Saving for Later Life

Gareth Davies Excerpts

Tuesday 7th February 2023 Westminster Hall

[Nigel Mills]

The hon. Lady is absolutely right. It is important to explain to people not just from that background, but from all backgrounds, that pensions are a good thing, safe and a good way of saving for retirement. People just do not understand pensions, and they are quite cynical and sceptical about the idea that their money will be there. The more we can do to reassure them, the better.

I have two more quick points to make. We have wrestled for years with the conflict for younger people: should they save for a deposit to get on the housing ladder, or should they save for a pension? The pension industry screams if it is suggested that the former is possibly a good idea. There have been various ideas about how to link the two, but we have not yet made any progress on which one to go for. A key determinant of someone’s financial health in retirement is whether they own a house. If they do, they do not have housing costs to pay and they have an asset that they may be able to downsize to boost their pension pot, so getting young people on the housing ladder earlier is good for their retirement just as saving for a pension is good for their retirement.

[Gareth Davies (Grantham and Stamford) (Con)]

Is my hon. Friend aware of the KiwiSaver scheme in New Zealand? It combines the two aspirations—to save for a pension in later life and to get on the housing ladder—in that someone can divert a portion of their pension saving pot towards a deposit for a house. Is that something that the UK Government should consider?

[Nigel Mills]

There are various ideas out there, and people could use that sort of scheme. They could take a loan out of their pension scheme to get their deposit, and pay it back. We could allow people to be auto-enrolled and have their employer contributions go into their help to buy ISA. There are various ways to try to achieve the aim, but we need to pick one and bring it forward. We have not made the progress that perhaps we should. To be honest, I can see no way of getting more money into young people’s savings to achieve a deposit other than allowing the use of some kind of employer support that is currently going into their pension, because in reality, young people will not have the scope to save much more for themselves. We have already tried to give them the taxpayer top-up through the help to buy ISA. Where else is new money coming from to improve this situation if not from money that is going into their retirement saving?

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[Laura Trott]

I think what we need to do is set out a plan. I accept that when we look at the various mechanisms that I have outlined today, we should outline the impact that we think they should have. I commit to go away and have a look at that.

My hon. Friend the Member for Torbay asked what the Department is doing to develop sectoral pension schemes and whether they can be made available for gig economy employers. Collective defined contribution schemes have the potential to transform the UK pensions landscape. He will know that we introduced legislation to allow them for single employers last year, and we are currently consulting on multi-employers. They are really exciting and could be a way forward in this space.

I am conscious of time; I will obviously write to hon. Members to cover anything I do not get to. The Work and Pensions Committee is right to raise concerns about ensuring pensions adequacy. The shift from the promise of retirement income through defined benefit to defined contribution places responsibility on the saver to ensure they have the outcome they want, but I do not think there is widespread understanding of that among the general public. Personal circumstances obviously dictate what individuals consider an adequate level for retirement savings. It is my role as the Pensions Minister to enable people to save adequately, as well as to ensure pension-maximising returns on their savings. The key to that is empowering savers to take control of their financial future. The introduction of simple annual statements, the midlife MOT and the pensions dashboard will make pensions more understandable to the saver and empower them to take control of their retirement outcomes.

My hon. Friend the Member for Amber Valley (Nigel Mills) was entirely right that the pensions dashboard will be crucial to that. We expect to see on the dashboard an understanding of what current savings will lead to as retirement income. What he said about comparing that to what others have was really interesting, and I will take that away.

[Gareth Davies]

There has been a lot of discussion today about the adequacy of the amount saved, but no discussion of what the investments are made in. The UK has one of the lowest levels of investment in illiquid assets—private equity, venture capital and infrastructure. What does the Minister think we need to do to encourage a greater diversity of investment so that our pensioners have greater returns?

[Laura Trott]

My hon. Friend makes a typically excellent point. He is right that we have a lower investment in illiquids than many of our European counterparts. We are at 7%, and they are at 15% or 16%. Last week, I announced a change in regulations, which I believe will come to the House in around March. It will mean that the performance charges can be passed on for the first time, which will hopefully take away a barrier to investment in those types of asset. It is of course for the pension trustees to make investments in the best interest of pension savers, but it is important that we do not put any barriers in the way of that. My hon. Friends the Members for Grantham and Stamford (Gareth Davies) and for Amber Valley are right that we need to focus on returns. If we are going to deal with adequacy, we need to ensure that investments in pension schemes return the maximum amount that they can for savers. Illiquids are part of the story in making that happen.

Oral Answers to Questions

Gareth Davies Excerpts

Monday 5th December 2022 Commons Chamber

[Laura Trott]

I am grateful to the hon. Member for highlighting the record rise in state pension brought forward by this Government. We are, as ever, on the side of pensioners as we go through this winter, and I would point out that the state pension has doubled from the level we were left by Labour in 2010.

[Gareth Davies (Grantham and Stamford) (Con)]

21. What progress his Department has made on increasing the number of people with disabilities in work.

[Gareth Bacon (Orpington) (Con)]

24. What assessment he has made of the effectiveness of his Department's policies in helping people into work.

[The Minister for Employment (Guy Opperman)]

I have visited around 50 jobcentres, and this is an opportunity for me to thank the many disability employment advisers who do a fantastic job ensuring that we get disabled people into work. That figure is up 2 million since 2013, with nearly 5 million disabled people in work at the moment.

[Gareth Davies]

One of the great accomplishments of the Down Syndrome Act 2022, brought in by my right hon. Friend the Member for North Somerset (Dr Fox), was to affirm the great potential of people with Down’s syndrome if they just have the right support. So can my hon. Friend outline what steps the Department is taking to support those with Down’s syndrome into work, to ensure that everyone who wants to work has the opportunity to do so?

[Guy Opperman]

My hon. Friend is right that this is a landmark piece of legislation, and I praise him for raising it today. I pay similar tribute to my right hon. Friend the Member for North Somerset (Dr Fox).

A range of Government initiatives are supporting those with Down’s syndrome to start, stay and succeed in work, including through increased work coach support. Disability employment advisers across the country have been tasked with tackling this precise problem, to enable people with Down’s syndrome to progress in work.

