 19, line 24, at end insert—

““( ) regulations made under Schedule 17 to the Pensions Act 2014;

( ) regulations made under Schedule 18 to the Pensions Act 2014;”

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Lord Bourne of Aberystwyth: My Lords, I address the House as one half of the Welsh mafia or the Taffia—a charge I reject totally of course.

These amendments are consequential in nature. They address an omission in the current legislation. In the course of checking through the changes made as a result of the Bill, omissions in the Pensions Act 2014 came to light. The amendments needed all relate to overriding legislation—that is, when legislation overrides provision in the scheme rules such that the legislation is treated as if it were part of the scheme rules.

Without these amendments, any overriding requirements made under regulations under Schedules 17 and 18 to the Pensions Act 2014 would not be treated as part of the scheme rules for the purposes of the Pensions Act 2004 and subsisting rights provisions in the 1995 Act, leading to inconsistency in the way in which overriding provisions are dealt with and a potential lack of clarity.

I beg to move.

Lord Bradley (Lab): I shall briefly respond as this is the first set of government amendments. I thank the Minister for the courtesy of writing to me with his proposals around these amendments; it is very helpful to have that in advance, as it limits the need for further debate on these matters. Maybe I should declare an interest in that my great-uncle was Welsh, but I do not claim to be part of the Welsh mafia. With those remarks, I am supportive of the amendments.

Amendment 2 agreed.

Amendment 3

Moved by Lord Bourne of Aberystwyth

3: Clause 45, page 19, line 27, at end insert—

““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;

( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”

Amendment 3 agreed.

3.30 pm

Clause 47: Pensions guidance

Amendment 3A

Moved by Lord Bradley

3A: Clause 47, page 20, line 9, at end insert—

“( ) The FCA must discharge its functions in relation to pensions with a view to securing an appropriate degree of protection for consumers with a right or entitlement to flexible benefits whether they have used pensions guidance or otherwise throughout the decision-making and purchasing process, including safeguards actively to inform consumers of key risks and benefits.”

Lord Bradley: My Lords, this amendment is connected to Amendment 22. We had an extremely interesting debate in Committee on the merits of what is known as the second line of defence, and I am pleased that we are able to return to it today as a result of our amendment.

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I preface my brief remarks on this matter with our general approach to the Bill throughout its passage in the House. While we broadly support the new freedoms and flexibilities in the Bill and its related Bill on taxation, we have sought throughout to ensure that the interests of pensioners—customers—are protected in what has often been a very dysfunctional annuities market. Our overriding aim has been to ensure that those protections for the public are in place before the Bill is enacted at the beginning of April.

To return to this specific amendment, we argued in Committee that a second line of defence was vital. We discussed evidence from two reports from the Financial Conduct Authority, quoted in Committee, that the market is often not functioning as it should and is letting consumers down. We believed that action was needed immediately to protect savers when making possibly the most complex financial decision that they will ever have to make.

In Committee, the Minister did not seem to accept that action for a second line of defence should be in place by April this year, when the new freedoms and flexibilities are implemented. Instead, he suggested that, because the FCA is a relatively new body with new powers, and has committed to reviewing all its rules in the first half of this year, we should in effect await the outcome of its deliberations before any further action was taken. In response to the Minister, I said that while I would reflect on what he had said, I believed that the public sought reassurance and the confidence that a second line of defence would give them. That is why we have continued to champion a second line of defence throughout the passage of the Bill in both Houses, as have many pension groups and organisations outside this House.

I and my noble friends therefore welcome the Government’s apparent change of heart today, and the fact that they have recognised the strength of the arguments to protect pensioners that we have been making. It is with pleasure we received, and read, the very welcome letter from the Financial Conduct Authority, dated 26 January, saying that it would ensure the,

“appropriate protection of consumers, accessing their pension saving”.

This is extremely welcome, and starts to put together a proper second line of defence.

At this stage of the debate, though, I have three questions for the Minister. First, as the letter says:

“Subject to agreement of the Board, we are minded that it is appropriate to bring these rules into force on a temporary basis from 6 April, and prior to consultation, to provide important additional protection for consumers”.

Will the Minister confirm that the Board will agree to putting this second line of defence in place and that, at a future stage, the Board may decide that it is not necessary?

Secondly, the letter goes on to say:

“As part of that consultation we will also consult on whether to retain or modify the temporary rules that we are proposing to introduce in April”.

Will the Minister assure the House that, after the temporary period that the Financial Conduct Authority is proposing, there are no circumstances in which it would then remove the second line of defence?

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Thirdly, in relation to trust-based schemes, it is my understanding that the Pensions Regulator is responsible for these schemes, not the Financial Conduct Authority. Will the Minister assure the House that similar protections for trust-based defined contribution schemes will be made by the Pensions Regulator, in parallel with the FCA?

The merits for a second line of defence seem now to be accepted. I look forward to the Minister’s responses.

Baroness Drake (Lab): My Lords, I had a lengthy and impassioned speech prepared on the need for a second line of defence to address the risks that pension savers might make detrimental and irreversible choices when they access their savings. However, this has been tempered by the letter from the FCA, so my contribution is shorter and less passionate as a consequence.

This amendment sets out a duty on the Financial Conduct Authority to protect savers accessing their pension savings when they are engaging with providers during the decision-making and purchasing process. This is distinct from the duty on the FCA to protect savers receiving guidance from designated guidance providers.

The guidance guarantee, now referred to as Pension Wise, is a key measure for helping people navigate the complex retirement options arena from April 2015. There are people working hard to make its delivery a success, as it will provide a very important service to savers. The FCA will expect providers to check whether a customer has used the guidance service and, if not, to encourage them to do so. In popular parlance, this is the first line of defence.

Beyond the guidance stage, the saver has to move to the process of making a decision, and of selecting or purchasing a retirement income route. It is what happens at this stage—the exchange between the consumer and the provider—that is causing so much anxiety and to which the amendment is directed. It puts a duty on the FCA to secure an appropriate degree of protection for the consumer at that stage. This is what is popularly referred to as the second line of defence.

As my noble friend has said, we have now received the letter from Mr Woolard, Director, Strategy and Competition at the FCA, advising that FCA board approval is being sought for this second line of defence. It is minded to bring these rules into force on 6 April 2015, pending a review of all the current regulatory requirements around the customer’s interaction with the providers. The CEO and chair of the FCA have made some thoughtful and welcome speeches that have set the framework for debate in addressing the challenge of poorly functioning financial services markets.

The recent FCA reports on retirement income markets have been hard hitting and on the nail. It is worth reminding ourselves what they observed: annuity sales practices were contributing to consumers missing out on a potentially higher income; consumers’ tendency to buy from their existing provider lowered the potential for higher income; consumers will be poorly placed to drive effective competition; the retirement income market is not working well; and the introduction of greater choice and potentially more complex products will reduce consumer confidence and weaken the competitive pressures on providers to offer good value. The anxiety was that that analysis and the heightened risk of consumer detriment with the advent of the new freedoms

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would not translate into sufficient regulatory protection. Against that background, the FCA letter is most appreciated, although I await with interest the answers to my noble friend Lord Bradley’s three questions.

The second line of defence is not a total solution to the risk that consumers will make decisions that are not in their interest, but it will make a very important contribution to what we know is a poorly performing market. I therefore welcome the FCA letter and thank the Minister for facilitating its publication.

Lord Hutton of Furness (Lab): My Lords, it has been clear to everyone following this debate about the latest tranche of pension reforms brought forward by the coalition Government that if we were to mitigate some of the obvious risks that are created by this new world of choice and flexibility at the point of retirement for people saving in DC schemes, it would be necessary to put into place something that we have now called the second line of defence.

