Moved by Baroness Drake
52: Clause 118, page 105, line 9, at end insert—“( ) Requirements prescribed under subsection (2) must include a requirement that a pensions dashboard service may not include a facility for engaging in financial transaction activities.”Member’s explanatory statementThis amendment ensures that a pensions dashboard service does not include a provision for financial transaction activities.
My Lords, Amendment 52 is in my name and those of my noble friend Lady Sherlock and the noble Baroness, Lady Janke. The Bill enables the introduction of an ecosystem of public and commercial pensions dashboards. When built, the dashboard service will find and display, for view by all individuals, all the information about their occupation, personal and state pensions in one place. The Secretary of State can mandate all pension providers and schemes, including the state, to release their data on an individual. That mandate will cover the financial data of many millions of people.
The intention is that the dashboard will contribute to better decision-making by individuals about their long-term savings. Unfortunately, the evidence shows that that will not automatically translate into engagement and good decision-making by everyone. Structures will need to exist around the dashboard which support people making choices and protect them from detriment. That is why Amendment 52 is important. The amendment ensures that a dashboard service should not go beyond the finding and displaying for view information on a consumer’s savings into allowing financial transactions to take place through the dashboard before Parliament has had the opportunity to consider the matter and approve this through primary legislation.
The long-term savings market is particularly vulnerable to consumer detriment, because of the asymmetry of knowledge and understanding between the consumer and the provider, consumer behavioural biases, the complexity of products, and the irreversible nature of many pension decisions. There is a plethora of reports from different regulators confirming this. Allowing transactions on commercial dashboards, such as the transfer of assets, could provide new opportunities for detriment. The impact of scams, mis-selling, provider nudging and poor decision-making could increase if an individual’s total savings are displayed in one place, the dashboard allows financial transactions, and the wrap of consumer protection is not fit for purpose. For some vulnerable customers, poor decisions could be more costly if the impact is across all their savings, and if people are scammed, they could be scammed out of everything.
Before transactions are authorised, Parliament needs to understand how the dashboard is driving behaviours, of both consumer and provider, and how consumers will be protected. In this market, the consumer demand side is weak, and, increasingly, regulatory focus is on provider supply-side controls to protect consumers’ interests. Commercial dashboards could make it much easier for firms that have attractive front-end offerings to capture consumer assets through, for example, encouraging early consolidation and the transfer of pension pots. It is to be remembered that pension transaction decisions are mostly irreversible, and poor decisions can be financially life-changing in their impact.
Dashboards are not a silver bullet for removing consumer risk. Most individuals do not proactively engage with their pensions until they have to. When they do, they can be price insensitive and vulnerable to nudging, inertia and judgments detrimental to their retirement income. We now see that vulnerability in the drawdown market following the introduction of pension freedoms, as the FCA has confirmed.
Consumers reveal powerful behavioural biases which have more impact on financial capability than lack of knowledge and information. They take what the FCA describes as the “path of least resistance”, even in the face of information available to them. If someone is looking to consolidate all their savings, rather like Alice and the Drink Me bottle, if there is a button on the provider’s commercial dashboard that is marked “Transfer All Savings”, they are more likely to press it.
The FCA rules have not prevented mis-selling. Regulated advice failed the Port Talbot steel workers. The FCA report on the financial advice market’s support to pensions does not make good reading. In a dashboard service which allows financial transactions, protecting individuals’ data, and who can hold, access and use it, are questions of major importance. This amendment does not argue against allowing financial transactions longer term over the dashboard, but it recognises that the consumer protection issues are of such importance and magnitude that the decision to allow transactions must be preceded by the approval of Parliament. Neither Government nor Parliament can be agnostic on the matter. The state supports the long-term saving system with more than £40 billion of tax relief and mandates employers to enrol millions of workers into a pension scheme.