Oral Answers to Questions

Gareth Davies Excerpts

Monday 31st October 2022 Commons Chamber

[Laura Trott]

I completely understand those concerns, but that is why we have provided a package of support—now—which is worth more than £850 for everyone receiving a state pension and £1,500 for those receiving pension credit.

[Gareth Davies (Grantham and Stamford) (Con)]

Last week we celebrated the 10th anniversary of automatic pension enrolment. This is, genuinely, an amazing cross-party policy achievement which has transformed the saving culture across our country. As we look back on that success, will the Ministers consider expanding the system to 18-to-22-year-olds?

Universal Basic Income

Gareth Davies Excerpts

Wednesday 15th June 2022 Westminster Hall

[Angela Crawley]

I thank the hon. Member for addressing those points. To be clear, we already have a system that recognises that individuals will need an approach that is tailored to their needs. Those who have disabilities will need additional support. Those who need additional support because of family requirements will have it. We have a system that already accepts that.

This is about acknowledging that every single person has the right not to be destitute. That is a basic, fundamental tenet. I find it uncomfortable that anyone in this place would consider it a radical motivation. A recent study by the University of York found that a universal basic income would cut poverty by more than half, bringing it to the lowest level for 60 years. It would cut child poverty and pensioner poverty by more than half and working age poverty by a quarter. It would be a driver of economic equality. Further research has shown that it would stimulate local economic growth. Introducing a universal basic income would allow us to incentivise people into work properly, and to move away from the current focus on cruelly sanctioning those who are desperate. Instead of our pushing people into precarious forms of employment and pretending that work programmes are actually working, a universal basic income would provide financial security. It would enable everyone to pursue employment that was more suitable for their lifestyle, hopes and ambitions, and it would allow everyone to engage in socially and personally productive activities, such as community or voluntary work, care giving, or entrepreneurial or creative activities.

The Scottish Government explored the feasibility of introducing a universal basic income, but found that it was impossible under the devolved settlement. With independence, the Scottish Government could be ambitious and look to a future where we could ensure that every citizen in Scotland had the support they needed. We do not have those powers yet and, without independence, we will not have them.

Instead, the Scottish Government commissioned research on a minimum income guarantee, which would transform Scotland’s fight against poverty. Rather than leaving those in need at the mercy of universal credit sanctions, it would at least guarantee that they did not drop below the poverty line. One of the Government’s core contentions, when this matter was last brought to the House, was the expense of setting up such a system. However, the UK Government already have the technology to implement a minimum income guarantee. We already have the tapers in place for the universal credit system, which has markers to ensure that those who need additional funds will get them; that answers the hon. Member for Central Suffolk and North Ipswich (Dr Poulter).

Universal credit was supposed to streamline and simplify the welfare system. Instead, it has led to the Government ploughing excessive funds and resources into empty work programmes, processing sanctions, and a target-driven jobcentre workforce unable to help those most at risk of poverty. If the Government wish to cut 90,000 civil service staff, and expect to keep this very complex welfare system running, it has another thing coming.

I ask the Minister to read through the numerous studies that have shown the benefits of introducing a universal basic income; to keep a close eye on the Scottish Government’s work on the minimum income guarantee; and to explain how the flawed and damaging universal credit system is in any way an adequate system by comparison.

The country is in crisis. As the cost of living crisis continues, we cannot ignore the worsening mental health crisis. The two are most definitely linked, and introducing a universal basic income would help to alleviate both. Innumerable studies show the detrimental impact of welfare conditionality and its impact on the mental health of welfare recipients. I do not think anyone here is in a position to argue with that. A universal basic income pilot scheme, conducted in Germany and Finland, showed that reform of the welfare state directly impacts the mental health of welfare recipients and their overall mental and physical wellbeing.

The Mental Health Foundation found that children who receive payments were less likely to use drugs and alcohol, more likely to stay in education, and more likely to have improved physical and mental health outcomes. The Finnish system showed that universal basic income helps improve cognitive functioning in adults, reduces feelings of anxiety and depression, and generally increases overall life satisfaction.

A universal basic income is a holistic policy that will have holistic effects across a whole area of social policy. Studies have shown that a universal basic income, although expensive in the beginning, pays for itself over time, through its far-reaching impacts.

[Gareth Davies (Grantham and Stamford) (Con)]

I congratulate the hon. Lady on securing the debate and giving a considered and well thought-out speech. Will she clarify that point on expense? The cost of this programme, even if it were rolled out using a modest income, would be around £316 billion annually, according to one study. Can she clarify what her research has shown about the overall annual cost?

[Angela Crawley]

As the hon. Gentleman will appreciate, there are no studies that can show comprehensively the long-term benefits of such a scheme, because there has been no extensively researched pilot here or in most countries. I think we can all agree that when an individual does not have to think about how they will fund their next meal, pay for the electricity or subsist and survive, they can start to think about their life chances and opportunities, and can begin to fulfil their ambitions in life. There is so much to be gained from a pilot, which would give the hon. Gentleman the evidence, studies and statistics that he asks for.

A universal and destigmatising, more compassionate welfare system would decrease depression and anxiety rates. It is not over-dramatic to say that it would save lives. If the Government are committed to addressing the mental health crisis, will they reform the system responsible for pushing so many people to the edge? I end my contribution by calling on the Government to consider seriously the prospect of a universal basic income. I do not believe such a policy is as radical or unattainable as it seems. We already have the technology and a substantial Department for Work and Pensions budget that could cater for most of these measures. It is wasted, however, on empty work programmes and on processing sanctions, which scar people mentally and financially and abandon those most at risk to life in poverty.

Universal basic income represents a fairer system. I encourage the Minister and his Department to consider establishing a pilot scheme, and to speak to the results rather than to the rhetoric. The biggest issue is cutting through the damaging Tory ideology that people have to work for their basic human rights. I urge the Minister to rethink his Government’s approach, and to seriously consider a universal basic income pilot scheme.

--- Later in debate ---

[Gareth Davies (Grantham and Stamford) (Con)]

It is a pleasure to serve under your chairmanship, Ms McVey. I congratulate the hon. Member for Lanark and Hamilton East (Angela Crawley) and every Member here. I welcome any debate about moving our economy forward and helping the most vulnerable in society. However, I am afraid, although it may come as a complete shock, that I disagree with the proposal of UBI. I want to set out four reasons why, in good humour and constructively.