The need for the so-called second line of defence was crystal clear quite early on. It is important that we do not treat people at the point of their retirement like children; they have saved all their lives for that point. However, the lack of a requirement to take guidance, because it is a choice or option, certainly creates a substantial risk that the benefits of the Government’s reforms—the greater freedoms—which I think most of us would welcome, could create some very unfortunate outcomes. We know from the failure of the open market option, and from previous attempts to get this right, that the real risk we need to mitigate here is that people will make the wrong decision, and in the later years of their retirement they will find that they just do not have enough money to pay their bills, and will present themselves and seek benefits. That would be a terrible outcome.

Therefore, the decision to put in place the second line of defence, which we heard recently from the FCA, is to be enormously welcomed. We do not know what this second line of defence will actually be; we do not know what will prompt them—what questions consumers will be asked by their pension provider before they take any final decisions. But at least we now have something in place that holds out the prospect that these reforms will work. There was a very real danger that if we did not put this second line of defence in place, the reforms would fail, and that the failure would live with us and haunt us for decades—people who had saved and worked hard all their lives would find themselves running out of money during their retirement. That would represent policy failure on a grand scale.

Today, therefore, we have an opportunity to make these reforms work. I suspect that means that probably we will not need a vote on my noble friend’s amendment, which, like my noble friend Lady Drake, I was very keen to support today. I hope that we would have had a majority in this House for the amendment. This prudent step is not about wrapping up these new freedoms with overly regulatory responses, and so on, but about taking the right course of action to mitigate the obvious risk of policy failure while preserving at the same time the essence of the new freedoms, which is to choose and to make personal financial decisions at the point of retirement.

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So I, too, would welcome some further clarification from the Minister today about exactly how this so-called second line of defence will work. We do not know very much about it, but it has to be in place pretty quickly, and there will be lots of concerns out there about exactly what it will mean and who will effectively have the responsibility to enforce it and oversee it.

3.45 pm

The whole world is now much more complicated for people saving in DC schemes. Previously, one had to purchase an annuity at the point of retirement. We know that that market was not working, and the Government brought forward reforms to deal with that failure. We will have to wait and see whether these reforms are going to work. It is absolutely clear from all the consumer research that people are saying that they want to have secure, reliable income in retirement so that they can pay their bills and do the other things that they want to do with their remaining years. There is an absolutely overwhelming need for people to get proper advice about what to do with their pension pots at the point of retirement. This is not one of those areas where we can shrug our shoulders and say that laissez-faire will get us through. Doing nothing will almost certainly ensure that there will be a colossal scandal in a few years’ time when people will turn round to this House, and another place, and say: “What on earth were you thinking of? What on earth were you doing?”.

We have the chance today to make these reforms succeed. By succeed, I mean that we will help people when they are approaching retirement to make the right choices about what to do with their pension pots so they can live a secure, comfortable life and not face the terrible consequence of having to turn round at some point in their retirement years and seek benefits.

Baroness Greengross (CB): My Lords, I put my name to this amendment. I thank the Ministers, with whom I have had the pleasure of discussing it, for the work they have done in making sure that the FCA has come to its extremely welcome conclusion. I echo what the noble Lord, Lord Hutton, has just said. We want to know a bit more about exactly how this will work and whether it is sufficient. In the mean time, I have nothing more to add except that, with a great deal of pleasure, there is no longer the need for an amendment, so far as I am concerned—so I will leave other noble Lords to speak to it.

Lord Newby (LD): My Lords, I declare that I have no known Welsh connections.

A noble Lord: Shame!

Lord Newby: In Committee, the issue of the second line of defence was the subject of more debate than anything else. I, and other noble Lords, received a lot of lobbying from all sides of the industry and consumer groups about the need for a second line of defence. So I am pleased that other noble Lords are as pleased as I was when I heard, at the end of last week, that the FCA was planning to announce yesterday that it

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would make new rules by April to protect consumers as they make decisions on how to access and use their pension savings in later life. The Government share the aspirations of the noble Lords, Lord Bradley and Lord Hutton, that we should put in place a new system which gives the maximum opportunity for people to take informed decisions, because we accept that these decisions are, very often, for life and have very significant consequences.

Yesterday evening, I circulated the FCA announcement to noble Lords who had taken part in earlier debates. In short, the rules will introduce a second line of defence. Pension providers will be required to ask consumers seeking to access their pension savings about key aspects of their circumstances relating to the choice that they are making and give relevant risk warnings in response to the answers. This is a very important element: we are keen not simply to have another tick-box exercise, which we could have done at this point. Providers will also have to highlight that guidance from the Pension Wise service, or regulated advice, can help them to avoid making a poorly informed decision. The FCA will also require that messages should be delivered to consumers in direct and simple language.

The FCA announcement illustrates precisely why the amendments we are considering are not needed. The FCA already has a duty to ensure that the retirement income market is working for consumers captured under its statutory objectives, including its objective to secure an appropriate degree of protection for consumers. The announcement demonstrates just how seriously the FCA is taking this duty. It would also be unusual to legislate to give the FCA a specific objective in relation to one sort of investment—pensions—and to do so outside the Financial Services and Markets Act.

I was asked a number of specific questions. The first related to the board agreeing the proposals. It is notable that the press release does not refer to the board. I suspect that this is not an unusual way of dealing with announcements that the FCA wishes to make between board meetings. I believe that there will be a board meeting next month at which the decisions announced yesterday will be ratified. It would be extremely unusual if the board were to go against the advice of its officials on a matter such as this. I am not on the board; its members are independent. However, if I were a betting man, I would be prepared to put my shirt on the likelihood of these new rules being ratified.

The second question was whether these are temporary or permanent rules. The temporary element of them relates to the fact that there has been no consultation. In order to get them in place in time, they have to be introduced quickly under a fast-track procedure. Again, while I cannot formally commit the board or the FCA, I think it is fair to say that there is no intention in anyone’s mind that this should be a temporary provision. The new rules have a long-term purpose; there is no temporary element. It is certainly the intention that there will be permanent rules—but, as I say, the transition from temporary to permanent involves the consultation process which they would normally undertake.

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The third question related to whether trust-based schemes would also be covered. As the noble Lord, Lord Bradley, pointed out, the FCA will not cover trust-based schemes, but the DWP, which writes the regulations for trust-based schemes, is working with the Pensions Regulator to consider how this can best be dealt with for trust-based schemes on the same basis, so we have it in hand. This is a very recent development so far as the FCA is concerned; it was announced only yesterday.

Lord Bradley: I am grateful to the Minister. As the DWP is working on the issue with the Pensions Regulator, will it be on the same timetable for introducing such a second line of defence from 6 or 7 April?

Lord Newby: My Lords, that is what we are hoping to achieve, so that everybody is working on the same basis. In making the announcement yesterday, the FCA demonstrated that it has listened to the many representations it has received directly, and to debates in your Lordships’ House. I am pleased that it has. In the light of that announcement, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Bradley: I am very grateful to the Minister for that reply. I thank my noble friends Lady Drake and Lord Hutton, and the noble Baroness, Lady Greengross, for their support for this amendment.

The Minister responded well to the three questions I raised. While I accept that he is not a betting man, I also accept that his assurances that the board will approve these proposals, that they are not temporary, and that the DWP will bring in a similar, parallel policy for trust-based schemes are all welcome and reassuring to the House. I believe that this is a real victory for all those who have campaigned, both inside this House and outside Parliament, for a second line of defence to give added protection to people making decisions about the pension pots and retirement income. As we said, that is perhaps the most important financial decision they will make in their lives.

Lord German: I also support the letter from the FCA. It is very welcome. The bottom of the first page of the letter says, in absolute terms, that,

“the FCA has also decided to bring the ABI retirement code into our rules”.

