The mantra for this Bill should be: “Members at the centre of everything we do.” Communication and engagement is vital for trust in the system. It is good for business and good for members. Effective communication and engagement is an essential component in helping to implement improvement. Across all industries, transparency has never been more important to a successful business model, regardless of size. When it comes to employee engagement, this particular business practice is proven to be essential on a global scale, and what is seen as an essential tool for all manner of other business and industry areas, I see as equally essential for the pensions industry.
My noble Friend Lord McKenzie of Luton in the other House put the case very clearly and compellingly for master trusts to be required to have a full and effective member engagement strategy as part of the qualifying requirements for authorisation by the Pensions Regulator to operate as a master trust. In response to my noble Friend on Report, Lord Young of Cookham, replying on behalf of the Government, said:
“I can also confirm that the Government would intend—subject, of course, to consultation—to use the regulations under Clause 11 to ensure that the regulator specifically considers a scheme’s systems and processes in relation to these important communication matters when deciding whether the scheme is run effectively.”—[Official Report, House of Lords,
He went on to speak of wider communications, including how the review of auto-enrolment would include the engagement of individuals with workplace pension savings.
In an earlier written statement to the Commons, the Minister said that the review would include
“how engagement with individuals can be improved so that savers have a stronger sense of personal ownership and are better enabled to maximise savings.”—[Official Report,
That is all very grand, but there were no new clauses or amendments addressing the issue specifically when the Bill left the Lords, nor since. We could save time and add value to the communications process by requiring a member engagement strategy in the Bill.
Some will say that most people have no real interest in pensions, and that we could be placing all manner of costs on the industry for the few who do take pensions seriously. We should never discount the few who may be interested. Recent research by the accounting firm Price Bailey has revealed some interesting statistics in its 2016 report on public interest and awareness of workplace pension scheme arrangements and retirement options. A sample of 2,000 stakeholders were interviewed across the English regions, with a good split between male and female respondents, white-collar and blue-collar occupations and income bands. Nearly 75% of those interviewed had a total household income, before taxes, of £55,000 a year or less. I wish the people in my constituency had an average income of £55,000 a year. It is encouraging to note that only one person in nine—11%—said that they were not interested in pensions. That seems to lay the lie.
It is also encouraging that more than half—55%—of pension scheme members said that they take an active, regular interest in their pension savings and retirement planning, and I do not think we will be very surprised that within the 55 to 65 age bracket the proportion rises to about two thirds, with some 66% of people taking a real interest in their pension—I wonder why. The highest levels of engagement were among males, those with higher incomes—more than £55,000 a year—those in white-collar occupations and active scheme members.
Labour Members believe that the role of trustees is crucial in providing retirement education and helping to raise levels of member engagement. Regular communication, whether written, online or in person, is key to achieving that, with different techniques for different audiences. It is important that employers consider that when communicating with current and potential scheme members. We urge master trust employers and trustees to consider carefully their strategy for scheme member engagement. It should be made a legal requirement for them to produce and execute such a strategy. Putting some thought and effort into that now will undoubtedly prove beneficial to scheme members in the long run, and it need not be a tremendous financial burden on the industry, given that we are in a digital age. Nowadays, there is no excuse for failing to communicate effectively. Using social media to communicate means expanding a multi-channel communication strategy to encompass new channels. It used to be the counter, the telephone and, later, the website, but now we have the Twitter hashtag and the Facebook page—just some of the channels open for communication today.
Real engagement, however, is something else. It is about figuring out where people are already having conversations about which an organisation needs to be aware. It is about bringing information and dialogue to places where people want that dialogue to happen—their Facebook groups, their Twitter streams and the master trust intranet networks. Good communication and engagement over members’ money and pension drawdown are prerequisites for a successful master trust.
Our amendments seek to ensure that as part of the defined-contribution—DC—code of practice, there is a requirement for the authorisation process principally to ensure that the application to the Pensions Regulator includes a member engagement strategy and a communication strategy. The Pensions Regulator’s code of practice for DC pension schemes, published in July 2016, sets out the standards that pension trustees need to meet to comply with legislation. The code, which applies to all schemes offering money purchase benefits, is supported by a series of “how to” guides that provide more detail about how trustees can meet the standards in practice.
The Pensions Regulator has also produced a tool to help trustees to assess their scheme against the standards in the code so that they can identify areas requiring improvement. The DC code sets out a number of areas in which an understanding of members is key, particularly those of gauging members’ views to inform the design of investment strategies and the assessment of value for members. The regulator suggests:
“Member nominated trustees in particular may be able to provide feedback, as might union representatives, other employee representatives or existing staff forums.”