First, there is a great deal of uncertainty about how much UBI would cost taxpayers and the British Exchequer. “Universal” means “everybody”; in our country, over 65 million people will receive some form of income under a universal basic income policy. If we provided just a basic income—even a modest income—it would result in hundreds of billions of pounds of extra money being spent. We would have to find that money from other Departments, or raise new money through higher taxes. That is a perfectly noble argument to make, but it is a fact of running a budget that the money has to be taken from somewhere else, or it has to be raised.

[Christine Jardine (Edinburgh West) (LD)]

rose—

[Gareth Davies]

I am not sure what the argument of the Welsh Government or the Liberal Democrats is, but I am happy to hear it.

[Christine Jardine]

I also apologise for being a little late; I was caught unawares by the broken lifts in Portcullis House. Does the hon. Gentleman accept that the universal basic income is still a concept—an idea? Those of us who earn much more than what it might offer should perhaps not look for any payment at all. We should accept that we already have that income. We can calculate how much it would cost to give it to everybody, but that might not be in line with the spirit of the universal basic income.

[Gareth Davies]

It is beyond the bounds of my intellect to debate what “universal” means. I take it to mean, “being received by everyone.” It could be up to people to give it back, but as we have seen in recent policies, that does not always happen.

[Hywel Williams]

I do not want to be argumentative, but the Chancellor has agreed to give us all, including everyone here, the princely sum of £400, so the principle is accepted by Conservative Members, although I agree that there might be rather larger sums involved in the universal basic income. We have talked about the gross cost, but we might be able to net off a considerable amount of money in view of the wellbeing, better health and happiness, and everything else that comes with having a proper income.

[Gareth Davies]

The hon. Member for Lanark and Hamilton East (Angela Crawley), who introduced the debate, made the point that the Conservatives recently implemented a universal policy. She will be aware, as will the hon. Member for Arfon (Hywel Williams), that in exceptional circumstances—be it the first pandemic in over 100 years, or a national crisis in energy prices—we would expect the Government to protect as many people as possible, and to act at pace. I accept that point, but that is not what we are talking about today, which is, as I understand it, a complete and permanent root-and-branch reform of our welfare system.

[Several hon. Members rose—]

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[Gareth Davies]

I will make some progress, if that is all right; I am sure that colleagues will disagree with other points that I make. That was my first point, about cost.

My second point is that a universal basic income could exacerbate, not alleviate, inequality. Under a universal system, everybody would receive the payment. Millionaires would receive a cheque through the post. Even an RMT driver on £70,000 a year would receive a cheque. There is, however—I would like the Minister to address this—a point to be made about the need to simplify our benefits system. I accept that, having dealt with hundreds of cases in my constituency. A lot of the time, vulnerable members of society are not aware of all the many benefits that are available to them. I would endorse any effort that the Minister made to inform people of them, and to simplify our benefit system. As a universal system would exacerbate inequality and give billionaires and millionaires a cheque through the post that they did not need, I cannot accept this policy suggestion.

[Beth Winter]

If the hon. Gentleman had listened to what I said, he would have heard me say that the policy would have to be part of a more general transformative agenda. I was here yesterday, speaking in a debate on a wealth tax. According the Wealth Tax Commission, such a tax would raise £260 billion. Does he agree that that would be a good way of raising funding?

[Gareth Davies]

It will shock the hon. Lady to hear that I do not agree. We are going a little off-course, but on a wealth tax, a lot of people invest in our country, and a lot of people start from nothing and go on to achieve great things. I do not want to hamper their ambition for a better life, and their aim of setting up a business and employing lots of people. A wealth tax would not only put people off from investing in and coming to this country, but dissuade people such as my dad, who is not a particularly rich man, from doing what he did: he set up a business because he wanted to do better for himself and his family. He ended up employing a lot of people. A wealth tax is not the way forward, in my view. Incentivising economic growth and the dignity of work is the way to go.

That brings me to my third point. Time and again, the dignity of work and the security of a regular pay cheque have been proven to be the best way out of poverty. However, people in work do not just get an income; they get so much more. They get friends; sometimes they meet their wives. They get meaning in life and a purpose. The dignity of work gives people things to get up for in the morning.

The work environment and the people who we work with add so much to our lives, but jobs also give us skills that develop over time. I am afraid that I disagree with my friends from the Scottish National party about the effect of introducing a universal basic income, which will dissuade people from going to work. It will not encourage work in the way that they have said it will.

[Ronnie Cowan (Inverclyde) (SNP)]

There is absolutely no evidence from any pilot programme from anywhere in the world that shows that people are indolent and do not want to work. In fact, the current welfare system punishes people for going back to work. As for the basic income, I am not taking people’s basic income away if they go and get some part-time work or to go back to university to study, so it actually encourages them and gives them the confidence to go back into work.

[Gareth Davies]

The hon. Member makes a reasonable point about evidence, but I will point out to him that there is also no evidence of universal basic income working anywhere in the world. The hon. Member for Lanark and Hamilton East—

[Angela Crawley]

rose—

[Gareth Davies]

I can pre-empt it. The hon. Lady rattled off a number of examples—I will hurry up with my speech because I am being asked to move on, although I have taken a number of interventions, which will hopefully be acknowledged.

There have been a number of studies and pilots, not least the one in Wales that is going on at the moment, but not one has been executed. There is not one example from around the world that we can point to where universal basic income has been implemented. The reason is that, although such pilots may show some benefits for mental health, wellbeing and other points, not one of them has not shown any Government around the world that universal basic income is the right model for alleviating poverty in the future. [Interruption.] I am afraid that I will end my speech here, by saying thanks to you, Ms McVey, and thanks to everybody for listening. I feel a little alone on this side of the Chamber, but I am pretty sure that the British people are with me.

Pensions Guidance and Advice

Gareth Davies Excerpts

Tuesday 1st March 2022 Westminster Hall

[Gareth Davies (Grantham and Stamford) (Con)]

It is a pleasure to serve under your chairmanship, Ms Bardell. I congratulate my hon. Friend the Member for Amber Valley (Nigel Mills) on securing this debate. I was not going to speak today, but felt compelled to do so because I was so impressed that there was yet another debate in this House on the pension fund industry. It is a fantastic thing. Since leaving the fund management industry in 2019 to start this new job, I have been struck by how infrequently we discuss pensions and savings, yet it is so important to all the things that we care about across the House.

