Continuity option 1: transfer out and winding up

Pension Schemes Bill [Lords] – in a Public Bill Committee at 3:30 pm on 7th February 2017.

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Photo of Richard Harrington Richard Harrington The Parliamentary Under-Secretary of State for Work and Pensions 3:30 pm, 7th February 2017

I beg to move amendment 5, in clause 25, page 17, line 21, leave out “Master Trust” and insert “pension”.

This amendment and amendment 8 enable trustees pursuing continuity option 1 to propose a transfer of members’ accrued rights and benefits to a pension scheme that is not a Master Trust scheme, as long as the alternative scheme has characteristics specified in regulations, and any additional requirements in the regulations are met.

With this it will be convenient to discuss Government amendments 6 to 19.

Photo of Richard Harrington Richard Harrington The Parliamentary Under-Secretary of State for Work and Pensions

The amendments, which apply to clauses 25 and 34, continue with the continuity options. These apply when the trustees of a master trust are pursuing option 1. Clause 25 sets out the framework for continuity option 1. This is where the scheme transfers out all the members’ accrued rights and benefits, and winds up. The amendments would allow regulations to be made in future that would let the trustees in this situation choose a scheme that is not a master trust to receive their members’ rights and benefits.

The receiving scheme would have to have characteristics set out in the regulations. The non-master trust receiving scheme would be made subject to exactly the same restrictions on increasing or introducing the new charges as those to which master trust receiving schemes are subject. The amendments would enable the type of schemes that can be receiving schemes to be widened where a master trust is going to wind up and has to transfer all its members out.

In that situation, although members have the opportunity to make their own choice about where their accrued rights and benefits go, where they do not make a choice there needs to be provision for their rights and benefits to be transferred into a suitable pension scheme. At present that is restricted to another master trust. These measures permit this to be opened up by providing a regulation-making power to include other pension schemes, should that be appropriate. It may well not be appropriate, but in some cases it will be. Such schemes could include personal pensions and pension schemes that provide decumulation options, such as drawdown. This means we will be able to react appropriately to future innovations and developments in the pensions market. Indeed, the rise of master trusts shows how quickly markets change. This may be of particular use where members were using a decumulation option, as it leaves open the possibility that members could make use of new decumulation products in future.

Allowing other types of pension schemes to receive transferred members, as long as they meet specified requirements, could increase the options available to trustees, introduce extra flexibility and widen the market for potential schemes. This might be useful if trustees found that they were struggling to find somewhere appropriate for their members’ rights, which might particularly benefit members using decumulation options. Being able to increase the options in future might help reduce the risk that trustees of failing master trusts might not be able to find another master trust to take their members on.

As these amendments will mean that it is possible to widen the options available to the trustees of a master trust that was closing, and as that would be for the benefit of members, I commend them to the Committee.

Photo of Alex Cunningham Alex Cunningham Shadow Minister (Work and Pensions) (Pensions)

We give a general welcome to the amendments, some of which have been tabled in response to issues raised by my colleagues in the other place. The amendments are intended principally to ensure that scheme members are protected in the event of a winding up, and we certainly welcome that. We also wish to ensure that a master trust winding up does not disincentivise savers or negatively affect their rights and benefits.

Government amendment 5 means that if there is a triggering event and a master trust has to wind up and transfer members and their benefits, this can now be to a scheme other than another master trust scheme. This change, which has been made since the Bill left the House of Lords, invites three questions to which the answers are not clear. First, in the event of a failing master trust winding up, what conditions and regulatory standards must a receiving scheme that is not a master trust meet before the Pensions Regulator will authorise the transfer of members and their assets to it? Secondly, how will the concept of scheme funder in the Bill be applied to a receiving scheme that is not a master trust?

Thirdly, an essential provision in the Bill to protect master trust scheme members from bearing the costs of sorting out a scheme failure is in clause 34, which places a prohibition on increasing members’ charges during a triggering event, including wind-up and transfer. The prohibition is binding on both the transferring and receiving master trust scheme. Can the Minister give a categorical assurance that the prohibition on increasing member charges will, in the light of the amendment, apply to any receiving scheme in a triggering event? If the receiving scheme is not a trust-based scheme, which regulator will police adherence to that prohibition? Where is the line of vision in the Bill to show that all receiving schemes, master trusts or otherwise will be bound by the prohibition on increasing members’ charges?

