The pension schemes bill has passed its second reading in the House of Lords, despite questions over the breadth of government powers.
The debate, held yesterday (28 January), saw peers approve the proposed legislation, welcoming its provisions on defined benefit (DB) funding, regulator powers, and collective defined contribution (CDC) schemes.
Yet, several questioned the number of clauses allowing matters to be deferred to the work and pensions secretary, Thérèse Coffey, to be passed with secondary legislation.
Liberal Democrat Lord Sharkey noted that the first part of the legislation, which runs to 41 pages, contained 39 instances where Coffey could make delegated legislation.
“I recognise that pensions legislation is often necessarily complex and that secondary legislation plays a vital role,” he said, “but it is very difficult to have a realistic view of the bill’s effects or scrutinise it effectively if we have no detail at all of this secondary legislation.”
He asked for an explanation as to why the detail had not yet been provided, especially considering the bill’s first introduction last October.
One such example would allow the secretary of state the unilateral power to increase the £1m potential fine for “wilful or grossly reckless behaviour” by any amount she deems appropriate.
“Is it wise to give such unlimited power and potentially draconian powers to the secretary of state?” Starkey continued, later adding: “The provision to raise the
£1m limit without restriction and without further scrutiny not only seems dangerous but suggests a clear lack of confidence that the original limit will work.”
Similar caution was also raised by crossbench peer Lord Vaux of Harrowden, who highlighted that employers will be required to provide notices and statements to The Pensions Regulator (TPR) in notifiable events which are yet “to be prescribed by regulations”.
“It seems odd that such an important, even headline, element of the bill is left completely to be dealt with by future regulation,” he said.
Responding on behalf of the government, Baroness Stedman-Scott said she did “understand the concerns” and that there were “important legal principles at stake before the proposed delegated powers can be exercised properly”.
She said the government would consult further on the “technical substance” and that the government could not “prejudge the outcome”. She also said she would meet peers before the bill reached committee stage to discuss details further.
Nevertheless, the content of the bill was largely welcomed. Labour peer Lord McKenzie of Luton said, on CDC, which the bill refers to as collective money purchase schemes, was an example of “finding ways of harnessing collective arrangements to allow the sharing of longevity risk”.
His colleague, Lord Hutton of Furness, said the “necessary” bill would “help reinforce the existing safeguards protecting DB pension schemes”, adding: “The reforms have been made necessary, as we have all seen, by recent scandals, especially
in the case of BHS, which have highlighted failures in the existing framework. Measures such as these provide greater confidence in pension savings, help assure savers that schemes are properly managed and assist the process of encouraging more people to save for their retirement, whether in DB or DC schemes. That should remain the focus of pension policy.”
Conservative Baroness Fookes commented: “Clearly, pensions have had a chequered career so far, and it may not be altogether plain sailing in the future. However, I cast my mind back to more than 100 years ago when there were no pensions of any kind. Many of the poorest people in the land faced the prospect of destitution if they did not have a family to support them, if their work gave up on them because they were unable to carry it out, or if they were suffering the infirmities of old age. We have come a long way from then, thank God.”
However, several peers expressed disappointment that the bill was missing aspects relating to DB consolidation and auto-enrolment (AE).
Lord Sharkey said superfunds, for example, could “provide a new and affordable option to enable schemes to consolidate”.
“We trust that the minister, [Guy] Opperman, has not spent all his capital on CDC.”
Likewise, former pensions minister and Conservative peer Baroness Ros Altmann raised the plight of savers in net-pay schemes and employers struggling with section 75 debts, as well as strengthening protections surrounding DB transfers.
Likewise Labour’s Baroness Donaghy noted: “The government should include an increase in AE minimum contribution rates. They should support those in multiple occupations, so common in the gig economy, so that their collective earnings can be counted towards eligibility for AE. They should expand AE to include the self-employed, allow 18-year-olds to join, and remove the lower earnings limit, which in turn would solve the problem in relation to multiple occupations.
“This would lead to an additional £2.5bn in savings. What plans do the government have for AE?”
Stedman-Scott referred to the government’s response to the AE review, which set out plans to reform the programme in the mid-2020s.
She added: “Our approach will be to expand the coverage and increase the amounts put into retirement savings by millions of working people, focusing on younger people and lower earners.”