The Government must ensure that the dashboard service makes a positive contribution to retirement income outcomes for the consumer and the public good of the UK. I am arguing that people should have the freedom to make good decisions and be protected from poor decisions that they cannot reverse. This is something that the FCA often tries to do, and I am sure that if one put the issue to some of those Port Talbot steel workers, they would agree. Some of those steel workers learned a cruel lesson: poor pension savings decisions are irreversible. In Committee on
“I do not believe that I expressed a categorical Government intention to include transactions on the dashboard. I said that we would make that incremental step only after the most careful consideration and public consultation, and assessment of all the risks. I freely acknowledge that risks exist in that quarter.”—[Official Report, 2/3/20; col. 209GC.]
My case, and the sheer weight of the evidence, is that such are the potential risks that Parliament itself should have its say and that scrutiny by secondary legislation in the affirmative is not sufficient. Furthermore, the very nature and extent of the protections required may, because of their nature, require primary legislation. This is not an area of settled policy and it is a matter of significance for many millions of citizens. I hope that the Minister will accept the amendment. If he does not, I intend to push it to a vote. I beg to move.
My Lords, I have little to add to the wise words of the noble Baroness, Lady Drake, on Amendment 52. There are significant dangers should there be an easy transaction button on a pensions dashboard right from day one. However, perhaps I may speak briefly to my own amendments, which have been kindly supported by the noble Baroness, Lady Bowles: Amendments 56 and 59.
Amendment 56 is probing in nature and seeks to amend Section 119 of the Pensions Act 2004 to provide that regulations may be imposed that would require information from occupational pension schemes to dashboards to be accurate and up to date. Further, the amendment would ask the regulator to impose requirements for regular data audits, accuracy checks and error correction reports.
The information displayed on a dashboard can be only as accurate as the data provided by the pension or payroll providers or employers. Therefore errors which already exist and are widespread in pension scheme data need urgently to be corrected. I know that the Pensions Regulator says it is prioritising plans to make sure that pension scheme data are regularly checked and reviewed for accuracy, but there are no formal requirements in this regard. Amendment 59 makes a similar requirement for personal pensions or stakeholder schemes. Clause 121 amends the Financial Services and Markets Act 2000 so that the FCA “must” make general rules to impose requirements to provide pensions information,
“which has been regularly audited, checked and corrected”.
I hope that my noble friend will be able to offer reassurance from the Front Bench that the Government recognise the importance of accurate pension scheme data. In this regard, the current position has been confirmed by a number of pension providers and is that many pension scheme records, even for auto-enrolment schemes, are currently incorrect and that there is a particular issue with the administration of tax relief. In many cases, there are also gaps in information about addresses, national insurance numbers and dates of birth as well as the amount of contributions.
My noble friend Lady Stedman-Scott promised to engage with me on low earners denied the tax relief that they are due in a net pay scheme and forced to pay 25% too much for the pensions they are accruing. I know that this has caused data errors which will need correcting over time. I hope that the Government and the regulators—the Pensions Regulator and the FCA—will seriously engage with pension schemes to make sure that they check data, report data errors and can verify that they have been corrected so that a pensions dashboard does not create the same problems for pensioners and pension scheme members as we have seen in the past with situations such as the guaranteed minimum pension, which was left uncorrected for many years so that pensioners ended up having to repay significant sums of pensions received apparently on the basis of incorrect data.
My Lords, I shall speak briefly to each amendment in this group. The noble Baroness, Lady Altmann, has a series of amendments on data accuracy—there was also one in the first group—which I have signed. It is important to have accuracy, especially when there are matters of significant value and security. Ensuring that records are accurate and are kept up to date should be in-built from the start of operations, and as the dashboard is starting out there is no reason not to take that precaution.
I have expended time and energy tracing and correcting inaccurate records on pensions and with banks. Key causes of corruption and inaccuracy have been that information was not transferred accurately, or sometimes was not entered accurately in the first place but particularly when legacy systems did not join up with a new system. It is immensely important that pensions information is not lost or inaccurate, as that can also open the door to potential scams or other sales pressures built around tracking pensions or correcting pension data.
