Pension Schemes Bill: Final Stage

Executive Committee Business – in the Northern Ireland Assembly at 10:30 am on 24 November 2015.

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Photo of Mervyn Storey Mervyn Storey DUP 10:30, 24 November 2015

I beg to move

That the Pension Schemes Bill [NIA 54/11-16] do now pass.

As I am sure Members are aware, we are in the midst of a period of almost unprecedented change in the field of pensions. The phased introduction of automatic enrolment into workplace pensions is well under way to ensure that most employees have access to a simple, low-cost pension scheme that will provide an additional source of income in retirement. More recently, the Pensions Act (Northern Ireland) 2015 introduced a new state pension system for all those who reach state pension age from 6 April 2016. The aim is to ensure that we have a pension system that is fit for the 21st century as we face up to the challenges posed by ever-increasing life expectancy.

The Pension Schemes Bill forms part of this ongoing process. It introduces a new legislative framework for private pensions and defines three new categories of pension schemes based on the different types of promise offered to members during the accumulation phase about their pension savings when they come to access them.

The categories are a defined benefits scheme, in which members have a full pensions promise about the rate of the retirement income that they will receive for life from a fixed normal pension age; a shared risk scheme, which is also known as defined ambition, whereby there is a promise about some of the retirement benefits, whether income or lump sum; and a defined contributions scheme, whereby there is no promise about the benefit outcome. For the first time, legislation will set out clear statutory definitions of various scheme types.

The Bill seeks to reinvigorate the pensions industry by allowing for greater innovation in pension scheme design. The new shared risk definition creates a middle ground between the more polarised defined contribution and defined benefit definitions. Shared risk schemes should provide employees with greater certainty about the final value of their pension than they would have under a defined contribution scheme but with less cost volatility for employers than a defined benefit scheme. Enabling legislation that allows for longevity, investment and inflation risks associated with pension provision to be shared between employers and employees rather than borne by one party should result in improved pension outcomes for many.

The Bill also defines the concept of collective benefits and makes provision for regulation-making powers for them. Those powers cover matters such as the setting of targets for benefits, valuation, reporting requirements, transfer values, winding up and governance. Collective benefits are provided on the basis of allowing the scheme’s assets to be used in a way that pools risks across the membership. Gains or losses arising as a result of the scheme’s investments are shared among all members. The intention is that schemes offering collective benefits will be required to set targets in relation to the rate or amount of those benefits. The target level of benefit should provide members with a reasonable estimate of what they can expect to receive from the scheme.

An actuary will be required to certify that the initial target is set at an appropriate level and that the probability of the target being met falls within a specified range. That will help to ensure that schemes providing collective benefits operate in as transparent a manner as possible.

The Bill makes amendments to current legislation as a consequence of the new scheme definitions and the collective benefits provisions. In particular, the amendments will ensure that current legislative requirements relating to governance and administration apply in the appropriate way to the new scheme categories.

The Bill also contains powers to make regulations — for example, for indexation and the revaluation of benefits and in setting out conditions to be met for a pensions promise to be obtained from a third party and imposing a duty on managers to act in the best interests of members when making specified decisions on collective benefits or shared risk schemes. It also enables the Department to issue statutory guidance on the disclosure of information about schemes and includes a provision dealing with pension sharing and normal benefit age.

In conclusion, the key objective is to ensure the financial stability of future pensioners by ensuring that they can save into good private pensions during their working lives. I think that we all agree that that is highly desirable. The Bill will also create space for market innovation while ensuring that there is proportionate regulation for different scheme types.

I trust that Members are content with the broad thrust of the Bill. I know that pensions legislation can be somewhat complex and detailed.

Therefore, I want, in particular, to thank the Chair and members of the Social Development Committee for their help and the positive manner in which they considered this important Bill. I also want to place on record my appreciation to my own staff, who work relentlessly in this area; their expertise and dedication is an invaluable assistance to me in trying to manoeuvre what is a very challenging and technical issue. I am sure that they, like me, will be looking forward to the Chancellor's autumn statement tomorrow, which, no doubt, may have some further changes to the system that will give them further work in the future.

Photo of Alban Maginness Alban Maginness Social Democratic and Labour Party

I do not intend to rehearse what the Minister and others have said. I will keep my comments as brief as possible.

