Official Report: Minutes of Evidence

The Chairperson (Mr Maskey): I welcome the Minister and his colleagues. We have been waiting keenly to have you before the Committee. You are here this morning specifically to address the Pension Schemes Bill and accelerated passage, but perhaps you might reflect on the importance of coming back to the Committee at some point, sooner rather than later, to engage with us on broader issues. Over to you and your colleagues for the scheduled business.

Mr Storey (The Minister for Social Development): Thank you, Chair. I am glad to be here, and I look forward to coming back and engaging on the broader issues of the Department's work. Now that the Committee has moved on to other things, it is right to ensure that we have that kind of working relationship, which is vital for us all.

You will recall that my officials briefed the Committee on the content of the Bill and the outcome of the equality impact assessment (EQIA) on 30 April. I will briefly summarise what the Bill does and explain the reasoning behind the request for the Committee's support for accelerated passage.

Provision of pensions involves financial, economic and longevity risks, all of which come with significant costs. Existing pension legislation is largely based on a binary system of money purchase schemes, commonly referred to as defined contribution schemes, which offer no certainty over retirement benefits, and non-money purchase schemes, commonly referred to as defined benefit schemes, which traditionally offer salary-related pension benefits, providing certainty about what will be paid in retirement. The key difference between these models is: who bears the risk? In the defined benefits schemes, the risks inherent in pension savings, such as those associated with longevity, investment and inflation, are borne by the sponsoring employer. In defined contribution schemes, they are borne by the individual.

As membership in defined benefit schemes in the private sector has declined, there has been growth in the membership of other types of private pensions, particularly in defined contribution pensions. This means that the risk associated with ensuring that pensions deliver a practical level of income in retirement is increasingly borne by individuals rather than by employers. Pension scheme designs that allow for those risks to be shared, resulting in less risk being placed on any one party, are arguably limited by current pension legislation.

The Bill will create a new legislative framework for private pensions, with three mutually exclusive categories of scheme type, based on the different types of promise offered to members during the accumulation phase. The categories are defined benefits schemes, whereby members have a full pensions promise about the rate of the retirement income that they will receive for life from a fixed normal pension age; a shared risk scheme, also known as defined ambition, whereby there is a promise about some of the retirement benefits, whether through income or a lump sum; and defined contribution scheme, whereby there is no promise about the benefit outcome.

Expanding the legislative framework to allow for shared risk schemes will allow the pensions industry to design new pension scheme products, including collective benefits schemes, which are defined in Part 2 of the Bill. Collective benefits are provided on the basis of allowing a scheme's assets to be used in a way that pulls risk across the membership. They do not offer a specific pension promise of the level of benefit payable, but there will be a target benefit. The target must be achievable within a specified probability range in order to provide scheme members with some confidence about the indication of what they might expect. It is expected that enabling new scheme designs will provide better outcomes for members than the current defined contribution scheme and allow for greater risk sharing between members and scheme providers.

The Bill will also amend existing legislation, mostly as a consequence of the change to scheme definitions and the provisions about collective benefits. It aims to ensure that current legislative requirements relating to scheme governance and administration apply in the appropriate way to the new categories and enables requirements on governance and administration to apply to the specific needs of members of shared risk schemes. The Bill, for example, will make changes to subsisting rights legislation to ensure that existing member protection against detrimental amendments to rights in a scheme apply correctly under the new categories.

Under Standing Orders, the Minister in charge of a Bill is required to explain to the appropriate Committee the reasons for seeking accelerated passage. As outlined in the briefing paper, although pensions are a devolved matter, there is, in effect, a single pensions system and a regulatory regime across the United Kingdom. Many private pension schemes operating in Northern Ireland are UK schemes. Additionally, the Pensions Regulator, the Pensions Ombudsman and the pension protection fund operate on a UK-wide basis. It is, therefore, highly desirable that the same regulatory framework is in place in Northern Ireland to facilitate compliance and enforcement.