With regard to the pensions dashboard, I agree with what has already been laid out by the noble Baroness, Lady Drake, so I will not repeat it. Transactions are the dangerous point. They are certainly not where the focus should be as dashboards are set up and their operations tested, but it is going to be very tempting for commercial dashboards. Commercial companies may find a way to get around that, but this information would give the FCA as the regulator a direct guide to what is to be expected so that it could take action against any circumvention of the intentions of the amendment. I therefore support all the amendments in this group.
My Lords, I support all three amendments. The grouping is slightly odd, mixing the question of transactions with that of data accuracy; there is a relationship but it is only tangential. The noble Baronesses, Lady Drake, Lady Altmann and Lady Bowles, have already explained the reasoning for the amendments so I shall try to be brief.
Amendment 52 would prevent a dashboard service from engaging in financial transactions. The matter has been well explained by the noble Baroness, Lady Drake, so I will just say that the risks around pension-related transactions happening without proper advice are very well known. Dashboards are being created primarily for the purpose of allowing people to obtain better information about their situation. That information will be helpful when deciding whether to carry out some transactions but it does not in any way negate the need for proper advice, so allowing dashboards to become transaction platforms would make ensuring that proper advice had been taken much more difficult. At least until they have been fully established and the implications well understood, it really must make sense to prohibit dashboards from becoming transactional platforms.
The other two amendments along with Amendment 13, which was discussed in the first group, are about establishing appropriate processes to ensure the accuracy of the data on the dashboard. It almost goes without saying that a dashboard containing inaccurate information may actually be more damaging than no dashboard at all; I apologise for the echo of something else there. These dashboards are intended to help people and their advisers to make decisions about their future pensions. Inaccurate data will lead to wrong decisions being made. It is therefore critical that data must be fully and regularly checked and audited, so I urge the Minister to accept these amendments.
My Lords, as noble Lords know, I am as concerned as anyone with consumer protection. I therefore welcome the amendment which we have agreed to during the passage of the Bill to ensure that the Money and Pensions Service provides a public-owned dashboard. That was a great step forward, and we will come on to that on the next amendment.
However, I fear that this amendment could stop commercial experimentation, which is desirable if properly regulated. As I understand it, any organisation providing a pension dashboard must achieve authorisation from the FCA. Innovation is important and can help consumers and pensioners. If the amendment were passed, it could have a chilling effect and prevent innovation until another Bill had cleared Parliament—not, I suspect, a welcome prospect for HMG after the extent of the amendments made to this Bill.
I have a question for the Minister. I am a little concerned about compliance with GDPR, which obviously is important in securing equivalence in the EU context, where portability is a key requirement. I wonder if the amendment could run us into any trouble on that aspect of regulation.
My Lords, I support Amendment 52. I also support the other two amendments tabled by the noble Baroness, Lady Altmann, as a result of the matter being much debated in Committee, I am very grateful to the noble Baroness, Lady Drake, for her clear analysis of the issues involved.
Many would say that pensions dashboards are long overdue. They enable people to plan their future finances taking account of existing pensions, and to take a long-term view of future financial provision. However, the challenge of producing a dashboard that will adequately cover the complexity of the pensions landscape should not be underestimated. We are talking about millions of people, and the enormous number of lost pensions that we hear about shows both the need for and scope of the task. Given the level of complexity, the scope for scams and fraudulent actions increases and it is therefore essential that members of the public are sufficiently protected.
As many noble Lords have said, the vulnerability of many people means that they can be much more susceptible to scams and bogus claims and apparently attractive offers from the commercial sector. The additional factor that digital literacy and access can be problematic for some people also needs to be considered. That and the lack of sound advice can lead to bad decisions and life-changing, irreversible mistakes, as we heard from the noble Baronesses, Lady Drake and Lady Altmann, in Committee.