Would the noble Lord agree that that is very welcome, given that the ABI retirement code lays out in great detail the journey through which the customer will travel? The letter makes it very clear that that will happen.

Lord Bradley: I am grateful to the noble Lord, Lord German. That is in the letter and, as I said, we welcome its contents. It reinforces the points that we made about the second line of defence and the future adequacy of that provision. That is clearly welcome.

In conclusion, we will closely monitor the way that the policy and the implementation fall, to ensure that consumer rights are properly protected in the way that everyone in this House expects. With that, I beg to ask leave of the House to withdraw the amendment.

Amendment 3A withdrawn.

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Clause 48: Independent advice in respect of conversions and transfers: Great Britain

Amendment 4

Moved by Lord Newby

4: Clause 48, page 20, line 30, leave out “create exceptions to subsection (1)” and insert—

“(a) create an exception to subsection (1) in the case of a member or survivor whose subsisting rights in respect of safeguarded benefits under the scheme, or safeguarded benefits under the scheme and any other schemes, are worth less than a specified amount;

(b) create other exceptions to subsection (1).

( ) Regulations under subsection (3)(a) may, in particular, make provision about—

(a) the valuation of the subsisting rights;

(b) the process for determining whether the exception applies.”

Lord Newby: My Lords, these amendments are those that we indicated, in Committee, that we would lay on Report. They respond to the recommendations of the Delegated Powers and Regulatory Reform Committee. The committee was concerned that Clause 48(3) was too broad. That subsection provides a power to create exemptions to the requirement to check that advice has been received under the advice safeguard. In Committee we explained that, as set out in the consultation response document Freedom and Choice in Pensions, we intended to exempt those with pensions wealth below £30,000 from having to obtain advice. This remains our only intended use of the exemption. However, it may prove necessary, once the new flexibilities come into force, to create an exemption that applies in other circumstances.

Amendment 4 divides the original power, creating a specific power to exempt from the safeguard those who have rights to safeguarded benefits that are worth less than an amount specified in the regulations. This relates to the exemption we intend to make in regulations for those with safeguarded wealth of £30,000 or less. Amendment 6 makes the same change for Northern Ireland. Amendment 14 changes the procedure that applies to regulations made under these powers, so that only regulations that make an exception for those whose safeguarded wealth is below the specified amount are subject to the negative procedure. These regulations will need to be in place by 6 April, so it will not be possible to make them subject to the affirmative procedure. However, regulations that create any other sort of exception will be subject to the affirmative procedure. Amendments 15 and 16 make the same change of procedure for regulations made by the Northern Ireland Department for Social Development.

The final part of Amendment 4 allows the regulations to specify exactly how this £30,000 threshold will be calculated. In response to feedback from stakeholders, we have decided that this should apply only to safeguarded benefits in the scheme from which the member intends to transfer, and be calculated on the basis of the cash equivalent transfer value, which is the standard measure in the industry.

4 pm

The Delegated Powers and Regulatory Reform Committee was also concerned that Clause 48(7) was too broad. Subsection (7) currently provides a power

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to give the meaning of the phrase “appropriate independent advice” in regulations. In Committee, we explained that in the response document to the consultation on freedom and choice in pensions, the Government set out that the advice which schemes would have to check had been received would be given by an adviser authorised by the FCA. We also explained that our intention is to define “appropriate independent advice” in regulations by reference to an activity regulated by the FCA, and that in parallel to this Bill the Government will seek to legislate to add a new activity to the FCA’s regulated activity order. This will be done by means of a statutory instrument amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, which will be subject to the affirmative procedure. The Treasury will lay a draft of this statutory instrument before the end of the month, and ahead of Third Reading.

Amendment 5 draws upon Amendment 44A, tabled in Committee by the noble Lords, Lord Bradley and Lord McAvoy, which suggested that advice should relate to the characteristics of the adviser providing it, as opposed to the nature of the advice itself. The amendment provides that, “appropriate independent advice” must be,

“given by an authorised independent adviser”,

and goes on to set out that this means someone who,

“has permission under … the Financial Services and Markets Act 2000 … to carry on a regulated activity specified in regulations”.

This pertains to the link we intend to draw from regulations between the definition of “authorised independent adviser” and the new regulated activity that the Treasury will seek to legislate to create.

The clause, as amended, retains the power to specify the nature of the advice. This is being done as a precautionary measure to allow the Government to respond to practice emerging after April, which may require aspects of the definition of “appropriate independent advice” to go beyond that which can be expressed purely by the link to the FCA’s regulated activity.

Amendment 7 makes parallel amendments for Northern Ireland. I hope the House will agree that these amendments satisfy our commitment to seek to address the concerns of the Delegated Powers and Regulatory Reform Committee. I beg to move.

Lord Bradley: I am grateful to the Minister for the explanation of the amendments, which are fine for the Bill, particularly the clarification around the amendment that we moved in Committee on the issues of appropriate independent advice and authorised independent adviser. That is very helpful, and I am pleased that the amendments are now being made.

Amendment 4 agreed.

Amendment 5

Moved by Lord Newby

5: Clause 48, page 21, leave out lines 1 and 2 and insert—

““appropriate independent advice” means advice that—

(a) is given by an authorised independent adviser, and

(b) meets any other requirements specified in regulations made by the Secretary of State;

“authorised independent adviser” means a person who—

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(a) has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Secretary of State, and

(b) meets such other requirements as may be specified in regulations made by the Secretary of State for the purpose of ensuring that the person is independent;”

Amendment 5 agreed.

Clause 51: Independent advice in respect of conversions and transfers: Northern Ireland

Amendments 6 and 7

Moved by Lord Newby

6: Clause 51, page 22, line 21, leave out “create exceptions to subsection (1)” and insert—

“(a) create an exception to subsection (1) in the case of a member or survivor whose subsisting rights in respect of safeguarded benefits under the scheme, or safeguarded benefits under the scheme and any other schemes, are worth less than a specified amount;

(b) create other exceptions to subsection (1).

( ) Regulations under subsection (3)(a) may, in particular, make provision about—

(a) the valuation of the subsisting rights;

(b) the process for determining whether the exception applies.”

7: Clause 51, page 22, leave out lines 31 and 32 and insert—

““appropriate independent advice” means advice that—

(a) is given by an authorised independent adviser, and

(b) meets any other requirements specified in regulations made by the Department for Social Development in Northern Ireland;

“authorised independent adviser” means a person who—

(a) has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Department for Social Development in Northern Ireland, and

(b) meets such other requirements as may be specified in regulations made by the Department for Social Development in Northern Ireland for the purpose of ensuring that the person is independent;”

Amendments 6 and 7 agreed.

House resumed.

Northern Ireland: On-the-Runs Scheme


4.03 pm

The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD): My Lords, with permission, I will repeat in the form of a Statement the Answer given by my right honourable friend the Secretary of State for Northern Ireland to an Urgent Question in another place on the on-the-runs scheme. The Statement is as follows.

“On Monday 26 January, the coroner conducting the inquest into the death of Mr Gareth O’Connor, who disappeared in May 2003, directed that the inquest would be stayed, pending an investigation by the PSNI into one of the suspects in Mr O’Connor’s murder.

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The suspect was part of the administrative scheme dealing with so-called on-the-runs, and was in receipt of a letter from the Northern Ireland Office informing him he was not wanted for arrest by police forces across the United Kingdom. This case is specifically covered on pages 107 and 108 of the Hallett report into on-the-runs, where it is described as ‘error 2’. The fact of the error has been in the public domain for some time and this case is not a new development.