The SDLP supports the Bill. Although it has gone through with accelerated passage, the Assembly and the Committee for Social Development have had the opportunity to scrutinise the Bill and, indeed, to scrutinise the Minister on this important issue. As mentioned by the Minister during the Second Stage debate, increasing life expectancy should be celebrated — we all celebrate that, collectively and personally — although it brings with it its own issues and challenges, including the issue of pensions. Therefore, the issue of pensions is becoming more and more important for more and more people. Pension reform has been ongoing, and I believe that there will be further changes over the coming years, in the public sector and the private sector — perhaps even as soon as tomorrow, as the Minister said.

I will quickly mention some of the main aspects of the Bill. The main thrust of the Bill is to provide people with more flexibility and choice, and that should be seen as a good thing. Of course, we all welcome that. As the Minister said, and I take his words very seriously, there should be proportionate regulation. I welcome that, and I hope that that will be the outcome of the Bill and that the regulation will be proportionate.

Part 1 relates to the categories of pension schemes and contains provisions for a new framework in relation to categories of pension schemes. It aims to establish three mutually exclusive definitions for scheme types defined as a pension promise. Those can be defined benefit schemes, shared risk schemes or defined contribution schemes. Part 2 defines the concept of collective benefits and makes provision for regulation-making powers in relation to them. Part 3 mainly deals with amendments to existing legislation, mostly as a consequence of the change to scheme definitions.

The SDLP had some concerns about the Bill, which we mentioned during the Second Stage debate. Those included ensuring that we adequately safeguard the members' interests, ensuring that there is sound independent financial advice and ensuring a proper regulatory framework. We welcome the Minister's previous comments on the issues that I have just outlined. I also welcome the fact that the Minister has maintained parity by bringing the Bill through the Assembly by way of accelerated passage. The SDLP supports the Bill.

In conclusion, the Bill seeks to introduce new flexibilities to the way in which savers can access their defined contribution pots, with the stated aim of giving people more choice about how they fund their retirement. We believe that to be a right and proper opportunity for people to deal with money that they have invested for themselves, and they should be given more autonomy on that. With that, I conclude and reiterate that we support the Bill.

Photo of Mitchel McLaughlin Mitchel McLaughlin Speaker 10:45, 24 November 2015

I call the Deputy Chairperson of the Committee for Social Development. My apologies, Fra, for the slight confusion at the top Table.

Photo of Fra McCann Fra McCann Sinn Féin

Go raibh míle maith agat, a Cheann Comhairle. I thank the Minister for bringing the Bill to the House for its Final Stage.

While the issue of pensions is a devolved matter, as Members know, the Bill was granted accelerated passage. However, in supporting accelerated passage, the Committee noted that, in the case of this Bill, which relates to private pensions, there is a single regulatory regime that operates here and in Britain. The successful passage of the Bill will ensure that the Pensions Regulator, the Pensions Ombudsman and the Pension Protection Fund continue to facilitate compliance and enforcement in the pensions industry here.

Many, if not all, of the private pension schemes that operate here are based in Britain, and the Committee was cognisant of the potential limitations in effecting change to the Bill. The Committee, therefore, took the view that it was necessary to ensure that people here with private pensions could avail themselves of the changes as soon as possible and seek advice as early as possible in order to plan for their retirement.

The Committee appreciates the importance of the Bill to ensuring that any new products that the pensions industry develops are also available here and are subject to appropriate regulation. The new regime will require regulations to be in place before April 2016 to ensure that adequate safeguards and protections are in place.

The Bill will facilitate the development of new types of pension provision that can provide greater certainty about what people can expect from their occupational pension. The Bill will also allow greater risk sharing: the risk may be shared among members so that schemes providing collective benefits may provide more stable outcomes than the individual defined contribution schemes currently available. That should allow greater protection for pensions from fluctuations in markets.

It is fair to say that we all know that pension provision is something that we should plan for. Actuaries inform us that we are living longer, that pension funds are under strain and that people have to start saving earlier, hence the raft of pension legislation over the last few years. It is also probably fair to say that pensions are something of a mystery to most people. In order to make the right decision about pension plans, people must get meaningful and understandable advice. It may be an attractive proposition, for example, to be able to access one’s pension pot from the age of 55, which the Bill, along with the Taxation of Pensions Act 2014, facilitates, but that must be done only after considering the appropriate guidance and taking proper advice. It is, therefore, welcome that people can avail themselves of the free guidance from Pension Wise throughout the network of 19 citizens advice bureaux here. However, it is possible that some people will not realise that there is a difference between guidance and advice, and that advice, particularly in a financial context, means regulated financial advice, whereas guidance refers to more general information about terms or investment products.