It is because of the valuable role that scheme members can play that we have tabled the amendments on scheme member trustees. We need to improve the Bill to make it more scheme-member-friendly. The members are, after all, our main concern. I will return to member trustees later. It seems only sensible to require the master trust to demonstrate its engagement and communication strategies to the Pensions Regulator, who has an obligation to ensure that the trust complies with the DC code of conduct.
The Bill sets out a requirement for the latest accounts, business plan and continuity strategy, yet it has nothing on issues that would ensure that the scheme met the required standards on member engagement and communication. There is no point authorising a master trust if it has poor communication and engagement with its members. The chances of members engaging with the issues that affect them can be greatly improved by communicating with them in the most effective way. That is the thrust of our amendments. We need to see members at the very heart of the process.
Master trusts will grow over time to cover millions of members and billions of pounds of assets under management. They will underpin the very success of the auto-enrolment policy and rebuild a long-term pension-saving system. The principle of an obligation on master trusts to have a clear strategy for engaging with scheme members should not be left to ministerial discretion or future consultation. We want to ensure that master trusts are at the leading edge of communication and engagement, and hope that the Minister will not just remain open to the idea, but will do something about it in this Bill. I look forward to his comments.
It is a pleasure to serve under your chairmanship, Mr Rosindell. I will be brief. Those of us who want to encourage pension saving, as we all do in this room, should encourage as much member engagement as is possible. That is the right thing to do to ensure that we have as much transparency as possible. It is perhaps relevant not just to this amendment, but to others, that the issue of members being trustees is important. We must recognise that we are talking about assets belonging to the plan holders and take into account the fact that a number of master trusts are also profit making. It is important that that process of transparency is open to members of the scheme and that there is full engagement by members, with members being part of the board of trustees and having effective training. We happily support that.
I am delighted to serve under your chairmanship, Mr Rosindell. I will probably say something more about my opposition to member trustees, which would be a step very much in the wrong direction, and I fear that the amendment tabled by the hon. Member for Stockton North would do that, but in a different way.
I agree entirely that the regulations under clause 12 will be subject to the Secretary of State’s involvement in laying out those regulations in due course, and under clause 13 the continuity strategy—what that might mean and what regulations we may expect are fairly well laid out—but I am afraid that, to my mind, “member engagement strategy” is wording that is rather too loose. If we encouraged such a strategy, I would like to see in any amendment what that might involve and an expectation of what we may see in regulations from the Secretary of State. I would not want a perfectly good scheme to fail because of an interpretation that might mean lots of different things to different people. My member engagement strategy might be rather different from that of the hon. Gentleman, so I will not support the amendment.
I would like to make a general point, which the hon. Member for Ross, Skye and Lochaber also made and which was agreed by everyone: we are all in favour of more people getting involved in their pension scheme. For many years, it became clear, particularly under defined benefits schemes, that people had other things to think about for most of their life and that they thought their employer would take care of their pension, whether in the public sector or in a defined benefits scheme. It was not that they could not care less, but they thought that as long as they paid their bit they did not have much to worry about.
The general point—it is not specifically a regulatory point for the Bill—is that the general policy of this Government, the previous one and, I am sure, all future Governments will be to make people far more aware of their pensions because they are predominantly defined contribution schemes. People must know and be able to calculate their pension, but perhaps the old boring statement sent out every so often is not the way to do that. We hope that apps and other systems will mean people are a lot more aware of it.
The general point of people being a lot more knowledgeable about their pension arrangements is taken as read and my responsibility and role is to help to promote that through communications, advertising, technological changes and so on. However, that is separate from the regulatory point. It underlines what everyone in this room really wants.
On the regulatory point in the amendments tabled by the hon. Member for Stockton North, I share his view of the theoretical constituents in the Price Bailey report. I do not think many of my constituents have £55,000 a year either, but the report makes some good points. We are here to discuss the amendments specifically. You are being patient, Mr Rosindell, but I wanted to make that more general point.
The explanatory statement provided with the amendments states that their purpose is to require that the application for authorisation to the Pensions Regulator must include a member engagement strategy. That is where I differ from the Opposition. We both want the same thing, but I would argue that amendment 24 would not have that effect. It would mean that schemes were obliged to create policies on systems and processes and submit those as part of an application for authorisation. I will speak to each amendment in turn.
Amendment 24 is broad and it would add to the information that must be submitted as part of the application. It points to the regulations made under clause 12, which deal with the requirement for master trusts to have adequate systems and processes. The Bill provides that those regulations may cover certain areas, such as processes for risk management and resource planning, and that the regulator must take those into account in deciding whether the requirements are met.
