I thank all noble Lords for their contributions. While some of the participants in today’s debate stand in awe of the brain power on pensions of some of the people in this room, they are not alone. Many of the points raised by noble Lords go much wider than these regulations,
and there are many things on which we will have to write to noble Lords to ensure we can answer these important questions. We will do so and put a copy in the Library.
The noble Baroness, Lady Janke, raised consolidation and what plans the Government have to accelerate the pace of consolidation in the DC market. The DWP continues to champion the benefits that consolidation can bring in improved governance, lower cost and enabling schemes to reach the scale needed to access a broader range of investments. Last year, regulations were introduced requiring all DC schemes with less than £100 million in assets to undergo a rigorous value-for-money examination each year, the intention being that schemes that cannot prove value will put members first, make improvements or wind up. Data from the Pensions Regulator shows that consolidation is happening at a healthy rate, but we will continue to keep this area under review to ensure that savers are not left in small, poorly governed, underperforming schemes. In the meantime, we are working with the Pensions Regulator and the Financial Conduct Authority to create their value-for-money framework and metrics that will enable genuine comparisons to be made and encourage competition across the DC market.
The noble Baroness, Lady Janke, asked a question about processes being onerous and bureaucratic for small schemes, and the cost to smaller schemes in terms of charges, et cetera. Trustees of schemes of all sizes have been complying with the CMA’s order since December 2019. They have reported compliance without further issues raised. The CMA investigation found that
“the potential benefits of our remedies package are likely to substantially outweigh the potential costs … even small improvements in quality of these services or reductions in price will produce substantial benefits which will likely increase over time. In comparison, the likely cost of our remedies is small.”
The noble Baroness, Lady Drake, asked what we are doing to improve transparency of pension charges and choices for members. The Government consulted last year on a proposal to move to a single universal charging structure across all providers of qualifying defined contribution pension schemes used for automatic enrolment. Responses to that consultation and other evidence are being considered to determine our next steps. Additionally, as part of the Government’s commitment to protect individuals in automatically enrolled schemes from higher and unfair charges, secondary legislation is being enacted to implement a de minimis threshold of £100 on the value of members’ rights, below which the flat fee element of the combination charge cannot be charged.
I thank the noble Baroness, Lady Drake, for the points that she raised about pension credit uptake. There has been a great effort to promote it to the pensioners who need it. There was a great campaign, resulting in Len Goodman doing a video, which has gone down very well with people and has had a massive effect. He gave the campaign a 10. Having got a 10 from Len, I am hoping that we can get a 10 from your Lordships, and particularly the noble Baroness.
The noble Baroness also raised consolidations on scheme. There are one-off costs within consolidation but, in our view, the long-term benefits of moving to
bigger, better-run schemes with a more diverse investment strategy are in savers’ best interests.
I thank the noble Lord, Lord Davies, for his contributions. We will take note of what he said on the regulations, and I apologise for the mistake in the Explanatory Memorandum.
The noble Baroness, Lady Sherlock, asked how Parliament will be informed as to the progress—or lack thereof—addressing the weakness in these markets prior to the publication of the Secretary of State’s report in 2028. The report referred to is the post-implementation review of the legislation. In the interim, the duties that these regulations place on trustees will be monitored by the Pensions Regulator. Reviews between the Pensions Regulator and the DWP will take place on a regular basis.
The noble Baroness also raised an issue regarding trustees. The Secretary of State has announced her intention to make 2023 the year of the trustee. Although final proposals are still being developed, the department is keen to explore what additional support can be given to trustees, and how diversity on trustee boards could be improved.
The noble Baroness, Lady Sherlock, also asked about cost estimates for setting objectives in the CMA final report, similar to the DWP impact assessment. DWP cost estimates for setting objectives are based on information gathered by the CMA as part of its investigation into the investment consultancy markets. The DWP, the CMA and the Pensions Regulator have continued to share analysis throughout the construction of the impact assessment to ensure consistency.
The noble Baroness asked whether the legislation could reduce benefits to members as additional costs will be passed on. Replicating the CMA order places a direct cost to pension schemes, but it is anticipated that schemes will benefit from lower fees, increased
quality, greater choice of services and accelerated innovation benefits, which may be passed to members. As highlighted in the CMA report,
“the potential benefits of our remedies package are likely to substantially outweigh the potential costs”.
Since DWP legislation largely replicates the CMA order, it is anticipated that benefits will continue to outweigh costs. However, potential benefits are hard to quantify, which is why they could not be monetised in the impact assessment.
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We have a duty to ensure that those who have engaged in pension saving in their occupational pension scheme can rest assured that their scheme is on course to deliver the best possible outcome for them, bringing into pensions law requirements which help to tackle inconsistent levels of governance and encourage better engagement by trustees, with the procurement, evaluation and monitoring of investment consultancy and fiduciary management services a necessary step.
Transferring the regulatory responsibility to the Pensions Regulator will remove the burden of dual compliance processes for the trustees of the relevant trust schemes who have already been complying with the CMA’s order over two years. The CMA will make provision so that the parts of its order that are covered by these regulations will cease to have effect once the regulations come into force.
The noble Baroness, Lady Sherlock, raised a point about the regulations and the interface with HMT. We continue to work closely with HMT and regulators to ensure the pensions sector is working effectively and in its members’ best interests. I commend the instrument to the Committee.