The Police Service of Northern Ireland is investigating the suspect’s case and will be considering whether charges can be brought against the individual. I spoke to the chief constable of the Police Service of Northern Ireland yesterday, and I understand from him that this is a live police investigation. I also briefed the Justice Minister on the case. The police will investigate where the evidence leads them. Under the circumstances, it would not be appropriate to comment further on the specifics of the case.

In relation to the OTR administrative scheme, I set out the Government’s position in full in my Statement to the House on 9 September. This followed detailed consideration of the report by Lady Justice Hallett that was published in July. I made clear in my Statement that the scheme is at an end and that there is no basis for any reliance on letters received under the scheme by so-called OTRs in the past. There is no amnesty, immunity or exemption from prosecution. Those who received letters under this scheme should be in no doubt. If there is considered to be evidence or intelligence of their involvement in crime they will be investigated by the police, and if the evidence is sufficient to warrant prosecution, they will be prosecuted”.

4.06 pm

Lord McAvoy (Lab): My Lords, I thank the Minister for repeating the Secretary of State’s Statement in the House of Commons. The revelation yesterday regarding the collapse of the inquest into the murder of Gareth O’Connor has caused further justifiable concern and anxiety in Northern Ireland. Our thoughts today must and should be with the O’Connor family. Like so many of those left behind, they sought truth and justice about what happened to Gareth in 2003. They have waited 12 long years for an inquest into the death of their son. The thought of preparing for a week-long inquest would have been harrowing for the family. This development has made a highly stressful situation even worse. News of another error from the administrative scheme for the on-the-runs is devastating, following the catastrophic error in the Downey case last year.

We have apologised for the Downey error, and do so again for the error in the O’Connor case. In the same way as this scheme never offered amnesty, it was also never intended to cover alleged offences committed after the signing of the Good Friday agreement. The delay in the coroner and the family being made aware of the error is deeply troubling. The Northern Ireland Office and the police knew about the case, and indeed—as the Minister has indicated—it was referred to in the Hallett report.

I have some questions for the Minister. Why did the Northern Ireland Office not ensure that this family were told of the error in the immediate aftermath of

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the Hallett report? How many other potential specific errors identified in the Hallett report are the Northern Ireland Office currently investigating? In view of the financial pressures facing the Police Service of Northern Ireland, what is the Minister’s estimate of the time it will take to review all the cases covered by the on-the-run scheme? Finally, in a related matter which has caused similar concerns, can the Minister give the House an update on investigations on the missing information as regards the royal prerogative before 1997?

Baroness Randerson: The noble Lord made a number of important points and asked a number of questions. I am very pleased to hear that the noble Lord has echoed the apologies already made by the PSNI and by the Secretary of State to the family concerned. Why were they not told of the error earlier? It is a very complex situation in terms of the independence of the judiciary and of the inquest service. However, it is important to bear in mind that the Secretary of State and the PSNI have apologised to the family for the impact of this new development on them. We fully understand the problems it raises for them.

The noble Lord asked for the number of errors that were identified in the Hallett report. The Hallett report identified the Downey case and two other errors, of which this is one, and there are 36 cases where there is concern. All these are being reinvestigated by the PSNI as part of Operation Redfield.

The noble Lord asked how long this will take. I can be no more satisfactory in my answer than to say a number of years, in the estimation of the PSNI. He also asked for an update on the information relating to the royal prerogative of mercy. Following the Hallett report, the Northern Ireland Office has taken steps to improve its administrative systems. Work is ongoing with stakeholders to identify if there is any more material to be found.

4.11 pm

Lord Alderdice (LD): My Lords, I am grateful to my noble friend for repeating the Answer. I recall some elements of this case because Mr O’Connor disappeared shortly after the IMC was formed and we reported as much as we knew at that time in the very first report of the IMC. What puzzles me a little at this stage is, the mistake having been made and having been reported on some time ago, was the coronial service not informed so that it would have known that bringing forward an inquest at this stage was not going to go anywhere? If it was informed, it seems puzzling. If it was not informed by the PSNI, surely that is a serious gap that adds insult to injury in terms of the disadvantage that the family have been put at, not to mention the coronial service itself.

Baroness Randerson: My noble friend refers to the interlinking between the PSNI and the coroners service. It is important to bear in mind the independence of the PSNI. It must be free to pursue investigations. It is also important to bear in mind that this inquest has been ongoing for a number of years. Beyond that, it is not appropriate for me to comment on an individual case.

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Lord Rogan (UUP): My Lords, will the Minister confirm that the letter to the suspect in the Gareth O’Connor case was delivered to him by Gerry Kelly? If this is so, why was Gerry Kelly used as the postman, and how did he know the name and address of the suspect? How many other OTR letters have been given to Kelly for delivery? Further, how many other OTR letters have been given to the IRA/Sinn Fein leaders, Gerry Adams and Martin McGuinness, for delivery?

Baroness Randerson: The noble Lord asked about the issues associated with the OTR administrative system in general. I can do no better than to refer him to the Hallett review, which set out in detail a description of the situation. This was a system set up under the previous Government. In so far as we are able, this Government have given the full information that we are aware of in relation to the Hallett review.

Lord Browne of Belmont (DUP): My Lords, will the Minister explain how a suspect received an on-the-run letter in error relating to a murder that took place post the 1998 peace agreement? Who was responsible for the error and who signed it off?

Baroness Randerson: I am sorry to disappoint the noble Lord. I really cannot comment on the details of a specific case.

Lord Empey (UUP): My Lords, will the Minister explain what metaphysical forces were at work that allowed a member of Sinn Fein to deliver a letter to a person who he did not know at an address that he did not know? Will she also confirm to the House that no blank letters were given to Sinn Fein for it to distribute to persons of its choosing? Will she give a categorical assurance from the Dispatch Box that no letters of that character were issued at any stage?

Baroness Randerson: I understand the general concern that noble Lords are expressing about this scheme. I can say to the House only that, once we identified the scheme we brought it to an end in an orderly manner. We certainly are not of the view that the scheme has been operated in an efficient and acceptable manner. I once again refer the noble Lord to the Hallett report, which gave a very detailed description of the way in which those letters were issued and the way in which errors were made.

Lord Lexden (Con): Would my noble friend not agree that a postman who takes possession of a letter and then says that he does not know the address to which that letter was delivered strains credibility?

Baroness Randerson: The noble Lord has his own view. In speaking to the House today, I can deal only with the facts as I know them about events that took place a considerable number of years ago.

Lord Hylton (CB): My Lords, on the wider question, we can all understand the grief, the sense of loss and sometimes the bewilderment of families who were the

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victims of ancient crimes. However, would it not be very much better for all concerned if prosecutions were to cease for offences committed before 1994, when the two major ceasefires came into force?

Baroness Randerson: This Government take the view— the same view as the two parties of this Government took when we were in opposition—that it was inappropriate for there to be amnesties for people who had committed crimes at that time.

Pension Schemes Bill

Pension Schemes Bill

Report (Continued)

4.17 pm

Amendment 8

Moved by Lord Bradley

8: After Clause 60, insert the following new Clause—

“Drawdown funds: cap on charges

The Secretary of State may make regulations imposing a cap on the charges that may be imposed on members of flexi-access drawdown funds.”

Lord Bradley (Lab): My Lords, the purpose of this amendment is to give the Government the ability to cap the charges on flexi-access draw-down pension products. It is important because it gives the Secretary of State the power to take action if it is clear that unfair charges are being levied. When the freedoms and flexibilities commence in April, there will likely be a large increase in the number of people using these products, and it is right that the Government are able to protect these savers.