The Westminster Government intend that the new pension scheme definitions and provisions to allow schemes to offer collective benefits outlined in the Pension Schemes Act 2015 will come fully into effect from April 2016. The intention is that the equivalent Northern Ireland provisions will come into operation at the same time. If accelerated passage is not granted, the best-case scenario is that the Bill could complete its legislative passage through the Assembly and receive Royal Assent towards the end of February 2016.

The fact that the new law in Northern Ireland will not be settled until shortly before the proposed operational date will create significant uncertainty for the pensions industry and for employers. The industry needs a significant lead-in time to develop new pension products, and that requires certainty that any new products will be compatible with Northern Ireland law. Collective benefits schemes, for example, operate most effectively only when they are able to create economies of scale. To help to achieve this, it is important that collective benefits schemes are able to operate on a UK-wide basis.

Employers will also look for an early indication of how the changes could affect them. The ongoing roll-out of automatic enrolment means that every employer must automatically enrol workers into a workplace pensions scheme. Employers who are seeking to establish an occupational pension scheme, perhaps for the first time, may decide that they cannot select certain schemes as there is a chance that they may not be compatible with Northern Ireland law. This could undermine the objectives of the Bill and potentially result in Northern Ireland workers being enrolled into a defined contribution scheme that would offer no certainty over pensions outcomes.

The new regime will also require numerous regulations to be in place well before April 2016 to ensure that adequate safeguards and protections are in place. Without accelerated passage, the short time frame from Royal Assent to operation will make this very challenging and add to the uncertainty facing schemes and employers.

I am sure that we all want to ensure that individuals are afforded the best opportunities to save for their retirement through robust private pension schemes, and maybe some of us should declare an interest as we hurtle towards that date. The Commissioner for Older People is supportive of the Bill's objectives and has acknowledged that recognition of shared risk schemes in legislation has the potential to expand the reach of private pensions.

I know that the Committee rightly takes its scrutiny role seriously. I also value that role, and the scrutiny of the recent Pensions Bill highlighted its importance. Granting accelerated passage to the Bill would not, therefore, be seen as setting a precedent for future Bills in this field. I understand that the Committee has already received several briefings on the Bill's proposals. Indeed, the Committee has actively engaged with officials on the legislative consent motion (LCM) for extending part of the Pension Schemes Act 2015 to Northern Ireland and the potential equality impacts associated with the Northern Ireland Bill. I fully appreciate, Chair, that, by shortening the process, the Committee will not have the same opportunity to scrutinise the Bill in detail. However, I hope that, in this case, members are content with the broad thrust of the Bill and see the need for accelerated passage to ensure its early enactment. I therefore invite the Committee to support accelerated passage for the Pension Schemes Bill.

My officials have been and will continue to be available to members and to the Committee to deal with queries and questions on the issue, because I recognise that it is complicated and detailed, and other matters can arise. As you have seen in the past, my officials have made themselves more than available to answer the Committee's queries on the issue. Thank you very much.

The Chairperson (Mr Maskey): Thank you, Minister. I again place on record my thanks to your officials for their very good support to the Committee in our deliberations on these matters. Before I bring members in, I remind them that the Committee has considered the key aspects of the Bill and, in fact, agreed a legislative consent motion as far back as January this year. We very much appreciate and value the work of officials to support our work.

Mr Allister: Minister, is your Bill identical in content to the Westminster Bill?

Mr Storey: It is a reflection. There are maybe some slight variations, but, by and large —

Mr Gerry McCann (Department for Social Development): It is a word-for-word —

Mr Allister: Where is the deviation?

Mr G McCann: We have to make references to our law as opposed to GB law. However, what the Bill does and the provisions are the same.

Mr Storey: The intent is exactly the same.

Mr Allister: We had a legislative consent motion to part of the Westminster Bill. If, to all intents and purposes, our Bill is identical and we did not even have a separate consultation on it — there was simply the Westminster consultation — why do we not have a legislative consent procedure for the whole Bill?