We remain somewhat concerned that the Government have chosen to pursue their aim by introducing broad powers for the Secretary of State to make regulations in amendments 8, 10 and 12. We do not believe that approach provides a strong enough guarantee to scheme members that their benefits will not be eroded through the course of the transfer. Can the Minister guarantee to scheme members that that will never be the case? If he can, why not place such a guarantee in primary legislation? If he cannot, why not?

Photo of Richard Harrington Richard Harrington The Parliamentary Under-Secretary of State for Work and Pensions

I have listened carefully to the hon. Gentleman’s points. This goes back to the core question of whether things should be in primary or secondary legislation and why. I repeat the argument, which I think is very reasonable, that part of the Bill is providing flexibility for the way things will change in the future. Whichever party happens to be in power, primary legislation is very difficult and takes a long period. The industry moves far more quickly. I know I keep repeating the same answer, but that flexibility is very much the principle of the whole Bill.

There is a difference in principle between us, but I hope the hon. Gentleman will agree that I have tried to be pragmatic with the arrangements, which provide the necessary practicality. I cannot therefore give him the undertakings that I would like to, because of the flexibility within the Bill, but I am convinced that this system will provide the most protection for members. As he knows, a lot of thought has gone into this. It is not a question of dispute based on an irresistible force and an immovable object; we have come up with a suitable compromise.

Photo of Alex Cunningham Alex Cunningham Shadow Minister (Work and Pensions) (Pensions)

I recognise the constraints and difficulties of trying to develop regulations on the hoof, as I was perhaps requesting of the Minister. If members started to understand this area, they would be really worried about it and want to understand it more, but I accept the Minister’s explanation.

Amendment 5 agreed to.

Amendments made: 6, in clause 25, page 17, line 23, leave out “subsection” and insert “subsections (1A)(b) and”.

This amendment is consequential on amendments 5 and 8.

Amendment 7, in clause 25, page 17, line 24, after “the” insert “Master Trust”.

This amendment is consequential on amendments 5 and 8.

Amendment 8, in clause 25, page 17, line 27, at end insert—

‘(1A) Each pension scheme proposed under subsection (1)(a) must be—

(a) a Master Trust scheme, or

(b) in such circumstances as may be specified in regulations made by the Secretary of State, a pension scheme that has characteristics specified in regulations made by the Secretary of State (“an alternative scheme”).”.

See Member’s explanatory statement for amendment 5.

Amendment 9, in clause 25, page 17, line 28, leave out “The notification” insert “Notification under subsection (1)(b)”.

This amendment is consequential on amendments 5 and 8.

Amendment 10, in clause 25, page 17, line 33, leave out subsection (3) and insert—

“(3) The Secretary of State—

(a) must make regulations about how continuity option 1 is to be pursued, in a case where a proposed transfer is to a Master Trust scheme;

(b) may make regulations about how continuity option 1 is to be pursued, in a case where a proposed transfer is to an alternative scheme;

(c) may make regulations for the purpose of otherwise giving effect to continuity option 1, in either case.”.

This amendment confers power on the Secretary of State to make regulations about how continuity option 1 is to be pursued, where a proposed transfer of members’ rights and benefits is to a pension scheme that is not a Master Trust scheme.

Amendment 11, in clause 25, page 18, line 29, leave out “receiving”.

This technical amendment removes an unnecessary word from clause 25(4)(l).

Amendment 12, in clause 25, page 18, line 37, at end insert—

“(4A) Regulations under subsection (3)(b) may include—

(a) any provision mentioned in subsection (4);

(b) provision deeming any member whose accrued rights or benefits are to be transferred to an alternative scheme to have entered into an agreement with a person of a description specified in the regulations.”.

This amendment makes it clear that regulations about how continuity option 1 is to be pursued in a case where a proposed transfer is to pension scheme that is not a Master Trust scheme may include any of the provision mentioned in clause 25(4) and also provision deeming a member to have entered into an agreement with a person (such as the provider under the new scheme).

Amendment 13, in clause 25, page 18, line 46, leave out “subsection” and insert “subsections (1A)(b) and”.—(Richard Harrington.)

This amendment makes regulations under the new subsection (1A)(b) (specifying alternative types of pension schemes to which transfers can be proposed) subject to the affirmative resolution procedure. (Regulations under the new paragraph (b) of subsection (3) (about bulk transfers to schemes other than Master Trust schemes) will also be subject to the affirmative procedure.)

Clause 25, as amended, ordered to stand part of the Bill.

Clause 26