In Committee, I laid out why this measure is necessary. A possible 320,000 savers will be looking to turn their pension pots into retirement income in April, and the charges that can be levied can be high. As Which?, the consumer body, has pointed out:

“Even for a simple fund structure from a low-cost provider, the annual management charge might be 1% plus an administration fee of £250 per annum, which would cover the cost of income payments and income level reviews, for example. A more common total cost is about 2% p.a. which is similar to that for an investment-backed annuity. Worryingly, we came across cases where the charges for a SIPP package and advice were 4%-4.5%”.

We remain concerned about ensuring that good products are available for low and middle-income savers, as well as for those who have large pension pots. As I have said, we should remember that the median pension pot is around £30,000. The cap on charges for these products on decumulation, alongside those in place during accumulation, could be a very important stage. As NEST pointed out in its recent consultation on the subject:

“The solutions we as an industry develop over the next few years could affect the lives of millions of people in old age. We absolutely cannot afford to fail consumers. Leaving their retirements to chance is not an option”.

As I said in Committee:

“A good first step would be to remove the possibility of savers being open to what may be termed rip-off charges. This should apply in the decumulation stage as well as the accumulation stage, because a rip-off charge is a rip-off charge, wherever a consumer finds themselves at the end of it”.—[Official Report, 12/1/15; col. 614.]

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I accept that I have fallen into the jargon that we promised we would not pursue during our deliberations. Decumulation is when you are turning your pension pot into a decision on retirement income.

The Minister replied that this amendment was not required, because:

“There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers”.—[Official Report, 12/1/15; col. 617.]

This is obviously potentially very welcome, but I want take the opportunity provided by this amendment to probe a little further. Can the Minister advise the House today precisely which part of the existing legislation the Government would use were they to take action? Further, can he say whether the Government have any plans to take such action and when that would arise? I am trying to establish not just whether the Government believe that it is possible to do that but whether they would use the powers that the Minister says they now have. Even if the powers already exist—I look forward to the Minister’s response to my question—accepting this amendment would send a powerful signal that the Government intended to protect savers in this market from April. I hope therefore that the Minister will indicate that the Government are ready and willing, as well as able, to do so. I beg to move.

Lord Bourne of Aberystwyth (Con): I thank the noble Lord, Lord Bradley, for his contribution and recognise that “decumulation” might be jargonistic—I am sure that I have used jargon myself—but “rip-off” certainly is not, and I think we agree that we do not want rip-off charges. The Government are as much against them as the Opposition, I am sure. I will do my best to answer the specific points that the noble Lord raised.

This amendment was tabled by the noble Lords, Lord Bradley and Lord McAvoy, also in Committee earlier this month, so noble Lords will forgive me if I have dealt with some of this previously. As I mentioned on that occasion, the Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. I can reassure the noble Lord on that point.

I am pleased to be able to say that the Government have powers under the Pensions Act 2014—specifically, Section 43 and Schedule 18 confer them—to limit or ban charges borne by members of any pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers.

Similarly, the Financial Conduct Authority has wide-ranging product intervention powers, including the ability to cap charges on flexi-access draw-down funds. These existing powers cover all the institutions that could offer such draw-down arrangements.

Flexible draw-down is a relatively niche product, aimed primarily at those savers with large pension pots. HMRC data from the start of 2014 showed that only 5,000 people per year have entered flexible draw-down, which has been in place since 2011. Flexible draw- down is clearly not currently a mass-market product.

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With the introduction of the new flexibilities from April of this year, we expect this to change. We have given the industry a great deal of flexibility to develop a range of more flexible retirement income products and offer consumers greater choice. We want to see a vibrant and competitive marketplace, bringing forward products that meet consumers’ needs and enable consumers to make reasoned choices. The Government believe that a competitive market is the best way to ensure that products are well priced and we expect the expansion in take-up of draw-down products to exert a downward pressure on charges. Moreover, as scheme members can withdraw variable amounts, draw-down products generally require more administrative activity than accumulation-phase products. With the introduction of the new pension flexibilities, none of us can be absolutely certain how this market will develop. This was a point made quite fairly by both the noble Lord, Lord Bradley, and the noble Baroness, Lady Drake, in Committee.

Imposing a charge cap on draw-down at this stage, before we have seen the charges on the new products that are currently under development, could therefore risk setting a new norm and arrest any reduction in charge levels, or set a charge that is too low to be deliverable and stifle the draw-down market altogether. We therefore need to monitor how this market develops from April to gather further evidence about average charge levels before making any decision on what would be an acceptable charge level. The Government and regulators are therefore monitoring the development of new retirement income products, including the next generation of draw-down products, very closely.

Innovation and flexibility in the retirement income market must, of course, be for the benefit of consumers, not at their cost. The Government welcome the FCA’s commitment in its recent policy statement that it will commence a full review of its rules in relation to the retirement income market in the first half of this year. If these measures reveal evidence of sharp practice—rip-off charges, in the noble Lord’s phraseology—the Government and the FCA have the powers to act quickly to protect consumers. Along with the Financial Conduct Authority, we are also legislating to require reporting of charges and information on transaction costs by trustees and independent governance committees respectively of all workplace pension schemes from April this year. We are also committed to consulting further in 2015 on the transparency of additional costs and charges, to enable comparability across schemes; we will be considering draw-down funds as part of this work programme. We covered some of these transparency issues in Committee.

Baroness Drake (Lab): The Minister made the point that I had not heard before that, from April 2015, the independent governance committees will be invited to report on draw-down products, which is to be welcomed. Could he clarify whether the full remit of the independent governance committees will apply to draw-down products, or is it just a question of reporting?

Lord Bourne of Aberystwyth: As I understand it, it would certainly cover the point that the noble Baroness makes about draw-down products; it will not simply be a question of reporting.

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To conclude, while the Government share the concerns about member-borne charges, the Government and regulators are equipped with the powers to cap charges in all pension schemes, including draw-down products. We feel that intervening in the market at this stage would be wrong: intervention must be based on evidence, but it is an intervention that the Government have not shied away from making elsewhere in the market. We are closely and proactively monitoring developments in the decumulation market to consider whether there is need to use those powers.

In the closing remarks of the noble Lord, Lord Bradley, in Committee, he stated his hope that we would act in the interests of consumers if we were to see excessive charges in the new draw-down products that come to market. I can reassure him that this remains our intention. I therefore respectfully ask the noble Lord to withdraw his amendment.

Lord Bradley: I am grateful to the Minister for that response, and for taking up all the issues that I raised under the amendment. I noticed with interest his view that the competitive market will put downward pressure on charges, and I sincerely hope that that is the case. Monitoring of that situation will be essential to ensure that products do not come on to the market that seem attractive to customers, but with charges attached that are, because of the products’ complexity, hidden within them.

I welcome the fact that the Government have clarified to the House exactly what powers they have to deal with the matter, and the assurance that the Government not only have them but will use them in conjunction with the regulators if it is quickly seen that it is necessary to protect consumers from excessive charges. With those assurances, and with the certainty that this will be closely monitored both inside and outside the House, I beg leave to withdraw the amendment.

Amendment 8 withdrawn.

4.30 pm

Amendment 9

Moved by Lord Bradley

9: Before Clause 67, insert the following new Clause—

“National Employment Savings Trust transfers

In relation to NEST, within one month of the passing of this Act, the Secretary of State must lift the ban on transfers and the contribution cap.”

Lord Bradley: We return to the issue of the National Employment Savings Trust. The amendment requires the Government to lift the restrictions on NEST. In Committee and in a letter that the Minister was kind enough to send me between Committee and today, he explained why it is the Government’s opinion that that is impossible. I want to use this short debate to push back against that idea and explain why I believe that it is possible to lift the restrictions quickly, and why it should be done now.