Pensions is a complicated subject; it is not easily accessible by everyone. Lack of engagement, which has already been talked about, is a result and, as the noble Baroness, Lady Drake, said, people often take the line of least resistance and take wrong decisions that they are unable to change. I hear the arguments made by the noble Baroness, Lady Neville-Rolfe, about innovation. Certainly, it is an important factor, but I feel that the protection of pension holders is more important. Measures to provide full protection should be the subject of further primary legislation rather than secondary legislation, as indicated in the Bill.
My Lords, I will deal first with the data issues. There are known to be problems with data quality in many pension schemes that need to be addressed. The regulator has rightly been pushing trustees to improve the accuracy of their data and to evidence that they are doing so. But as we move to a world of pension dashboards, with a consumer’s savings all being displayed in one place and the expectation that behaviour will be influenced by it, data accuracy and standards are key, so I hope the Minister will take to heart the issues raised today.
On transactions, done well, a pensions dashboard can be a really useful service, helping savers to locate lost pots and see all their different pensions in one place—state and private—and work out if they are saving enough for retirement. But there are big risks, especially because the Bill leaves almost every aspect of the dashboard service wide open. In Committee, we tried to put some boundaries around this. We tabled an amendment to insist that there must be a public dashboard from the outset, and I am delighted to see the government amendment now requiring that. Another of our amendments required the FCA to regulate the provision of dashboard services; again, Ministers confirmed that that would happen. Another of our amendments proposed that using the dashboard to see your own data must be free, and Ministers confirmed that it would be. We have come a long way and I am really grateful to the Government for engaging with our concerns.
But two important issues are still outstanding, and they are addressed in this and the next group. As my noble friend Lady Drake explained so well, Amendment 52 would stop delegated powers in the Bill being used to authorise commercial dashboards to engage in transactions. We simply believe that the risks of this are such that Ministers should have to come back to Parliament and seek further authorisation before going down that road. Remember, we still do not know how many dashboards there will be, who will run them or what information can be put on them. We do not know where liability will lie for each link in the chain or how consumers will be compensated if they lose out. We do know that there will be a public dashboard and that the Government want commercial dashboards running alongside it from the start.
But let us think for a moment. If a company cannot charge to look at a dashboard, why would they create one, unless they can profit from it in some other way? How might that be? Could a company show a consumer their data and say, “Look, you’ve got all these different pots. Wouldn’t it be tidier if your brought it all over into this fund here, which my firm happens to run?” Could they fund it by taking advertising? Could a consumer log on to a commercial dashboard and see an advert popping up, inviting her to connect with an adviser, or saying, “Have you ever thought about equity release?” There are even risks just in presenting data in a way that could privilege some kinds of assets over others, depending on who is running the scheme.
This is a risky market—a point that my noble friend made very well. Those who sell complicated pension products generally know and understand a lot more about them than those who buy them. Let us remember the history of financial services mis-selling—from personal pensions through to endowment mortgages, to the PPI scandal, as a result of which, firms are likely to end up repaying up to £50 billion to consumers. The average pension pot is worth rather more than the average PPI policy. The dashboard project could extend to some 22 million people. It is a powerful tool.
To use delegated powers to set up and regulate dashboards is one thing. But if Ministers want to allow transactions on commercial dashboards, they should first come back to Parliament, tell us how the system is working and what safeguards they have put in place, and then seek approval for allowing transactions.
Gathering up information about all those little pension pots in one place is good for consumers. However, it is also good for those who want to make money out of consumers. Tucking up all those little lambs up in the sheepfold stops the wolf picking them off one by one. But if you leave the gate open and the wolf gets in, he can get them all at once.
If we end up with a major dashboards mis-selling scandal, this will not be just another PPI. It will be a scandal in a market which the Government actually created by mandating the release of the pensions data of some 22 million people. I am very grateful to so many noble Lords for their support for this amendment, and I beg the Minister to accept it.
