Scheme funder of last resort

Part of Pension Schemes Bill [Lords] – in a Public Bill Committee at 11:00 am on 7 February 2017.

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Photo of Alex Cunningham Alex Cunningham Shadow Minister (Work and Pensions) (Pensions) 11:00, 7 February 2017

I accept that correction. I am sure the Minister would look grand dressed as a white knight. The fact is that no white knight actually exists.

The clause has a key purpose to protect the pensions pots of ordinary people from being raided in the event of a master trust failing. That is something that would certainly not be the fault of the workers up and down the country who are faithfully paying into a pot; a pot that, although welcome at retirement, is likely to be relatively small. If the Government succeed in removing the clause from the Bill, they will be responsible for not providing a safety net if a master trust fails and workers end up losing their hard-earned cash.

It is not enough for the Government to argue that a failing scheme will always be successfully transferred. They instead must ensure that a funder of last resort is identified in the Bill. The Government argue that there is no need for a funder of last resort because the procedures laid out in the Bill will prevent it from reaching that far. Industry experts across the board insist that a funder of last resort or equivalent is needed. The chair of the Standard Life master trust has called for the Government to be the funder of last resort

“because it’s their policy foul-ups that have allowed the proliferation of unsustainable master trusts”.

I do not know if there has been a foul-up or not. I believe that the growth in master trusts and in auto-enrolment is actually a very positive thing. The chair also commented that Government funding was unlikely and that a levy on the employers should be imposed instead, as it is the employers who have chosen the master trust and therefore they should bear more risk. That could make them think twice about getting involved with less than honourable trusts.

There are options in regard to who or what the funder of last resort could be, such as those I have just outlined, but it is the duty of the Secretary of State to make provisions to ensure that there is one. Does the Minister consider the Government to be a viable funder of last resort, or does he believe that it would be more effective for the employers to be levied? Smaller trusts suggest that NEST should have a role here, but I suppose they would say that, given that they have seen the benefits that NEST has had that they have not enjoyed. There are of course commercial issues there as well.

I assure the Minister that somebody will have to pay if something does go wrong, and that is better decided sooner rather than later. The Minister could cut this part of the debate short by giving a cast-iron guarantee that no one who has had their savings invested in a master trust pension pot will see their pot diminished because the trust has failed, but he has already acknowledged in his speech that he cannot do that. Will he put the Treasury’s money where his mouth is and say that if his own proposals to protect the owner of the pension pot do prove inadequate, they will make the cash available to make good any losses?

There may be an argument that this is not just a straightforward, black-and-white matter, and I agree, because it will be red lines on the pension pot statement if we do not act. None of us really knows the full extent of what is going to happen when the provisions of the Bill come into force. I agree with the predictions that some master trusts will fail to clear the necessary barriers to continue. Indeed, I understand that work is already under way in the industry in recognition of that, to ensure the right thing happens for most pension savers, but—it is a cliché—we do not know what we do not know and there may be failing trusts that might not have sufficient resources to wind up and we must ensure that members’ pots are 100% protected. There is simply no guarantee that another trust will choose to pick up one that is failing. Why would they? What obligation do they have? Why would it be in their interests to do so? I ask the Minister what happens when no other trust wants to pick up one that has failed. There is no guarantee in place.

That is why there needs to be a funder of last resort. We must predict what could possibly happen, even if there is only the slightest chance of it happening, and ensure that we have a protection plan in place. We cannot simply hope that another trust will pick it up; instead we must intervene now to ensure a back-up plan to the back-up plan. The Government must prepare for the worst-case scenario, and nothing I have seen so far convinces me that Ministers are doing so.

What would the role of the Pensions Regulator be in the event of a failure? There are high risks, with high immediate costs associated with those risks, and somebody will have to pick up the pieces. Will it be the Pensions Regulator? Will it have the resources to do so? We must remember that history dictates that there are always possibilities of large-scale failure with anything related to financial services.