NEST has been a success, as we all recognise and as the Minister acknowledged in Committee. As I said then, we should celebrate the fact that it has provided a high-quality, low-cost product in an important market

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that has not always—or often—served the saver well. Restrictions remain that prevent NEST building on that success. They limit, first, the contributions that can be made. In 2014-15, no more than £4,600 could be paid in. Secondly, there are restrictions on transfers from NEST in and out of other pots, except in certain circumstances, such as pension credits as part of a divorce settlement.

We have long argued that those restrictions should be lifted, but the Government pushed back, arguing that to do so would break EU state aid rules. That was obviously a serious point that needed to be addressed, as it was important not to leave NEST open to legal challenge. The EU ruled relatively recently that NEST is a service of general economic interest and did not breach state aid rules. My colleagues in the other place therefore sought legal advice to ensure that it would not breach state aid rules if the restrictions were lifted. That advice was published in November 2012, and concluded:

“It is important to appreciate that this can be done without offending EU state aid rules if the UK government presents the arguments as to why the subsidy no longer qualifies as a state aid under the Altmark principles”.

However, the Government still have not moved on that. Since then, we have had confirmation that legal advice sought by Gregg McClymont was accurate. The EU commission agreed that NEST would not breach state aid rules were its restrictions to be lifted. That is obviously welcome news, and has the potential to improve the savings environment for many in the UK. Alas, the Minister laid out, both in Committee and in the letter that he has since kindly sent me, why he believed that it was still not possible. The reason was that it appears to be EU state aid rules. In the Chamber the Minister argued:

“It is our understanding that we would have to reapply to vary the state aid consent that we have”.—[Official Report, 7/1/15; col. 442.]

However, later in the correspondence he said that the European Commission decision published on 26 June 2014 provided confirmation that removing the annual contribution limit and transfer restrictions from 1 April 2017 is compatible with the state aid measures afforded to NEST. The Commission also agreed that the removal of restrictions on individuals making transfers in and out of NEST could be brought forward to coincide with the introduction of automatic transfers, if they were earlier than April 2017.

Noble Lords will, therefore, understand if I am reluctant to accept the Government’s argument. We have been told repeatedly that state aid rules make this simple but important change to NEST impossible now. So can the Minister, first, provide more details as to why the EU state aid decision does not apply to any point earlier than 2017? Secondly, can he say why the decision on state aid would be challenged, as he suggested in the letter that it might? Thirdly, whose interests would be disadvantaged by the cap being lifted earlier? Lastly, how is that sufficient to invalidate the existing EU judgment? It would be helpful to the House to have further clarity on the Government’s argument as to why it is not possible to lift restrictions on NEST before 2017. I beg to move.

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Lord Bourne of Aberystwyth: My Lords, I thank the noble Lord, Lord Bradley, for his contribution and for allowing me to provide an update on NEST. I will do my best to answer the specific point on state aid rules.

I stress at the outset that the Government have broadly two concerns about the amendment. One of them is the state aid rules. The second is that we want NEST to focus on its mission to provide assistance to small and micro-employers in the run-up to 2017, when the restrictions will be lifted. However, I will go through some of the background and do my best to answer the specific points—or point—raised by the noble Lord, Lord Bradley.

As promised—and as acknowledged by the noble Lord opposite—during the Committee proceedings I wrote to the noble Lords, Lord Bradley and Lord McAvoy, copying it to other noble Lords who had participated in the debate, clarifying, I hoped, a point relating to state aid and the removal of the annual contribution limit and transfer restrictions from 1 April 2017. It must be noted that that letter referred to it certainly not being contrary to state aid rules to lift the restrictions on 2017. That was, of course, the consent given. However, it does not follow that it could be done any earlier; otherwise, a particular date would not have been chosen for lifting the restrictions. This is where the issue is: whether if a particular date is given, and consent is given for that date, it follows that you can lift the restrictions at any date before. This is the difference between us. I do not think it follows, where an application has been made for a particular date and consent is given, that you can predate it. However, I will try to come back to that.

Lord Bradley: My Lords, following that last point, perhaps I might quote again from the letter, which I accept I may not be interpreting correctly. It says:

“The Commission also agreed that the removal of the restrictions on individuals making transfers into and out of NEST could be brought forward to coincide with the introduction of automatic transfers if this were earlier than April 2017”.

Lord Bourne of Aberystwyth: Indeed, and I will come on to that point but it relates only to the transfers, not to the amount. The amount remains subject to the consideration of 2017. There are two limbs to this and I will try to cover that point, because we may be looking at a date slightly earlier than April 2017 if we succeed in achieving the aim of the automatic transfer. That limb of it could be there somewhat earlier but not the other limb, as it were. Let me proceed and, I hope, deal with the points. If not, I am sure that the noble Lord will let me know.

Later this week noble Lords will again, I hope, debate the National Employment Savings Trust (Amendment) Order, laid before Parliament on 16 December 2014. Its purpose is to implement the proposals that we have been talking about. As noble Lords will be aware, NEST was established to support automatic enrolment by ensuring that all employers had access to a low-cost workplace pension scheme with which to meet their duties, regardless of the size or profitability of their workforce. Its design, including the annual contribution limit—I think this is the point at issue, and is subject to the 2017 designation—and transfer restrictions,

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which admittedly could be somewhat earlier, focuses NEST on this target market of low to moderate earners, and smaller employers whom the market found difficult to serve. I believe that I mentioned this in Committee but I may be wrong on that point.

NEST already has more than 1.8 million members and 10,500 participating employers. NEST is doing what it was set up to do: supporting automatic enrolment, and doing so very successfully. During winter 2012 and spring 2013, the Department for Work and Pensions undertook a call for evidence on these issues of limitation. It sought to assess whether there was evidence that the annual contribution limit and the transfer restrictions placed on NEST were preventing it serving the market it was designed for. The evidence showed that although there was a perception that these two constraints were a barrier to access, the reality was that they did not prevent NEST from serving its target market. Seventy per cent of small and medium-sized employers expect to contribute no more than the legal minimum to their workers’ pensions. Until October 2017, minimum contribution levels are a total of 2% on a band of earnings. There is already a substantial amount of headroom within the annual contribution limit, which is currently £4,600, for contributions above the minimum. For example, minimum total contributions for a median earner on £26,000 a year would be £405.

In relation to transfers, individuals in other schemes who can already make transfers rarely do so. Evidence shows that more than 80% of workers fail to transfer their previous company pension funds across to their new employer’s scheme. In addition, around only 14,000 small and medium-sized employers currently provide trust-based workplace pension schemes that could be transferred to another pension provider. Of these, the Department for Work and Pensions estimates that around 5,000 might be able to consider a transfer of their workplace pension provision to NEST, which is equivalent to less than 1% of all firms.

Around 1.2 million small and micro-employers have yet to enrol their eligible workers. There is most likely to be a supply gap in this segment of the market, which underlies the rationale for establishing NEST. This is where the Government want NEST to focus. This is because of a shortage of provider capacity and the fact that other providers have traditionally not found it possible to serve this market at reasonable cost. Implementation on this scale needs NEST, the only scheme with a public service obligation, to be able to play a significant part in meeting this challenge.

If the House will indulge me for a moment, automatic enrolment has been a tremendous success so far, with more than 5 million workers enrolled into a workplace pension. Opt-out rates have been lower than expected, at around just 10%. We would not be in this position if not for the consensus that automatic enrolment has enjoyed from all sides of this House over the past decade. However, we must not be complacent. The 5 million workers enrolled so far work for only 43,000 employers. The challenge for the next phase of the rollout of automatic enrolment is to ensure that the remaining 1.2 million small and micro-employers are able to enrol their eligible workers.