We should not forget that Britain is a global leader in pension fund investing. We are one of the largest pension fund markets in the world, with £3 trillion under investment. Some £9.9 trillion is invested through the City of London and fund managers like my old shop. I can tell all Members present that the industry is full of some fantastic advisers and investors, and some of the brightest and best minds in the world.

However, we clearly have some issues that we need to tackle. My hon. Friend the Member for Amber Valley highlighted many of them—maybe too many for the Minister’s liking. In my region, the east midlands, 69% of people who are investing in a pension do not receive advice, so there is a problem. I want to talk for a couple of minutes on how we can tackle the root causes, because we do not have an adequate culture of savings in this country, and I believe that starts from the very beginning of people’s working lives. I will offer a few suggestions as to how the Minister could address the problem in future Bills.

First, let me say that the power of our pension market is astronomical, tackling the things that we all care about. Whether it is levelling up our communities in Leeds, Hull or Grantham, or building infrastructure, our pension funds have the power and capital to do it. If we want to tackle climate change, unlocking pension assets to invest in renewable energy is vital. We can also do more to help younger people get on the housing ladder. The New Zealand Government introduced KiwiSaver, which allows young people to dip into their pension pot to put down a deposit to buy a first home, and there is more that we can do to unlock pension assets and tackle the things that we all care about.

However, the reality is that 12 million people in this country are under-saving, putting at risk their safety and security in older age. What can we do about that? First, we need to get people saving at an earlier age. We can do that by building on the success of auto-enrolment, which has seen 10 million additional people saving into a pension fund. I do not think they are being tricked; I think it is raising awareness of the importance of saving. That has of course been a cross-party effort. Auto-enrolment was introduced under a Labour Government in 2008 and brought forward by the Liberal Democrat and Conservative coalition in 2012. It is an example of what we can do when we work together. Let us expand auto-enrolment to 18 to 22-year-olds and start them saving earlier. Of course, it is that age group of people who will benefit most from the compounding benefits of saving.

I am sympathetic to the Social Market Foundation report on this very subject of advice on the use of technology. We can use technology and encourage fintech entrepreneurs to develop technology to enable people to view their pension pots and investments a lot more clearly. We should get behind the efforts of the Minister and the Government to give a stronger nudge towards pension guidance, which will be much more important than Members have said in the debate so far.

I am struck by the number of job adverts in this country that do not mention pension contributions, even though they can contribute about a third of total take-home income. When a job advert goes out, often it states the salary but not the contribution to a pension, which is bonkers. If we could change that somehow, it would encourage people to be much more mindful of how the jobs they are taking can contribute to their retirement.

Finally, there are things that we can do to make pension saving much more practical in meeting young people’s challenges. The No. 1 challenge for a lot of people in Grantham and Stamford, which I represent, is buying a house, and the Minister could look at that.

I applaud my hon. Friend the Member for Amber Valley for securing the debate, and I am grateful to the House for letting me speak.

Automatic Pension Enrolment

Gareth Davies Excerpts

Wednesday 26th January 2022 Westminster Hall

[Peter Dowd (in the Chair)]

Before we begin, I remind hon. Members that they are expected to wear face coverings when they are not speaking in the debate. This is in line with the current Government guidance and that of the House of Commons Commission. I also remind Members that they are asked by the House to have a lateral flow test before coming on to the parliamentary estate. Please give one another and members of staff space when seated and when entering and leaving the room.

[Gareth Davies (Grantham and Stamford) (Con)]

I beg to move,

That this House has considered the matter of automatic pension enrolment.

It is a pleasure to serve under your chairmanship, Mr Dowd. We are considering the matter of automatic pension enrolment, but let us not speak too loudly about it. For the past decade, this has been one of the most remarkable success stories, yet also somehow one of our best-kept secrets. It all began in 2005 with the pensions commission looking out on a bleak private pension market. It knew that we had to act to boost the number of savers and savings in the UK to give people greater security in their retirement. The commission formally proposed, as part of its work, that those over a certain age and income be automatically enrolled in a pension. The Labour party, the Conservative party and the Liberal Democrats all agreed, and after the Pensions Act 2008 was passed the coalition Government carried this through.

The results have been remarkable, transforming the UK pension landscape. For example, whereas the rate of workplace pension participation fell to 55% between 2009 and 2012, that rate is now a remarkable 88%. Today, more than 19 million eligible employees participate in a workplace pension and, together, save more than £100 billion in a single year. More than 10 million people are now saving or saving more, increasing pension savings by an incredible £17 billion. Two million fewer people are under-saving for their retirement than would otherwise have been the case. There has been a 50% increase in participation among the young, between the ages of 20 and 29. The greatest increases in pension participation by earnings have come from low to moderate earners. Let me put it simply. Savers are up. Savings are up. Men and women are participating equally. And the lowest earners have benefited the most.

That is perhaps a sign of what we can do when we work together but other, indirect benefits have been seen. For example, studies have shown that auto-enrolment has eliminated the mental health participation gap. Our fight against climate change has been bolstered: with savings volumes increased, UK pension funds now have more assets to invest in high-growth technology that is green or in renewable energy.

[Paul Howell (Sedgefield) (Con)]

Does my hon. Friend agree that the opportunity to invest that money exists and could be pushed further, into local communities—particularly ones such as Sedgefield?

[Gareth Davies]

My hon. Friend is a great champion of Sedgefield. I am grateful for that intervention, and he is absolutely right. I have spoken before about the many ways in which we can use and mobilise private capital to pay for green technology and renewable energy, but decisions about where those infrastructure sites are have to be taken by local authorities wherever possible.

Today, though, the top point that I want to make in terms of all these benefits is that auto-enrolment has helped to bring about a cultural change in our society. When our economy does well, our savers do well. Automatic enrolment helps to democratise capital. It creates millions of new investors, millions of new capitalists. It is part of what, over many decades, people have called the property-owning democracy, ensuring that most of those who can vote have a stake in our economy. When they put an x in a box on a ballot paper, they have that in mind—they have skin in the game.