The Bill requires that, to be authorised, a scheme must satisfy the regulator that its systems and processes are sufficient to ensure the effective running of the scheme. The amendment would create a new requirement for those running schemes, which would have to develop a policy on those matters, as well as meet the requirements under clause 12. It is not clear to me, though, how placing that additional requirement on the industry would necessarily increase protection for the members of the master trust schemes or the provision of information on those matters to the regulator.
I am in clear agreement here: although the engagement strategy sounds worthy and laudable in many respects, that phrase is open to interpretation. All I can see it doing is creating a whole new industry—extra costs—and opening up the potential for legal challenges down the line, in a way similar to what happened with Equitable Life. As the Minister will remember, the Government issued certain brochures through the Financial Services Authority that became the basis of action further down the line.
My hon. Friend make a good point and I agree with him. It is important, though, that the regulator has enough information to be able to assess whether schemes have adequate systems and processes. The regulator can require the information; it needs to make the assessment. It is in the interests of any applicant to give the regulator the information it requires to make the assessment. The regulator is very active in this: it is two way, not just one way. The regulator may require different things from very big schemes that are well established than from small, newer schemes. That is what regulators do, and they have to have that discretion.
It should also be noted that clause 4 contains a regulation-making power to allow the Secretary of State—that is, the Government—to set out further information that is to be included in an application. That is why we gave a specific commitment to use the regulations under clause 12 to ensure that those matters are taken into account when considering a system’s application for authorisation. If you will allow, Mr Rosindell, I would like to repeat that commitment. The Bill allows the regulator to take into account the systems and processes relating to communications and engagement when assessing the adequacy of a scheme’s systems and processes more broadly.
I am concerned that auto-enrolled into pension schemes are millions of people who have no communications whatever from the organisations handling their money. What is the Minister saying the regulations cover that will ensure those people are communicated with?
That is up to the regulator. If the hon. Gentleman bears with me, I will get to that particular point. If he is not then satisfied, I will willingly give way.
Member engagement is a challenge in pensions both legally—that is, what should people know?—and in terms of getting them engaged in a general sense. It would be unacceptable to have a hugely expensive exercise writing tens of thousands of letters that may or may not be read, but which would confuse people. However, we accept that it is important that the members get the right communications.
A situation such as the hon. Gentleman mentioned, in which members get absolutely nothing, which the regulator would find unacceptable, would not be at all acceptable for two reasons. The first is the general point that I mentioned about getting people engaged and understanding their pension and everything that goes with it. We have all received these communications. Probably, the hon. Member for Ross, Skye and Lochaber will have always looked at his pension statements, but a lot of us have received them—very comprehensive ones, in many cases—and just put them at the bottom of the desk drawer, in the hope of reading them sometime. I hope that the hon. Gentleman is not offended by that comment; it was meant to be complimentary.
I shudder to think that the Minister would ever offend me, at least willingly. The regulator has a very important role to play—I think we all understand that—but there is also the fact that the trustees are responsible to the scheme members, and it is important that we ensure that trustees recognise the responsibilities they have. No one is talking about bringing in a cumbersome system that will be costly. This is about ensuring that the members have that relationship with the trustees. It is important that the trustees are answerable to the scheme members, not least because of the profit-making capability that some trusts have.
The hon. Gentleman is right, and this is not just a question of communication as in a formality—communication if there is a problem. We will be speaking to those points later. This is a point about communication and making sure that people know what they have, in the same way as a bank communicates, now mainly by the internet, so that people—
The Minister, in a private conversation, said that I would find it difficult to mention this subject, but he has kindly given me an opening. We have to learn lessons from the experience of the WASPI women—the Women Against State Pension Inequality Campaign—and we cannot go forward and experience the same inability to engage as we are experiencing now, so this scheme must ensure that communication is sufficient to attract all people.
I smile, but not out of disrespect for the hon. Lady—quite the contrary. I knew that she would manage to bring in her favourite subject and I am grateful for the indulgence of the Chair in not declaring it out of scope, because she makes a relevant point. I nearly said “you”, Mr Rosindell. You would probably make it as well, if you were invited to speak on the subject.
The communication point that the hon. Lady raises has to do with the state pension. Generally, things have moved on dramatically—not just from a regulatory point of view, but with communication generally. We just have to look at the state pension side—before you rule us out of scope, Mr Rosindell. Millions of people look on the internet every year to see what the position is with their state pension. The same will apply—to bring us within scope—to private pensions. The younger generation of people do not just wait for something to come. They are aware the whole time; they see the information on their pay packet. My younger son started work after graduation in September. They sign up for the pension, it is explained and they are interested. They think it is years away, obviously, but they are interested. That is why I do not take the communication point lightly, and I will do my best now to talk in more detail about it.