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The Department for Work and Pensions estimates that NEST will need to accept between 45% and 70% of those employers, ensuring that supply gaps are addressed. The scale of this challenge should not be underestimated—for example, during 2016, around half a million small employers will need to enrol their workers, which is an average of more than 40,000 employers per month.

With this in mind—and taking account of the evidence —the Government determined that removing the annual contribution limit and transfer restrictions immediately to address the perception of complexity would not be a proportionate response. Conversely, doing nothing would not be consistent with the Government’s broader policy objectives to encourage increased saving and consolidation of pots. We therefore concluded that legislating now to remove these constraints in 2017 was a balanced approach. Legislating now will address any current perception that the constraints are discouraging small employers from using NEST to meet their automatic enrolment duty. It will also send a clear signal that NEST will be on a similar footing to other schemes from 2017.

4.45 pm

The European Commission’s decision, published on 26 June 2014, confirmed that removing the annual contribution limit and transfer restrictions from 1 April 2017 would be compatible with the state aid measure afforded to NEST. The Commission—this is the significant point and the point the noble Lord, Lord Bradley, was rightly raising— also agreed that should the Government introduce automatic transfers earlier than 2017, the removal of the restrictions on individuals making transfers into and out of NEST could be brought forward to coincide with this. We will publish further information about the implementation model and timetable for automatic transfers in the coming months. So that particular part of the NEST restrictions is encompassed within the original decision in 2014 from the European Commission, but not with regard to the contribution limit.

If we were to lift these constraints—those agreed—sooner than approved by the decision, we would need to refer back to the Commission. Noble Lords are aware that negotiations with the Commission took more than a year to conclude. There is a risk that the state aid provided to NEST would be unlawful if we are unable to get the Commission’s agreement to lifting these constraints before bringing changes into force.

The Government have therefore brought forward legislation to lift these two constraints from 1 April 2017 —after all existing small and micro employers have enrolled their eligible workers but before minimum contributions rise to 5 per cent. The draft National Employment Savings Trust (Amendment) Order 2015 was laid before Parliament on 16 December 2014. It is subject to the affirmative parliamentary procedure and I am sure the noble Lords will look forward to debating it later this week, as I mentioned, on Thursday.

I hope that I have answered the point that the noble Lord addressed to me and I urge him respectfully to withdraw the amendment.

Lord Bradley: Once again, I am grateful to the Minister for his extensive response on this very important matter and his recognition, which the whole House

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shares, of the value of NEST and the excellent work it has done—particularly for low-income workers, giving them a very important model to pursue. It was not our intention for the amendment to undermine in any shape or form the focus of the mission of NEST that the Minister rightly referred to. It was to try to ensure that the continued auto-enrolment of employees continues, and NEST is part of that process because it is doing such a successful job. I am, however, grateful for his clarification of the European ruling and the distinction between transfers and contributions. I will read the explanation in detail following this debate.

We all want to ensure the continued success of NEST as an organisation. I am sure that over the coming months it will continue to play that role and I look forward to debating further these matters as further legislation is presented to this House. In the mean time, I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

Amendment 10

Moved by Lord McAvoy

10: Before Clause 67, insert the following new Clause—

“Scale of pension schemes

(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.

(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.

(3) The Pensions Regulator shall have the power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.

(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.

(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.”

Lord McAvoy (Lab): My Lords, Amendment 10 would ensure that the fiduciary duty of pension scheme trustees should include a duty to consider whether the scheme had sufficient scale to deliver good value for members. It is the same amendment that we proposed in Committee but, having reflected on the Minister’s answers, we believe that this is so important an issue that we want to return to it.

The Minister said in Committee that,

“although … the market is driving things in the direction of scale, it is the case that managers and trustees should be considering this as part of their duties”.—[

Official Report

, 7/1/15; col. 393.]

He also said that the framework was already there to enable mergers and scaling up, and indeed they are happening. However, it is crucial to us on this side of the House, whether the issue is governance and transparency or the way in which duties are imposed on trustees, that we should always be looking to get best value and protect the interests of the public throughout this process. Strengthening the arm of the Pensions Regulator will help to achieve that scale.

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It is our view—and that of the Pensions Regulator, which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes, and we want a process in place to try to reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful, but would give powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pension industry that scaling up will have to happen, and that in doing so costs would be reduced and there would be a better outcome for savers, I hope and believe that the Government will wish to support the amendment. I beg to move.

Lord German (LD): My Lords, once again I have a few questions for the movers of the amendment as well as the Minister. The sense that I get from the amendment is that bigger is always best and small is not to be preferred. The truth, presumably, lies somewhere in the middle of all that.

There are questions that arise from the amendment. When you have schemes—I presume there are many tens of thousands of them are around, but I do not know how many of them are of the size and scale interpreted by the amendment—it is important to ask what defines sufficient scale, which is the first part of the noble Lord’s amendment. I would like to understand what “sufficient” means. I presume that noble Lords would want to see all pension schemes with good governance, low fees and good outcomes for their members.

So my first question is: what is it that big schemes can provide that smaller ones cannot? I understand from reading Hansard from the other place that one of the suggestions from the movers of this amendment there was that asset management could be moved in-house. I wonder whether that is a sensible provision. Can the Minister tell us whether or not there have been successes with in-house asset management? Is that a given for securing lower costs and a better outcome for the consumer?

I turn to the other pressure that the amendment seeks to apply. The claim is that by forcing schemes to merge, there will be economies of scale. In the capping regime that the Government have undertaken, there must be a league table of high-cost fee pension schemes. Can the Minister say how many bigger and how many smaller providers are in that league table? This will enable us to discover whether or not big is best and whether there are appropriate economies of scale.

I need to test another issue with the movers of this amendment: namely, merging. Merging with whom and how is it to be determined? What the amendment seeks to do is to force pension schemes to merge. I understand that there has already been a significant shift in the number of schemes that have merged; the extent of the direction of travel is extensive. Perhaps the Minister could remind us of the speed with which schemes are merging and growing bigger. But if you force mergers, as with any arranged marriage you need to engage in a partner search. I wonder whether the movers of the amendment can tell us how this partner search is going to take place; who is going to undertake it and who is going to police it—because I think that would be almost impossible.

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I remain to be convinced that forcing unwilling, low-cost, good value for money, well governed, smaller pension schemes to merge is the right approach to ensure that the members of the scheme get the best returns. There are alternatives. The fee cap, disclosure, regulation of governance and transparency are all issues that this Government have taken on board and are progressing. I am left with some doubts about whether the forced marriage regime which is being proposed by the noble Lords opposite is the best approach when there are better alternatives.

Lord Bourne of Aberystwyth: My Lords, I thank the noble Lord, Lord McAvoy, for moving this amendment. It would impose an additional duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme.

The principle of promoting scale to drive value for money for scheme members is one that we can all understand. However, the Government believe that introducing further legislation to ensure that the fiduciary duty of trustees includes a duty to consider whether a scheme has sufficient scale is unnecessary and overburdensome.

In response to my noble friend Lord German, I can confirm that there is already a trend towards larger schemes and away from smaller schemes. We contend that trustees’ existing fiduciary duties already require them to act in their members’ best interests, so it would be unusual if they did not consider this point. In addition, trustees must pay particular attention to four key areas. First, they must comply with governance requirements—for example, they must establish and operate internal controls. Secondly, they must have regard to investment governance and decision-making. Thirdly, they must adhere to administration practices—for example, record-keeping. Lastly, they should seek to prevent fraud—for example, theft or pension scams. Specific legislation would place the financial cost of managing a difficult and complex forced consolidation on members. In many cases it would be in direct conflict with scheme rules which may not permit such transfers and mergers.

