Pension Schemes Bill [HL] — House of Lords, 2016-11-21
Topic: Labor
George Young (Conservative, Centre-right): My Lords, I am grateful to the noble Lord, Lord McKenzie, for proposing his amendment. I am afraid that I am back in the default mode of resisting Before I address the amendments, I say to my noble friend Lady Altmann that I would like to reflect on what she said about the transferability of defined contribution pots and perhaps write to her, because I am not sure that it directly arises from the two amendments before us. Clause 24, and the regulations to be made under it, sets out the detail of continuity option 1 and the requirements relating to it—where a master trust chooses or is required to transfer out its members and wind up. This option would be pursued where a master trust scheme could no longer satisfy the regulator that it met the authorisation criteria and had its authorisation withdrawn or refused, or where, for any other reason, it could no longer continue to operate and the trustees chose to pursue continuity option 1 rather than resolve the triggering event and keep the scheme running To protect the rights that members have accrued in the scheme, it is necessary that these rights be transferred to alternative schemes or pension arrangements. Clause 24 therefore requires that under option 1, the trustees of the scheme must identify a master trust to which members’ rights and benefits can be transferred. Then the trustees have to notify members and employers of the transfer, as well as of other information that will be set out in regulations The aim of Clause 24 and the related clauses is that members will continue to save in a pension despite the master trust of which they are a member experiencing a triggering event that results in the scheme having to wind up. In this situation members should be transferred out to an authorised master trust and continue to save with as little disruption as possible. We want to encourage and facilitate the continuity of pension saving. Therefore, when a master trust is going to close, the provisions in the Bill will mean that members have the reassurance that, if they do not make an active decision to go elsewhere, they will become a member of an alternative master trust that has been authorised by the Pensions Regulator Amendment 37 provides that where the trustees have the choice, and have decided to pursue continuity option 1, they can do so, except where the Pensions Regulator decides that continuity of saving for members would be best achieved by the substitution of a new scheme funder. I think that the noble Lord, Lord McKenzie, was seeking to give the regulator some sort of power to require the trustees to follow continuity option 2 instead of continuity option 1, where the trustees had chosen the latter. However, in effect the amendment would give the regulator the power to exempt a scheme from fulfilling the requirements under continuity option 1 where the trustees have decided or are required to pursue this option and where the regulator is satisfied that continuity is best achieved by the substitution of a new scheme funder. I see real difficulties in what the noble Lord has proposed Trustees are responsible for running and managing their scheme and making decisions in relation to it. They have a fiduciary duty to act in the best interests of the members of their scheme—a point that the noble Lord, Lord Kirkwood, made during our discussions. This amendment would effectively allow the regulator to second-guess and overrule trustees and to make a decision about a pension scheme. This would be a fundamental change to the principle that trustees have responsibility for managing their scheme. We do not think such an intervention by the regulator would be appropriate. The option of finding a new scheme funder, as proposed by the noble Lord, is already open to trustees as a means of resolving the triggering event and continuing. Depending on what triggering event the scheme experienced, there could be a variety of ways of resolving it. We consider it important not to limit these, but to give trustees the freedom to resolve the event and the regulator the power to decide whether it is satisfied that the triggering event has been resolved. Where the sourcing of a new scheme funder is the most appropriate resolution of a triggering event, as suggested by the noble Lord, it should be up to the trustees to identify this funder. It should not be the Pensions Regulator’s responsibility to decide what the resolution method should be, for example, that the method should be a new scheme funder, or to source that funder. That is not the regulator’s role and it would be overruling the trustees, who rightly have ultimate responsibility for the scheme and its members We consider it important that any resolution of the triggering event and continuation of the scheme be subject to the full requirements of option 2. These requirements include the preparation of a comprehensive and detailed implementation strategy by the trustees, having certain safeguards in place for members and employers, additional support and assistance for them, and greater protection for members. Further, there is oversight of the adequacy of the strategy by the regulator We agree that where a master trust has experienced a triggering event, a new scheme funder could be identified and could be the most appropriate resolution of a triggering event. However, the Government believe that it is the trustees’ responsibility to make decisions for the scheme, and that if they want to resolve the triggering event by finding a new scheme funder, they should go down the route of continuity option 2 Amendment 38 makes two additions to what will be covered by the regulations. The first part of the amendment would require the regulations made under this clause to set out what happens where the trustees have not been able to identify a master trust into which their members will be transferred. As the Bill makes clear, there will be a comprehensive set of regulations under Clause 24 that will cover many areas. These regulations will cover members’ right to transfer to a scheme of their own choosing, if they do not wish to transfer to the trustees’ choice of scheme. Members could also take up other pension options open to them, where relevant. Where a member is in receipt of a pension from the failing master trust, they will have the right to transfer their benefits to an alternative appropriate arrangement. For example, this could include a draw-down arrangement or the purchase of an annuity.