Mr G McCann: A number of things had to be enforced before 6 April 2015. We would not have been able to bring any Bill through the Assembly within that period. Those changes were linked to changes in tax law on how you can access your pension pot that were being brought in from 6 April, and we could not have met that date. That is why we asked for that. We are at all times very conscious that pension matters fall under the control of the Assembly, so we ask for an LCM only when something has to be enforced by a date that we cannot meet.

Mr Allister: We could, however, simply have had legislative consent for the whole Westminster Bill.

Mr G McCann: That would have been possible if, indeed, that had been the view of the Committee. In general, however, our rule is that, because this matter falls under the control of the Assembly —

Mr Allister: You are recommending that we pass an identical Bill in our own name that will have the same legislative effect as the Westminster Bill.

Mr G McCann: Yes, we are. We do that simply because, under the Northern Ireland Act, this is a matter for the Assembly.

Mr Allister: Of course, it is only in devolved matters that you could have a legislative consent motion.

Mr G McCann: Yes.

Mr Allister: The fact that it is not a barrier to a legislative consent —

Mr G McCann: No, it is not that we use them only when there are timing matters. As a rule, it is because the matter falls under the control of the Assembly that we tend to bring the legislation before the Assembly.

Mr Allister: De facto, it is not really an option to make any changes to this legislation to put ourselves out of kilter with the rest of the UK, is it?

Mr G McCann: Once again, if the Committee put forward any changes, we would have to look at them to see whether they would help the Bill. We would have to see whether we thought that they would work.

Mr Allister: The regulation process —

Mr G McCann: I cannot say that we could never accept any amendment.

Mr Allister: The regulator process is not premised on there being a uniform system across the UK.

Mr G McCann: Yes, it is. However, if the Assembly were to take a view that it wanted something different to be done, we would have to speak to the Pensions Regulator to see how it could be done.

Mr Allister: Might that require our own regulator, depending on the extent?

Mr G McCann: Again, it would depend on whether the change was very minor, although it might not be. However, if we ended up with our whole system being out of kilter with GB, it might mean that we would need our own regulator. I could not say until I see what the amendment was doing and what effect it might have.

Mr Storey: Given that not only the Pensions Regulator but the Pensions Ombudsman and the pension protection fund all operate on a UK-wide basis, some protection is given across the piece that we are buying into something that is based more on the UK, simply because of the operational outcomes that flow from the way in which it is constructed.

Mr Allister: All of which, if common sense were applied, points to putting legislative consent to the whole Bill.

Mr Storey: You know the saying: sometimes common sense is not very common. That is a matter of interpretation.

Mr Campbell: I want to ask a wider question. Over the past month or so, we have read in some of the financial press about people's concerns about the flexibilities that are being enacted, particularly in personal pension schemes, and potential scams emerging. People are being more gullible than they might have been in the past because previous restrictions are gradually loosening. I and others have raised the issue at Westminster. Will specific Northern Ireland-wide issues be raised in the Department to alert people to the possibility of scams, or will it be a pension industry-wide issue that is raised by the companies to alert people that they should be aware that people may cold-call or write to offer high returns that are unreal? Will DSD do something to warn people?

Mr G McCann: That area falls under the Financial Conduct Authority (FCA). It will be the lead group and will operate for the whole of the UK. It falls to the FCA to take the lead and advise people to be careful. You are talking about people phoning you saying that they can offer you X return. That is not a pensions issue as such; that is somebody saying that they can sell you a financial service.

Mr Campbell: The issue would be dealt with by the regulatory body.

Mr G McCann: Yes, it would. It is the Financial Conduct Authority.

Mr Campbell: Presumably, if that was seen to be ineffective, DWP in London would have to do something.

Mr G McCann: Yes. The whole of the pensions game crosses over the Financial Conduct Authority, the Pensions Regulator, DWP and DSD. We all interlink, but the point that you make has been laid on by the FCA.