However, when a policy has such an impact and is so successful, it is right that we debate and discuss how we can build on that success. Many in this place have put forward suggestions—I pay great tribute to my hon. Friend the Member for North West Durham (Mr Holden) for his excellent private Member’s Bill—the Pensions (Extension of Automatic Enrolment) Bill—and to the work that Onward, in particular, has done—so let me add my name to those calls. Of all the options the Minister has in front of him, expanding automatic enrolment to those aged 18 to 21 will have the most material impact for our country. Automatic enrolment should be extended as a priority to young workers, because for them the potential compound interest is greatest, the pressures of demographic change are most acute, the challenges of mental health and climate change are especially relevant and the need for greater financial inclusion is most pressing.

The challenge for this age group is stark. Only 18% of eligible 18 to 21-year-olds are currently enrolled in a workplace pension.

[Paul Howell]

Does my hon. Friend agree that we need to ensure access to pensions for not just young people but those in multiple jobs who do not reach the £10,000 threshold in a particular occupation? In Sedgefield and the surrounding villages, there are many people in low-paid work who do multiple jobs to try to reach a certain earnings level.

[Gareth Davies]

My hon. Friend makes an important point. For the purposes of my remarks I want to focus on young people because, as I said, that will have the most material impact, but I know that others will speak about the points he raises.

Today, over four out of five 18 to 21-year-olds are missing out on the benefit of compound interest, despite belonging to the very group for whom the potential for exponentially increasing savings is the greatest.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

I agree with the principle of extending automatic enrolment to young people, and I realise that the 2017 review of automatic enrolment recommended extending it to 18-year-olds. What does the hon. Gentleman think about the merits of extending it further, to 16-year-olds, who might well have left school and be in full-time work? If we are talking about the benefits of compound interest, an extra two years could make a huge difference.

[Gareth Davies]

The hon. Gentleman makes a good point: the earlier one starts saving, the greater the impact of compound interest. However, for me, balancing all the factors—particularly the impact on businesses—I think we should start where we can, with 18 to 21-year-olds. But it is not the case that we should not discuss his point at a later stage.

Is it any wonder that we find ourselves in this situation, given the general lack of savings culture in this United Kingdom? We have a culture, developed over decades, of relying on quick cash, quick results and tangible output. Although many talk about the aspiration to own a home, few talk about securing their retirement through a pension. Auto-enrolment will help with this, but we must also look at other ways to ensure that the option of saving for the future is more apparent.

Preparing for today, I was shocked to find a study by the National Association of Pension Funds that found that just 12% of job adverts mention the employment pension scheme that is offered. That compares to 71% of ads that mention the salary—even though the pension contributions can amount to about a third of total take-home pay. We need to look at this more broadly.

There is so much potential for our pension system to effect change, whether addressing the need for long-term savings, as I have discussed today, the need to tackle the fact that 10 million people have less than £100 in short-term savings or the fact that so many young people today never even get close to building a deposit for their first home. I believe that our pension fund market could provide the answers to those challenges. As such, given that it is now nearly 17 years since the Turner commission, I would like us all to agree cross-party that whoever is in government in 2024, we will look to launch a new pension commission, looking specifically at the long-term challenges I have discussed and the opportunities the UK pension fund market can provide to citizens across this country.

--- Later in debate ---

[Gareth Davies]

I pay tribute to the Minister, who is one of the longest-serving Pensions Ministers we have had in this country. As somebody who came from the fund management industry to this place, he is respected not just in this House but in the industry, too. I also thank all hon. Friends and hon. Members for their contributions. We heard from the hon. Member for Strangford (Jim Shannon) about the importance of getting in early and financial literacy. We heard informed speeches from my hon. Friends the Members for Darlington (Peter Gibson) and for North Norfolk (Duncan Baker), giving the perspective from business. We also heard from my hon. Friend the Member for Clwyd South (Simon Baynes) about the benefits of increasing the size of the pensions pot for social and environmental investment.

Of course, let me congratulate once again my hon. Friend the Member for North West Durham (Mr Holden) on his excellent private Member’s Bill. He is enjoying a tremendous amount of support today. I maintain that we should focus on 18 to 21-year-olds. If nothing else, we should take away from today the fact that our pensions system has a great deal of power in what it can bring to our communities. Let it be said that this should not be a hidden secret any more. The power of compounding and savings benefits everybody, and people should start as early as possible.

Question put and agreed to.

Resolved,

That this House has considered the matter of automatic pension enrolment.

Pension Schemes Bill [Lords]

Gareth Davies Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Monday 16th November 2020 Commons Chamber

[Wendy Chamberlain]

I thank the hon. Gentleman for his endorsement of my remarks. I hope the Minister will comment on this in winding up.

Open and closed schemes are on a continuum. A scheme opens, it matures, it becomes closed, it reaches the absolute end of the range of maturity, and the risk profile varies with that maturity. However, parts of the consultation document do not seem to recognise this, which is concerning. There is an understandable desire from employers and employees for this to be clarified. There is real concern that the regulator wants open schemes to be considered as if they were on the brink of forced closure, but that means effectively crystallising their investment structure into a closed structure and preventing them from acting as they need to, as the hon. Gentleman suggested. So I ask the Minister to recommit to the House that this will not happen, otherwise our concerns will remain, and Baroness Bowles and her colleagues in the Lords will continue to press the Government on this when amendments return to the other place.

There is a huge risk to getting this wrong. Members highlighted on Second Reading the issue of railway pensions. Their campaigning has been very important in raising the potential impact of this Bill on defined-benefit schemes. I also want to highlight the charitable sector and many large charities that rely on DB schemes: Oxfam, Age UK, Cancer Research, the National Trust and the Royal National Lifeboat Institution, to name but a few. My amendment 6 would require the Government to carry out an economic impact assessment on the effect of changes to DB schemes on that important sector. We have already heard that open schemes will end up with deficits of £120 billion to £160 billion if they are treated in the same way as closed schemes.

