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My Lords, I thank the Minister for setting out so clearly the arguments for and direction of this Bill. Like all the other speakers, I welcome the regulation of master trusts, their trustees and the way in which their businesses are run. It is vital that we protect those investing their money in master trusts so that they feel secure in the knowledge that their savings are safe. The majority of master trusts are run extremely efficiently and effectively. However, with smaller master trusts beginning to enter the marketplace, it is essential that the Government seek to protect those working for smaller employers and offer them the same protection as those covered by larger providers, such as the People’s Pension, Legal & General and others. Master trusts are the scheme of choice for the auto-enrolment market and it must be fit for purpose for the small as well as the large trust.
As we have heard from the noble Lord, Lord McKenzie of Luton, and my noble friend Lord Stoneham of Droxford, some 6.7 million people are now enrolled in some 84 schemes, with £8.5 billion-worth of assets. It is time that there is protection for members of a scheme where a master trust fails and has to be wound up. This Bill helps to provide that protection.
The People’s Pension represents a market innovation which was not anticipated by previous Governments or by the Turner commission, but they do have concerns. It is important to increase and maintain the success of auto-enrolment. The DWP forecasts that auto-enrolment will cost government £3 billion a year in lower tax revenues by 2050, but it will increase aggregate private pension incomes by £5 billion to £8 billion a year in 2011-12 earning terms and reduce government spending on income-related benefits in retirement by £0.9 billion by 2050.
There is also the risk of cross-cutting policies undermining auto-enrolment. There are concerns that policies from other departments may clash with the motivators found in auto-enrolment. Developing policy confusion could be damaging to consumer saving. Clarity and transparency are essential.
It is important that employees continue to save for their pension and increase their contributions. NEST, referred to by the noble Lord, Lord Monks, is countrywide and has some 3 million customers, each with a small pot. The fund has been running since 2012. The average pot is £300. This is unlikely to fund a pension for its members and a degree of realism is needed. People will not be able to afford to retire with so little in their pots. They will be disappointed, and employers will not welcome keeping on employees beyond their expected retirement age. When are the Government going to do something about this?
I welcome the criteria which the new authorisation regime institutes for master trusts and the new powers for the Pensions Regulator. The five essential criteria are: that persons involved in the scheme are fit and proper; that the scheme has financial sustainability; that the funder meets certain requirements; that systems and processes relating to the governance and administration of the scheme are sufficient; and, last but by no means least, that the scheme has an adequate continuity strategy. All the criteria are extremely important, as we have heard, but we will need to ensure that they are enshrined in the legislation as we move through the Bill stages.
Clauses 20 to 35 deal with triggering events around the responsibilities of trustees and the licensing of master trusts and the possible withdrawal of authority. However, I could not find any reference to what would happen to the pot of money in a master trust which had its authority withdrawn. Would this be returned to the employees or used for some other purpose? I am sure the House will want to probe this in Committee and I would be grateful if the Minister could provide some clarification at this stage.
Part 2 deals with exit penalties. Exit fees were not anticipated in the original legislation. These are set by the providers and have been as much as 5% of the pot which investors are wishing to transfer. The Government have introduced a cap of 1% on exit fees, which is to be welcomed. I am not as sanguine as the Minister about Clause 40, which is very vague. I remain concerned about Clause 40(2). Should the Government grant themselves the right to break contracts? This sets a very dangerous precedent. Are we opening up the way for Secretaries of State to override contracts? People may have legally prepared, signed and executed these in good faith, only to find that they are to be overridden at a later stage without any real justification. Again, this is a subject we will be returning to in Committee.
The Bill contains a great deal which is to be welcomed, but there are some serious omissions. A central advice scheme has already been mentioned by the noble Baronesses, Lady Altmann and Lady Wheatcroft, and others. Also, as part of pension freedoms the Government planned a secondary annuities market, where original purchasers who had a poor or inferior quality product would be able to sell it and buy a better one with the cash. I believe that this was included in the Conservative manifesto for 2015. There was heavy lobbying against this by the pensions industry which claimed it would be hard to set up a secondary market and difficult to provide consumer protection. As we now know, the Government have changed their minds and this has left people with poor annuities which they now cannot get rid of. Consumer protection could be problematic but it is not rocket science. We are disappointed that the Government have reneged on their promises and left people in the lurch. This could be corrected in the Bill and is a big omission.
This is also an excellent opportunity to mention concerns that we have about cold calling and pension scams. I know that my colleague Steve Webb, the previous Pensions Minister, was also worried about this development. When we get to Committee we will probe the Government on their latest thinking on pension scams. In the meantime, I would welcome the Minister’s views at this stage.
In summary, this is a piece of legislation which is largely to be welcomed, as it will provide the safeguards needed for small to medium-sized businesses and their employees. The Bill is very technical in nature. I and my colleagues look forward to debating the issues across the Chamber in more detail at a later date.