Mr Dickson: Thank you, Minister, for the presentation on accelerated passage. My point is not directly related to accelerated passage or whether the Bill covers that aspect, but Mr Allister referenced the fact that this is Northern Ireland legislation, and, if it were appropriate, we could do certain things. If we go back a little in history, you might remember that there was a great deal of community interest and what could have been described as a scandal when a pensions scheme in Northern Ireland was being delivered from the Republic of Ireland. I believe that it was the fertiliser company Richardsons. Is legislation now in place, or is there anything that we need to do to ensure that those scandals do not occur? Could it be done through this vehicle, particularly given its changing nature?

Mr Storey: Given the work that has flowed from the Pensions Act, a huge attempt has been made to ensure that we close down as many opportunities as possible for people to do something that they would otherwise want to do, and that is people who are rogue elements. All that has flowed from the Pensions Act right through to this Bill, particularly for private pensions, flows on from Gregory's question. The operations of the Pensions Regulator, the Pensions Ombudsman, the pension protection fund and the work of the Financial Conduct Authority that Gerry referred to should all assure us that that would now be less likely.

Mr G McCann: In any cross-border scheme — I mean not only in the context of Ireland but in the context of Europe — that is based outside NI or Britain, separate rules now apply to those schemes in general.

Mr Dickson: Chair, perhaps we might investigate that area, not necessarily in respect of the Bill, because we require certainty and assurance.

Mr Storey: If it would be helpful, Chair, we can provide additional information on that to help to give more clarity and assurance.

Mr Dickson: Thank you very much.

Mr Beggs: Thanks for the presentation. I had no idea that there was so much pension law and regulation. It is apparent that it is a very complex area. With that come potential bureaucracy, cost and burdens on those who might want to save for the future because bureaucracy has to be paid for.

At one stage, there was concern about the lack of competition in the insurance industry in Northern Ireland. It is important that we do not make any adjustment that might limit the number of pensions that are on offer here. If we were to make significant changes, I take it that I would be right in saying that many pensions that might be on offer elsewhere would not be afforded here because there would be different rules. Is that factually correct?

Mr G McCann: That would be the big risk if we were to get it out of kilter with GB. At the moment, the vast majority of pension products here are all based in Britain. One local institution offered products, but I am not sure whether it still does. So they all come from GB.

Mr Beggs: I will go back to the legislative consent motion. I am trying to tease out a little the reason why, having given the legislative consent motion, we decided that it should not go through with the legislation in Westminster, and it is back here again. Why did it not all go through?

Mr G McCann: The LCM was for certain parts of the Bill only. Each LCM has to specify which parts are covered, and the LCM was not for the whole Bill.

Mr Beggs: I heard on the radio, certainly within the last week, a discussion about how the new pension system is being rolled out to larger employers and then to smaller employers until it reaches the stage at which everyone has to be enrolled, and a pension is offered to all employees. There is a higher proportion of smaller employers in Northern Ireland, so does anything need to be done differently, even by way of support and guidance?

Mr G McCann: That falls to the Pensions Regulator. That is part of its function, and we pay it to do that. It will get in touch with each firm or employer, no matter how small they are, and offer them help and guidance. It will write to them in advance and tell them that their dates will be inside X number of months, so they need to start to think about what they have to do. Help and guidance is available for all employers, no matter what their size. However, that comes from the Pensions Regulator.

Mr Beggs: Is the Department satisfied that that is sufficient to deal with our situation?

Mr G McCann: I have to say that, so far, we have not had any issue in Northern Ireland. We have been working with the Pensions Regulator from the very start of the process to ensure that it is operating in Northern Ireland, has come here to meet groups of employers and so on and is contacting employers. We have no reason to suppose that it is not working.

Mr Storey: The Pensions Regulator has also informed us that some 99% of employers who have completed registration have done so without the need for the Pensions Regulator to use any of its statutory powers, which is encouraging. If we are dealing with 99%, we are heading in the right direction in giving comfort to employers and making them reasonably content with the process as it is currently constructed.

The Chairperson (Mr Maskey): No other members have indicated that they want to speak. Minister, I thank you and your team for coming to the Committee and making the case. We will now continue to discuss our approach. We look forward to scheduling a meeting with you shortly.

Mr Storey: Thank you, Chair and members.