6.15 pm

We are in the midst of a pandemic and huge economic shocks, the impact of which we cannot fully predict at this time. Is now the time to saddle companies and charities with that extra debt, and for what purpose? What of individual savers themselves? Can we reasonably expect people potentially to double their personal contributions? Surely a more likely outcome from that requirement is that people will simply cease to contribute, and that will apply further pressure to the viability of that scheme.

There is a real danger that as a result of the deficits, charities—some of which I have mentioned—will go bust, and that is not a policy that any Government should be promoting, particularly given the support that the Government have put into the sector during the course of the pandemic. That would surely be a bad policy at any time. As I said earlier, I am encouraged by the Minister’s statements in Committee, and I thank him for recommitting to those in his intervention, but I hope he appreciates that we urgently need further reassurances. I do not see why such provision could not be made in the Bill, as indeed it was when it came from the other place. It would make sure that the regulator was acting in a sensible way. I look forward to hearing the Minister’s response.

My first contribution when taking on the role of DWP spokesperson for my party was on ensuring the triple lock for the state pension. In that debate, I highlighted the need to ensure a sustainable state pension, particularly given the intergenerational divide emerging for young people in this country. We should not, through this Bill, be potentially driving more people into reliance on the state pension by making personal pension provision unaffordable for individuals or institutions.

[Gareth Davies (Grantham and Stamford) (Con)]

It is a great pleasure to speak in this debate today, as it was on Second Reading and in Committee. I would like specifically to address amendment 16 to clause 124. Let me start by saying how great it is that we have cross-party support for policies that push forward our efforts on climate change. We should all be very proud of the fact that we are one of the first major countries to legislate to become a net zero country by 2050. I have long talked about the influence and power of financial services and financial markets to move things forward, but sadly I cannot support amendment 16. I will set out three reasons. The first is the unintended consequences, the second concerns divestment and the third relates to focus.

First, amendment 16 is well-meaning, but it would have unintended consequences. I fear fund managers would be limited in what they were able to invest in. I say that because of the limited environmental, social and corporate governance data in certain asset classes in certain markets around the world. If we look at emerging markets, private equity or in small-cap companies, ESG data is sporadic at best. It is getting better all the time, but at this point in time the market is not mature enough for the amendment to apply for managers. I fear that managers would be limited, and that would result in sub-optimal investments and mean that they could not fulfil their fiduciary responsibility.

[Felicity Buchan (Kensington) (Con)]

Is my hon. Friend aware that industry agrees with his position? For instance, the Pensions and Lifetime Savings Association has stated that on behalf of industry.

[Gareth Davies]

I am aware that the PLSA has stated that it is concerned about this amendment, for the reasons I have described. The second reason why I would agree with the association is my fear that the amendment will imply to trustees that they have to adopt a policy of divestment. As has been seen over decades, a divestment policy, as well-meaning as it is, does not actually change the things that people are seeking to change. Part of the reason is that a stock market is essentially a marketplace, so if someone wants to divest, somebody has to invest, and therefore there is a negligible impact on the underlying company. That is why for tobacco, for climate change and for guns in the United States, the divestment policies adopted by other pension funds just have not worked. I fear that such provision would cause confusion around divestment for pension trustees. It is very hard to draw a line where the policy ends. Some may claim, or desire, that they divest from oil and gas, but where does it end? There are other sectors that clearly contribute to climate change—whether it be haulage companies, taxi companies, car companies, or aviation companies—so where does it end? That causes some confusion for trustees. An investment policy should be put in place at a ground level.

Thirdly, when compared with engagement as an investment strategy, a divestment approach is just a very weak policy. I say that as somebody who comes from fund management and managing an ESG business. As owners of companies, we could call on chief executives and chief financial officers to engage on ESG issues such as climate change. We could vote at annual general meetings. We had those companies at the table to be able to influence them. If we divest, we lose that influence—we lose that ability to change and influence a company.

[Guy Opperman]

Does my hon. Friend agree that the campaign that he has waged to persuade the Treasury to have green gilts available for pension funds to invest in is exactly the point that we are seeking? It would mean businesses and pension funds working in a partnership with Government and regulators to solve the problems and the issues that we need to solve to get net zero. Without that partnership, we will actually go backwards, not forwards.

[Gareth Davies]

I am grateful to the Minister for his generous remarks and I thank him for his support of my campaign to bring about green gilts in this country. I agree that it is a way in which pension funds can contribute to the climate change effort in a meaningful way, moving billions of pounds of capital towards the goals that everybody across this House really wants to achieve, so I thank him for that intervention.

Finally, I fear that, although the amendment is well-intentioned, it is poorly focused. In my experience, trustees want to invest with purpose and according to their values. Likewise, fund managers have, over the past several years, moved great mountains, a lot of money and a lot of effort to incorporate ESG risk into most of their investment processes, and I do not believe that any asset manager in the future will be able to survive unless they integrate ESG climate risk as part of their investment process.

[Richard Graham]

As a trustee of the parliamentary pension fund, may I highlight that the changes on page 118 of the Bill on climate change risk are incredibly important and will help encourage trustees and pension funds in general to make investments that are pro-environment, pro-green and pro-climate change? I am absolutely in agreement with my hon. Friend that the proposed additional new clause 16, which would require pension funds to align with the Paris agreement goal, is a step too far. Does he agree that the Minister should focus on that in his summing up as well?

[Gareth Davies]

I am very grateful to my hon. Friend for his intervention. I agree that the Bill is sufficient in its current form to be able to achieve what we all want to achieve, which is to get pension funds to invest in a climate-aware way.

The last point that I will make in concluding is around this point on focus. In my experience, it is not the fund managers or the trustees whom we need to persuade or to make do anything, but the middle men and women—the gatekeepers, the investment consultants —who typically require a five-year track record and £100 million in assets held by fund managers and managed by fund managers. In my experience, that was always the issue. We were running money in a way that was really pushing things forward in terms of our climate targets. We knew that the pension clients really wanted to invest with us, but, because we could not meet the requirements of the investment consultants, we could not marry the two together. If we use the combined intellect, passion and energy of this House, from all parties, to come up with a solution to that, we could make great progress.

[Madam Deputy Speaker (Dame Rosie Winterton)]

Order. I am going to suspend the House for a short time—probably five or 10 minutes—to allow some extra cleaning to take place. Could Members leave the Chamber, so that the cleaning can take place? The bell will ring a minute before we are due to resume.