We have mentioned the automatic enrolment review. That is critical—this is not just a way of sidetracking the point—because it will consider how individuals engage with their workplace pension scheme and how that can be developed so that members are better able to understand and maximise their savings. That is probably the most relevant change that we have to try to bring about—we as a Government are going to do this, but I am sure that any Government would—to get people really involved. We have appointed an external advisory board, including members that represent consumer interests as well as pension provider representation. We will lay a report before Parliament before the end of 2017. The relevant point, to bring us back to the Bill—you have been very patient, Mr Rosindell—is that it will take into account these findings. We will take them into account when considering the regulations under clause 12—that is the relevant clause—which I referred to a moment ago.
“The trustees of a Master Trust scheme may apply to the Pensions Regulator for authorisation.”
Will he explain why that does not say “must apply”? We do not envisage any master trusts that are not obliged to register. Is it because they can form themselves, and before they start operating they have to apply, or does he expect them to be formed only after they have been authorised?
Master trusts may apply. Exactly. My hon. Friend’s point is correct, but if they wish to be in a master trust in the market, they must apply. If they do not, they may say, “We’ve looked at this regulation, we call ourselves a master trust now, which we are, but the regulatory hurdles are not for us so we’ll leave the market.” We had to leave the flexibility in, and maybe many will. I do not know. Maybe entities will say, “It’s not for us, we are going to do it another way,” given the regulations, an extra burden of regulation or a different type of regulation, but if they are to be a master trust—if they are to continue as one—the “may” effectively becomes a “must”, because they have to apply and regulate. We had to leave the possibility in. It may not happen, but I think some of the smaller ones will find that it is not for them. I hope I have answered that question satisfactorily. I hope, too, that I have said enough to reassure the Committee. The Government sympathise with the intention of the amendment. We take member engagement seriously. There is no simple answer.
The Bill is about protecting those people saving in master trust schemes by addressing the key risks that arise in this type of scheme. While member engagement is important, I do not believe that the Opposition have made an effective case that these issues constitute a key risk that needs to be addressed through setting out explicit requirements in primary legislation. That is the critical point. We will consider the area further as we go through the AE review, and we will develop and consult on the regulations under clause 12. As I have explained generally on the regulations, there will be time for both Houses to go through them. On that basis, I kindly invite the hon. Member for Stockton North to withdraw his amendment.
First, I congratulate my hon. Friend the Member for Swansea East on her particular skill in introducing the word “WASPI” to each and every debate that I have ever been involved in. I pay tribute to her for the tremendous work that she does. She chairs the WASPI all-party parliamentary group. I know that it is at the centre of her heart, and the Minister was probably just waiting for the word to come up today. I congratulate her on all the work that she does.
It is the members’ money, and they should be told what is happening with it and how it is being invested. They should also have an opportunity, as the Minister says, for two-way communication, and be able to influence that as well. The hon. Members for South Thanet and for Solihull agree that we should have good communication. They talked about loose wording, but communication is central to everything that we do in society these days. We have seen how failure to communicate has perhaps resulted in some of the things that have happened in recent times, such as the decision for us to leave the EU. Did we actually communicate the real messages, the proper messages? It is important in relation to pensions that we communicate the full message to the people whose money we are dealing with.
We will debate trustees later in our consideration of the Bill, but my attitude is, why should there not be member trustees when it is the members who bear all the risk when it comes to these investments?
The Minister talked of the various regulations that could be put in place and used the phrase, “That is up to the regulator.” It is not good enough to leave those matters to the regulator. We need to provide guidance for the regulator.
The Minister is fond of his secondary legislation. I suggest that within that secondary legislation he could lay down some guidance, which the regulator could then use on the issue. The Opposition feel strongly about communications. For that reason, I will press amendment 24 to a vote.
The clause allows the trustees of a master trust scheme to apply to the Pensions Regulator for authorisation and sets out details about the content of applications and the application process. The clause provides that an application must include certain key information: the scheme’s latest accounts, the latest accounts of each scheme funder, the scheme’s business plan and the scheme’s continuity strategy. That information must be provided so that the regulator can assess whether it is satisfied that the scheme meets the authorisation criteria, which we will discuss when we deal with later clauses. The clause also allows the regulator to take any other information into account when considering an application.
As I have said, the master trusts market is still developing and we believe that it will develop further as it responds to the new requirements in the Bill, so the clause allows the Secretary of State to make regulations setting out further information that must be included in an application so that changes can be accounted for and the application process remains robust. The Government also intend to charge schemes a one-off application fee, which will be payable to the regulator at the point of application. It might be necessary to vary that fee, depending on factors such as the number of schemes that apply for authorisation and the resources required to process applications, so the clause allows the Secretary of State to retain flexibility by specifying that detail in regulations.
There must be a clause to allow applications for authorisation to be made, so I ask the Committee to support the clause.