My Lords, I begin by turning to Amendment 52, tabled by the noble Baronesses, Lady Drake and Lady Sherlock. We have been clear that the initial aim for dashboards is simply to present people with information about their existing pension provision, whether that be the state pension, occupational pensions or personal pensions. Giving people the opportunity to see that information in a single place will represent a significant achievement. The pensions dashboard programme published papers in April that identify the scope of this initial offer, and it announced recently that the call for input on these proposals will start in early July.
The concern raised by the noble Baronesses relates to transactions. It is worth reminding ourselves that people can already undertake all kinds of financial transactions online, such as transferring existing pension pots between providers or consolidating small pensions into a single account. However, any organisation offering such services must meet existing regulatory requirements. In relation to pension transfers, these include requirements designed to ensure that people understand the potential consequences of undertaking these transactions.
These legislative requirements arise from the Pension Schemes Act 1993 and a member’s statutory right to transfer their cash equivalent to a pension scheme of their choice. Clause 125 seeks to amend that statutory right by creating safeguards to give trustees and scheme managers assurance that such transfers are to safe destinations. I do not think that the noble Baronesses, or indeed anyone who spoke today, gave sufficient credit to those provisions. Any such functionality would also have to navigate other existing legislative requirements, including those set out by Section 48 of the Pension Schemes Act, which require members with a cash equivalent value in a defined benefit scheme greater than £30,000 to seek financial advice. Members with guaranteed annuity rates must be sent personalised, tailored risk warnings before they are informed that they must take such advice.
In addition, I ask the noble Baroness to take into account the Government’s amendments to Clause 125, which will add a further series of safeguards. By taking a regulatory power to notify members to take guidance and information where a transfer meets prescribed circumstances, selected “at-risk” members will have to pause their transfer and demonstrate they have taken action to consider the risks of proceeding. Therefore, it is not fair to portray the Government as ignoring consumer protection.
Alongside this, we have been totally clear that any organisation wishing to provide a pensions dashboard must first complete an authorisation process, overseen by the Financial Conduct Authority. Once it has been authorised, it will be subject to the existing regulatory requirements for that activity and for any other activity it has the regulatory permissions to carry out. Where applicable, this may include the new protections offered by Clause 125 of this Bill.
The decision on whether transactions will be allowed on dashboards is not one we will take lightly. First, we need to understand how users respond to initial dashboards offering a simple “find and view” service and, subsequently, what additional needs users may have where dashboards could add value. Any decision to enhance the functionality of dashboards would have to be supported by extensive user testing as well as a review of the existing consumer protections to ensure that all necessary safeguards are in place to protect the consumer. We would also need to consider the legislative implications of such actions. Any application to transfer made using dashboards would be subject to the transfer requirements set out in primary and secondary legislation that are in force at the time of the application.
I strongly believe that Amendment 52 is the wrong way to go. It would deny people the right to take control of their financial situation. It actively seeks to frustrate. It would mean that consumers, even when properly advised and informed, would have to follow a parallel track to execute their wishes. It may even go so far that it could stop dashboard providers developing useful modelling tools that could, for example, inform people of the potential benefits of increasing their contributions or the impact of increased earnings. This amendment risks stifling future innovations that could demonstrably benefit consumers. My noble friend Lady Neville-Rolfe made that point very effectively.
As I have indicated, this amendment completely fails to take into account the existing regulatory regime under which many types of financial transaction are already regulated. The Government have been clear that we want to enable consumer-focused innovation; as I have said, we will always ensure that safeguards are progressed in line with this innovation.
My noble friend Lady Neville-Rolfe asked whether our proposals risk contravening any GDPR rules. I remind her that only the Money and Pensions Service and qualifying pensions dashboard providers that meet the requirements set out in regulations and operate to agreed standards will be able to connect to the dashboard infrastructure, so the request will effectively be a subject access request from an individual to the data controller to view their data. The individual’s identity will have been verified to the agreed standard level so that the pension scheme can be confident about who is making the request. Any request to search for consumers’ pensions information that is not received from the pension finder service will not be provided via pensions dashboards.