Pension Schemes Bill [ Lords ] (Third sitting)

Gareth Davies Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Thursday 5th November 2020 Public Bill Committees

[Guy Opperman]

The clause introduces a variety of measures in respect of climate change risk. We believe the clause and the regulations that it allows the Government to make are a huge step forward in the UK’s fight against climate change and mark the first provisions of their kind globally.

We are proud that this Government are the first among the G7 to introduce a target for net zero by 2050. We are among the leaders in environmental, social and corporate governance with the pioneering way that we are transforming the pensions and asset managing processes of the City of London, and the pensions provision, on an ongoing basis. We have the green finance strategy that the Government have introduced. I respectfully suggest that the build-up to COP26, which is one year from today, gives us an opportunity to show the great work that we are doing in this country and to demonstrate how we can show leadership around the world.

I believe we all know and accept that climate change is a pressing and imminent threat not only to our planet, but to our investments and, therefore, to our pensions. Back in August, my right hon. Friend the Secretary of State for Work and Pensions launched the Government’s consultation on the measures they propose to introduce, which include powers to ensure that pensions are properly protected against the risk posed by climate change and can take full advantage of the investment opportunity it presents. I believe that there is an opportunity for this country to lead the way—an opportunity to be the first in the market as we create climate change-friendly investments and an investment strategy that genuinely transforms this country, helps us to get to net zero and provides sustainable long-term pensions.

[Gareth Davies (Grantham and Stamford) (Con)]

I warmly welcome clause 124, which affirms the Government’s commitment to tackle climate change using the power of finance and investment to move things forward. Does he agree that the issuance of a green gilt and asset purchase facility is a good next step forward in enabling more pension funds in our country to invest in our bond markets in a way that will help us to meet our climate change targets?

[Guy Opperman]

My hon. Friend is a specialist in this field thanks to his profession prior to being elected to the House. It seems to me that as we drive forward the ESG reforms and the changes under clause 124, and as we have climate-related financial disclosure, pension funds will wish to invest in a sustainable way that produces an appropriate return but is supportable from an ESG point of view.

Effectively, only three forms of capital can provide the infrastructure renewal and retrofitting that will be required for us to get to net zero: Government money though taxes, private sector money brought forward by individual companies, and pension fund investments. Creating a green gilt, as the French, the Germans the Poles and some parts of California have already done, would be a very good way forward. To their credit, the Chancellor and Ministers at the Treasury are looking into it, and I believe that such a move will happen in the fullness of time.

I utterly support the efforts of my hon. Friend to ensure that a green gilt is an alternative form of investment for pension funds as they seek to invest in a sustainable long-term way that also supports the objective of this country. I utterly support the campaign that he has been fighting, both in word and in the House, on that issue.

Pension Schemes Bill [ Lords ] (Second sitting)

Gareth Davies Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 3rd November 2020 Public Bill Committees

[Gareth Davies (Grantham and Stamford) (Con)]

Does the Minister agree that if we look around the world at where commercial transactions have been incorporated into dashboards—for example, in Israel and Denmark—we see that there have been no cases of mis-selling, so any risks spoken about in this debate are somewhat overblown, given that there is no precedent?

[Guy Opperman]

I am grateful to my hon. Friend for that point. That does not mean to say that we do not have a regulatory system that ensures that there are protections, but the nature of a dashboard and international examples definitely suggest that this is an empowerment and an assistance to individual consumers.

Pension Schemes Bill [Lords]

Gareth Davies Excerpts

2nd reading & 2nd reading: House of Commons & Money resolution & Money resolution: House of Commons & Programme motion & Programme motion: House of Commons
Wednesday 7th October 2020 Commons Chamber

[Gareth Davies (Grantham and Stamford) (Con)]

It is a great pleasure to follow the Chair of the Work and Pensions Committee. This is an incredibly important debate because we know that our population is growing in age. By 2024, it is projected that 24% of our population will be over the age of 65, and in my constituency, 31% of our population is already over the age of 65. One of the key challenges that we face in this place is determining the best way to ensure that older people have safety, dignity and comfort in their retirement. They have paid their taxes, contributed to our economy and raised the next generation. But let us be clear: ultimately, the surest way of ensuring that people have safety and security in their retirement is through economic growth. No pension fund reform will be as effective if we do not have economic growth, because through economic growth, people earn more money and save more money

It is clear that our pension system simply has not progressed to meet the needs of a modern economy. That is why I warmly welcome the Bill for its clarity for pensioners and the protections that it brings. I would like to focus my speech on the dashboard provision, which is one of the most interesting aspects of the Bill, and I have three points to make: first, on why I believe the dashboards are needed; secondly, on concerns from the industry about the commercial provision; and thirdly, on concerns about the cost to pension plans.

In terms of why the dashboards are required, pension provider LV= estimates that a typical worker in Britain changes job every five years. As the Secretary of State said, a British person today can have as many as 11 jobs throughout their career, going from job to job and collecting pension plans along the way. It is hard to keep track of those pension pots, and people forget or lose them. The Pensions Policy Institute has outlined that around 1.6 million pension pots, worth a staggering £19.4 billion, are lost today. That works out at around £13,000 per lost pension plan. By 2050, it is estimated that there may be as many as 50 million lost pension pots.

These dashboards are incredibly important because, as the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) rightly pointed out, an additional 10 million people have been put into workplace pension plans in the last eight years alone. To ensure that all pension pots are included in the dashboards and to harness the very best of British FinTech, we need a commercial provision, and that brings me to my second point.

While some in the industry have suggested that commercial dashboards open pensioners up to mis-selling, I put it to the House that this mistrust is unfounded. I looked at Denmark and Israel, which both have pension dashboards alongside commercial transactions, and not once has there been a case of mis-selling. We have one of the greatest financial regulators in the world in the Financial Conduct Authority, and I have tremendous faith in its ability to ensure that mis-selling does not occur.