A further difficulty with this amendment is the complicated underlying process that trustees would be required to undertake to implement its requirements. The noble Baroness, Lady Drake, put her finger on this in Committee when she said that problems could arise around transfers. Trustees would, for example, be required to find a suitable alternative scheme, assess the scheme’s suitability and undertake independent checks. Again, the costs of that would be borne by members; it could be a costly process if they were required to do that in the way this amendment suggests.

5 pm

The amendment would also give the Pensions Regulator a new power to compel a merger if it would be in members’ interest to do so. However, for the Pensions Regulator to use that power in accordance with any methodology, it would surely have to be publicly consulted upon and agreed with the Secretary of State. The amendment requires such a methodology to be kept under regular review. That additional measure is totally

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unnecessary. Both to stipulate what “sufficient scale” in members’ best interests means and for the Pensions Regulator to measure and police it would be very difficult.

New governance standards from April 2015 will mean that trustees will have a legal responsibility to ensure that schemes are well governed in members’ interests. In addition, the Pension Regulator’s existing regulatory strategy and activities include providing guidance and e-learning resources, and helping trustees to demonstrate that they meet the required standards of their defined contribution quality features. The regulator will also take enforcement action where necessary. That ranges from issuing advice letters, warning letters and statutory compliance notices to monetary penalties.

In short, this amendment is unnecessary and could be burdensome. There needs to be clarity about the standards of schemes into which small-scale schemes could be transferred or directed; for example, by the Pensions Regulator. Therefore a lot of work would be needed to do this, and it would cost a lot, and we are not of the view that it is necessary or that big is necessarily beautiful. Clearly, on occasion costs could be saved, and it may be that services could be shared—a point touched on by my noble friend Lord German.

Therefore we are not complacent, but we do not believe that proactive government intervention is necessary when it is clear that the number of small schemes is consistently falling and that trustees, providers and employers already have sufficient incentives and responsibilities to ensure that schemes can continue to operate effectively to benefit their members. Our analysis of the current defined contribution landscape shows that effective benefits of scale already operate within the marketplace, including significant consolidation of schemes. We expect that to continue and to accelerate as smaller employers are brought into automatic enrolment.

In Committee there was a consensus that big is not necessarily beautiful and, on occasion, many small schemes deliver very effectively. I am not suggesting that there is any difference between us on that point; I do not believe that we want a single monolithic structure that delivers the equivalent of “any colour as long as it’s black” in the insurance world. However, to come back to the point—whether we believe that small schemes can deliver—I am not quite sure that this sledgehammer is necessary here, because trustees should already be considering these types of issues. Some employers may prefer a smaller scheme that can deliver bespoke investments and communications to their workforce, which a large scheme might not be able to do. We have already seen smaller employers moving towards larger arrangements such as group personal pensions, master trusts and NEST. They can also access the benefits of scale, as I said, by purchasing investment or administration services from a larger adviser.

The Government believe that these flagship reforms we are introducing for the first time, of minimum governance standards to ensure that schemes are well governed with low and fair charges for members, represent the correct approach to drive value for money and better member outcomes. On that basis, I respectfully ask the noble Lord to withdraw the amendment.

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Lord McAvoy: I thank the Minister for his response. However, I have struggled a wee bit to align some of the comments made by the Minister and by his loyal and noble friend Lord German. We have been accused of saying that bigger is beautiful, but no, we did not, and of saying that bigger is best, but no, we have not said that. The Minister has used the word “sledgehammer” to describe this minor, moderate amendment, and it is just not true. The noble Lord, Lord German, referred to a “forced marriage”. The only forced marriage I see is, more appropriately, across the Benches here and it is heading for a rocky end in divorce and mayhem and not on good terms either.

I repeat what the amendment would do. It would ensure that:

“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.

The only duty is to consider. It is not a forced marriage, it is not bigger is best, it is not big is beautiful, and it is not a sledgehammer. I am losing track of all the various adjectives used here to describe this little amendment. We think it is a reasonable duty to give them to make sure they at least consider it. No force of any kind is envisaged at all. The Minister is not an extreme person but I am disappointed that he has perhaps been waylaid by his loyal and noble friend into using some extreme language which does not fit the amendment. However, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

Amendment 11

Moved by Lord Bradley

11: Before Clause 77, insert the following new Clause—


(1) A qualifying money purchase scheme may not sell annuities directly to anyone who has saved with the scheme unless this is the recommendation of an independent annuity broker.

(2) A relevant scheme may provide an independent brokerage service itself.

(3) A self-provided annuity brokerage service will be considered independent for the purposes of this Act if the provision of its services is subject to the direction of independent trustees.

(4) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—

(a) an assisted path through the annuity process;

(b) ensuring access to most annuity providers; and

(c) minimising costs.

(5) The standards meeting best practice for annuity brokerage services shall be defined by the Pensions Regulator after public consultation.

(6) The standards set out in subsection (5) shall be reviewed every three years and, if required, updated.”

Lord Bradley: My Lords, we return to decumulation, which is the process of converting pension savings into retirement income. The amendment is aimed at protecting savers who default into an annuity with their same savings provider. The annuity market is not working as it should and the Financial Conduct Authority’s recent Thematic Review on Annuities Sales Practices set out, first, that 60% of retirees with DC pension savings were not switching providers when they bought

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an annuity, despite the fact that around 80% of these consumers could get a higher income on the open market. Secondly, an estimated 91% of people with medical conditions could get a higher income on the open market through an enhanced annuity. Thirdly, firms’ sales practices are contributing to consumers not shopping around and switching, and missing out on a potentially higher income in retirement as a result. There is evidence of non-adherence by pension providers to the ABI code.

The amendment would provide safeguards for those who do not take advantage of the new flexibilities provided by the 2014 Budget changes and for whom an annuity remains the best product. There are people who will prefer the security of a product that guarantees them a set income for their entire lives, without the difficulty of making predictions about life expectancy. The FCA report recognises that annuities can still be a very attractive option—indeed, for some a better option—than a flexi draw-down product.

This amendment is about protecting people from a highly dysfunctional annuities market which can be riddled with excessive fees and charges, which sometimes capitalises on people’s inertia and lack of financial knowledge, that does not necessarily reward loyalty and that sometimes plays fast and loose with its regulatory framework. For example, the National Association of Pension Funds estimates that those who do not shop around receive up to 20% less in their annuity. The Financial Conduct Authority estimates that consumers could be missing out on up to £230 million in additional pension savings because they are not shopping around in the most effective way.

The annuitising process remains complex. The Financial Services Consumer Panel recognised this in December 2013 and said that a “good annuity outcome” might well require expert help. Our new clause would require the recommendation of an independent broker in order to sell an annuity to someone who has saved with the same scheme. This may be an existing provider or it may be another, but an independent broker would protect consumers from getting a bad deal when taking such a crucial decision in their lives.

In Committee, the Minister acknowledged that the process of annuitising is complex and requoted the evidence that says that,

“many consumers are not getting the most out of their hard-earned savings”.—[

Official Report

, 7/1/15; col. 363.]

He also concurs with us that annuities can be good value where the individual member selects a product that meets his or her needs. So, across the House, we recognise that the market is dysfunctional but that annuities should remain part of the options available for people planning for their retirement. However, we diverge on what should be done to help people find a way to the best product.

The Minister said that the Government, through providing the public with guidance,

“will ensure that individuals can access the support that they need to understand and navigate their retirement choices—for example, to help them decide whether an annuity product is the right choice for them … Where they decide to purchase an annuity, they must be encouraged and supported to shop around for the best deal. Those are key objectives for the guidance and the Financial Conduct Authority’s rules will underpin it”.—[

Official Report

, 7/1/15; cols. 363-4.]

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