Turning to Amendments 56 and 59, tabled by my noble friend Lady Altmann and the noble Baroness, Lady Bowles, we agree that the accurate recording and management of pensions data is important. That is why the Pensions Regulator set out its expectations on record-keeping in 2010. It provided additional guidance in 2017 and 2018 to support trustees and scheme managers in measuring and improving their data.
The regulator already expects schemes to conduct annual reviews of their data that cover presence and accuracy, that trustees engage with administrators to identify and prioritise data for improvement, and that they report their data scores so that the regulator can monitor improvements and target its engagement with schemes. The Pensions Regulator has increased its scrutiny of scheme records and has targeted regulatory intervention based on reported data scores. Previous interventions have seen positive results.
The Financial Conduct Authority also has relevant requirements in place. Under its general compliance requirements in the FCA handbook concerning senior management arrangements, systems and controls, firms are required to
“establish, implement and maintain adequate policies and procedures sufficient to ensure compliance of the firm including its managers, employees and appointed representatives (or where applicable, tied agents) with its obligations under the regulatory system”.
As a result, when the FCA makes rules to compel schemes to provide data via dashboards, these will have to comply with this provision; we expect the rules themselves also to set out that the data must be accurate. In addition, the Financial Conduct Authority has the power to make further rules relating to data accuracy so long as it advances one or more of its operational objectives and is consistent with data protection legislation.
Alongside those requirements, the Minister for Pensions and Financial Inclusion recently wrote to some of the largest pension schemes, providers and third-party administrators to galvanise the industry’s approach to data accuracy and readiness for dashboards. The Minister requested a status report on the quality of their scheme data and, accordingly, their plans to improve it. The Government will feed the findings into the pensions dashboards programme to support their efforts. Schemes will be required to meet a clear set of data standards to connect to the dashboard system; these will be finalised in the autumn.
In addition, the programme will work with the regulators to develop a comprehensive onboarding strategy to support schemes in preparing their data ahead of their connection to the dashboard infrastructure. These activities seek to ensure that dashboards are a success by achieving the necessary coverage and that the data supplied is accurate and clearly understood by the user.
With those assurances and explanations, I hope that my noble friend will feel able not to move her Amendments 56 and 59 when they are reached.
My Lords, I thank all noble Lords who have supported Amendment 52. I say to the noble Earl that nothing in my amendment would deny any of the things that he listed. That is simply untrue. It seeks to say that Parliament should have the authority to clear taking transactions on to a dashboard system. The noble Baroness, Lady Bowles, captured it quite succinctly: transactions are a key risk danger point and require attention in that sense.
The noble Earl does not deny that there are risks. The difference between us is that I believe that the scale and implications of those risks, and the unknown evidence that is yet to come forward from our experience of the dashboard, are such that this should not be dealt with by regulations or secondary legislation. It should be dealt with by Parliament clearing enabling legislation to allow people to transact on dashboards. That is the thrust of my amendment; it is not to deny people freedoms. This is not without precedent. It was Parliament that intruded to insist that charge caps should be applied to pension savings pots. In spite of the arguments articulated against that, the industry has survived perfectly well and everybody has gone on to thrive under charge caps on pension schemes.
In moving my amendment, I did not put forward a single argument saying that the Government were neglecting consumer protection. Ironically, a lot of the protections that the Government are introducing are to deal retrospectively with the consequences of introducing pension freedoms without a protective consumer wrap. It would be sensible not to make the same mistake twice.
The issue here is that the scale of the potential risks—the unknowns of what behaviour will be like on the dashboard—are such that, in my view, it is perfectly reasonable to say that that issue should come back to Parliament for clearance through primary legislation rather than through regulations or secondary legislation. I wish to press my amendment to a vote.