Thirdly, I want to address the comments made about cost to pension plans by others in the industry. A dashboard is only as good as the data put into it. I would expect pension plans to already have their house in order and to have been practising data hygiene for many years. Anybody who has worked in a senior position in the investment industry, as I have, will know that data science is one of the fastest growing parts of any business today, and not least pension or investment businesses. Those businesses should have been practising strong data hygiene for many years. I think we can all agree that the many benefits that are brought to millions of pensioners up and down our country, across these lands, will far outweigh any cost to pension plan providers.

I also want to highlight—it was mentioned by my hon. Friend the Member for Winchester (Steve Brine) who is no longer in his place—the provision to compel pension providers. I want to emphasise it, because I think it is under-appreciated just how important that is. If we look at what happened in Denmark and Sweden, which had a voluntary provision to provide data, it took between 10 and 13 years for those dashboards to be fully operational and fully comprehensive; if we look at Australia, which had similar provisions to this Bill, it took a fraction of the time. That is an under-appreciated point that deserves recognition.

[Guy Opperman]

To address that point, the Government were clearly waiting for the industry to volunteer the provision of the data to create a pension dashboard, but upon that not being done on a voluntary basis, it was inevitably the conclusion of both industry and advisory bodies that we should proceed to compulsion. Hence, the Bill, following consultation, requires such data to be provided. I accept the international examples as totally correct, and that is why we are proceeding as we are.

[Gareth Davies]

I am grateful to the Minister for clarifying that and, again, I welcome the provision to compel pension providers. It allows the dashboards to be as effective as possible as quickly as possible.

Finally, let me address clause 124, requiring pension fund managers to include climate change risk. Again, I would expect pension fund managers already to be incorporating climate considerations in their investment process—climate change is clearly a risk for all pension pots. I am disappointed that we have to include it in the Bill, but I welcome it none the less and highlight how it emphasises, once again, this Government’s commitment to green finance.

It would be remiss of me, however, to stand up in this Chamber without mentioning my long-standing call to the Government to issue a Government green gilt, which would help to raise literally billions of pounds to fund some of the announcements that have been made this week. That would follow Germany, Netherlands, France and many countries around the world in tackling UK pension fund assets, some of which—many of which—have already been funding other countries’ bond issuances around the world. I would welcome any comments that the Minister has on that point.

In conclusion, this is an excellent Bill. I welcome the clarity that it brings to pensioners, as well as the powers for the regulator that will give a lot of comfort to many. It will clearly help bring our pension system into the modern world.

--- Later in debate ---

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

This is the first time that I have seen the Pensions Minister since his sad loss. I just want to say that it is very good to see him back in the Chamber.

I start with clause 123. Like others, I think that schemes that remain open to new members should be treated differently from those that are closed. It is important that this is reflected in the legislation and in the Pensions Regulator’s codes of practice. Schemes that are open to new members have different needs and I hope the Minister will consider supporting the amendment that was put forward in the other place.

If these defined benefit schemes are treated the same as closed schemes, they will simply become unaffordable. They do not have the same de-risk needs that the regulator is seeking to tackle for closed schemes. In fact, the White Paper itself acknowledged this, as it acknowledged that they would have reasonably longer-term objectives. One very good example—in fact, an almost perfect example—is the railway pension scheme, which is a shared cost arrangement, with a 60:40 split between employer and member. Huge hikes in contributions would simply make this scheme unaffordable for both employers and members and it is worth remembering that, however much we think that defined benefit schemes may be on the way out, they still account for over 20% of the UK pension sector, so it is important that we try to look after them.

There is another unintended consequence. There is a danger that, if we go down this route, we could end up with the Pensions Regulator virtually setting pension policy, rather than simply regulating it, because it would be their actions that would determine how pension policy unfolds in the year ahead. I am not against the regulator, but everyone here will know that it is a body that has in the past come in for criticism. There is a danger here that, if it were to adopt too cautious an approach, partly through a desire to protect its own interests, it may well end up acting against the interests of people who are investing in pension schemes. I do not think that the regulator is seeking to do that or that the Government are seeking to do that: it may be an unintended consequence of giving this power to the regulator to treat these schemes as if they are the same thing. It will end up directly influencing policy in relation to defined benefits schemes in a way that I do not think anybody here really wants. My point is simple: we should do everything that we can to ensure that one of the consequences of the Bill is not to dismantle and effectively force the closure of perfectly viable existing open defined benefit schemes. I hope the Minister will reflect on that.

I welcome part 4 of the Bill relating to the dashboard. I agree that the first dashboard should be a single non-commercial product, hopefully hosted by MaPS, but I also welcome a choice of platforms with the establishment of commercial dashboards, which need to be properly regulated. I am not so sure about the timescale—about whether there should be an absolute timescale before one is established and others can come along. It seems to me that that might be an issue about personal choice and demand to some extent. There does seem to be some evidence that particular age factors will influence who will use what type of dashboard. There may be other characteristics that would influence that. There is a possibility that a relatively small number of people might use a MaPS dashboard, which is a persuasive argument for at least encouraging some sort of choice and variety in the field. It is also important that the state pension is included in the dashboard. That, for me, is a given.

In terms of the green agenda, I welcome what the Bill offers, but there is a persuasive argument for saying that default pension funds should support Government net zero targets. There is about £3 trillion invested in UK pensions, and that could make a real difference in achieving low-carbon investment. The Economist Intelligence Unit estimates that climate change could wipe $43 trillion off the global economy—about 30% of the world’s manageable assets. So trustees pursuing net zero targets would inevitably be respecting their fiduciary duty to protect members’ interests if they were to go down that road. It is not about a choice between being green and their members’ interests: it is about recognising what the green challenge is and how we could use those assets to get much closer to what the Government are seeking.

[Gareth Davies]

The hon. Gentleman is making some very good points that I would like to add to as someone who has dealt with many of our country’s pension funds. There is a disconnect between what the pensioners and the trustees believe: they would like to see much more investment in climate change initiatives and funds, but most of our pension funds are advised by a handful of consultants who are often a blockage to investment in, for example, ESG—environmental, social and governance—funds. Does he have any thoughts as to how we unblock the consultants aspect of this?

[Steve McCabe]

That is a good point. I think surveys have been undertaken that show that younger people from the 25-plus age group—there is an age divide in this—are much more concerned about where their pension investments go. As with most other things, if you are putting the money in, you should have a voice in where it is directed. That seems perfectly reasonable.