Free guidance is merely the starting point. People need to have the right advice that is tailored to their particular circumstances. They need to understand that their decisions and actions have consequences. It will, therefore, be important to monitor the outworkings of the Bill, although it may take a number of years to understand fully whether it has produced greater stability in pension outcomes for the consumer.

The Committee for Social Development supports the Pension Schemes Bill.

Photo of Roy Beggs Roy Beggs UUP

I, too, support the Bill. The pension process, like that of welfare, is extremely complex, and we need to take great care with any suggested changes.

It is clear from the Bill that we had very limited opportunity to change things. Indeed, during the evidence that we were given, it became apparent that the schemes available in Northern Ireland are GB based and that any proposal to amend the guidance on them might eliminate the choice currently available to Northern Ireland consumers. It is vital that there is a wide choice and a degree of healthy competition, so I am pleased that the Committee and, to date, the Assembly, have supported maintaining parity on this important issue.

It is a sensible piece of legislation; it is modernising to reflect changes. As others said, it will give greater flexibility, which perhaps reflects more how individuals may move on and not necessarily be with one employer their entire working career. It creates increased flexibility with pension schemes and yet provides protections. As others said, there is a single regulatory regime for pension schemes throughout the United Kingdom, with a single ombudsman, and it makes sense to continue in that fashion. I support the Bill.

Photo of Mervyn Storey Mervyn Storey DUP

I reiterate my appreciation of, and thanks to, those who contributed. I say to them, particularly the members of the Social Development Committee, that it is appreciated. I thank the Deputy Chair for his support. While accelerated passage meant that there was no formal Committee process, the Committee carried out a thorough scrutiny of the issues. I say a word of thanks for that.

I will pick up on a few of the points raised. The Deputy Chair, Mr McCann, raised the issue of the difference between advice and guidance. His point was well made. It is vital that people have as much information as possible to enable them to make sound decisions. One of the concerns raised during the process was about opening up the door to those who want to be mischievous and to those who have become known as scammers. It is an unfortunate fact of modern life that there will be people who will seek to scam others.

As part of the pensions flexibilities announced in the 2014 Budget, the Government proposed that all consumers with defined-contribution pensions should be entitled to access free, impartial guidance at retirement about their options when assessing their pension savings. That was launched under the branding Pension Wise by the Financial Conduct Authority, and the Deputy Chair made reference to it. It published standards for guidance and the delivery of Pension Wise. The Pension Wise website includes guidance on how to avoid a pension scam. The NI Direct website signposts people to the Pension Wise website and further advice on pension scams. The Financial Conduct Authority recently launched its ScamSmart campaign. Those are all to be welcomed, along with other independent advice that is available.

I now turn to the comments of Mr Maginness. I appreciate the work and effort that he and his colleagues make on these issues. He touched on a point that I mentioned earlier: proportionate regulation. I assure the Member that our aim is to provide appropriate regulation that will safeguard members' rights but which will not be so burdensome as to discourage employers from running schemes. I concur with him about the necessity of having good-quality advice and guidance. That is vital. Much as been achieved over the period of the Bill in giving assurance and confidence not only to Members but to those who, ultimately, are the beneficiaries of a good pension scheme.

The Member raised the point about life expectancy. We all want to live for as long as we possibly can, although that, of course, is ultimately in the hands of someone else. We want to ensure that everything is being done in pension provision to reflect the change in our society. Pensions are always a movable feast because of the many challenges that are brought to bear.

On Members' comments again, I appreciate the work of Mr Beggs on these issues and his help in scrutinising what is an important piece of legislation, not least because some of us are getting nearer to that date. Maybe we should all have started by declaring an interest, but I will do it on our behalf. As I look around, I see that there are some who are further away from pension age, but I say that for those to whom it applies. I also want to say a word of appreciation and thanks to my staff. Thanks to the House for its help. This has been a successful piece of legislation that we have been able to do ourselves. We have been able to do it in a way that is a good reflection on how we can deal with an issue of such importance.

Question put and agreed to. Resolved:

That the Pension Schemes Bill [NIA 54/11-16] do now pass.